It is not necessary to possess any special information to get an idea of the management style of the Orco group. Public information will suffice.
The company’s shares are falling quite steadily since mid-February 2007. In total they have fallen from CZK 3,700 to the current level, which we could say is more or less a hundred.
Shares as a fetish
If we set January 2007 as the zero level, then we can say that PX 50 index has lost nearly 48% of its value. Orco has lost nearly 95%.
Let us say that the “crisis in credibility” is affecting developers more than other segments of the economy (ECM has lost 86% of its values). Investors are simply more suspicious of developers. But falling shares do not necessarily mean that the company is really going to hit rock bottom and that it will need to start discussing new pay instalments with its shareholders! By that I mean that many people are too quick to judge the health of a company based on the prices its share prices.
As a minority owner of Orco, I wouldn’t be all that concerned that the current price of each of my shares is worth almost nothing because only one thing can be said with certainty about the markets: that they will continue going up and down. The prices are greatly affected by the behaviour of the masses, so whenever someone starts investing, he needs to be aware that the market will sometimes behave irrationally.
Growing through loans
I really wouldn’t care if I could be sure that the property of the company remains where it should be. That the company has enough assets to withstand difficult times and that it is not forced to sell properties or projects for low prices out of necessity.
Now we see that the management of Orco handled the issue of its own assets and those belonging to other people in a catastrophic way. The dynamic growth of the last few years was funded through loans, and no one was concerned about securing the company’s financial stability.
To that we can also add that Orco did not communicate with its shareholders and with potential investors. I always blamed the management for that because I know a number of companies, whose directors see communication with the public as an unnecessary burden. In the case of Orco, though, it seems that the management most likely had things it wanted to keep covered up for a while.
The company’s financial flows were set in an unhealthy way and the weight of its debts, when we take the company’s revenues into account, surpassed reasonable limits for a long time.
Finally, Orco reacted too late to the mounting economic crisis. The first signs of the crisis were becoming apparent by the end of 2007 or early 2008 at the latest. I see that as proof of a lack of professionalism of the company’s management thanks to which the company was completely unprepared for the tough times ahead.
The personal story of Mr Jean-François Ott also reveals the many mistakes he did in his own accounts and probably also in the accounts of the company.
Let us recall that until recently he owned more than 12% of the company shares. Now he owns only 1.5%. He had to sell most of his shares because he had used them as collateral for personal loans.
I do not need to pretend to be a finance genius to point out that this speaks of his imprudence and recklessness. These are the qualities that many visionaries have, but they do not contribute to any company’s long-term health.
The dreamer and the crisis
Mr Ott is certainly a visionary, and he created an incredibly interesting company out of very little. But the company reached a point in its existence where a crisis manager, with a completely different way of handling existing conditions, should have stepped in. Such a person could have helped Orco, despite all its problems, return among the ranks of healthy and distinguished companies.
Luboš Smrčka is the head of the association of minority shareholders SOS – ORCO.
