Marwick November/December 2016

NOVEMBER/DECEMBER 2016

A magazine for clients and friends of KPMG Česká republika

p. 4

p. 22 p. 24 p. 47

Optimism in real estate Meet your new colleague: Mr Robot Filip Matějka’s theory of rational inattentiveness Bitcoin ATMs – made in Czechia

There are new competitors blooming everywhere.

Is your company agile enough to outpace them?

Using innovative tools, thinking and frameworks, KPMG can help adapt your business in the face of constant disruption. Learn more at KPMG.com

Anticipate tomorrow. Deliver today.

© 2016 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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The courage to change

“I had been told that the characteristics of Britain were consistency, continuity and stability. No surprises,” the new Japanese Ambassador to the UK recently complained to the Financial Times. He started his new posting in June and probably expected a much quieter job than at his previous position as negotiator of the Trans-Pacific Partnership. However, in a world where upon Brexit follows the Bradxit of Angelina Jolie, the only thing constant is change.

The ideal way how to deal with changes is being able to successfully predict them. In this connection, I recall the story of a meteorologist who, while serving in the army, discovered that the weather forecast that combat operations depend on had only a 50% success rate. When he tried to share his findings with army command, he was told that that was ok, and that all they needed anyway was some input for further planning.

I think that today’s business people are a lot better off, mainly due to tremendous computing power and readily available analytical tools. Despite all predictions, however, a safe bet in a world full of uncertainties remains the willingness to change, the ability to adapt quickly and sufficiently and to react in time.

Apart from issues that are currently on the top of many minds, in this edition of Marwick you will find several features offering a taste of the future. We’ve taken a look at the production of bitcoin ATMs and sum up how companies may benefit from robotisation. Pleasant reading and…don’t be afraid to change. � Radek Halíček new Managing Partner KPMG Czech Republic rhalicek@kpmg.cz @RadekHalicek

Marwick – a magazine for clients and friends of KPMG Česká republika.

Published six times a year by KPMG Czech Republic, Pobřežní 1a, Praha 8.

MK ČR E 22213. On-line subscriptions available at www.marwick.cz.

Editor in chief: Michaela Raková Art director: Štěpán Prokop Photoeditor: Barbora Mráčková Copy-editor: Martina Ohlídalová Cover illustration: Václav Havlíček KPMG Česká republika’s offices are located in Prague, Brno, Ostrava and České Budějovice. 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.

Interest rates aren’t everything

“The possibility to extend a loan’s amortisation period or to be able to lower the principal amount during the loan period is one of the key demands of investors. In many cases, this will be more important than any further pressure on interest margins.”

Pavel Kliment, Partner in charge of the real estate sector, KPMG Czech Republic

Even though measured by the volume of European real estate transactions the first half of this year was not as successful as the same period in 2015, it nevertheless still counts as one of the strongest periods of the last ten years. ↓ Half of all European transactions took place on the British and German markets, but as a result of uncertainties brought on by the Brexit referendum and due to a marked lack of quality real estate in Germany, the inflow of money into real estate crossed into other European countries like Scandinavia, France or revived Ireland. The Czech Republic was not able to hold on to last year’s first place, as Poland reclaimed it from the previous year. Poland’s top ranking was especially due to a number of huge transactions, including the acquisition of a retail portfolio

by South African investors for EUR 1 200 mil. So much for a brief summary of the KPMG European Property Lending Barometer 2016 survey.

This year’s survey confirmed the banks’ positive outlooks in regards to the financing of the real estate market, especially thanks to continued economic growth, the sector’s high investment volume, an increase in prices and the settlement of past problem loans. Almost unequivocally, Czech bankers agree that the currently real estate boom will most likely continue for the next two years. Together with the other European bankers they expect growth in the loan portfolio not only of their own banks but also of the entire banking sector. This year’s optimism is nevertheless less pronounced than in 2014 and 2015.

The central banks’ growing influence Standing out in contrast to previous years is the growing influence of any measures by the central banks on the development of the real estate market. In a number of countries, these measures are considered to be the most significant factor in the market’s development, together with the direction of the given country’s economy. The situation is similar in the Czech Republic, where one can hear many more comments on the Czech Central Bank’s steps and growing influence than in previous years. It now seems that the real estate market has ceased to be virtually without risks, which is how it appeared to many in the recent past.

Negative interest?

A debtor’s dream is negative interest, where the referential interest rate (e.g. EURIBOR) is negative and even exceeds the interest margin of the bank. The result is that the debtor no longer pays interest to the bank, but the bank ends up paying interest to the debtor. “Even though today 3M EURIBOR is at a negative value of 0,3 %, the existence of negative interest for real estate loans is less than unlikely, mostly due to so-called zero-floor clauses in loan contracts. These clauses state that for the purpose of the respective loan contract the value of the referential interest rate cannot go below zero,” says Pavel Kliment, KPMG’s Partner in charge of the real estate sector.

Germany, Austria and Sweden currently have the lowest interest margins. These are balanced most significantly by stricter conditions for the granting of loans. On the opposite side of our virtual interest ladder are Russia and Turkey together with Serbia and Croatia. The conclusions of the survey show that despite the rather fierce competition among banks the European average interest margin has not changed much in comparison to last year.

In the Czech Republic, compared to last year, more banks are able to offer interest margins under 2 %. Hence we are

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Pavel Dolák Senior Manager, KPMG Czech Republic pdolak@kpmg.cz

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The entire Property Lending Barometer 2016 survey can be downloaded at www.kpmg.cz.

Over 100 significant banks and financial institutions in 21 European countries took part in the European KPMG Property Lending Barometer 2016 survey. Along with the Czech Republic, this involved Austria, Belgium, Bulgaria, Croatia, Cyprus, Ireland, Italy, Hungary, Germany, Great Britain, the Netherlands, Poland, Romania, Russia, Slovakia, Slovenia, Serbia, Spain, Sweden and Turkey. Data was collected through in-depth interviews of the heads of banks and/or heads of real estate financing or risk management departments.

witnessing a further decline in margins. It still holds that it is mostly the larger banks that are able to work well with the lower interest margins, even though some smaller banks have proven that they too can match the big banks’ offers under certain conditions. The inclusion of smaller banks in this year’s survey explains why in comparison to other countries Czech interest margins are relatively high and why the survey’s results do not reflect their decline. Low overall interest expenses also lower the sensitivity of debtors towards higher margins, as they instead focus on successfully negotiating other loan conditions.

The survey also confirmed that bankers continue to consider development projects to be more risky and thus require higher interest margins for their financing than they do for projects that are finished and rented out.

Residential projects still have appeal Just as in the past, first place in the bankers’ popularity contest goes to residential projects, while the runner up again is industrial real estate. The increase in hotel transactions on the Czech, or to be more precise, the Prague market has led to the bankers’ increased willingness to lend for transactions in this segment.

Czech banks are among those most willing to finance finished and rented out projects. To illustrate, last year, the volume of new development loans in the Czech Republic was three times smaller than the volume of loans for completed projects.

Financing… … in currencies other than the local one The granting of loans in foreign currencies (almost exclusively in EUR) is most common in the Czech Republic, Romania and Croatia. … in the club Eight out of ten Czech banks are willing to grant syndicated loans to finance real estate. Compared to the rest of Europe, club financing is much more popular in the Czech Republic.

The optimism of Czech bankers Similar to last year, the Czech Republic managed to hold on to its position as one of the European countries whose real estate loans bear the lowest risk. With a 95% share of problem-free loans, Czech bankers join their Swedish, German and British colleagues. To provide complete information, it also needs to be said that the mentioned nations on average in many cases have stricter loan requirements and conditions than Czech banks (e.g. the amount of equity they require borrowers to have). On the bottom of our virtual risky loan ladder are Cyprus, Croatia, Spain and Italy.

Relying on their experience, Czech Bankers are convinced that more than 85% of the most problematic loans can be saved through restructuring (e.g. with an adjustment of the payment calendar) which shows a level of optimism only surpassed by that of their Belgian colleagues.

Interest or principal payments?

One of the survey’s novelties this year is a focus on the maximum duration of loans and the maximum amortisation period for them, i.e. the length of time within which banks demand loans be repaid with individual regular payments.

German and Swedish banks offer the longest maximum loan amortisation periods, with 56 and 46 years, respectively. Simply put, in such loans, the principal amount paid with each payment is minimal and borrowers hence mostly pay interest. On the other hand, in these countries, banks will also be willing to conclude loan agreements with a duration of 10 and 6 years, respectively, but will demand the fulfilment of stricter debt service conditions than elsewhere.

In the Czech Republic, then, the maximum loan amortisation period is 20 years with 10 years as the maximum duration of loans and both of these values are in line with European averages. �

Maximum loan amortisation period and loan duration (in years)

15

30

45

60 Russia Inflation, economic decline, increasing unemployment, economic sanctions, declining domestic spending and scepticism are just some of the negative factors that influence the Russian real estate market. Compared to last year, the volume of transactions did increase by more than 45 %, but 90 % of them involved Russian investors and hence neither a significant recovery nor a return of European and other non-Russian investors onto the market occurred. For non-Russian investors, the liquidity of the market and the exit of ruble-linked projects and their subsequent conversion into EUR or other currencies is critical.

The situation is similar on the banking market, which sports the highest interest margins in Europe (5,5–7 %). With a view to the economic development, limited competition and the limited interest of foreign banks to get involved in Russia, this scenario can hardly be expected to change in the near future.

Average

Russia

Hungary

Czech Republic

Slovakia

Great Britain Already in the first half of 2016, the insecurity inherent in the Brexit referendum significantly influenced the British real estate market. In the period directly prior to the referendum, many investors chose to delay their investment decisions and to wait for Brexit’s results, which lead to a slump in this year’s transaction volume. As insecurity persists even after the referendum, many investors are still waiting to see how Britain’s exit from the EU will play out. The recent weakening of the British pound (especially towards the American dollar) may result in Britain’s higher attractiveness for many foreign investors, especially if they expect the currency to rebound in the future. Then again, the question remains whether significant financial institutions will leave London for Europe, which is currently the dearest wish of many a European metropolis. The answer will have to wait for the final resolution of Britain’s exit from the EU.

Austria

Poland

Italy

United Kingdom

Germany 0

15

30

Longest contracted term Maximum amortisation period

45

60

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0

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The banks’ big escape from downtown Prague Gathering one’s staff in one place and modern premises, saving costs at the same time – this growing tendency among large financial institutions has significantly altered Prague’s office space market. Large banks’ headquarters changed their location. From and to where have the big bank headquarters gone? Join us on a tour through financial Prague… → Pavel Dolák Senior Manager, KPMG Czech Republic pdolak@kpmg.cz

We begin our brief excursion on a Prague street called Na Příkopě, at the premises of the Czech National Bank (CNB).

They actually consist of two buildings, the Roith building from 1935–1942 and the Commodity Exchange building, originally from 1894. Both underwent reconstruction in 1997–2001, which cost almost 5 billion Czech crowns, a record sum at that time.

Theoretically, CNB’s governor and Komerční banka’s directors may have eyed each other through a window for a number of years, as Komerční banka has its official headquarters just opposite CNB’s premises. But the majority of its employees have transferred to Václavské náměstí and Nové Butovice this year as the bank is planning to sell its premises on Na Příkopě, an issue discussed on the market since the beginning of this year. Československá obchodní banka left its premises near CNB already in 2007, moving to a new office building in Radlice, built by architect Josef Pleskot and meeting high environmental construction and energy standards. The bank is so happy with this location that it has already commenced the construction of another office building in this area. The original ČSOB headquarters at Na Příkopě 14 have been transformed into a business centre housing the largest toy shop in the Czech Republic – Hamleys – since 2015. �

� Main Point Karlín

Prague 4 – the Czech Financial District?

