Tomasz Brzeziński talks with Jacek Podoba, CEO of Towarzystwo Ubezpieczeń Europa and TU na Życie Europa.
Why has the management board of TU Europa decided to suspend the offering?
Because of unfavourable trends in the recent weeks and uncertain short-term outlook for equity markets.
When there is a storm outside it's better to stay at home for a while. Markets are uncertain. We are witnessing strong fluctuations in investors' moods caused among others by financial problems of Greece and other PIIGS countries. The fiscal crisis in the euro zone not only caused investors to avoid excessive risk but made them reduce their positions on the equity markets which is clearly seen in the performance of stock market indices.
Despite the above, several companies, such as Kulczyk Oil Ventures and ABC Data, have launched their offerings...
Yes, that's true, but they were forced to reduce the size of their offerings and were selling their shares for lower prices than were expected by the issuers themselves. Our capital needs are not so urgent to make us sell our stocks hastily in the time of temporary turbulence on the market. We will manage without this money and plan to proceed with the issue at a more favourable moment.
Really? In accordance with the prospectus, the company was to raise a net amount of around PLN 180m from the issue. It's a lot of money.
We have needed and still need money to accelerate the development of our companies. Nothing has changed in this respect. But I would like to stress that we have only suspended the offering and not abandoned it. Thanks to the fact that we have published the prospectus, as soon as the market improves we can quickly return to the transaction. We will also be more careful about the timing of the offer.
That's it. It seems that with your offering, the key aspect was its timing. When were you planning the debut? Not at the end of June as the prospectus says...
The original plan included closing the transaction at the end of April and beginning of May. At that time, when you look at the indices charts, they were OK. They were 10-20 per cent higher and the trend was growing. Now they are much lower, the trend has reversed and it is not certain how the market will behave in the future. That's the reason behind our decision.
When did you file your prospectus with the Polish Financial Supervision Authority (KNF)?
On 15 February.
TU Europa wanted, I mean still wants, to launch the secondary offering which will be the second one in our history. We have been a listed company for 13 years. So, you have been under the supervision of the regulator for a long time now. Additionally, being an insurance company, you are subject to periodical audits by the supervision authority. So, the situation of the company, a listed issuer, is perfectly well known.
I can only confirm that. We were for example the first company to report to the WSE in accordance with International Accounting Standards. Our transparency is very important for our banking partners. The above transparency is also one of the purposes of our presence on the WSE, until recently as the only Polish insurance company.
What was the problem with the approval of the prospectus?
You will not trick me into giving any sensational news...
PZU filed its prospectus nearly one month later than TU Europa. Although they are a much larger company and it was an IPO, they managed to make their debut before 15 May. After that date, they would have to publish an annex to the prospectus and, because the stocks were also targeted at American investors, wait with the offer until autumn...
....Silence is golden?
....But it may also be a confirmation. I'm going to inquire further, then. The supervision complained about the thin budget, staff shortages, etc. The public offering launched by PZU has ended the long dispute between its shareholders: the State Treasury and the Dutch Eureko, making it possible for the Dutch investors to exit the investment. Delaying this process carried a risk and the government needed a success. Raison d'état has won. There was no other option, especially that next year the term of office of the head of supervision will expire ...
With all due respect for our offering, I do not think that launching it at a similar time could hinder in any way the debut of PZU.
Nevertheless you do not deny it.
I am involved in business, company management, making money for shareholders and not in politics. I had an opportunity to work for a government agency. That world is far from business reality. We are not wringing our hands over the long approval procedure because administration and business must work together. And coming back to the issue, we will continue doing our job and waiting only for the situation on the market to stabilise so that our shares can be placed successfully.
And maybe it is that the supervisors don't like you. You had to wait something like two years to be approved as TU Europa CEO. The case ended is a suit before the administrative court which you have won...
I had to wait my time. That lost case was of the official's own making because they issued two contradictory decisions. But also the authority was different (Insurance and Pension Funds Supervisory Committee, the legal predecessor of the Polish Financial Supervision Authority) with a different chairman (Jan Monkiewicz).
Institutional memory can be very long. I would not play it down.
Let's drop it because otherwise we will make an impression that our relationship with the supervision is bad, which is not true.
Who decided to suspend the offering?
We did it in consultation with our advisors and shareholders selling their shares.
So it was at the last moment, because subscriptions in the retail investors tranche were to start on Thursday. And that was the reason why you postponed our meeting?
Yes. Discussions continued until late at night. In my opinion we took the right decision. It benefits both the company and the shareholders.
