Business Review Issue 25, July 6-12 2009

THE ROMANIAN CENTRAL BANK SLASHES THE KEY INTEREST RATE; SEE PAGE 4 NEWS

Swiss Alpiq Holding has taken over local electricity distribution firm EHOL, which holds the largest portfolio of industrial customers See page 5

FEATURE

Unlike its neighboring countries, Romania knows little about the spa concept, with only a few investors putting their money in spa centers See pages 8-9

ANALYSIS

Companies dig deep to replace executives, to the joy of executive search firms, which form a market segment with growth potential See pages 10-11

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ROMANIA’S PREMIERE BUSINESS WEEKLY

JULY 6 - 12, 2009 / VOLUME 14, NUMBER 25

COSMOTE ZAPPS LOCAL MARKET

See page 6

LAURENTIU OBAE

Greek telecom operator Cosmote has taken over competitor Zapp in an expected EUR 270 million transaction which brought the buyer a 3G license and a few steps up on the local telecom ladder

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JULY 6 - 12, 2009 / VOLUME 14, NUMBER 25

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BUSINESS REVIEW / July 6 - 12, 2009

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NEWS

BRIEFS PEHART TEC COMPLETES EUR 40 MILLION INVESTMENT é Industrial product maker Pehart Tec has completed a EUR 40 million investment in a production facility delivering tissue paper and a completed products converting line, in Petresti, Alba county. In 2007, the company invested EUR 15 million in the final investment stage of EUR 26 million. Pehart Tec SA Petresti is part of local company MG-Tec Grup SA.Dej, which comprises 13 companies with production activities, a group controlled by businessman Ioan Tecar. MG-Tec Grup ended 2008 with a turnover of EUR 125 million, an increase of 42 percent over 2007. This year, the businessman plans to maintain a turnover level similar to last year’s.

CONTINENTAL HOTELS PLANS DEVELOPMENT IN ARAD é Romanian hotel chain Continental Hotels plans to develop a hotel complex in Arad in partnership with the local council, according to local information. The company has secured some EUR 1.5 million for this project, which should deliver a twostar hotel with 112 rooms and a three-star one with 144 rooms, besides other facilities, including a sports arena. The land on which the complex will be built covers almost 5,000 sqm and is privately owned.

INTERAGRO ESTIMATES 30 PERCENT FALL IN TURNOVER TO EUR 700 MILLION é The Interagro group of companies, owned by Romanian businessman Ioan Niculae, plans to achieve a turnover of EUR 700 million this year, representing a fall of 30 percent compared with the result in 2008, according to the company.

4

The Romanian Central Bank (BNR) has taken yet another step in relaxing conditions for the local banking system in order to help re-launch lending, dropping the key interest rate by 0.5 percent to 9 percent last week. The bank has also lowered the mandatory minimum reserves by five percentage points, to 35 percent, for passives and by three percentage points, to 15 percent, for deposits in the Romanian currency. According to the BNR, the interest rates used by banks on the Romanian market are still disconnected from the key interest rate.

“The Central Bank believes these decisions will help in ensuring an adequate level of liquidity and the gradual return to interest rates used by commercial banks both for loans and deposits closer to the monetary policy interest rate,” read a BNR statement. The bank has seen a significant slowdown in the increase of lending to the private sector, with the figure reaching a seven-year low. BNR governor Mugur Isarescu believes bank interest rates will drop as rapidly as the current account deficit has, and that banking installments will be lower after the summer holiday.

In response to the BNR move, several banks have cut interest rates. The largest Romanian lender BCR has lowered interest rates for RON loans to cor-

LAURENTIU OBAE

this project and recently completed

BNR slashes key interest rate, expects lower bank rates by fall

Banking rates are expected to drop this fall

porate clients by three percentage points, depending on the type of interest, duration and the borrower’s risk profile. The new interest rates for these customers, applicable from July 1, start from 13 percent. The bank has also lowered the interest rate by 0.5 percentage points for companies’ deposits in RON and EUR, to 11.5 percent a year for RON and 3.8 percent for EUR. Interest rates for individuals’ deposits have been cut by between 0.25 and 1.75 percentage points for RON and by 1 percentage point for EUR. Meanwhile, the BNR's foreign currency deposits amounted to EUR 26.4 billion at the end of June, a EUR

Bucuresti Turism expects to recoup Le Bistro investment in six years Bucuresti Turism, owner of the newly refurbished restaurant Le Bistro inside the Centre Ville hospitality complex, expects to recover its EUR 2 million investment in reopening the restaurant in about six to seven years. The eatery expects a turnover of EUR 850,000 in the first year of operations since refurbishment, and in the second, around EUR 1 million, according to Yaron Ashkenazi, general manager of Centre Ville. It is expected to return a profit of 30 percent of its turnover each year, according to the manager.

At the moment, 60 percent of the unit's revenues come from guests of the Centre Ville hospitality complex, with the rest coming from outside, but the manager hopes to switch the figures so as to generate around 60 percent of the restaurant's revenues from customers who are

not guests of the facility.

While the effects of the financial crisis on consumption in Romanian restaurants have generally led to diners spending less, Ashkenazi says the value of the average bill paid by Le Bistro customers in fact increased in the first half of this year compared to the last. Before the renovation, which started in 2008, the restaurant had a total capacity of 106 seats, while now it holds 224.

The restaurant serves breakfast for the 300 guests of the Centre Ville aparthotel complex.

The facility has 293 apartments on some 95,000 sqm, and is part of the same hotel complex as the fivestar Radisson Blue hotel on Calea Victoriei in Bucharest. With an occupancy rate of 92.2 percent, Centre Ville Aparthotel posted a turnover of EUR 8.2 million last year.

Corina Saceanu

386 billion fall since end of May. Romania recorded a budget deficit of 2.7 percent of GDP in the first half of 2009, close to the target set under the deal with the International Monetary Fund, according to the finance minister, Gheorghe Pogea. “We are 0.03 percentage points below the IMF target, so we can say that so far, we have fulfilled our commitments,” said Pogea.

But the Romanian economy contracted by 6.2 percent in the first quarter of this year, a higher figure than analysts predicted. The economy may further shrink by more than the IMF has projected, which was four percent for this year, and could undergo a significant contraction in the second quarter, BNR deputy governor Cristian Popa has said.

The Royal Bank of Scotland has included Romania on a list of eight Eastern European countries which might default on their debt after years of “gorging on cheap credit.” The RBS report says that Eastern Europe has generally suffered from sizeable current account deficits and excessive foreign borrowing, and hence has large external financing requirements in relation to foreign exchange reserve positions. These economies may suffer a very hard landing because of rigid exchange rate systems, RBS analysts added.

Corina Saceanu

Elmec opens three new stores Retailer Elmec Romania is adding three new stores in Constanta, under the Nike, Miss Sixty&Energie and Folli Follie brands, the firm has announced.

The Nike store has already been opened in City Park shopping center in Constanta, where the two others stores will also open in July. Elmec Romania, which is part of Greek group Folli Follie, has been taking over and expanding the existing jewelry stores under the Folli Follie brand since 2007 in Romania, reaching four stores so far. The Nike store network in Romania has reached 23 in total, with two shop-in-shop stores and three outlets. Elmec has also increased its network of stores under the Famous Brands name. The new Miss Sixty&Energie and Folli Follie shops will increase the number of Elmec's mono-brand stores in Romania to 14, which join the six existing multi-brand stores and two gallerias. Elmec owns the Nike franchise for Romania, having recently extended the distribution contract to 2011.

Corina Saceanu BUSINESS REVIEW / July 6 - 12, 2009

NEWS

Alpiq acquires Romanian EHOL

COURTESY OF ALPIQ

With the takeover, Alpiq has further expanded on the South-East European electricity market

Aare-Tessin for Electricity, a company of Alpiq Holding Ltd., has taken over the local energy provider EHOL Distribution, which has a large portfolio of industrial customers in Romania.

The Swiss company was advised on legal aspects of the deal by law firm Schoenherr.

With this takeover, Alpiq has become one of the top three end-customer providers in Romania and has further expanded its position in the South-East European electricity market. The price of the transaction was not disclosed.

EHOL Distribution, formed through the transfer of contracts and

Rilvan moving firm sees more expat relocations on lower real estate costs Rilvan Moving & Relocations posted last year a turnover of EUR 2 million from its activities in Romania and Moldova and in the near future would like to expand to countries such as Bulgaria and Ukraine through a regional strategy development with its partners for Eastern Europe. Revenue for 2009 is difficult to predict due to abnormal market trends, Edgar Prates, business development manager with Rilvan, tells Business Review. This year, the firm's relocation division saw decreasing business volumes, but due to falling real estate costs, new clients were attracted, which brought a balance, according to Prates.

