JULY/AUGUST 2017
A magazine for clients and friends of KPMG Česká republika
p. 4
p. 12 p. 26 p. 40
The customer is always right With Pietro Filipi’s founder on how fashion is sold in Czechia Will your company be the target of a transfer pricing inspection? Daniel Sýkora’s algorithms simulate an artist’s hand
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© 2017 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.
3 — editorial
Retail continues to live its revolution
Marwick – a magazine for clients and friends of KPMG Ceská republika. Published six times a year by KPMG Czech Republic, Pobrežní 1a, Praha 8. MK CR E 22213. On-line subscriptions available at www.marwick.cz. Editor in chief: Michaela Raková Art director: Štepán Prokop Photoeditor: Barbora Mrácková Copy-editor: Martina Ohlídalová Cover illustration: Václav Havlícek KPMG Ceská republika’s offices are located in Prague, Brno, Ostrava and Ceské Budejovice. www.kpmg.cz © 2016 KPMG Czech Republic, 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.
In this spot about a year ago, I wrote that the auditor’s task is to review and to present an accurate reflection of the world and the current reality of retail. Whereas my role has not changed much, retail continues to live its revolution. In the meantime, we’ve witnessed the introduction of the Amazon Go concept, at Starbucks we can now order and pay via our phone while on the go, and increasingly often we can encounter products with their composition or name dictated by social media users. We don’t even have to look abroad for this; in the Czech Republic, several Chinese e-shops found their home last year; we saw the entry of a number of traditional stone-and-mortar shops into e-commerce, and domestic customers have gotten a taste of different pop-up and non-traditional stores and seem to like it. All these revolutionary changes posed quite a challenge for us as we were trying to set up the programme for the second annual KPMG Retail Forum. We sum up its results in the present issue of Marwick. I trust that you will be inspired by our interview with Petr Hendrych, a significant figure on the Czech fashion scene, Doug Stephens’ glance at the future of retail and our data team’s introduction of the Prompter tool. Martina Štegová Director in charge of services for the Retail sector KPMG Česká republika mstegova@kpmg.cz
© 2017 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.
KPMG Retail Forum 2017
Text: Pavla Francová
New technologies and customer requirements change and develop so quickly that retailers must display extraordinary effort to acquire and maintain a stable position in the market. Opportunities do exist, however, and at the KPMG Retail Forum held in the DOX centre, retail professionals explained how these can be grasped and taken advantage of. →
© 2017 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.
4 — topic
Emotions and data winning in retail
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One thing we Czechs are good at is the pursuit of sales. Compared with other European countries, the volume of goods sold for discounted prices in the Czech Republic is extremely high. For some products, up to two thirds of their overall sales are made during special sales events. So what is a normal price? And how does one attract customers without having to wrap offers into appealing slogans inviting people to yet another special SALE? Red Bull: Experiences are winning Alas, there’s no need to despair. Red Bull’s marketing manager Pavel Homolka is sure that other ways to succeed are out there. “Price promotions are on their last leg; it’s time for emotions and experiences”, he said at this year’s Retail Forum. During his presentation that easily captured the audience’s attention, Homolka talked about experiences and how their communication is interlinked with the sale of energy drinks. “Red Bull sells soda cans and experiences sell Red Bull. It is experiences that are at the centre of our marketing activities”, explained Homolka, supporting his words with videos that did not show a single can of the energy drink but were still able to attract customers. So what is Red Bull’s recipe for success? “Lifestyle is at the centre of our interest. It is much easier for individuals to find themselves through experiences and emotions”, said Homolka, elaborating that the firm is planning to further create exciting experiences and work with content. It is also eager to share its know-how in this area with other retailers to create synergies. Marketing is not the only field all about experiences that can help acquire but also maintain customers for the long run. During her presentation, the statutory representative and owner of fashion shops Steilmann Praha, Anna Motlíková, drew attention to an issue often forgotten by retailers engrossed in a number of other tasks and worries.
Steilmann: Feel at home in our shop “Retail is for and about people. We have to think about a fair approach to retail”, said Motlíková. She then quite provocatively asked the audience how happy they were with fashion shopping in the Czech Republic and how comfortable they felt when inside clothes shops. Not many voices singing the praises of the local shops’ services and assistants were heard. Motlíková is convinced that the quality of services in our shops is just as low as the prestige of sales clerks. In her opinion, the two are very closely connected and without first enhancing the profession’s prestige and qualifications, we cannot expect a more pleasant shopping experience. But this is exactly how retailers may distinguish themselves from their competitors and acquire loyal customers. Sales staff must be able to identify their customers, understand their needs, know whether and when to speak to them and what to offer, so that customers feel comfortable and want to come back again. “Fashion management is soon going to be taught at the Prague University of Economics. Hence we will begin by training shop managers,” said Motlíková, adding that this is the first step towards enhancing the prestige and quality of shop assistants. She believes that despite the current radical changes in customer behaviour and the growing number of customers buying clothes and accessories via the internet, brick-andmortar shops still have a future. “Their approach will make a difference, as customers must be made to feel at home in their shop,” added Motlíková.
© 2017 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.
Alza: Beware of tricks with numbers! Already today, online sales are forced to rely just on data, as they, in contrast with brick-and-mortar shops, are entirely deprived of valuable direct contact with customers. This was pointed out by Radomír Vychodil of Alza.cz., one of the Czech Republic’s largest e-retailers. “We do not have direct contact with customers but have data we can work with. However, too much data may also represent a disadvantage, as its most accurate analysis is crucial”, said Vychodil, adding that various magic tricks can be played with numbers and data. Retailers should always make sure that the processed data are as true to reality as possible. “Do not let yourself be intoxicated by the numbers and how nicely these tools work. Ask yourself where these data come from”, recommended Vychodil, giving an example from internet retail that is quite common and may seem confusing at first sight. A customer may, for example, click on an advertisement for a coffee machine but eventually buy something entirely different in an e-shop, for example a bicycle. “There’s a big difference between advertised and purchased goods,” added Vychodil. Online retailers should always carefully consider where they invest their money. Data are a useful source of information but their interpretation is absolutely crucial.
Radomir Vychodil introducing Alza.cz’s attribution model
© 2017 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.
6 — topic
IBM: Data shaking up retail Whereas Motlíková’s approach how to identify and understand customer needs is rather traditional and requires much empathy and experience from shop assistants, the Retail Forum also presented more modern methods with similar objectives. Data and data analytics are changing almost all segments, affecting some of them more, some less. It is obvious that they may eventually bring about a revolution, but most are still waiting for their common and sensible application. Such bumbling about is quite typical for current retail. “We have the data but do not know how to effectively use them”, retailers operating in various segments agree. And many firms are trying to figure out what to analyse and how. During the Retail Forum, Etain Seymour, responsible for retail and customer services at IBM, presented her view of the future. She talked about how to use data to find out more about customers and how to use these to approach customers in a better and structured way, without inconveniencing those who have no interest in particular services or goods. “Through a new generation of sentiment analysis and the recognition of faces, expressions and other elements, it is possible to ensure a better customer experience”, explained Seymour. She introduced Watson, an analytic software tool processing data about customers, their behaviour, the effects of promotions and a number of other sales factors. According to Seymour, Watson has not been used in the Czech Republic yet, but this may just be a matter of time. Seymour is certain that understanding customers is a key to success. “To succeed, we must know how they behave and why”, she added.
Six thoughts from the 2017 Retail Forum
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→ SSI Group: Security first As Lukáš Bajgar of KPMG pointed out, retail businesses are not only affected by changes in customer behaviour and new technologies but also by external factors. “The new regulation of personal data protection is approaching, primarily aiming at financial institutions but also concerning retailers”, said Bajgar, elaborating that the new regulation puts increased emphasis on the protection of personal data. The regulation will not become effective earlier than on 28 May of 2018, but the number of changes is so high that, according to Bajgar, businesses should ideally start paying attention to relevant issues now. Lukáš Bajgar does not only see an increased burden for businesses but also offers an optimistic approach: “The regulation’s effective implementation may help retailers achieve success”. But negative motivation certainly has its place, as penalties imposed for violations of personal data protection rules will increase. “The new regulation also introduces the possibility that the principal supervisory body of foreign retail chains operating in the Czech Republic may be from abroad, which complicates the situation even further”, said Bajgar. Personal data protection is closely connected with the security of shops, an issue retailers lately have been addressing more often. Radek Škrabal, the statutory representative and director of operations of SSI Group, providing security services, presented his views on this topic. “CZK 12.6 billion worth of goods vanish from the shelves of Czech stores every year”, Škrabal pointed out, adding that the structure of threats has also changed. “For example, the aggressiveness of wrongdoers in shops and shopping centres has been continuously increasing, often times involving organised and well-prepared groups of perpetrators”, explained Škrabal, also pointing out growing threats directly inside organisations. “The share of employee thefts is almost the same as the number of external thefts”, added Škrabal. Retailers therefore look for new and effective tools to mitigate such threats. Consequently, companies providing security services are increasingly often using modern technologies as well.
There is a big difference between what customers click on and what they end up buying online.
Certain brick-and-mortar shops are already using IBM’s Watson software tool to collect data about customers directly in their shops.
Fashion management, aiming to train quality fashion retail managers, will be taught at the Prague University of Economics.
CZK 12.6 billion worth of goods vanishes from the racks of Czech stores every year.
The share of shoplifting committed by shop customers equals the share of thefts committed by shop employees.
Penalties imposed for violations of personal data protection rules will increase in accordance with the new General Data Protection Regulation.
© 2017 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.
Retail trends
Fashion scouts and sock subscriptions
Text: Pavla Francová
→
1 Me-tail: shopping as an experience The individual is at the centre of attention; and this is not just an empty slogan. Trunk Club, an American fashion store network, offers large changing rooms that can compete with stylish living rooms. In the shop itself, customers need not waste any time, as everything is waiting for them in the fitting rooms. They just have to use the internet to enter their size in advance, potentially consult a stylist and then just come and try on what has been prepared for them. Additional services such as a café with a bar or a hairdresser directly in the shop are a given. No more helplessly wandering around the racks to find pieces that will fit. Reputedly, this is how men would love to shop! 2 Aim and shop When you spot somebody wearing the perfect pair of shoes you have been after for ever but are too shy to ask where they bought them, now all it takes is snapping a photo of them with your mobile. The Spylight application will not only recognise them from the photo but will also come up with offers where to buy them online. Your shopping will be done before you get home. 3 Changing rooms without changing At Uniqlo, a special touchscreen allows customers to choose a colour or pattern different from the one they have on. In the mirror, they can then see themselves in the new variant without having to change. Rebecca Minkoff brand shops have mirrors that recommend what other goods would go best with the outfit the customer is just trying on. 4 Personalisation and clothes with a story Unique, tailor-made goods are prized now more than ever. At Burberry, they know this very well and let their customers order handbags or coats with the designs of their choice. You may even purchase a handbag embossed with your name. The production itself is also documented, as along with their purchase, customers receive a video showing how their products were designed and produced. 5 3D print directly in the shop Australian shoe seller Shoes of Prey offers a unique experience: customers may create their own shoes using 3D technology. All it takes is choosing the colour, shape, material and size, then pressing a button. A 3D printer does the rest in a matter of minutes.