UniCredit Bank abandoned its premises in the vicinity of the Czech National Bank in 2011, trading a protected heritage site building (formerly the seat of Živnobanka) for the seventeenfloor Philadelphia building in Michle, which is close to the headquarters of MONETA Money Bank, which left Hybernská street in downtown Prague in 2003.

Prague 4 (in particular Pankrác and Budějovická) seems to be the most attractive area for banks and their registered offices, as the biggest financial institutions as well as the largest corporations have their premises there. To illustrate, four of the thirteen corporations making up the Prague Stock Exchange PX Index have their seats here.

Another bank that moved from Národní to Prague 4 (near the Budějovická metro station) is Česká spořitelna, which is also considering the construction of a single building for all its head office employees. This indicates that the time when financial

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� Roith Building on Na Příkopě

institutions had their headquarters for decades at one place is over.

Raiffeisenbank has its headquarters closer to Prague’s centre than Česká spořitelna. In 2008, it moved to the City Tower in Pankrác, the highest office building in Prague, abandoning their original premises on Vodičkova street.

Approaching Prague’s centre on the main thoroughfare (magistrála), we can see the headquarters of Česká pojišťovna in Pankrác, to which the largest insurance company moved from an art nouveau building on Spálená street.

Prague’s centre and Karlín have much to offer Downtown Prague has lost some of its attractiveness as a result of the big banks moving their headquarters. Nevertheless, many entities remain: 20 banks and cooperative savings associations, 11 investment companies, 12 insurance companies, one reinsurance company, the stock exchange, the Czech Ministry of Finance and the above mentioned Czech National Bank.

� ČSOB´s building in Prague-Radlice

Financial institutions’ headquarters have always represented the top architectural designs of their time. Whether we can say that about today is questionable: I will leave this for you to contemplate. I would just like to mention one, in my opinion, extraordinary construction in Karlín, which is Main Point, the Vienna Insurance Group ČR (VIG ČR) headquarters in which Kooperativa and Česká podnikatelská pojišťovna have their registered offices and which was awarded the World’s Best Office Building title at the 2012 MIPIM property trade fair.

Prague 8 itself (in particular the Karlín and Florenc areas) is becoming increasingly popular among financial institutions, which is demonstrated by the above Main Point and the fact that the third largest number of financial institutions are located in this part of Prague, after Prague’s centre and Prague 4. Its position may further be strengthened through the construction projects currently taking place in the vicinity of Palmovka.

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� Filadelfie Building in Prague-Michle

Legend Banks, savings associations, building and loan societies Investment funds Insurance companies The overview of the Prague locations of selected financial institutions has been prepared based on information provided by the Czech National Bank.

Survey: What type of building is missing in Prague?

We asked some of the Czech real estate sector’s VIPs for their opinion of the market.

What type of construction would you welcome in Prague?

Which territory within the Czech Republic do you consider best suited for development?

If you could change just one thing on the real estate market, what would that be?

and Slovakia, a. s.

1. I really can’t think of a specific building that I would like to see constructed here. It still remains necessary to take good care of the existing structures so that they may continue to present Prague’s symbolism and majesty. What would definitely be necessary and what would delight all inhabitants and visitors of Prague alike are projects that would resolve the traffic situation in the capital. For years, there has been talk about park and ride structures on the outskirts of town to lower traffic and the number of cars parking in the centre. And it still is just talk.

2. Ever region has its specific features which should be focused on to ensure the region’s balanced development and for the Czech Republic to have regions that are able to compete economically. As the Minister for Regional Development I of course see things mainly through the eyes of my department and also from the viewpoint of the countryside. Large projects involving industrial zones garner enough attention from the other departments and from the regions themselves. So our efforts are instead aimed at the support of tourism, on financing the upkeep of even lesser known historical sights, e.g. sacred architecture, on increasing the quality of life for the local inhabitants and the promotion of specific regional cultural events which can serve to bring in visitors. The past has left us with a lot of outstanding debt, our “white spaces” which deserve better support. These can be found in every region.

3. I could and I did. The government approved our new building code which will make life easier especially for small contractors. For example, in the future, to build a single family home, instead of a building permit, all that will be needed is to notify the building authority of your intention.

Currently, this is possible only for small structures taking up less than 150 square metres. Complex and long application procedures will be a thing of the past and I overall expect that this will also have a positive impact on the revitalisation of the construction industry as well as on the real estate sector in the Czech Republic.

Karla Šlechtová Minister for Regional Development

1.

I would most like to see an entire new neighbourhood under construction. A quarter with streets, squares and a park – and with apartments, offices and stores. Somewhere instead of an old rail yard in one of Prague’s brownfields.

And if as part of this construction it were possible to realise a town hall or any other public building of high architectural quality, then I think I would faint from delight.

2. That’s easy: Prague’s brownfields and urban conversion areas. Prague’s inner city alone has 9,5 million square meters of unutilised space! The old rail yards and abandoned factory areas are key to the future development of Prague. I believe that it is possible to build without lowering the quality of the existing surrounding development. Just the opposite – once the fenced off and dilapidated areas that people avoid change into new parts of the city, numerous new interconnections spring up, shortening the distance for the inhabitants of the surrounding areas.

3. I’d increase the diversity and variety of products. Today, all you see are “villa houses among greenery” and “the cheapest new flats nearby woods”. I could easily think of a more fun offer.

Petr Hlaváček Head of Communication, Prague Institute of Planning and Development 1.

Prague lacks a big modern art museum. I would also want to see one of the significant Japanese architects realised here.

2. In my opinion, this was and is of course Karlín and its development is almost done. Holešovice also has the same potential and atmosphere and we are preparing a couple of projects there.

3. Cooperation with the towns still lags behind and it’s crucial that this be improved. It hurts both the development of the cities and of the entire Czech Republic. I am excited about PPP projects that I see abroad and I hope that similar projects will get the green light here as well.

Serge Borenstein Co-founder, Karlín Group

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1.

2.

3.

Personally, I regret that neither the Kaplický library project came to fruition, nor any other project based on his designs.

Such a project would have been a modern architectural sight and another tourist destination, just like the once so controversial Dancing House (Fred and Ginger).

2. All in all, many areas vacated by large industrial undertakings, and especially those which are close to the centres of Czech cities. Very good examples outside of Prague are the projects in the Nová Karolina location in Ostrava, the Šantovka shopping centre in Olomouc, etc.

3. The majority of developers will definitely mention the permit application processes. Looking at the market from the viewpoint of the bank, I really cannot see any significant limitations that I would want to change.

Jan Rýdl Head of Real Estate and Project Finance, Raiffeisenbank a. s.

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1.

Tokyo's T-Site. So far, no such projects are in planning for Prague.

1.

A lot of people would probably answer that Prague lacks big public buildings, like a concert hall with truly international standards, etc. But I am a housing developer, so what I miss is a big radical project with a unique approach and authenticity, which could light the way of change from abandoned and desolate spaces and brownfields to their new utilisation for modern urban living. In the Czech Republic, we’ve been talking about the really expansive lots for tens of years; with no result. But I am convinced that our acquisition entry into the project involving plots to the North of the cargo rail yard Žižkov will finally bring about change. We bought the project with an already issued zoning permit and, in compliance with the district’s demands, will lighten and rework it significantly, so that it will only contain housing structures with ground floor spaces for shops, with valuable open public spaces, lots of greenery and modern architecture. As a result, an abandoned rail yard with no traffic and without any kind of usage will turn into a new residential area close to the centre and with all needed services and public amenities.

2. Without a doubt, Prague has the biggest development potential. As it is the natural centre of the Czech Republic, all economic activities are concentrated here, which brings highly successful people from the regions into the capital, coming here to put their talent and abilities to good use.

This of course further strengthens Prague’s position within both the Czech Republic and Europe. All these young and active newcomers have to have somewhere to live, however. The development of housing has to thus correspond with the increasing significance of Prague.

The reality is totally different. For the last couple of months, Prague’s building authority has been issuing permits for single residential units, which is by far not sufficient. It almost seems as if the individual city districts’ representatives are against Prague’s development and don’t wish the capital’s significance to grow. Yearly, only less than one percent of the Prague housing stock gets renewed and the speed of new housing construction will most likely continue to significantly slow down.

3. For a number of years, the city’s political mood has been very negatively inclined against investors in new housing, against developers; and this affects the real estate market very negatively. Basically, anybody who wants to can voice their opinion on planned projects and this right is often abused by pressure groups who then block developments without any rational reasoning. But what about the rights of the owners? They are not just some anonymous participants in the zoning permit proceedings, but the owners of the lot and they are interested in developing that plot, in building housing structures on it with properly taken care of surroundings. That’s what I would really like to change, that the public would perceive the rights of the owners positively. It often happens that people think that “developer” is a swear word.

Dušan Kunovský Chairman of the Board, Central Group a. s.

2.

3.

I would like to see a multi-purpose development project that would speak to the huge demographic segment of young, creative people that live in the city. Maybe also a creative or technical incubator supporting the development of small and mid-sized enterprises and creative businesses. Or, recently, I visited the T-Site project in Tokyo. The plot was bought and built up by Tsutaya, the biggest Japanese book and media retailer. They created a diverse little town with a very modern bookstore, cafes, restaurants, venues for cultural events, a public park and small shops selling local products. Some of the premises are offered to young brands to open pop-up stores. I was there a total of four times in the last six months and it was full of people every time: families, young people and creative types. In April, I visited a similarly built-up place in Hong Kong and this type of project can also be found in places like Vienna and Berlin. Prague lacks places like that because developers still prefer conventional, mono-functional developments like old-school shopping centres like in the 90s.

Nevertheless, Prague has a huge creative community and the market is ready for something a little bit different.

Bubny in the Holešovice district in Prague 7. The location of this brownfield makes it a perfect candidate to become a creative, technical and cultural centre for Prague at the level worthy of the 21st century. In E15/Euro I have an article coming out where I propose that the city of Prague buy up all the plots in the Bubny location (at the market price) and establish a corporation for the development of this place.

This corporation as the main development should then plan and develop all infrastructure and open spaces that connect the place with the park at the river banks and then sell of the individual plots to other developers. You won’t find a better place in Prague both for a new type of development and to test out a partnership cooperation model for the public and the private sector – which has been successful in other places.

We are desperately in need of new projects. In Prague, I would love to see more cooperation between the private and public sector on projects developing public open spaces and infrastructure. Only when traveling to neighbouring cities of a similar size does one see how much the development market in the Czech Republic is stagnating, especially when it comes to projects undertaken in cooperation by the public and the private sectors and civic society. I also think that now the creation of a metropolitan zoning plan has been halted, city hall has a great opportunity to take a look at and understand the economic and cultural effects of urban development and construction. Some politicians are very loudly protesting against any kind of development and with this attitude, in the sense that “all developers are bad,” they have succeeded in the destabilisation of the Prague Institute of Planning and Development and have practically stopped all development. This environment is incredibly toxic and the politicians who would want to support urban development are

maybe not asking those who are against it the right questions.

Urban planning and development is about economic and cultural development, period. It is about the creation of jobs and a better, greener place to live. That’s the broader aim that all projects should share. If the politicians were better informed about what impact urban development has on the economy and what effect, in contrast, the absence of urban development has, they could easily hold a better, less political position. I am a little shocked that nobody is really dealing with this in more detail. My organisation reSITE has offered to assist the city with a number of these questions and we are still willing and ready to help through our global network of experts.

Martin Joseph Barry Architect, Director of reSITE 1.

The National Library designed by Jan Kaplický on Letná Plain in Prague.

2. Prague, even though currently it has become almost impossible to build due to absurdly long permit processes.

3. I would subordinate all building authorities directly to the Ministry for Regional Development, as to get rid of the interconnection between local government and public administration and put an end to the resulting systemic bias.