On the other hand, the moving division saw a lot of intra-regional movements, as many expats have been leaving Ro-

mania, he says. “We’re also seeing companies taking advantage of lower real estate prices and bringing expats to stay here for the long run, for the time when they will consolidate their operations,” adds Prates. The group also includes the freight forwarding and customs clearance divisions, which operate in Bucharest, at Otopeni airport, and in Constanta. The business now under the Rilvan brand was created in 1992 by Romanian entrepreneur Dorin Chirila, who is also the general manager of the firm.

The firm partners with Allied Pickfords for Romania for the moving business, and has agreements with other major networks such as Eura and Brookfield for dedicated relocations services, according to Prates. é

Oltchim gets state guarantee for Arpechim takeover Negotiations with Petrom over the takeover of petrochemicals business Petrochemical Arges (formerly Arpechim) could be completed within a month, said Constantin Roibu, CEO of the largest Romanian petrochemicals group Oltchim Rimnicu Vilcea.

According to media reports, the finance ministry will provide a state guarantee amounting to EUR 49.6 BUSINESS REVIEW / July 6 - 12, 2009

million.

Following this, Oltchim could receive a loan of EUR 62 million to take over Petrochemical Arges and invest what is needed to restart the plants that are now at a standstill.

For the entire investment program further aid is being considered, provided the EU authorities give their approval.

Dana Ciuraru

clients of the best known Romanian energy intermediary, Energy Holding, employs 13 people and supplies medium to large industrial customers and distributor companies. It has a significant share of the Romanian end-customer segment and also provides energy services in the field of metering data provision. In the end-customer market, EHOL will operate with Buzmann Industries, which is active in the medium-sized industry customer segment.

The complete sales portfolio of Alpiq in Romania will be optimized in cooperation with the firm’s Romanian wholesale trader, Atel Energy Romania.

Alpiq Holding is the leading Swiss energy trading company and the largest energy services one. It was formed at the beginning of this year through the merger of the two energy pioneers Atel Holding and Energie Ouest Suisse (EOS).

Dana Ciuraru

Consumption up 18 percent in first quarter on higher prices Despite the effects of the financial crisis, Romanian consumption of household goods rose by 18 percent in the first quarter of this year compared to the same period of the last, with the increase being fueled by higher prices and bigger shopping baskets. Prices went up by 10 percent during this period, and the shopping basket by 7 percent, according to research by research firm GfK. Essential food items stayed on consumers' shopping lists, despite costing 8 percent more. Shoppers purchased higher quantities of non-food products but in rarer shopping sprees.

Most sensitive to price increases were shoppers in the Moldova area, while in Bucharest the consumption of goods is still on an upwards trend.

Another reaction to the tough times was a drop in sales for neighborhood and traditional stores, as consumers went for special offers and promotions in modern retail formats, such as hypermarkets.

The company conducted the research on 2,200 households at national level. GfK Romania posted a turnover of EUR 9.1 million last year.

The firm has 130 branches across the world.

Corina Saceanu

BRIEFS DEPOZITUL DE CALCULATOARE POSTS 40 PERCENT LOWER TURNOVER é The turnover of local Depozitul de Calculatoare IT&C retail network, operated by CNDPI Romsoft, posted a fall of 40 percent in the first semester of 2009 compared with the same period of 2008, to reach EUR 42 million, according to company officials. The firm posted the year’s first increase in June, recording a 4 percent rise over May. By the end of 2009, the company’s representatives estimate the local IT&C industry will have stopped shrinking and anticipate a growth of 30 percent in sales by that time. Between September 2008 and March 2009, 35 Depozitul de Calculatoare stores were closed due to high rents and low sales.

ETA2U SPENDS EUR 500,000 ON OPENING 13 IT SHOPS IN ROMANIA é Western-Romania based IT products distributor ETA2U has recently opened its fourth store in Timisoara, taking total investments in its 13-shop network to EUR 500,000, company officials said. The investment in opening the most recent unit is estimated at EUR 50,000.

ETA2U Computer Store, the company’s retail division, posted a turnover of EUR 5.5 million in 2008, a growth of 10 percent over 2007.

The company has shops in cities such as Timisoara, Arad, Oradea, Cluj, Deva, Targu Mures and Alba Iulia.

5

NEWS

Cosmote takes over Telemobil in Romania The official acquisition of Telemobil (Zapp) by Cosmote upsets the balance of power on the local telecom market. Cosmote, until now the third player on the market and the only one which did not have a 3G license, has now become a competitor to be reckoned with for Orange and Vodafone on all fronts, not merely voice. The firm has delivered on its promise to make the acquisition of a 3G license one of its top priorities. But the transaction has yet to be approved by the relevant authorities.

By Otilia Haraga

6

LAURENTIU OBAE

Cosmote Group signed last week in Bucharest the agreement for the takeover of Telemobil SA (Zapp). According to officials from the two companies, the firm paid EUR 207 million. It is taking over 100 percent of the shares of Telemobil SA which amounted to EUR 61 million (a sum equal to Zapp revenues in 2008), as well as Zapp’s debts and obligations, estimated at approximately EUR 146 million, of which the majority represents the costs of expanding the 3G and CDMA networks. The purchase agreement was signed by Michael Tsamaz, CEO of Cosmote Group, and Nadim Akkaoui, director of corporate finance and member of Saudi Oger Group.

Cosmote had as financial consultants Citigroup Global Markets Limited (CITI) and NM Rothschild and Sons Limited. The Telemobil financial adviser was BNP Paribas Fortis, London, which has financial consultancy exclusivity in its relations with Saudi Oger, and Norton Rose LLC, London.

Telecommunications consultant Nicolae Oaca tells Business Review this transaction was a long time coming, since acquisition attempts go way back, even before the Telemobil takeover by Saudi Oger.

“Finally! We will have competition on the 3G services market when the 3G network has competitive coverage.

Until now there has been a duopoly (Orange and Vodafone) since the other two players who own 3G licenses practically do not matter: RCS&RDS does not offer 3G services (it only offers voice) and Telemobil, with a small coverage, was not a real competitor.

Competition is in quality and quality means first of all coverage – the capacity to offer the service everywhere the user goes,” says Oaca.

He adds that the move can only be beneficial for Cosmote. “3G services mainly target users with revenues for

The EUR 270 million transaction, yet to be approved by Romanian competition authorities, brings gives a 3G licence, a move that was a long time coming, according to pundits

whom mobility brings value: customers from the business environment but not only them. Developing a 3G national network, Cosmote will be able to compete with the two large operators for customers in the business environment, which will lead to an increase in the number of these clients and especially of the average revenue per user,” says Oaca. He explains that OTE Group, the owner of Cosmote, is a group with a strong regional presence.

Its shareholder structure took in Deutsche Telekom more than a year ago, a prominent international, not only European, group.

“It is to be expected that the stake Deutsche Telekom owns in OTE will increase so it would be best to talk about DT (T- Mobile) in Romania, and not about Cosmote. DT is a very serious competitor! It will be a competitor to reckon with for Orange and Vodafone. Only now will we be able to talk about competition in Romanian mobile communications,” says Oaca.

Zapp is the oldest mobile operator on the local market, having launched commercial operations in 1993. Currently, it owns a CDMA license on the

wavelength 450 MHz and a 3G license on 2100 MHz. The company’s 3G network has coverage over 23 cities in Romania. Zapp won its 3G license in 2007. The firm’s revenues in 2008 amounted to EUR 61 million and the company had a subscriber base of 374,000. This is the first time when official figures revealing Zapp Romania’s revenues and number of customers have been released, after two years when the company kept these aspects secret amid media speculation that the number of customers had dropped significantly below the figure of 500,000 that it had announced in 2007.

“This transaction comes after a period of investments in the infrastructure of the company, during which time we carried out major expansion works in the coverage area and launched new services in partnership with China Development Bank and ZTE Corporation.

Zapp Romania has made important progress in developing the 3G and EV DO networks, and now has a coverage of over 70 percent of the Romanian population in the supply of high-speed mobile data,” said Akkaoui.

Oaca explains that Zapp had not been able to attract too many customers because it offers 3G access to a small section of the public and CDMA services (voice and internet) with a better coverage. After 3G coverage increases, Cosmote will be able to offer the entire range of mobile services, probably under the brand T-Mobile, that the top two operators offer today: voice but especially high-speed internet, says Oaca.

“Mobile telephony is a global business and an operator without such a span does not have chances of success.

