Business Review, Issue no 35, September 27 - October 3

TAROM IS STARTING ITS FIRST EVER IMAGE CAMPAIGN, SEE NEWS ON P6 FOCUS

FURNITURE MARKET

AUSTRIAN INVESTMENT

Business Review goes to Berlin for in-

Though the collapse of the property

Business Review surveys the major

ternational transport fair InnoTrans,

market has hit the furniture industry

companies from Austria, the top foreign

where local firms were presenting their

hard, local firms are adjusting their

investor in Romania, and gets the coun-

products to a wider audience

strategies and looking to the future

try’s take on the local market

See pages 10-11

See pages 12-15

See pages16-20

BUSINESS REVIEW

www.business-review.ro

ROMANIA’S PREMIERE BUSINESS WEEKLY

SEPTEMBER 27 - OCTOBER 3, 2010 / VOLUME 14, NUMBER 35

IN THE CLOUDS Cloud computing is the future for Microsoft, GM Calin Tatomir has announced. The software giant is also aiming for a larger market share and organizational development, which involves investing in new people and creating jobs LAURENTIU OBAE

see page 9

THIS WEEK

OP ED

SUMMER OF UNREST CONTINUES

AN OPEN LETTER TO THE CITIZENS OF THE EUROPEAN UNION, INCLUDING ROMANIANS SHEA ROGGIO

Imagine there were a virus spreading across Europe that severely impeded young children’s intellectual and physical development. The disease was so debilitating that children afflicted by it could never hold responsible jobs or be productive members of society. They would have to be cared for by the state for life. And what if the children who were most susceptible were the fastest growing segment of society? There was no cure for this disease, once contracted, but there was a vaccine to prevent it.

How would such a crisis be dealt with by the European Union and its member states?

This is the current situation of children of Roma descent throughout the EU. The disease is Lack of Education. The antidote is high-quality early education. It is an established fact that children’s brains do not develop as they should in deprived environments. Study after study has shown that early education reduces “the probability of children being retained in a grade, needing special education, dropping out of school, being unemployed, and being incarcerated[1].”

As France and Romania play human ping-pong, hundreds of thousands of children are getting even less schooling than their parents received a generation ago. Another whole generation of Roma is going to be unemployable unless they start school at the same age as other European children.

French law mandates that all children must attend school from age three. According to a recent NPR (National Public Radio, US) report, “In France, 100 percent of three, four and five-year-olds attend preschool. So everyone starts first grade on an equal footing.” That’s actually not true. Most Roma children in France are not enrolled in early education programs – and for the older children in families that are “repatriated” to Romania, the process of transferring them from the French to the Romanian system is complicated at best, and tortuous when parents are functionally illiterate – and the authorities are not particularly cooperative. (Frequently, the children either lack transfer documents or their foreign records are not recognized by Romanian school directors.)

Romania, like France, has perfectly adequate children’s rights legislation – but the laws designed to protect and empower the marginalized are not implemented or enforced. The Romanian constitution declares that public education is free – yet a report last week from Save the Children concluded that the annual median parent expenditure on “free” education is about EUR 500. No wonder Roma parents often postpone their children’s enrolment as long as possible (until age 8-9). Interestingly, the law that makes schooling mandatory from age 6-7 is not implemented, but the law that prevents registration of a child over the age of nine is strictly enforced.

Instead of playing the blame game, EU member states should be actively registering for preschool all Roma children residing in their country. A strategy well worth considering is one that is currently being implemented with American dollars in 20 Romanian communities. It’s simple: The local authorities register every child between the age of 4 and 6 (next year it will be 3-6) in preschool and provide appropriate clothes and other essentials on an as-needed basis. Parents under the poverty line receive EUR 12 a month in food coupons if their children have perfect attendance.

Registration and attendance have increased dramatically in the communities where this strategy is being applied.

Economic analyses have demonstrated that the money invested in quality early education yields a rate of return from three to ten times the original investment[2]. The World Bank estimated in April that EUR 1 billion a year is lost in productivity and tax revenue as a result of the unemployment and under-employment of the Roma – in Romania alone; across the continent the estimate runs to over EUR 5 billion. This can’t possibly be reversed unless EU member states address the Roma education gap with the same conviction and resolve they would a lethal disease.

Leslie Hawke, 11 September 2010 Leslie Hawke is the founder of Ovidiu Rom, an NGO helping schools and communities integrate impoverished children into the education system at an early age.

BUSINESS REVIEW / September 27 - October 3, 2010

BUSINESS REVIEW

EVENTS

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LAURENTIU OBAE

[1] Linda Darling-Hammond, The Flat World and Education, p.34. NY, Teachers College Press, 2010 [2] Reynolds & Temple, “Economic returns of investments in preschool education” in Zigler, Gilliam & Jones A Vision for Universal Pre-school Education (pp.37-68) NY, Cambridge University Press 2006

Civil unrest returned to the streets of Bucharest last week as unions led workers in further protests against the austerity measures being implemented by the government. Friday saw demonstrators march on Cotroceni when their demands that President Traian Basescu appear before them were not met.

September 27 é The

September 28 é Business

Review organizes the second edition of the Austrian Business Forum at Ramada Plaza Bucharest. é ICC and Tuca Zbarcea & Asociatii organize the Efficiency of Complex Dispute Resolution Clauses in the Current Economic Climate event at InterContinental Bucharest.

October 7 é Business

Review organizes the second edition of the French Business Forum at InterContinental Bucharest.

October 21 é Business

Review organizes the Turkish Business Forum at InterContinental Bucharest.

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Review organizes the Russian Business Forum at Ramada Plaza Bucharest.

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B USINESS R EVIEW SEPTEMBER 27 - OCTOBER 3, 2010 / VOLUME 14, NUMBER 35

Founding Editor BILL AVERY Editor-in-Chief SIMONA FODOR Senior Journalists DANA CIURARU ANCA IONESCU

Executive Director GEORGE MOISE Sales & Events Director OANA MOLODOI Marketing Manager

OTILIA HARAGA

ADINA MILEA

Journalists

Sales & Events

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3

NEWS

7.5 percent more firms go under in H1

Romania needs to invest EUR 2 billion in the railway system in the next two years, announced Stefan Roseanu, general secretary of the Romanian Railway Industry Association (AIF).

“Romania needs to invest EUR 2 billion to refurbish the infrastructure of the railways from the border with Hungary to Sighisoara over the 18 months. If we prioritize correctly in this field, then the Romanian railways will become important nationally too, because at the level of the European Union, the railway ranks as a top priority,” said Roseanu.

According to him, all “public auctions in

4

LAURENTIU OBAE

Romania needs to inject EUR 2 bln in railway system by 2012

this sector have been blocked by the Transport Ministry for the past four years. Out of this sum the government would have to come up with half, while the rest should come from European funds.”

The AIF sent an open letter to the Romanian government in which it said it was against the increase in tariffs for access to the railway structure, since this would push up tariffs applied by railway transporters, state-owned and private companies, leading to even fewer passengers and freight.

Dana Ciuraru

The end of the first half of 2010 saw 11,221 companies in various stages of insolvency, a 7.5 percent growth compared to the same period of last year when there were 10,435 active insolvency files, according to data released by Coface Romania.

The figures include companies that have started insolvency procedures, those undergoing restructuring, and firms where bankruptcy procedures have been terminated due to lack of assets.

Some 6,255 companies had a general insolvency procedure under way, while 2,235 were undergoing a simplified procedure. A further 2,717 had gone bankrupt and 14 were in the middle of being restructured.

The same industries that bore the brunt of the bankruptcies last year also topped the chart in H1. Worst hit were bulk and retail commerce, construction and transportation, which together represent 50 percent of insolvency cases.

Expectations of green shoots in the first half of the year were disappointed, with data showing that the economy instead continued to decline.

Consumer confidence is at a low

due to tax hikes, falling salaries and job insecurity, especially in the public sector, and tougher loan criteria, which triggered a decline in consumption.

Other sectors that were vulnerable to insolvency were textiles, metals, real estate, leisure, cultural and sporting activities.

In the first semester of this year, turnover in the manufacturing industry decreased by 5.1 percent, compared to the same period of last year, while the number of bankruptcies increased by 37 percent.

In agriculture, the number of insolvency procedures rose from 372 to 537 in H1. However, agriculture is still an interesting sector to investors due to the declining price of land, good quality of the soil and availability of unexploited land, say experts.

The sectors that saw the fewest insolvencies were health and social assistance, production and supply of electricity and heat, water and gas and the extraction industry. However, these industries offer few opportunities to new players.

Otilia Haraga

BUSINESS REVIEW / September 27 - October 3, 2010

NEWS

Miele posts EUR 1.95 mln turnover in 2009, CEZ can sell 9.12 percent share in sees Romania as important regional hub EnergoNuclear after signing addendum

Home appliances firm Miele grew 71 percent

Home appliance producer Miele posted a turnover of EUR 1.95 million last year on the local market, a 71 percent growth compared to 2008.

