Author: Martin Mařík
Source: Hospodářské noviny, 3.3.2009, no. 14, pg.

interview hn
PAVOL KRÚPA, CEO of Arca Capital investment company:
A smaller but skilful predator among investment firms. That was the impression of Slovak-Czech company Arca Capital. It wasn‘t afraid of operations such as the purchase of Moravia Energo Company’s shares from former prime minister Stanislav Gross, or entry into Marila Pribram, controlled by businessman Tomáš Pitro.
„We want to become the most important investment company in the central European region, as far as involvement with small and medium sized firms goes,“ projected Pavol Krúpa, chief and majority owner of Arca.
In the past months Arca has abandoned most of the projects it had entered in the Czech Republic though. Preliminary profit for last year accounts for 2.8 million euros. Is this the end of brave plans?
„Not a chance. We just evaluated our investments up to now – and now we await what opportunity upcoming months will bring. For investors, this may be a chance that won’t be repeated,“ Krúpa says.
HN: But you have left several projects – does this mean that you are leaving the Czech Republic? And will focus on Slovakia, or the Ukraine?
PK: The opposite is true. It may seem that we „backed off“ from the Czech Republic. But selling gives us resources for additional expansion. So we are staying in the Czech Republic.
The fruit ripened quickly, so we started the harvest.
HN: Some time ago you said that in your business there is always a „time of sowing“, and then a „time of harvest“. Had your acquisitions ripened already? Or have you been forced to sell due to the crisis?
PK: Recently, our acquisitions ripened much faster than expected. We evaluated that it was the right time to sell. At the beginning of last year we knew how the financial crisis would unfold – but we were warned a little.
HN: For example, with electronic Kasa your strategy was to develop the business, bundle it up with foreign acquisitions and sell only after that. You even considered entering the stock market.
PK: That’s true. Analyses for e-shops are still good. But other acquisitions that were offered to us, were either inaccessible, or too expensive. That’s why we sold Kasa when a good offer came along.
HN: Was it influenced by the crisis?
PK: Partially. We weren’t forced into it, but we said to ourselves that it would be better to have the cash.
HN: Why did you get rid of part of Príbram‘s Marila – a food company supposedly controlled by businessman Tomáš Pitr until your involvement?
PK: We only sold a part of Marila to Poles, coffee packaging and biscuit manufacturing. When analysts forecasted the price of coffee, it was the opposite from for example, with electricity. The coffee prices were not supposed to rise. But the opposite happened. And again it turned out that it was much more favourable to sell.
HN: Another part of Marila, Ondrášovka mineral water, is offered for sale as well.
PK: Only if a really good buyer comes along. So far there are three interested buyers. Otherwise we are prepared to develop Ondrášovka mineral waters. The turnover increased by 30 percent last year.
We didn’t predict Chrenko‘s problems.
HN: I’m asking about the same thing over and over – generally, your goal is to increase the value of the acquired firm in three to five years and sell only then. However, you quickly sold approximately one third of shares of Moravia Energo company, shares that you previously acquired from former prime minister Stanislav Gross, to billionaire Tomáš Chrenko. Moravia Energo is virtually bankrupt now. You had a „hunch“, that the energy business would end up this badly?
PK: We were not that smart. Again, the sell seemed profitable.
HN: But the energy industry is a business that is prospective even in times of crisis. And you had great plans as well. Why the retreat?
PK: A year ago, everyone was talking about the constant increase in energy prices. Then the opposite started to show. Moravia Energo started to pay for its mistake, which was that it bought electricity too expensively last year.
HN: You had some brave plans in the energy industry. To buy hydroelectric or solar power plants, for example.
PK: That is true. We considered a line of other energy projects from coal power plants to gas and solar energy projects. We even were really close to buying a power plant in Ústí nad Labem that supplies electricity to an STZ company – the former Setuza.
HN: That is a power plant still supposedly controlled by businessman Tomáš Pitr – now hiding before the start of his prison sentence. What were your plans with the power plant?
PK: We wanted to expand it, for it to not serve solely for Setuza.
HN: Acquisitions in the energy industry didn‘t turn out…
PK: Exactly. And when we didn’t get the opportunity to add something substantial to our minority ownership in Moravia Energo, we sold our share to Mr. Chrenko. Without knowing how the firm would end.
HN: The BIO-SKIN company as well. Here you flirted with the idea of entering the stock market too – the field of bio transplants for health services was promising. Will you abandon this project as well?
PK: We already did. We sold our share to our partners who are also managing this project. Currently we are awaiting settlement of the debt.
HN: To sum it all up – you are getting rid of projects in the energy industry, foodstuffs, electronic business, and biotechnologies. A mix of fields that should be prospective. It is hard to imagine that this development means further expansion in the Czech Republic, as you emphasised in the beginning.
PK: I think I already explained this. We simply „cooled down“ the acquisitions we made then. And we are well prepared for the next ones. We will spin our acquisitions for more years from now on.
HN: You stated some time ago that Arca aims to be the most important central European investment company in the field of “small and medium“ firms. Do you stand by these words?