The synergies of a group with a global presence are very important in today’s competition. With a presence in few countries and especially as it is based on CDMA technology, which has proven to be a technological island, the group had two choices: sell or to expand. It made the easiest choice: the first one,” says Oaca.

However, the transaction still has to be approved by the relevant authorities. In an official statement sent to Business Review, Orange Romania expressed its position on how this transaction would affect the telecom market. “We notice that this consolidation move has made the RomtelecomCosmote group concentrate a significant amount of spectrum resources, among which we mention both CDMA licenses in Romania and the 3G license. The accumulation of this high number of licenses means the Romtelecom-Cosmote group has, aside from its dominant position on the fixed access market (the local loop), a similar position on the mobile access market. We are waiting for the authority for regulation and the Competition Council to solve the situation of the CDMA licenses and the local loop as soon as possible,” said Dorin Odiatiu, marketing director of Orange Romania.

Vodafone Romania officials, who were also contacted, did not state any official position regarding this transaction by the time Business Review went to print. ■ BUSINESS REVIEW / July 6 - 12, 2009

CALENDAR / WHO’S NEWS

Microsoft to launch Windows 7 locally this fall

COURTESY OF MICROSOFT

Calin Tatomir, GM of MIcrosoft Romania

The Romanian version of the new Windows 7 will be launched on

October 31.

Calin Tatomir, general manager of Microsoft Romania, told Business Review he expects the new operating system to be adopted quickly and with no difficulties by Romanians.

The Microsoft Romania GM added that he expects both users of Windows Vista and Windows XP to use this new system.

When asked whether he expects to encounter difficulties as in the case of the Windows Vista system, which met some negative feedback from users at first, Tatomir said that, as usual, a new system takes time to get used to but that he is confident that Windows 7 will perform very well on the Romanian market.

Microsoft Romania will end the fiscal year with a 10-15 percent decrease in business as a result of the effects of the economic financial crisis.

Otilia Haraga

CEZ takes EUR 262.35 million loan for wind park in eastern Romania CEZ Romania, the local unit of the largest Czech utility CEZ, has signed a EUR 262.35 million agreement for the 600 MW wind power park to be built in eastern Romania.

The loan is guaranteed by the German Export Credit Agency Hermes and matures in 15 years.

The purpose of the loan is to finance the export contract with a multinational supplier of German equipment used to build the wind park.

The project is evaluated at EUR 1.1 billion and CEZ is currently negotiating with the European Investment Bank (EIB) for a EUR 200 million loan.

CEZ Romania acquired from Continental Wind Partners (CWP) the largest wind power park in Europe, at Fantanele and Cogeleac, close to the Black Sea. Despite the current economic crisis and elusive financing, CEZ Romania has recently said it has not postponed the projects in which it is involved in Romania: the two wind farms in Fantanele and Colgeac, EnergoNuBUSINESS REVIEW / July 6 - 12, 2009

clear and the joint venture with Termoelectrica in Galati.

According to CEZ information, when the wind power plant becomes fully operational it will cover 30 percent of the total renewable energy produced in Romania, including hydro energy.

According to the Czech firm, Eneria will manage the project, construction will be done by Viarom, part of Eurovia France, and the electrical work by EnergoBit. GE Energy will supply 139 wind turbines to the CEZ Group for the 347 MW project in Tulcea. According to GE officials, the contract value, in this first stage, is around EUR 400 million.

The European Wind Energy Association says Romania had eight MW of installed wind power capacity at the beginning of 2008. The government has set a goal to add 200 MW of capacity by the end of 2010. The Fantanele project will enable the country to surpass that target.

Staff

WHO’S AURA DELEANU joined Vasile Deleanu - Attorneys at Law recently, in the insolvency department, after three years of working at the Ministry of Public Finance. She is a member of the Bucharest Bar Association, Romanian Union of Insolvency Practitioners, Insol Europe, and authorized mediator.

NICOLETA REITU joined Altex Romania as chief financial officer. She has 15 years of experience in the financial domain.

Before becoming part of the Altex executive team, she was financial manager at Bayer SRL, the local office of German group BAYER. She also was financial manager at Fresenius Medical Care Romania SRL, the local subsidiary of the company of the same name. She is a graduate of the Academy of Economic Studies in Bucharest and also graduated from an Executive MBA program in 2007 from Asebuss in partnership with Kennesaw State University in the USA. SOTIRIOS MARINIDIS, currently general manager of P&G Ukraine, was appointed general manager of Procter& Gamble Romania. He started his career in P&G in 1990 in customer business development in Schwalbach, Germany. Between 1991 and 1993 he was assistant brand manager. He then was promoted to brand manager in the company’s offices in Jeddah, Saudi Arabia between 1993 and 1995, then in Athens, Greece between 1996 and 1997. Later, he was

NEWS marketing manager in Greece between 1997 and 1998 and Belgium between 1998 and 2000. Before taking charge of the Ukraine office, he worked as marketing manager in Moscow.

MICHAEL SCHROEDER will leave Burda by the end of July after six years in office. Between 2003, when he took over the company, and 2008, Burda multiplied its turnover fourfold and advertising revenues sevenfold. During his tenure, Schroeder oversaw the acquisition and integration of Casa Lux. SANDI APOSTOLOIU was appointed as new general manager of Burda Romania. He has behind him a successful track record within Burda, having been appointed vice general manager in 2008. Apostoloiu is replacing Michael Schroeder, the general manager of Burda for the last six years, who will be leaving by the end of July.

STIJN GANSEMANS was appointed a jury member of ADOR festival.

He is the founder of the advertising agency Openhere which he started after working for a series of independent Belgian agencies, the last of which was Duval Guillaume where he worked as cocreative director.

JOHAN ELSNER was appointed a jury member of ADOR festival.

He has worked for 20 years in advertising, having started his career as junior art director within Y&R in Stockholm in 1986. He has worked for local and global clients and has coordinated over 100 TV productions.

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

Feel free to contact us on 206 0680 (10 lines), by fax at 335 3474 or e-mail: otilia.haraga@bmg.ro 7

FEATURE

By Otilia Haraga

COURTESY OF EDEN SPA

Pooling profits: The spa concept is not well known in Romania and attracts fewer investors than in neighboring countries

Investors not relaxed enough to put money in spas Although Romania boasts more thermal waters than most countries, which could allow the existence of a flourishing spa industry, the reality is totally different. The spa concept is scarcely known and exploited in Romania, and neighboring countries are way ahead. Investors shun the prospect of putting their money into something that only breaks even after five years.

8

Just two months ago, the largest spa in Romania, Cocor Spa, was launched inside the Cocor Hotel in the Neptun Olimp seaside resort.

This destination spa, which covers a surface of 3,000 sqm, was opened following an investment of EUR 6 million. Cocor Spa became a member of the International Spa Association in February.

However, this does not cover the shortage of such relaxation oases in Romania.

“The lack of spas with international renown is the main reason,” explains Oliver Petcu, managing director of CPP Management Consultants Ltd. Once such a spa exists, he is convinced that values will be established and mentalities change.

The lack of local or international investors who are willing to put their money in opening a spa could be explained by the fact that it requires a large initial investment and the break even only comes four or five years later in the case of top spas under franchise, says Petcu.

On the other hand, Liliana Paraipan, general manager of Eden Spa and also general manager of Mondo (a spa business management and consulting company), thinks it is a matter of supply and demand.

“The spa concept is relatively new in the world, and I think Romania is making quick strides in catching up with the worldwide trends. As more and more Romanians start to feel the effects that their extremely fast-paced and stressful lifestyle has on them, more will look for services that offer them the escape, re-balance and relaxation of the spa. At the moment new locations are being opened, investments exist, and the market will increase proportionally, both in terms of supply and demand,” says Paraipan.

The Czech Republic is by far the country with the highest number of spas, located in Prague and Karlovy Vary. A distant second is Hungary with spas in Budapest.

Over 60 percent of the clients who come to spas in these two countries are foreigners.

“Neighboring countries have a greater number of spas which also started to develop some time ago,

and those markets are mainly growing in quality. The concept of a spa is familiar to inhabitants of these countries but most such facilities attract foreign clients as they are located in resorts or hotels,” says Paraipan.

Currently, the local market is estimated by CPP Management Consultants at EUR 40 million. At the moment, two projects have been announced: E’SPA at Radisson Poiana Brasov, which is on hold, and Shiseido at Stejarii, a project of Tiriac Imobiliare, which is going “according to plan, according to our information,” says Petcu.

“Among the brands that have confirmed their interest in Romania to CPP are Molton Brown, Givenchy, L’Occitane and Caudalie,” he adds.

