(Bloomberg) -- The run-down factory on the edge of the Czech medieval town of Sternberk used to fix up military vehicles abandoned by the Nazis after World War II. Now it’s part of a compound churning out hardware for Europe’s latest conflict, and has made a billionaire out of its owner.  

Excalibur Army takes rusting Soviet-era tanks — often with mud and grass on them — and refits them for action. Since Russia invaded Ukraine in February 2022, the business run by Michal Strnad has benefited from the biggest demand for weapons since the end of the Cold War.

War, of course, can be lucrative. Europe’s defense spending pushed shares in makers of military equipment to records this year, driven by orders at companies such as Germany’s Rheinmetall AG. But Strnad’s family owned company stands out in a country that was once a key supplier of arms to NATO’s adversaries in the former Eastern Bloc.

At 31, Strnad is roughly as old as Excalibur, which was started by his father and is now the biggest and most profitable component of Czechoslovak Group AS, or CSG. Revenue jumped to €1.73 billion ($1.9 billion) last year, the company said last week, more than three times what it was in 2021.  

“Even if the war were to end tomorrow it would take years to replenish the empty stocks, not to mention the push to boost defense spending and ramp up production,” Strnad said at his office in Prague. “I am confident there will be strong demand for a long time to come.”

The company, which also manufactures its own combat vehicles as well as civilian and military trucks, has a full order book for years, according to Strnad.

CSG expanded by buying Spanish arms producer Fabrica de Municiones de Granada in 2020 and Italy’s Fiocchi Munizioni SpA two years later. It’s currently pursuing the purchase of Vista Outdoor Inc.’s ammunition business, a transaction facing some political opposition in the US.

The new geopolitical landscape is a boon for defense firms. Europe is taking steps to scale up production and bolster military readiness at a time when the US is stalling new funding for Ukraine and presidential candidate Donald Trump has threatened to abandon NATO partners who don’t meet spending requirements. Last month, the European Union agreed to establish a “defense industrial strategy.”

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Still, the industry is facing its own challenges. The quickly expanded order books require bigger facilities and more staff. There is also disruption to supply chains, higher energy costs, limits on public spending and the fact that some investors are reticent to fund weapons manufacturers.

Analysts at Goldman Sachs Group Inc. said last week that valuations on some defense companies were now stretched. Rheinmetall shares, for example, have surged more than 500% over the past three years, outperforming most of the big US technology companies.“Maintaining defense spending at the levels we now see will almost certainly mean some difficult budgetary choices for policy makers,” said Guy Anderson, a principal analyst at Janes, which specializes in defense and security.

Strnad’s father, Jaroslav, started Excalibur in 1995. He bought decommissioned Soviet-made tanks and other gear from future NATO members in Eastern Europe with a plan to turn them into scrap metal for profit. But he discovered a thriving market for spare parts and second-hand combat vehicles in places like Africa, and also benefited from some close political ties at home. Since then, Excalibur refurbished heavy military equipment, including some 300 T-72 main battle tanks. About 100 of them so far have been loaded onto trains and dispatched to Ukraine, along with artillery shells. CSG’s production of heavy ammunition rose more than 10 times since the start of the war in Ukraine while its workforce nearly tripled to 10,000 people at sites in eight countries.

Michal Strnad took over from his father as the sole owner of CSG in 2018 when he was in his mid-20s. He’s now worth at least $5 billion, according to the Bloomberg Billionaires Index, with his company among the fastest-growing arms makers in Europe. CSG spokesman Andrej Cirtek declined to comment on the valuation.

The group is building new assembly halls in three European countries and offered to buy the unit of Vista Outdoor for $1.9 billion. If the Vista deal goes through, CSG might refinance all its debt, now primarily consisting of local bank loans, by tapping international lenders and bondholders. The plans include an investment of hundreds of millions of dollars in a potential arms joint venture in Ukraine.

The expansion plans come amid deepening worries about the situation on the ground in Ukraine due to severe ammunition shortages for Kyiv’s forces. Warming weather is also heightening concerns that Russia will have a better chance of punching through the front line when it renews attacks.

Czech Defense Minister Jana Cernochova praised the local defense industry for “playing an important role in supporting Ukraine since the start of the Russian aggression.” While she would not comment on individual firms, she said by email that the proof of their engagement was “the issuance of export licenses worth almost 130 billion koruna,” or $5.5 billion.

The companies are also tapping into a history of arms manufacturing. Czechoslovakia’s network of factories crumbled with the collapse of communism in 1989 and the disintegration of the Warsaw Pact. Tens of thousands of people lost their jobs and sprawling complexes were left to their demise. But after Czechoslovakia split into two nations and they both set on path into NATO, new opportunities emerged.

Sternberk, about 200 kilometers (124 miles) east of Prague and more known for its medieval castle and old town, encapsulates that transformation. At the Excalibur compound, decommissioned T-72s make their way gradually through the facility. First they are stripped part by part, then refitted.

Opposite the older workshop are the new buildings being put up as part of the company’s expansion. The new halls will be used for production of brand-new combat vehicles, including wheeled self-propelled howitzers, another important artillery component that Ukraine needs.

A one-hour drive from Excalibur, CSG’s automotive company, Tatra, has just begun developing hydrogen- and battery-powered alternatives to its civilian and military trucks.

Strnad, whose father started him at the company while he was still in elementary school and made him the chief executive officer at 21, said he’s ready to take CSG to the next level. His longer-term goal is to emulate Rheinmetall’s enterprise value compared with its earnings, a measure of what investors are willing to pay for a company.

“We aren’t Rheinmetall just yet, but we’re catching up,” he said. “I haven’t even thought about selling any of my assets, although I do get offers every month. If I did sell, what would I do with the money? I would have to go and buy something else, so what’s the point?”

--With assistance from Slav Okov and Peter Laca.

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