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A magazine for clients and friends of KPMG in the Czech Republic
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November/December 2015First-hand content
A magazine for clients and friends of KPMG Czech Republic
Four rules we have learned from the Japanese regarding family businesses Can Czech authorities work in the cloud? Klára Spilková: The best Czech female golfer talks money matters The secrets of a bar business where
patrons keep their own tabs
The eND oF The ReAl eSTATe CRiSiS iN euRoPe
MARWiCK
Visions, falls, rises, experience, inspiration What were the secrets behind the individual entrepreneurial successes of the past 25 years?
Read all the interviews with outstanding Czech business personalities at
www.28pribehu.cz.
editorial
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Good news from the
real estate market
As the proverb has it, it’s always darkest before the dawn. I would like to borrow this old adage to illustrate the economic cycle. Nothing is dawning on the current real estate market, instead it seems to be around noon.
The KPMG Property Lending Barometer 2015, the main topic of this current issue of Marwick, also meas-ured a fair share of optimism. Due to a lack of alterna-tive investments, investors have their eye on real estate, which is offering very interesting margins with interest rates at a record low. The Czech Republic also ranked first in one of the categories of the survey – all surveyed bank-ers confirmed an optimistic outlook. Together with Swed-ish banks, Czech banks also hold the lowest share of sub-prime building and construction loans.
In the first half of 2015, our country surpassed Poland in the volume of real estate investments. Hous-ing construction is running at full throttle; new logistic parks, new office buildings and new shopping centres are being built.
I often hear comments that this growth phase is bound to be again followed by a recession, but that’s just the essence of not only the real estate market. In a growth phase, it’s wrong just to work under the expectation of an inevitable decline. Instead, let’s think about how to best make use of the day ahead of us, to again borrow from the proverb mentioned above.
Pavel KlimentPartner in charge of Building,
Construction and Real Estate ServicesKPMG Czech Republic
[email protected]@PavelKliment
MARWICK
commentaryOur obsession with the exchange rateAre we poorer or richer after the Czech crown weake-ned? Zdeněk Tůma’s commentary.page 5
top storyBankers trust real estateManageable risk and a sound return – investing in real estate pays off, and banks know that, too.page 6
November/December 2015
Marwick - A magazine for clients and friends of KPMG in the Czech Republic. Published every two months by KPMG in the Czech Republic, Pobřežní 1a, Praha 8. MK ČR E 22213. Subscriptions on www.marwick.cz. Editor-in-chief: Michaela Rakova, art director: Štěpán Prokop, photo editor: Barbora Mráčková. © 2015 KPMG Česká republika, s. r. o., a Czech limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative („KPMG International“), a Swiss entity. All rights reserved.
infographicsCalendar of corporate dutiesDon’t forget about legal obligations linked to the end of the accounting period.page 18
moneyCzech public administration in the cloudHow does the cloud work in Great Britain and what inspiration can the Czech Republic take from the UK?page 26
coffee breakGolf and moneyAn interview with Klára Spilková on a season’s costs and whether one can earn a living playing golf.page 28
business lunchMaking a big fuss about wineThe owner of the On the Bank of the Rhône wine bar reveals how to run a business where people jot down their consumption themselves.page 34
commentary
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In the media, we often hear or read that we’ve become poorer because of the weakening of the Czech crown. Trips abroad have become more expensive and so have imports. Simply put, after converting our savings to euros, we can now buy less than two years ago before the Czech National Bank began its interventions. Our own experience may eas-ily lead us to this conclusion. Say that in November 2013 we were planning to take our family on a skiing trip to the Alps – then this trip that winter did in fact end up about five percent more expensive. However, we probably sense that simply considering the money we spent on a trip abroad does not suffice. The effects that movements of exchange rates and interest rates have on the economy are manifold.
First, merely using the argument of the overall vol-ume of savings, as many are doing, is useless because most of our expenditures go to the domestic, crown-denominat-ed economy. For example, rent, or housing costs in general, have no connection with the CZK/EUR exchange rate but are nevertheless a substantial part of the spending of a vast majority of households. The conversion of savings to euros would, needless to say, make sense if the Czech Republic joined the eurozone. This is clearly not under way now, but let’s consider it simply theoretically anyway. This would im-ply converting not only our savings but everything to euros. Let us look at the figures. As the basis, I will take numbers from late 2013, when the Czech crown weakened, and I will assume that on 1 January 2014 we adopted the euro. Would we be poorer or richer after the Czech crown weakened?
The bank deposits of residents totalled CZK 3 210 bil-lion at that time, CZK 1 810 billion of which belonged to households and the rest to Czech companies. A five per-cent weakening of the crown would therefore trigger a loss of CZK 160 billion, and the value of euros that we would find in our accounts at the beginning of the year would be lower by this amount compared to the balance in the case of a possible conversion to euros two months earlier. We must, however, not just convert our savings but everything because we also have debts. Czech residents’ bank loans to-talled CZK 2 230 billion at that time, about half of which belonged to households. It is probably not surprising to see that most of these household debts were used to buy hous-ing. The dynamics of mortgage loans have been consider-able in the past years. This begins to offsets our “loss” since the euro value of our loans was, logically, lower after the weakening of the crown.
Comparing deposits and loans, the former exceed the latter. This confirms a well-known fact that savings in the Czech economy are high and banks have sufficient resourc-es to finance loans. Our account does not end here, though. We must also consider the state deficit. We don’t consider it part of our household budget but must still acknowledge it here. The government or the state has no money of its own and runs state affairs using money collected from taxes or, if that doesn’t suffice, from borrowings that all of us have to repay. Even with interest rates currently low, debt repay-ments amount to tens of billions of crowns per year. In total, in late 2013, the debt amounted to 1 700 billion and a major part was denominated in Czech crowns. We thus also have to include this amount, minus the value of the debt in eu-ros, in our calculation. And here we now come to realise that the total debt indeed exceeds our savings in the bank.
Now, I do not want to demagogically infer from this consideration that we would in fact profit from the weak-est exchange rate possible. What I did want to point out using this simple example is that the impact of the central bank’s changes in interest or forex rates varies for individual parts of the economy. An interest rate increase or decrease will of course have different consequences for creditors and debtors, exporters and importers, etc. Central banks make these decisions with the aim of curbing the economic cycle and slightly boosting or slowing down the economy in a re-cession or a boom, respectively.
I personally have the feeling that we put too much emphasis on the nominal exchange rate of the Czech crown and instead forget about inflation, which might make us victims of our own success. Some ten years ago, we man-aged to reduce inflation to the levels common in devel-oped economies; in recent years, however, we have nearly forgotten about it. But inflation and exchange rate altera-tions have similar effects: higher inflation and consequently higher wages have the same impact on our competitiveness as the strengthening of the Czech crown.
Be that as it may, both inflation and exchange rates are mere nominal indicators. Although these economic indicators do help us express how rich we are, they them-selves do not generate wealth. We are rich based on what we are able to produce and create and not in which cur-rency we denominate the product.
Zdeněk TůmaPartner
KPMG Czech [email protected]
@zdetuma
Our obsession with the exchange rate
“We must not just convert our savings but everythingbecause we also have debts.”
Bankers trust real estate. Low interest rates attract investors to the Czech Republic
The sector is becoming of crucial importance for banks in developed economies; for Czech ones, the im-portance of real estate is rated as average among surveyed countries and continues to grow. This trend is supported by the sixth edition of the Property Lending Barometer, an annual survey published by the KPMG international network of professional firms.
With banks in 21 European countries surveyed, this year’s issue confirmed that last year’s excellent results were not just a short-term improvement, but rather the begin-ning of a positive trend. According to the survey, 2014 re-presented a turning point from which the market hit by the crisis has started to recover.
Banks are increasingly looking into the real estate market. And it makes sense – for a long time, interest rates on debentures have been extremely low, even negative; interbank interest rates are not too high either and banks need to invest their liquid funds somewhere. Real estate seems like a good choice: with manageable risk and a sound return.Text: Jiří Táborský, Illustration: Nikola LogosováDownload the survey at www.kpmg.cz.
top story
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Invest in the Czech Republic, loans are cheap!
People in charge of real estate at the more than 90 major banks surveyed by KPMG have agreed that this fa-vourable trend is likely to continue.
One of the key real estate market indicators is the level of interest premiums compared to reference rates such as EURIBOR or Czech PRIBOR; and it shows that the financing of real estate is still much easier in developed Western economies. While in Germany interest premiums are between 2 and 2.5 percent for new development pro-jects and as low as 1.5 percent for existing buildings, on the other end of the scale, in Croatia, the premium is up to 7.5 percent for developers and roughly one percent lower for existing projects.