Romania will be its center of focus from this year, as the German company aims to expand its footprint in South-Eastern Europe.

“Romania attracted our attention when it joined the European Union.

Apart from Greece, which is a mature market where Miele has been running operations for 40 years, Romania holds an important position in Miele’s future plans in the region,” said Stavros Politis, the firm’s export manager in SouthEastern Europe.

The high development potential of the local market and the country’s proximity to Central Europe were key factors in the firm’s decision to invest in Romania.

Miele Appliances SRL opened in 2007. The company recently opened a new production unit, the Miele Tehnica plant in Brasov, which produces electronic components.

In total, the firm has 12 production units worldwide, of which eight are located in Germany. Globally, Miele has 16,600 employees, 60 percent of whom work in its home country.

Otilia Haraga

The EUR 1.1 billion wind farm project has suffered a series of delays

Czech energy company CEZ has announced that it has inked an addendum to its contract with EnergoNuclear which allows the company to sell its 9.12 percent stake to the other investors.

EnergoNuclear is the project company that handles the development of units 3 and 4 at the nuclear power plant in Cernavoda.

CEZ’s decision was taken to allow it to concentrate investment in the Czech Republic and to develop its current international portfolio.

The move comes after a series of events that blocked the second stage of the wind farm project in the Dobrogea area, a EUR 1.1 billion investment.

Dana Ciuraru

Worst of recession over, says Basescu

President Basescu is hopeful that the worst of the country’s economic woes are behind it

President Traian Basescu has predicted that Romania has passed the worst of its economic woes.

“The economy is slowly recovering from the recession,” Basescu said last week in a speech given in the Romanian Parliament. He predicted that if the government steps up structural reforms, the country could register a 2 percent growth in 2011.

Basescu added that Romania will sign a new agreement with the IMF next year as structural deficits are currently making it very hard for BUSINESS REVIEW / September 27 - October 3, 2010

Romania to take out a long-term loan from any other financial institution. “In 2011 we need to borrow about EUR 5.7 billion to cover the budgetary deficit alone,” said the president.

But while he believes the nadir of the economic recession is over, the worst of the social crisis is yet to come, in Basescu’s opinion. “Now more than ever there is a need for social solidarity,” he said, expressing his support for the government’s austerity measures.

Simona Bazavan 5

NEWS

Tarom launches first image campaign in its history

Softline opens office in Romania, expects USD 500,000 turnover

State-owned airline Tarom has launched its first ever image campaign which is running under the logo “The Journey Shapes Us but the Destination Defines Us.” The pilot project was developed with Ogilvy Group and will start at the end of this month, ending on December 25. Approximately 44 percent of the image campaign will unfold on TV but the campaign will also run on cinema screens, on the radio, in the press, outdoor and indoor and there will also be a public relations campaign.

According to Ruxandra Brutaru, general manager of Tarom, the total budget allotted to the campaign represents 0.2-0.3 percent of the turnover. ”For the regular airline, the minimum sum for such a campaign would reach 2-3 percent of the turnover. We hope next year we will have a budget of 1 percent of the turnover,” said Brutaru.

She added that the company needed to establish a media presence and so far, it had been more passive than active.

“As a state company, Tarom always had difficulty in implementing an image campaign due to difficulties in allocating budgets or the fact that the need for such an action had to be justified,” said Brutaru.

So far, the campaign will run only at a national level. The video spot also has an English version, which will be presented at international fairs.

Last year, Tarom posted a turnover of USD 267 million, but also had losses of USD 77.2 million, and this year it is expected to have losses as well, though not as substantial. “As far as expenses go, we have cut all there was to cut. It is a difficult situation because the price of oil is increasing and we have difficulties due to the growth of the USD in comparison with the EUR. We cash in EUR while the bulk of our payments are made in USD,” said Brutaru.

Otilia Haraga

COURTESY OF SOFTLINE

COURTESY OF TAROM

Off the ground: national airline Tarom is launching its first image campaign

Moscow-based Softline International has opened an office in Romania, the first country in the European Union where the company has established a presence.

The office in Romania was officially opened on June 7 and is located in Muntenia Business Center.

Currently, the Softline Romania team numbers four employees, but up to five more will be employed by the end of the year.

Initially, Softline intends to focus on software license reselling, the first step in its strategy as it establishes a footprint on a new market, and it will be mainly targeting small businesses.

From next year, Softline will add new business segments such as consultancy, IT auditing, outsourcing and education.

“For now, we can only afford to start as a certified reseller but in time we will also be able to become competitors of system integrators and also offer software consultancy.

Obviously, we will not sell hardware but here we can always start alliances,” said Radu Crahmaliuc, regional director of Softline Romania.

The bulk of sales are predicted to come from Microsoft products (35-50 percent), followed by security software (around 30 percent) and then virtualization and business applications, according to Ivan Klimov, business development director in the Softline Group.

“We are aware that we are show-

Radu Crahmaliuc, regional director of Softline Rom

ing up later on a market that is already mature,” said Crahmaliuc.

However, he said there were several reasons why Softline had decided to open an office in Romania.

Firstly, there is big potential on this market due to small businesses which represent 95 percent of the total number of companies and more than 67 percent of the economic potential. Also, Romania could serve as a bridge for expansion to other countries and the software and services sector has not been as hard hit by the recession as in other countries.

Other factors in the decision to open up an office in Romania included the availability of EU structural funds and the anticipated resumption of IT projects in the public sector.

Otilia Haraga

Logistics company TCE Holding announces expansion to 30 countries

COURTESY OF TAROM

Ruxandra Brutaru, general manager of Tarom 6

Logistics company TCE Holding has announced its strategy to expand its transportation services to 30 countries in Europe.

“After 2009 was marked by a negative EBITDA, the first six months of this year have meant for us a return to positive operating profit and the resumption of our international expansion project, which has been part of our strategy since 2008. We are currently the only private transport operator of interna-

tional postal services, active in 30 destinations,” said Sorin Sofian, CEO of TCE Holding.

According to company estimations, the international deliveries are expected to generate EUR 2 million per year in the next three years. To continue the expansion, the next target is air transportation to Asia, scheduled for the end of 2010. TEC Holding reported a turnover of EUR 19.5 million last year.

Dana Ciuraru BUSINESS REVIEW / September 27 - October 3, 2010

WHO’S NEWS / CALENDAR

WHO’S GABRIEL MATAUAN is the new HR vicepresident of Gold Corporation Rosia Montana (RMGC).

He will be responsible for the company’s HR and CSR activities. He has 20 year of experience in HR management, having previously worked for Lafarge as HR and PR director.

Matauan graduated from the Commerce Faculty of the Academy of Economic Studies in Bucharest and holds a Ph D in sociology.

MARIUS STEFANA has joined NNDKP’s competition practice as a senior competition consultant. For the past eight years he was a competition inspector in the Industry and Energy Department of the Competition Council. Stefana was part of the Working Group on Energy within the European Competition Network and contributed to the issuance of assents and opinions for draft bills with potential impact on competition practices. He graduated from the University of Craiova School of Economic Studies, holds a master degree in financial management.

ADRIANA AKYOL has joined NNDKP’s environment practice as an associate. Prior to joining the firm, Akyol collaborated with some of the largest law firms in Romania and specialized in legal regulations and authorizations in the field of environment and energy. She graduated

NEWS from the University of Bucharest Law School and holds a master’s degree in Real Estate Appraisal from the Academy of Economic Studies in Bucharest.

DANIELA LUNGU has joined Zamfirescu Racoti Predoiu Tax as tax senior manager. Previously, she worked in the tax department of KPMG Romania.

Lungu will provide a wide range of tax consultancy services to clients in various industries.

She is a member of the UK Association of Chartered Certified Accountants (ACCA).

CLAUDIA MIHALASCU has been promoted to PR director & coordinator of the Digital Influence 360 team of Ogilvy PR. She has seven years of experience in PR and has been working for the agency since 2007. Mihalascu is a graduate of the Letters Faculty of the University of Bucharest and holds a master’s degree in communication from the Louvain University in Belgium.

OANA STANOEVICI has been promoted to senior PR manager and media relations specialist by Ogilvy PR. She joined the team three years ago. Stanoevici has been working in journalism and PR for the past 14 years. She previously worked as editor and presenter at numerous local radio stations.

Business Review welcomes information for Who’s News from readers.

Submissions may be edited for length and clarity. Feel free to contact us at editorial@business-review.ro

Australian consulate opens in Bucharest The Australian consulate was inaugurated in Romania last week. The Honorific Consul of Australia to Bucharest is George Prelea, who has 40 years of experience in diplomacy. He was appointed by the Australian government. Prelea’s diplomatic mission will offer consultancy to Romanian and Australian citizens.

“The high interest of Romanian citizens in obtaining tourism and study visas in Australia led to a natural need to re-open the Australian Consulate in Bucharest.

