Interview with Katarina Kohlmayer for Hospodářské noviny

As a Vice President of Morgan Stanley, one of the world’s largest investment banks, she worked on such matters as the listing of the Russian giant Gazprom on the London Stock Exchange. Seven years ago, Katarina Kohlmayer was brought to the KKCG Group by its owner and one of the wealthiest Czechs, Karel Komárek. There, as the CFO and head of acquisitions, she is helping him build SAZKA Group into a European lottery leader. The IT ARICOMA Group is also growing under her leadership. But she cannot choose her favourite acquisition that she has led. “It is like asking a parent about his favourite child,” she says in an interview for Hospodářské noviny.

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HN: You joined the Group seven years ago. At that time, KKCG was associated primarily with oil and gas extraction, but it has shifted significantly since then. In what direction?

When I came in, I also felt that I would be doing mainly financing and acquisitions in oil and finance. Nevertheless, we already had Sazka back then, were shareholders of the Greek corporation OPap, and had the Fischer travel agency, and others. Since then, our progress in lotteries and technologies has been incredible.

HN: Why did the importance of MND, formerly the “Moravian Oil Extraction Company” in the Group decline?

The importance of MND did not decline, but other parts of the Group grew so quickly that MND’s ratio had shrunk. Although it is true that, when I joined the company, oil sold at USD 140, whereas today it goes for 70. So, the company can try to change, innovate, but it cannot grow as much as other parts of the Group.

HN: Hasn’t MND been kind of shunted to the side? You keep buying in the lottery business, you are expanding, but it looks like you have kind of forgotten about MND.

That’s not the right word. We have not forgotten about it, and we did attempt to enlarge it, for example, by buying innogy and through other acquisitions. The energy business is large, there are many strong players in it, and it is also rather regional, and your know-how may also be of local relevance. Knowledge transfer is far easier in the lottery business. The competition is less and the possibility to create a unique market position for yourself is thus far greater. It is an area where many companies have not yet been privatised and hence, by definition, they are inefficient.

HN: What kind of a group are you, then? Can it be described with one attribute?

Probably not. We are diversified. And when you look at the development in the energy business, it has paid off. We have four pillars – the energy business, lotteries, technologies, and real estate. Plus, our foundation. This spread over several disciplines is a good thing, but I am a conservative numbers’ person, so for me our diversification is just right.

HN: You have reduced the number of sectors by one, when you sold the travel agency Fischer to the German-based Rewe Group at the beginning of the pandemic. If you were to choose, what emoticon would you use to describe your feelings about the sale?

Best if none. We were the largest company on the market and were faced with a decision at that time. Either, we will make a massive investment to make Fischer into a yet larger company, or sell to someone who can develop it further. We were probably extremely lucky. First, we signed the Agreement in October 2019. Although we did have to wait for approval from the anti-trust authority. We had everything well regulated by contracts.

And secondly. The buyer is a strong player. This German group, Rewe, includes the Billa supermarket and others. So, there was no risk that it would not have enough money to pay the purchase price or that it would encounter problems. We would definitely not be happy to see the company go bankrupt. Mr. Komárek had held it for 16 years. It is a small, but visible business.

HN: How much would you sell Fischer for today?

We probably would not sell it at all today. But Rewe is a long-term player. I do think that once we get back to normal, and I do believe that we will, people will want to travel again. And perhaps Fischer will bank on the fact that some smaller players will not survive on the market, and its share will grow. But these are merely my private speculations.

HN: You mentioned KKCG’s four pillars. Can you tell us how important they are for you in terms of their share?

Lotteries are the largest by far. I think that it will be some 60 to 70 percent in terms of value. MND follows, then technologies, and then real estate.

HN: How are you doing in terms of profitability?

We do not have 2020 figures yet, but consolidated EBITDA (operating profit before depreciation and amortisation – ed. note) for 2019 was EUR 486 million, which means around 12.5 billion crowns. In 2012, it was approximately 100 million euros.

HN: One of the reasons for joining the Group for you were acquisitions. What were some of your large purchases recently?

The entry of Apollo funds to Sazka Group, and the sale of Fischer the year before. Of course, I am not alone on the job, we have a team of people. The Apollo funds in particular were not such an easy task. But in the end, we were choosing from among investors. The process started last March, and we signed in November. We knew many of the funds we had approached from the past, we had addressed various other forms of financing with them. Often it helped that they had had their eyes on us for some four or five years and knew that our profits were going up by tens of millions of euros every year.

The fact that we came to an agreement may have been helped by the fact that we approached them during covid. Everyone was calling “Help, save us, we don’t have cash”. And then comes Sazka Group and says it is looking for capital for an expansion. They probably liked the fact that we are not sitting on cash but want to develop.