Marcel Soural Chairman of the Board, Trigema a. s.

1.

Modern buildings for public administration as the first step towards the modernisation and streamlining of bureaucracy.

2. Prague.

3. Developers’ reputation.

Omar Koleilat CEO Crestyl Group 1.

Completion of the Prague beltway, to relieve the city centre from all that traffic.

2. Not really a specific area, but a number of brownfields in Prague, which could be developed as a whole and with the support of the city.

3. The Czech public institution’s decision making processes, I would have them decide quickly, predictably and reliably.

This would also have a positive effect on the functioning of the real estate market.

Tomáš Procházka Head of Real Estate Financing, UniCredit Bank Czech Republic

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1.

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The potential of free time In many ways, current times mimic the industrial revolution. Age-old, proven disciplines and trades fall into oblivion or change beyond recognition; the effectiveness of work continues to grow and a number of new sectors are coming into being.

Text: Jiří Táborský

→

Photo: Sergei Butorin / Shutterstock.com

Tourists want to feel safe “It’s fairly logical. Automation saves time, not only at work, but also at home. This free time can in turn be spent doing sports, on entertainment or any other leisure time activity. However, all of this requires some kind of leisure time infrastructure,” continues Špaček and adds that a number of such support systems are already in existence, separated into cultural facilities like cinemas, theatres and other staging areas as well as sports, entertainment and recreational infrastructure. “It is ideal if several of them are located in one area. Our experience has shown that a conglomeration like this offers a perfect way of how to start up tourism in a given location,” Špaček explains.

Support of tourism is indeed often the main reason why communities opt to build recreational areas. Not only do people have more free time than ever before, but other factors play an important role as well. One which immediately comes to mind is the international security situation. Countless travellers fearing for their safety have opted to avoid traditional tourist destinations like Egypt. Czech tourists thus often decide to spend their holidays in the Czech Republic and thanks to the heightened development of a domestic recreational infrastructure, they can do so easily.

Concerns for security have also brought many foreign tourists to the Czech Republic, as in the Global Peace Index the country has been ranked the sixth most safe country in the world. “This is great news for the incoming tourism sector.

The Czech Republic has so much to offer and security is a very important factor when foreign tourists try to decide

which country to visit,” says Minister for Local and Regional Development Karla Šlechtová, whose department is the central government authority in matters of tourism.

Experience required To a large extent, the boom in leisure time infrastructure is fed by money from European funds, which towns and regions have used copiously to build various types of recreational zones.

“Come to think of it, the source of financing is one of the factors differentiating such projects. It makes a big difference whether something is being built by a town or a private investor.

The planning as well as the realisation of such projects differ significantly. From a financial viewpoint, it is also important if services will be provided for a fee (e.g. in the case of gyms or swimming pools) or whether they will be offered free of charge,” says Špaček.

The construction of any kind of leisure time facility may indeed be an investment with a rather decent return. This holds for any kind of admission fees in the case of private projects as well as for revenues from tourism for local economies in the case of public projects. Needless to say, however, a badly designed or haphazardly realised project can also mean tremendous losses.

“Generally, an investor should seriously consider engaging the services of a professional advisor who has ample experience in this area,” adds Špaček.

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“In the past, a lumberjack would take out his axe into the forest and fell a couple of trees per day. Once he got a chainsaw, logging became a whole lot more effective. Today, foresters deploy harvesters able to log amounts of wood that would make Paul Bunyan’s head spin. Not much thought is spent on what to do with the now-obsolete forest labourers. The automation of production among other things also means that a lot of people will have to earn their livelihood differently, as agriculture or factories will no longer need their manual labour,” Ondřej Špaček, consultant at KPMG in the Czech Republic, illustrates society’s and the economy’s monumental changes. We would be hard-pressed to find an area not affected by changes caused by technological advances. The current day US offers a truly deterring example in its declining industrial areas like Detroit, with thousands of job-less workers with hardly any hope of finding new employment. Luckily, to a large part, the Czech Republic has so far been spared such apocalyptic consequences, as labour has successfully shifted to a number of new sectors. For years, this transfer has been most visibly occurring away from industry and agriculture into service sectors. Services connected with the use of leisure time have been increasingly coming to the forefront.

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How (not) to go about it Projects which at first glance appear quite similar may differ dramatically in their success. It does not pay to underestimate the preparation or any other aspect of a project’s realisation.

Lipno nad Vltavou may serve as a typical positive example. “This area offers facilities for both winter and summer vacations. Apart from ski slopes, Lipno’s treetop walkway has had tremendous visitor numbers. What’s more, visitors come here repeatedly.

They may visit in the summer during their children’s summer vacation and then come back by themselves, also because Lipno has the infrastructure necessary for conferences and conventions.” Špaček offers.

An important aspect of Lipno’s success is the close cooperation between residents and local governmental bodies. The harmonious inclusion of locals in individual projects has proven to be a crucial success factor.

For all intents and purposes, the sky walkway located in the Králický Snežník area appears to be similar to the already mentioned treetop walkway. “Here, however, the investor underestimated the importance of pulling on the same end of the rope with local inhabitants. Today, if somebody actually does come visit, they’re surprised by the lack of supporting infrastructure, i.e. accommodations, restaurants and everything else. The majority of locals are against the project and this will end up bringing it to its knees,” so Špaček.

This is where quality advisors can make a difference, as they may organise round tables with citizens, negotiate favourable conditions with the local government and take care of all incidentals. The importance of good advisors will grow along with the significance of leisure time infrastructure. Apart from the mentioned security aspect and the growing amount of free time relative to modern economic development, demographic factors also bear mentioning. Quality health care together with a stable pension system brings about a large number of active retirees who want to spend their free time sensibly and purposefully. In the West, this population segment has gathered significant economic strength. The purchasing power of the older generation is also growing in the Czech Republic, while this country also has many parameters of as an ideal tourist destination. To truly become one, a much broader leisure time infrastructure will be necessary. This infrastructure will have to function as a whole as individual projects without any connection to accommodations, food services and sports facilities have only a minimal chance for success.

16 — topic

Optimisation may not always be optimal

17 — topic

Many aspects of European public life are in turmoil and taxes are but one example.

As an illustration may serve the fact that Apple has been ordered by the European Commission to pay to Ireland EUR 13 billion (CZK 351 billion) in corporate income tax, which represents more than a quarter of the Czech Republic’s budget expenses for 2016. And a financial noose is also tightening around the necks of Czech tax payers.

Petr Toman Partner KPMG Czech Republic ptoman@kpmg.cz

The Organisation for Economic Cooperation and Development (OECD) has been quite active in this area by proposing its action plans for the fight against base erosion and profit shifting (BEPS).

On the level of the European Union, BEPS so far has resulted in a directive abbreviated ATAD (Anti-Tax Avoidance Directive), which introduces concrete measures aimed against aggressive tax planning. To make things even worse, Czech financial authorities have discovered the abuse of law concept and are applying it in a greater scope than ever before.

Intervention by the Supreme Administrative Court This past spring, the media reported on numerous significant additional tax assessments by the tax authority. Behind some of them was last year’s Supreme Administrative Court ruling whose main topic was the designation of a merger and the transfer of ownership shares within a corporate grouping as an abuse of law.

Most important is the fact that this was the first time that the tax authority was successful in challenging such a transaction. It is hence to be expected that other corporate restructurings may await a similar fate.

It is not necessary to describe the mentioned case in minute detail; all that’s needed is a schematic description of the situation to illustrate which types of transitions may now be in the view finder of the tax authority, who has found a way to deal with them in a manner satisfactory for the state. Within an intra-company restructuring, shares of selected companies were transferred. This was followed by the merger of the newly acquired companies with their owners. Through the assignment of the arisen receivables and their subsequent transformation the entire restructuring was hence practically financed through a loan granted by a foreign owner. This type of restructuring resulted in the successor companies carrying not only the interest expenses from the loans originally connected with the acquisition of the shares of the dissolving companies but also the loss-making activities gained through the merger. The combination of these factors thus led to the claiming of tax losses rather than the previously reported positive tax base.

18 — topic

What the tax authorities went after The described process did not escape the attention of the local financial authority and soon, an inspection team arrived at the company. The inspection’s conclusions, subsequently confirmed in the court proceedings, were that the restructuring had led to an additional increase in expenses, which in turn had led to tax losses instead of positive tax liabilities. During evidence proceedings, the company tried to argue that the aim of restructuring was to ensure sufficient control by the owners of the individual companies as well as the fulfilment of the group’s intention of the group to sell a restructured company. In contrast, the tax authority was of the opinion that the sole aim of the restructuring had been the securing of tax advantages. The court, in turn, did acknowledge the legitimacy of the corporate group’s intentions but also stated that they could have been achieved differently, and at a much lower cost. The court eventually pronounced the company’s undertaking to have been an abuse of law. The group’s claimed interest expenses were declared unjustified and hence tax non-deductible.

The end of restructuring?

The above case may keep many other companies from even considering intra-company restructurings. This reaction would be overly rash, however, as restructurings can still have positive results – as long as there exist sufficiently conclusive economic reasons to undertake such steps. As suggested in the above

case, it cannot be ruled out that such economic reasons will have to be argued in a court of law. This of course not only concerns restructurings, but basically any operation which may, among other things, result in a lower tax burden. In other words, the planning of any kind of economic step must contain a clear business plan as well as a review of all economic reasons for such an undertaking.

In closing The EU’s directive as well as the Supreme Administrative Court’s approach are obviously harbingers of a new direction in fiscal practice. This has to be taken into account when planning restructurings and it might as well be worth to also evaluate the risks of past or presently occurring transactions. It is of course not possible to predict how the tax authority will use the experience it has gained in the case above, but a lot can be deduced from its primary calling to fill the state’s coffers.

In this connection it is well worth mentioning that the means the tax authority has at its disposal to support the state budget are limited and that at a time when tax rates are not increasing the only way how to increase the state’s income is either through economic growth or with higher additional tax assessments in tax inspections. According to the financial authority’s presentation of its successes, in 2015 and the first quarter of 2016, about one additional billion of Czech crowns was assessed in proceedings regarding transfer prices and tax haven transactions.

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What does the ATAD govern ?

1 An end to the unlimited eligibility of debt financing costs This change is quite probably the most important one of all.

A company’s financing costs, i.e. interest expenses, will be tax deductible only up to 30 % of a taxpayer’s earnings before interest, tax, depreciation and amortisation (EBITDA). This is calculated as profit before tax prior to taxation, increased by write-offs and the difference between financing costs and a company’s income from financing. However, it is up to the member states, whether to institute a threshold of EUR 3 million and to make any interest below this threshold tax deductible regardless of the fulfilment of EBITDA criteria. The directive under certain circumstances also allows for the tax deductibility of financing costs above the 30% EBITDA limit if the long-term debt financing ratio of a concrete company corresponds to the long-term debt financing ratio of the entire group. Hence, this provision should not apply to companies who are not part of a consolidated group.

The directive also contains a temporary grandfathering provision which states that the new restrictions do not have to be applied to loans that were concluded prior to 17 June 2016 and not afterwards modified. The EU member states may also independently allow for the unlimited applicability of nondeductible costs in the future, the transfer of unrecognised costs for up to three years into the past or the carrying forward of unused cost capacities for up five years into the future.

The restrictions also do not have to be applied to financial institutions. Debt financing costs can be defined quite broadly and apart from interest cost may also involve a number of connected items.

Exit taxation The directive also deals with the taxation of unrealised profits in across border transfers of assets between companies and their permanent establishments and in tax residence transfers.

In the case of transfers or relocations within the EU or EEA, tax liabilities may be spread over up to five years. Such deferments may incur interest or have to be secured.

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3 Abuse of law in corporate tax The new directive clearly states that transactions whose single value is the securement of tax advantages cannot be recognised.