There were also various requests from Australian business people who wish to develop businesses in Romania. The Romanian Chamber of Commerce and Industry expressed its interest to initiate and resume commercial activities in Australia,” said Prelea.

EVENTS, BUSINESS AND POLITICAL AGENDA SEPTEMBER 28 é 10:00 Accreo Romania organizes a press conference at Van Gogh Café.

By invitation only. é Romanian Manufacturing Summit takes place at JW Marriott, Constan-

ta Hall. é The graduation ceremony of the 16th promotion of ASEBUSS Execu-

tive MBA takes place at JW Marriott. By invitation only.

SEPTEMBER 29 é 9:00 International Council of Shopping Center's (ICSC) organizes the

Romanian Retail Real Estate Conference at Radisson Blu. By invitation only. é 10:00 BenQ organizes an event to present a new monitor generation at

Gang Launge Café. By invitation only. é 10:00 The Bucharest Chamber of Commerce and Industry and AC-

CREO Romania organize a seminar called “Grants and incentives for investors in Romania” aimed at offering an in-depth analysis of the tools available for public entities and private companies to increase their effectiveness and competitiveness on the inner EU market at the BCCI headquarters. By invitation only. é 10:30 Procter&Gamble (P&G) organizes the official opening of the

P&G production unit in Urlati, Prahova county. By invitation only. é 11:00 Danila, Petre & Asociatii law firm organizes a press conference

at its headquarters. By invitation only. é 11:30 OBI organizes the official opening of a new store at 51D,

Theodor Pallady Blvd. By invitation only.

SEPTEMBER 30 é 11:00 An event for the launch of a new communication campaign for

Doncafe takes place at the Strauss headquarters. By invitation only.

OCTOBER 14 é The 2010 edition of the National Conference on HR takes place at Rin

Grand Hotel. By invitation only.

OCTOBER 15 é TEDxBucharest2010 takes place in Bucharest. Attendance is by admis-

sion process only.

8

BUSINESS REVIEW / September 27 - October 3, 2010

LINKS

Microsoft sees cloud computing as its new business model

LAURENTIU OBAE

Microsoft announced last week its main priorities for the fiscal year 2011: cloud computing, a larger market share and organizational development, which involves investing in new people and creating new jobs. Microsoft is approaching cloud computing as a new business model that will shape its evolution in the future. Expectations are that, as the software giant continues to launch new products this year, it will post a 6 percent growth in 2011.

Otilia Haraga

Calin Tatomir, general manager of Microsoft Romania

“Even four-five years ago, when I was not yet part of Microsoft, I anticipated that there would come a time when software would be consumed as a service. Whoever does not understand this and sees cloud computing as just another new concept is wrong. It is a new model of business. Microsoft needs to change its structure and we are scouring the market to fill new positions in the cloud computing area. This is our future,” said Calin Tatomir, general manager of Microsoft Romania.

He added: “I would say that in five years’ time, probably more than 50 percent of clients will shift to this area. The most reticent will be large companies that rely on information obtained from their own data such as the banking and telecommunications system.”

Microsoft already has clients who have made the transition to software services, including law and consultancy firms, which use these services for a monthly fee. At the moment 10 companies of more than 25 people and others of 10-15 people use these services.

The portfolio of cloud computing services that are available in Romania is: Microsoft Online Services (Business

Productivity Online Standard Suite) for companies, Windows Azure Platform for developers of applications, Live@edu for educational institutions, and Windows Live for consumers. Another two will be launched in the fiscal year 2011: CRM Online and Windows Intune.

Last year, Microsoft had a “record number of launches” according to company representatives. The firm launched Windows 7, Windows Server 2008 R2 and Hyper-V Server 2008 R2, Office 2010 (in English), Sharepoint Server 2010, Exchange Server 2010, Microsoft Online Services and SQL Server 2008 R2. In September, Microsoft released Office 2010 (in Romanian) and Internet Explorer 9 beta.

In the future, the software giant has plans to launch Windows Phone 7, Lync Server 2010 (the next generation of Office Communications Server), Windows Live Essentials, Windows 7 Service Pack 1, Dynamics CRM 2011, Dynamics Nav 2009 R2, Dynamics Ax for Retail, Windows Intune and updates of System Center and Microsoft Online Services. The new launches were also behind Microsoft’s return to growth.

BUSINESS REVIEW / September 27 - October 3, 2010

The evolution across the company’s various business sectors – OEM (licenses sold through retail outlets), SMS&P (Small to Midmarket Solutions and Partners), EPG (Enterprise Partner Group) and public sector – was quite balanced.

However, Tatomir expressed dissatisfaction with the situation in the public sector. “We cannot say that our expectations that the Romanian government would invest in infrastructure projects have been fulfilled. Other governments have been much more mature,” he said.

Currently, Microsoft has 3,5004,000 partners. It aims to grow its business in 2011 by 6 percent overall. Last year the computer market fell by 25 percent and the market of local producers of computers by 40 percent.

“Last year we grew from December until June, seven months in which we posted approximately 3 percent growth.

In Q1 of last year, July-September 2009, there was no growth because we are comparing with the same period of 2008 when we were not yet in recession. The increase we evaluated for the second half of this fiscal year, January-June 2011, is 15 percent. So, the growth for the entire year will be 6 percent but the

most aggressive increase will take place in H2,” said Tatomir.

The Microsoft Dynamics division had a positive evolution, growing 30 percent. The best evolution in this category was that of Dynamics Ax (formerly Axapta), where revenues tripled. “At the end of fiscal year 2010 65 clients were using the platform Dynamics xRM, and Microsoft is market leader on this segment,” said Ioana Pana, Microsoft Dynamics lead.

According to Tatomir, 2011 will see the positioning of Axapta on the Romanian market. “If we have a 6 percent growth in the fiscal year 2011, I am sure the Dynamics segment will have contributed a lot to this,” he said.

Over the past two years, more than 70 percent of the Microsoft management team has been replaced, with many of the new employees recruited from the competition. “Our team includes people from SAP, Oracle, HP, IBM, almost all our competitors,” said Tatomir. Also, the first expat, Pole Michal Golebiewski, who was appointed business, marketing and operations (BMO) lead, was brought on board.

“Microsoft Romania has existed on the local market for 14 years, and it has never had a foreigner on its management board. I think this means that we have opened our gate to Europe so that we can use the experience of countries that are more advanced than us, such as Poland for instance,” said Tatomir. The marketing approach has also changed, making the budget more flexible.

Last year the piracy rate in Romania dropped from 66 to 65 percent, according to the latest study by Business Software Alliance. However, this far exceeds the average European piracy rate of 35 percent. While Bulgaria is on a similar level, in neighboring countries such as Hungary, the piracy rate is 41 percent.

“Over the past two years the number of complaints we’ve received from clients has doubled. These were mainly individual clients, but also companies, who bought software believing it to be original but when using it they realized it was pirated. Last year, from our data, more than a quarter of retail stores in Romania offered pirated software in the store itself,” said Marilena Ionascu, manager of the License Compliance department.

9

FOCUS

Everybody’s doing the high-speed locomotion at Berlin transport fair

DANA CIURARU

While emerging markets ink billioneuro contracts for high-speed transportation trains and trams that were on show at the largest transportation fair, InnoTrans, held in Berlin, CEE has been flagged up by specialists for potential growth in the near future. Romania needs to put EUR 3 billion into the refurbishment of key elements, especially for the Constanta-Western Europe line. At InnoTrans, local firm Remarul 16 Februarie came with two modernized trains. Despite the efforts of local firms to give their products an international audience, the Transport Ministry did not send a representative to the event.

Need for speed: sleek new designs and rapidity were the hot things in Berlin

10

Training its sights on renewal: much of Romania’s train stock needs updating

CEE

DANA CIURARU

A hour’s ride to cover a 400 km journey (for instance, from Bucharest to Iasi) on board a topspeed commercial train which can reach 420 km/h and accommodate 600 passengers, has incorporated ECO4 solutions such as a thermoefficient acclimatization system, aero-efficient optimized train shaping, an energy management control system and a customized front-end design and interior layouts – this is no longer something from a SF movie.

The Zefiro 380 from Bombardier is currently the fastest railway vehicle in operation in the world. The model was presented at InnoTrans fair, the Berlin event that gathered some 19,000 major companies in the field and 100,000 visitors. Top international transport companies presented their latest

DANA CIURARU

Dana Ciuraru in Berlin

technologies in the areas of urban and cross-border transportation which meet requirements such as fuel savings, eco friendliness, noise reduction and comfort.

Bombardier presented the Dual Power locomotive with both diesel and electric engines, Siemens came with a locomotive fully made in Munich, which has an improved engine with lower carbon dioxide emissions, while Alstom revealed the new generation of Prima electric freight locomotives designed for cross-border journeys.