“For now I cannot make an estimation regarding the value of the market, taking into account that only a few spas have been open for more than a year, and the market is only now beginning to take shape. I would say we will find a relevant figure for this market at the end of this year or the beginning of the next,” says Paraipan.

Research by CPP Management Consultants has found that spa customers work mainly in middle and top management in multinational companies (80 percent of this category are women), especially in pharma and banking; others are entrepreneurs (of whom 60 percent are women) and have businesses directly or indirectly connected to luxury. The segment of celebrities (artists) is insignificant.

Paraipan expands this profile of the spa customer. They are generally young (56 percent aged between 26 and 35 years old; 23 percent aged between 36 and 50 years old and 12 percent aged between 18 and 25 years old), 80 percent of them have superior education and work in a stressful environment in middle and top management.

Most are health-conscious (67 percent are non-smokers and 66 percent drink at least one-two liters of natural mineral water a day).

There is also one peculiarity: 75 percent of spa goers – though they may sleep from six to eight hours a day and do not suffer from insomnia – complain they do not BUSINESS REVIEW / July 6 - 12, 2009

FEATURE

COURTESY OF EDEN SPA

Liliana Paraipan, general manager of Eden Spa

enjoy restful sleep.

A sizeable majority (75 percent) of regular spa users seek relaxation, toning and detoxification. Last but not least, 41 percent also work out regularly and need an escape from the hectic pace of

BUSINESS REVIEW / July 6 - 12, 2009

daily life.

“These are people who invest time and money in anti-stress rituals and therapies, to the tune of RON 150-1200 a month. Most clients who come to Eden Spa have a sedentary lifestyle and are affected by long periods of sitting down. They want to escape and spend time being spoiled, to smell appealing aromas and leave their worries at the door. The most popular services are relaxing massages with volcanic rocks, rituals and wraps,” says Paraipan. Prices range from RON 140 for a 50minute massage to RON 300-400 for a relaxation ritual lasting two hours.

The daily Eden Spa center in Bucharest welcomed approximately 3,000 clients between May 2008 and May 2009, of whom 1,200 were new clients. Of these, most were women and only 20 percent men but this category is also developing. “We mainly target Bucharesters but 15 percent of our customers are expats who live in the capital,” says Paraipan.

“Last year Eden Spa posted a

turnover of around EUR 225,000 but for 2009 we think it will fall, taking into account that sales to companies have substantially reduced,” says Paraipan.

Eden Spa is also in charge of the operational management of The Spa Hilton Sibiu.

In the first five months since it opened, 1,000 new clients went to The Spa, with an average of 600 therapies given a month. Romanians make up 85 percent of the total clientele and foreign customers 15 percent.

The investment that hotel owner Nicolae Minea put in The Spa amounts to EUR 4 million. “According to estimations, the aim is to recover the investment within three-four years of the opening,” says Paraipan.

“The Spa Hilton Sibiu opened in December 2008, in the midst of the financial crisis. We cannot make a comparison with what was before the crisis,” says Paraipan.

The cost of a two-hour ritual ranges between RON 200 and 250, a 50-minute massage is RON 90 as is an anti-stress bath.

“Since we address both hotel

guests and local residents, we have combined the characteristics of a destination spa with more complex packages that are offered during a longer stay and packages of therapies that can only be applied in one day. The Spa offers a wide range of water therapies, various types of massages adapted to the therapeutic and relaxation needs of the customers, corporal therapies such as exfoliation and wraps with various aims in mind such as intense hydration, reducing the effects of old age, reducing rheumatic aches and detoxification. The Spa also offers more extensive rituals of relaxation and detoxification.

VIP packages are offered to those who opt for one of the following: the Cleopatra ritual (a bath in milk and honey, literally, followed by a royal massage), HoneyMoon Ritual for couples on their honeymoon, the Rose Ceremony for a young and delicate skin and the Wine Spirit of the Spa, a care ritual based on grapes and wine exclusively for men. otilia.haraga@business-review.ro

9

ANALYSIS

STOCKEXCHANGE

Head hunting high and low: Companies have to pay not only large packages for their executives, but big sums to get them on board in the first place

Companies dig deep to bring new execs on board The cost of replacing top managers may be high if the employer uses an executive search firm, with fees usually connected to the pay package of the executive sought. But hiring the wrong candidate can be even costlier, prompting firms to hire head hunters to do the job and offer guarantees they’ve picked the right person. The local executive search market is still under-developed and has the potential for further growth, say experts.

By Corina Saceanu

MANAGEMENT

A top management reshuffle during times of crisis may be a need for some companies or come as a surprise and additional hassle for others, but in each case, most management changes cost companies money. Several local and foreign companies active in Romania have changed people in top positions since the beginning of the year, and some are in the process of recruiting new staff for executive positions.

A company can take the cheaper way of promoting managers from within, or the more expensive one of hiring an executive search company to do the job. “The expert professional service may be pricey, depending mainly on the difficulty of the assignment, with minimum fees between EUR 30,000 and EUR 50,000, which usually represent one third of the annual gross salary package of the candidate to be recruited,” Dana Patrichi, managing director

10

RESHUFFLES COME AT A COST...

of executive search firm Alexander Hughes, tells Business Review.

But, she adds, “Executive search […] is worth much more than it may cost and this is why more than two thirds of our activity is repeat business.”

Head hunter George Butunoiu outlines a slightly lower price range. “The fees of executive search firms I think have stayed at similar levels to last year, from EUR 10,000 to EUR 30,000. The highest ones are exceptions,” he tells BR. In a tougher business environment, some companies have started to put pressure on executive search firms to cut fees. “I have heard of clients pressing recruitment or executive search companies to reduce tariffs or even work on a success fee. None of our clients have asked us to do this, which makes me confident we will get through the crisis with a similar business level to last year,” says Butunoiu. His executive search firm posted EUR 750,000 in turnover last year.

Other firms are also feeling the pinch. “We have indeed been stimulated to become more innovative due to the drop in business volumes, but our fees have always had fair margins, maybe among the lowest on the market, even thought our fees are in the highest quartile. I like to interpret the quality of our clients (mainly blue chips), the size of the roles we are given to fill and the high amount of repeat custom as a sign of very good value for money [...], and as a consequence we have not needed to lower fees,” Radu Manolescu, managing partner with K.M. Trust & Partners, tells BR. According to him, a standard search costs around a third of the first year’s gross cash compensation of the hired executive and normally applies to professionals with packages above EUR 75,000 a year.

“The fee for executive search is set between 25 and 100 percent of the annual salary where the search is conducted internationally for leaders of multinational organizations, like the CEO of a bank or insurance or telco company,” says Joerg Keplinger, managing partner at Williams and Partners executive search firm. For lower level positions, replacement costs 30 to 40 percent and for executives, 50 to 60 percent of the annual salary, he adds. “This includes the costs of the change, the hiring, search, introduction and training costs until the new person is at the same performance level as their predecessor,” says Keplinger.

However, the high prices do not always reflect the quality of the service, according to pundits. “What amazes me is that most selection and recruitment

firms charge almost the same fees as top executive search firms and get away with it. I believe we will see less of this in the future. It was too easy before the recession and inexperienced firms earned exorbitantly high fees without having the right qualifications to undertake this advisory role,” Ulrik Rasmussen, partner with executive search firm Pedersen and Partners, tells BR. “Before October last year, the fees were around 30 percent of the annual gross salary of the position but now the executive search players have to adapt or face the difficulties. Arthur Hunt fees are flexible as we are looking for partners rather than clients. That means we count on a retainer and we consider ‘success fee’ type of collaboration for a simple delivery, while executive search is much more of a relation,” says Sorin Roibu, managing director of the Bucharest office of Arthur Hunt. “The fees in 2009 are coming under a lot of pressure and in some cases are down by as much as 50 percent,” he goes on.

...BUT A WRONG HIRE IS EVEN COSTLIER

While it may seem expensive to use these services, employing an unsuitable candidate can be far dearer, say head hunters. “Hiring a wrong executive is a huge cost estimated by various sources to be between three to five times the executive’s salary, plus benefits. However the damage caused by employing a wrong person for a firm’s strategic position goes far beyond financial figures,” says Rasmussen.

Among the direct costs are the recruitment process, advertising and marketing, training, possible relocation and transportation costs, while the indirect expenses include lost opportunities or hidden costs such as time spent recruiting, potential employee and client turnover or loss, failed product launches, lower productivity and missed deadlines both during the search process and in the first few months after the start of the contract, he outlines.

The candidate is also affected.

“There are risks not only for a company in hiring a wrong executive, but also for the executive him- or herself. Offering a new exciting opportunity, transferring a person to a new environment or even a new geographical location can have serious positive, as well as negative consequences for the manager and his/her family,” says Rasmussen.

