Our generation makes the mistake of criticizing the young. Sometimes we could try to understand them more, says PPF boss Šmejc

Just recently, PPF announced that it posted its highest-ever financial result last year, excluding 2008, when it made an extraordinary profit from the sale of Česká pojišt'ovna insurance company. Net profit for last year was almost 1.5 billion euros (37 billion crowns), almost nine times the weak profit of the previous year when the company was recovering from losses in Russia.

In a meeting with reporters, Šmejc said the performance of the businesses had improved across the Group. The telecommunications division contributed 540 million euros to profit, while financial services, which includes PPF banka and Air Bank, generated 580 million euros. Revenue from the sale of Home Credit in the Philippines and Indonesia also helped.

"We declared a relatively long time ago that we were leaving Asia. We said we were going to do it without hysteria, so that it made sense financially, which it did. And the reason is very simple: when we see the deglobalization trends around the world, we feel that being an investor in Asia is something different today than it was ten years ago. Both Petr Kellner and I were big fans of the global world, and unfortunately, that world got crushed," Šmejc said. He added that the Group had recently done "relatively a lot of new deals that also established the good potential for the future".

Under Šmejc's leadership, PPF had to make several difficult decisions. Its hasty exit from Russia due to sanctions and the war in Ukraine cost the Group about 1.2 billion euros in 2022. The company, whose activities range from telecommunications (Cetin Group and operator O2), television and media (CME) to biotechnology (Sotio) and real estate, has also changed since the death of founder Petr Kellner in 2021. Widow Renáta Kellnerová, together with her children, took over the family empire and took an active role in decision-making. She bought out Kellner's most loyal associates and long-time shareholders Ladislav Bartoníček and Jean-Pascal Duvieusart and said goodbye to other members of the top management, such as former minister Vladimír Mlynář.

Kellnerová also announced last autumn that she would bring the family's assets, including PPF, under the "superholding" Amalar, and created a five-member family advisory board, which includes not only Šmejc but also Kellnerová's new partner, lawyer, and investor Tomáš Otruba. The family also has a three-member team of experts to evaluate investment opportunities.

Šmejc, who said he has regular consultations with Renata Kellnerová about the Group's direction, also has an agreement on the possibility of buying up to a tenth of the Group if it meets agreed business targets.

Šmejc's regular annual meeting with business journalists is an opportunity to get an insight into the company's strategy, while in the past PPF has been characterized by a kind of secrecy and a restrained relationship with the media. Šmejc rejected the notion that the company is no longer making big acquisitions, but rather divestments. For example, he pointed to last year's investment in the originally Polish company InPost, where the company purchased a minority stake for 2.2 billion euros. InPost operates self-service APMs and logistics for online stores, and PPF is betting on it becoming a leader in the UK, France, Spain, and Italy. "We believe the company has a lot of potential, and so far, both the development of the financials and the stock market prices have proven that we were right," he said.

Similarly, in Western Europe, PPF invested in the weakened Swedish media company Viaplay, backing its overhauling. If the "clean-up" at Viaplay continues successfully, Šmejc said, it represents "a very interesting potential for profit-making in the future".

The PPF chief also confirmed his strategy to invest in Western markets, mainly in Europe, in sectors that PPF understands—media, telecommunications, financial services, and e-commerce.

However, investments in publicly traded companies will be strategic rather than just portfolio ones. Šmejc reiterated that PPF wants to influence these companies and "be a player at the table".

Now the Group also started to use its companies to address customers with a unified offer. It is launching a new business platform called Unity, through which it wants to boost the combined sales of services, such as those from Air Bank, O2, or Voyo. Last year, Air Bank customers already received a discount if they also used O2 services. Now the offer will be expanded to include the products of the Group's companies, for example, the price search engine Heureka. According to Šmejc, the model is also applicable abroad.

What else did Jiří Šmejc say at the meeting with journalists?