The case described at the beginning of the article thus falls into this category.

Controlled foreign company (CFC) rules or the taxation of a controlled company’s profit If a parent company has a controlled company abroad, it may

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happen that the profit of the controlled company will be taxed as part of the parent company’s tax base, while this profit does not have to have been paid out to the controlling company.

This, however, does only involve some types of passive profits like interest, dividends, licensing fees or income from financial activities. According to the final version of the directive, income from real estate assets should not be affected by these rules.

5 Limitation of hybrid mismatches A frequent tool used in the circumvention of tax regulations is taking advantage of discrepancies between the regulations of individual member states. The new directive attempts to limit such practices significantly. It hence does away with double deductions of the same interest expenses and makes the tax recognition of payments with the subsequent non-taxation of the same payment by the recipient a thing of the past.

Coming into force The directive should be reflected in the tax laws of member states by the end of 2018. Most measures will thus come into effect on 1 January 2019. If a member state’s legislation already includes rules against tax base erosion and profit shifting which are as effective as the limitation of the tax deductibility of debt financing, the state may wait with the implementation of this measure until a OECD agreement is passed in this area or up to 2024. Member states wishing to defer the validity of the directive have to submit such applications in 2017 at the latest, while according to information available to us the Czech Ministry of Finance is not considering such a move.

Effects on the real estate sector Companies active in the real estate sector will most be affected by the limitation of the tax deductibility of debt financing. For real estate companies, this type of financing is truly a significant expense. Currently, it is generally possible to deduct interest from intra-group loans amounting up to four times the equity of the company from its tax base as well as all interest from loans and credit facilities from third parties (e.g. banks). The new limitation to 30% of EBITDA may significantly complicate financing, as this rule includes all loans and credits. As a result of the broad definition of debt financing the EBITDA test can now also be applied to interest capitalised within the acquisition cost of assets in a company’s balance sheet. In practice, all will depend on how the directive’s provisions will be implemented into the Czech Tax Act, as the directive provides member states with a certain freedom to adopt its provisions. We hence recommend following future developments to see how the given provisions are implemented into Czech tax rules and then to take them into account while planning new projects or the refinancing of existing ones.

What lies in store for experts?

After 59 years of service, the current Act on Experts and Interpreters as well as its implementing decree are finally getting to retire.

Petr Škoch Senior Consultant, Real Estate Valuer Risk Consulting KPMG Czech Republic pskoch@kpmg.cz

From 1 January 2018, their places may be taken by a brand new act on experts, expert offices and institutes, and an implementing decree. Should the proposed act be adopted in its present form, many changes lay in store and it will pay to be prepared. We hence present you with an overview of the changes that we consider essential.

First among significant changes is certainly the remuneration for experts. Whereas today’s hourly rate for the provision of expert services for public authorities can be between CZK 100 and 350 per hour, the new act is significantly more generous. For individual experts, the proposed hourly rate is to be CZK 300 to 550; medical experts may expect CZK 400 to 650 per hour and experts from expert offices or institutes should receive CZK 500 to 750 per hour. Another interesting change is the introduction of CZK 300 per hour as a compensation for time. According to the new act, expert remuneration is to be paid without undue delay within 30 days after an order to pay expert fees becomes legally binding.

New registration, new exams Unlikely to evoke much joy among experts is the new regulation’s intention to practically declare all current expert licences invalid. However, renewing one’s authorisation to continue in one’s function will not be all too complicated. During a transitional period of five years all presently licenced experts will have to fulfil new licencing conditions. To fulfil the first condition, which asks for the preparation of an expert appraisal and the completion of a professional exam, all current experts will have to do is to submit an application for the establishment of a licence to practice. All that then remains is a general part, which is a training course explaining minimum expert knowledge, offered by the Judicial Academy. Seasoned experts will be able to continue serving in their function after the successful completion of the course, while all those who fail will be deleted from the official list of experts.

Expert offices will also have to expect some limitations. Here, the deadline for the fulfilment of renewal conditions is even shorter than for individual experts. Within a year after the new act coming into force, offices will have to prove to the Ministry

of Justice that they are indeed performing their expert services with the help of at least one expert holding an expert licence for the same field of expertise and branch as the expert office in question.

The new act also provides for a tightening of oversight over expert opinions and evaluations, as district courts will ask to see and inspect at least three random opinions every five years.

A new template for expert opinions Finally, the new regulation also intends to unify the form expert opinions ought to take, as it newly specifies an expert opinion’s requisites. In particular, the new act spells out that a expert opinion must be complete, truthful and verifyable.

Written expert opinions will have to include a title page, specifications of the task at hand, a listing of all underlining documentation, the actual expertise, its reasoning, a conclusion, any appendices necessary to assure the verifiability of the opinion and the expert’s proof of designation. The exact specifications are listed in the draft of the implementing decree of the act.

The terminology concerning expert opinions is about to change as well. Expert institutes listed in the so-called first division will become expert offices. Second division expert institutes, typically mostly universities, specialised workplaces, etc. will remain expert institutes. Experts will have be to members of just one expert office and will not be able to practice independently.

Experts, expert offices and institutes are not the only ones that will be affected by the changes. The new requirements will also have impact on the judicial system, as the competencies of the district courts in regards to expert witnesses will change as well. In traffic and transport, economics, the building industry, engineering and the medical sciences, competencies remain distributed as they are now and will be administered by all district courts, but all other branches will be centralised under selected district courts.

Both the new act as well as its implementing decree contain rules requiring mandatory insurance for experts, while the decree includes minimum policy amounts for individual branches

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21 — topic

Expert hourly fees In the current act: In the new act: ǫǫmedical experts ǫǫexpert institutes and offices

and segments of expert activity. The current draft does not contain concrete amounts yet, but with a maximum insurance claim amount of CZK one million, the yearly insurance payment amount for experts should be around CZK 3000 to 3500. Experts will have to prove that they are covered by insurance, otherwise they may even face deletion from the official list of experts.

Even though fines for various violations already increased in 2011, the new act calls for a further hike. According to the draft, fines may no amount up to CZK 500,000.

Any further changes in the act and the decree go beyond the scope of this text and none of the described changes should be considered definite. A slew of similar proposals have been introduced in the past, whereas none of them has ever passed. Whether the new act will be able to find its way into the legislation of this country is hence currently impossible to predict.

CZK 100–350 per hour CZK 300–550 per hour CZK 400–650 per hour CZK 500–750 per hour

How to become an expert The conditions for receiving an expert licence or for establishing an expert office or institute are to remain fairly unchanged, hence the prerequisites listed in the old Act on Experts should still get to apply. The draft implementing decree, however, does contain some changes. These mostly concern the naming of experts for individual fields of expertise. To illustrate, let’s take a look at the economics field and its real estate valuation branch.

To obtain a licence in this field, an expert must fulfil the following conditions: ǫǫuniversity education in the given field completed at least with a master’s degree; ǫǫcompleted post-gradual specialisation consisting of at least four semesters or a doctoral programme focusing on the given field, if such a programme exists; ǫǫat least 10 years of active professional practice immediately preceding the licence application; ǫǫpublishing/lecturing activity focusing on the given field of expertise; ǫǫvalid certification of professional competence in the given branch, if such certification can be attained.

Applicants will also have to pass an entrance exam and defend one of their expert opinions.

The robot – your new colleague

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Technological advancements in human voice processing, in artificial intelligence, data analysis and IT systems integration have made it possible to use digitalised labour in the form or software robots, i.e. programmes that imitate human labour, in areas where automation so far was either not possible or too costly. Robotisation’s basic and quickly attainable level is called RPA (Robotics Process Automation), in which precisely defined and structured previously human-made actions interacting with the user interface of a business’ computer system are carried out by robots. An example may be the application of robots to automate regression testing in the development of business applications.

A second level involves smart process atomisation, with robots using artificial intelligence to process unstructured input and learning from their mistakes with the help of human supervisors, i.e. in the data entry of orders and invoices.

Cognitive automation represents the third level of robotisation. Here, equipped with artificial intelligence, robots imitate human abilities like evaluation, deriving hypotheses, their verification and decision-making. To achieve this third level, it takes significant investments in the form of money, time as well as scientific capabilities. Then again, those who manage to master robotisation’s third level are assured an unsurmountable competitive advantage.

Marek Zoth Senior Manager IT Advisory, Management Consulting KPMG Czech Republic mzoth@kpmg.cz

Robotisation a part of strategy The new wave of robotisation offers businesses not only rapidly attainable benefits of RPA application in the form of lower operational labour costs, higher productivity, better storability of resources and higher-quality results, but also less visible benefits like a reduction of boring repetitive task for employees as well as better process auditability, consistency and predictability.

In the medium term, companies will have to include comprehensive programmes aiming at the complete utilisation of all robotisation levels as well as the management of all connected risks into their development strategies. A clever strategy incorporating robotisation into a business is hence leaning on the piloting use of RPA, whose benefits serve to prepare a fertile ground for further investments into the remaining levels.

A robotisation business case should not be built just on the promise of lower labour costs in a company’s back office, but it is also necessary to point out the advantages of a faster time to market of business changes without the use of traditionally relatively slow IT systems development and integration. It will also serve well to stress the added flexibility of being able to redeploy workers to tasks with a higher added value. A higher level of robotisation and automation within an enterprise does not necessarily imply that the workers whose labour is being replaced by machines have to end up on the street. Instead, a variety of other tasks open up for them, e.g. in marketing, sales, negotiations

22 — industry 4.0

As the industrial revolution advanced through the 19th century, workers time and time again tried to dismantle or at least sabotage the machines which, so they believed, were taking over their jobs. Today we most likely are standing at the threshold of a new industrial revolution, the fourth one in line.

Smart robots appear to have their eyes on sophisticated jobs that today are still in the hands of human beings, like disease diagnosis, currently still dependent on human doctors. In line with historical tradition, will the revolt against machines be led by professionals this time around?

23 — industry 4.0

Where are robots helping out today?

Client service and back-office (and not only in banks and insurance companies): ǫǫprocessing of client requests and data; ǫǫclaims settlement (registration, reporting); ǫǫactivation of new services and their adjustment.

Finance management: ǫǫorder and invoice processing; ǫǫaccount reconciliation; ǫǫaudit and controlling; ǫǫregulatory and management reporting; ǫǫasset management; ǫǫsalaries (payroll).

IT ǫǫservice desk; ǫǫregression testing.

or client relations, all areas which cannot do without the human factor. Robotisation’s deep application hence significantly supplements a business’ strategy with an analysis of organisational repercussions as well as change and communication elements.

The future with robots If we take a quick look into the further-off future, we can see that robotisation will not only have an effect on individual business, but that its impact will be sector and society-wide. Robotisation will influence out-sourcing and service centres with the help of offshoring, which rests on the lowering of labour costs.

Robotisation’ unavoidable consequence and challenge is the deepening of the need for technical human capital, which already is in dire demand. It is to be expected that giants like Google or Amazon will shift towards the production of robot-as-a-service models combining cloud IT solutions with extensive data bases and trained experts.

Digital labour’s production can become a significant revenue resource for universities who will be able to offer specialised robots founded on the training and knowledge of their professors. It may hence happen that medical schools will produce specialised MDs and offer their services via cloud platforms for integration into the environment of individual clinics. Some day in the future we may thus want to visit our family doctor but may instead encounter a robot under the supervision of specialists or a couple of general practitioners.

How to robotise?

How do advisors specialising in robotics proceed? First, they will take a good look around your company, investigate processes and identify areas which will be served well by robotisation.

They’ll come up with a strategy and a business case and calculate the savings the implementation should bring. They will also assist with the selection of the right tools and their integration.

Together with you they will supervise the pilot implementation and create a competency centre which will further monitor and develop the deployment of robots in your organisation. Just as importantly, they will support you in the communication of changes and in the implementation of necessary organisational adjustments.