Dana Patrichi agrees that a mistake can be expensive. “The cost of a wrong hire is immense. And we are not talking just about the cost of the recruitment itself, like fees to consultants, use of internal recruiters or cost of advertiseBUSINESS REVIEW / July 6 - 12, 2009

ANALYSIS

LAURENTIU OBAE

COURTESY OF KM TRUST & PARTNERS

COURTESY OF WILLIAMS & PARTNERS

LAURENTIU OBAE

Ulrik Rasmussen, partner and head of real estate at Pedersen & Partners

Joerg Keplinger, owner and managing partner with Williams & Partners

Radu Manolescu, managing partner with K.M. Trust & Partners

George Butunoiu, owner of the George Butunoiu executive search firm

ments, but mostly of the business costs: the huge waste of time and resources, loss of productivity for the company and, most of all, long-term drawbacks such as employee lack of motivation, confusion on the market and damaging shareholders' trust,” says the Alexander Hughes Romania head.

“Normally, the absence of a professional means that somebody else or some other department has to cover the work so efficiency decreases in one or more directions. So, in one year’s time, the costs could be double or more, compared with the costs of recruitment,” according to Sorin Roibu.

Serious executive search companies are pledging guarantees for the services they offer, which extend for a certain period of time from the recruit’s start date, say experts. The time frame is usually one to two years, during which the executive search firm will replace, free of charge, an executive they brought on board but who left.

Radu Manolescu remembers a case in a Western country, where an executive was appointed CFO of a Fortune 100 company. When he was appointed, the share price of that company increased by around 20 percent, making many investors rich. The recruitment fee was around $1 million, a percentage of the remuneration of the person chosen. A year and a half later he was fired for fraud and the firm’s share value dropped by $1.4 billion after the news appeared in the media.

“If you had judged this during the first year, you would say $1 million for a search was not much if you consider the impact, but a huge sum if you just think about an executive search service.

It was indeed huge in reality due to the final loss, yet this doesn’t often happen with reputable firms – otherwise they would not remain reputable. The fee is – or should be – proportionate to the im-

pact of the role, taking it positively of course, although mistakes can happen – everywhere,” Manolescu comments.

“Romania’s executives have been naturally at a lower management level than the executives at HQs or in Western countries so the impact has been much smaller.”

He believes that most local executives active in Romania are nowadays within Watson Wyatt 16/23 and 21/23 grades, where 23 is the grade of a global CEO of a multi billion USD company, but in recent years most were under 16/23. “In many cases, even though the role was of an executive on the organizational chart, in reality their impact on the business was not substantial enough for the buyer of executive search services to see why small fees are not a feature of this industry,” says Manolescu.

Watson Wyatt's human capital index is used to calculate the correlation of human capital and shareholder value.

few top players. For a market the size of Romania, I would say there are no more than seven players, depending where you make the cut off, and I mean the ones who can live from executive search alone,” says Joerg Kiplinger of Williams and Partners.

Radu Manolescu sees a maximum of six real executive search firms with offices here and a potential for the market to double in terms of business value in two-three years. “For the real executive search market, adding up the fees for top and senior management and not including mid management related fees, then, at first glance, the market has an EUR 8 to 10 million potential in two-three years, but at present EUR 34 million is generated in Romania (I do not count here deals closed at HQ by the foreign office of an executive search firm),” he says. As more of the top 10 integrated executive search firms come, the larger the market will get, he goes on.

As opinions on the actual number of true executive search firms active in Romania vary, so do opinions on how good they are. “Even among the executive search firms and the so-called ones we see a huge difference in service standards and capabilities. For example, our firm is wholly owned and we work as one organization across 36 countries, which enables us to freely move our experts across the region. A franchise model or firms running with local profit and loss responsibilities have difficulties applying this flexibility so they are limited in the expertise they can provide,” Ulrik Rasmussen adds.

“Today we have a different market, with quite a number of Romanians in real executive roles and with a real impact on business, so services for recruiting them will be better recognized in the years to come,” said the K.M.

Trust & Partners managing partner. “Of course, this is only if the services are performed by professionals who really understand businesses and business models and not mainly by juniors ‘hidden’ under partners who are just selling these services without getting too involved in the delivery, juniors entering directly into executive search from school. Those days are over, although it was possible before,” says Manolescu.

Rasmussen agrees. “Many local firms pass on assignments to people without previous industry or function experience who therefore understand the client’s need only in theory. We also see examples of junior recruiters doing the majority of the work and the experienced professional acts as the lead and guarantee,” says the Pedersen & Partners representative.

What should a company ask for when dealing with an executive search firm? “We advise companies to ensure that only professionals with a proper industry background or previous experience in a similar position undertake the recruitment assignments for them,” says Rasmussen. “Ask the recruitment firms to give you a list of the people working on the assignment, their role in the search and their relevant experience in terms of industry track record, training and education,” he goes on.

Radu Manolescu says companies should ask themselves how executive recruiters can stay profitable and grow despite small fees while such services require many consulting hours from senior people?

“What is behind a small fee? Who is behind the seller, what is the process in reality, how many interviews, what competences are checked, references, how adapted is the methodology to the market, what benchmarks are set?” he concludes. corina.saceanu@business-review.ro

BUSINESS REVIEW / July 6 - 12, 2009

SLIM EXECUTIVE SEARCH MARKET, BUT PROSPECTS TO GROW

Dana Patrichi of Alexander Hughes says the firm feels very little competition from the current executive search market in Romania. “We would say that, at the most, four companies really use direct search methodology to recruit for top management positions,” says Patrichi. She puts the value of the executive search market between EUR 25 and EUR 30 million for this year.

“However, this is mostly based on the realities of the Romanian market where multinationals still prefer to bring in expats as top managers, most of the time from within their corporation,” she adds.

In George Butunoiu's view, there aren't more than five executive search firms, which together make around EUR 5 million in turnover a year.

“In every country there are only a

11

FEATURE

COURTESY OF PRAKTIKER

Home improvement: Romanian consumers have helped the DIY segment reach a 31 percent increase last year on the previous

DIY stores spreading for a better tomorrow Although most do-it-yourself (DIY) store operators active in Romania, both local and foreign brands, are facing tough times due to the financial crisis, they are still proceeding with previously planned investments in expanding their chains. With a slight setback from the stalling real estate market, DIY operators are laying the ground for when the crisis is over.

By Magda Purice The local DIY market increased 31 percent last year on 2007 and growth is also expected in 2009, due to properties acquired previously that are in need of furnishing, according to a report by consultancy firm PMR. A slowdown is still expected in 2010 and 2011, due to canceled or stalled real estate projects. Despite the gloom, several DIY chains are currently active and planning expansion in the country and even more new companies are tipped to enter the local market in 2010.

With 29 ongoing construction 12

bricolage and furniture store projects, six projects in the design stage and 13 to start this year, DIY and furniture stores will cover over 200,000 built sqm under German, Austrian, French, Danish, Turkish, Belgian and Romanian names.

NEW FRENCH ENTRY EXPECTED IN 2010

Last October, the main French DIY operator Leroy Merlin announced it had leased 19,000 sqm in the Bucharest commercial center Colosseum, to open in Q1 2010. By the end of 2008, Colloseum was 70 percent leased. Worldwide, Leroy Merlin has 236 operational units. The

brand is operated by French company Groupe Adeo. Overall, the group reported a turnover of EUR 10.2 billion in 2008, a year on year increase of 15 percent.

One of the newest names on the local DIY segment, German chain Obi has recently opened two stores in Pitesti and Arad, delivering around 10,000 sqm each. The moves form part of the retailer's local strategy of opening at least five units in Romania in 2009 after opening two others in Oradea and Bucharest in 2008. Last year, the firm announced investment plans of around EUR 50 million for Romania, to open a total of 13 units in cities home to over 75,000 inhabitants.

“Our strategy in Romania is to secure development spaces in retail parks, rather than starting a more difficult greenfield investment,” said board member Dieter Messner. A regular Obi unit has 8,000-12,000 sqm of sales space and employs 120 people.

Messner says the firm gets 50 percent of its sales from its home market.

Another German operator, the local subsidiary of Praktiker, saw a drop in sales of 15.6 percent in Q1 of 2009, to EUR 45.1 million. Its sales were hit by the depreciation of local currencies, especially in Eastern Europe where it has a network of 100 subsidiaries. In Romania, the group currently runs 25 units. This year, Praktiker Romania has a new GM, Michael Krahn, replacing Guenter Vosskaemper.

