Business Review Issue 9 - 2009

EBRD PRESIDENT THOMAS MIROW IS VISITING ROMANIA THIS WEEK; SEE PAGE 5 ANALYSIS

Last year brought record profits for banks active locally, with Romania top of the list of their subsidiaries, but 2009 looks bleaker See page 14

REAL ESTATE

Andrei Panculescu has left the helm of Westhill Romania after the firm delayed its local projects, and moved on to consultancy See page 15

FEATURE

Bye to bling? The local luxury market, evaluated at EUR 190 million last year, is looking at a drop in value of 20 percent See page 20

BUSINESS REVIEW www.business-review.ro

ROMANIA’S PREMIERE BUSINESS WEEKLY

MARCH 16 - 22, 2009 / VOLUME 14, NUMBER 9

EAST SIDE STORY

Eastern European countries have reacted similarly to the crisis, raising fears of sovereign defaults in the region, but the structure of economies and local market strengths differ LAURENTIU OBAE

See pages 12-13

BUSINESS REVIEW ROMANIA’S PREMIERE BUSINESS WEEKLY

MARCH 16 - 22, 2009 / VOLUME 14, NUMBER 9

Publishers BILL AVERY • RACHAD EL JISR Founding Editor BILL AVERY Editor-in-Chief SIMONA FODOR Senior Journalist CORINA S~CEANU

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Marketing Consultant

DANA CIURARU

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OTILIA HARAGA MAGDA PURICE Copy Editor DEBBIE STOWE Contributor MICHAEL BARCLAY Photographer LAURENTIU OBAE

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BUSINESS REVIEW / March 16 - 22, 2009

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NEWS

BRIEFS LOGSTOR ACQUIRES STIZO TERMO IN ROMANIA é Dutch energy company Logstor has bought the production and sales operations of its competitor Stizo Termo SA in Bucharest, according to a statement from the company. The takeover comes into effect on March 1st. Logstor is taking over all machinery involved in pipe production as well as 38 employees. manufacturers of pre-insulated pipes in Romania. Since 1997 it has mainly produced pipes intended for the district heating sector.

TREND CONSULT PREDICTS 10 PERCENT TURNOVER GROWTH é Romanian group Trend Consult made a turnover of EUR 1.1 million in 2008, a boost of 35 percent on the previous year, according to the company. For 2009, it foresees a 10 percent increase following the completion of the operational structural change started in 2008, and plans to consolidate the company’s office in Vienna.

ISRAELI GIFT SHOP PLANS PRESENCE ON ROMANIAN MARKET é Israeli gift shop chain Enter is in negotiations over launching six foreign subsidiaries and targets franchise openings in the United States as well as Romania, according to a local newswire. In Romania, the chain plans to open two stores as part of a first expansion stage, following an investment estimated at USD 400,000.

ENEL POSTS EUR 800 MLN REVENUE ON ELECTRICA MUNTENIA SUD IN 2008 revenue of EUR 800 million in 2008, after taking over Electrica Muntenia Sud, compared with EUR 555 million in 2007. In 2008, the firm posted an EBITDA of EUR 135 million, according to the group’s financial report.

4

Romanian president Traian Basescu

According to Valentin Lazea, chief economist with the Romanian National Bank (BNR), a possible loan from the IMF would be meant

only for Romania’s international reserves, and not to be injected into financing the budget deficit or projects. In Lazea’s opinion, an agreement with the IMF would increase international reserves and Romania’s creditability at international level.

Earlier in January, the Romanian president Traian Basescu rules out a possible deal with the IMF, but later on acknowledged it was needed.

Since the global crisis began to accelerate last year, Romania has gone from being the EU’s fastestgrowing economy and an attractive destination for foreign investors into one of its most vulnerable members.

Dana Ciuraru

Automobile Dacia profit driven down 50 percent in 2008 Romanian car manufacturer Automobile Dacia, owned by the French group Renault, registered a turnover of some EUR 2 billion last year, calculated at last year’s average RON/EUR exchange rate, representing a 10 percent growth year on year.

