In a meeting with reporters on Thursday, Smejc said the plan now is to invest in Western markets, mainly in Europe, and in sectors PPF knows well – media, telecommunications, financial services and e-commerce.
Regarding media investments, specifically in TV, Šmejc says “There may be even more interesting opportunities.” He adds: “We believe in the television business generally. People say that linear TV is in demise, but we say, yes, it’s probably on the way out, but it certainly won’t happen as quickly as anyone else thinks. We’re also looking at some areas to do with banking. It’s about where those assets will now go, whether there’ll still be a correction or whether they’ll show a little growth.”
Šmejc is a longtime associate of Kellner and also one of the wealthiest Czechs. After a year in his new role, his management style towards the Group’s operations is already evident. He divested most of PPF’s assets in Russia, albeit at a loss of hundreds of millions of euros (he describes this loss as “an expression of goodwill rather than a failure”). He sold the Home Credit operations in Indonesia and the Philippines for a profit. He cancelled a deal which Petr Kellner had been seeking for more than three years – the 26-billion crown merger of Moneta Bank with the Group around Air Bank – and he has also met with journalists twice. Kellner however, avoided the media entirely.
Unlike PPF’s former owner, he has also banked more on cooperation with other investors, for example in smaller stakes in publicly traded companies. This has resulted in acquisitions of stakes in companies such as German TV and media network ProSieben, and most recently InPost, a logistics service with roots in Poland, operating a European network of self-service delivery boxes, an essential solution for e-commerce businesses. In turn, CME’s television division has also grown and acquired Croatian broadcaster RTL Hrvatska, expanding its reach to six markets.
With total assets of nearly 40 billion euros (960 billion crowns), PPF’s profits slumped last year as a consequence of its hurried exit from Russia, but it was still in the black, unlike in 2020 during the covid crisis. Net profit almost halved to 140 million euros (about 3.4 billion crowns) compared to 2021.
Šmejc now wants to further diversify the Group and direct it into projects which offer economies of scale and opportunities to expand the business. For example, he proposes that PPF could combine banking and telecommunications services in other markets, as it is currently doing with Mobi Bank in Serbia. It acquired the latter in its acquisition of mobile services from Norway’s Telenor. Šmejc also says that PPF would look into whether it would make sense to invest in the domestic e-commerce company Packeta, owner of Zásilkovna. He adds however that this would only make sense if the entire company were for sale.
PPF has been recruiting specialists for all these plans over the past year. “We’ve been adding to our teams everywhere – we have more analysts, more investment directors, more financing people, more tax people. We have more lawyers. Our company will be able to examine maybe 50 deals a year or more.”
This is also the answer to a question that people in the business community often asked after Petr Kellner’s death. Will PPF be just a tool to manage the assets of Kellner’s heirs – his widow Renáta and the children? Will the company lose something in its ability to quickly capitalize on market investment opportunities? Šmejc is now proving what he claimed a year ago, that although investing with someone else’s money means greater responsibility, he is not excited only by managing someone else’s assets. When he took office, he agreed with the Kellner family on an option that could open the way for him to purchase up to a ten percent stake in the Group. This option will open at any time between his third and fifth year as CEO, but he must satisfy certain business parameters. He would not comment on these.
But for Šmejc, investments in listed companies will be strategic rather than just portfolio: “We want to have a major impact on the companies we’ve been in for a long time. That doesn’t necessarily mean we have to control them, but it does mean being in a position to simply be a player at the table.” By having people on governing bodies, PPF can then better navigate the business and decide whether it wants an even bigger stake. “Even if we don’t take that second step, we can stay portfolio for a while or gradually sell it off and not lose out. PPF’s DNA stays unchanged on that,” he explained.
ProSieben is an example, where Klára Brachtlová, former CEO of TV Nova group, is heading to the supervisory board. According to HN’s sources, Šmejc himself will also head to the InPost board.