Meanwhile, French chain Bricostore has leased a 9,370-sqm space in Satu Mare retail park Armoni, which takes it to a 13-unit chain in Romania.

It is also developing three new locations to be opened in H2 of 2009.

Interhome, a brand owned by Belgian company Interior Home Commerce, plans to reach a countrywide web of 15 units, after opening two stores in Timisoara and Ploiesti since 2005, when it entered the local market. Its expansion pace will be five to six stores a year.

“We plan to reach some 15 or 16 stores in Romania, to sustain a turnover of EUR 130 million per year,” said Benoit Benquet, general manager of the firm in Romania. Interhome’s 3,000-sqm Ploiesti store required a EUR 3.6 million investment.

A 5,000-sqm Timisoara store cost the company EUR 5 million.

LOCAL CHAINS PROCEED WITH EXPANSION PLANS

One of the most active DIY retailers of 2009, local construction materi-

al distributor Dedeman, posted a turnover of EUR 250 million in 2008, 35 percent up on the previous year, beating its predicted 15 percent growth.

“The result is mostly due to the bigger sales area, which gained 17,500 sqm from the opening of two shops in Constanta and Botosani," said Dragos Paval, president and coowner of Dedeman, which currently runs a local chain of 12 shops, nine of which are located in Moldova, eastern Romania.

The firm was planning to finish three more units in Bucharest, Buzau and Iasi in the first half of 2009, and is awaiting construction permits for another eight locations, for which it has already secured the land. By 2015, the company wants to have 30 units countrywide. Dedeman expects to maintain the same turnover in 2009 as last year.

“The downturn on the local construction market, exacerbated by the depreciation of the Romanian currency and the general financial shrinkage, will raise the prices of construction materials,” said Paval. He says the downturn will primarily affect small businesses which will eventually will have to shut down units.

Local Arabesque, controlled by businessman Virgil Cezar Rapotan, recorded a 20-25 percent drop in turnover in Q1 of 2009 compared with the same period of the year before, to EUR 220 million, close to its 2007 half year result. Despite this, it has continued expansion, opening a commercial center in Pitesti at a cost of EUR 5 million. This was its second project this yea, the first being the mixed-use center it opened in the Glina area of Bucharest.

In the capital, Arabesque owns two more such centers – one in Otopeni, a EUR 4 million investment, and one in Militari. In 2008, it posted a turnover of EUR 550 million, more than 22 percent up on 2007. Sales abroad brought EUR 110 million of this sum. The firm has invested EUR 50 million in opening store in Romania and abroad.

For this year, Dedeman has budgeted EUR 25 million for new openings totaling over 46,000 sqm in sales area. In the first semester of 2009, the company opened two units in Bucharest and Buzau and is getting ready for a second opening in Bucharest and a new store in Iasi. The company works both with local partners and over 100 suppliers from Europe and Asia. magda.purice@business-review.ro BUSINESS REVIEW / July 6 - 12, 2009

Estates&Construction

MARKET

JULY 6 - 12, 2009 / VOLUME 14, NUMBER 25

BUSINESS REVIEW FORUM

Manage your business environment !

Construction works at Cathedral Plaza project get green light

COURTESY OF WILLBROOK MANAGEMENT

Praise be! The project had been stalled at an intermediary phase of construction works, but has finally received the go-ahead from the court

Willbrook Management International, developer of the long disputed office project Cathedral Plaza in Bucharest, has recently received the green light to continue construction works from the Court of Appeal in Ploiesti. In February, the Court of Justice in Dambovita called a halt to construction works at the project, which have not re-started since. The successful appeal was filed by Millennium Building Development (the local subsidiary of Willbrook Management International) and Bucharest’s district 1 city hall. The latter was represented in court by lawyers from Bostina si Aso-

ciatii law firm, among others.

The Cathedral Plaza project was approved by the Bucharest district 1 city hall in 2006, and has been fought in court by the Catholic Church ever since.

The office building, which will be made up of 18 levels above ground and five underground floors, is being built near the Romanian-Catholic archiebishopy in Bucharest, on a land plot of 1,822 sqm. When completed, it will deliver a total built area of almost 26,000 sqm.

The project developer Willbrook Management International holds a

EUR 6 billion portfolio of projects in Romania, Bulgaria, Turkey, Latvia, the Czech Republic, Georgia and Poland.

In 2008, the developer announced it was planning to spend EUR 2 billion on 25 projects in Romania with the completion date set for two years' time.

At that time, Willbrook said it would not increase the number of projects due to administrative issues. Previously the firm revealed that most of the problems it had had to face in its projects had come from the local authorities.

Magda Purice

ESTATES & CONSTRUCTION MARKET

Odyseea Residential sees 20 percent pre-contracts, turns to promotional offers The developers started to see a positive market response in May this year, according to the company. “We can't deny the crisis has affected us but we have a strong background and we are trying to find ways to get through this period,” Solomon said. The firm is offering discounts of EUR 100 per sqm and personalized offers, as well as financial packages in partnership with 15 banks.

The price per sqm for apartments in the compound is EUR 1,350, but the developers are also offering discounts to

customers who work for companies headquartered in the Sisesti area.

As for the First House government program, the developers do not expect it to have a big impact on sales as prices of apartments in the project are higher than EUR 60,000, but the firm has received requests from customers interested in the program. “We hope the market attitude will change in a positive way. The program can accelerate the market and broaden customers' options,” says Solomon.

COURTESY OF ODYSEEA RESIDENTIAL

The developers of the Odyseea Residential project have pre-contracted 20 percent of the apartments in the compound in the Sisesti area of Bucharest, Yigal Solomon, director general of New Horizon Romania, has told Business Review. The project is being developed

by Israeli Profit Building Industry and Caterata, which in turn is a partnership between New Horizon and Austrian investment fund Immoeast. It is ongoing with the first phase of deliveries set for April next year.

The project will feature 156 apartments

New Horizon Group carries out real estate projects in Romania, Poland and Latvia. Along with its partners, the developer owns projects which will contain 7,500 housing units in total, according to the company. Projects in Romania include sites in Satu Mare, Brasov, Cernica, Snagov and Piatra Neamt, according to company officials.

Profit Building Industries owns a 120-room hotel in Bucharest, a land plot and an office building in Ploiesti, as well as land in Constanta, Bucharest, Piatra Neamt, Ploiesti and Satu Mare.

Corina Saceanu

Residential makes up 58 percent of construction sites, study finds Residential developments occupy 58 percent of the total number of national construction sites, the rest being split into small portions by other real estate segments – industrial, office, logistics, HoReCa and other institutional projects – according to a study conducted by direct marketing firm Infobau.

According to the study, the highest percentage of ongoing construction works for residential developments are in Ilfov county, where they represent 90 percent of the overall developments.

The study looked at 2,605 construction sites in Romania between January and May this year. Of all the sites, ongoing works for offices represent 8 percent; the commercial segment, 5 percent; industrial projects stand for 6 percent; and work sites for HoReCa make up 4 percent.

Magda Purice 14

BUSINESS REVIEW / July 6 - 12, 2009

ESTATES & CONSTRUCTION MARKET

Industrial developments follow general market downward trend, Colliers study finds

MARIAN MOCANU

The vacancy rate for industrial spaces reached 10 percent in June this year

The construction of industrial space significantly slumped in the first half of 2009, according to a study by Colliers, due to a so-called vicious circle made up of banks, developers and tenants.

According to Colliers representatives, industrial spaces are no longer built for speculative purposes to the extent they were in previous years. The reason for this is that even if developers own the land where they plan to develop, they are tending to cancel planned industrial projects, due to the current lack of financing.

The study also points out that banks have tightened financing conditions and started asking for very high prerental rates for spaces, which are hard

to secure given that tenants want to move into completed spaces.

In the first five months of 2009, 40,000 sqm of industrial space was delivered in Bucharest, almost ten times less than in the same period of 2008, when 350,000 sqm came on the market.

According to Colliers, the overall industrial stock has reached 920,000 sqm and the second half of 2009 is expected to bring no significant change.

The study found that the vacancy rate for industrial space in Bucharest reached 4 percent in December 2008 and had grown to 10 percent by the end of June 2009.

“After several months when the crisis was felt, the first signs of interest in renting have begun to appear and we hope to see transactions in the second half of this year,” said Marius Stefanescu, senior broker with the industrial department of Colliers International. “On the short term, those who need low-priced sites will find solutions in existing rentable spaces, while the big players will look for spaces to be delivered. Currently, vacant industrial sites consist of small, dispersed spaces,” he went on.

The figures will shortly lead to excessive demand for the existing industrial spaces, according to the Colliers representative.