However, the carmaker’s net profit dropped by half to about EUR 60 million.

According to company information, the results were derived mainly from exports, since the firm’s sales on the domestic market de-

creased substantially.

Automobile Dacia turned out 19,723 more cars last year, reaching a total of 242,415 units, an 8.85 percent boost in production.

The Romanian carmaker sold more than 239,000 vehicles last year, 8.3 percent more than the previous one, with the Dacia Logan MCV being the most popular model with 88,957 units sold. Sales of the Sandero model, launched in June last year, accounted for 23 percent of the company’s total revenues.

Dana Ciuraru

The carmaker’s net profit halved last year

FiT Distribution acquires new online store FiT Distribution, owned by businessman Marius Ghenea, who controls online stores www.PCfun.ro, www.ElectroFun.ro and www.24PC.ro, has acquired another online business www.shopIT.ro, which also specializes in IT&C product sales. As part of the transaction, FiT Distribution will take over the entire activity of ShopIT.ro, including the web interface, employees, current headquarters, logistics and customer base.

The businessman expects the newly acquired store to contribute to a higher online market share for FiT Distribution. ShopIT.ro was founded in 2004. In 2008, it had online sales of approximately EUR 4 million and nearly 40,000 customers.

“This acquisition represents an-

LAURENTIU OBAE

é Italian energy group Enel posted

An International Monetary Fund (IMF) mission will visit Bucharest this week, following up on the ongoing economic dialogue with the Romanian authorities over a loan for the country. The mission, led by Jeffrey Franks, will assess the macroeconomic situation, and hold discussions on a potential IMF program for Romania.

The program would be part of a proactive, insurance-based multilateral financing package, to be supported by the European Union and the World Bank, among other international financial institutions. Brussels was quick to respond, saying it was ready to offer aid. No details on the sum have been made public, but economists say it could amount to around EUR 20 billion.

AGERPRES

Stizo Termo was one of the first local

IMF to hammer out details of country loan

Businessman Marius Ghenea

other development stage of the online division of Fit Distribution, following the acquisition of the domain 24PC.ro at the beginning of

the year. Our consolidation strategy is the most suitable method to post consistent growth even during the crisis which is now affecting the entire economy,” said Ghenea.

Previously, the businessman said he expected a 40-50 percent growth for FiT Distribution in 2009, above the overall market growth estimated at 20 percent. In 2008 the firm posted a turnover of USD 23 million, 30 percent up on 2007.

Recently, Ghenea opened the second Testa Rossa cafe in Romania through the company Italian Coffee Concept. The 120-sqm cafe in Baneasa Shopping City was opened at a cost of EUR 200,000. The first Testa Rossa cafe is in the Liberty Center mall.

Otilia Haraga BUSINESS REVIEW / March 16 - 22, 2009

NEWS

Busy schedule for Romanian gov’t as EBRD head comes to Romania

COURTESY OF EBRD

The president of the European Bank for Reconstruction and Development (EBRD), Thomas Mirow, is visiting Romania this week, in a trip which will include a prior visit to Bulgaria. Mirow will meet senior representatives of the new Romanian government as well as business leaders during his visit to Bucharest.

The EBRD head’s visit to Romania comes during an ongoing IMF mission between March 11 and March 25, following up on the fund’s economic dialogue with the Romanian authorities.

The EBRD has pledged to step up its support for the countries in which it invests, including Bulgaria and Romania. The bank is preparing a significant increase in its investments in Romania this year from over EUR 300 million in 2008. The priorities for 2009 are to support the

Thomas Mirow, EBRD president

real economy by helping to ensure banks are in a position to carry on lending to small and medium-sized enterprises and also working particularly in the energy and energy efficiency areas.

To date, the bank has invested about EUR 3.8 billion in 249 proj-

ects in Romania and helped mobilize a further EUR 7.2 billion from external sources, resulting in total investments of over EUR 11 billion.