Interest premium across Europe (for industrial objects)
Baltics 4,7–5,7 %*4–5,5 %**
6–7,5 %*5–6,3 %**
2,5–3 %*2,4–2,7 %**
2–2,5 %*1,5–2 %**
3,6–4,8 %*3,5–4,7 %**
* new development projects ** existing investment buildings
Czech Republic
Germany
Greece
Croatia
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“This year it again holds that the Czech Republic has the lowest interest premiums among the countries of Central and Eastern Europe,” comments Pavel Kliment, partner in charge of Building, Construction & Real Estate Business Services at KPMG Czech Republic. His words are supported by numbers: interest premiums are around 2.5 percent for development projects, and, interestingly, the figure is also similar for financing transactions in existing buildings. For the best projects, premium may drop even further, to around 2 percent.
Notably, the Czech banking sector is in excellent condition. According to the bankers surveyed, 98 percent of real estate loans granted by Czech banks are without any problems. In this indicator, we are surpassed only by Sweden, with 99 percent. Contrariwise, in neighbouring Slovakia only 73 percent of loans are problem-free. “The Czech Republic is a very promising economy: banks ex-pect positive developments in the future, risk is relatively low, and return remains at a decent level,” adds Kliment.
Development or a finished building? There are still considerable differences in the banks’
willingness to finance existing projects generating a se-cure income or development projects. The willingness to lend for development projects is the lowest in traditional economies such as Great Britain. In the Czech Republic, on the other hand, it is rather high. “Although Czech banks still prefer to finance finished buildings, there is a visible year-on-year increase in their willingness to fi-nance development projects as well, which they refused to do during the crisis. The reason is that there are no longer that many finished buildings to finance, and if the banks want to do business in real estate, which they do, they simply have to go in for development projects,” says Kliment.
Czech real estate lending is specific in other ways: a major shift has been observed in the financing of hotel construction. In the past, banks were rather unwilling in this respect, as the segment is unpredictable and compe-tition high. But this year was very favourable for tourism and a number of transactions were realised in the hotel market. This had an impact on the year-on-year increase in the banks’ willingness to lend to the hotel segment – while it is still the least preferred segment, the situation is not as dramatic as it was a couple of years ago.
“Czech banks are also most willing to take part in club financing, where one project is financed by a number of banks. All banks surveyed in the Czech Republic sup-port this strategy. The volume of individual loans is huge and club financing helps the banks dilute the risks,” com-ments Kliment.
Another interesting comparison involves the banks’ willingness to grant loans in foreign currencies. According to the survey, Czech banks do not have problems with this, and it happens frequently. There may be two reasons for this: firstly, a substantial number of Czech banks have foreign parents operating in Eurozone countries, therefore grant-ing loans in euro is not an issue. A second possible explana-tion is the stability of the country’s exchange rate – if the Czech crown fluctuated strongly, banks issuing loans in eu-ros would have to hedge their currency risk. But the Czech crown has been very stable for a long time, partly due to the Czech National Bank’s interventions making the exchange rate between the Czech crown and the euro predictable in a long-term perspective. Another likely reason is that rents are mostly nominated in euros.
Build an industrial facilityFor many investors, another key question is how the
banks’ approach changes depending on the type of real property to be financed. As mentioned above, a certain shift is observable in the hotel segment – while it is still the least preferred area, the situation is improving. Czech banks are also interested in financing industrial buildings, offices and residential projects. In European countries in general, the banks’ willingness to lend is traditionally the highest for residential projects, closely followed by retail premises and offices. Hotels are the least attractive seg-ment, due to the riskiness of this business; even though countries with a significant share of tourism, such as Greece or Cyprus, are an exception.
Club financingWillingness of the surveyed banks to cooperate*
Austria
Czech Republic
Poland
Slovakia
100 %
90 %
80 %
80 %
* open or very open to cooperation
Willingness to finance hotels interest premium on construction of new hotels
Czech Republic
2,7–3,1 %
3,7–5 %
4,2–5 %
6,4–7,5 %
Cyprus
Croatia
Greece
top story
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Every country is unique
Indeed, Europe is anything but a homogenous economy. Differences in both history and the
present development generate huge gaps between countries, while for investors from,
for instance, the United States it is often hard to grasp that just a few miles away, everything
is different.
GreeceFrom this perspective, it is in-
teresting to take a look at Greece, for instance, going through one of the worst debt crises in its history. Last year, its GDP still grew by 0.8 percent, but no growth is expected for this year. Also, it is obvious that without agreeing with the EU on the third rescue programme, the coun-try would have long gone bankrupt. The uncertainty caused by this is re-flected by the Greek real estate mar-ket: the willingness of foreign inves-tors to invest in Greece is minute, with everything resting on the shoulders of local players. However, this uncertainty goes hand-in-hand with rewards – in Athens, returns are currently expected between 6.5 and 10 percent, depending on the type of property. Still, 45 percent of bad loans with varying level of risk is not a good sign.
SpainOn the other hand, a remark-
able development has been ob-served in another southern country – Spain. The country was also hit by major economic crisis, and is still re-covering. Nevertheless, the activity in their property market deserves attention: the number of real es-tate transactions in the country has grown dramatically from last year, with Spain even overtaking France. Last year, the country’s share in the total volume of real estate transac-tions was only 2.9 percent; for the first half of this year, it is already 7.9 percent. No wonder – two thirds of Spanish banks rated real estate lending as important or extremely important to their business. Inter-est premiums in the country do not look too bad either, between two and four percent, according to the type of property.
SwitzerlandSwitzerland has not been
mentioned yet, despite the fact that it is a very interesting economy in many aspects, and even warranted a special study by KPMG. The real es-tate market in the country has been growing steadily for 15 years, and is now in danger of overheating. To prevent this, in 2013 the Swiss central bank adopted a series of measures. Notably, these mostly af-fected the mortgage market, while financing of investment projects has not shown many changes. Loan amounts come to between 40 and 70 percent of projects’ total budg-ets, while the least money is ob-tained for industrial buildings, and the most for offices and residential projects.
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How to stop tax wolves from devouring your real property
Even though real property may seem permanent and everything around it seems long-winded, the tax system monitors and watches this area very carefully, making sure that no levies go astray, irrespective of our relationship with real property.. Illustration: Nikola Logosová
Real property may be built for the purpose of sale or lease, or used for one’s own business activities or specula-tive trading. Each of these areas is subject to specific tax requirements that must be carefully considered. For every tax, there are special provisions that apply to real prop-erty, some of which have only been adopted to cover the ownership of and trade in immovables.
The importance of proper planningFrom a tax perspective, all real property needs prop-
er planning both in terms of its current and future use. A tax regime incorrectly set from the very beginning is quite difficult to change later. And every subsequent al-teration requires additional costs. Consequently, everyone who has any dealings with real estate should make every effort to plan each individual step. This does not only con-cern entrepreneurs, for whom real property represents
the centre of the universe, but also others who may only want to settle their own living.
For some, planning a real property’s future use may seem a matter of course. But it is sometimes quite dif-ficult to foresee and cover all hypothetical circumstances. In practice we often come across imperfections that may seem trivial at the start but cause grave problems to in-vestors later on. These faults usually originate from a lack of knowledge or interest in real property issues and as a result of constant, year-on-year changes in legislative re-quirements. It is not easy to interpret all these changes, which further deteriorates the position of real property owners, lessees and users.
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Real property and taxes go hand in handNone of us is all-knowing; all risks and alternatives
cannot be assessed. When planning it is therefore highly necessary to examine the exi� ing assumptions and plans and reconsider all appropriate � eps. Since the relevant processes are usually of a long-term nature, this is often negle� ed. And then, in the lea� desirable moment, one ascertains that the original setting does not corre� ond with reality.
Taxes play a crucial role in such situations. Other a� e� s such as changes to legislation regulating the Real E� ate Regi� er, con� ru� ion business, territorial planning etc. are also important. A recent amendment to the Civil Code, introducing a number of new concepts into real e� ate regulations that remain unclear de� ite attempts to alleviate the situation through a number of amendments to various a� s, may serve as a fi tting example.
Fa� and operational tax planning in real e� ate ju� makes perfe� sense even if not many people would think so considering its nature. Hopefully, no tax wolf took a bigger bite than necessary out of your real property whi-le you were reading this article.