© 2017 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.
8 — topic
“In a world in which almost every aspect of our lives is somehow connected with technologies, experiences linked with our body, soul and spirit are winning,” says Doug Stephens, futurist, retail guru, and main author of the Retail Prophet website. First-class goods and a good price no longer suffice. Do you want customers to shop at your place? Try as hard as you can! Take a look at selected world trends that should help retailers succeed in the time of abundance, digitisation and a never-ending flow of new data.
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6 Navigation throughout the shop Everybody is talking about the linkage of brick-and-mortar shops with e-commerce, involving not just the sale itself. Aisle411 is an application proving that mobile technologies may help customers in another ways as well. This device shows the exact location of goods in a shop, for example a supermarket, and navigates customers there. 7 Subscription for anything Do you regularly need new socks, dog food or cosmetics? Why bother going to the shops when the things you need may just easily come to you? That’s the idea behind subscription retail that lets customers order regular deliveries of certain goods. This convenient service is currently offered, for example, by an international publishing group, delivering basic-care products to its customers every month. Customers pre-select the contents of their monthly packages themselves. 8 Shops as art galleries The more digitisation we have around us, the more we long for analogue experiences. That is why in the retail business, there’s more and more talk about visual merchandising. Simply put, visual merchandising makes shops look beautiful and presents goods in an appealing way. This does not involve fully packed racks! On the contrary! The more goods customers see, the more trouble they have in choosing and sometimes end up buying nothing. Hence, shops will often end up looking like galleries with a café and a flower shop, in which a few pieces of fashion are on display. The rest of the goods may be ordered via the store’s e-shop. Pleasant lighting and stylish music are a matter of course.
10 Social networks directly in shops Social media’s role has been steadily increasing. This holds true in both business and retail. For example, in the Sephora perfumery shops, customers are shown how to apply make-up using YouTube videos or are given the chance to create their own video tutorial directly on the spot. In the supermarkets of the future, we may find various mirrors or tablets (connected to Microsoft Kinect, for example) that’ll show clips on how particular goods were produced. For a change, Nike shops will look like sporting grounds where customers may exercise, shoot some hoops or try the latest sports technologies. 11 Exclusivity and the feeling of exceptionality During a time of prosperity and unlimited resources, it works to somewhat restrict opportunities. That’s what pop-up stores are built on, appearing for some limited time somewhere (ideally in some untraditional premises such as old factory halls) and selling limited editions. The temporary and exclusive nature of the goods attracts customers and easily motivates them to buy. 12 Discounted luxury Nowadays, digitalisation seems to be perceived as a matter of course. That is why retailers must also attract their customers outside in the real world, while the pressure to acquire top destinations for their brick-and-mortar shops continues to grow. Such destinations need not only be expensive and traditional shopping streets, sexy are also unique premises such as old factories. The fact that top destinations are highly desired by all retailers is proven by the pop-up fashion shop recently opened by Lidl in Hamburg, right next to brands such as Gucci, Prada or Louis Vuitton.
9 Omnichannel retailing is winning Who will win; brick-and-mortar or e-shops? This contest will be won by those who bet on a compromise, allowing all retail channels to effectively interlink. For example, in the Sephora perfumery shops, customers may try products, smell perfumes or have their complete make-up done. And then buy the selected goods via the internet. Or, for example, in the John Lewis shops, customers can only find a few models; other goods may only be ordered online. Moreover, in the shops, customers are assisted by advisors who can supplement their products with printed reviews by other internet users.
© 2017 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.
Czech shopping habits Price follows quality as the second most important criterion when buying food. Over the last five years, the number of shoppers spending more than three thousand crowns on food per month has almost doubled. Czechs buy instant coffee most often and head to supermarkets for beer. What else did we learn from the fifth KPMG survey of shopping habits in the Czech Republic?
1
Quality in first place
A product’s price tag is still the most important criterion for most Czechs when selecting food. However, their share is slowly decreasing and more and more people seriously consider the quality of the goods they are purchasing. This is also dependent on income and education – for 43% of people without a high school diploma, price is still the prime decision making factor.
2
Dairies we know best
We asked buyers what brands first come to mind when talking about food manufacturers. Madeta, Olma, Hamé – these brands usually strike the minds of most Czechs.
Food costs us up to two thousand crowns per month
3
Every second Czech spends up to two thousand crowns per month on food. Since the last survey, the number of those who spend more than three thousand crowns has increased; in fact, over the last five years, it almost doubled. Again, the data correlate to monthly income and education.
About the survey:
KPMG Czech Republic conducted a survey of shopping habits in cooperation with the Data Collect agency. Data was collected between 22 and 24 January 2017 among 1,000 respondents most often responsible for their household’s shopping. A representative sample was selected based on gender, age and region. The entire survey can be found at www.kpmg.cz. © 2017 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.
10 — topic
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11 — topic
4
Food often ends up in waste containers
5
Beer we buy in supermarkets
Czech households prefer instant coffee
The waste of food was the topic of the last issue of Marwick. Three fourths of Czech households throw away food past its ‘best before’ date. Most Czechs throw away 10% of their food purchases this way.
Three fourths of Czechs buy their national beverage in hypermarkets or supermarkets. Specialised retail shops are rather an exception for 6% of shoppers. Beer is mostly bought by men, also among 18- to 24-year-olds.
Two thirds of buyers prefer instant coffee; almost 50% buy ground coffee to make popular black Turkish coffee or to use it in espresso machines. With growing income, however, the interest in instant coffee decreases. Every fifth city resident buys coffee capsules.
We barely know fair trade coffee
8 Two in three Czechs sort paper and glass
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7
Fair trade coffee is still a big unknown for Czechs. Respondents with a university degree know it best (75% of them), followed with high school graduates with a school leaving exam (53%), and those without a school leaving exam (36%).
The most persistent waste sorters are women – they sort all types of waste more often than men. An absolute majority of Czechs – almost 100% – sorts waste at least sometimes. Least often we seek out special metal waste containers – 12% of us have yet to recycle our metal waste.
6
On average, six loyalty cards in our wallets
Almost two thirds of us carry up to five loyalty cards; only one in every twenty shoppers has no such card. On average we carry 5.9 cards. The most interesting bonus relating to the loyalty programmes are discounts (for 90% of Czechs); followed with services or free-of-charge goods.
© 2017 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.
© 2017 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.
Pietro Filipi’s founder:
Petr Hendrych could have been a big league hockey player. Instead, he chose a career in business and founded Pietro Filipi, a successful fashion brand. He prides himself on having most of the stores' clothing made in the Czech Republic. In our interview, he explains why he considers the internet nothing to be afraid of. → About the Pietro Filipi brand ǫǫIn 1993, Petr Hendrych founded the brand that mainly wants to Převedeno na spořicí účet create quality Czech fashion. ǫǫHis foremost inspiration was Italy, setting trends not only in the fashion segment. ǫǫTo preserve its originality, Pietro Filipi only produces 30 to 400 pieces of each clothing item. ǫǫMore than 90 % of the firm’s production is done in the Czech Republic and Slovakia. © 2017 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.
Text: Pavla Francová, photo: Barbora Mráčková
Czech products are of high quality and can keep up with the competition
I don’t think that the internet will do away with stone-and-mortar stores. The presentation of fashion will remain important.
The story of your brand – the joining of names and their Italian appearance – is fairly well known. How has the role of your brand changed in comparison to the 90s, when you began? I don’t think that anything significant has really changed. It is always about having the customer identify with the brand’s DNA and its products. With our brand, one thing is the combination of the names of Petr and Filip; the second thing is that at that time we very often travelled to Italy for inspiration, not only for our fashion, but also in regards to lifestyle and the certain ease that is reflected in our approach to fashion. Our brand has a lot of substance and depth. My son was born around that time and so it became interconnected with the beautiful and strong bond that began to form and hence I think that our entire undertaking is also about our brand’s strong bond with the customer. When and how did it occur to you that you would become a fashion entrepreneur? It was all a coincidence. In 1990, I began to bring foreign brands into the Czech Republic and to distribute them here. Hence, I had to learn a lot about distribution. In time, I began to feel the need to create my own brand and products, however. The distribution
network was already up and running and so we started to build a company that would be independent, beginning with the design, continuing through production and finally in actual sales. Since you began your enterprise, what has changed in the Czech Republic? We often hear that Czechs are coming back to locally produced products; is that really true or is it just an off season media topic? I am glad that you’re saying that this trend is coming back. Unlike the generation that was encumbered by a past that offered only Czech products or goods produced in the Comecon countries, the current generation is different. Today, customers can find many great Czech products and brands. I value them very highly and I think that they are of high quality and can easily compete even with the foreign competition. That’s why I think that today’s consumers are able to evaluate the value they get for their money and that Czech products fit this ratio very nicely. Is it difficult to maintain loyal customers and does it work better for a Czech rather than a foreign brand? To keep a loyal customer has always been difficult and will remain so in the future. What influences sales fundamentally are changes in the customers’ way of life and values. We can see that, for example, in the spillover between our weekend and workweek turnover. In the past, we had stronger sales on the weekends, but today, the buying trends are similar. This is
© 2017 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.
because today’s generation and our target group is using its free time for their own and their family’s benefit. They are much more purpose-driven when they go shopping. Without a doubt, the environment created by the internet also has a huge effect on sales.
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How are internet sales reflected in your line of business? With the internet, customers have a huge variety of different fashion brands at their disposal; many of them in the past didn’t have the exposure they have now on our market. The internet provides a lot of information; sometimes I think that we don’t even need that much to live our lives. At the same time, it deprives us of many experiences. What do you mean? For example, if I order food over the internet, once it is delivered, I’ll just eat it. Or, I go to a restaurant and have a nice experience eating dinner there. This is exactly where the answers for the future lie. On one side, we have the internet, on the other, I have an experience that I connect with the atmosphere of shopping. I don’t think that the internet will do away with stone-andmortar stores, because the presentation of fashion will remain important. How can experiences be brought into the stores? In your case, how can you transfer them into a clothing store? TThis is something that we are focusing on right now. We are working on a new platform with omnichannel access. It involves creating an environment in which one can easily communicate with customers who at the same time can pre-prepare their purchase from anywhere, their tablet, smartphone or pc. The experience that we are talking about will then take place in the store, where all goods that the customers selected will be waiting for them. Highly important is of course the communication of our staff with the customer, who in the store will decide whether and what to buy.