However, it was the high-speed offers from all transporters that attracted the most interest. According to Andre Navarri, president and COO of Bombardier Transportation, in August 2010, Bombardier, along with its Italian partner AnsaldoBreda, secured selected supplier status for the delivery of 50 V300ZEFIRO trains to Italian Railways (Trenitalia). The V300ZEFIRO has a capacity of 600 passengers and is capable of commercial speeds of up to 360 km/h. It is fully interoperable and will provide a cross-border service taking Trenitalia’s passengers to other European countries, without the need to change trains.

For Bombardier, orders with a total project cost of EUR 1.5 billion have come in the past few years from the Ministry of Railways in China (MOR).

Green theme: environmental friendliness was flagged up by many companies

SEES RISING DEMAND

But while China and India are the most important markets generating billion-euro contracts for major international transportation companies, officials say that Central and East European (CEE) markets should not be overlooked as there is growing demand from this region.

“In CEE there are no projects in transportation in which we could invest, except in Poland. But I believe that the transportation market in CEE has a high growth potential, especially as CEE countries can apply for European funds,” said Navarri.

Moreover, Janis Vitins, director BUSINESS REVIEW / September 27 - October 3, 2010

FOCUS of marketing and product planning for electric locomotives at Bombardier, added, “This year we have seen a 20 percent hike in traffic on railways in CEE and as such the need for new locomotives has increased as local operators will need cross-border transportation from Constanta harbor to Western Europe.”

LOCAL TRANSPORTATION SECTOR NEEDS BILLION-EURO FACELIFT In Romania the majority of the fleet is old across all transportation segments and operators have spoken on various occasions about the required investments. For instance, CFR has to replace some 271 old locomotives and 370 diesel and electric cadres by 2012. Currently, there are 46 diesel cadres from the entire fleet which are less than 20 years old. Specialists say that the development of all transportation segments in these regions will depend largely on national policy.

Quoting estimations from the Transport Ministry, Stefan Roseanu, general secretary of the Romanian Railway Industry Association (AIF), said that in the next 12 to 18

months Romania will need to launch bids of some EUR 2 billion to refurbish the infrastructure of the railways from the border with Hungary to Sighisoara. The country will need an additional EUR 1 billion for new subway locomotives and wagons.

“These auctions have been blocked by the Transport Ministry for the past four years. Out of this sum the government would have to come up with EUR 1.5 billion, while the rest should be attracted from European funds,” said Roseanu.

Jean Berge, vice-president of passengers at Bombardier Transportation, announced that the company was interested in providing subway trains for the local subway company. “Metrorex will organize a tender next year to modernize the fleet for several lines. We will address the Romanian transportation market along with local partners and we are currently in discussions with them.”

However, as the Romanian Central Bank recently ruled out the chances of economic recovery in 2011, the big question is where the money will come from.

Romania’s presence at InnoTrans not supported by Transport Ministry Romania was represented at InnoTrans fair with two stands: one by Remarul 16 Februarie Cluj and the other the AIF, which gathered seven companies out of its total of 25 members: Inda Craiova, Ateliere CFR Grivita, Remarul Pascani, Spiac Craiova, Viotop and Eximprod Buzau. Remarul 16 Februarie Cluj presented two modernized locomotives, of which one is the Carpathia 2300 DE, a unique model.

“This is the first modernized locomotive that we have made and it is sold to CFR Marfa. Some of the advantages of these refurbished locomotives are lower carbon dioxide emissions, as this locomotive uses a caterpillar engine, the price for such a unit represents some 65 to 70 percent of the cost of a new locomotive and the maintenance costs are lower. For this locomotive 60 percent of the parts are made in Romania and 40 percent imported. The modernization process takes six months,” Horea Galos, technical director at Remarul 16 Februarie Cluj, told BR. According to him, while for a big-brand eco-friendly locomotive on this market the buyer has to pay some EUR 5 million, for a modernized unit the price is about EUR 2 million, for the same motorization. The machines have piqued the interest of French, Polish and German private operators.

Meanwhile, Remarul Pascani came with the new Acvila wagon, a two-floor wagon launched last year, for medium passenger traffic. “We offer reconstruction services for wagons. Acvila brings a new design with a high impact on the young demographic. This wagon is currently being used by CFR Calatori on the Iasi-Bacau route,” said Catalin Cornea, GM of Remarul Pascani.

But although InnoTrans gathers top companies and government officials, not one representative from the Transport Ministry attended.

“By the second day of InnoTrans no Transport Ministry official had came to the fair. This in fact helped as the Transport Ministry did not get in our way,” said Stefan Roseanu, the AIF’s general secretary.

BUSINESS REVIEW / September 27 - October 3, 2010

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FURNITURE MARKET REPORT

Furniture market seeks veneer of optimism as players table amendments to plans

Corina Dumitrescu Romania’s furniture industry dates from over a century ago and has seen both better and worse times.

Aurica Sereny, president of the Romanian Furniture Manufacturers Association (APMR), set out the fact and figures that illuminate the situation in which the furniture market presently finds itself. In 2009, the total turnover for the industry reached EUR 969.1 million, a 15 percent decrease compared to the results in the last successful year before the crisis, 2008. Now, however, estimations are EUR 950 million for this year, as in the first semester the preliminary results were EUR 478.5 million.

Sereny says that the best results 12

LAURENTIU OBAE

The furniture market continues to be affected by the crisis and will not come through it unless the real estate market recovers, say top players in the field. The lean times have created a new brand of customer, more quality-oriented and price-conscious than ever before.

The pieces of furniture being sold right now have to last over a lifetime and be passed on to future generations, they must no longer be easily replaceable goods, suited to passing trends. Business Review talked to several players on the market to see how they are coping with the tough times and their hopes for future development.

Swedish retailer Ikea maintains low prices for harder to please customers

in the industry came from exports, which performed better than the domestic market.

Production for the first six months in 2010 reached an 8.2 percent growth compared to last year, with exports achieving a 114.2 percent rise for the same period. Imports, however, managed a total of EUR 205.2 million, 88.9 percent of last year’s figure.

Estimations for the second part of the year are more optimistic, as is usually the case on the furniture market, says Sereny. Worst affected by the crisis was the office segment, where no new products appeared, either on the internal market or in the region. After suffering a 32 percent dip in 2009, the office furniture segment will continue its slide this year as well, the APMR president predicts.

Furniture firms have sought to

deal with the crisis by cutting back on staff. From 56,800 employees working in furniture-connected positions in 2009, now only 49,200 are active in the field. Some employers have resorted to reducing work schedules. Companies have faced difficulties regarding financing, or with the internal suppliers of raw materials, which may not be sufficient for internal demand (this is the case with resinous wood, Sereny explains). In spite of the crisis, though, other companies have successfully reoriented their activity in the most profitable direction, that of exports.

While in 2007-2008 the market was more internally oriented and exports were almost neglected, now great efforts are being made to go beyond the Romanian borders.

Customer behavior has also changed as a result of the crisis, as shoppers now think twice before

making a new purchase, says Sereny. The price-quality ratio is the most important criterion when choosing a new product, with durability being a very convincing argument to people who “are now searching for a product that will last for generations,” she adds.

Sereny is not optimistic over a bounce back. “Things will not improve unless the real estate market does, as the two are very much codependent,” she says. This is also the reason why office furniture no longer draws buyers. Firms are disappearing from one day to another and unless new office locations are built, demand will continue to diminish further and further, cautions the president.

The individual market players also help complete the picture. Ikea, now on its third year on the local market, with an Ikea store in the Baneasa commercial area, had “a RON 349.24 million (VAT included) turnover in 2009, meaning a 9 percent drop compared to the same period of 2008,” says Mihaela Muresan, marketing manager at the Romanian branch of the Swedish furniture store.

Ikea’s key differentiator consists in value for money, as the store “offers a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them,” says Muresan. This is not down to the crisis, but the general strategy that the brand adopts internationally, she adds. In Romania, the store did not raise its prices to reflect the VAT hike. In September, prices were even lowered by an average of 12 percent and “almost 4,000 products from the total 8,500 of the Ikea range have prices that are 5 to 60 percent lower,” continues the marketing manager.

Muresan has noticed changes in consumer behavior since the financial crisis. Echoing Sereny, the APMR president, it seems that at Ikea too, consumers have become more cautious, “because of a ‘crisis of trust’ in the stability of their own income in the current global context,” she explains. Now it appears BUSINESS REVIEW / September 27 - October 3, 2010

FURNITURE MARKET REPORT

COURTESY OF COS

The furniture industry relies on a thriving property market and so has struggled since the crisis hit

that “people are oriented towards long-term investments and purchases that can bring them more value for money,” she adds.

In terms of how the crisis has affected other suppliers on the internal market, as part of an international group, only “5 percent of the Ikea

range in our store is produced in Romania. The rest comes from suppliers of the Ikea Group worldwide, and there are over 1,200 suppliers in over 50 countries. As a part of the Ikea Group, this allows us to benefit from economies of scale on volumes purchased at global level,

which basically means lower costs,” says Muresan. Referring back to development plans announced in 2007, she says that new stores will be opened in Romania, but at the moment no additional details can be given.