Mirow has recently underlined the resilience that Eastern European economies displayed for a long time, pointing out that only after the leading economies in the West plunged into recession, did Eastern Europe begin to feel the full impact of the global crisis.

“There are strong underlying fundamentals in Eastern Europe which remain in place and need to be protected. We have every reason to believe that once the present situation has been stabilized, emerging Europe will bounce back strongly,” said Mirow during a speech at the London School of Economics.

Corina Saceanu

A&D Pharma posts EUR 2.2 mln loss in 2008, expects profit this year

LAURENTIU OBAE

Pharmaceutical group A&D Pharma posted an 18 percent increase in consolidated sales last year to EUR 501 million, but made a EUR 2.2 million loss throughout the year. The firm's loss was smaller than the one it posted a year before, of EUR 8.4 million, according to the company's recently released financial results. A&D Pharma representatives hope to report a profit this year. The firm, which runs the Sensiblu chain of pharmacies, reported a monthly turnover per location of EUR 66,000, up on EUR 52,000 for 2007.

The group’s operational profit (EBITDA) grew by 80 percent to EUR 22.1 million., compared to EUR 12.3 million in the previous year.

The firm is currently negotiating the refinancing of a EUR 100 million loan it secured in 2006 from a consor-

The firm runs the Sensiblu pharmacies

tium of banks led by Citi Bank London.

The London Stock Exchange-listed A&D Pharma has undergone a reorganizing program which cost of EUR 6.2 million. More than 200 staff were laid off last year, when some of

the company's management, former CEO Dragos Dinu and CFO Roger de Bazelaire, also left. Their positions have been filled by Robert Popescu, as interim CEO, and Dimitris Sophocleous. Several other managers have also left the firm, with EUR 1.8 million in total being paid out to the departing executives.

A&D Pharma has also changed the structure of its board, slashing the number of members from 13 to 6.

Two new members joined: Roberto Musneci, formerly of GSK, and Michael Tetreault Schilling, former managing partner of the local Linklaters office.

A&D Pharma trades 34 percent of its shares on the London Stock Exchange, where it saw its share price drop last year in line with the market.

Corina Saceanu

BRIEFS DAN ADAMESCU REACHES 20 PERCENT OWNERSHIP IN RETAILER FLAMINGO é Romanian businessman Dan Adamescu, who controls the Nova Trade company, has continued purchasing shares in IT retailer Flamingo International on the Bucharest Stock Exchange (BSE). The businessman has achieved a 20 percent stake in the company, becoming its second major shareholder after Dragos Cinca, who has around 25 percent. Flamingo’s other shareholders include investment fund QVT Fund Lp, with a 15.16 percent participation, and Flanco Holding Ltd, which owns 10.6 percent of the shares.

GREENFOREST GROWS TURNOVER TO EUR 5 MILLION IN 2008 é Office furniture producer GreenForest posted a turnover of EUR 5 million in 2008, 25 percent up on the previous year’s results, the company’s financial report states.

Exports to Germany and Italy contributed 15 percent of the turnover in 2008. In 2008, GreenForest contracted EUR 2 million in financing for planned investments, assigned from European structural funds.

GreenForest signed a partnership with the European group Samas and the companies run two showrooms in Timisoara and Bucharest.

ANTIBIOTICE IASI AND

Cold comfort as Arctic turnover decreases 5 percent in 2008

SANEVIT PLAN NATIONAL

Romanian white goods producer Arctic has reported a turnover of EUR 213 million for 2008, a drop of 5 percent compared with 2007, the company has announced.

It managed to sell over 1.5 million units during 2008, a decrease of 1 percent y/y. Of the total, 1.2 million represented refrigerators. In the first semester of 2008, Arctic managed to sell over 667,000 units, of which almost half were sold in Romania.

The sales generated EUR 46.4 million, a slight increase over

é The Authority for the Recovery of

BUSINESS REVIEW / March 16 - 22, 2009

2007’s result of EUR 45.5 million.