Are you considering changes in the types of goods that you offer because of this? Fashion is a very dynamic segment; hence, one needs to react dynamically as well. In the formal wear segment in which we operate, I am starting to feel that the societal pressure telling us what to wear when is retreating. This is leading to an overall relaxing of the entire segment that as a result is edging closer to the smart casual area. Personally, I like that a lot, mostly because it gives us much more space for self-realisation; we’re not as tightly bound by convention and have a lot more freedom to combine outfits. How do you feel about the Czechs’ preference for sportswear, which they love to wear even when not doing sports? I think that the Czechs are a very athletic nation and for that, they need outdoor clothing. But I am also seeing very nicely dressed people during all kinds of social events. Thanks to globalisation, young Czechs are moving forward and have developed a sense for fashion. And to be honest, I myself don’t run much into people wearing a soft-shell jacket to work. So are Czechs slowing getting a sense for fashion and style? When did that happen? The fundamental development took place in the first decade after 2000, when numerous developers came to the Czech Republic and built a lot of floorspace. With that, many fashion brands entered the Czech market and began showing their current collections. Hence, people were able to keep abreast of new fashion trends. Customers will gradually come over to the side of stuff that they see around them and that’s how a sense for style and fashion develops. And of course, the younger generations have always been and will always be more open, perceptive and susceptible to trends.
© 2017 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.
Have your sources of inspiration also changed? That’s I guess more a question for our designers, but I’ll answer in their stead. They travel to the meccas of fashion in France and Italy to get inspired and keep an eye out on the developments in the top design brands. At the same time, they visit the fashion shows of these brands and also get a lot of input from the WGSN internet portal, which contains lots of information from the fashion world. What’s also important is that they develop their own signature style. They need to know current developments but also the DNA of our brand and then have to transform this to make it presentable to our target customer. We also want our designers to stay true to their own style and signature. Who is your typical client and your main target group? Men and women between 30 and 45, but age is a very deceptive factor. In general, our target group contains people who are active, devote time to themselves and their children and are to some extent interested in fashion. Several times, you’ve mentioned your company’s DNA; how would you describe it? We say that beauty is hidden within. We are neither superficial nor ostentatious but instead try to see the inside and give people space for their self-realisation. We don’t plaster our brand all over our products because we don’t consider it important that our customers show off our brand. With our clothing, our customers should instead display their personality, while our goods should serve to underline it. Where do you produce your products? Around 90% or our products are made in the Czech Republic and Slovakia. Historically, many quality production facilities have existed here and we can realise our production lines here because we value quality above all. The production places conform to our expectations. Their quality is proven by the fact that they not only produce for Czech but also for foreign brands. Fabrics we most often buy in Italy, France, Germany and elsewhere in Europe.
© 2017 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.
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We are preparing a new platform offering omnichannel access.
17 — topic
Your firm is well-known and successful in Czechia, but what about abroad? We have subsidiaries in Latvia and Lithuania, were recently our yearly turnover has increased slightly. We also have a couple of franchise partners in Belorussia, Kazakhstan and Russia, where we are also seeing a positive development. I think that this will also be a great opportunity for our company. Are you planning to enter other markets as well or will you instead build on the areas where you are already active? We want to focus even more on the areas and regions where we already have partners. That’s what we want to support. In your opinion, what’s the hardest part about the fashion business? I don’t know if that’s the hardest aspect, but the core of the business lies in the fact that it’s processes are very long. We are currently selling the 2017 spring/summer collection, are producing 2017 fall/winter, have the 2018 spring/summer collection already prepared and are starting to prepare the collection for fall/winter 2018, which will be ready by the end of the year. We thus have to be something like visionaries, as any kind of mistake in fashion risk management is very hard to repair. From the age of six, your world was the ice hockey rink as you were preparing for a sporting career. Are you able to say what professional sports have in common with business? That’s a very difficult question. It was a different phase of life; it’s so long ago. But I do see at least on thing that they have in common. In life, we should always do what we like doing, something that fulfils us, energises us, and we have to do it with love. Then, we get enjoyment and success from it, and it really isn’t important what it is that we are doing. If we are taking to the ice just to get it over with, then it’s time to stop. And that’s the way it is with everything in life.
© 2017 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.
I know what you want. And I’ll gladly tell you For e-shops, trying to discover who their customers are and what they want is no easy matter. KPMG’s Prompter (like the person giving cues to actors on stage) can help and show how to better understand customers thanks to data.
My colleague is a victim of badly targeted advertising. When she browses on the internet, she is continuously bothered by advertising for maternity clothing. No, she really isn’t expecting and swears that she did not even glance at pages on motherhood or pregnancy. “Why do they keep offering me this? Why can’t they show me something that I really need?” she complains. We all have been there, receiving offers from e-shops that don’t interest us and emails telling us to buy something that we already own. Thanks to the massive amount of data that internet retailers have at their disposal this may actually work much, much better. And my colleague may finally get to peruse the digital camera ads she wants to see instead of pictures of various pram models. The Advanced Analytics team of KPMG’s office in the Czech Republic may have actually come up with a feasible approach by creating Prompter, intended to help e-shops to get to know their customers and to best tailor their offers to them. Knowing how to work with data Simply put, it’s about properly using what e-shops already have at their disposal today. Take, for example, customer Petr Šťastný, who regularly buys his dog’s food online. The e-shop knows his name, has his email contact, knows that he is male and maybe even his age. It may garner additional information regarding Petr’s socio-demographic situation from external sources (like the census) based on Petr’s address. The e-shop of course also has all the details on Petr’s purchases. All this makes up the data that Prompter can process. In addition to Petr’s details, Prompter has information on hundreds of thousands or maybe even millions of other customers like Petr. Thanks to this data, we can find
out how people behave and whether this behaviour is similar to somebody else’s. In the initial phase, Prompter looks at every customer individually and assesses whether this is a person’s first purchase or if they are regular patrons or even somebody who’s thinking of never shopping in the particular place again. In the second phase, Prompter defines what it will take to support desirable customer behaviour. For example, with new clients, it is a good idea to find out right at the start how sensitive to price they are, whether it makes sense to offer them discounts and if yes, how big these discounts should be. For regulars, it could pay off to know what others offer and goods that others like them buy may interest them as well. For every customer, Prompter is also able to calculate their purchasing potential. The third phase involves addressing the customers with a targeted offer that comes close to having been custom made. Prompter can find out and advise whom to send emails to, who will prefer receiving SMS messages and whom it will be even possible to call. Of course, the appropriate timing of communication with the customer is just as important as its method. KPMG’s system analyses available data and is able to find out when a customer, i.e. our Petr Šťastný, if you like, opens his emails and to what kind of offers his reaction was the most positive. “The goal is to look at all clients at any time and to be able to clearly state what they need at a given moment and what the e-shop should do so that customers will happily buy more products. Prompter can suggest what to offer, in what form and when”, explains KPMG’s Martin Čekal, one of the creators of this tool.
© 2017 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.
18 — topic
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19 — topic
Petr Václav Head of Advanced Analytics KPMG Česká republika pvaclav@kpmg.cz @petrvaclav
But what if we don’t have the data yet? Apart from the e-shop’s own data and information gathered from the customers’ behaviour on the shop’s webpages, Prompter also utilises information it obtains from Google and browsing histories. The system knows how active a person is, how often they open certain webpages, what they do there and also whether they actually open all emails that an e-shop sends to them. However, all this applies to the e-shop’s established customers. So how about somebody who’s just come upon a specific internet retailer? “In such cases, we look at similarities to other clients and place them in the appropriate behavioural group. We’ll then offer them goods according to that classification,” explains yet another of Prompter’s authors, David Švenka, and adds that the more data is sifted into the tool, the better the results will be. Processing Big Data For Prompter’s authors, the processing of such a huge quantity of data was one of the biggest technical challenges they faced. “The system has to approach each user individually. This person is ‘taken apart’ into hundreds and thousands of numerical factors that describe the individual into minute detail. Such a large number of factors gives us an incomparably better prediction ability than classic marketing strategies based on human intuition. What’s more, this algorism is then combined with special types of neuron networks, which enhances predictability further and maintains the interpretability of the results”, so David Švenka on the challenges posed by Prompter’s creation. Prompter’s primary goals are twofold. First and foremost, it aims to help e-shops sell more goods at a better price, as retailers lose money when they offer discounts and thus do well to know who among their customers is particularly price-sensitive. Second, Prompter’s creators want to improve the public’s perception of e-shops by helping retailers avoid overwhelming their customers with offers they could care less about and by handing e-shops the ability to tailor their communication to individual consumers. Prompter has already been successfully tested in cooperation with a big Russian e-shop (see more information in the box below). Thanks to the tool, to a trial group of customers, the Russian retailer was able to sell goods offered via an e-mailing campaign three times more often than prior to the use of Prompter. The e-shop’s return on investment in customer communication went from 5 to an an amazing 61%.
Testing in Russia
We developed and deployed Prompter for a significant Russian e-shop that sells four million different products. The initial testing phase involved 300 thousand customers, while we created a comparison trial group whose communication with the e-shop underwent no changes. Here, the e-shop continued to address the customers with regular mailings. Prompter was tested on the first group. According to its output, special offers or discounts were designed and communicated to customers suggested by the system. After a month of testing, KPMG’s Prompter approach achieved a return on investment of 61%, whereas the traditional client approach of offering a plethora of discounts to a mass of customers remained at a ROI of 5%. Precisely targeted offers created within the testing project were opened by a third more customers than the e-shop’s regular mailings. What’s more, customers who opened their communication bought the advertised goods three times more often than the customers in the “unprompted” control group did. KPMG’s approach also made it possible to re-attract customers who had not shopped in the e-shop for a number of years.
© 2017 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.
The four stages of the purchasing process “Today’s relations between merchants and their clients very much resemble the close ties between cobblers and their customers in the 1920s”, Paul Martin, the head of KPMG UK’s retail sector, comments on the current situation in retail.
20 — topic
↓
Stage 1 Building awareness Before they can actually buy your product, customers must first know it exists. Do not be tempted to underestimate the importance of offline channels in online shopping. Millennials are among those who will come across your products most often, both through online and, surprisingly, offline channels. Millennials are 25% more likely than baby boomers to see your product in a shop and are 50% more likely to have talked about it with their friends.
Where customers came across your product before buying it Online channels �
59%
Stage 2 Considering a purchase and researching merchant and product In the next stage, clients are already aware of your product and considering its purchase. Here, the key factor is the internet, namely online reviews (a decisive factor for 55% of people) and your website (crucial for 47%). Nevertheless, offline channels should not be left out – customers still visit stores (with millennials going to bricks-and-mortar stores 50% more often than other generations) and talk about the product with their friends.
Proportion of customers searching for information on the product within the given channel
online store
30% 15%
Online searching for reviews and recommendations
55%
online advertisement online reviews
15%
Visiting merchant’s website
47%
social networks or blogs
10%
email promotion
10%
Visiting bricks-and-mortar shops where they 26% can have a close look at the product and try it
7%
online channel or magazine
Offline channels � bricks-and-mortar store recommended by friends
52%
Talks with friends and family
23%
22% 5%
recommended by family
13%
friends own it
12%
printed magazine or newspaper
9%
TV or a movie
8%
© 2017 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.
