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10 Questions

with Kamil Ziegler
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December 17th, 2008 issue

JAN PŘEROVSKÝ/THE PRAGUE POST
Ziegler says ECM's priority in this period is to finish some projects and "survive."
The Ziegler File



Title: Executive vice president for corporate finance, ECM
Age: 45
Nationality: Czech
Education: University of Economics, Prague; master's degree, Southern Methodist University, Texas
Previous position: Chief financial officer, PPF Group

The Czech real estate market was on a downward slide well before the financial crisis was touched off in September, but the sector has seen even greater losses since then. Orco and ECM, two of the biggest development companies in the Czech Republic, have had to freeze or even cancel many projects. ECM’s executive vice president, Kamil Ziegler, talked to The Prague Post about steering the company through the worst of the turmoil and how they’re avoiding collapse.
1. ECM stock values have plummeted on the Prague Stock Exchange this year, as have those of another development company, Orco. How has this affected your capital and the company as a whole?
As we can see, it’s not just about Orco and ECM, it’s about the whole sector. We’ve also seen a drop in Austrian developers, and of other European countries. It’s the whole system. We as management are not happy because, when the markets are down, capital markets are down, and the real estate market goes down. It was a natural impact of this whole situation that shares of developers would go down. However, if you compare our shares with those of competitors, we are not the worst of the losers.
2. The real estate market has natural ups and downs. Are you nevertheless surprised at the depth and duration of the current crisis?  
I haven’t even been [in this role] a full six months, and even in that short period, I could see a dramatic deterioration for the whole market. In September, it was week by week, visible especially after Lehman Brothers’ bankruptcy. The market was dramatically going down, and it wasn’t month by month but week by week that we saw it.
3. Real estate companies, like banks, are facing a liquidity crisis. How does a company cope with such low cash flow?
The issue for us has become cash flow management. Even in this condition, projects that are considered good and successful could not be supported by bank financing. From this point of view, we had to really implement the tough cash management. For example, in the company, not even 1 Kč can be spent without my personal approval. We were able to prioritize our expenditures and our transactions to support cash flow.
4. What are some of those cash flow decisions, and how are you saving money?
Right now, we’re finding the right size for the company in the current situation. We’re running through Death Valley, and we have to keep well organized and well managed to be able to go through this to the end with such a limited supply of water.
We, unfortunately, had to decrease the number of our employees, renegotiate conditions with suppliers and carefully consider the consumption of services. You can see, we have very nice meeting rooms; in a couple of weeks, there will be offices there.
5. Would you say the Czech real estate market is on par or better off than the situation in the rest of Europe?
I just read about it from market research and reports, but what I do see are drops in money markets, investor countries and other European countries. We could say it’s possible still, for example, that for some residential projects with very good locations with some kind of level of standards, there would still be good potential to realize them and still see a lot of interest for such projects. In my view, in other countries, even good projects might not be so successful.
6. Would it be correct to say ECM has frozen all plans to initiate any new projects in the near future?
We have to have clear priorities about the current projects. We want to realize and finish the current strong projects. We had a lot of projects in some pipelines and decided not to realize many of them; we froze some and postponed some. Of course, if we found a very interesting new project with strategic partners using our know-how, we, of course, would be open to such discussions. But our priority is to finish some projects and be able to survive this period.
7. When do you anticipate the real estate market will begin expanding again and take up projects that have been postponed?
I’m naturally optimistic, so maybe the second half of next year. In 2010, it will be better. I believe we need good news; if everybody comes with bleak pictures and projections, it could have some self-creating effect.  I’m convinced the value of some assets and shares are impacted by the psychological factor — if we are saying everything is bleak, then the cycle is down. If we say there’s a light at the end of the tunnel, I feel people can create some activity. But I’m sure that will not come earlier than in nine to 12 months’ time.
8. Milan Janků, the chairman of ECM’s board of directors, made a voluntary takeover bid in late October and in late November said he wanted to take part in a nonpublic issue of 2 million new shares, making him the majority owner. What was his strategy?
This is mainly a question for him because, in this case, we are the object of this bid. Our role was to evaluate this offer and this bid and to provide some statement and recommendation to the board. Our company made a decision based on the current situation that it would be fair. Our shareholders believe in the strategic plans and value of this company and want to create in the current situation some long-term support as well as protect it from a hostile takeover. We are now waiting for the results.
9. There have been implications in the press that ECM is considering selling one of your biggest contributors to leasing income, City Tower. Is that true?
What we’ve said often and openly is that we don’t intentionally want to sell City Tower. If there was an interested buyer, we are ready and open for potential discussions. If there is an interesting option for us, we can negotiate. We originally didn’t plan to sell City Tower; this is an excellent building with a very good location. Once again, I must stress that if anyone — no, not anyone — if any serious potential investor were interested, we are ready for this. But the tower is not for sale.
10. Your development projects in the Pankrác area have raised the ire of Unesco and neighbors who disapprove of the construction plans. Have those disagreements been resolved?
We are in the process of negotiations and clarifying the relationships between our interests and their interests, and trying to find ways to cooperate. I believe we have common interests, and cooperation is better than disputing each other.
Want your manager to answer our 10 Questions? E-mail Claire Compton at ccompton@praguepost.com


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