The PPF CEO also confirmed that he is continuing to look for partners or buyers for other parts of Home Credit in Southeast and East Asia, for example, China, Vietnam and India. In China, the instalment business has shrunk significantly and is now at the size of Home Credit’s Czech and Slovak operations. Because the instalment group is not licensed in every Asian market, it is at a disadvantage compared to its competitors – it cannot get money from depositors to lend to clients, and it is relatively expensive to raise money from the market.
“In India specifically, if our instalment business is owned by someone who is worth deposits like the banks there, they would be able to get about five percent more on that portfolio, an extra 25 million euros per year. There are plenty of players for whom this would still make sense. So it’s not a problem to find someone over time,” he says.
What else did Jiří Šmejc say at the meeting with journalists?
On the Group’s net profit for 2022
“The picture is a little bit more colourful than just a net profit of 140 million euros because there were a lot of one-off effects. Of course, the biggest was the costs associated with our exit from Russia. Then there was some additional ‘clean-up’ of Home Credit in China. If you take into account the costs of leaving Russia, PPF would have ended up with a higher profit than it had pre-covid. That said, last year’s result reflects the strength and resilience of the Group. Fortunately, we are well diversified, so even geopolitical complexity has not driven us into a situation where we cannot manage.”
On the investment strategy
“Our strategy is built on four principles – the first is that we rely on strong industry know-how. We want to invest in sectors we understand or where we really have some special insight. There are four of these sectors – telecommunications, media, financial services and e-commerce.
The second principle guiding us is that we are consistently committed to operational excellence. We generally feel that this has been omitted somewhat in the last ten years. With the wind blowing economically at everyone’s back, there were plenty of companies that survived when they shouldn’t have. We have been consistently paying attention to operational excellence, and we believe it will be to our advantage now, and we want to continue doing that.
The third principle is economies of scale. We think it’s one of the universally applicable economic rules and we want to use it. We want to make investments which are scalable and allow us to stack other businesses on top of each other.
The last is sticking to diversification. This has now protected us from the adverse geopolitical situation. We want to continue with that in the future.”
Assessing the exit from Russia
“It was clearly the right thing to do. The fact that we tried to be quick was also the right thing to do. We still have some bits and pieces there, I think less than 10 percent of our original exposure. Today, it isn’t easy to exit the (Russian) market in any way. It’s not even about how much money. Regardless, there are some fundamental principles that are more important than whether you make a little more or a little less money.”
On the future of Home Credit, for which PPF is looking for partners with banking licences in individual markets
“That’s still the case. We will have to solve the same problem in India and Vietnam as well. If we don’t have a banking licence, we can’t get primary deposits, which is a major business disadvantage. Fortunately, our businesses are decently profitable, so there is no pressure in this regard.”
On investing in a stake in InPost
“It’s explicitly an investment in Western Europe. The company may be making a lot of money in Poland today, but it’s mainly a bet on being able to cover the UK and France. It’s also betting that it can grow in Western Europe in addition to Poland. The company is also in Italy and Spain. It has its radar set in other Western markets. It’s betting that automated parcel machines will be the right form of parcel delivery in the future.
We’re interested in European territory, and whenever something interesting comes along, we’ll look at it.”
On investing in publicly traded companies generally
“In autumn, we saw that the asset price correction hit publicly traded titles far more than private companies. It was far more profitable to go into publicly traded companies. But there you have limited knowledge, because you’re drawing on the public information of that company. That’s why our strategy is always to create a position large enough to get a seat on the board of a company and then dig even deeper into that company and see whether it’s the right business to get an even bigger position in.”
About investments in industry/engineering
“It’s diversification, the same thing that real estate is to us. We don’t mention it as a separate area because we don’t think we have any special expertise there yet. We’re trying to get Skoda Group onto its feet, and that is gradually succeeding. However, we still have a lot of work to do to make us confident that we can easily buy three more engineering companies and get it right.”