Text: Anna Batistová, photo: Barbora Mráčková

24 — science

We’re inattentive.

And this influences just about every aspect of the economy

25 — science

“Only one science branch tries to understand the world,” says Filip Matějka of CERGEEI (Center for Economic Research and Graduate Education - Economics Institute), a joint workplace of Charles University and the Economics Institute of the Czech Academy of Sciences.

His statement offers a partial explanation why this initially physics and mathematicstrained scientist has become so successful in the social sciences instead. During his studies at Princeton University he began to gravitate towards economics as he discovered that global societal problems are best investigated within the science of economics. For his research dealing with human decision making in a time of information overload, Filip Matějka this year received the Neuron Award for scientists under the age of 40. →

with every detail, inattention plays a very important role here.

We know that most important is the first part of the resume.

Change the name to a minority last name or add a patronymic, all of a sudden this will have an impact on whether the employer will even bother finish reading the resume. Inattention also influences long-term unemployment. Employers tend to look at an applicant’s current job and once they find out that they have been unemployed, they might not bother reading any further.

Speaking of resumes, yours is full of interesting entries. For example a doctorate from Princeton. Would you be where you are right now without having studied in the US? Not a chance. All parents should be sending their kids to study abroad. It doesn’t even have to be Princeton. There are hundreds of schools in the world that are useful. It helped me so much to be able to work with the best people in the world from whom I could learn. My advisor Christopher Sims ended up getting the Nobel Prize. What was also tremendously inspiring was the diversity of that environment. Every evening, you sit together with friends who are studying chemistry, physics, history, psychology, philosophy or biology and you talk for hours over dinner…It’s definitely not true that all of them are geniuses, but all of them work really hard. Do you know how many freshmen at Princeton don’t finish the first year? One percent, that’s all! In the Czech Republic this figure is often times even 50%. Princeton is a much harder school, but it is based on the principle that if you work really hard, you’ll succeed. The school admits people and wants to turn them into better people within four years. They don’t want to spend four years testing them to see whether they’ll make it. But everybody there gives one hundred percent to their studies. In the Czech Republic, people sometimes work on their doctorate only on a part-time basis; CERGE-EI is different in this respect. Students have to give it their everything, but then they are also rewarded for their hard work. There’s around twenty of them each year and every year some of them get to spend time at an Ivy League school, often this is Princeton. Foreign visiting professors frequently present

26 — science

Your’re devoting your time to the theory of rational inattention, tryings to improve on economic theories and make them more realistic. How? By enriching it with a psychological element. Right from the start, we assume that people sometimes make mistakes and bad decisions and that they are often not able to take in all information available. We can’t read all newspapers, can’t follow all the news from the stock market and don’t know all the details of all tax laws. When we go out to buy a new phone, we don’t read the specifications of all models on offer to make the perfect choice, but instead take shortcuts to arrive at what we want. The same happens within a company; when executives are making decisions, they often don’t know every detail of their firm, nor do they know exactly how the company’s market works, so they simplify their decision making. Classic economic theories ignore this, even though it is very important because it has significant bearing on how markets, governments as well as consumers function. We create mathematical models of how people simplify complicated information and what effect this has on the economy. We are hence bringing a large section of the economy closer to real life.

The findings of your theory are now being put to use by the central banks, for example…

For them, our theory is quite essential as they use it to determine interest levels. When the central bank changes interest levels, it doesn’t mean that all people take notice.

I mean, a commercial bank will notice on the day that the head of the central bank announces the change and will begin to act differently. But consumers will react maybe even only after a year, and that fundamentally influences the dynamics of the economy.

At CERGE-EI you’ve also looked at how the theory can be applied to the job market. What did you discover?

We looked at how employees are recruited on the job market.

Imagine an employer, let’s say KPMG, maybe a hundred people will apply for one consultant position. It is very hard to deal

27 — science

at the institute, about 50 times a year. We’ve made it our goal to establish world-class economics here as well.

In the Czech Republic, is it possible to make a living doing science?

When I came back, I did think that I was done with science here, even though I had been doing so well in Princeton. Senior scientists in the Czech Republic are by now doing fairly well, but the beginnings? It’s just about impossible; there’s only a couple of enlightened workplaces.

Is that why you started your own business when you came back from Princeton?

Yes. I wanted to utilise what I had learned, so a friend of mine and I founded a company for applied research, a sort of technical consulting. In the last fifty years, economics has come up with many great methods on how to research society. We tried to apply them in companies; at Plzeňský Prazdroj, for example, we used them in their logistics planning. The initial plan was that doing business would allow me to do science. And, indeed, for three years, I supported my science activities by doing business.

I ended up devoting one day a week to the business, but even that proved to be too much. Especially in consulting, if you want to do it properly, you continuously have the client in your head and it began to be very constricting. I didn’t want to do things half-heartedly. I am lucky that CERGE-EI is one of those few enlightened places where one can make a living doing science.

But it does take a lot of work, for instance when you are trying to convince patrons that we are a great asset to society.

What’s the greatest difference between science and business?

Science is great in that you have the freedom to think, that you can really work on what you want to do. What’s worse, is the contact with people. With science, you’re in it for the long haul. In consulting, the client will tell you every day: “Filip, this is good; this is bad,” you get feedback and people need that. In science, you

have to convince yourself that what you are doing makes sense and that is difficult and emotionally demanding. I also see a big difference in that average science is useless and doesn’t make much sense. An average entrepreneur is still very useful; let’s say that they run a restaurant which isn’t the best in town but people still like going there. An average scientist doesn’t have much of a purpose. But hardly anything is as useful as excellent science.

Reflecting on your current research, do you have any recommendations for individuals?

For example, here in the Czech Republic, people tend to overpay when it comes to mortgages, even to the extent of several billion crowns a year. When somebody is shopping for a mortgage, they visit maybe two to three banks maximum. They should be going to ten of them. Or another thing – if somebody looking for a job were to realise that the people at the other end are fairly inattentive, they wouldn’t just reply to a job ad, with the company getting hundreds of responses. Instead, they would do the work for the company, they would try to find a perfect fit and then write a focused email, applying for that perfectly fitting job.

Also, people don’t invest as profitably as they could. We know, for example, that they don’t diversify enough. Often, they hold shares of the firm that they themselves work in – which is about the worst thing they can do.

Since you’re speaking of companies, what do you recommend to them based on your research?

Companies should realise that brands will continue to gain in value. A product as well as a company brand provides information.

Once I find my favourite, the less inclined and willing am I to look elsewhere. Companies should also recognise that it pays to present information in a simplified manner. The best firms, like Apple, for example, have very few products of different type but are instead simplifying their portfolio. I believe that that’s the way good businesses will want to go.

European scene Typically, fall weather makes one consider an excursion to a gallery, the theatre or a concert rather than going on a nature hike.

Europe’s traditional cultural strongholds are very well aware of this and are now bringing out the big guns. It would be a shame not to take advantage of this generosity and to miss the Venice Architecture Biennale, for example. ↑

Marwick Revue

Seurat, Signac, van Gogh Vienna ǫǫAlbertina ǫǫuntil 8 January 2017 Branching from Impressionism, Georges Seurat and Paul Signac in 1886 developed Pointillism, a painting technique in which small, distinct dots of colour are applied in patterns to form an image.

Their modern technique was on occasion employed by Vincent van Gogh and also fascinated Henri Matisse and Pablo Picasso.

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2 Made in Prague London ǫǫGreenwood Theatre ǫǫfrom 5 to 7 November 2016 As part of the Made in Prague festival, the Dejvické Theatre, Prague’s most popular stage, will for the first time guest in the British capital and present three of its most successful plays: Theremin, Blockage in the System, A Winter’s Tale.

The Tales of Hoffmann Paris ǫǫOpéra Bastille ǫǫfrom 31 October to 27 November 2016 The main venue of the Paris National Opera, France’s principal opera company, will in November stage Jacques Offenbach’s glorious Les Contes d'Hoffmann (The Tales of Hoffmann). Jonas Kaufmann, one of the world’s best and most celebrated tenors will star in the role of Hoffmann.

4 20 Years of Placebo Prague and other european cities ǫǫForum Karlín ǫǫ8 November 2016 On the occasion of its 20th Anniversary London’s Placebo decided to rewards its fans for their loyalty with a world concert tour. The Czech gig of the tour will take place in Prague on 8 November at the Forum Karlín.

Biennale Architettura 2016 Venice ǫǫGiardini, Arsenale and Venice’ historical centre ǫǫuntil 27 November 2016 Visitors have until 27 November to take in the 15th annual Venice Biennale Architettura. The international architecture exhibition has this year been subtitled “Reporting from the front” and hosts 63 countries, including the Czech Republic.

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Louise Bourgeois Copenhagen ǫǫMuzeum moderního umění Louisiana ǫǫuntil 26 February 2017 Passionate, painful, dramatic and extremely personal are French sculptress’ Louise Bourgeois (1911–2010) works. Her exhibition at the Copenhagen Louisiana’s South Wing is simply titled Cells.

Text: Anna Batistová

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28 — revue

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Marwick recommends The Spy Literature ǫǫPaulo Coelho Paulo Coelho’s novel brings to life the true story of Maty Hari, the Dutch exotic dancer and courtesan who was convicted of being a spy and executed by firing squad in France under charges of espionage for Germany during World War I. While waiting for her execution, she wrote letters…The Czech translation will appear in bookstores on 1 November.

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Doctor Strange Film ǫǫDirector: Scott Derrickson Benedict Cumberbatch stars as superhero Doctor Strange, taken right from the pages of the beloved Marvel comic book series. Scott Derrickson’s feature enters Czech cinemas on 3 November.

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Letargie Music ǫǫPrvní-Poslední Prague’s indie rock grouping První-Poslední has already three CDs under its belt. The newest endeavour was produced by Honza Brambůrek, who also cooperates with bands Houpací koně and Kieslowski. Take a listen and find out that Letargie’s music is anything but lethargic.

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Kámen a bolest (Stone and Pain) Theatre ǫǫReduta Theatre ǫǫDirector: Marián Amsler Brno’s Reduta Theatre will stage the dramatization of Karel Schulz’ historical novel Kámen a bolest (Stone and Pain). The play, premiering on 22 December, tells the spellbinding life story of Michelangelo Buonarroti.

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Havel Exhibition ǫǫDOX Centre for Contemporary Art The extensive exhibition on the occasion of what would have been President Vaclav Havel’s 80th birthday, featuring among others the photographs by Tomki Němec and Bohdan Holomíček, will run until 13 February 2017.

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The Little Mermaid Dance ǫǫThe Estates Theatre ǫǫStage direction: SKUTR (Martin Kukučka a Lukáš Trpišovský) Tip: On 10 November a new ballet on themes from Anderson’s Little Mermaid will premiere at the Estates Theatre.

Jan Kodet’s choreography has been staged by the renowned tandem of directors SKUTR (Martin Kukučka a Lukáš Trpišovský).

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³The Vessel structure in New York - steps, steps and more steps.

Design News

1 Students propose a new face for Prague’s levees Around Prague’s Palacký Square, the Vltava River’s levees have become gathering places with ever-increasing popularity. The levee on the opposite river bank, however, remains vacant and dismal. Architectural Students of the Czech Technical University thus decided to propose the revitalisation of the area leading from the Palacký to the railroad bridge. If you are interested, you can take a look at their designs directly at the venue.

2 Czech cubism exhibition featuring unique works At the Museum of Czech Cubism, housed in the House of the Black Madonna (which was designed by Josef Gočár) visitors can let themselves be inspired by this unique avant-garde art movement. On display are pieces of furniture, interior furnishings, lamps, glass and porcelain, posters as well as book design by the period’s greatest representatives like Pavel Janák, Josef Gočár, Josef Chochol, Vlastislav Hofman, Otakar Novotný, František Kysela, Emil Filla, Bohumil Kubišta, Josef Čapek, Václav Špála and Otto Gutfreund.