Petr TomanPartner in Tax ServicesKPMG Czech Republic
How can tax wolves tear into real property?— In contrast with 2015, the sale of some plots of land may be liable to a 21% VAT in 2016. If these plots cannot be sold this year, it is to some extent possible to make use of advance payments. — A change in the person liable to immovable property ac-quisition tax may increase the cost of an acquisition by an additional 4% where the selling price has been set as fixed.— If real property holders claim the entitlement to a VAT de-duction on the construction of a residential building for the purpose of the subsequent sale of its residential units and, as a result of market developments, the residential units are sold after the deadline for claiming a tax exemption, prop-erty holders must adjust the claimed part of the VAT deduc-tion. If property holders take this alternative into account beforehand, they may be able to eliminate adverse effects by adopting appropriate measures to fix original conditions un-der certain circumstances.— An individual acquires a flat for one’s own living through a mortgage. After a longer period of time they decide to lease it if the mortgage loan conditions allow it. If proper attention to income tax is not paid on the inception of this lease, choos-ing a relatively advantageous and simple lump sum amount of expenses, income tax will certainly have to be paid on this lease. If an individual chooses a proper method of deprecia-tion and monitoring of actual expenditures, any income tax liability will be significantly lower, verging on zero.— A tax-exempt lease of real estate may significantly affect the possibility to claim the entitlement to a VAT deduction both on the acquisition of real estate and on the construction of related technical improvements. However, any negative ef-fects may be reduced or even eliminated by adopting suitable measures. — If the lessor enters into a lease contract with a lessee and if a permit to build related technical improvements has been granted, upon the termination of the lease it will be neces-sary to examine how this will affect the lessor’s as well as the lessee’s tax base. It is possible to adjust the lease con-tract beforehand in a way to ensure that tax implications for both parties will be at an optimum. This may also be resolved through the modification of an agreement to terminate the lease, but in most such cases the contracting parties no long-er have the will to cooperate any further, whereas in some cases their intentions may in fact be adverse. — When deciding on the method of real property deprecia-tion, potential future technical improvements must be con-sidered. The accelerated method of depreciation allows for higher tax depreciation in the first years but, on the other hand, extends the period over which technical improve-ments are depreciated. There are various perspectives of how to treat this situation, depending on whether the owner has long-term or short-term plans for the real property.— Foreign companies planning to acquire real property in the CR have to decide whether they will do so through a sub-sidiary or a direct purchase, as each of the methods has spe-cific tax implications, including not only immovable prop-erty acquisition tax.
In the least desirable moment, one ascertains that the original setting does not correspond with reality.
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A building that’ll never get old
Five floors, a big atrium in the middle, a generous foyer and a unique covering made of special weathered steel, resistant against rain and wind, thanks to which the building will preserve its beauty for many years to come. The recently constructed KPMG building, nicknamed the Apple Strudel due to its distinctive lattice design, is located in the Kirchberg commercial quarter in Luxembourg. It offers 18 thousand square metres of office space as well as three underground parking floors. The design of Luxembourg’s Valentiny Architects architecture studio has won a Europe-an Steel Design Award of Merit this year.
Photo: Louis Bavent
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Endless staircase The “coolest” staircase in the world. A journey with no end. The stairs to empti-
ness. That’s how art aficionados describe the staircase sculpture outside the KPMG building in Munich, Germany. The stairs standing nine meters tall and forming a double spiral of steel were designed by renowned Danish artist of Icelandic origin Olafur Eliasson, who has become famous for his installations playing with light, curved shapes or water. For example, some time ago he impressed New York with large artificial waterfalls. He titled his Munich work Umschreibung (paraphrasing).
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“The founding father must leave amidst cheers”USSPA, a family business from the Ústí nad Orlicí district, is the largest spa manufacturer in the Czech Republic and one of the three top producers in Europe. This year, the company is celebrating its twentieth anniversary. USSPA has developed several patents and exports its products to twenty countries worldwide. Four years ago, the company was successfully taken over by the first family successors – the founder’s daughter, Kateřina Kadlecová, and her husband.Text: Lenka Medvecová
Founder Petr Kolář started doing business in the 1990s, importing shells and spa components from a US manufacturer. Soon, the company launched its own pro-duction and development.
First, the company’s success was spurred by the founder’s technical expertise and desire to have his own production. “In this way, we got crucial processes under control and development into our hands so that we could set ourselves apart from the competition and gradually achieve various competitive advantages. Good relations with the US supplier, who taught us a lot and was sup-portive of our business plan, played a big role too,” says Kateřina Kadlecová, the current director, and adds: “Ini-tially, my dad did not primarily intend to found a family business. Still, it was quite natural for my mum to join him. I was around from the beginning, so it was also clear that I would join the company after graduation. My hus-band got involved, too and is now the executive director.”
Twenty years ago in the CR, there was nobody from whom to learn how to run a family business. Kadlecová says that first it was more about will, enthusiasm and be-lief than about any elaborated business plans.
The business should strengthen the family
For Kateřina Kadlecová, a family firm’s main advan-tage lies in the mutual trust and support among family members. Family companies are more flexible and humane inside and out. “Most importantly, in the management of a family company, personal responsibility is counterbalanced by freedom. You do not have to account to anyone but your-self. Moreover, you are free to make decisions based on your heart rather than any figures. What is vital is the ability to maintain good relations both within the company and the family. Work must not jeopardise the family but should in-stead strengthen it,” Kadlecová says.
Strategic decisions are also made at home during dinner
Kateřina feels it is quite natural to discuss work at home and admits that trying to separate work and private lives within a family business could be counter-productive, as she would only be torturing herself need-lessly. For operational reasons, she and her husband are able to discuss important things only at home in the evenings. “That is when strategic decisions are formed anyway. Don’t get me wrong, we don’t live only for our business. We live a happy and diverse family life; we have enough time for ourselves, our hobbies and enter-tainment and know how to relax, since we’re experts in it. That, however, does not rule out that on vacation we may have, let’s say, an incredibly fruitful discussion over an unresolved business matter,” adds Kadlecová.
“Strategic decisions are often made on vacation or at dinner”
family business
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Joint businesses evolve naturally
Kateřina Kadlecová and her husband are USSPA’s first family successors. The company managed the gener-ational hand-over successfully and this can be seen from the outside, as well – this year’s domestic sales jumped 100%. The couple grew alongside the company and ac-quired their expertise gradually. Now, they are already pondering their possible successors. “My husband and I are talking about whether and how to motivate our son towards our company. He is still small but he already lives with the company. He’s present at every Christmas party for employees, he comes with me to trade fairs and on his birthday he hands out candy to the staff. He’s always said that he will be USSPA’s director, so at this point it is us who need to show him other possibilities and to give him the freedom of choice,” the director describes her vision of her succession.
The hand-over should be magnificent
She pictures the hand-over as a momentous occasion, the same she experienced herself. The preparations for the hand-over took less than a year because the decision came about quickly. However, her parents left the com-pany gradually and only after thorough debates and plans. The big day itself was indeed a grandiose culmination of this significant event and Kadlecová sees it as a must: “The founding father should take his leave amidst cheers and applause, but he must also be 100% sure and should not exit only half-way. The new generation must be given trust and enough space. The leaving generation must be ready to give up its own importance, as my dad aptly described the essence of the ability to hand over a company. From my own experience, I feel you can’t really perfectly prepare for the most important thing in taking over the family busi-ness – the assumption of full responsibility. For the com-pany, for its employees and for the family.”
“We constantly have new visions and daring goals. What’s crucial for us is doing a thorough job and doing it with joy, which is reflected in the final product,” says Kateřina Kadlecová, USSPA’s director.
family business
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Four rules we have learned from the Japanese regarding family businessesMany a word has recently been written about CzeCh family businesses and their growing suCCession issues. The inevitable change from one generation to the next, which is bound to occur in a few years’ time but with which Czech family-owned businesses established after 1989 do not have any direct experience, made us search for inspiration and examples abroad. In Japan we found family businesses with the longest tradition.Illustration: Maria Makeeva
The Hoshi family business, a traditional Japanese spa inn called ryokan, was established in 718. One Japanese construction firm, founded in 518, was even older but did not survive the economic turmoil of the 1980s and ceased to exist after more than forty generations.
At KPMG we have drawn inspiration from the Japa-nese tradition and have prepared four rules that apply to family businesses and not only to the issue of succession.
Rule 1: Succession must be planned from the successors’ early childhood
Every morning at quarter to seven 78-year-old Zengoro Hoshi sounds a gong. His guests sit down on tatamis around him, sip tea and silently listen to the Bud-dhist truths the inn owner has for them for the day. The speaker is none other than the descendant of a business that has been in his family for 46 generations.