On whether Škoda Group is for sale
“Some offers are not rejected, and some offers are. But that is basically true of almost any asset. We are still taking a lot of care with Škoda, there is still a lot of work to be done. We don’t see any reason why we should sell it now, for example. It’s not the right time.”
On the decision to scrap the Moneta deal
“It was clearly the right thing to do. It would have tied up a huge amount of our equity, so instead of investing in InPost, for example, we would have money kept in our accounts. It also confirms our hypothesis that Air Bank’s growth outstrips the synergies from Moneta.”
About the plans with PPF’s stake in Moneta
“We’ve analysed it, and we’ve said that this stock delivers a pretty good dividend yield, so we’re in no rush to sell it. We have enough money to invest. At the same time, it’s an asset where if a really interesting offer comes along, we’re able to sell.”
On how he sees two other groups creating a shareholder position in Moneta
“We basically don’t care. Without us, nobody can take over the bank anyway. Anyone who wants to do a deal on Moneta will have to talk to us, they will need our share. If someone is going to take over, it will be a strategic player, and they will try to buy up all the shares anyway. It doesn’t really matter whether they buy them fragmented or concentrated.”
On whether it would make sense for PPF to invest in a network of APMs in the Czech Republic
“If we were to invest in Zásilkovna, we would use that option. However, if you look at this business, it’s actually a typical infrastructure. You need as much scalability as possible to be as efficient as possible. That’s where the Czech market is complicated being relatively fragmented. Nobody has a network that significantly dominates the market. InPost has clearly managed to dominate in Poland. Yes, if the whole of Zásilkovna is for sale, we will look at it, but we also see the downsides there that I was talking about.”
On PPF’s interest in investing in some form of online financial services in Germany
“We were looking at something there with a partner, but then we found out that our ideas of speed are different from those of standard European banks. Instead, we focused on something that might not look as sexy but is doable – we’re trying to create a bank in Serbia on the Mobi Bank platform to serve telecom customers well, a bank that intertwines telecommunications and banking in the tightest possible way. If this is successful, there is no reason not to try it on another market where we have a telco business. The idea is that we’re trying to have, for example, a joint mobile application where banking and telco services are close to each other.
In telecommunications, the markets are essentially split, there is little change. The upside to this is that it’s super-stable. But the growth potential is limited, you have to look for additional revenue. And through telcos in many countries today you can pay for parking, deal with payment services, and use those apps in other ways.
In the Czech Republic, we have two strong brands – O2 and Air Bank, and we’re looking for synergies in the sales network and processes around that. In Serbia, we’ll rebrand the bank closer to our telecom brand. One day it will be called Yettel Bank, or something similar. In the Czech Republic, it doesn’t make sense to link the brands now. We built each one separately, and now they both have a strong position.”
Why PPF believes in traditional TV and German TV businesses
“First of all, we know something about the business. Second, if you look at the past, every time something was said to be on its demise, it faded more slowly. When something was said to be superfast, it always took longer.
If you look at the results that CME is getting, even at a time when the advertising market across Europe is not quite ideal – it’s falling quite massively in Germany right now – our TV stations are still able to show the results and grow slightly year-on-year. So obviously we can cope with it.”
On why Czech capital should be successful in Western Europe compared to Western investors
“We are able to work these things out a lot. I believe that the winner is the one who goes more in-depth into how they look at these investments and who works it out. And again, there aren’t as many who go into the detail that we do. The other thing is that we are a family-owned business, we basically have permanent capital. That’s a huge advantage over private-equity players who have a fund and need to dissolve it at some point.
This was why we finally managed to invest in InPost. It’s not that the majority owner Advent believed that the time was right and that it wouldn’t grow further. It was because they were coming to the end of life of the fund, and they had to do something about it. It wasn’t easy, because it was a major investment and there weren’t many buyers who could afford it.
We just know that if we’re in InPost, it’s going to do well for ten or fifteen years, and the dividends will flow from it even if the company doesn’t continue growing. We have no problem staying in the business for decades if it makes sense.”