3 Giant Vessel staircase to dominate New York’s Hudson Yards Together with his studio, famous British architect and designer Thomas Heatherwick has designed the Vessel, a giant observation sculpture. The structure, consisting of 154 interconnected staircases and 80 platforms, should become the centre piece of New York City’s new Hudson Yards neighbourhood and should see the light of day already in 2018. To climb to the Vessel’s top will mean walking up a total of 2400 steps.

Stanislav Libenský Award 2016 competitive awards exhibition Open until 14 November, the DOX Centre for Contemporary Art in Prague is currently showing the outstanding creations of the finalists in the international glass artist competition Stanislav Libenský Award 2016. Truly exceptional works of 38 graduates from fine arts universities in the Czech Republic and abroad can be seen. Don’t expect run-of-the-mill glass ware but extravagant glass projects, carefully selected by the best curators.

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² The Czech Cubism exhibition truly features exquisite pieces

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Text: Ondřej Krynek, editor-in-chief of DesignMagazin.cz

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2 Black sheep in the club After prolonged reconstruction, this fall the farm-cumrestaurant Černá ovce in Rudná near Plzen again has welcomed its first patrons. The owners have decided to turn their enterprise into a private club, accessible only to members. “For walk-in guests this means that they have to register and buy a chip card for CZK 50,” Adéla Cihelková explains. “In 2017, our shop will open to customers and sell our cow, goat and sheep milk products and other specialities from small associated producers. We are also thinking of starting our own minibrewery,” adds Adéla Cihelková, who, in her own words, works at the Černé ovci farm as a peasant maid.

Extra tip The head chef serves up classic Czech cuisine while using modern gastro-methods (convection oven, sousvide). You just have to try the beef cheeks in read wine with potato puree and roasted vegetables or, our fall favourite, roasted St. Martin’s goose.

An American beer premiere Sunny California is first and foremost known for its production of quality wine, but it is also home to the Stone Brewing Company. As the first American brewery it now has branch on the European continent. For this significant premiere, the Stone Brewing Company chose Berlin, Germany. The local pub has an unbelievable 65 types of beer on draught and also offers a restaurant and bistro, capable of seating several hundred guests, and a magical garden. In its expansion into Europe, the Stone Brewing Company does not rely on magic alone, but on a wide cornucopia of beers, in which top-fermented ales dominate.

Extra tip Make sure to order the Stone Ruination Double IPA soup with roasted garlic and smoked paprika. Or from the menu, select the Hauptstadtbarsch Trio (slowly roasted bass on a bed of lentils, invisible spinach, tomatoes confit, in a tangy Stone Ruination Double IPA dressing.)

¹ The Signature Store sells originality above all else

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TOP 3 new venues

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² Černá ovce - a host of animals almost right in Plzen´s centre

Text: Lukáš Rozmajzl, editor-in-chief of CityBee.cz

Coffee shop with a signature Differently, our way and definitely better – that’s the motto of the entrepreneurs who at the end of October opened Vnitroblock in Prague’s Holešovice neighbourhood. At its core is a Signature Store outlet offering progressive design and incorporating a café. “We thought it would be great if instead of waiting in line to pay customers could sit down and have a cup of coffee while their purchase gets wrapped,” Lukáš Žďárský, one of the founders of Vintroblock, explains the concept of the business. One highly original aspect is a big glass cube, where people can colour their just-bought white t-shirts.

Part of Vnitroblock is also the Sector dance centre (open since September). Next year the space should get to live up to its name (Czech for inner courtyard) and further expand its premises to feature a bistro, a beer bar and a new theatre stage.

Extra tip From the café, a staircase leads down to the basement, featuring a PlayStation playroom for those who are waiting until their partners are done shopping. In the evenings, the same space transforms into an intimate mini-cinema for 15 to 20 viewers.

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KPMG’s traditional pre-Christmas conference will introduce you to all tax and legal changes under preparation. Please register at www.kpmg-eventy.cz. ↑

Prague 21 November 2016, Forum Karlín Presenter - Martin Veselovský Programme: 9:00 Introduction – Radek Halíček, Managing Partner, KPMG

Czech Republic 9:05 Tax plans and projects of the Ministry of Finance – Alena

Schillerová, Czech Ministry of Finance 9:50 What’s new in tax for 2017? – Ivana Stibůrková, KPMG

Czech Republic 10:10 Current legislation and case law – Iva Baranová,

KPMG Legal 11:10 What new tax duties will the EU directives introduce?

– Daniel Szmaragowski, KPMG Czech Republic 11:25 Significant court decisions from a tax practice point of

view – Petr Toman, KPMG Czech Republic 11:45 Current issues concerning value added tax and

electronic sales records – Veronika Jašová, KPMG Czech Republic 12:05 Proving the origin of assets – Martin Hrdlík, KPMG Czech Republic Olomouc 29 November, Clarion Congress Hotel Preliminary programme: 9:00 Introduction – Blanka Dvořáková, KPMG Czech Republic 9:05 Tomáš Rozehnal, Appellate Financial Directorate 9:50 What’s new in tax for 2017? – Pavel Otevřel, KPMG Czech Republic 10:10 Current legislation and case law – Irena Kolárová, KPMG

Czech Republic 11:10 What new tax duties will the EU directives introduce?

– Jan Kiss, KPMG Czech Republic 11:25 Significant court decisions from a tax practice point of view – Jana Fuksová, KPMG Czech Republic

11:45 Current issues concerning value added tax and

electronic sales records – Tomáš Havel, KPMG Czech Republic 12:05 Proving the origin of assets – Irena Kolárová, KPMG

Czech Republic

České Budějovice 7 December, Clarion Congress Hotel Preliminary programme: 9:00 Introduction 9:50 What’s new in tax for 2017? – Přemysl Klas, KPMG Czech Republic 10:10 Current legislation and case law – Irena Kolárová, KPMG

Czech Republic 11:10 What new tax duties will the EU directives introduce?

– Jan Kiss, KPMG Czech Republic 11:25 Significant court decisions from a tax practice point of

view – Jana Pytelková Svobodová, KPMG Czech Republic 11:45 Current issues concerning value added tax and

electronic sales records – Přemysl Klas, KPMG Czech Republic 12:05 Proving the origin of assets – Viktor Dušek, KPMG Czech Republic

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KPMG Tax and Legal Forum

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Veverkova street, where PageFive has found its home, at first glance appears to be quite a normal Letna street. If you take a closer look, you’ll find a significant concentration of very diverse art enterprises, from the Punk Store, to the Garage Store, Bistro 8, Recycled with Love, a store selling recycled clothing, a design furniture business and a sewing workshop. “It just so happened that a lot of arts projects came together on our street. We function as a community and are really active; we participate in events like Zažít město jinak [experiencing the city differently, trans. note] and Restaurant Day,” says Nadia Sheshukova, PageFive’s production assistant.

This arts bookstore is not trying to compete with others in the amount of books it stocks, but in its noteworthiness and originality. About three fourths of its shelves are stocked with foreign books, mainly about graphic design and architecture. You can also find children’s books here, from mirco-publishing houses like Běžíliška and Domek. “In Prague, we are the only book store where you can get a lot of the books that you see, “ Nadia adds.

People have taken a liking to PageFive because here they can find the best foreign arts magazines, both of the professional as well as life-style kind, like, e.g. Fantastic Man, offering interviews with successful men throughout the world. Its female counterpart is Gentlewoman. A further speciality are posters or author’s editions of local illustrators. “People can by prints that are collectors’ items here, and this often for the same price as that of an print at Ikea,” explains Nadia Sheskukova.

In the past, we had to go to Berlin or Amsterdam to buy quality art books, as they were not to be had in Prague.

Three years ago, Štěpán Soukup and František Kast, fine arts university students, decided to take the situation into their own hands. On the Letna plain in Prague, they decided to open PageFive, a unique bookstore and publishing house. Here, they sell arts magazines, posters and author’s editions. ↖ PageFive likes to provide exposure to young artists and tries to be a place where people preferring visual culture like to get together. Apart from a bookstore and publishing house, PageFive also offers printing workshops at its premises on Veverkova street. “We are especially trying to promote a Zine culture, better known abroad, but here, it’s also beginning to grow. It’s a sort of semi-samizdat undertaking,” explains Nadia.

PageFive indeed aims to so much more than a bookstore.

PageFive recommends The Monocle Guide to Good Business, Gestalten, 2014, 304 pages.

A series of books from the authors of Monocle magazine introduces different viewpoints on what makes up a successful human being. The Monocle Guide to Good Business is a sort of manual for all who want their own passion and love for their business to survive along with their enterprise.

Text: Anna Batistová

33 — revue

FOCUS: PageFive

34 — interview

Text: Ivo Půr, foto: Barbora Mráčková

Prague needs contemporary buildings

When we asked David Vávra for an interview, we requested that we mainly talk about his architectural work. But limiting one’s conversation with the architect, actor, writer and occasional poet to just one profession is just about impossible.

35 — interview

↓

David Vávra (born 1957 in Prague) Architect, actor and writer. He graduated from the Civil Engineering faculty of the Czech Technical University and the Fine Arts Academy in Prague. He co-founded the Theatre Sklep [cellar, trans. note] and his professional home, the Dobeška cultural centre also bears Vavra’s architectural hallmark.

Among his most well-known architectural projects is, e.g. the revitalisation of the former Vertex factory into the city library in Hradec Kralove, the interior of the Švanda Theatre and numerous residential projects from the Sumava to the Krkonoše Mountains. Apart from theatre and architecture, he also has made a name for himself as the co-author and host of the Šumná města [beauteous towns, trans. note] and the current Šumné stopy [beauteous tracks, trans. note] TV series.

On occasion, he also writes poetry.

Czech society. Unfortunately, the newly gained freedom did not manifest itself in any building. What’s missing is a significant footprint; maybe in the Dancing House (Fred and Ginger) one can catch a glimpse.

Prague has been called a giant outdoor museum; the debates surrounding Kaplický’s Octopus have subsided…Which building would you like to see built in Prague?

Prague is indeed a consciously preserved outdoor museum, but one can’t protect an entire city like some kind of reservation.

For the last 500 years, Prague has been changing and it should continue to change. It certainly is important to carefully watch the intentions of investors, but Prague does need contemporary buildings. We have an idea what they should look like, but it will take a little more courage and a little more faith in architects.

The Prague Castle skyline has to have a contemporary element.

In the discussions around the Octopus, one argument was that it was too close to the castle, but I said that on the contrary, it was too far away. In my opinion, it should have complemented Prague’s historical silhouette and could have – I am exaggerating – stood on the third courtyard of Prague Castle.

In your TV series Šumný stopy [Beauteous tracks, trans. note] which maps the influence of Czech architects abroad, you got to know a number of cities quite intimately. Do you have favourites among them?

In the 20’s, the new Czechoslovak state was very open towards new architecture. Not only then, but also at the end of the 19th century a number of Czech and Czech-born architects

36 — interview

Your firm’s recent output has been a mix of both public as well as public sites. Which do you enjoy the most?

It really doesn’t matter. Every architectural task is pleasing, because it inspires me. And the more complex the task, the more interesting it will be.

Ok, so what building would you really love to build?

That’s always the one which I am building at the moment.

I don’t have a dream assignment I am waiting for. Recently, I got to figure out a solution for a building with the aesthetics of the 70’s and 80’s, finished in the 90’s of the last century.

So now you’re asked to do something about it. In and of itself, it’s a strong, constricted house, but on the other hand, it has socialist mass-produced prefab details. That’s the type of challenge that interests me – it’s good if one gets to fret a bit.