"I have read comments in various articles that PPF is not making big deals today as it did in the past, and if it does, it is more likely to be an exit. But if you look at our exposure in InPost today, it's 2.2 billion euros. That's certainly one of the biggest deals PPF has ever done. We believe that the company has a lot of potential, and so far, both the development of the financials and the stock market prices have proven that we were right."

"I would single out the Viaplay transaction because it showed that we are still able to hungrily go after a result and do a transaction that is creative, that may look ordinary at first glance but is not ordinary." PPF was able to negotiate a "complex restructuring" that included "partial debt forgiveness, partial debt recapitalization, and new recapitalization".

"The third thing is a super-complex transaction" in which part of the telecoms division was sold to Emirati investors—the e& group.

A response to the question of why the sale of PPF's stake in the telecommunications group to Emirati investors did not include Czech telecommunications assets:

"The transaction was structured that way because we felt we should try to rebalance the portfolio. We felt that with the growth of assets in the Balkans we already had a relatively large concentration there, so it is worth reducing that concentration a little bit. At the same time, it gives us a chance to potentially reinvest in the Balkans in other areas.

The reason we didn't sell (telecom assets) in the Czech Republic is simple. We have a very unique position here of being leaders in many sectors, so you can combine that into a unique ecosystem and build interconnections that nobody in the world has tried to do."

"It's always difficult at the beginning to explain to those companies that it isn't important whether they specifically earn more or less, or whether their sister company earns more or less, but that the Group as a whole must earn more. And also, the customer experience you can offer to customers shared in this way is significantly better. It's much better to do that at the beginning when you're developing it when you own it 100 percent." 

The acquisition of a minority stake in InPost:

InPost also offers "one of the things we have in our four investment principles, which is economies of scale. This year, InPost will deliver more than a billion packages. It makes sense for us to focus on helping that company succeed in big markets rather than splintering our attention on small ones."

About Unity, a combined services offering designed to attract clients:

"Thanks to a combined offer from O2 and Air Bank, which was the first thing we introduced to the market, 80 to 100 thousand new customers came to Air Bank last year. Similarly, Air Bank is now one of the most important distribution channels for O2, and the results are even better than we expected."

For customers, Unity is supposed to be "a combination of customer experience and some material benefits. When we measure Unity users' NPS (net promoter score), it comes out to about 88, which basically means that people love it. The score almost couldn't be better."

Where are the other possibilities for such customer interconnection?

"It can definitely be linked to Voyo, for example. It makes sense to think about how to connect it with Heureka and offer some options. One consideration for the future is to offer the system to companies outside the Group." PPF Group "has such a strong presence in the Czech Republic" that the cross-sell possibilities" could already be extremely interesting for customers if you get the customer experience right. I'm pushing everybody not to buy customers, but to get customers to say that they simply have a better life with us, that the customer experience is better." 

On the transferability of such a model to other markets:

"If the system is successful, there is no reason why it shouldn’t be replicable. Plus, the advantage is that once you've shown the success of that system, then when you replicate it, you don't necessarily own everything. You already have that business case that you can show to partners, show that this is how it works, that it makes sense together. Given the way how PPF works and that it provides permanent capital, we think about assets in the long term. That means we don't look at whether they're immediately marketable or not. It's not exactly the most important thing in all cases. The second thing is that we want to complete it in a way that makes sense for all those companies separately so that even if some are sold in the future, it makes sense to stay in that system. In terms of the overall situation, it shouldn't mean limiting the marketability of those companies."

"If we manage to build it well in the Czech Republic—and so far, the first steps look very promising—then we're able to replicate it abroad, even if we don't own all the pieces of the system ourselves."

On investing in Europe, which some investors see as a region with fewer opportunities and too much regulation:

"From a macroeconomic perspective, it's certainly not the most exciting place in the world right now. But historically, people have created value and made money everywhere, regardless of the macro. Nobody then could have made money in Japan in the last 20 years. For us, it's more about understanding the Czech and European environment, we feel at home here, and it's certainly a more predictable environment than, say, Asian markets."