HN: Why did you decide on Apollo?

Apollo is the largest lottery investor, their position on the market is unique, and they are one of the largest asset managers in the world. So, we liked their experience. Having such a large player on new markets by your side is not a bad thing. Furthermore, I consider it a success for us that we got such a great sum for a minority interest with relatively minimal rights.

HN: The period when Sazka had only one shareholder, KKCG, was actually very short. Why did you again sell 12 percent shortly after the departure of Jiří Šmejc’s Emma Capital? The usual story is that when someone gets 100 percent in a company, he does not want partners again…

There are definitely advantages to being able to decide about everything on your own. On the other hand, our partnership with Emma was very positive and ended on a friendly note. Mr. Komárek is looking ahead and he can see that this cooperation can move us forward, that we can again learn something from them and with them invest in large transactions that we would not manage to do alone.

HN: Sazka Group got 13 billion crowns from the Apollo funds. How do you intend to use them?

We definitely want to expand. You probably know that we are bidding for the UK National Lottery. That is an important project for us. And we would very much like to expand in the United States, where the market is beginning to open. We have done advance preparations for a couple of really large acquisition projects, and this amount is a small start, so to speak…. We have always found a goal for which we then looked for financing. But this time, we decided to do it differently. We wanted to have advance financing and have a large sum available for acquisitions. Because in Western Europe and in the USA, these transactions move very fast.

HN: But, for example, the UK lottery will not be very expensive…

You are right. But a loan and guarantees will be required. Otherwise, the competition is structured such that you are not bidding in terms of price. You have to present a plan for increasing the amount that goes to charity as high as possible. That is how the lottery works there. And, on the other hand, is the percentage that we will be happy getting. If they do not again postpone, the winner should be known by the end of the year.

HN: Do you have anything specific in the US?

We are looking at several projects in the US, but I cannot name any at this point. Generally, we are interested in lotteries and scratchcards. Sometimes we get other things with them as a package, such as video terminals in Greece or casinos in Austria. But the lottery is always our main target.

HN: The fact that individual states in the US will open up has been discussed for many years. What is the situation right now?

They are far behind Europe. A loosening came in 2018 when sports bets were permitted. Most lotteries are still operated by the states themselves and each state has different regulations. But that is gradually changing, they are beginning to deregulate and gradually they are permitting sports bets and on-line casinos. They will need experienced experts such as us to help them run this.

HN: Are you looking to Western or Eastern United States?

Probably everywhere.

HN: What about a casino in Vegas, do you want one?

Not by any means.

HN: Speaking of casinos, how is the situation in terms of closing one of the Casinos Austria in Austria?

We are not closing any casinos.

HN: And will you in the future?

Our primary interest is not in closing casinos. Our interest is for the business to be financially effective, employ people, and function in the long-term. When we entered the company, casinos were less profitable. And since then, several negative things have happened, such as a smoking ban, restriction of advertising, and others. That all was before covid came. How we proceed is being discussed with the management and our partner ÖBAG (owned by the Austrian government – ed. note).

HN: What is the current situation at the Austrian company? You took control of it the year before last, but only after protracted battles. Before, a corruption affair broke out there due to the connection of one of the owners to political parties. It does not happen often for a Czech company to be associated with a government crisis in another country.

We caused a crisis? I do not think so. We always strive to be apolitical and do what we understand best, which is, lotteries.

HN: All restrictions on casino operation aside, how has covid impacted your lottery business?

That differs. In the Czech Republic and Austria, our distribution network – for example newspaper stands and shops – never closed. Furthermore, these companies have a strong on-line presence, and the results of the Czech and Austrian lotteries were better than in 2019. A greater problem was in Italy and in Opap in Greece. There, on-line games were permitted only recently, and the mentality is different, too. Our branches there operate like Starbucks. People play, sit at a table, and drink coffee. But in Greece, we acquired Stoiximan. That company is number one in on-line bets and it has successfully expanded to other countries. That is helping us partially offset our losses from closed branches.

HN: You said that there are four legs to your business. Are you considering adding a fifth or sixth?

Not at this time. But there is a new thing. We are one of the founding partners of the Jazz fund, in all its funds. It is a US fund concerned with helping to improve human thinking and work through technology. It connects neuroscience with medicine, artificial intelligence, and other interesting things that may constitute a great opportunity for the future. These are new, innovative things that are of a great interest to us and Mr. Komárek personally. Jazz has invested in many companies, primarily in the US. And I can imagine that we will invest more in that direction. But we are not actively discussing adding a new “leg”.