PK: Yes I do. We even don’t want to make small deals anymore. BIO-SKIN, for example, is in the tens of millions. And now we want to go – for the sake of effectiveness – for things at a hundred million and up. Approximately up to half a billion crowns.
HN: Which investment do you have in your sights next in the Czech Republic?
PK: We want to enter into fields that we tried before: pharmaceutics, foodstuffs, the energy industry, engineering. In the Czech Republic, Slovakia, the Ukraine. I don’t want to make the impression that we lurk like vultures for a company in need, to jump on it. The price will be decisive though, and if it is favourable, we won’t hesitate.
HN: Does the arrival of the financial crisis and economic recession mean that you will, so to say, spin your acquisitions faster? Buy and sell as soon as the nearest suitable opportunity comes along?
PK: We have been selling faster recently because the economy was overheated, prices were up. We were already selling a firm after nine months, for example. But now it will be just the opposite. The prices of firms are lower, and they will probably go down even more. If you want to increase value, you need more time.
HN: How much?
PK: We will return to a standard of two to five years.
HN: In these turbulent times won’t it be necessary to have cash ready – and maybe back off from another project in six months?
PK: Of course, that is possible. That is one of the reasons we did it in the past. Today the money on your account won’t devaluate. That’s why the majority of investors pulled the hand brake and now wait.
HN: How are you faring in the Ukraine? Is it still the land of unexpected possibilities? Or is it a big problem that is better to keep away from?
PK: There are two views on the Ukraine. Politically, it’s a problem- their government doesn’t know how to solve the crisis, macroeconomics will be an issue. Another thing is that 48 million people still create demand. So business keeps on going.
HN: You do real estate business in Ukraine. Did you sell, make profit, or have you been „holding your positions“?
PK: Rental prices have fallen by fifty percent. But whereas the average price for office facilities in Kiev was around 50 dollars for a meter, the same in Prague was 18 dollars. The prices in the Ukraine have decreased by half since then, but we originally bought it cheaper compared to Prague. We have no reason to leave the Ukraine.
HN: You wanted to enter the Balkans: Serbia, Romania. Are you still contemplating this?
PK: Not at the moment. We will postpone that development for the future.
NERV has potential for more than just the scrapping subsidies.
HN: Let us return to the Czech Republic. Can you predict whether the economic situation will start to improve this year?
PK: Our analysts estimate that the GDP will decrease by 1.5 percent this year. Next year it may be a „black zero“, and the next year may see an increase by a percent, or two. In other words, the crisis is just beginning.
HN: Will the stimulus package of the Czech government help?
PK: The important thing of course, is what the large countries will do, especially Germany.
HN: Is the body of government advisors NERV good for something?
PK: I respect economists and bank managers. But so far, it seems they are just solving lobby problems in NERV, like scrapping subsidies.
HN: Did you take any economic measures in your own company?
PK: Of course. We started last year in August. Sufficiently early for people to find new jobs without problems. Several analysts and investment managers left. And in the Ukraine, for example, only twelve out of 47 employees remain.
HN: You plan to move your Czech office. Or do you plan to close it?
PK: We are not closing it. We are just looking for cheaper premises out of the centre of Prague. But we are staying here on Ovocny trh for two more years.
The Euro in Slovakia and the farmer’s stray horse
HN: Honestly – does Arca have problems at this time?
PK: Who doesn‘t? Investors, employees, or even media, for instance, may have problems. The important thing is to look for the remedy, and to appreciate such effort. When J&T created a joint venture with PPF, I saw it positively. It is apparent that these investment companies are trying to solve something. Likewise Mr. Chcerenek will surely solve his problems with Moravia Energo. And it’s the same with some other developers who should admit their problems and start working on solving them.
HN: Which ones?
PK: I don’t want to be specific. But developers need to let their bubbles burst. When they promise a bonus to a potential buyer, let’s say a car, they just demonstrate how overvalued their flats are. People are not so stupid that they won‘t realise that.
HN: How are the banks treating you now?
PK: Us, fairly, and I appreciate that. But I know of many companies that had their accounts withdrawn by banks. The same bankers who approved loans and trusted company projects a year ago, are able to destroy these companies now. They won’t support the client. Yet Czech banks were among the most profitable banks in Europe a year ago.
HN: Slovak prime minister Fico is happy that Slovaks will survive the crisis thanks to the Euro. Czech Prime Minister Topolánek on the other hand states: “Lets be glad we are not bound by the Euro.” Make a judgement: as a chief of a Slovak-Czech company, who is right?
PK: It’s like the story about a farmer who finds a stray horse in his stable. Neighbours are envious of his good luck. He says to them: We’ll see. Then the farmer‘s son breaks his leg on that horse. Everyone feels sorry for him, for his bad luck. And again he says: We’ll see. Suddenly, they are recruiting for war and the son with the broken leg is exempt. And this can go on and on.
HN: This seems accurate. But it is not an answer.
PK: I think that not having the Euro helps the Czech Republic right now. The Crown can devaluate thanks to export. Of course there is a question of more expensive imports, but the effect for exporters is prevailing. But at the same time I say: We’ll see.