You mentioned the 90’s. Is this an era which in regards to architecture we should rather forget?

Even socialist realism gave birth to exceptional structures and came into existence with the memory of first-republic quality craftsmanship. The 90’s came after years of socialist nonquality with shoddy construction; this was incredibly difficult.

On the other hand, the 90’s were also very strong years for

37 — interview

got to change the structure of a number of cities. In the case of Sarajevo, Karel Pařík with his buildings turned an oriental market place into a European city. Antonín Raymond was just about the most industrious architect of the 20th century. And we could continue in this vein with many other metropolises which bear the footprint of Czech architects and who the Czech public does not know much about.

Do you still consider something like a Czech architectural school of thought to be in existence?

Definitely. For the 90’s I would name Josef Pleskot and Alena Šrámkova and a number of other people who have their own personal style. But not enough time has passed since the 90’s for us to be able to properly appreciate them. Contemporary Czech architecture is not missing but it no longer plays such a decisive role in society as it did during the First Republic. There appears to be only one Czech town that is quite extraordinary in this respect, and that’s Litomyšl, where modern architecture has found an appropriate consonance in the historical context of the town and has become its equal and democratic partner.

As our interview’s venue you chose Café Kaaba, with a very distinct and bold interior. Does this place have a deeper significance for you?

It comes together with the harmony that I feel with the Brussels, Expo 58 architecture. A number of individuals from my generation are children of this architecture, of plastic chairs, colourful paint work, etc. This type of architecture influenced our lives tremendously and found its way into Czech every day life. It doesn’t happen very often that such a strong expression becomes the common public desire. Maybe this was aided by the memory of the First Republic and the strict dictate of Stalinist architecture. With Brussels, some semblance of freedom arrived and brought curves, organic shapes and people started to long for something new. There’s a significant footprint of modernity in this style, which brought paintings of triangles and printed plastic table cloths into the huts and cottages around Broumov [a sleepy town in the Náchod District of the Hradec Králové Region, in the Sudety Mountains and near the border with Poland, trans. note]. I like coming here; all in all I am sentimentally conservative. �

38 — interview

Is there something that symbolises current times in a similar fashion? Do you perceive some kind of trend?

The post-modern era doesn’t really have any significant trends. We oscillate between extravagance, where one can have everything, and abstraction, where there’s nothing added on.

But we have to keep in mind that we are not sufficiently removed from the current era to be able to say what will survive.

What are you currently working on?

Not too long ago, the theatre in Kladno [the biggest city in the Central Bohemian Region of the Czech Republic, trans. note] reopened after going through a radical reconstruction project, designed by my studio. I am also working on a sequel to my book, which came out last year and was titled Three Journeys towards Architecture. It dealt with the beginnings of human knowledge and led to Greece, Israel and finally, in the tracks of this culture’s export, to Latin America. The book that I am working on now and which should come out in about a month is called Going to the Ocean! and describes the journey towards the ocean in Croatia. To be brief, it says that it’s better not to rush towards the sea but that we should stop on the way, in Brno, Vienna, Graz, in Slovenia, in Bosnia and in Slavonia and only then continue on to the coast. The book’s about the architecture of these places, but also about drinking wine.

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© 2016 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: Lenka Medvecová, photos: Barbora Mráčková

Czech artisans have always had a good reputation – even abroad.

According to the newest statistics, however, their numbers are continuously declining. An analysis by the Association of Small and Medium-Sized Enterprises and Crafts of the Czech Republic reveals that in the last year, only 10,000 new artisan trade licences were granted, whereas during the last 15 years the yearly average was at 24,000. One reason for this decline is the departure of skilled craftspeople abroad, another the disinterest of young people in the artisan trades. Hence the association declared 2016 the Year of Handicrafts. We also decided to introduce to our readers three highly skilled artisans who are masters of beautiful crafts and whose nimble hands give rise to remarkably beautiful and rare works of art. Join us as we venture into the world of diamonds, explore the restoration of historical artifacts and find out about the typical day of a Czech beekeeper.

40 — photostory

Proverbial nimble hands

41 — photostory

Discovering age-old stories Not everybody gets the chance to live through different ancient stories every day to reveal their mystery and charm. For one craft, however, such discovery is included in its job description.

Jan Živný is a renowned conservator-restorer with many years of practice. He arrived at the conservation and restoration of historical works of art by way of his love for painting, which he still continues to devote time to today. Even as a student, he knew that he wanted not only to paint but also to restore the beauty of old pieces of art. He was first introduced to conservation and restoration during an internship in Vienna at the restoration workshop of Prof. Dr. Helmut Kortan.

During his career, he has worked on countless historical and cultural artefacts, both in the Czech Republic and abroad.

Currently, he is trying to restore a gothic painting from the year 1330 from Houska Castle. “It’s wonderful when historical objects that often times came to us in a deplorable state are brought back to life again. It definitely is a race against time. The restorer must be careful not to create an entirely new object and not to place one’s own ideas into it. One must try to get into the head of the original artist and preserve the spell of history and of the time when the artefact was created. That’s another reason why I continue to paint; for me it’s an outlet and a way how to relax.

It lets me take care of my creative side,” Jan Živný describes his work. He adds that conservators-restorers have to have more than just artistic talent. They have to be knowledgeable and be familiar with the exact sciences as well as art history. Jan Živný also often cooperates with governmental conservationists. He stresses that every historical era is fascinating in its own way.

“In my opinion, the Czechs’ most beautiful period in history was the era of Charles IV. But I also think that we have an amazing fine arts culture; the local Art Nouveau oeuvres are glorious, for example,” Živný says. He notes that in his field, the quality of the work he does is very important, but that in practice, all depends on the relationship the owners of the restored object have with history. “A problem that restorers often encounter is getting work assigned by a company that has won some kind of tender for a complex of buildings. The restorer hence has to take part in the tender procedure, where often times the price is the decisive factor, which in our field hardly ever is the best solution,” concludes Živný. He himself sees restoration and conservation as a beautiful craft of bringing memories and values of past times back to life. As such, it plays a tremendous role in humanity’s future as well.

42 — photostory

When nature is your employer He travelled the world until he turned 35; when he came home he settled in an old house with a yard and decided to give beekeeping a try. Today, Josef Frajer takes care of 56 bee colonies and his apiculture business is gradually expanding. He owns his love for this trade especially to his father, who spent his entire life taking care of bees. “This work has been close to my heart from my childhood on. When I began in apiculture after returning home to the Czech Republic, I knew exactly what I was getting into. I nevertheless remain fascinated by the bees’ perfection; how they are able to take care of themselves and how their entire community is interconnected and functions flawlessly. What I also love about my work is that every year, I learn something new and that nothing is easily predictable,” Josef Frajer intodruces his craft. In his view, beekeepers are very much alike – you can recognise them by their strong ties to nature and their fondness for observing their bees.

His affinity for this line of work was strong even before he got his own hives. He actively sought out beekeepers on his travels abroad, even in such remote places like the Himalayas.

“I watched the locals as they took care of their hives and we shared experiences. Beekeeping in the Himalayas is completely different,“ says Frajer and adds: “They use procedures with a thousand-year history, raising bees in the wild in holed-out tree trunks; then they take out the honeycombs and press them. This is not at all bee-friendly, though. I described vertical modular bee hives to them; these hives are simpler and there is a lesser risk of crushing and destroying the honeycombs.”

April to September are the busiest months of the beekeepers’ season. After that, they begin to get ready for the next year, feed their bees and sell their products. The Czech Republic has very good preconditions for apiculture. “This is thanks to plenty of pasture for the bees. The variety of vegetation is an advantage – a lot of gardens, fruit orchards, maple trees and even rapeseed has its benefits. And, if you keep bees in a region where crop fields are not too heavily fertilised, that’s also ideal.

In our country, treating bees with chemical substances that have not been approved is not allowed, and we also have strict hygienic guidelines. That unfortunately does not hold true for all countries that import honey to us. There, bees are even treated with antibiotics and the like,” so Josef Frajer as to the reasons, why it pays to prefer Czech honey to that of uncertain origins.

43 — photostory

A millionaire, every day – at least for a while Millions in the form of gemstones pass daily through his hands; one could indeed call them golden. For 15 years, Oto Holotík has been working as a goldsmith-setter for the ALO diamonds brand. His work mainly consists of setting diamonds into their jewellery settings. He arrived at his occupation by way of his childhood hobbies. He went to drawing courses and craft groups, immensely enjoying all kinds of arts and crafts. This was what motivated him to become a jeweller. After trade school and the required practice, he came to his current employer, where he specialises in the setting of diamonds. “My work is so interesting and varied. On certain days, I manage to set even a hundred stones, on other days, the task will be so difficult and demanding that I hardly manage to set four. I like both the serial production of jewels and getting to produce a custom-made piece, where I know the client’s approximate idea but can give free rein to my creativity,” so Oto Holotík about his craft.

He adds that his work requires tremendous patients and precision. Your hands must not shake even if you are working with the most expensive gems. “Just by looking at a diamond I know its price tag; that’s a huge responsibility. It’s important to plan and prepare every move beforehand. I can’t afford to make a mistake.

I work with unreplaceable gems like emeralds and there’s no way I can have them break,” says Oto Holotík. During his many years in the jewellery business he has watched tastes and preferences change quite a lot. “After the revolution, diamonds were sparse, so we mainly produced jewellery with synthetic cubic zirconia. Often times, pieces would only feature one gem.

Simplicity was preferred and our main tool was the file. These days, we are already using a 3D printer and 3D programmes, which make our work a lot easier. From the simple pieces we have now progressed to all kinds of different shapes with different-coloured diamonds. That’s the advantage of the new technologies now available in the field; they can move the design of our products forward. Today, a small butterfly on a piece of jewellery set with gemstones is no longer an exception. In the past, it would have been really difficult to create something like that,” the diamond setter describes the newest trends in his profession.

At 45 years old, moving away from Prague and leaving her job due to family reasons meant a new beginning.

Afterwards, when Ms Jana went round different employers in the nearest regional city, she came away jobless. After having worked as an administrative employee in a Prague office, raising a daughter during her maternity leave, she finally started working in a factory producing plastic products.

What else could she do? ↓

Text: Jana Samšuková, illustration: Barbora Töggl

One third without work As at 31 August of this year, the Labour Office of the Czech Ministry of Labour and Social Affairs registered over 388 thousand unemployed. Nearly 150 thousand of them were aged 50 and over – the 50+ crowd. With a simple calculation, we can establish that this number equals more than 32% of all unemployed. For all practical purposes, we can hence claim that an entire one third of all unemployed is in the over 50 age group, a long-term disadvantaged group of people for which it is very difficult to find a new job. Why? Is prejudice the reason?

People 50 and older often lose their jobs and cannot find new ones because they lack foreign language or technology skills, lose their interest or enthusiasm, but also due to family reasons.

They are frequently replaced by younger colleagues or let go due to company restructurings. They are the oldest and therefore the first to take a blow - they are expendable. Employing people over 50 is full of myths and prejudice against them, based on which employers in many cases discriminate against such job applicants. They are old, they have their entrenched habits, they do things in a certain way, they adapt poorly to the current fast age and hate to do so…

The population in the Czech Republic, just like in the entire European Union, is growing old. Life expectancy is extending in line with better living conditions, more advanced health care, a healthy diet, the improving economic situation, etc.

Demographic ageing is one of the most frequent social topics, as is the decrease of prospective employees in the labour market. If the prediction of the Czech Statistical Office from 2013 comes true, by 2050, the share of the economically active

in the population will decrease significantly, as well as the share of individuals younger than 15. By contrast, the number of people over 65 will increase up to twofold. Older people will therefore have to be taken into account. Heightened emphasis on an active employment policy, particularly in respect of people over 50, the support of active ageing and an effort to integrate older people into the process of work are key to keeping the economic and social system stable. The effective use of older people’s potential will then be essential and hence at the same time ensured.