Class Living, premium and luxury furniture retailer, has existed on this niche on the Romanian market since 1997-1998, after having begun in 1994 as an importer of home and office furniture. Owner Camelia Sucu says that like any other company on the market, Class Living has also had to take specific measures to cut costs. “Human capital was the last one I considered in this respect. I tried as much as possible to avoid layoffs and salary cuts.” Administrative consumption was the main focus and was reduced as much as possible. Negotiations with suppliers to obtain price reductions followed.

New collections were created – which brought no alterations to “comfort, functionality or design,” Sucu says – for more accessible prices, as the market now demands.

The niche consumer has not altered his or her behavior significantly: people still want the same quality, but are paying more attention to

price. The VAT increase, for example, was not passed onto customers.

Luxury furniture has also been affected by the real estate slump, as consumers have become fewer. The company’s main clientele is now made up of individual buyers. “I think that office furniture consumption will increase a bit though, as more statistics have suggested that there has been an improvement in this sector in the recent months,” adds Sucu.

Regarding development, the owner says that a concept store has been launched, Iconic Class Studio in Bucharest, which is regarded as an extension to Class Living, and where more focus is put on design, creativity and consumer interaction.

This is a place meant to transform creativity into future products and lines, an interface between customer and furniture supplier, explains Sucu, a location where the lifestyle induced by the products is most visible.

Corporate Office Solutions (COS) has been operating in Romania for 13 years as a furniture company for office consumers.

Cristophe Weller, managing partner of COS, says that the firm registered

TECHO gains market share

Dinu Cristian, General Manager, TECHO Romania

BUSINESS REVIEW / September 27 - October 3, 2010

2009 turnover was 4,5 million Euro.

When do you expect recovery to happen on the local furniture market and what do you think are the sectors with development potential?

The first signs of recovery are hopefully expected in the first part of 2011. As soon as the main sectors of the economy will pick up a little speed, the others will follow quickly. Although the industry plays an important role in the whole picture, I believe that the best potential lies in the IT and call centers sectors.

Considering that there is usually 6 months delay since the moment of any economic growth and the increase in the office furniture demand, we expect that our business will start growing again in the second half of next year.

ADVERTORIAL

When did Techo enter the local market and how do you position the company and the services you offer?

TECHO is present on the Romanian market since 1997. Our aim was to provide comprehensive services for the furnishing of the commercial interiors related to all business sectors: banking, insurance, pharma, IT, advertising, energy, telecommunications, automotive industry and many others. The high standards of our products and services have placed TECHO

amongst the main players in in Europe and Africa. I would this particular business. only mention RAIFFEISEN BANK, ERSTE BANK, Procter & What type of offices and Gamble, IBM, HUAWEI. In Roactivity do you carry out here? mania, except from the above What market segments do mentioned names, our cusyou cover locally? tomers are PETROM, ING BANK, Usually TECHO does the fur- SANOFI AVENTIS, SIVECO, DHL, nishing within a larger package TOTAL SOFT, TNT, COMPUTER which includes fit out works as GENERATED SOLUTIONS, partitioning, carpeting, cabling, RINGIER, COCA COLA, HVAC, moving, cleansing etc.

TECHTEAM, CEZ, EUREKO, ERICWe cover mainly the medi- SSON, SHINDLER and many um to high market segments, others. clients with high expectations regarding quality, but looking How was your activity affor reasonable prices. In fact, fected by the economic downTECHO's outstanding quality / turn? price ratio was the main contribThe crisis had an impact on utor to our success.

TECHO's activities too. The number of relocations has What are your main clients dropped significantly, and the in Romania and Eastern Eu- whole office furniture market rope? plummeted almost 50%. DeAlong the years TECHO has spite this downturn, TECHO's gained a wide recognition, so turnover decreased only by that numerous renowned com- 25%, which means that in fact panies became our customers we gained market share. Our

13

FURNITURE MARKET REPORT

a turnover of RON 52 million in 2009, a 9 percent decrease compared to 2008, which was the best year in its history. The profit in 2009 was RON 5.45 million, and in 2010 a similar sum is expected.

The crisis did not occasion any personnel reductions, but involved outsourcing, renegotiating the warehouse leasing contract, as well as suppliers’ flexibility on payment terms and “sourcing new products that can match the lower budgets of our customers,” Weller explains.

General expenses were reduced by 15 percent and extension plans were also achieved, with an agent now covering the area from Timisoara to Cluj. Plans made in 2008 to open an office in Sofia and in 2009 to open branches in Romania’s main cities have been postponed until the market recovers.

In terms of client evolution, it seems that corporate buyers want to send a message through the furniture that they choose, which is “that they

are very cautious about their spending,” says Weller. Regarding the future, the COS managing partner anticipates no “real improvement before 2012. In the corporate segment, new opportunities will appear middle to end 2011, when anchor tenants sign pre-lease agreements for buildings that will be delivered in 2012, but they will concretize into orders only in 2012. The next 12 to 18 months will be hard, without many relevant projects to complete.”

Casa Rusu is the name of the stores of the Rus Savitar furniture manufacturer, which has been on the Romanian market since 1994. In 2009, group turnover reached over EUR 20 million, a 5 percent increase compared to 2008, says Cristian Rusu, general manager of Casa Rusu. So far, the firm has absorbed an EUR 18 million investment, EUR 15 million of which went on production and logistics and EUR 3 million on retail.

Around 40 percent of Casa

COURTESY OF COS

Shoppers are looking for furniture that will last, rather than be in tune with a passing fad 14

COURTESY OF COS

COURTESY OF COS

The office furniture market does not expect to return to grown earlier than 2012

Rusu’s business is retail, while the rest focuses on the corporate consumer Dedeman, a retail chain of construction and interior design materials for home users. As Rusu says, “the best solution for Rus Savitar at the moment is to go to its consumer with its own products, through its retail division,” since sales consistently increased after the furniture manufacturer’s retail division opened.

Despite the crisis, Rusu says that the company has opened showrooms and plans to open two new stores.

“The measures that we took to overcome the crisis focused on developing our own market by opening new stores, starting with the one in Sibiu and ending with the most recent one, opened in Bucharest,” reaching a total of nine.

Casa Rusu and Rus Savitar also anticipate new recruitment, around 120 hires by the end of the year, Rusu says. Reductions from suppliers of around 10 percent were obtained.

Customers are spending 10 percent less than they were on furniture compared to 2009, but an interesting trend is the increasing demand for television space, due to the rising popularity of LCD TVs. The VAT increase was partly borne by the furniture company and through different promotions.

Furniture company Quadra Invest reached a turnover of EUR 3.6 million last year, compared to the EUR 4.7 million registered in 2008, administrator Laura Banica says.

Similar results as in 2009 are expected for this year, with exports being the most profitable direction for the moment.

The most important investments went into exhibiting products, with a more spacious showroom being purchased in Bucharest.

To deal with the crisis, no layoffs were made, some activities were outsourced, production processes were simplified, a wider product range was introduced, prices were reduced and some of the VAT increase was absorbed by the company.

Innoffice, which has been active on the office furniture segment of the Romanian market since 2007 and with an over 95 percent corporate client basis, has invested over EUR 500,000 on the Romanian market. “In spite of the crisis, we continue to invest in personnel training, product quality improvement and increasing the furniture collections that we sell,” says

Cristophe Weller, managing partner of COS

Mirela Dumitru, general manager at Innoffice.

However, on account of the crisis, the opening of a new Innoffice showroom is currently postponed.

No staff were laid off, however real estate investments were postponed, the operating point was changed for one with a better price and barter contracts were signed. The firm hopes the market will bounce back by mid-2011, but Dumitru remains skeptical.

Techo, a regional player on the furniture market, provides services in the area of fitting out commercial interiors. It is present in Romania with centers in Bucharest and Cluj.

Its customers include major banks, financial institutions, international companies and public sector organizations. The company says that despite a drop in demand caused by the global crisis, and also an unprecedented fall in prices, it managed to significantly increase its market share last year, not just in the Czech Republic, but in Central and Eastern Europe as a whole. The company’s market share in the CEE market increased by 1.5 percent.

Since 1993 Techo has expanded its operations to cover a large part of Europe. Today it has branches in Great Britain, Slovakia, Austria, Hungary, Romania, Croatia, Russia, Ukraine and Georgia. In 2005 a three-year business partnership with the Dutch group Royal Ahrend NV, one of the five largest office furniture producers in Europe, culminated in the company taking a 75 percent controlling stake in Techo. The acquisition was completed in the spring of 2008 when Ahrend became the 100 percent owner of Techo.

BUSINESS REVIEW / September 27 - October 3, 2010

AUSTRIAN INVESTMENT REVIEW

Cautious Austrian investors not giving up battle for Romania are also likely to resume, this time with a focus on higher construction quality and more balanced prices, he said.

“Prior to the EU accession, there was a big wave of investors, especially from Austria, and we’re seeing certain indications that a second one might follow. However, it will be a relatively smaller wave of SME companies providing high quality services and work,” Schoeb predicted.