On the functioning of the Kellner family advisory board, whose members are Šmejc, Daniel Křetínský, and Ladislav Bartoníček
“I think it works well, because it’s a platform that allows the Kellner family to convey an alternative view. It was the right way. And we will definitely talk about how to expand this advisory committee.”
On differing opinions within the advisory board, for example from Křetínský
“An example is InPost. We even talked about whether to invest in it together. He had the opinion that the risks and how much we were buying it for outweighed the future potential. Our opinion was that they didn’t. In the end, we did a different type of deal, but those discussions were certainly very useful, because we explored all the risks much more.”
Could Daniel Křetínský have a conflict of interest in certain situations because of his own activities?
“It may be that he will have a conflict of interest, that our interests will be different. However, I think we all have enough integrity to be able to cope with it and admit that.”
On the parameters of Šmejc’s option to acquire up to 10 percent of PPF Group
“It’s a matter of evaluating the Group’s value, but I’m sorry, you won’t hear any details from me. At any time between the third and fifth year after taking office, I can decide to exercise this option, as long as I meet certain parameters. Nothing has changed: it’s as we said at the beginning.”
Whether the situation is right for the option to be exercised
“It’s too early to tell. So far I think we’re developing quite well, so we will see.”
On PPF’s ambition to increase the valuation of the company
“We are targeting growth in the company’s value somewhere between 10 and 12 percent a year, always with some additional growth option, but that may or may not materialize. We want to have some more conservative growth and options for better growth. But at the same time, it’s the case that given the way we invest, there can certainly be some volatility.”
On PPF and artificial intelligence (AI)
“We were looking at AI at a time when no one was even talking about it. Even in 2015, and 2016, for example, we had hundreds of data scientists at Home Credit. AI is something that we routinely use in our businesses. The other thing is that there are a lot of things that are touted as AI but are not AI.
We don’t need a special strategy for that. It’s something that we have used and will continue to use. Yes, there’s been a definite leap in the use of AI now, and that will definitely be reflected in a number of things. We know where – in call centres, for example. But I don’t think we want to invest in developing AI tools. There are other companies for that.”
On the potential of the Czech economy
“When I compare the Czech Republic with the world, Czechs have a pretty good combination of creativity and the ability to keep basic processes together. This is something that can be built on in virtually any industry. Czech entrepreneurs are actually doing well outside the Czech Republic, which I think is always an indicator of the quality of entrepreneurs. Compared to the rest of Central Europe, I would say they are doing very well. The future will depend on how much people in the Czech Republic are ready to work and how much they don’t want to work anymore.”
On what the economy lacks
“The Czech Republic should be more digital. It’s sad that when you go to Kazakhstan, for example, where people here think that people live only in yurts, you find out that there you don’t have to go to any governmental or municipal offices. Everything is handled digitally. Generally, Europe is terribly behind in this aspect, and we’re very much asleep on our laurels here.
The second thing is that low unemployment in the long term is not optimal for the economy. Companies are struggling to get anyone to work for them at all, let alone push people to perform well.”
On today’s young generation
“I hear a lot around me about how terrible the young generation are, that they don’t want to work anymore, and that work-life balance is their main concern. I think that this can be helped, for example, by people from my generation explaining and communicating more. We’re actually bad at selling our perspective and experience to young people.”
How do they see the current trend of sustainability, and how does PPF approach this topic? Are young and older generations coming into conflict here?
“I don’t think so. If you look at the ESG principles which everybody is discussing today and are becoming more prevalent in business, I will argue that if you do business honestly, you automatically fulfil them. If you care about your customers, because you’re nothing without them, you want to look after your employees, because you’re nothing without them, if you want to give something back to the community you live in – you try to do your business sustainably. To me, ESG is basically that framework. People who do business with integrity intuitively do exactly that.”
source: https://archiv.hn.cz/c7-67218780-oqmd5-c3557117b380016
author: Marek Miler