Arctic also increased its sales abroad by 13 percent in the first semester of 2008 compared with the same period of the previous year.

In 2007, the company managed a turnover of 224.3 million and sold over 1.53 million units. Last year, it sold 793,000 units abroad, representing a drop of 2 percent in volume compared with the previous year.

Locally, the company’s results have been improved by the growth of the Beko brand, which registered

an increase of 19 percent in 2008 compared with 2007.

Arctic is part of the Turkish Arcelik group, the third largest European producer of home appliances. Arcelik is present on 100 markets worldwide. It owns 12 production units in four countries and has 17,000 employees. In 2007, the firm registered EUR 3.7 billion in turnover, compared with EUR 3.9 billion posted in 2006.

Magda Purice

MEDICINE COMPANY State Assets (AVAS) plans to create a national medicine company formed of Antibiotice Iasi and its majority shareholder Sanevit, according to Mircea Ursache, AVAS president. In February 2008, the union members of Antibiotice Iasi had the privatization of the local drug maker suspended in court. The union also contested the first privatization attempt through a call auction supported by AVAS in 2006.

5

NEWS

BRIEFS

BUCHAREST PRIVATE MEDICAL SERVICES MARKET REACHES EUR 68.1 MILLION IN 2008 é The private medical services market in Bucharest grew by 70 percent in 2008, to reach EUR 68.1 million, according to a study by Mednet. Subscriptions for such services represented EUR 36 million in 2008, a third more than in 2007 when they amounted to EUR 27 million on a total market of EUR 39.9 million. According to the study, the figures have been calculated for an average subscription price of EUR 15. The study revealed that 74 percent of the interviewed subjects said that they had their medical services’ subcription paid for by their employer. Some 12.9 percent of a total of 800 Bucharest-based subjects planned to sign up to a private medical services provider in 2008.

6

The local market could be helped by EU funding

crease in real estate speculation could help viable projects on the long term,” said Marian Dinu, DLA Piper Romania managing partner.

The study found European hotel managers are less optimistic than their

counterparts in the US. Only 39 percent of European hotel managers expect the industry to undergo a revival in 2010, compared to 59 percent in the US. Most European managers think the sector will recover in 2011.

Despite the bleak outlook, managers can still spot opportunities for investors with enough capital. The market offers potential acquisition targets on the economy and budget segment, they say. The market pessimism was caused by worries over the difficulty in increasing capital and rolling over debt.

A significant drop in business trips was reported by 70 percent of the study respondents, while 81 percent expect hotel assets to decline in the next 12 months.

Corina Saceanu

Romania implements fewer tax relief measures than regional peers, study finds Countries worldwide are taking steps to counter the effects of the global financial and economic crisis, with approaches ranging from formal stimulus packages to ad hoc measures, temporary provisions, accelerating the introduction of planned measures or alternatively scrapping them altogether.

Romania has so far taken two measures on corporate income tax, according to a recent Deloitte report. Firstly, dividends are tax exempt if distributed and reinvested in the company’s own activity, or in the share capital of another Romanian legal entity, to secure and create new jobs.

Secondly, an additional 20 percent deduction is applicable for qualifying R&D expenses. For individual income taxation, only one measure has been implemented: income on interest derived

STOCKEXCHANGE

HELVETICA MILK PUTS EUR 1 MLN IN ARAD PLANT é Arad-based dairy producer Helvetica Milk has invested around EUR 1 million in a production unit in Pecica, according to the local newswire. The investment has been completed in Arad’s industrial area, according to officials, and will create around 20 jobs. The company was established in 1994 as a result of a joint venture between the Romanian firm Helvetica and some Romanian investors. According to the company’s representatives, sales increased 10 percent in 2008 as the company’s distribution chain covers a national area.

Hotel industry managers in Europe anticipate some hotel chains will go bankrupt next year due to their failure to attract financing and the declining European economy, found a study

by DLA Piper. The law firm interviewed 261 hotel managers, of whom four out of ten anticipated more than five hotel bankruptcies in the next 12 months.