Austria ranks top of the foreign investors to Romania with over EUR 10 billion invested so far. EUR 500 million was spent last year and

THE AUSTRIAN AGING MONEY

the same amount is estimated to be reached in 2010 too.

Beyond facts and figures, Austrian companies have become deeply involved in the local economy, filling top Names from the banking and energy sectors are among those flying the flag for Austrian investment

positions in more than just banking and the energy industry. And the Teutonic march shows no signs of abating.

Simona Bazavan Statistics released by the National Bank of Romania (BNR) show that Austria has been the number one source of foreign direct investments to Romania since 2006.

About EUR 10 billion has been invested in the country by Austrian investors over the years, according to data from the Commercial Section of the Austrian Embassy to 16

Bucharest. In 1950 trade between the two countries amounted to EUR 8.2 million, only to reach EUR 2.2 billion last year. There are over 5,800 Austrian-capitalized companies in Romania, about 1,000 of which are active investors, and approximately 100,000 Romanians work for an Austrian company.

Some firms, like Austrian Airlines and Voestalpine, have been present locally since before 1989.

But perhaps more important than the numbers and the official statistics is the fact that Austrian companies have managed over the years to gain key footholds in many local industries, some of which, like energy and banking, are of strategic importance. “Austria is proud to be an economic investor here and it is proud of its interest in the long-term development and prosperity of its partner, Romania. It has done this by bringing here new technologies,

know-how and generating new jobs” said Rudolf Lukavsky, commercial counselor of the Austrian Embassy in Romania. He added that Austrian companies will continue to invest in Romania and said no important firm had left the country in spite of the economic turmoil.

According to Rene Schoeb, partner with audit and consultancy firm LeitnerLeitner, one of the main problems that local Austrian, German and Swiss companies face is the bankruptcy of local business partners along with related cash flow challenges and the increased rigidity of the tax authorities in collecting money. “We see that foreign investors would like to invest but are currently hesitating since the political and financial situation of Romania is unstable,” he added. There is increased interest from their side in agriculture, FMCG and the health industry. Investments in real estate

WAY OF MAN-

Finance and banking is by far the sector with the strongest Austrian presence. Back in 1998 Austrian RZB Group founded its first subsidiary in Romania. The merger with Banca Agricola, which was acquired for EUR 52 million in 2001, created Raiffeisen Bank Romania.

In 2005, Erste Bank bought the majority stake in state-owned Banca Comerciala Romana (BCR) for EUR 3.75 billion, making it the largest Austrian investment in Romania so far. Other players on the market are UniCredit Tiriac Bank, Volksbank and Porsche Bank.

“Romania is still a hot spot for investors, despite the currently tough market situation (…) As regards the banking sector, there is still room for growth given that financial intermediation is still below peer countries (with total assets to GDP at around 70 percent in 2009),” Manfred Wimmer, CFO and CPO of Erste Group, told Business Review.

BCR posted a RON 488.5 million (EUR 117 million) consolidated net profit after taxes and minority interests for the first half of the year, 19.5 percent down on H1 2009. According to company representatives the decrease was mainly generated by higher provision expenses “which are due the contracting economy heavily impacting BCR’s customers”.

The bank announced that it holds a share of about 22 percent of the local lending market. BCR operBUSINESS REVIEW / September 27 - October 3, 2010

AUSTRIAN INVESTMENT REVIEW

COURTESY OF RAIFFEISEN BANK

LAURENTIU OBAE

BCR is one of Erste Group’s key operations in CEE, according to Manfred Wimmer, CFO and CPO of Erste Group

Raiffesen was the first Austrian bank to set up operations on the local market

ates a network of 668 local subsidiaries, seven of which have been opened since the beginning of the year. “Following the acquisition in 2005/06, BCR is one of Erste Group’s key operations in CEE. With assets worth EUR 16 billion and 4.3 million customers, it is Romania’s largest banking group.(…)

Erste Group’s exposure in Romania currently stands at EUR 7.7 billion,

choice bank in terms of savings and investments, undertaking prudent lending and offering efficient services,” Wimmer concluded.

Raiffeisen Bank SA posted a net profit of EUR 49.98 million for the first half of 2010, down by about 5 percent against the same period last year. The bank has also announced an operational profit of EUR 83.8 million. Raiffeisen’s gross income

BUSINESS REVIEW / September 27 - October 3, 2010

up from EUR 7 billion in 2009,” said Wimmer.

“We remain fully committed to Romania, to supporting the Romanian economy, companies and people. Erste’s aim for BCR is to become the market leader in terms of service quality, profitability and efficiency. BCR will continue to strengthen its leading position in a sustainable way by being the first

for the same period of 2010 dropped by 12 percent on H1 2009, falling to EUR 210.4 million, mainly due to a decrease in income from treasury activity, according to bank representatives.

“I am satisfied we have again managed to achieve good results that are very close to the ones we posted last year, despite the fact that the economic situation in Romania

17

AUSTRIAN INVESTMENT REVIEW

Austrian investors say they are here to stay

COURTESY OF THE COMMERCIAL SECTION OF AUSTRIAN EMBASSY

The commercial section of the Austrian Embassy to Bucharest has recently celebrated 60 years since its founding in 1950. Now Austria has become the number one foreign investor to Romania, with about EUR 10 billion invested so far and sound plans for future local expansion according to RUDOLF LUKAVSKY, commercial counselor of the Austrian Embassy in Romania.

Simona Bazavan For many years now Austria has been the top foreign investor to Romania. What’s behind this?

Austria and Romania share a long common history, which is also reflected in close business relations. The weight of Austria’s presence in Romania is best illustrated by its position of number one foreign investor to the country and the volume of bilateral trade. Bilateral trade is driven by Austrian exports to Romania which peaked in 2008, reaching close to EUR 2.4 billion, and in 2009 remained at a level above the average of the last five years, amounting to EUR 1.6 billion. Austrian imports from Romania have been steady over the past five years in the range of EUR 722 million in 2004 and EUR 645 million in 2009. In the first half of this year we saw a dramatic increase of 40.9 percent in Austrian imports from Romania.

How much did Austrian-owned companies invest in Romania last year and what are the estimations for 2010?

Net investments from Austria amounted to EUR 500 million in Romania for 2009, which is very positive, taking into account the difficult market situation. The overall net investment volume stands at almost EUR 10 billion or 20 percent of total FDI. 2010 is a difficult year, but Austrian companies keep expanding. Just a few examples of 2009/10 Austrian investments in Romania are the biomass power plants by Schweighofer and the EUR 15 million 18

logistics terminal by Gebr. Weiss, Baumit also invested EUR 20 million in an new production unit and Voest Alpine put EUR 20 million into a steel service center in Giurgiu. And the expansion of Auatrian retailers present locally will continue. bauMax has 11 stores so far and plans to open two more in Cosntanta and Timisoara.

How would you say that the local political environment influences business opportunities in Romania?

Any investment decision is based on a mix of criteria, labor costs, competition, market potential, the legal environment and so on. Unexpected changes in legal and political conditions are disadvantageous for everyone.

What local industries have the potential to attract Austrian FDI in the future?

Austrian companies are keen to develop their investments in the Romanian economy and we see great potential ahead especially in the fields of R&D, alternative energy, industrial suppliers and automotive parts.

Has the economic crisis brought about any opportunities for local companies?

The economic crisis is, despite all, a good chance for companies to re-evaluate their business plans, to re-think their business strategies and improve their client services.

From your contact with Austrian companies, what are the main setbacks in the local business environment and what should the Romanian authorities do to help foreign investors?

It is crucial for the further development of the market that Romania can ensure a stable business environment.

Generally speaking, Austrian companies are calling for more transparency, efficiency and consistency in the public administration, in particular in public procurement and improvement of the legal system in order to better facilitate their investments.

What would you recommend to an Austrian investor who plans to open a business in Romania in the near future?

Romania is still a hot spot for Austrian companies and in the region. Romania is – after the Czech Republic – the second most important country for Austria in terms of direct investment. Over 5,800 companies have Austrian capital involvement and there are 100,000 direct jobs from Austrian investments operating in Romania, so this country has become, over the years, an interesting and attractive business partner for Austria.

has continued to worsen,” said Steven van Groningen, CEO of Raiffeisen Bank. “The decrease in revenues was only due to trading activities, whereas the revenues from purely banking activities have slightly increased, which means that we performed very well in our core businesses. Furthermore, we have managed to control our costs: provisions dropped sharply, we have managed our expenses more effectively, thus preserving our profitability. We owe this good result to the solid position the bank has on the market, to our prudent risk management policy in the past years, and to our balanced exposure in terms of segments and industries.”

Elsewhere, the local subsidiary of Austrian tax and advisory firm LeitnerLeitner estimates a growth of over 20 percent this year, thus contributing 5 percent to the total turnover of the firm. Locally, the company employs 40 people. It has been present on the Romanian market since December 2008, when it opened a tax advisory office. In January 2010, it merged with the local Adevaris to offer integrated\financial advisory services.