The most important thing not to be underestimated is thinking through all succession possibilities and raising successors in compliance with the family business’s mis-sion, values and ethics. It is quite wise to involve descend-ants in the operation of a family business from their early childhood, thus preparing them for their future respon-sibilities. If they become enthusiastic and strongly moti-vated to work in the family business early on, the risk that they will fail in their adulthood is much lower.
Another important factor is proper education, ideal-ly in the same line of business in which the family business operates. Especially mechanical engineering companies currently struggle with a lack of managers with adequate education. If a family business is engaged in the provision of services, its future successors should ideally study law, marketing, management or economics. The more the fu-ture successors know about the business their family does, the better for the family business and themselves. They may use their knowledge in practice, not leaving the fam-ily business for something they feel more strongly about.
The Japanese are traditionally very strict when it comes to raising successors who will one day assume the family business. In the Hoshi family, the father himself knows when his son is ready. The son then assumes the name of Zengoro and takes over the business. The current Zengoro is the 46th in line.
Rule 2: Fathers must know when to retire
The Hoshi family tradition and principles are in many ways linked with the traditions of old Japan and Buddhism. Japanese ryokans are traditional inns known for their very close contact between guests and inn owners who often serve as mentors in Buddhist rituals and prac-tices. Owing to these specific requirements, the prepara-tion of future successors is long and elaborate, involving not only knowledge and capabilities but also beliefs and soft skills.
Many say that if family business owners still sit in their director’s chairs at 80, they will also die in them. The recommended age for retirement is 75 at the latest. Why the older generation should quit in good time becomes ap-parent from a KfW banking group study showing that if managers get too old at their positions, they tend to lose their ability to innovate and adapt to market needs. Upon their departure, former directors usually accept positions in supervisory or advisory boards.
The current Zengoro Hoshi would at his age like to enjoy his retirement but lost his successor a few years ago. His son Hiroshi, whom he had raised as his successor, died unexpectedly of heart failure at 48, which caused many complications. Zengoro immediately began to consider
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other succession possibilities. He contemplated his sons-in-law but in the end opted for his youngest daughter, Hi-sae, whom he began preparing at once.
Rule 3: Successors may sometimes be sought outside the family
In the Hoshi family’s history there were generations either without male heirs or with male heirs considered unsuitable to take over the family business by their fathers. In such cases, Japanese law used to allow the adoption of a son-in-law, i.e. the husband of a daughter, and giving him both the name and the family business. This option is no longer embedded in Japanese law. The current Zengoro Hoshi has thus been preparing his unmarried daughter, Hisae, who has been actively involved in the family busi-ness’ operations. In the long history of this firm, Hisae will be the first woman to take over the family business.
More than one Czech family business is likely to deal with the problem of who will take over their business. The majority of them believe that it will be their offspring who will continue with the business. If there is more than one descendant, it is possible to demerge the business, which is one of the greatest risks. With this option, it becomes necessary to consult professionals who can manage the de-merger either so that all parts of the business continue to be dependent on one another (if the family business owner insists on preserving the integrity of the business) or so that each part will be managed independently.
The Hoshi family does not divide its property on principle. The one who becomes the successor acquires not only the entire family business but also all other related family assets and wealth. In Europe we might think this unfair towards the other offspring and next of kin; but this practice has been proven by almost fifty generations man-aging the ever-growing business.
English researchers have discovered that hand-ing family businesses over to daughters may actually be smoother than to sons since daughters generally tend to build on the foundations created by their fathers. They do
not want to pull the foundations down and are therefore much more willing to avoid intergenerational conflicts.
It is also possible to hand over the family business to professional managers, which would of course be unthink-able in Japan. This option does exist and does not mean the cessation of the family business. The business remains under family ownership but its management is carried out by professional managers until a new successor comes of age. This may therefore be the right solution for fam-ily businesses which lack experienced and suitable fam-ily members. This option may also have some advantages. Professionals may often be able to manage a business with a broader perspective, giving family members the chance to supervise activities from supervisory boards.
Rule 4: Preserve tradition and go on with the mission
Family businesses in the Czech Republic as well as all around the world put emphasis on long-term development. They do not usually make risky investments and do not like to be in debt. They anxiously protect their name, reputation and brand, which are the guarantees of quality and represent principal commodities. Owing to their stability, family busi-nesses are also attractive employers.
Stability and gradual development are also the prin-ciples of the Hoshi family. Their family motto, having been implanted in the minds of all successors, is a Japanese saying: “Learn from the water flowing down from a small spring”. Zengoro elaborates that the water stream is very thin but strong, gradually overcoming all obstacles and eventually turning into a mighty river.
To preserve tradition and simultaneously adapt to new customer and market requirements may sometimes be quite difficult. All new bosses have to decide what they can sacri-fice from traditions without losing neither face nor clients. It is an ever-present dilemma that all family businesses have to deal with.
Hisae, who will take over the family business from her father, is sceptical about his old-fashioned ideas regarding the future development of their business. He wants to attract a higher number of young Japanese but is unable to react to their needs for greater comfort. Potential young clients would rather sleep in a bed than on a futon and rather drink wine than saké. It is therefore likely that the first woman in the history of this family business will introduce changes and new strategies as she knows very well that tradition alone will not suffice.
Milan BláhaPartner in charge of services for fam-
ily businessesKPMG Czech Republic
[email protected]@BlahaMil
&Alexander Koeberle-Schmid
Senior Manager, KPMG Deutschland
family business
17
The e
nd of
the a
ccou
nting
perio
dIs
yo
ur
join
t-st
ock
or
limit
ed li
abili
ty c
om
pan
y’s
ac
co
un
tin
g p
er
iod
ab
ou
t t
o e
nd
? D
on
’t f
org
et t
he
nec
essa
ry le
gal
ste
ps
that
nee
d t
o a
cco
mp
any
this
tra
nsi
tio
n.
Tex
t: Iv
a Š
tefl
ová
, KP
MG
Le
gal
Last
day
of t
he
acco
untin
g p
erio
d
(an
d it
s ch
ang
e)
A c
ompa
ny’s
acc
ount
ing
perio
d us
ually
last
s 12
mon
ths
and
corr
espo
nds
to t
he c
alen
dar
year
, i.e
. beg
ins
on 1
Jan
ua-
ry a
nd e
nds
on 3
1 D
ecem
ber.
Inst
ead
of u
sing
the
cal
enda
r ye
ar, c
ompa
nies
may
cho
ose
a fis
cal y
ear
as t
heir
acco
untin
g pe
riod,
whi
ch m
ay s
tart
on
the
first
day
of
any
mon
th o
ther
th
an J
anua
ry.
A c
ompa
ny m
ay c
hang
e its
acc
ount
ing
perio
d th
roug
h a
deci
sion
of
its g
ener
al m
eetin
g or
sta
tuto
ry b
ody
in l
ine
with
its
mem
oran
dum
of
asso
ciat
ion
or it
s by
-law
s. T
he a
c-co
untin
g pe
riod
imm
edia
tely
pre
cedi
ng t
he c
hang
e w
ill b
e sh
orte
r or
long
er t
han
the
said
tw
elve
mon
ths.
The
com
pany
m
ust
info
rm t
he c
ompe
tent
tax
aut
horit
y ab
out
the
chan
ge in
ad
vanc
e. C
ompa
nies
may
als
o ap
ply
a lo
nger
or
shor
ter
ac-
coun
ting
perio
d at
thei
r fou
ndat
ion
or d
urin
g a
tran
sfor
mat
ion.
O
rdin
ary
finan
cial
sta
tem
ents
are
pre
pare
d on
an
annu
al b
asis
as
at
the
last
day
of
the
acco
untin
g pe
riod.
Pre
par
atio
n o
f a r
epo
rt o
n r
elat
ion
s
Eve
ry c
ompa
ny c
ontr
olle
d by
ano
ther
ent
ity i
s ob
liged
to
prep
are
a re
port
on
rela
tions
with
in t
hree
mon
ths
from
the
end
of
eac
h ac
coun
ting
perio
d. T
he c
ontr
olle
d en
tity’
s st
atut
ory
bo-
dies
, i.e
. st
atut
ory
repr
esen
tativ
es o
r m
embe
rs o
f th
e bo
ard
of
dire
ctor
s, a
re r
espo
nsib
le f
or t
he p
repa
ratio
n of
the
rep
ort.