If the offer was launched in April as we had originally planned, market valuation of the company could have been better. With today's volatility, the difference might be significant. We did not want to risk and say "Check" under such uncertain circumstances.
A majority of shares was intended for financial investors, international and domestic. UniCredit CAIB is your global co-ordinator. Wouldn't they be able to persuade to such sophisticated players that the purchase of the shares of TU Europa is a good investment despite the temporary turbulence on the market?
Obviously, investors can properly assess the foundations of a company, especially after having read the prospectus. However, even institutional investors may be influenced by transient moods and uncertainty on the markets intensifies them. Both in plus and in minus.
But maybe there were no arguments for the investment.
What exactly do you mean?
The cold winter hit the entire sector. A majority of large companies generated a technical loss but their bottom lines were also in the red. Although it managed to successfully place its shares, the above-mentioned PZU had a technical loss of around PLN 60m in Q1 and only PLN 100m of net profit, which has been their worst result since 2002 I think. The remaining leading players also reported losses. On top of that, we have the present flood which will drown the sector's results of the second quarter. What's the point in risking and buying the shares of an insurance company when chances for profit are slim?
The Europa Group specializes in bancassurance. Our results and range of operations have been growing for many years. Also in Q1 2010. The multi-million zloty losses incurred by other insurers do not affect us.
How so? The entire nation has been watching the situation on the Vistula, Oder and Warta rivers alternately with the presidential election coverage. According to the data submitted by the supervision office, so far 135,500 flood-related claims have been reported which will cost the sector PLN 566,200,000, net of reinsurance. And TU Europa sells calamity insurance. What's more, you want to strengthen your presence in the segment by offering long-term homeowners insurance. Let me remind that TU Europa has its head office in Wrocław. Don't you offer insurance for the blocks of flats in Kozanów?
I will let you provoke me.
When in 1997 TU Europa wanted to go public, the admittance procedure to the WSE lasted very long because officials did not believe that despite the flood of the century our company was able to make a profit when others were reporting losses. The secret was that we had a very good reinsurance programme which limited our losses to ... US$ 100,000! Our shares were admitted to trading in 1998.
Booo! That's history.
We do have flood-related losses, it's hard to deny. Some of our customers from the śląskie province were hit by the flood. Do you want to know the value of expected claims as at today?
They are more or less of the value of a single average loss under a mortgage loan insurance.
A few hundred thousand zloty.
That's a lot. Because in the first quarter you paid a total of PLN 3.4m in damages...
Just kidding. In the first quarter the Europa Group reported a profit of PLN 34m (in accordance with IFRS) with revenues at PLN 150,300,000. Respectively 26.3 and 16.5 per cent more than in the previous year. Additionally, the group operates in a segment which is independent of natural disasters. In the opinion of the management board and the advisor, aren't your results a sufficient recommendation to buy shares?
The journalist working for "Parkiet" are among the few who are able to analyse these dependencies so deeply and to give a proper interpretation of the results of insurance companies.
No unnecessary courtesy, please. That's not what we have met for. So, ad rem, if you allow me. Apart from the new shares, the offering was to include also the shares of TU Europa held by Getin Noble Bank. Its total gross value was to be in the range of PLN 370m. And that would have been the second largest public offering on the WSE this year. For the time being, neither the company nor the shareholder will see this money. The offering was the idea of the management board. Will your bonus be affected? Our salaries depend primarily on company performance.
All right, but the company cannot implement its plans and the shareholder realise profits on the disposal of shares. Are the management board and the advisor to blame for the fact that the documents submitted to KNF had defects?
In my opinion, there were not any above-standard reservations. I can guess that reservations are raised with respect to nearly every transaction of this type.
Wouldn't it be worthwhile to fight for compensation?
We prefer to focus on our business. It is our underlying goal and we will continue to fight for it.
The value of the offering is around PLN 390m. On top of it, you incurred costs of around PLN 9m. Isn't that a lot?
The costs you have mentioned are an estimate at the moment after transaction closing, so we have not actually spent this money. The prospectus has been published. Now it is enough to publish an annex to give investors fresh information about the situation of the company. We are in permanent contact with the advisor and the decision to resume the offering can be taken very quickly.
You are an optimist. So when will it be possible to subscribe for TU Europa shares?
I don't think it will be in June because of the uncertainty on the markets we were talking about. Holidays are also not the best time for a share offering. The most probable time is autumn. We want to implement the offering still this year. We do need the capital.
Thank you for your time.