21 — topic Stage 3 Conversion (purchase) Once you have managed to convince a customer to buy your product, then comes step three – where and when to make the purchase. This essentially depends on several factors, the price being paramount, closely followed by the preference for a specific online shop. If the customer views your company in a positive light and has positive past experience with shopping in your shop, then you may even be successful while charging higher prices.
Factors based on which customers decide where to buy a product
Evaluation (feedback) Customer-given feedback should be an integral part of every purchase. It significantly influences customers and the likelihood of their potential future purchase, as well as other buyers. Do note that customers will not only provide feedback where you would want them to but anywhere they please.
Stage 4
Where customers give their feedback on a purchase
Best price
36%
Website where they made the purchase
47%
Preferred shop
30%
31%
Most convenient to get there
17%
Producer’s or brand’s website
18%
In stock
14%
17%
Recommended by friends
2%
12%
Ease of complaint procedure
1%
Online forum
11%
… (other)
© 2017 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.
While some theories predict that modern technology will lead to a significant decline of jobs in the legal professions, so far, nothing like that has come to pass. Nevertheless, top technology is gaining a foothold in the sector, helping lawyers to work more effectively and freeing up more time to devote to clients.
Text: Luděk Vokáč
→
The legal environment is reputedly relatively conservative, but it decidedly cannot stand aside and ignore modern trends. One of the many reasons being that quite often a law office’s clients themselves come from a highly technological environment and expect their lawyers to also apply the same processes and solutions they work with. Modern technology, with artificially intelligence and cloud solutions leading the way, today facilitates work in most segments and the legal professions are definitely no exception. A difficult consensus Clearly, technologies are ruling the world and the legal environment must obviously mirror this trend. Legislation on its own can no longer keep up with the precipitous technological developments and its current state is slowing down innovation in some areas, while indirectly offering innovators the chance to carefully ponder their future steps and thoroughly understand the technologies they are proposing. Incidentally, the understanding of technologies and their proper utilisation is one of the areas that call for immense concentration, not only in the legal area. Not nearly all users get along well with even the basic solutions they should have mastered and which today are a common aspect of working life instead of modern sci-fi elements. Aron Solomon, well-known propagator of innovations in the law arena (Law Made), at the Innovative Legal Services Forum 2017 in Prague pronounced that legal experts need on average seven hours to master the standardised “Legal Assessment of Technology” which should not take up more than an hour of a lawyer’s time. For Solomon, this is perfect proof that many still don’t know how to use modern technologies to their advantage. With a bit of irony, Solomon reminded listeners that up to now, the legal profession’s most fundamental technological breakthrough had been the invention of script. In his book The Future of the Professions: How Technology Will Transform the Work of Human Experts, professor Richard
© 2017 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.
22 — legal
Technology won’t cost lawyers their jobs
23 — legal
Susskind of the University of Glasgow also describes the legal environment’s conservative nature and insists that in a sector where the methods of numerous judges and lawyers have not changed since the times of Charles Dickens, significant changes will have to be undertaken soon. First, let’s streamline our work Maybe that’s why some experts believe that once the legal professions learn how to fully utilise the potential of current innovations, hundreds of thousands or even millions of jobs in the sector will be lost. But these scenarios emanate from the expectation that as soon as technology significantly streamlines the work in the field, many lawyers will be left with nothing to do. Martin Hrdlík from the law offices of KPMG Legal claims that any fundamental changes in the field of law will have to wait a number of years and that the arrival of technological innovations will neither lead to the loss of many employment opportunities nor be the cause for the fall of many a law office. “In our field, technologies will not aim to substitute personnel, but rather to optimise the work of lawyers. Should job losses occur, then they will be in the single digit percentage range and only in selected types of services”, so Hrdlík. And that is basically what professor Susskind says as well. “One question lurking in all this is whether someone can come in and do to law what Amazon did to bookselling”, so Susskind for the Financial Times. “We won’t see anything as dramatic, but we will see incremental transformations in areas like the ways documents are reviewed and legal risk is assessed”, Susskind says. Client relationships Such gradual changes then won’t lead to a dramatic decline in employment opportunities but rather to changes in the way that lawyers work. Instead of having to spend hours looking for information, reviewing documents and comparing contracts, legal professionals will have more time to do what’s really important:
analyse garnered information, interpret the law and, most of all, taking care of their clients. Martin Hrdlík of KPMG Legal concurs: “In my view, the human factor cannot be replaced so far. At least in the Czech Republic it holds that even if legislators were to have such an ambition, it currently is not possible to simply and unequivocally interpret the law without lawyers,” Hrdlík explains. What’s more, so far, Hrdlík does not believe artificial intelligence to be in a state where it could interpret matters as well as humans do. Another interesting factor will be the justification of the work done through artificial intelligence in front of clients and on their bills. “Will clients be willing to pay the same hourly rate for work that was done by a robot? Will they trust such services?” Hrdlík asks. In his opinion, today clients turn to specific law offices mostly because of their relationships with individual lawyers that they trust. “As clients, we are convinced of our lawyer’s professional and human qualities and no artificial intelligence will be able to give us the same satisfaction. What’s more, clients will always need assurance that the work that was done by a machine was subsequently reviewed and checked by somebody they trust”, explains Hrdlík. Even though it seems that on the outside, currently and in the near future human beings still will play a fundamental role in the world of law, this does not mean that innovative methods aren’t on the march. Quite the opposite, they are intensively gaining ground, as David Slánský, Partner at KPMG and head of the firm’s Prague data team confirms. According to Slánský, modern technology is being used for several types of tasks, like searches for hard-to-access data. ”The new technologies are great in the detection of at first sight unnoticeable signs of some non-standard behaviour. Hence, they can easily reveal possible problems and risks”, so Slánský. Modern technologies are today already in use in the comparison of contracts, and artificial intelligence is today even capable of differentiating between the contexts of individual languages.
© 2017 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.
Within its CSR programme, KPMG is involved in a wide range of activities that aim to improve the entrepreneurial environment in the Czech Republic. One of them is the mentoring of non-profit organisations – and not only the selected non-profits benefit from KPMG’s assistance, but so do the mentors. It all starts out with a non-profit organisation with a specific problem that it cannot solve on its own. The Czech Donors Forum, a civic association whose members are foundations, endowments as well as corporate donors, pairs the non-profit with KPMG’s consultants. For six months, the firm’s advisors mentor the organisation free of charge. The programme includes ten hours of mentoring, based on which the non-profit then can start to take care of its problems on its own. But the organisation isn’t the only one that gets to learn something. KPMG’s consultants get the opportunity to apply their learned skills in a safe environment and at the same time hone their soft skills, earning them extra points once promotion decisions are made. A wide array of activities Recently, Kateřina Hawlová and Vladimír Okáč of KMPG’s Prague offices participated in the mentoring programme. The name of the non-profit organisation they assisted is JAHODA, o.p.s. Jahoda (strawberry in English) operates in the Prague neighbourhoods of Černý Most and Královské Vinohrady. To its clients, who mostly are children and young adults, it offers a variety of activities within low-threshold clubs. It also runs its own outreach programme and organises educational and communal activities, like the Strawberry Fields festival that aims to improve the quality of life and prevent crime in the Černý Most neighbourhood, made up of mostly pre-fab blocks of flats. At Černý Most, Jahoda also offers rehearsal facilities with a recording studio to fledgling music bands. In addition, Jahoda runs several nurseries, kindergartens, an afterschool programme and a family centre. The non-profit entered the volunteering programme that eventually brought it together with KPMG in 2016, at a time when its activities diversified. Wanting to offer various new activities called for the reorganisation of JAHODA, o.p.s., which involved expanding its team. “We were looking for ways to solve our substitutability and sustainability issues and needed to create processes that would assure the smooth functioning of our team. In several meetings, we together found the ideal approaches. We’re currently putting the © 2017 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.
24 — CSR
Text: Pavla Čechová, illustration: Barbora Tögelová
Mentoring a non-profit
KPMG – we help with what we do best Within the community in which operate, we focus on offering our professional expertise to non-profit organisations and social businesses so that they may become more effective and hence even more beneficial for society. The opportunity to share their professional expertise offers our employees the chance to develop both their technical competencies and soft skills.
25 — CSR
Karel Růžička Partner in charge of CSR at KPMG Česká republika
newly defined positions, role divisions and competencies for the leadership of the organisation into practice and so far, all has proven to be very effective”, Markéta Kalinová, director of the public benefit society JAHODA, describes her experience with the mentoring programme. An informal environment During their time at JAHODA, Kateřina Hawlová and Vladimír Okáč communicated directly with the director and twice participated in meetings of the society’s administrative board. “The broadening of the offered social services called for the hiring of new employees that the director would delegate some of her work to. Ms Kalinová had been fulfilling most of the roles herself; she was even doing the accounting and fundraising. Now, others have taken on these roles, the director can be substituted and has more time for the truly visionary activities”, Vladimír Okáč describes the result of his activities. According to both consultants, the work they did for Jahoda was unlike anything they had been used to. Non-profits function on an entirely different level than commercial companies. “What surprised me most were their premises. They don’t have any meeting rooms because they just don’t need them to function day-by-day”, so Vladimír Okáč. The informal atmosphere and the easy accessibility of the society’s leadership made the work of both mentors much easier. “It was a very pleasant and friendly work environment. To apply some of the measures that we introduce into the commercial sphere would probably be more
complex. Thanks to our direct access to the director, we were able to precisely define the steps that needed to be taken”, explains Kateřina Hawlová. New experiences for all Both sides consider to have been enriched through their cooperation. “As I had no previous experience with the nonprofit sector, it was very interesting for me to see how quickly such an entity can grow. I also witnessed the director’s and her colleagues’ enthusiasm and I really tip my hat to them. I am convinced that the knowledge and experience that they gained through us will push them to an even higher level”, gushes Vladimír Okáč and adds that he would recommend the mentoring programme especially to those of his colleagues with less experience, as they themselves will gain new skills along with their mentees. Kateřina Hawlová appreciates that she was part of a project that led to the improvement of the public benefit society. “For me, it was an extraordinary experience. I am really glad I got to take part in it and am convinced that JAHODA will do well in the future”, she added. Markéta Kalinová was impressed how quickly KPMG’s consultants got their bearings in the non-profit sector. “They were able to find the ideal solutions taking into regard our possibilities and limitations. What I most valued was their intelligibility, their expertise and their helpfulness”, concludes JAHODA’s director.
© 2017 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.