About Home Credit, where only assets in China, Kazakhstan, the Czech Republic and Slovakia remain:

"Czech and Slovak Home Credit is now part of Air Bank, which means that we aren't considering any sale there. On the contrary, we've been buying up Cetelem's client base in Slovakia."

"Kazakhstan remains and China is still operating. In China, we're in constant talks toward a sale, but the regulatory process there is so complicated that it takes years to get a deal approved. So, yes, we have specific bidders, if we can get the approval, we'll sell China as we declared. If you look at the weight of China in our assets, it's minimal."

"Home Credit in Kazakhstan recorded a major increase in profits last year, and this year, profits are likely to grow even more. The bank is doing very well there. However, our declarations about other markets in Asia are in place —we have a long-term intention to exit. But we're certainly not in a panic that we need to flee quickly. Some discussions are going on, and if an interesting opportunity comes up, we'll discuss it."

Is PPF considering a merger of its two banks in the Czech market?

"These are completely different animals. Air Bank is a retail bank. PPF banka is a very special bank that leverages, first, the size of the Group and, second, the skills of people who, because it's a very lean and very fast organization, can correctly grasp opportunities in both portfolio investment work and corporate portfolio work. I think if we tried to combine the two, we'd rather kill the two together because they're different culturally, there's almost no synergy there."

How did Jiří Šmejc's work change with the creation of the family "superholding" Amalar? A response to a question about whether he came under "greater, more sophisticated shareholder pressure":

"I don't know of any more sophisticated pressure. I don't feel pressured at all."

The family advisory council "works usefully for me in that it provides a kind of second set of eyes that looks at the risks of potential transactions in discussions before I make a final strategic recommendation to the family."

"The dynamics haven't changed, and it hasn't happened yet that we've recommended a transaction, and the family has said no—we don't like that. We've always agreed that what we propose as management makes sense."

"If you look at the transactions over the last few years, PPF can still be aggressive and can make transactions that others may have been afraid to do. Like InPost, for example."

"I've spoken in the past about wanting PPF's portfolio to be, shall we say, a little calmer than in the past. We're selling Home Credit in Asia, we bought InPost, which is in Europe, and we're also a growth investment... It's infrastructure, it's unregulated and it's in completely different markets. We're really trying to get that portfolio to show the best signs of stability."

Whether certain assets, such as real estate, can be transferred between PPF and the superholding Amalar:

"It could happen. Maybe once the transaction with the Emirati investors comes to an end, we'll get a relative lot of money from it. We'll use some of it for investments, we’ll pay some of it to the shareholders. In the past, PPF operated in a way that it was both an investment holding and a family office. And today it makes sense for PPF to keep what it has from that holding. Real estate though is more of an investment for the family office."

The recently declared interest in Moneta by Czech UniCredit, in response to a question whether PPF is negotiating with UniCredit for the sale of its nearly 30% stake:

"They've been declaring their interest for a relatively long time. What I said about Moneta last year is true. We think Moneta is a stable bank, we're happy with its dividend yield. At the same time, if an irresistible offer came along, we would certainly seriously consider it. If it doesn't come, we have no problem staying in the position we're in."

The possibility that a potential buyer of Moneta could also acquire Air Bank Group:

"Absolutely not. Air Bank still has huge growth ahead of it, so it doesn't make sense."

"Air Bank shows its competitiveness both in the NPS parameter, which monitors customer satisfaction, and in how many new clients it actually acquires or in its market share. It's already the market leader in some areas."

When asked where Air Bank should be in three years' time:

"The biggest. That's shocking, isn't it? Air Bank still has the label of a small bank because everyone is looking at it through assets volume. And, for example, by market share in cash loans, Air Bank, along with Home Credit and Zonky, together make up 25 percent of a new volume. It's already the biggest in the market. It has a 14 percent share of card transactions, if I'm not mistaken, and it's growing every month. If you take away from the mortgage portfolio, the one built up by big banks over the past few years, and you look at how people use banks on a day-to-day basis—their transactions, how they use cash loans, their day-to-day loans—in three years, Air Bank could be the biggest in the market."