The
re
port
on
rela
tions
des
crib
es r
elat
ions
bet
wee
n th
e co
ntro
lled
and
its c
ontr
ollin
g en
titie
s an
d ot
her
entit
ies
with
in t
he g
roup
. Th
e pu
rpos
e of
the
rep
ort
is t
o cr
eate
a c
ompr
ehen
sive
ov
ervi
ew o
f al
l act
s m
ade
by t
he c
ontr
olle
d pe
rson
aff
ecte
d by
sp
ecifi
c re
latio
ns a
risin
g as
a r
esul
t of
the
com
pany
’s in
tegr
ati-
on w
ithin
a b
usin
ess
asso
ciat
ion.
The
rep
ort
shou
ld a
sses
s th
e ad
vant
ages
and
dra
wba
cks
for
the
com
pany
as
a re
sult
of i
ts
part
icip
atio
n in
the
grou
p, a
nd in
dica
te p
ossi
ble
dam
age
incu
rred
as
a r
esul
t of
ano
ther
ent
ity’s
influ
ence
. Th
e re
port
on
rela
tions
is
att
ache
d to
an
annu
al r
epor
t, if
suc
h is
pre
pare
d, o
ther
wis
e it
is is
sued
as
a se
para
te d
ocum
ent.
31/1
21/
1 –
31/3
Pre
par
atio
n o
f ord
inar
y fin
anci
al
stat
emen
ts (a
nd
ann
ual
rep
ort
)D
ead
line
for
the
dis
cuss
ion
of t
he
finan
cial
sta
tem
ents
by
the
gen
eral
m
eetin
g
The
gene
ral
mee
ting
has
to d
iscu
ss t
he fi
nanc
ial
stat
e-m
ents
with
in s
ix m
onth
s fr
om t
he l
ast
day
of t
he a
ccou
ntin
g pe
riod.
As
part
of
this
dis
cuss
ion,
it a
ppro
ves
the
finan
cial
sta
te-
men
ts a
nd m
akes
a d
ecis
ion
abou
t th
e di
strib
utio
n of
pro
fit a
nd
othe
r re
sour
ces
or a
bout
the
set
tlem
ent
of lo
ss.
Filin
g d
ocu
men
ts in
the
regi
stry
o
f do
cum
ents
Eve
ry c
ompa
ny i
s ob
liged
to
publ
ish
its fi
nanc
ial
stat
e-m
ents
in
the
Com
mer
cial
Reg
iste
r’s r
egis
try
of d
ocum
ents
. C
ompa
nies
who
se fi
nanc
ial s
tate
men
ts a
re s
ubje
ct to
sta
tuto
ry
audi
ts p
ublis
h th
em to
geth
er w
ith th
eir a
nnua
l rep
orts
aft
er th
e au
dit
and
afte
r th
eir
appr
oval
by
the
gene
ral m
eetin
g w
ithin
30
days
from
the
date
on
whi
ch b
oth
of th
e ab
ove
oblig
atio
ns w
ere
met
.R
egar
dles
s of
whe
ther
the
fina
ncia
l sta
tem
ents
and
the
an
nual
rep
ort
have
bee
n ap
prov
ed i
n th
e st
ipul
ated
man
ner,
com
pani
es m
ust
file
the
requ
ired
docu
men
ts in
to t
he r
egis
try
of d
ocum
ents
with
in 1
2 m
onth
s fr
om th
e en
d of
the
acco
untin
g pe
riod.
Acc
ount
ing
units
are
als
o re
quire
d to
pub
lish
an a
udito
r’s
repo
rt a
nd d
iscl
ose
if th
e pu
blis
hed
acco
untin
g do
cum
ents
hav
e no
t be
en a
ppro
ved.
Com
pani
es n
ot s
ubje
ct t
o st
atut
ory
audi
ts
file
thei
r fina
ncia
l sta
tem
ents
dire
ctly
aft
er th
eir p
repa
ratio
n in
to
the
regi
stry
of d
ocum
ents
with
out u
nnec
essa
ry d
elay
.To
geth
er w
ith th
e fin
anci
al s
tate
men
ts a
nd a
nnua
l rep
orts
, co
mpa
nies
als
o fil
e pr
ofit
dist
ribut
ion
or lo
ss s
ettle
men
t pr
opo-
sals
and
thei
r fina
l ver
sion
s w
ith th
e re
gist
ry o
f doc
umen
ts, u
n-le
ss th
e pr
opos
als
are
part
of t
he fi
nanc
ial s
tate
men
ts.
W
ould
you
like
to
know
mor
e ab
out
othe
r le
gal a
spec
ts w
hen
foun
ding
and
man
agin
g
a co
mpa
ny?
Get
in t
ouch
with
our
exp
erts
fro
m K
PM
G L
egal
at
mhr
dlik
@kp
mg.
cz.
1/1
– 30
/6
30/7
30/6
20
21
“Real estate financing boom triggered by central banks”
One of the main drivers of growth in real estate financing is the loose monetary policy practiced by central banks across the world. Indeed, low interest rates caused the market to grow significantly. However, experts believe that we are already past the current boom’s peak. There are increasing concerns as to what will happen once central banks tighten their monetary policies. KPMG organised a discussion on this topic, where questions were answered by Pavel Kliment, who is in charge of services for the construction and real estate sector at KPMG Czech Republic; Jan Rýdl, responsible for real estate financing at Raiffeisenbank; and Zdeněk Havelka, executive director of CPI Property Group.
Text: Jiří Táborský, Photo: Barbora Mráčková
one-on-one
22
The Property lending Barometer survey for 2014 and part of 2015 has just been released. how would you summarise the survey results? are the crisis years behind us?
PK: From a real estate financing perspective, the cri-sis is over. Markets are currently characterised by consid-erable optimism, mainly because low interest rates have resulted in the good availability of financing. The margin between returns on real estate financing and interest rates has returned to its pre-crisis level.
speaking of low interest rates, can central banks’ ex-tremely loose monetary policy be considered one of the drivers of growth in the real estate market?
PK: Without a doubt, it’s one of the main reasons. For all investors, the range of assets offering a reasonable return and a tolerable level of risk has got much narrower. Properties, however, have so far managed to retain their rate of return.
JR: This is a completely new situation for our bank. We are faced with negative rates such as PRIBOR and EU-RIBOR. We find this situation illogical. The idea that the client should pay the bank for depositing money with it is absurd.
Mr havelka, what do you, as a representative of a group that invests in this area and owns a large amount of real estate, make of the current trend?
ZH: All around us I can see that times are even better than they were before the crisis, largely thanks to really cheap credit. That makes investment in real estate very attractive because we are generating a significant positive return, and currently it’s a good alternative investment option.
let’s take a look at the czech republic from an investor’s point of view. Does our market have poten-tial? if i were an investor, would i want to invest in real estate in the czech republic, Mr havelka?
ZH: You certainly would. Although the actual base is not growing too much, it’s very stable and did not dimin-ish significantly even during the downturn. The level of rent is really very stable here, which is due to the capacity of the Czech economy as such. For example, for rents to continuously grow in Prague, new investors would have to come here and stir up the market a little bit. The ques-tion is, why is that not happening? I think the answer lies in the attractiveness of the Czech Republic as such.
Mr rýdl, would you recommend the real estate market to investors or would you rather suggest it’s not the best avenue?
JR: I would definitely recommend it. However, so far we have been talking mainly about offices. Don’t forget there are also residential properties and apartments. For
Pavel Kliment
is KPMG Czech Republic’s partner in charge of services for the construction and real estate sector
“In boom years, we can’t concentrate solely on another slump coming. Instead, let’s think about how to make the most of the good years.”
one-on-one
23
two years now, our bank has been witnessing increasing investment in this type of real estate, which is fostered not only by low interest rates but also by the low cost of construction work and other factors.
Mr havelka, the condition of the czech real estate mar-ket depends on large firms choosing the czech repub-lic. what are the factors that determine the location of a new headquarters?
ZH: Slovakia, for instance, benefits from being in the eurozone. In that country, investors can simply for-get about foreign exchange risk issues. Warsaw, in turn, can draw on its huge and rapidly growing market, which makes it Prague’s major competitor. Other than that, it’s obviously about transport infrastructure, accessibility by air, and other factors.
in the Barometer, there is a statement to the effect that the situation may be good now but some concerns exist regarding the sustainability of the current trend. what causes such concerns?
PK: The problem is that a lot of investments in the market will only work at current interest rates. Changes in central banks’ policies, and the ensuing availability of financing, will play a key role in the real estate market. Another factor is that the market is cyclical. All market participants know this and are used to it. I believe that presently we are already past the boom’s peak. Logically, some sort of decline is to be expected sooner or later.