Magda Purice

Unbelievable: Be Igloo is giving mortgages to their clients directly from Romania Invest fund

Centerra Capital Partners seeks EUR 100 million to start Coresi project

BUSINESS REVIEW / July 6 - 12, 2009

of the project will require an investment of EUR 140 million, including the land costs. For this, the firm plans to take out a EUR 100 million bank loan and use EUR 30 million of CCP funds, according to Victor Vadaneaux, one of the administrators of the fund.

Coresi offers 55,000 sqm of retail spaces, 60 percent of which has come under discussion with potential retail tenants. It should be completed in 2011.

“We have signed several letters of intent with retailers, including anchortype retailers, but no rental contract has been signed so far. Due to general financing issues, we are exercising caution over signing with retailers which might change their mind or find themselves in the situation of no longer being able to afford the investment in the retail space,” said Shay Mor, development manager of Coresi.

Magda Purice

From July 1st, Be Igloo begins the program “Guaranteed Mortgage”, starting to give their own apartments to people that cannot have a credit from the bank. The paying ways will depend very much of the advance, but, basically, it will be 15 % advance, 15 % with equal rates for 60 months and 70 % at the end of this period.

“The analysis of the Romanian real estate market and the direct contact with the people who wish to buy a house convinced us that the only problem of this market is the inadaptability of the financing. We have a daily contact with people who need a house,

ADVERTORIAL

Centerra Capital Partners (CCP) investment fund, which plans to develop a 120-hectare project on the former industrial platform Tractorul in Brasov, is seeking EUR 100 million of financing in order to start the project’s first stage.

To be named Coresi, it will comprise a commercial center of 90,000 sqm rentable area in the first phase.

Last year, the developer announced it had completed the master plan for the Coresi complex, following an investment estimated so far at EUR 1.5 billion. Coresi will be developed in five stages, comprising residential, office, commercial and 25 hectares of industrial space. The project is expected to be completed within 10 years, the company has said.

Flavus Investitii, managed by Centerra Partners, acquired the assets of Tractorul industrial platform in 2007 for EUR 77 million. The commercial area

who prospect the market and choose the place where they wish to live. Every time these stories acted by young families have the same end: the bank didn’t give them the credit, theirs incomes are not enough etc”, said Nimrod Zvik, the marketing director of Be Igloo, the sales organisation for Romania Invest fund.

“In concordance with the 500 Norwegians paymasters and helped by several banks we succeed to create a financing programme by which everybody afford to buy a house. We won`t impose any condition; we will adapt to their situation: if they have only 10% cash advance and they afford the monthly instalment, why not? We adapt to the customers` needs, we act for them and we try to solve their financial problems to stabilize the market because we want to work on a stable market, not to obtain huge advantages in short time and leave”, explained Nimrod Zvik

15

FEATURE

STOCKEXCHANGE

Lock down: commentators say that the funds supposed to help SMEs get through the financial crisis have not reached their intended target, but are being hoarded by nervous banks

Banks hoard European funds intended for SMEs EU and European financial institutions’ funds for SMEs, one potential way out of the crisis, look good on paper but are not doing their job. Market specialists say they are being used to shore up banks rather than passed on to SMEs. Even so, European funds for energy efficiency projects are far from fully spent. But next year’s deadline to spend them and the 0.5 percent cut in the interest rate by the Romanian Central Bank might get things moving.

By Dana Ciuraru Since the financial crisis hit towards the end of last year, both Romanian and international experts have said that European funds can be the life-buoy of the local economy. The EU has given its approval to financially supporting local energy efficiency projects, for instance, as well as small and medium-sized enterprises (SMEs). Moreover, international financial institutions such as the 16

European Bank for Reconstruction and Development (EBRD) and European Investment Bank (EIB) have announced that they have given millions of euro in credit lines to local banks to support SMEs through the financial crisis.

This year, the EBRD gave a senior loan of EUR 100 million to Banca Comerciala Romana (BCR) to be onlent to SMEs in Romania. The proceeds will be used by BCR to provide medium- and long-term financing to private companies for production, investment,

trade, services and working capital needs.

The same purpose was voiced in December last year when, again the EBRD, approved a EUR 100 million loan to Banca Transilvania. At the time, EBRD officials said that the money would continue providing SME loans, thus ensuring continued funding was available to small firms in a period when access to bank finance has become more limited. More than 7,500 current active SME clients were to benefit from the funds.

EBRD officials said the bank would increase its investments in Romania by EUR 500 million to EUR 1 billion over the next two years as part of an international EUR 20 billion financial support package. Approximately half of this sum will go to the financial sector, and the rest invested across the broader economy, including in the corporate, energy and energy efficiency and national and municipal infrastructure sectors.

To sum up, the cash was to start from the international financial institutions, pass through banks and go to SMEs or particular projects, like energy efficiency or infrastructure. But while things started as they were meant to, the progress did not continue.

Given the current status of the real economy and the new taxes imposed by the current government, like the forfeiture tax, it cannot be said that micro and SMEs have rushed to increase their debt in this period.

FOLLOW

THE MONEY

Market analysts believe that the funds simply ensured banks’ solvency.

“At the request of the EC, the EBRD and EIB gave credit lines to EU commercial banks to lend to SMEs. It is clear that the lending process has not restarted in Romania. In France, in October last year, a new institution was formed – the loans mediator – which facilitated dialogue between banks and SMEs. It favorably resolved 4,000 cases and saved 40,000 jobs. The Romanian Association of Businesspeople (AOAR) has been calling on the government and banks to set up a similar body for six months, but to no avail.

Obviously banks are using all the resources attracted to ensure their solvency. No one can intervene, except the EBRD or EIB, which surprisingly are saying nothing. These international financial institutions can ask questions about how this money is spent,” Cristian Parvan, general secretary of AOAR, told Business Review.

Indeed the EBRD and the EIB have not made any assessment of how the loans are used. But such an evaluation

will come from the European Commission. The EC will act at the request of the European Parliament to publish a report on the management and use of European funds in Romania, said Mark Gray, spokesperson for the EC, without specifying when such a report could be made official.

“The EC will publish two reports, one on the verification mechanism and cooperation in Justice, another one for the use of the EU funds on two different dates. The EP asked the Commission a special report on the administration and use of European funds in Romania and Bulgaria and the progress made in the anti-corruption fight by July 15,” said Gray.

Government sources have indicated to local media that that the Romanian government is also preparing a report on the management and use of European funds.

SMALL

STEPS TO ENERGY EFFICIENCY

The Energy Efficiency Financial Facility (EEFF) is a credit line of EUR 80 million given by the EU and the EBRD to support energy efficiency projects in the private sector. EEFF officials have said that, so far, the necessary documentation has been finalized for about 33 investment projects worth EUR 72 million, out of which some EUR 32 million is eligible for EEFF funding.

“Credit applications are ranging from very small amounts, such as an investment of EUR 50,000 for a boiler replacement, to funds for a cogeneration plant, an investment which could reach EUR 10 million, of which EUR 2.5 million is eligible to be financed by the EEFF. A series of loan applications have been approved so far, for energy efficiency investments in Mures, Prahova, Buzau, Braila, Bihor, Bacau and Ialomita counties,” Geo Scripcariu, communications manager at the EU/EBRD Energy Efficiency Finance Facility, told BR. He added: “One of the investments, the repair of an industrial hall, was fully completed in February this year. Independent verification took place in March, and the 15 percent grant for the investment was paid by the EBRD in early April. Another example is the replacement of old equipment in a low and medium voltage factory with plasma equipment and computerized control.”

It remains to be seen how eager Romanians are to use these funds, as the EEFF is on the table until the middle of next year. dana.ciuraru@business-review.ro BUSINESS REVIEW / July 6 - 12, 2009

EVENTS / FILM REVIEW

Three remain in the race to draw up Romania’s tourism brand

LAURENTIU OBAE

The deadline for submitting projects is approaching

The public tender for the development of Romania’s tourism brand is approaching. In the first stage of proceedings a shortlist based on the experience and qualifications of the teams proposed was drawn up. The current stage requires the presentation of a complete plan for all three components of the project – research, strategy and creation – that will also include dates and final

costs.

The three candidates are the consortium SC TBWA Bucuresti SRL – SC GFK Romania SRL, the association Saffron Brand Consultants SA – Brandient Consult SRL – Acacia Avenue Limited and the association THR, Asesores en Turismo, Hoteleria y Recreacion SA – Taylor Nelson Sofres SA. “It is interesting that all three candidates have relevant but very different principal expertise: branding and national strategy, branding and national tourism promotion and the development of private tourism projects. Each in its way could be an extremely interesting partner for Romanian tourism and Romania’s promotion generally,” said Alina Simpetru of TBWA\MERLIN. Candidates now have one more week to complete their project proposal for the process of developing the Romanian brand strategy, before submitting them to the Ministry of Tourism.