Daniel Szmaragowski Director, KPMG Česká republika dszmaragowski@kpmg.cz
For a number of years, we have been reading in the media about large global firms that additionally have had to pay billions of dollars owing to their tax optimisation schemes. Transfer pricing, additional tax payments and increased tax bases are issues that are also commonly discussed in the Czech business environment. Last year, the financial administration additionally assessed approx. CZK 900 million plus penalties and default interest to corporations for faults in their transfer pricing arrangements. ↓ Increasingly often, we hear abbreviations such as ATAD, BEPS or talk about country-by-country reporting, master files or local files. Appendix 12 to income tax returns, summarising related-party transactions, has become an integral part of corporate taxpayers’ lives. As an example of the prevalence of this issue we may include the tax authorities’ automatic demand for the submission of local transfer pricing documentation in tax inspections. All of this significantly increases the administrative burden on taxpayers. A recent KPMG survey has shown that 43% of Czech finance managers feel increased pressure in the area of transfer pricing from the financial administration. One third of survey respondents have undergone an inspection in the last three years. When to expect an inspection? In the past, tax officials preferred to avoid transfer pricing issues and inspections were quite rare. Today, every official claims to be a transfer pricing expert, holding rather unorthodox opinions on what corporations should have done differently. At times, the tax authorities’ procedures verge on abuse of the state administration’s power, similarly as in the case of issuing securing orders. The financial administration’s growing interest is also evident from tax additionally assessed because of transfer pricing. In 2016, the financial administration carried out ca. 900 inspections, representing a year-on-year increase of more than 10%.
What kind of corporate behaviour does the financial administration consider an invitation for an inspection? In our experience, this includes reported losses, high invoicing for services or changes in profitability, especially after terminating the drawing of incentives. The number of inspections carried out in response to the outcomes of inspections performed abroad or as a result of a successful additional tax assessment relating to transfer pricing in a taxpayer’s other taxable period has also increased, as transfer pricing is a systematic matter. “The tax administration is planning to move its focus on financial transactions like the widely discussed one-crown bonds,” said Zdeněk Řehák of KPMG ČR’s Tax department during the May Transfer Pricing Forum. “We would like to draw attention to the financial administration’s current tendency to issue securing orders”, adds Řehák’s colleague, Veronika Červenková. “Unfortunately, securing orders are not only a phenomenon of value added tax. When the financial administration decides to assess additional tax, in a best-case scenario, cash must be deposited in its account within three days. The worst that can happen is that the tax authority issues a securing order effective immediately after it is printed. The securing order gives the financial administration the right to garnish bank accounts or directly order the sale of assets. Corporations may thus get into big trouble”, says Červenková.
© 2017 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.
26 — tax
Financial administration in love with transfer pricing
27 — tax
What to keep an eye on
The arm’s length principle of transfer pricing
�
�
1. Don’t forget domestic transactions To their detriment, Czech corporations often think that transfer pricing only relates to transactions with foreign entities, but Czech tax legislation does not distinguish between domestic and international transactions.
Transfer pricing involves transactions carried out by companies of one group and arise when more group companies are involved in the development or delivery of products or services, invoicing one another for such products or services. Tax legislation prescribes that these prices be at arm’s length, thus preventing the artificial transfer of profits from jurisdictions with higher taxes to those with lower taxes (e.g. tax havens) or to companies utilising investment incentives.
2. Don’t forget to invoice Medium and small businesses often forget that services provided among group companies must also be invoiced. Many times, one company purchases software or develops know‐how that is subsequently used by more companies of the group but expenses are only borne by one company. Similar situations occur with respect to key executives where payroll expenses are only borne by one company but benefits from their activities are generated by more companies.
d ce du Re
d se ea cr In es as xb ta
s se os xl ta
lly na ax tio t di ed Ad ess s as
4. Don’t underestimate planning Planning that has been underestimated usually becomes apparent only a few years later when considerable changes in a company’s set up become unavoidable. The tax authorities usually do not view this laid-back approach very positively and any changes often become the subject of detailed investigations. It is necessary to know in advance what functions individual group companies will perform and what risks they will bear. Only then the right transfer pricing calculation method can be selected.
Year-on-year comparison of tax inspections (2013–2016)
f ro s be n m tio Nu ec sp in ar Ye
3. Don’t pay unnecessarily high taxes It often happens that distributors within a group recognise losses, whereas its parent company reports excessive profits. Such an arrangement may but need not have economic substance. Sometimes the only reason for this is the lack of a comprehensive view of the group’s setting and overall role distribution. As a result of the systematically incorrect setting of transfer prices, tax inefficiencies such as the failure to utilise tax losses arise and result in a higher tax burden for the entire group.
2013
282
71 759 104
336 386 414
131 267 918
2014
459
59 402 410
259 612 320
244 221 586
2015
786
446 263 377
2 431 935 440
390 970 153
*2016
900
886 116 252
4 783 203 802
8 502 980 932
* Preliminary data; not yet final.
5. The transfer of activities among group companies may have tax implications Recently, we have come across situations where the tax implications arising from transfers of functions or activities among group companies were entirely neglected. This may involve, e.g., the centralisation of sales activities or transfers of production lines or parts of production portfolios. If the transferring company generated profit from the activities being transferred, we recommend assessing whether giving up future profit potential should not be remunerated on a one-off basis (an exit charge). © 2017 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.
European scene
Text: Anna Batistová
↑
Biggest music event of the summer? Colours of Ostrava
Long Night of Museums Germany ǫǫBerlin ǫǫ19 August 2017 In the city that invented it, this event designed for all lovers of the fine arts will take place on 19 August this year. From 6pm to 2am on this day, special buses will run between Berlin museums and galleries. Apart from vernissages, exhibits and expositions, guests may look forward to concerts, dance performances, happenings and various art installations. 1
Opera on the lake Austria ǫǫBregenz ǫǫfrom 19 July to 20 August 2017 The Bregenzer Festspiele, a glorious music festival offering one of the most stunning opera stages on the shores of Lake Constance, this year presents Bizet’s Carmen as its opera highlight. In what has already become a tradition, the Prague Philharmonic Choir led by Lukáš Vasilek has been invited to join the star-studded cast in this production. 2
3 California London ǫǫLondon, The Design Museum ǫǫuntil 15 October 2017 What influence have designers from the San Francisco Bay Area had on our daily lives? In the London Design Museum, the ambitious exhibit simply called California maps the story of the design pioneers from the bay, starting in the 60s of the last century up to today and stretching from LSD, over skateboards to today’s iPhones.
4 Sziget Hungary ǫǫBudapest, Hajógyári Island ǫǫfrom 9 to 16 August 2017 To commemorate the 25th anniversary of Sziget festival, its organisers have prepared a retrospective of the best that has appeared on Sziget’s stages in the last 25 years. Representative bands of new Magyar music will start off the zeroth day of the festival, whose headlines among others include P!nk, Kasabian, Jamie Cullum, Wiz Khalifa, Major Lazer, PJ Harvey and alt-J.
© 2017 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.
28 — revue
In just about every European country, summer is marked by big outdoor music festivals. Among the Czech ones, you shouldn’t miss Colours of Ostrava, which this year have paired with Meltingpot, an international discussion forum. Elsewhere, Sziget in Budapest, Hungary and Ruisrock in Turku, Finland are definitely worth both a mention and a visit.
Marwick Revue
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Příběh nového jména (The Story of a New Name) Literature ǫǫElena Ferrante Italian author Elena Ferrante has been hailed as a new-age literary sensation. The second part of her Neapolitan Novels tetralogy, titled My Brilliant Friend (Geniální přítelkyně), was published in Czech in January of this year. The Czech version of the four-part series’ second instalment – The Story of a New Name – is hitting bookstores at this very moment. Publishing house Prostor has promised to publish the third book in the series this autumn. In her tetralogy, Ferrante tells of the life-long friendship between two women. Relaxer Music ǫǫalt-J In June 2017, British indie-rock band alt-J brought out a new album. The band’s third set of studio recordings has received the title Relaxer. alt-J, whose first album, An Awesome Wave, won a Mercury Prize, will introduce itself to Czech audiences at the Colours of Ostrava festival this year. 29 — revue
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alt-J will present their new album at the Colours of Ostrava
Summer Shakespeare Festival Theatre ǫǫPrague, Brno, Ostrava, Bratislava This year’s Summer Shakespeare Festival will highlight a new production of Hamlet staring Jaroslav Plesl and Hynek Čermák. As its traditional scene (the courtyard of the Burgrave Palace at Prague Castle) is undergoing reconstruction, in Prague, the festival will take place in front of the Ball Games Hall (Míčovna) in the Royal Garden of Prague Castle. 3
Solo for the Two of Us Dance ǫǫNew Stage of the National Theatre The ballet Solo for the Two of Us had its premiere in June 2017 at the New Stage of the National Theatre. The performance choreographed and directed by Petr Zuska is accompanied by the music of Jarek Nohavica and Beat Bocek and follows up upon 2007’s most successful dance theatre production, Brel – Vysockij – Kryl / Solo for Three. 4
Born’s Unique World Exhibit ǫǫMuseum Kampa You have only until 30 July to visit an extensive exhibit of the works of Adolf Born titled A Unique World. The display offers a cross section of Adolf Born’s independent works, but visitors will also be able to take a look at his unique and well-loved illustrations of the Mach a Šebestová books and cartoon series and his drawings to accompany the poetry of Christian Morgenstern. 5
© 2017 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.
Text: Anna Batistová
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Design News KMENY 90 reflects on the alternative cultures of the 90s of the last century.
1 Bratislava begins construction of Zaha Hadid’s Sky Park residential complex Construction of three high-rise residential buildings that six years ago were designed by the late architect and designer Zaha Hadid has been kicked off in the centre of the Slovak capital Bratislava. The project titled Sky Park features a unified organic design. After completion, the buildings will offer not only apartments but also office and commercial spaces. Zaha Hadid and her studio also designed the interior of the apartments.
2 Brno exhibit KMENY 90 reminiscent of 90s’ subcultures The Moravian Gallery in Brno recently opened an exhibit titled KMENY 90, prepared by rapper Vladimir 518. The exhibition focuses on the 90s of the last century and its post societal loosening which allowed for the expression of alterative cultures. KMENY 90 thus highlights different subcultures, among them head bangers, rappers, anarchists, skin heads, squatters, players of Dungeons and Dragons, and many others. Contemporary art also helps to recall the now bygone era.
3 First Republic era broad exhibit at Dancing House Until 25 October 2017, the Dancing House gallery invites visitors to peruse an extensive exhibit entitled The First Republic’s 13 Chambers, bringing to life this hopeful period of prosperity through fashion, interior design, technology, culture and photographs. The exhibit’s biggest attractions are puppets crafted by Jiří Trnka, the personal effects of famous Czech actors like Vlasta Burian, a convertible owned by industrialist Josef Walter and a Jawa Robot 1937 motorcycle.