On the recent protests by journalists at TV Markíza in Slovakia, which is part of PPF's media division:

"The owners are not intervening on behalf of the Slovak government and will never intervene. The owners will always push management and the Editorial Board to strictly ensure that we have objective and professional reporting. That's it. We're certainly not going to get involved in what the news should look like. We simply want our managers to guarantee that the news broadcast is objective. And we have a monitoring system for that. We're not interested in anything else."

"It's also good to say that the criticism from the opposition is only one side of the coin, that the government is criticizing the television in exactly the same way. That's quite significant, and it doesn't give the TV station such bad press."

About the plans with biotech company Sotio:

"In a few months, we'll have a strategy in place. There are three ways you can operate in biotech —the first as an investor and in clinical trials, the second as a biotech company that focuses on the preclinical part and then looks for partners for the other parts, and the third as an investor yourself looking for programs you find interesting and investing in them. Sotio has done all three in the past, and now we're talking about whether it should focus more specifically on something."

On how the potential conflict of interest arising from Šmejc owning the investment group Emma Capital

"It's treated in such a way that we always talk about it with Renata Kellnerová. First of all, it's due to my feeling of inner integrity. Then, it's also naturally determined by the size of the investment. PPF's transactions are at a different scale to the investments Emma makes. That was the case with Zásilkovna, for example. There, we agreed that PPF would be satisfied with the exposure it had in InPost, when it was clear that it wouldn't be a cheap deal in terms of valuation."

When asked whether the attractiveness of Central Europe to foreign investors had declined with the proximity of the war:

"I don't think so, and as far as the Balkans are concerned, I think there are countries that are seen even more positively than before the war. It's simply an effect of the war that Europe is trying to draw the Balkans further towards itself, so on the contrary, I think we feel a reverse trend there in some territories."

About the business environment in Europe:

"Europe's economy, even locally, suffers from a fundamental lack of a longer-term political vision that would allow greater structural change. As a result, Europe is lagging behind in its ability to innovate and move forward into the future. Others are further ahead in digitalization than we are here. And I suffer just as much from the fact that we want to work less and less in Europe. The question for Europe is how to be efficient, how to move forward, and at the same time accept that people will be more concerned about work-life balance and not want to work themselves to death."

"For example, if you build a company or improve it significantly, it has a goal. You have a reason for doing it. I feel like a lot of people don't have that reason to operate. It surprises me, but it's also basically a logical change as a company gets richer. I think our generation makes the mistake of criticizing the young ones. Sometimes we could try to understand them more."

On the impact of artificial intelligence on business:

"Artificial intelligence could certainly be the next significant step towards efficiency. Just as the internet was a game changer, AI has the potential to be something like that, too. The problem is that if you look at the algorithms behind AI, they're actually terribly simple and stupid. So, it's all about getting the right data to feed the AI and getting the right understanding of what to use it for. And I think that's what the future is going to be about. It's still going to be important to have some industrial know-how, to properly understand where and how to use AI. Then it could be very effective."

When asked whether PPF would like to get involved in politics:

"We always try to be apolitical. I have the opinion that if you try to influence politics in any way, even with the best of intentions, it is a kind of mafia behavior. If you want to influence politics, you have to go into politics—otherwise, you have to deal with the fact that you have only one vote, just like everyone else. Yes, you can voice some of your opinions publicly, but you're not supposed to pull puppet strings in someone's back."

Jiří Šmejc (52)

He has been CEO of PPF Group since June 2022 and met Petr Kellner at the time of his investment in TV Nova. They then took control of the TV company and sold it in 2005. Šmejc then acquired a minority stake in PPF, which he later exchanged for a stake in Home Credit. He also ran Home Credit for years.

He also makes his own investments through Emma Capital group and has bought stakes in various lottery companies, including Sazka in the past. He also has a stake in the Croatian betting agency Super Sport and assets in the Romanian and Moldovan energy sectors.

(The English translation of the original Czech article was edited for clarity)

Author: Marek Miler

Source: bit.ly/jiri-smejc-HN