Otilia Haraga

Organization and promotion of Miss Universe Romania cost EUR 1.2 million

A 20-year old student from Piatra Neamt will represent Romania in the Bahamas contest

The organization and promotion of the competition Miss Universe Romania cost EUR 1.2 million, according to Mike Costache, the president of the competition in Romania, at the awards gala.

Organizers have already started preparations for the 2010 edition of Miss Universe Romania, which 200 BUSINESS REVIEW / July 6 - 12, 2009

women have entered. Romania will be represented in the international competition this year by Bianca Elena Constantin, a 20-year-old student from Piatra Neamt. The final will take place on August 23 in the Bahamas and will be transmitted live

by NBC in over 170 countries.

The hardest part of organizing the competition was to find sponsors. “Of 100 companies whose help I asked, I eventually signed, after long negotiations, with 45,” said Costache.

Costache bought this year the license to organize Miss Universe in Romania, enabling the country to take part in the beauty competition after 11 years.

“The cost of the license for a year was USD 10,000. Participating countries pay between USD 10,000 and 100,000, depending on the country’s visibility, the negotiations they conduct and how you impress Donald Trump,” said Costache.

Otilia Haraga

FILMREVIEW:

Night at the Museum 2

Hank you for coming: comic actor Azaria plays the villain in the second Night at the Museum

The first Night at the Museum was a genuinely charming 2006 children’s film with plenty of laughs for adults too, based on a cracking idea: the exhibits of the New York Natural History Museum – from dinosaurs and stuffed animals to tiny diorama figurines and historical figures – come alive at night and cause havoc. Though it had a first-rate cast and a very good script, the movie was a hit largely due to the fun novelty of the idea. So why – apart from the small matter of amassing a few hundred million extra dollars – make a sequel, which can only fall short of the original?

But don’t write it off just yet.

Much of what made the first film so agreeable is back. The premise of the exhibits coming to life still has plenty of comic mileage.

Ben Stiller also returns as Larry, the likeable but deadbeat single dad who was reduced to working as a night guard to prove the necessary stability to gain access to his son.

He is now the successful head of his own multimillion dollar gadget company, but Stiller excels when playing the amiable loser, and Larry’s newfound wealth is not allowed to impinge on the plot apart from in a somewhat corny deus ex machina at the end.

Stiller is again supported by a phalanx of top comedians, including Robin Williams, Owen Wilson, Ricky Gervais, Steve Coogan, Hank Azaria and Christopher Guest, and with a cast of this caliber the movie

couldn’t be a complete turkey.

The filmmakers have tried to compensate for the absence of surprise by going bigger. This time the action is transferred to the Smithsonian and spread out between a number of its institutes, depriving the sequel of the coherence and sense of place enjoyed by its predecessor, and making it feel rather bitty and episodic.

The Tablet, the magical ancient artefact that brings the exhibits to life, falls into the wrong hands – those of an evil pharaoh (Azaria) who, in the time-honored fashion of screen baddies, wants to use it to take over the world, with help from Al Capone, Ivan the Terrible and Napoleon.

Meanwhile, cost-cutting means the contents of the New York museum are being packed off to storage, and replaced by holograms, to run riot after sunset no more. Despite no longer being in the employ of any museum, Larry is the one man who can stop all of this, along with his semi-platonic sidekick, in the form of an irritating Amelia Earheart (Amy Adams), the aviator. This being a kids’ flick, there’s not much by way of romance, and the sanitized sexual tension between the pair is resolved rather clumsily at the end.

The humor that made the original so engaging is still present, and there are good gags about Darth Vader, the genesis of cell phones and gung-ho American military strategy, among others. A few new characters, including some miniature Einsteins, add to the fun, and Stiller and co are as entertaining as ever. But it lacks the narrative drive and neatness of the first film, and therefore much of its charm.

However, with around $300 million grossed so far, that doesn’t seem to have bothered the majority.

Rumors of a third instalment are already swirling, and more nocturnal institutional antics look likely.

Debbie Stowe Director: Shawn Levy Starring: Ben Stiller, Amy Adams, Owen Wilson, Hank Azaria On at: : Movieplex, Starplex 17

EVENTS

Starbucks opens in Timisoara British Romanian Chamber of Commerce hosts British Days

COURTESY OF STARBUCKS

The Timisoara Starbucks is located on the ground floor of Iulius Mall

The first Starbucks cafe in the Banat region recently opened in Timisoara, on the ground floor of Iulius Mall. The new location has a surface of 175 sqm and also has a terrace of 50 sqm where customers can savor their coffee in the open air.

“Timisoara is a special city with a strong Western tendency, a rapid development rate and an effervescent cultural and economic environment. We are happy to become part of the daily life of coffee aficionados in Timisoara,” said Viorel Stoiean, district manager of

Marinopoulos Coffee Company III SRL. The cafe offers a menu of coffee specialties such as Caffe Latte, Caramel Macchiato, Caffe Mocha, various types of Frappuccino, but also fruit juice and tea, desserts such as chocolate-filled brioches, chocolate cake, pastry products and a series of coffee-related objects and gifts. Starbucks inaugurated its first cafe in Romania in 2007, which was also its first in Central and Eastern Europe. Currently, there are seven Starbucks cafes in Romania, five of which in Bucharest and the other two in Cluj-Napoca and Timisoara.

A photography competition was announced at the event

The annual event British Days, organized by the British Romanian Chamber of Commerce (BRCC), took place on June 30 at the JW Marriott Hotel.

While the 2008 edition marked a milestone between the two countries’ relations, this year’s event, hosted by AnneMarie Martin, the chamber’s CEO, and officially opened by chairman Brian Davies, saw the dawn of a more modest period in the current business environment.

The first key speaker of the evening, Dan Lazar, counsellor of state on economic affairs, expressed the government’s official position on several demanding business issues. He made reference to efforts made by the state to maintain the current flat tax and VAT rates

and the fine balance in the Euro-Leu exchange rate to maintain a stable business environment. Two examples of ways in which this crisis could be overcome are the unfreezing of financial resources/credit facilities and credit and support schemes introduced to assist SMEs, in particular.

The second intervention of the evening, on behalf of British business, came from Shah Rouf, CEO of Aviva Romania, whose message was: “If the metaphor is about all of us in business climbing/trying to reach summits, we are going to have to do it blind, because nobody has a clue how things are going to turn out. The problem of keeping customers is a greater priority in our business model. We must persuade customers why they should continue to invest,” he said.

As part of the BRCC’s social responsibility mission, this year’s nominated charity to benefit from the fundraising element of the event was Acorns Foundation, specifically its Baby Acorns facility, the first institution in Romania which offers services of care and education to children aged between one and three.

The highlight of the evening was the BRCC annual photography competition Awards Ceremony. This year’s theme “Romania’s Hidden Treasures”, attracted no fewer than 500 entries.

Staff

Internetics festival rebranded Internetics, an online advertising festival organized by Millennium Communications, has been rebranded.

The event now has a new structure, jury and criteria and has been repositioned as a festival of online branding, marketing and advertising.

“Internetics is the only festival of online communication in Romania with such a tradition, but which still has a lot to say on this market. This is precisely why we have proposed this year to take it to the next level,” says Andrei Bortun, general manager of Millenium Communications.

He says the new structure of the festival will allow any agencies with intelligent, well implemented ideas to win the title Agency of the Year, which has been coveted over the last few years by local agencies and divisions of interactive media.

18

Internetics still addresses full service agencies, branding and interactive divisions and online design stores. The festival puts the emphasis on the communication solutions that agencies offer clients in the current market context. It will give prizes for several categories: sites, micro-sites and blogs for promotion and interactive campaigns, but also for best use of viral, advertising games, banners, e-mail marketing and social media. The aim of the festival is to contribute to the development of the online communication market in Romania and promote creative and strategic ideas.

Applications to enter the festival can be submitted from September 1 and Internetics will take place at the end of October. All those interested can access the site www.internetics.ro.

Otilia Haraga

Community development project A House, A Future! will be launched by the Soros Foundation and Habitat for Humanity Romania with Timken Foundation and the local authorities on July 6. Its purpose is to knock down substandard houses in Baltesti and Vanatori, 30 km from Ploiesti, and build new, decent ones for the Rroma families living there. The families will work on the houses, helped by local and international volunteers. The project will run for three years and will aim to develop the skills of the Rroma people in domains linked to construction.

BUSINESS REVIEW / July 6 - 12, 2009