ZH: Mr Kliment has put it quite accurately. I should add that it’s not just about the passive ownership of this or that property. How the investor works with the prop-erty is equally important. Today, when money is cheap, apartments are sought after by tenants and everything is generally going well for investors, making money from real estate is not a problem. The question is whether inves-tors can cope even when the ideal conditions are no long-er present in the market. Large and seasoned investors will probably not experience difficulties because they’ll be able to take advantage of the synergies within their prop-erty portfolios. Small investors, however, especially those with only one property, may run into trouble.
according to the survey, czech banks readily provide large amounts of euro-denominated loans. from a purely property financing perspective, are you at all concerned by the czech national Bank’s monetary po-licy, or is it the european central Bank that you follow more closely?
JR: We do provide a large amount of loans in euros, but they relate to projects where rent is also euro-denom-inated, which primarily involves offices. On the other hand, in the retail sector, rents are usually denominated in crowns and we consequently opt for crown-denomi-nated financing to minimise foreign exchange risk, which turned out to be a big problem in Hungary and Poland.
Jan Rýdl
is responsible for real estate financing at Raiffeisenbank
“The idea that the client should pay the bank for depositing money with it is absurd.”
one-on-one
24
ther extreme slumps nor extreme growth. And as a result of this flatness, Czech banks have never really had the op-portunity to get involved in any extremely risky projects that could lead to an increase in the volume of impaired loans.
PK: I agree with what has been said here. Let me just add that the fact that the Czech Republic is a very small market has not only a lot of negatives but also positives. And this is one of them. Because the market is small, it’s very easy to read and navigate, which helps avert ma-jor excesses.
Discussions are going on about how high inter-est rates would have to be for people to default on their mortgages. Some mention three percent but I don’t think it’s that dramatic because, for private mortgages and de-velopment financing, we try to convince clients to fix the rates for as long as possible now that interest rates are low so that we can weather a crisis that may come in two or three years. Rates fixed for ten years or more are thus no exception.
You have mentioned that we are going through a sig-nificant boom or that we may even be past its peak. what can trigger a downturn?
JR: It’s very difficult to predict when a downturn will occur. The residential market can be affected by move-ment in interest rates. The investors will stop buying apartments. As a result of higher interest rates, a lot of people won’t be able to afford a mortgage, young people will go on living with their parents, and flats will not sell.
ZH: In my opinion, real estate will be hit by a crisis imported from other sectors of the economy. It’s not just about people not being able to repay their mortgages as they become more expensive due to higher interest rates. They won’t be able to repay them at all because they will have no jobs. In the case of the Czech Republic, which is significantly dependent on exports, there may be factors imported from abroad.
PK: It is really almost impossible to forecast a crisis. Nevertheless, I would like to add the following important point – in boom years, we can’t very well concentrate sole-ly on another slump coming. Instead, I would think about how to make the most of those good years, i.e. how many big investments and how many big institutional investors we can attract to the Czech Republic in these favourable times. And it’s not just the Czech Republic but the en-tire Central and Eastern European region. I believe that to compete for the truly massive investments that are up for grabs in the global market, we must enter the arena as part of a greater whole.
to conclude on a positive note, according to the Ba-rometer, 98 percent of czech banks’ real estate loans are in perfect order. in other countries, the volume of non-performing loans is much higher. how come that czech banks are doing so well in this important respect?
JR: We have very strict risk managers. Moreover, our business activities enable us to gain experience from the whole of Europe and the world. From the very beginning, we have approached real estate financing very rigorously because of the huge amounts involved and the long-term financing aspect, which requires an analysis of the eco-nomic cycle and other factors.
ZH: In my opinion, it’s also partly because Czech banks primarily finance Czech projects. The Czech market is relatively flat in the sense that it has experienced nei-
Zdeněk Havelka
is the executive director of CPI Property Group
“Times are even better than they were before the crisis – thanks to really cheap credit.”
3
4
5
6
2
1
Six basic steps to SAM implementationIn the previous article we described the financial benefits arising from a proper software licence administration set-up. We also mentioned certain obstacles that companies face when implementing their Software Asset Management (SAM). Most critical is the overall complexity of SAM implementation and its related tools, which also involves heavy expenditures.Text: Petr Marounek, KPMG Czech Republic
Is there any easier access to SAM which could be used? An alternative to the standard SAM process would be to introduce a SAM process based on risk elimination focusing only on high-risk products or on software pro-ducers who are likely to be subject to an audit inspecti-on in the near future. In such a case, the following steps need to be considered:
Dedication of appropriate staffIt is extremely crucial that the responsibility for
processes associated with the administration of software licences is assumed by an employee who understands li-censing and has sufficient technical knowledge. This per-son will be required to cooperate with numerous other departments; accordingly, good communication and ne-gotiation skills are highly advisable.
Risk assessment within the entire ITMost companies focus on one or two major software
producers and do not analyse risks within the entire IT environment. By doing this, however, they skip the ba-sic step for prioritising areas in which the highest risk is usually found – e.g. too complex infrastructure, limited knowledge of internal employees, comprehensive licence conditions, difficulty in finding the relevant licences, high risk of an audit, etc.
Assessment of the current IT environmentBy comparing the current licences with products
actually deployed you will get an initial overview of your effective licence position. This procedure helps identify areas in which you are exposed to no risks (unused licen-ces or supports; opportunities for re-use of licences no longer used, etc.), and areas in which a product has been utilised to a larger extent than to which your organisati-on is entitled. The comparison will give you precious time that can be used either to remedy the situation or to pur-chase licenses for negotiated prices (without additional mark-ups).
Definition of SAM goals and strategies Once you compare a number of products as descri-
bed above, you will have a better understanding of the ef-ficiency of your existing SAM tools and processes. Thanks to this, you will be able to define your SAM goals and stra-tegies to the advanced level your company would like to achieve and point out the processes to be implemented, as well as tools, management and responsibility models to be introduced.
Creation of project roadmapYour roadmap will depend on the scope of SAM acti-
vities you would like to introduce. However, it is impor-tant that your ambitions remain realistic. As mentioned above, the perceived overall complexity and high expen-diture of implementing SAM are obstacles preventing you from gaining sufficient funds and support; therefore it is necessary to address these worries appropriately when creating a project roadmap.
Implementation of benefitsPYou will see the benefits of SAM immediately after
you first compare licences against software actually de-ployed. Together with the financial benefits described in the first article, SAM also brings companies numerous in--kind benefits.
In the next issue of the series we will focus on potential in-kind benefits and will also uncover the licensing of sofware products in Cloud. Do you need more information now? Please contact the author of the article at [email protected].
brífink
25
Czech public administration in the cloudNo more lengthy and non-transparent tenders for IT services. Czech authorities can function again a bit more effectively. Clear arrangements, transparency, time and money savings – all this by using cloud computing. What are the benefits of this approach for public institutions and what lessons can we learn from countries which have already implemented this system into their public administration? Ilustrace: Nikola Logosová
Almost a half of the state institutions in the United States use a cloud solution. As for the European countries, mainly the United Kingdom, France, and Spain have de-cided to go this way. The pioneers of this technology have been demonstrating the benefits of cloud computing for state administrations. It can make the process of order-ing services more simple and transparent and save public money. In the United Kingdom, for example, the so-called G-Cloud for the procurement of IT services has been in operation for more than three years already. The Czech Republic is also considering launching a similar system. What inspiration can we take from the UK?
One British IT service catalogue for all
The UK G-Cloud system enables the state adminis-tration to establish a unified overview of IT service bids. Thanks to this system, all institutions can utilise the same services for the same prices and under the same condi-tions, without having to initiate a traditional public ten-der. A list of all necessary services is available in an on-line catalogue unified for all institutions.
So how does it work? A firm offering IT services will register, submit its bid and the state will subsequently conclude a framework contract with it, meeting all formal conditions connected with public tendering. The firm can subsequently offer its services via a common on-line cata-logue called Digital Marketplace, accessible by all public institutions. Adhering to certain conditions, each author-ity or institution can choose just the service they need.
The catalogue includes descriptions of all services and information about the suppliers. At present, more than 19,000 types of services from almost 1,900 suppliers are included in the UK catalogue.
Each framework contract has a limited duration of one year. Suppliers get the opportunity to conclude a new framework contract every six to nine months. The duration for all service contracts concluded based on the framework contract has been limited to a maximum of two years.