Škoda presents Karoq, its new compact SUV Škoda Auto has unveiled its long awaited compact SUV that is smaller than its Kodiaq model. Karoq follows the current direction of the brand, while its name and its spelling originate from the language of the Alutiiq, an indigenous tribe who live on an island off the southern coast of Alaska. The name KAROQ is a combination of the terms ‘KAA’RAQ’ (car) and ‘RUQ’ (arrow). In their new model, Škoda’s designers have emphasised simplicity as well as emotional and dynamic design. An endearing feature are the crystalline elements that adorn the headlights. Their inclusion in the design may be understood as an homage to the Czech glassblowing tradition.
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© 2017 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.
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Text: Ondřej Krynek, editor in chief of DesignMagazin.cz
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First stables, then garages and even a prison, now a place for culture…
1 Kulturní Kasárna Karlín (Cultural barracks of Karlín) The last time this place was full of life was during the floods, but now the former barracks have again made their way back to the Prague scene. At the end of June, a newly revitalised courtyard opened to the public and aims to become the new central cultural crossroads of this neighbourhood. “Up and running are a café, a movie theatre and a theatre cum music club. In the forecourt, we have a children’s playground, a beach volleyball and a football tennis court and an open-air cinema“, enumerates Diana Vávrová from the Kasárna Karlín production staff. The owner of the complex of buildings, the Ministry of Justice of the Czech Republic, has rented the area out for three years with the option to renew. In the future, the site should become a new law courts location.
Extra tip When cleaning out the object from years of trash, did the new lessees find any hidden treasures? “After cutting away a whole forest of self-seeded trees, we found a beautifully blooming apple tree”, remarks Diana Vávrová, mentioning the courtyard’s natural dominant attraction.
A museum of mistakes If Norwegian TV can broadcast the process of knitting a sweater on live TV, then Sweden certainly may have a museum displaying about 60 inventions that could have conquered the world had there not been any mistakes. You won’t find any relicts from the former Communist Bloc here, but instead new-age artefacts like a pair of smart Google Glasses, a Harley-Davidson perfume line and ball point pens designed exclusively for women. According to one of the curators of Samuel West’s exposition, visitors should walk away from the Museum of Failure in the harbour town of Helsingborg with two insights – one, that failure is an inseparable part of progress and two, that one should learn from one’s mistakes. 3
Hipsta monastery Just as last year, Olomouc found its place on the Czech Republic’s gastronomic map with the Entrée restaurant, this year, the Long Story Short Hostel & Café intends to make Olomouc’ mark on the map permanent. The concept, titled by blogger Lukáš Hejlík a hipsta monastery, combines a hostel with 56 beds and a stylish bistro. “Our food leans heavily on the Moravian tradition but is combined with modern cuisine from the whole world. We make hot open-face sandwiches, lunch soups that are always vegetarian or vegan and that meat eaters can garnish with meat if they prefer”, so the director of the new Olomouc in spot, Eva Dlabalová. No matter what you order, you’ll be able to enjoy it in the summer garden. Do please note, however, that Long Story Short opens for non-residents only after 12 o’clock. 2
Extra tip “Our speciality is our cloud cake – a gluten free cake, light and fluffy, that will take you straight to heaven”, promises Eva Dlabalová.
Extra tip The museum is open daily from 12 to 6pm. The descriptions below the exhibits are in Swedish and English. Should hunger strike, on the opposite river bank the restaurant Sletten, owned by Michelin star-owning chefs, beckons.
© 2017 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.
Text: Lukáš Rozmajzl, editor in chief of CityBee.cz
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TOP 3 new venues
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Where to find great food and golf courses… Klára Spilková, the best Czech female golfer, shares her tips and experiences from golf trips around the world with Marwick’s readers.
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Text and photograph: Klára Spilková
Klára Spilková on the road
Moroccan dates in Rabat This year marks my seventh season at the Ladies European Tour and it could not have started off better. I finally won my first tournament – in Morocco, which is where I started my career in 2011. I very much enjoy returning there, among other things because of the pleasant weather, a very friendly atmosphere and perfect service. I fly into Casablanca and then transfer to the tournament site in Rabat. I love the local market where you can buy almost anything. I was stunned by the innumerable different types of spices and dried fruits, such as big Moroccan dates. I also like the local food and special Moroccan teas. At the tournament, the Moroccan prince himself presented the trophy to me. In the narrow streets of Sitges From North Africa, I flew to Spain – to a tournament near Barcelona. We stayed in the beautiful seaside town of Sitges. Its claim to fame is an annual meeting of gays from all over the world. In the centre, you can even find a number of bars that women won’t gain admission to. However, Sitges also has numerous very pleasant restaurants specialising in seafood. I have fallen in love with fried calamari - sprinkled with lemon they taste delicious. The town is interlaced with narrow streets creating a mysterious atmosphere – especially in the evening. After the tournament, I also went to Barcelona. Last year, I spent my holidays there and ever since have been in love with the city. © 2017 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.
Focus
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When Where What
until 1 October 2017 Karlín, Prague A new open-air art exhibition staged by Bubec Art Studio and co-financed by the Prague City Gallery, the Prague Institute of Planning and Development, the Municipal District of Prague 8 and KPMG Czech Republic, general partner of the festival. With On the Edge as its topic, this year’s festival will invigorate the area around Invalidovna in Karlín, a massive Baroque complex with a lovely garden. Sculptor Čestmír Suška is the festival’s art director. Radek Wohlmuth and Daniela Kramerová are the curators. Matěj Frank, Jakub Geltner, Kryštof Kaplan, Lenka Klodová, Pavel Korbička, Vojtěch Míča, Aleš Novák, Jan Paclt, Martin Skalický, Petr Stibral, Čestmír Suška, Samuel Šrom, Timo, Jan Zdvořák, ZEB ONE are among the exhibiting artists. Access to the installations and the accompanying programme is free.
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Serious interest/Silent classic (concert) 6pm, 26 August 2017 Kaizl’s Gardens, Prague 8 A classic-style silent disco. An ensemble of musicians play special instruments audible only in wireless headphones offered to passers-by. The passers-by can take a seat in chairs or armchairs and re-create their own living room in a public space.
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Series of workshops for children 10am–4pm, 11 July guided tour for children 5 to 8 years old 10am–4pm, 9 August guided tour for children 9 to 12 years old 10am–4pm, 19 August m³ upside down, making a camera obscura 10am–4pm, 23 August urbanism and architecture for children 10 to 15 years old
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Maud Kotasová | Embroidery of Čestmír Suška’s sculptures (workshop/performance) 10am–6pm, 29 and 30 July 2017 Kaizl’s Gardens, Prague 8 Maud Kotasová loves embroidering cars. As a rule, she carefully prepares the objects she wants to embroider but sometimes she is tempted to embroider virtually anything. Do you feel like embroidering something in a public space? Like the sculptures of one of the most prominent and distinctive contemporary Czech sculptors, Čestmír Suška? Embroidery is like a subtle intervention into the metal structure of a peculiar sculpture created by another artist.
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What’s it here for? (discussion) 6 pm, 21 September 2017 Stone Bell House, concert hall
© 2017 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.
Photo: Marek Volf
m3 Festival / Art in Space
© 2017 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.
He collects old unwanted storage tanks and breathes new life into them. In his Studio Bubec in Prague’s Řeporyje suburb, Czech renowned sculptor Čestmír Suška carves simple patterns into recovered metal objects and creates unique works of art. You may take a look at his newest project titled Abandoned Dwellings in the Prague neighbourhood of Karlin, within the m3 / Art in Space Festival, organised by aforementioned Studio Bubec. →
© 2017 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.
Text: Anna Batistová, Photographs: : Barbora Mráčková
Art getting rained on
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Čestmír Suška He graduated from the Prague Academy of the Fine Arts (AVU), at the turn of the 80s and 90s he was a member of the Tvrdohlaví (the hard-headed) group. He has sculptured from wood as well as stone, but today he devotes most of this time to working with metal. He has had exhibits in Prague, Birmingham and New York.
In your opinion, what prerequisites must a sculpture have to function well in a public space? A sculpture only makes sense if it is possible to integrate it into public space so that it fits its surroundings without seeming superfluous or forced. It has to have a purpose; engage people. Ideal is if they can even use it in some way. Which of your sculptures was, in your eyes, most successful in this respect? I think my biggest success so far was the lookout that we installed three years ago in the botanical gardens in Prague Troja. It’s made from an steel cistern and can be entered and ascended. That’s why it’s so interesting, it can be inhabited and utilised. The ongoing Karlin m³ / Art in space festival features your Abandoned Dwellings installation. What did you intent to create? The Abandoned Dwellings installation comprises five little huts made from steel containers. They are inspired by indigenous structures like yurts and even igloos. Mine are made from steel, hence they look a little like military tents or bunkers. And I created them because I think that that is a very important topic right now. The world is going through a wave of immigration; people are leaving their homes or are ousted from them. I perceive this to be a big problem that could become a giant crisis. © 2017 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.
37 — revue
How could the Abandoned Dwellings be utilised further? Every hut has its own door and flooring. They can be inhabited, but at the same time, we are taking about a work of art, it has holes in all kinds of places, so the rain does come in. It’s supposed to be a symbolic dwelling that has been abandoned and is looking for a new purpose. I came up with the installation hoping that during the festival it would come to life, that people would come to look at the dwellings, meet in them, maybe eat their lunch there, that kids would crawl in and play in them…What’s more, during the festival, the dwellings will serve as the venue for a number of theatre and music performances. Several gigs took place there as part of Arted Institute’s Abandoned Festival. What other works are on display in Karlín? A total of 15 works of art are on display, most of them by young and middle-aged Czech artists. Some of the installations came into being at Studio Bubec, as we have a lot of space there and heavy machinery as well as cranes. These are often necessary to create works of larger proportions. How did the idea to organise the outdoor m³ / Art in Space festival come about? The presentation of art in public space is something that has been an interest of mine for a long time. Already in 1981, I initiated and organised the Sculptures and Objects exhibit on the courtyards of Prague’s Malá Strana. It was met with
tremendous interest and in 1990 we organised a similar event in courtyards on Old Town’s side of the river. Sturio Bubec was founded in 2000 and since then we have put on a number of exhibits in public places, as we realised that we would like to make it a regular event. Even Prague’s leadership repeatedly declared that they want Prague to be a European city in which modern sculptures are an everyday occurrence, so we put together an exhibit of visual art and called it m³ / Art in Space. The arts council of the festival hence includes members of Studio Bubec, representatives of the Gallery of the Capital City of Prague, the city’s Institute for Planning and Development, the Academy of Fine Arts, the Academy of Arts, Architecture and Design in Prague and Pavel Karous, lobbyist for the fine arts in public spaces. 2017 is our first, premiere year and we would like the event to become an annual exhibition. Each year, we will elect a curator who will select the artists, decide on a theme and pick a location. The curators for this year’s exhibit, Daniela Kramerová and Radek Wohlmuth, chose Karlín. Why? Our intention is always to choose a location fitting the year’s topic and matching current events. This year’s theme is On the Edge, meant both literally as well as figuratively. Currently, people are debating the future utilisation of the Invalidovna building – whether it should all end up in the hands of the National Heritage Institute, or if it will partially open for civic activities and
© 2017 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.
