How have they become a group with total assets worth almost HUF 20 billion, over 200 employees and several affiliated companies over the past more than 25 years? It’s a long story, and one that others can learn from. Nelson Flottalízing, a separate organisation, also holds its ground as an autonomous unit: it has become a leading fleet-manager with its 1,800 vehicles and nearly HUF 3 billion in annual revenues.
Seeing, recognising and taking chances are the key moments at the start of any company. It was the compensation coupons that caught the attention of Nelson’s founders, Lajos Varga, Anita Tóth and Péter Farkas in 1992, when the Hungarian state was pumping huge quantities of these securities into the economy. Many did not know at the time what to do with their compensation coupons; the three of them, however, had specific plans. At the time, winning tenderers in the privatisation process could use these securities as cash, and they were also used as means of payment in land auctions. This was how agriculture came into play. They started their independent business in 1995, which included property development and management. They built granaries and cold-storage warehouses in the beginning, but became so proficient that they have spent the past ten years or so building housing estates with hundreds of flats around lake Balaton.
They have been dealing with leasing and associated services since the beginning. The financial services market was underregulated in the years following Hungary’s regime change. This was true for leasing as well, as banks were reluctant to deal with this area even though the economy lacked capital, reminisces Lajos Varga. They recognised this market demand and decided to set up an equipment-leasing business, and later another one for vehicle leasing in 1993. They were continually adapting to the frequent regulatory changes during their first ten years. By 2004, Nelson Flottaleasing Kft. had become a true fleet-management company and had its own separate team of managers—just like all the companies in the group. Staying true to their company name, they have also leased ships, and have even renamed their property investment projects at Lake Balaton and in Fejér County to Admiral.
Nowadays, the Nelson fleet consists mainly of vehicles and is worth nearly HUF 6 billion. The current market boom and rising vehicle prices are also a reason for further optimism. All this is, however, nuanced by the generally narrow price margin in their field, the fierce competition for banks and the appearance of international companies with hundreds of thousands of vehicles in Europe. Nelson has to find its own segment on this market and to provide its services in a way that attracts clients away from the fleet-management services of multinationals. A tall order, but they have succeeded: the overwhelming majority of their 600+ clients are SMEs with 1 to 60 vehicles each, and who appreciate Nelson’s proximity and care. “We don’t sell our services in plastic bottles”, said Lajos Varga, summarising the added value that ensures their advantage in the competition with multinationals. They offer more, and this makes them somewhat costlier than standardised services, but they also provide a much higher quality service for their clients in exchange. Experience shows that clients who have tried both were more satisfied with their tailored services—because it is crucial to keep the partner’s business going in critical situations, like when their goods cannot get from A to B. There is also still room for expansion on this market: while more than a third of western European fleets are leased, this share is only around 10% in Hungary.
They demonstrated good crisis-management skills when they anticipated negative outcomes and contacted their banks—who were, understandably enough, in a panic—with a professional management letter during the financial crisis ten years ago. This letter described their plan to survive the crisis, ideas to increase the liquidity reserves of the group, getting rid of their worst performing clients, and a business policy adapted to the changed market environment. Although most credit institutions appreciated their proactive approach, they parted ways with those banks that got scared, and were able to pull themselves together.
Although 2009 was a rough year, they still closed that year in the black. They are especially proud of their continuous growth on group level since they began 27 years ago, and that the fleet-management business unit has turned a profit every year since 1992. Although they have an innovative mindset and business management, they have always taken a conservative approach with regards to the accumulation of wealth and their company value, emphasised Péter Farkas. This means that over 27 years, they have re-invested over 90% of their profits and still pay out no more than single figure dividends.
Before presenting their proprietary “rolling management” concept and their intergenerational succession plan, we should tell more about how they got started. Lajos Varga and Péter Farkas obtained degrees, respectively, in agricultural engineering and in economics at the time of Hungary’s transition to a market economy, and they fortunately joined an agricultural enterprise where the CEO had an open mindset. This meant that, contrary to the strongly hierarchic style of management prevalent at the time, he allowed young professionals get an insight into management decisions, access to company information, and to get a bigger picture of the processes. Later they based their own business concept on this “intangible heritage”.
The founders laid great emphasis on not regarding Nelson as a family business. Their aim is to set up a rolling three-generation management team for the group; thus, they do their best to involve newer generations into management in a timely manner. The fleet’s operations managers, who are different from the founders, are also owners now, and their share in the company can increase in accordance with internal policies. The ultimate goal is for the company to eventually become almost completely autonomous from the founding owners, and to concentrate management and ownership in the hands of the second generation (currently the operations managers) and the third generation who will complete the group’s transition into the 21st century. Accordingly, each of these generations is represented at the company and each has its role to play: the founders are still active in customer acquisition, the operations mangers are responsible for day-to-day business and management, and the new generation will eventually take over the reins. Lajos Varga puts it this way: “We have taken the plane up to its current altitude and we’re keeping it there, now its up to the others to fly to further heights.”
They keep up with the changing times and know that digitalisation is key to ensuring their future strength. This means that they have not stopped at modernising their website and setting up a Facebook profile, which is virtually mandatory nowadays. They have their own car video blogger, who happens to also be the sales head of Nelson Flottalízing, and who already has 15,000 followers on YouTube. This has turned around the often difficult sales process. They no longer use cold calls to contact potential clients, now viewers contact them to ask for quotes.
A mobility company cannot ignore car-sharing services and the increasing popularity of electric vehicles. They are not concerned about the car-sharing, as the classic model of business vehicle leasing still has years ahead of it. As the car-sharing model is stronger in the private mobility and urban sectors, it targets a different market, explains Péter Farkas Jr, member of the Board of Directors of Nelson Consulting and the only second-generation manager who is related to the founders.
Their sustainability initiatives are exemplary: they became owner of a 6.5 MW solar plant which offsets the ecological footprint of the entire group, as it generates four times as much power as the company consumes—all this without state aid, on a purely commercial basis and in an environmentally friendly way.