Goals of the UK cloud
1. Limitation of purchasing expensive and tailor-made solutions
2. Utilising inexpensive, standard, and compatible solutions
3. An application already acquired by one authority can be used by other ublic administration authorities as well
4. Purchasing only services which are really useful for the public administration
5. Paying only for services actually utilised6. Scalability of services and fast
adjustability to actual needs7. Flexibility in replacing applications
or suppliers
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G-Cloud saves both time and money
This solution from the British Isles is relatively new, as it has been in operation for three years and is still un-der development. However, its advantages have already become obvious: public institutions do not have to initi-ate traditional tenders and thus can implement needed IT services much more quickly. The average term for new ser-vice implementations has been reduced to approximately 60 days. Pre-defined contract templates are an important component of the entire process. As for small municipali-ties, G-Cloud makes one obvious contribution: clerks nei-ther have to know the public procurement act in detail nor have to have the experience necessary for drawing up contracts with suppliers.
One and the same bid for everyone, flexibility, speed – all this can save public money. Surveys expect that thanks to G-Cloud costs will drop on average by 50%.
Over the term of a framework contract, all rules ap-ply to all parties. Everything is clear, simple, easy to find, and transparent. All parties must disclose any contracts and report required information. Failure to meet the rules results in the exclusion from G-Cloud. Transparency is thus G-Cloud’s key principle.
The system’s features also open the market to a larg-er number of service providers, as there is no hustling of contracts for friends and the winner is not always the fiercest corporation. As it turns out, in the UK, 87% of all bids for IT services are now being submitted by small and medium-sized companies.
Sometimes, there are just too many bids
In the United Kingdom, some disadvantages of the new system have also come to light, the main of which being the excessive number of bids. The simple process of adding a service to the framework contract may result in too many items in the catalogue with some services at-tracting no interest.
Another issue emerged after the system was put into operation. An authority cannot request services if they are not listed in the catalogue. Suppliers thus do not receive information about asked-for services and in some events customers have to initiate standard tenders.
The maximum service contract duration of 24 months may also cause some problems as customers have to frequently migrate their data.
The Czech Republic is at a crossroads, deciding which way to go
The United Kingdom is just one of many examples. Different countries have been taking different directions and one single proven solution for establishing a cloud for the public sector does not exist.
The individual countries differ e.g. in the type of pro-viders offering IT services to the public sector. The model most frequently used is the so-called government cloud where state data centres working for all government de-partments provide shared services. Several other Euro-pean countries have opted for a commercial cloud solu-tion where commercial entities provide shared services (G-Cloud in the UK). Some other countries have opted for the golden mean and launched a hybrid solution.
The Czech Republic for the time being has been dis-cussing how to best use cloud computing in public admin-istration. We can thus examine the advantages and disad-vantages of the systems applied in the other countries and get some inspiration and lessons. Whether shared services should be provided by the state or a commercial entity is one of the first questions the state should answer.
It is also necessary to clarify cloud’s institutional and legislative position while taking into consideration existing legislation, primarily the Public Procurement Act.
The Czech Republic is now at a crossroads, deciding which way to go. If it chooses the right option, the Czech state may again function a bit more effectively.
Jan VoříšekManager
KPMG Czech [email protected]
G–Cloud in numbers
50 percent – It turns out that countries utilising G-Cloud in terms of IT services can attain savings of up to 50 %.
87 percent – The profile of UK firms providing IT services to the public sector has changed and thanks to G-Cloud small and medium-sized companies get a chance as well.
60 days – Lengthy tenders are a thing of the past; thanks to G-Cloud, authorities can on average utilise contracted services within two months from making a request.
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Klára Spilková, the best Czech golfer
“I can’t be tied down by money”
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Can you remember what your first piggy bank looked like?
I think it was indeed a piggy and I still have it at home (smiling). To be honest – I never put much money in it, as I was not a frugal little girl and if it wasn’t for my par-ents and my assistant Monika taking care of my finances, I would be spending in a similar fashion now as well. Or maybe not. For the time being I won’t find out, because I actually don’t care to know. I am generally aware of the most important facts about money – the approximate ba-lance of my account, how the financing of the season is coming along, but I don’t get involved in the details.
…so that money won’t stress you?Exactly. I need to address golf, not money matters.
When I became a professional golfer, I certainly did take over more financial responsibility, but without the help of others, especially my parents, it would have been too big a load and worry that could have affected my game. So I am extremely grateful to my parents and others for their help. But as I said before, this does not mean I know no-thing about money... (smiling). I usually attend tournaments on my own or only with a caddy, so I need to have money at my disposal and know how to use it. For this, I have a special account to which the necessary amount plus some spare money is transferred. If this account were to be hac-ked while I am abroad, which luckily hasn’t happened so far (knocking on wood), the total damage would not be that big. Undoubtedly, most of the money is spent on hotels and air tickets, which the largest part of the season’s budget.
I expect you use cards rather than cash. Am I right?Definitely. I have a card in my hand practically all
the time. I use it to pay worldwide. And I of course also use ATMs. One of them which communicated only in Chinese did surprise me quite a bit. But eventually, money did fall from it. However, I always have some
“I don’t know what normal life is about. I’ve been playing golf since I was four.”
Klára Spilková is the only CzeCh womAn ever to play Europe’s most prestigious golf tournament – the Ladies European Tour. She would like to participate in the Rio Summer Olympic Games next year and has other ambitious sports plans. She of course knows that money is an important part of golf, but feels that one should not care much about it on the way to success. “It might tie me down and I may lose enthusiasm for the game, and I definitely don’t want that,” says Klára Spilková in an interview centring on finance.Text: Jana Divišová, foto: Bogner archive
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5 Five things you might not know about Klára
1. At the tender age of ten, she already had a 14.3 handicap.
2. Since 2010, she’s been playing with the professionals; as a then sixteen-year old she started with a +4 handicap.
3. She very much appreciates the help of her parents who support her as well as her bother who studies at a prestigious fashion design school in Antwerp.
4. In Antwerp, Klára served as a model for her brother’s col-lection and enjoyed it tremen-dously.
5. Her team includes a psychologist in addition to other experts.
small bills with me should cards not work, but I don’t re-member this ever happening.
what did you do with the first income you earned playing golf?
That, I remember very well. I invested it into my next tournaments. And I still continue to do so. If I feel like treating myself to something nice, I do so from time to time, but most money is reinvested into golf. Naturally, like any girl of my age, I am fond of nice things and go shopping sometimes. But I am lucky that one of my spon-sors produces sports and leisure clothes, dresses, shoes… They supply me abundantly, and I can choose whatever I want. My evening gowns are always made by my brother, who studied with fashion designer Liběna Rochová at the Academy of Arts and Architecture in Prague and now stu-dies in Antwerp. So everything’s arranged quite well.
what portion of your season’s budget is covered by sponsors’ money and how difficult is it to find spon-sors nowadays?
First, let me answer the second question – there are not many sponsors, but they can be found. This is Monika’s task on the team and she’s pretty good at it. Be-fore a season starts, it is necessary to check what is left from the previous season, how much money is available from sponsors and determine which tournaments I can and which I cannot attend. One season costs approxi-mately three million crowns; half of it is covered by my earnings and half of it by my sponsors, whom I natural-ly invite to various events to repay for their attention. If someone reads in the newspaper that last year I earned
“One season costs about CZK 3 million. One half is covered by my earnings; the other by my sponsors.”
EUR 58,172 and thinks now the money sits in my bank account, they are mistaken. Practically all of the money is reinvested into golf so that I can advance further. I am also responsible for the team surrounding me at KLARA SPILKOVA s. r. o., with my father at the helm.
Can you imagine being employed somewhere?Just recently, I thought about it – what it would be
like. And I realised that I actually don’t know what normal life is all about (laughing). I have been playing golf since I was four, touring Europe on my own since I was thirteen. I started to earn money at sixteen. So I said to myself – let’s try to get at least some temporary job to learn what it’s all about. But then I realised that I can’t really do that because of my responsibilities around golf, all those tour-naments, practices, travelling and sponsors. Thirty weeks a year I am outside of the Czech Republic. For now, I don’t have the slightest chance to get even a temporary job, so maybe once I do, I might be in for quite a surprise.
As a golfer, do you think about individual shots like: “If make this, there’s one thousand euros in my account?”
Fortunately you rarely know the figures. It is in-teresting, though, that commentators on Czech TV frequently coin figures for individual shots. “He missed a putt and there go five thousand euros.” Obviously, they’re better informed. Of course you know that there’s money somewhere behind it, but you can’t think that way. At le-ast I don’t want this. Golf is my love, I want to enjoy it and do my best.