HN: Which of your present activities do you intend to strengthen, in order to be more balanced?

We are looking for purchases everywhere. As I have already said, we were interested in acquiring the Czech utility supplier innogy. And look at technologies. We bought the Swedish firm Seavus last year. Originally, we started with start-up companies, followed by a large acquisition in the Czech Republic (Autocont – ed. note.). Seavus was our first large acquisition abroad. We are also growing in terms of real estate, even though that is more of a local, but beautiful and creative thing. But it is true that we are large in terms of lotteries, probably the largest player in Europe. And we have a very strong team. When you get this far, it is easier to develop, you are more credible.

HN: What should your technology group Aricoma look like? When I look at your acquisitions, I cannot see what the goal is supposed to be.

It is coming together. We have started with infrastructure, from service centres to data centres. Now, more companies are being added, which are developing specialised customised software, such as Seavus, or which work in cyber-security, such as AEC. The goal is to build a strong European player in information technologies and software solutions for the corporate sphere. We want to have a mix of services that we will be able to offer in the future, not only on the domestic market, but also more intensively on foreign markets.

HN: Are you considering selling some companies off?

We have already made some sales. The Geewa gaming studio, the Conectart call centre, and others.

HN: But was this not more of a clean-up of companies that did not fit in the portfolio?

You could probably say it that way, but still, there was a great profit on our investment.

HN: How does cooperation with Mr. Komárek work? Is he only the owner, or is he still personally involved?

He is very much involved in business. He pays great attention to it; we are in daily contact.

HN: In which part of your work does he intervene the most?

In all parts.

HN: In those seven years, which of the investments on which you have worked is your personal favourite?

That’s like asking a parent which is his favourite child.

HN: Some people would choose.

I like financing. That is why I have joined the Group. I really enjoyed it when Sazka issued bonds, that was autumn of 2019 (Sazka Group issued bonds worth EUR 300 million – ed. note). In order to take a step like that, you have to be credible and have the ability to communicate with investors. Equally great was our offer of EUR 2.3 bn for buying Opap shares. There, we tested our capacity to finance large transactions.

HN: A few years ago, you were considering listing Sazka Group shares on the stock exchange. Why did that not come through in the end? That is usually a major step for a company that often alters its identity.

That is how we understood it. We were not merely looking for capital, it was also about strengthening our position in various tenders. Being listed on the stock exchange also means being an open company. We thought that we would be viewed differently in the Netherlands or in the UK. But the situation on the markets was not optimal at that time. In the end, Avast did a subscription in 2018. But their price was low; and look to where the price has risen in the end. We did not want to undersell. We wanted to sell at a price that we considered fair.

HN: So, is going to the stock exchange completely off the table?

It is in a drawer. It is something we are still considering in the medium-term. Now that we have dealt with Apollo’s entry, we have nowhere to rush.

HN: Can the fact that KKCG is still Karel Komárek’s one-man-show not be harmful for you?

I don’t think so. Although, of course, potential investors do want to know what our dividend policy will be. We tell them what our plans are and then suddenly a great opportunity arises that means that we will be indebted up to our necks for some time. As the sole shareholder, Mr. Komárek can say that he does not need a new car and that he can wait for his dividend for a couple of years. But when you have minority shareholders, you have to take them into consideration, because you have made a promise to them.

HN: Speaking of your favourite transactions, how is your methanol plant coming? In 2016, you announced your plan to disassemble two plants, in Slovenia and Brazil, and move them to the US. What is the situation like five years down the road?

To some extent, I had no idea what we were getting ourselves into. It was very daring. The main information is that we will be completing the construction project this year. And the other is that, in the end, it will be the plant from Brazil. But when we took it apart, we discovered that many things there are different than had been expected. So instead of making a copy of the Brazilian plant, the plant will be 70 percent new. But all bad things are good for something. Thanks to the fact that we bought a new compressor, a new heart of the plant, we will be able to double its capacity.

HN: What does the United States mean for you as a group or KKCG? Mr. Komárek had his residence there, which he recently sold, but you want to enter the country on several fronts. Is it a sort of a dream market for you? Many Czech companies did not succeed there.

It is definitely not an easy environment. But Mr. Komárek has a very positive relationship to the US. His daughter was born there, he lived there for several years, his kids went to university there, he has many friends and activities there. And he likes American inventiveness, the entrepreneurial spirit, the legal environment, and also the market size. We have offices in Boston, our technology firms Cleverlance, Medicem, and Seavus have customers there, and now US Methanol worth hundreds of millions of dollars will be another one. And I think that we will find an opportunity in lotteries. Generally speaking, though, the US is more difficult for European firms, we do know that even British companies have problems there.