An older employee can enrich a company in many ways Let’s stow away pessimism somewhere in between the budget columns or for the invoice payment deadline and let’s think about how older employees can indeed enrich us. At their age, they possess wisdom and life experience which they can pass on to younger colleagues; they are real professionals in their fields; they take life as seriously as it deserves; they are stable in their opinions and habits, loyal and respect their work; they are not flighty and can be relied on. They do not require investments as huge as the representatives of the generations at the end of the alphabet, who rather go after gaining as much experience as possible, ideally in as many companies as possible. What’s more, some employers should prefer older employees as their clients belong to the same generation. Moreover, older employees provide team diversity – they can teach and learn at the same time. And finally yet importantly, for some positions, they are simply more suitable.

Within its active employment policy, the Ministry of Labour and Social Affairs has offered to pay up to 24 thousand Czech crowns per month for one year towards wages and contributions to an employer hiring a person aged 55 or older at a suitable position.

44 — generation XYZ

Looking for work.

At 50+

45 — generation XYZ

SilverJobs for those who have experience Let’s get back to the story from our introduction.

Jana’s daughter, Anna Humlová, is co-founder of the SilverJobs project, which intends to connect people aged 50 and over with potential employers and arranges different trainings to help them overcome the vicious circle connected with searching for a job.

“I’ve taught my mother to use a notebook, mobile and different applications. I can remember the moment when the SilverJobs concept crossed my mind – I was watching my mum working on the computer and thought that there must surely exist some opportunities for this group of people as well,” Anna says. She actively searched for opportunities for people in their fifties and tried to find out what the possibilities are. She found only a few. Hence, the SilverJobs project’s concept started to take shape in her head. Later on, running across her childhood friend, she shared her idea. One thing led to another and the friends embarked on the project together.

With their interesting concept they were invited to a TEDx conference and promptly won the hearts of the audience and the Most Interesting Project award. Several other successful achievements and positive reactions followed and kept moving the girls forward, while confirming that the project they had spent most of their free time on made sense and did have a future.

For this project with its social focus to work, however, a vision is not enough. “We would like the platform to pay for itself,” specifies Anna. Both Anna and her friend Míša signed up for the KPMG School of Responsible Business, a project KPMG uses to support social business and to introduce the social entrepreneur concept among young people. At the school, they learned how to establish a social business, how to select its appropriate legal form, how to manage its finances and how to prepare a business plan. Eventually, Anna and Míša went on to win the programme’s Most Interesting Business Plan award. The project will thus receive professional support during its implementation directly from KPMG’s professionals.

Job offers and bringing company culture closer The project has the ambitious goal to connect job seekers 50 and over with appropriate employers. At the same time, it arranges interesting training courses to facilitate the job search process and supply knowledge that may be missing. For example, the training courses teach how to prepare a successful CV and motivational letter and how to best grasp Excel and other computer programmes. As part of the project, the clients will be taken care of also after finding a job; the goal is to stay in touch.

“Our job offers should be tailor-made for people in their fifties.

Based on our own analyses and experience we know that they are mostly interested in administration or office support,” says Míša.

Including senior position offerings is not planned for the near future; however, they may appear on the portal within the next few years.

Although the www.silverjobs.cz web pages are running like clockwork, the project’s real operation is still at an early stage.

Anna and Míša are asking companies to create their business card on the portal, introducing their company culture by means of stories, a photo gallery and discussions with potential superiors or colleagues. This should help the company find appropriate employees from the over-50 age group. Currently, Silver Jobs are looking for a company to become the project’s ambassador, a Silver Hero, who could then have a go at it together with them.

Who is behind the SilverJobs project? ǫǫAnna Humlová The author of the SilverJobs idea with extensive experience in marketing and public relations, she studied international trade with a secondary specialisation in HR at the University of Economics in Prague. She believes that people over 50 can convey a lot of knowledge and experience to their colleagues.

Hence, Anna wants to stop age discrimination in the labour market. ǫǫMíša Stránská A student of the University of Economics’ international trade programme and the Czech Technical University’s project management faculty, she believes that too much prejudice and stereotypes exists in respect of the over-50 generation, distorting the perception of this age group. Together with her colleague, she is trying to change this mind-set.

KPMG’s School of Responsible Business The school of responsible business offers a series of six professional training courses focusing on the establishment and management of new social enterprises. Creators of different start-up projects with a social dimension who want to consult their concept with professionals can sign up for the programme.

Having completed all trainings, individual projects compete for the Most Interesting Business Plan award. The winner then receives professional project implementation support from KPMG, tailored to their specific needs.

46 — generation XYZ

Why did the SilverJobs project deserve to win over all other business plans that applied?

Ivana Pokorná, Head of CSR in KPMG Czech Republic: “SilverJobs is a unique concept of a work portal for a group of job applicants who are currently strongly neglected. We all have someone in our environment who has been discriminated because of their age.

Even though fifty is not old age, asserting oneself in the labour market becomes more difficult. Míša and Anna discovered an opportunity here and are trying to solve a problem that will have to be dealt with in the near future, not only by job applicants but mainly by employers themselves. Therefore, we perceive this area to be very promising. At KPMG, diversity is being pursued in the long term. Through a working group, our employees came up with a diversity strategy that deals with age management issues.”

Crypto currencies and the decentralisation of currency are today’s biggest hypes.

Nonetheless, something as virtual as that still has some physical substance and a central production. The touch point with the offline world occurs when you need to exchange physical currency for bitcoins, which takes place in bitcoin ATMs. Czechs are among their top producers worldwide. ↓

Karel Kyovský, aged 36 A graduate of a secondary school for digital telecommunication technology, in the production of bitcoin ATM he is building upon practical experience that he gained in banking institutions and while heading a slot machine company for five years. He himself is a bitcoin enthusiast although he does not pay exclusively with bitcoins. He lives in Prague and has three children.

Text: Eva Samšuková, photo: Barbora Mráčková

47 — business lifestyle

A bitcoin maternity ward

Bitcoin ATMs are manufactured by the Czech company General Bytes, according to coinatmradar.com ranking third in the world in the bitcoin ATM production and distribution. “The position on the market is determined through already placed and photographed ATMs. Machines just sold or stocked in a warehouse are not included in the figures,” explains Karel Kyovský, the owner of General Bytes, who at the same time guides us through the production process. Since 2014, the production facilities have been located near Pardubice, within Libor Brom – Mostr’s production premises. By the end of 2015, General Bytes managed to position about 100 bitcoin ATMs worldwide. This September, General Bytes placed its 200th machine. The company currently has ten employees, seven of whom work in Prague, two in the US and one in the Netherlands.

“In terms of our ATM sales, the Czech Republic is an insignificant market. Nearly a third of the total demand originates in the EU, another third in the US and the remaining part is attributed to the rest of the world,” says Karel Kyovský, standing next to the future machines’ black-coated bodies, which will be brought to life by programmers in the Prague HQ. They will connect them to a blockchain, hence finalising the product.

Apart from the two-way bitcoin ATMs having the size of standard ATMs, smaller orange boxes are scattered around Karel Kyovský standing in the assembly hall. These machines for the oneway exchange of local currency for bitcoins can easily be installed on the wall. “That’s how I basically started my business, by making one-way machines,” recollects Kyovský, adding that one such machine costs USD 2 850. The company always produces 40 pieces per batch and the production takes about a month and would not pay off with smaller volumes. Two-way or deep machines with a bigger cash capacity are made in 20-piece batches and take two months to produce, since the production is linked to the supply of components arriving in Pardubice from various parts of the world.

He started off with one little box. Two years later, 200 of his bitcoin ATMs have been placed all over the world.

48 — business lifestyle

“The current aggregate value of all bitcoins is around USD 10 billion, which is about the size of Iceland’s economy (Iceland’s GDP is USD 16 billion a year). This is not a mere alternative designed for a small group of fans, but a groundbreaking phenomenon offering numerous business opportunities spanning not only basic services.”

Martin Šíp, Paralelní Polis

Production as a competitive advantage Those who want to buy a one-way or standing two-way machine do not have to wait to get their ATM. The company always has 10 to 20 machines in stock. Since the transaction between the buyer and the Czech producer is carried out in bitcoins enabling immediate transfer of funds, the ordered bitcoin ATMs can be shipped to the buyer within three days from the first contact. So far, ATMs have been sent by air individually, but in mid-October, the first bulk shipment of 30 machines in a container took place.

A large ATM will cost a future operator from six to nine thousand US dollars depending on the equipment selected.

“What can globally distinguish us from our competitors is the fact that we are the sole company allowing for fingerprint identification of bitcoin owners, and our machines are the only ones issuing bitcoin payment cards, which I consider to be the best payment tool in the system,” Kyovský specifies the benefits of the General Bytes machines. Another major difference over other players is the low price and free connection to the system server.

49 — business lifestyle

Even a machine for something as decentralised as bitcoins needs welding. One of the finished ones is located at Palarelní Polis.

Potential expansion to Africa As we proceed through the individual manufacturing stages, including the sheet metal cutting shop, the welding and spraying shop, bitcoin ATMs’ hacking stigma is slowly fading away, only to return as Karel Kyovský, owner of General Bytes, tells us how he also issues bitcoin invoices and that his vision is to create a closed decentralised circle using his ATMs. “ Our machines will issue bitcoins to customers using special cards, the customers will check the amount on their mobiles and can immediately use the bitcoins for payment through a bitcoin cash register,” Kyovský describes a new product made by General Bytes. The product is now in trial operation at Paralelní Polis in Prague.

“I consider Polis to be our incubator, where we test product functions before we launch them,” Kyovský specifies the only place in the Czech Republic where you can pay with nothing else but digital currency.

And what is the next goal of the third biggest producer of bitcoin ATMs in the world? “I’d like to make it to the African market with our products,” the owner plans. “People don’t even have payment cards and bank accounts there because banking charges are ridiculously high. We’ve just sold a bitcoin ATM to Equatorial Guinea and the bank transfer itself took three weeks to process. Bitcoins would simplify everything,” concludes Kyovský.

1

In January 2017, bitcoins will celebrate their eight anniversary.

2

Towards the close of 2016, a total of 15 900 000 bitcoins will have been mined.

3

The number of bitcoins will stop at a pre-determined 21 million in 2140.

→

4

The number of bitcoins is increasing at an average rate of 1.25 bitcoins a minute.

5

The first bitcoin mining pool, Slushpool, was formed in the Czech Republic.

6

So far, Slushpool has mined about six percent of all bitcoins, i.e. over 1 000 000.

7

The third largest producer of bitcoin ATMs in the world, General Bytes, comes from the Czech Republic.

8

There are currently about 13 bitcoin ATMs operating in the Czech Republic, eight of which are located in Prague.

9

The Czech Republic also hosts an annual bitcoin conference, the Paralelní Polis Hackers’ Congress.

10

Brno-based company Oxy Online is the only Czech company paying out employee salaries in bitcoins.

11

Since bitcoins were formed, nearly 16 000 000 bitcoin transactions have been carried out, more than half of them in the past year.

12

Bitcoins reached their 13 historic maximum, USD 1 145 USD, in November 2013. Bitcoins experienced the last surge above USD 750 this June in relation to concerns triggered by Brexit.

The value of bitcoins oscillated around USD 600 when this article was being written.

14

Bitcoins can now be used for payment in nearly 150 shops in the Czech Republic, mostly in Prague.

15

Paralelní Polis is the only place in the Czech Republic where one can pay with nothing else but bitcoins.

16

The Czech Republic is fifth in the ranking of countries where users most often enter the word bitcoin in their browsers.

50 — business lifestyle

Bitcoin highlights

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© 2016 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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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. © 2016 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.