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Cultural highlights for travellersEnjoy this yEar’s latE autumn and Early wintEr at the best cultural events on offer in Europe. The following selection of theatre performances, music and literature will keep you entertained until the end of 2015.Text: Anna Batistová
History of the future Paris Until 4 January 2016
One of the most anticipated exhibitions of 2015 can currently be vis-ited at the Louvre in Paris. Entitled A Brief History of the Future (referring to Une brève histoire de l’avenir, the eponymous book by Jacques Attali, published in 2006), it integrates works of contemporary artists, such as mark manders, tomás saraceno, wael shawky, Camille henrot, isabelle Cornaro, Chéri samba and aj wej-wej, with paintings and sculptures from different eras. The exhibition deals with the following four themes: world order, great empires, expansions, and today’s polycentric world.
The Botticelli Renaissance Berlin Until 24 January 2016
Berlin’s renowned Gemäldegalerie is giving visitors an opportunity to view the work of one of the greatest renaissance masters – sandro Botticelli (1445–1510). The impressive exhibition offers more than a hundred works by the Florentine painter (the Birth of Venus, the Abyss of Hell, Portrait of Dante, etc.). Since Bot-ticelli’s distinctive style has been a ma-jor influence on many other artists, the Gemäldegalerie is also exhibiting works directly inspired by Botticelli (e.g. G. moreau, d. rossetti, E. degas, m. denis, r. magritte, a. warhol, B. Viola, C. sher-man, and d. laChapelle).
A modern take on Bach and Vivaldi
Prague, London, Munich, Madrid 8–12 November 2015
In November, phenomenal Ameri-can violinist Gil shaham will be perform-ing in four European cities – Prague, Lon-don, Munich and Madrid. Accompanied by the sejong soloists, a New York-based orchestra, he will give a unique contem-porary rendition to classical composi-tions such as Vivaldi’s Four Seasons and J. S. Bach’s Violin Concertos. Shaham’s recordings have garnered many acco-lades, including several Grammy awards. The violinist will perform at Prague’s Ru-dolfinum on 8 November from 7:30pm as part of the Strings of Autumn festival, which offers a selection of jazz, classical and world music.
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Lulu in cinemas Various Czech cities 21 November 2015
On 21 November, cinemas in 19 cities across the Czech Re-public will host screenings of a live HD broadcast of Lulu, an opera by alban Berg, performed at New York’s Metropolitan Opera. Al-though the performance is over four hours long, it will be worth it. Lulu tells a stunning story of love, passion and death. Berg’s music will be conducted by james levine, music director of the Metro-
politan Opera and one of today’s most experienced conductors. Starring in the challenging title role is soprano marlis Petersen, with susan Graham, daniel Brenna and johan reuter as her co-stars. The top-notch cast is di-rected by luc de wit.
Theatre Night Various Czech cities 21 November 2015
The third Saturday in November this year will also be the date of the third annual Theatre Night project. The unique nocturnal event gives visitors a chance to come to theatres to experi-ence things not usually offered by cultural institu-tions during the season. In previous years, this in-cluded workshops, speeches, autograph signings, chats with directors, backstage tours at small and large theatres and – in one case – the dismantling of a stage. What will this year’s edition bring? Find out on 21 November at theatres across the
Czech Republic. The event is part of the European Theatre Night project.
Writers and fear Prague 6–9 November 2015
Fear is the theme chosen for the 25th annual Writers’ Festival. Come find out what and who the invited writers fear and why. As usual, the programme includes author readings and discussions. The writers that have agreed to participate this year are yishai sarid (Israel), mahmoud dowlatabadi (Iran), abderrahim El allam (Morocco) and arnon Grunberg (the Netherlands). The last one mentioned – in cooperation with the dybbuk publishing house and the Dutch embassy – will present his book Gstaad. Czech authors will be represented by marek Šindelka and miloslav topinka.
The seventh instalment of Star WarsJust before Christmas, Czech cin-
emas will introduce the highly antici-pated new Star Wars sequel. The seventh episode, entitled The Force Awakens and directed by j. j. abrams, boasts the original actors who starred in 1983’s The Return of the Jedi, including harrison Ford, Carrie Fisher and mark hamill. Judging by the trailers, fans will once
again be treated to stunning visual effects. In 2012 George Lucas, the creator of the Star Wars universe, sold the rights to the franchise to the Walt Disney Company for four billion dollars. Additional instalments are therefore planned.
Delirious GouldingIn November, twenty-eight-year-old pop-sing-
er Ellie Goulding, who together with Adele ranks among the most prominent figures of the current British music scene, is set to release a new album, entitled Delirium. Artists who also contributed to the record include One Republic’s ryan tedder and Disclosure’s Guy lawrence. The female singer will promote the album on her European tour, which will see her perform at Prague’s O2 Arena on 30 January 2016. BRITs Critics’ Choice Award winner Ellie Goulding has recently received praise for the hit single Love Me Like You Do, which is the theme song to the movie Fifty Shades of Grey.
A new McEwan novelIn November, Odeon will publish the Czech translation of a new book by contemporary English prose
writer ian mcEwan, who has become famous thanks to novels such as The Cement Garden, Atonement and On Chesil Beach. Entitled The Children Act, McEwan’s new book tells the story of Fiona, a judge dealing with a complicated case – a teenage boy is dying of leukaemia while his parents, members of Jehovah’s Witnesses, refuse to consent to a blood transfusion. In a professionally handled case, the judge upholds that the right to life is above the parent’s right… Translated from English by Ladislav Šenkyřík.
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“They certainly make a big fuss about wine here“
Filip Hotový and Karel Karafiát came up with their business plan on their trips to the Rhône region in France and have been supplying high quality wines to Czech companies as well as running their own unique wine bars named On the Bank of the Rhône (Na břehu Rhôny) for four years now. Apart from buying bottled wines from family companies, you can pour your own glass of wine there and even note each glass you have had down on your bill yourself. “Czechs are usually honest, so the concept works well,” says Filip Hotový. A third wine bar opening in Prague proves his words.
Text: Eva Samšuková, Photo: Jindřich Kodíček
You’re already opening a third wine bar in prague. are Czechs, despite their reputation, honest and accurately jot down how many glasses of wine they’ve had?
You mean, are they stealing much? They aren’t, in fact. I wouldn’t want to generalise, however. We simply decided to build our business on trust. So far, it has paid off and has been well-received. Of course, you’ll some-times find people who come here to cheat but that’s an absolute minority. Overall, people are honest and if they are not sure how much they have had, they’ll mark down an extra glass.
Which issues did you have to deal with that were dif-ferent from standard wine bars?
We knew from the beginning that we wanted to have a different wine bar. Different in terms of the offer of wines from small family wineries and in our effort to have this atmosphere permeate the whole company. We also wanted our guests to be able to try the wines before
deciding to buy them. In France, we do not buy anything from the winemakers without tasting it first.
You also offer draught wine in bag-in-boxes. Do people trust it or do they think of it as cheap box wine?
Well, yes, first they fear it. But we don’t try to fight their fear in any way. What is important is not to be afraid to taste it and being able to tell good quality wine. First, even cafés and restaurants said that boxed wine were rais-ing people’s suspicions. That suspicion, however, is fading away.
are there any shortcomings on the Czech wine market?Apart from anonymous barrelled wines, poor-quali-
ty imported grapes, use of chemical fertilisers, excessive production of too sugary wines from synthetic yeast and other things, it is definitely the relatively high prices. The price of a bottle of wine is usually not a guarantee for its quality. If you want to buy good South Moravian wine from the retail network, you won’t be able to find any quality wines for less than CZK 200 or 300. This is incomparable to the prices of wines in the same category in France cost-ing half of that with a much wider variety! I see another shortcoming in the snobbish attitude of people claiming that good wine has to costs a lot of money and making a big fuss about it.
What reputation do Czech wines have in France?I can’t generalise but when our French winemaker
comes to a wine-tasting here he is often surprised by cer-tain Czech wines. He often likes the white wines, espe-cially the Rieslings. The problem would be with the high prices that would, together with the export costs, be rather uncompetitive compared to French wines of the same category.
Where to find Rhône in Prague
Na Hrobci 1, Praha 2Rohanské nábřeží 7, Praha 8Rašínovo nábřeží, Praha 2
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“We did not want any of the Czech clichés like wine barrels, taps on the wall, creeping grapevines, heavy oak tables or Thonet chairs here but a light French-style interior,” says Filip Hotový.
business lunch
November/December 2015First-hand content
A magazine for clients and friends of KPMG Czech Republic
Four rules we have learned from the Japanese regarding family businesses Can Czech authorities work in the cloud? Klára Spilková: The best Czech female golfer talks money matters The secrets of a bar business where
patrons keep their own tabs
THE END OF THE REAL ESTATE CRISIS IN EUROPE
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www.marwick.cz/en
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