In your opinion, at what level are the works of art in Prague’s public spaces? We believe that Prague is an amazing environment which we should appreciate more, but we also feel that it lacks and desperately needs a good concept. Just as one wants to have nice, meaningful things in one’s home or garden, it should work the same way with one’s city. We should make sure that the works that get placed out in public are of a high quality. For example, some of the monuments that are out there right now are quite controversial. Luckily, Prague is much better off than, let’s say, Budapest, where they have hundreds of objects of debatable quality. What’s most important is to continue to talk about it to make sure that public spaces flourish and continue to be increasingly appealing to people.
Which of the sculptures that are currently located in Prague do you consider well done and placed? For instance, in Prague I like the Operation Anthropoid Memorial in Libeň, or monuments and lamps done by Krištof Kintera. The babies climbing up the Žižkov Tower are a good undertaking, too. But so far, the selection is rather dire. Which European cities may we look to for inspiration? Where does art in space really work well? It works amazingly well in Kassel in Germany, which traditionally has been featuring one of the best exhibits. But even at home, we can find great examples, for instance the bi-annual Brno Art Open or the Kukačka exhibit in Ostrava. These are all highly interesting endeavours that we should try to emulate. Each year, you plan to enliven another venue. What will happen to the exhibits once the Karlín festival comes to an end? The sculptures are for sale, so maybe firms that need to take care of the space surrounding them or that want to support the public spaces in the neighbourhood they are located in may want to buy them. The Prague magistrate has come up with an initiative and wants to support activities like ours financially, so I am hopeful that firms will become interested and that this way, some of the sculptures will be able to remain out in public for a while longer or maybe permanently.
© 2017 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.
38 — revue
the non-profit sector, which we would consider an important factor. And Karlín as a Prague neighbourhood seems interesting to us because it has gone through so many changes. Often, these changes were positive, but sometimes, they went the other way. What we hear a lot is that the development projects that have sprung to life here are so extensive and generously planned that the locals are starting to feel constrained, which ends up leading to some friction. Hence, this year we brought the festival to Karlín, because we consider the discussion about the manner in which the developers should cooperate with this neighbourhood to come to some consensus beneficial for both sides very important and interesting.
6. 6.
1. 10. 2017
Praha - Karlín
Uvádí: BUBEC o. p. s.
www.festivalm3.cz
Kurátoři
Radek Wohlmuth Daniela Kramerová
Matěj Frank Jan Paclt Jakub Geltner Kryštof Kaplan Lenka Klodová Pavel Korbička Vojtěch Míča Jan Zdvořák Zeb One Aleš Novák Martin Skalický Petr Stibral Čestmír Suška Samuel Šrom Timo
Daniela Hermana a MČ Praha 8.
hl. m. Prahy Adriany Krnáčové, ministra kultury ČR
Festival se koná pod záštitou primátorky
Umělci
generální partner
mediální partneři
partneři
© 2017 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.
As a child, did you love the old black and white cartoons? They no doubt did have their appeal, but their monochromatic nature would certainly not impress today’s kids. But it doesn’t have to, as those cartoons can now get their colours while still looking as having been drawn by the original artist. → doc. Ing. Daniel Sýkora, Ph.D. A laureate of the Neuron Prize, he devotes his time to computer graphics. He invented an algorithm that can let advanced computers to a large part take over the routine work of artists without losing the artist’s distinct style. Sýkora’s work involves coming up with algorithms that aim to simulate specific fine art techniques while the resulting paintings or drawings will look as if drawn or painted by a human artist’s hand and not like the result of computer simulation. © 2017 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.
Text: Richard Valoušek, photo: Barbora Mráčková
From Rumcajs, the bandit to Hollywood
“Of course I grew up in front of a computer, but first and foremost I always wanted to create something on the screen. I hence try to make sure that my children are not just passive consumers. It sometimes is a struggle to get them away from the display, but I am confident that eventually, I’ll succeed”.
It all started with Rumcajs, the bandit For Daniel Sýkora, the path leading to the fulfilment of dreams was long. He set out on it when he was a little boy, utterly smitten with the animated fairy tales about the bandit Rumcajs. “I grew up on the TV bed-time stories by Radek Pilař, with my favourite Karel Höger providing the voice over. And I always liked Rumcajs the most“, Sýkora admits. So maybe it was fate that he encountered the animated character of Rumcajs during his studies as well. And that the little bandit changed his life. “It really did”, laughs Sýkora. As a student at ČVUT (the Technical University of Prague) he did not feel comfortable among the other students, as he had different interests and a different enthusiasm for his studies. “I wanted to do 3D computer graphics, my own synthesis of pictures based on light propagation algorithms. But then I got the offer to colour old black and white versions of Rumcajs, the bandit, and all was clear at once. I jumped at the chance without looking back.” And Sýkora’s ground-breaking research and his manner of thinking did not go unnoticed by his superiors. “I got their attention during the individual tasks; I was really interested in the field and did things that were off the beaten path”, he explains. “I liked the offer to do Rumcajs so much, I just had to go into it. But in the beginning, disillusionment replaced my enthusiasm, instead of excited I started to feel futile”, Sýkora describes his beginnings with the project. “For a long time, I couldn’t come up with an algorithm that would facilitate the incredibly tedious colouring by hand. But my frustration served as motivation and I refused to give up”. His resilient determination and undeniable talent led Sýkora to the desired results. “In the end, the solution proved to be fairly simple, even though nobody had thought of it before. I had tried different types of filters, but always systematically, which had proven to be the right way in the past. It turned out that I had to go about it completely differently and test the filters in combinations that nobody had ever tried before, because it hadn’t made sense up to that moment. But now it did, and my problem was instantly solved. I simply used a new process on a tried and tested path”. If all that seems complicated to you, don’t worry. Your feelings are surely shared by everybody who isn’t familiar with the world of computer animation. When he talks about his area of expertise, Daniel Sýkora is utterly convincing, however. It thus comes as no surprise that his initial successes quickly opened the way to international recognition.
© 2017 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.
42 — science
This is the daily work of Czech scientist and recent Neuron Prize laureate Daniel Sýkora. “I am trying to create algorithms that not only will make the work of artists easier but that will also maintain their original manual drawing style”, Sýkora explains in passing. But so much more hides behind his skilfulness. His talent didn’t go unnoticed by Hollywood and some time ago, Disney Studios asked him to work for them. “It was an exceptional experience. I had a contract to work for them for four years; twice, I spent considerable time in Los Angeles. I worked on the adaptation of the Lion King into 3D. The results were fabulous”, Sýkora describes his time in the famous studios.
43 — science
No turning back His success with Rumcajs, the bandit instantly turned Sýkora into a respected authority in his field. As he freely admits, his research completely absorbed him as he was highly motivated to discover more. “I was publishing articles and wanted to continue in my research after my post-graduate studies. As luck would have it, I got the perfect opportunity to do so”. The coincidence was almost unbelievable. A reunion with his elementary school classmates opened the door for him to an animated film studio that one of his former school pals was heading. “I got there, took a look around and watched how they dealt with the colouring of film images. At that time they were working on a feature called Doktor Animo”, Sýkora describes his beginnings, which again were far from easy. “The task to colour a film whose contours were not as clearly defined as those of Rumcajs posed an entirely new challenge to me. The first algorithm I created failed completely. So quickly, disappointment cooled off my initial excitement. Again, I had to begin at zero”. But his immeasurable talent and refusal to give up forced him to apply himself more diligently, leading to an even more extraordinary discovery than with Rumcajs, the bandit. “I used modern mathematical methods based on graphic algorithms initially not intended for colouring, but I was able to adjust them to the given problem. It probably wouldn’t make much sense to go into much more detail”, Sýkora smiles. The results were extraordinary and got him an invitation to the famous Disney Studios.
On the way to Hollywood “I remember it very well, I was at home in the Czech Republic for the holidays, but otherwise studying at Trinity College in Dublin. To my school email account I got a message asking me whether I wouldn’t like to come to Hollywood. They wrote that they liked my algorithm and would like to use it for their own production.” So that’s how he got to America to gain experience at the most renowned studio in the world – Disney. “I was ecstatic. What’s more, the person who had invited me there was incredibly kind and made me feel like they would do anything for me”. The initial honeymoon didn’t last long, however. His mentor left the studios and Disney decided to do away with animation by hand. “It was fairly typical. When I started to work something big, it began with my complete enthusiasm and ended at rock bottom”. But again, Sýkora didn’t give up. He had come such a long way and taking any steps back was unimaginable. And again, his determination paid off. Even though the entire hand-drawn department was about to close down, Sýkora got the offer to help with the transformation of the Lion King into 3D. “It was very successful, of course not as much as an entirely new film, but it nevertheless meant a huge step forward for animation”, says Sýkora. In America, he first spent three months seven years ago. Four years later, he again was invited for a three-month stay. Both visits formed the beginning and the end of his contractual cooperation with the studio. He remains in contact with the people at Disney, but has no plans to return to the US in the near future. “I have projects here that need to be finished and that I don’t want to abandon. My dream is to have computer-animated results almost identical to an artist’s creations”, says Sýkora. It seems that Daniel Sýkora’s nature is to only set the highest goals for himself. Hence, the question begs to be asked when the world should expect another milestone in film animation. “Well, that may take five or just one year. Expect to be surprised”.
© 2017 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.
For years, the haunted building near D1 not far from Brno had been allowed to disintegrate, while Jiří Lešikar helped to refine Soho and Zdeněk’s Oyster Bar in Prague and Lumír Sendrei devoted himself to wine, his lifelong passion, in similarly prestigious business establishments. →
© 2017 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.
44 — business lifestyle
Text: Eva Samšuková, photo: Signature
Rabbit meatloaf for business folk
Tidbits from Signature’s kitchen
45 — business lifestyle
ǫǫIn Lumír’s wine cellar, you can find over 160 labels of his favourite champagne, even in multiple-litre bottles. “If guests like the wine, why keep opening new bottles if opening just one big bottle will do the trick?” ǫǫWith the exception of the 70’s, the bar features at least one bottle of Armagnac from every year since 1950. “Celebrating their birthday, guests can have a drink that is as old as they are!” beckons Lumír. ǫǫFamily sharing brunch. Once a month, guests get served from platters filled with honest and tasty foods in the middle of their table and feel like in a Hollywood film. The parents splurge and the kids can spend time in the kitchen doing fun activities designed just for them.