In IT, S&T Romania was founded in 1994 as a subsidiary of S&T System Integration & Technology Distribution AG-Austria. The company’s portfolio has developed significantly over the years into a series of integrated IT solutions.

Globally, S&T employs 2,600 people and posted sales of EUR 411 million in 2009.

AUSTRIANS

GET ENERGETIC

Austrian OMV Aktiengesellschaft is the majority shareholder (51.01 percent) of OMV Petrom, one of the two giants on the local oil and gas market. Five years after the OMV takeover, about EUR 5 billion has been invested in Romania, mostly in restructuring and modernizing the company’s local facilities.

In the past two years, about EUR 130 million has been put into building Petrom City, the company’s headquarters in northern Bucharest which will cover 117,000 sqm.

Work on the site is estimated to be finished in the spring of 2011.

In 2009 Petrom saw its turnover plunge by about 33 percent on the previous year, reaching approximately EUR 3.03, mainly due to the contraction of oil and fuel markets and lower oil refining margins. Its EBITDA also fell by approximately 28 percent to EUR 696 million. The BUSINESS REVIEW / September 27 - October 3, 2010

AUSTRIAN INVESTMENT REVIEW

COURTESY OF PETROM

When finished, about 2,500 employees will work at Petrom City, the oil firm’s new headquarters

company’s net profit reached EUR 323 million, 16.5 percent more than in the previous year but a large share of it was generated through oil price hedging.

The company’s future strategy includes the modernization of the Petrobrazi refinery in order to be able to process 100 percent domestic crude. The process is aimed at reducing the energy loss to 10 percent (from 14 percent in 2004), increasing the yield structure of diesel and aviation fuel to approximately 45 percent (from 30 percent in 2004) and reducing heavy fuel to approximately 7 percent (from 15 percent in 2004). In Romania, the optimization of oil and gas production will be achieved through partnerships with other operators in selected fields.

OMV Petrom announced earlier this year that exploration and production (E&P) activity will focus on securing long-term oil and gas supply and developing activities in the Caspian Region (Kazakhstan). According to OMV Petrom information, the company plans to invest RON 3.5 billion, about 50 percent of its total investment budget, in E&P. Renewable energy is one of the most attractive local industries to foreign investors and Austrian companies are no exception. The largest electricity producer in Austria, Verbund, plans to invest an estimated EUR 200 million in the construction of a 200 MW wind farm project in the Casimcea region. Works at the site are estimated to begin in June 2011.

BUSINESS REVIEW / September 27 - October 3, 2010

Verbund owns a 50.07 percent participation in the Romanian company Alpha Wind, which was acquired in December 2008 for EUR 2 million. Alpha Wind will develop a wind power project with a planned installed capacity of 150 MW. “In the course of the first-time consolidation, property, plant and equipment were estimated at EUR 3.7 million and non-current liabilities at EUR 6 million,” reads the company’s annual report. In December 2009, Verbund bought another Romanian firm, CAS Regenerabile , for EUR 3.4 million. In addition, equity capital totaling EUR 2.6 million was injected into the project company. CAS Regenerabile is to extend the planned wind power project in the Casimcea region by an additional 50 MW.

AUSTRIAN

INVESTORS KNOCK ON WOOD FOR FUTURE PROFITS

Kronospan, an Austrian wood panel producer for the furniture and construction industries, began its business in Romania back in 1998.

“Both industries have been very much affected by the economic crisis but there is still great potential and we believe that in 2011 the situation will improve. Anyhow compared to 2009, in 2010 we have already registered an increase of 20 percent in our turnover,” Oana Bodea, PR manager for Kronospan, told Business Review.

Last year the company finished a EUR 200 million investment in a production unit in Brasov which now employs 300 people.

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AUSTRIAN INVESTMENT REVIEW

COURTESY OF KRONOSPAN

The EUR 200 million investment in Kronospan’s Brasov unit was completed last year

“It was a very hard decision to invest in the production of construction materials at a time when the local construction industry was down. But our product in fact proved to be the best solution for affordable houses in times like these and we are proud to have the only factory in Romania which is producing wood based panels for construction,” Bodea added.

After investing a total of EUR 172.1 million in 2009, Kronospan plans to put another EUR 140 million into increasing the capacity of the factory in Brasov and the construction of a sawmill. “We have invested more than EUR 500 million until now and we employ over 700 people in Romania,” Bodea concluded. Elsewhere, Austrian wood-based material manufacturer Egger has been present in Romania since 2002. In 2006 the company finished a EUR 210 million investment in a unit in Radauti. Last year, Egger reported a positive evolution in Romania. “In 2009, Egger Romania had a turnover of approximately EUR 90 million and improved its profitability. The good financial figures have also influenced the profit of the company from Radauti, which was approximately EUR 4.1 million. The ongoing investments in Radauti will develop the efficiency of the plant and optimize production costs,” said company representatives.

For 2010 Egger has announced plans to continue the development of its plant in Radauti into an integrated production site, by investing approximately EUR 53 million in a glue installation and a biomass power plant that will create 50 new jobs.

An active player on the local construction market, Strabag has been operating in Romania since 1998. “There are fewer of them but there are still chances on the market. Nevertheless the field of construction is very difficult at this time due to the missing private investors and the effects of the financial crisis on the public sector,” Di20

ana Klein, head of corporate communications & investor relations and spokeswoman for Strabag SE, told Business Review. “There is a huge problem with the budget and payments from clients and therefore we have to be very careful with our investments in 2011,” she explained.

Among the setbacks in the local economic environment, Klein mentioned the difficulty in finding skilled workers, problems in tender procedures with unclear tender conditions and therefore a lot of appeals and huge delays for planned construction sites, missing or delayed payments from public authorities, the lack of legal security in court as well as an overall pessimistic atmosphere.

Locally the company is involved in various infrastructure improvement and building construction projects such as Asmita Gardens Residential Development (a contract worth EUR 100 million) finished last year, Cernavoda I Wind Farm (worth EUR 9.41 million) with a deadline in 2010 and the Metropolis office building in Bucharest (EUR 14.6 million) which was also delivered last year. Strabag has also signed a EUR 3 million deal with OMV for rehabilitation, maintenance and construction works at the Pitesti and Ploiesti refinery platforms which should be completed by the end of 2010. With approximately 75,500 employees, Strabag posted an output volume of around EUR 13 billion in 2009. Another important Austrian investment was announced last year by Voestalpine Group. The steel manufacturer plans to invest EUR 20 million in a steel service center in Giurgiu, southern Romania. Company representatives said that the plant will be finished in 2011 and by 2013, it is expected to reach a 130,000 ton per year production capacity. For the 2010/2011 financial year, Voestalpine Romania posted a EUR 44 million turnover, about 0.5 percent of the group’s total turnover.

BUSINESS REVIEW / September 27 - October 3, 2010

PROPERTY Second local Doubletree hotel to Sprider Stores opens outlet in Arad open in Bucharest next year

Hilton Worldwide has announced the signing of a franchise contract with VIS 7 Import Export SRL to open the first Doubletree Hilton Hotel in Bucharest, by refurbishing the Bucharest City Piata Unirii hotel. The works and opening are scheduled for the second semester of 2011. This will make the new unit the fifth in the Hilton chain in Romania and the second Doubletree hotel in Romania after the Oradea one, which is planned to open at the beginning of next year.

The refurbishment of the unit, which was previously operated under the Tulip Inn brand, is expected to cost around EUR 1 million, with the financing being provided by a loan from BRD. The Bucharest City Piata Unirii hotel, which opened in 2006, has 88 rooms and will be expanded in the next two years by 11 more rooms. The current occupancy rate is 50 percent and the hotel registered a turnover of EUR 1.7 million in 2009.

Hilton debuts its newest restaurant, Café Athenee Café Athenee opened last week, after the completion of the renovation works scheduled for 2010 at Athenee Palace Hilton. When asked about the investment in the café, Linda Griffin, the newly appointed general manager of the hotel, disclosed only the total sum invested by Ana Hotels this year for the hotel’s renovation, EUR 2 million. The food & beverage section of the hotel aims, however, to achieve a 10 percent business increase for the following year, as 40 percent of the hotel’s business comes from food & beverage.

The 200-sqm location’s menu focusBUSINESS REVIEW / September 27 - October 3, 2010

es on classical European dishes and beverages, as well as Hilton-specific cuisine.The opening of the Café Athenee completes the refurbishment of the hotel’s ground floor, along with the new main lobby and spruced up colonnades.

Griffin has also said that the renovation works will continue in early 2011, when the hotel’s main restaurant, Roberto’s, will get a facelift for its Italian concept.

The ground floor shop in the Calea Victoriei hotel will open sometime in November or December this year and is rumored to be a Prada store.

Corina Dumitrescu

COURTESY OF SPRIDER STORES

COURTESY OF HILTON

Bucharest’s Doubletree will be the second in Romania, joining one in Oradea

In 2011 Hilton is also expected to open its first local economy hotel under the Hampton brand in Brasov. Athenee Palace Hilton in Bucharest, which is controlled by businessman George Copos, and Hilton Sibiu, owned by Nicolae Minea, are other Hilton hotels operating locally. The Doubletree in Oradea will be run under a management contract signed with Calipso SA, a listed company owned by the investment firm SIF Banat Crisana.

The Doubletree by Hilton in Oradea is expected to offer 147 bedrooms, meeting facilities for up to 350 people, a restaurant, bar, thermal spa and swimming pool. The newly built hotel will be located approximately 1 km from the city centre in a green recreational area, close to Oradea’s main sites of historical and cultural interest, commercial center and international airport. Oradea will also get new highway infrastructure connecting it with Romania’s central cities, and neighboring Hungary.

Doubletree is part of Hilton Worldwide, a leading global hospitality company with more than 3,400 hotels and 550,000 rooms in 79 countries and more than 130,000 employees worldwide. The company owns, manages or franchises hotel brands including Hilton, Conrad Hotels & Resorts, Doubletree, Embassy Suites Hotels, Hampton Inn, Hampton Inn & Suites, Hilton Garden Inn, Hilton Grand Vacations, Homewood Suites by Hilton, the Waldorf Astoria and the Waldorf Astoria Collection, as well as Home2 Suites by Hilton.

Sprider Store came to Romania in 2007

Clothing retailer Sprider Stores has opened its first outlet store in Romania in Arad. This is the Greek retailer’s second outlet shop in the region after the one it operates in

Greece. The 1,000-sqm store is located in the Armonia commercial center in Arad.

It was opened after the refurbishment of space that the retailer already owned in the mall.

Sprider Stores came to Romania in 2007, when it opened its first store in City Mall. It currently operates 14 shops in Romania totaling 20,000 sqm, in cities such as Bucharest, Cluj, Timisoara, Buzau, Pitesti, Bacau, Iasi, Suceava, Oradea and Targu Mures. Since entering the local market, it has invested EUR 15 million in refurbishing its units in Romania. The group operates 115 stores in countries in the region such as Greece, Romania, Poland, Serbia, Cyprus, Bulgaria and Macedonia.

Magheru Boulevard 47th most expensive street in world Bucharest’s Magheru Boulevard ranks 47th in Cushman & Wakefield’s Main Streets Across The World 2010 report, with an annual rent of EUR 777/sqm, according to the real estate service firm. Magheru has fallen seven places since last year. Retail property rents in the country’s most important commercial streets are estimated to have dropped by 15 percent between June 2009 and June 2010.

Fifth Avenue in New York retained its position as the world’s most expensive shopping street for the ninth consecutive year, with an annual rent of EUR 16,257 while Hong Kong’s Causeway Bay came second. In Europe, New Bond Street in London leads the field, beating Avenue des Champs-Elysees in Paris.

In Europe, property rents declined

Magheru is down seven places since last year

by about 4.5 percent, while the most significant increases were seen in Latin America and the South Pacific region, according to the report.

Simona Bazavan

EUR 10 million bazaar-type commercial center to open in Piata Rahova in October

The new center is based on the bazaar concept

A bazaar-type commercial center will open in October in Piata Ra-

hova in Bucharest following a EUR 10 million investment made by former football player Gica Popescu.

The center, which is named Dolodora Bazaar, will host both engros and en-detail producers and importers. It is being built on a 12,300-sqm plot of land located in the south-west of Bucharest, and is intended to attract visitors from the surrounding neighborhoods – Rahova, Ferentari, Sebastian, Drumul Sarii, Antiaeriana, Margeanului – as well as from the outskirts of Bucharest.

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CITY

CONCERTREVIEW: Guns N’ Roses Guns N’ Roses play Bucharest, two hours and twenty years late?

Around 20,000 fans gathered at Bucharest’s Romexpo on the night of September 21 to watch one of the biggest bands in rock history perform.

From sixth-graders brought along by their parents to ageing rockers in their 40s and 50s, all came to see a live rendition of some of the 1980s and 1990s’ best known tracks, some with high hopes and most perhaps just out of curiosity to see what Axl’s new band was capable of.

At around 22.15 the concert, organized by D&D East Entertainment, began, one hour and 45 minutes later than scheduled. In the run-up, it seemed more like a social event at which small groups of people gathered to eat, drink and chat.

But to the rhythms of Welcome to the Jungle, the second song in the evening’s set-list, a more positive vibe began to assert itself. Throughout the concert, the audience rocked out more to the sounds of the band’s golden oldies than to more

Nicolae Grigorescu's Bullock Cart will be auctioned for over EUR 200,000 Works by Grigorescu, Luchian and Ressu, among other artists, will be put up for sale at the end of this month as part of a Romanian Impressionism and Postimpressionism auction organized

by Artmark. The art is worth over EUR 1 million in total, with the flagship piece being Grigorescu’s Bullock Cart, a painting estimated to be worth over EUR 200,000. The 127 works going under the hammer are on show in the Bucharest National Opera House, at 70-72 Mihail Kogalniceanu Boulevard, until September 30. The auction will take place at the same location on September 30. More info is available at www.artmark.ro.

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Over 200 chamber and symphony concerts are scheduled to take place as part of the George Enescu Philharmonic’s new season, which begins on September 23. In line with previous years, the diverse repertoire will include international as well as local compositions, some of which will be performed by special guests of international renown.

This year also sees a new general manager at the Philharmonic, Andrei Dimitriu, who will oversee new ideas and collaborations, ranging from educational projects to a limited series of Romanian chamber music performances.

The George Enescu Philharmonic is based at the Romanian Athenaeum, which opened in 1888 and is now one of Bucharest’s flag-

LAURENTIU OBAE

PETRU GROZA /D&D EAST ENTERTAINMENT

A Rose by any other name: Axl performed without several members of the classic 90s line-up

recent songs from Chinese Democracy.

All in all, the concert in Bucharest was the type of performance a fan would have regretted missing. Sure, Axl is older and heftier and his voice could have been better. His band, however, shamelessly went through the hits made famous by Slash, Duff McKagan, Izzy Stradlin and Steven Adler, giving exemplary, yet lacking in the original soul, renditions of the likes of Don’t Cry, November Rain, Nightrain, Live and Let Die, Knockin’ on Heaven’s Door, Paradise City, Rocket Queen and even the more recent effort Better.

Organization attracted complaints from some ticketholders, due to the unfortunate positioning of the scaffold tower from which the concert was filmed, the large queues that formed at the insufficient lavatories, as well as the chaotic entrance procedures. Moreover, the concert suffered from a poor sound system, which saw spectators easily able to carry on a conversation during the show without too much effort.

At the end of the over two-hour extravaganza, after a dignified performance that saw a friendly Axl Rose in good form, one might wonder: what happened to the man who could raise entire stadiums through his riotous shouting and anti-establishment behavior? It’s in this man’s hands, however, whether or not this new band will continue the legacy of its legendary name, as it appears to have plenty more to say and to offer.

But Axl, don’t wait ten years to make another statement, it might be too late!

Read the entire review on www.business-review.ro/city/.

Corina Dumitrescu

George Enescu Philharmonic starts 2010-2011 program

Over 200 concerts are scheduled

ship buildings. To mark the start of the new season, the Philharmonic has launched a new version of its site, also available in English: www.fge.org.ro Corina Dumitrescu

Fans left Right Here Waiting for Richard Marx in vain

The show must not go on: singer Richard Marx

RICHARD MARX’s concert in Romania, which was due to take

place on November 1, has been canceled, with the organizers blaming logistical issues. Similar problems have caused the production team to call off several other shows across Central and Eastern Europe. Ticketholders for the concert, which was to have taken place at Sala Palatului, can claim refunds at the point of sale between September 27 and October 26.

Organizers have announced that negotiations are taking place with the artist’s management in order to reschedule Marx’s Romania gig.

Corina Dumitrescu

Film fans get over 80 independent productions at RO-IFF Over 80 independent films, documentaries and alternative productions will be showcased as part of the Romania International Film Festival (RO-IFF), between October 1 and 10. The films will be screened at several cinemas across Bucharest: Scala, Eforie, Corso and Muzeul Taranului Roman (the Romanian Peasant’s Museum). Entrance throughout the festival is free of charge. RO-IFF, the Romania International Film Festival, began in

2005 and focuses on the film industry of the Black Sea region (Russia, Republic of Moldova, Ukraine, Georgia, Armenia, Azerbaijan, Bulgaria, Turkey, Greece and Romania).

Since 2009, it has had a special Women in Cinema section. As previously announced, RO-IFF will also feature two concerts, ABBA Generation on October 3, at Sala Palatului, and Oscar-winning composer Nicola Piovani, on October 9, at Sala Radio.

Corina Dumitrescu BUSINESS REVIEW / September 27 - October 3, 2010