Thanks to a generous investor, however, both men now get to realise their potential as their own landlords. In a reconditioned complex in Popůvky, they run Signature, a new restaurant that has rapidly improved the standard of gastronomy of the Czech Republic’s main transportation artery. Unique design, meaningful food and a professional staff all challenge the ordinary highway roadside inns, petrol stations and fast food restaurants. Exit 182 - location, location, location The city of Brno serves as a busy traffic junction not just for the countries of the Visegrad Group. Even though its centre offers many quality restaurants and one can also eat well in Kraví hora or Královo Pole, having to slow down from 130 to 50 kilometres per hour just to eat in the town centre is not exactly convenient. Jiří and Lumír were well aware of this, and also knew that not every business person liked to risk mayonnaise spots on their shirt from a baguette bought at a petrol station. So, just off an highway exit near the Brno Circuit race way, they decided to open a carefully designed culinary oasis, anticipating that apart from drivers dropping in for coffee, Brno residents would also be willing to travel to experience quality gastronomy. Surprisingly, the restaurant prospers even though it is part of a four-star hotel and an adjacent casino and from afar, one can’t even imagine its existence. And still, residents of the second biggest town in the Czech Republic are willing to spend a half-anhour ride on Brno public transportation or half of the time behind one’s own wheels (sometimes lengthened by a traffic jam), also thanks to rumours circulating about Signature in Brno. “We have to share the visibility around our premises with the hotel and the casino. However, our cooperation benefits all three”, says Jiří Lešikar, explaining the relationship of the three enterprises, “this way, we have orders for breakfasts and other daily meals as well”.
© 2017 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.
Sliding ice cubes In a Swedish McDonald’s commercial, guest in a fine dining establishment are presented with ice cubes sliding down their plate before heading to Mickey D’s for “real food”. Signature, the term “sliding ice cubes” has come to mean an example of a dish you will never see on the restaurant’s plates. “We want our guests to eat well and the next morning to be able to describe what they had for dinner. This can never happen with an overstylised dish”, Pavel Veltruský, Signature’s chef, describes the concept of the cuisine, adding that what he cooks makes sense. “I rather import a delicious codfish from Norway than cook a slimy, fattened carp from a local fishery”, the chef explains what meaningful cuisine means to him. This does not mean, however, that the experienced culinary die hard, whose portfolio contains the Michelline restaurant Waterside Inn in the UK and the Prague restaurants La Gare and Salabka, has forgotten his origins. His signature dish is a rabbit meat loaf that his grandmother used to cook for castle nobility. Veltruský now serves it to business travellers. The owners kept on their future chef for a few months without him having to stir a single sauce on the stove. “We had to unexpectedly postpone Signature’s opening by a couple of months”, admits Jiří Lešikar, “but we did not want Pavel to take on another opportunity. Hence we had plenty of time to embellish the menu”, Jiří now laughs at the extra costs. One look at the occupied tables of the stylish restaurant six months after its opening clearly shows that all the investments into the interior, the D1 motorway location and the first-class chef have paid off.
© 2017 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.
46 — business lifestyle
Cutlery turned over a hundred times “We want to be a restaurant where people eat well and receive first-class service, but do not feel tied up by etiquette”, explains Jiří Lešikar - guest do not have to be afraid of putting their elbows on the table, even while sitting on Vitra-designed chairs. “We do not need to have an interior full of expensive designer brands, but when we tested dozens of various chairs, Vitra’s comfort easily won”, he says. The same went for glass wear (Crystalex) and the restaurant’s flat ware. “We turned over every possible utensils in our hands one hundred times before we decided on them. As we could not find the right plates, we had them manufactured in a pottery work-shop nearby”. Signature’s owners were also not satisfied with the designs for the waiting staff and the chef’s uniforms, so they chose to keep it in the family –the mother of one of them sews the restaurant’s signature aprons and bowties. However, another chapter is the variable and top-of-the-line designer interior that, together with the logo and the fold-up menu, was designed by Pavel Kříž from the Komplits studio. An experienced architect whose handwriting can also be admired in Olomouc’ Entrée restaurant equipped Signature with wood, metal and Scandinavian moss. “With the moss, Pavel played an enormous trick on us, however. We had hoped that the moss would absorb all the moisture necessary from the air. However, our air is too dry, so we have to get up every night around 3am or 4am and carefully water all three moss decorations”, describes Jiří Lešikar his bitter awakening from the moss dream.
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© 2017 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.
Silicon Valley, the place to be for developers of all countries, is to become the base of operations for Jan Vlachý, a Czech mathematician and fresh recruit at Google. His journey from Charles University to the ranks of a major internet player was far from easy. What did it take him to land a job in the US?
Text: Richard Valoušek
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They say you’re a maths genius. Yet you don’t like to be called that. Tell us why. I am a mathematician, but definitely not a genius. There were lots of brighter students at college, but talent is only a part of success. Just as important are the courage to take a step into the unknown, being aware of your professional and personal goals, and working hard to achieve them. Your studies brought you to healthcare research. How did you end up in that field? Although at Charles University I focused mainly on pure mathematics, I realised that I’d much rather use my maths talent to make an immediate difference in the world than develop new mathematical theories. That’s why my doctoral studies were geared towards applied research and applications. And how did healthcare factor into that? I formulated and solved mathematical models relating to healthcare. For emergency and primary care, for financial systems and for neurologists. I also worked at summer internships that covered various application areas: statistics in the oil and gas industry, HR analytics, mathematics related to a range of hospital applications, and the optimisation of toilet waste collection logistics in Kenya. How do doctors respond to such research when it’s not conducted by someone from their field? Good applied research is never conducted in the confines of your office; you must work with experts in the field. Accordingly, my various projects have involved working with doctors, nurses, epidemiologists and healthcare officials. If you consult with these people or even include them as co-researchers, you have a chance of seeing your models applied in practice and respected by doctors. If you don’t include them, your research may end up getting published in a peer-reviewed academic journal but will most likely never actually help anyone.
© 2017 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.
48 — science
A Czech mathematician at Google
49 — science
You went abroad for your master’s programme. Why did you choose that option? After completing my undergraduate studies, I immediately thought of Erasmus, but I found the programme too short, so I enrolled in a full master’s programme in the Netherlands. Thanks to the standardisation of bachelor’s and master’s programmes within the European Union, applying abroad was easy. After I graduated, I received several doctoral study offers from the Netherlands, Great Britain and the United States, so I didn’t even contemplate pursuing a doctorate in the Czech Republic. Why? Because fellowship stipends are so low in our country that you can’t get by on them and postgraduate students have no other option but to work – usually full-time – in addition to studying. Abroad, on the other hand, all programmes offered me fellowships equivalent to a decent salary, so I could fully focus on my studies and research and didn’t have to worry about having enough to pay for food or rent. From Holland, you headed to the US. How did you manage to get a scholarship there? The scholarships that I received in the United States were in the form of a bonus provided in addition to a standard doctoral fellowship. I received two of such three scholarships for the quality of my research, and the third one was to support my application field – healthcare. These scholarships are usually funded by wealthy donors who wish to support their alma mater. The number of such donors is much higher here than in Europe, largely to the extreme pay inequality. After being awarded the scholarships, were you under greater pressure or did they motivate you to prove yourself? Scholarships and other awards are much more sought and chased after by students in the US. In general, the work and study
environments here are much more competitive than in Europe. There’s big pressure, whether you get a scholarship or not. You will soon finish your studies. What will be your strongest memory of studying in the US, where you have spent almost five years? Studying abroad for a longer period of time and adjusting to local culture is not like going to New York for a week. It’s like entering a completely different world, maybe like moving to Mars. For me, it meant finding friends from all corners of the world; acclimatising to sub-tropical humid heatwaves; adjusting from European to American English; long days in my sunny office and sometimes even long nights supplemented by coffee and microwave meals; crisscrossing the United States when travelling to conferences, internships and friends; several Thanksgivings spent with various American families; an amazing diversity of people, tastes and cultures; and much more. Any less pleasant memories? For instance, the ultra-competitive environment, Third Worldstyle poverty right next to shiny skyscrapers, wasting and disrespecting the environment, a high crime rate, and cities designed for cars rather than people. What will you remember most fondly from a professional point of view? From a technical perspective, that would probably be two articles in journals that are highly thought of in our subfield. But in terms of a general contribution, probably an article in a prestigious magazine for neurologists that explains one common but not very well-explored electroencephalographic phenomenon and that will hopefully improve how neurologists evaluate and treat the phenomenon.
© 2017 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.
What else? Applied research requires greater cooperation between academics and the outside world (firms, hospitals, government institutions). In the Czech Republic, both academics and the outside world often seem sceptical of such cooperation. In the US, on the other hand, relevant applied research is routinely sponsored by firms and other institutions. My basic postgraduate scholarship, for example, was paid in part by the neurological department of the hospital with which I cooperated. And the third step? Czech researchers and postgraduates need to get more involved in global research. All articles by Czech postgraduates should be published in international peer-reviewed journals. Needless to say, postgraduates should write all articles and dissertations in English. Postgraduate subjects should also be taught in English so that Czech postgraduate programmes can attract talented foreigners. Is there really so much to do? Isn’t it always better to give more examples? Some Czech postgraduates may already enjoy such conditions, but judging by what my postgraduate friends tell me, I think that’s usually not the case.
On a more positive note – do you agree that Czech healthcare is superior to that in the US? I think it really is better in most respects, at least from a patient’s perspective. American healthcare has lots of money for research and some hospitals are world renowned for treating cancer or rare diseases, but many Americans don’t have access to them. A lot of them can’t even afford the local overpriced health insurance while many others have insurance that doesn’t cover services that Czechs take for granted. Such as? Dentistry and dermatology services or hospital stays. American healthcare is more expensive than healthcare anywhere else in the world, yet its results are worse than those of other developed countries. Would you like to implement your work in the Czech Republic and benefit Czech science as well? If the opportunity arises to benefit the Czech Republic, whether through the research that I’ve conducted or through other knowledge and skills, I would definitely be happy to help. If your readers know of such an opportunity, I would certainly like to hear about it. You’re about to start working at Google in Silicon Valley. What exactly will you do there? In America, my role is called a data scientist. It’s basically a new name for applied mathematicians and statisticians who help organisations analyse data and optimise decisions and processes. Simply put, the Google team that I’ll join optimises how and how often Google’s search engine crawls the internet. What are your expectations of the job? Are you excited or nervous? Definitely excited! This is my dream job. I can combine mathematics and working with people. I will learn a lot and I feel that this work benefits people. After all, who doesn’t use Google these days?
© 2017 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.
50 — science
For the sake of comparison, can you imagine conducting similar research in the Czech Republic? Personally, I see three steps that Czech postgraduate programmes would have to take in order for the chances of Czech postgraduate students to be at least somewhat comparable to those in the US or Western Europe. First, as I have already mentioned, postgraduates must be sufficiently paid so that they don’t have to look for a job on the side and can fully focus on their research. By Czech standards, that could mean CZK 20,000–25,000 a month. That would certainly result in smaller and more selective postgraduate programmes.
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