“Considering the current economic climate, it's no wonder most of the hotel managers in Europe find this industry in a weak situation. Although the effects of the global economic situation are being felt on the local market too, I am convinced that on the medium term, investments in hospitality will absorb more European funds and Romania's tourism sector will fulfill its real potential. The de-

STOCKEXCHANGE

ALKA GRUP ASSIGNS EUR 2.5 MILLION TO EXPANDING ITS PORTFOLIO é Alka Grup is planning to expand its dried fruit and seed products portfolio through an investment of EUR 2.5 million, set for completion by the end of 2009, according to the company. The investment, which the firm says started in 2008, is meant to develop the production space at the company’s plant in Filipestii de Padure, modernize equipment and develop new packaging. Last year, Alka Grup announced investment plans of EUR 3.5 million for developing dried fruits, waffles and cookies, according to the company.

DLA Piper: European hotel managers expect bankruptcies, Romania could be helped by EU funds

Dividends are tax exempt if reinvested

from term deposits or other savings instruments is deemed nontaxable when derived by individuals.

Other countries in the region have however implemented more appealing measures for investors. Bulgaria has a five-year tax corporate income tax holi-

day for investments in distressed regions, and individual tax relief is granted to young families paying interest on home loans. In the Czech Republic, corporate income tax was reduced from 21 percent to 20 percent, while the rate of health insurance for employees and employers was also lowered. The country has additionally implemented faster VAT refunds for taxpayers submitting electronic tax returns.

In Hungary, a series of tax proposals have been presented that would shift taxation from income to consumption, which leading to the reduction of payroll taxes. The United Kingdom has reduced the VAT rate for one year from 17.5 percent to 15 percent and allowed business to defer their tax payments providing certain criteria are met.

Corina Saceanu

Initiative and DRAFTFCB sign strategic media partnership in Brand Connection Communications agency network DRAFTFCB has joined Brand Connection’s board with equal shares to media agency Initiative, according to a statement by the agency.

“The partnership between Brand Connection and DRAFTFCB will take effect within this period and will translate into new business opportunities,” said Veronica Savanciuc, the president of Initiative Romania.

The consolidation of media

budgets managed by DRAFTFCB will contribute 10 to 15 percent to Initiative/Brand Connection’s budgets for 2009, according to company representatives.

The strategic alliance will take effect at operational and legal levels, while Ileana Tomescu, general manager of Brand Connection, becomes managing partner and shareholder within the company.

The alliance is expected to result in a stronger negotiation power with media providers and better services

for clients, according to Bogdan Santea, president and CEO of DRAFTFCB Bucharest.

Initiative and DRAFTFCB are members of the Interpublic Group of Companies, a worldwide marketing and communication holding.

DRAFTFCB was established following the fusion of the international advertising agency Foote Cone & Belding (FCB) and Romanian marketing agency Draft.

Magda Purice BUSINESS REVIEW / March 16 - 22, 2009

CALENDAR / WHO’S NEWS

EVENTS, BUSINESS AND POLITICAL AGENDA MARCH 16

é 10.00 – Holcim organizes press meeting with the GM of Holcim Roma-

nia, Markus Wirth, at Cafepedia 3 (2 Arthur Verona St.). é 13.30 – ESSEC, the Romanian Foundation of the Business School, or-

ganizes a press meeting at the Romanian Chamber of Industry (2 Blvd.

Octavian Goga), Dacia room.

MARCH 17-18

é LUXURYDAYS 2009 take place at Carol Parc Hotel.

MARCH 18

é 10.30 – Launch of the START Internship Romania 2009 program takes

place at Howard Johnson Grand Plaza Hotel, Iridium Grand Ballroom.

MARCH 19

é 09.00 – The Romania Green Building Council organizes a green work-

shop on "Sustainable Construction Materials" at Crowne Plaza Hotel in Bucharest.

MARCH 20

é 09.00 – CECCAR organizes international conference “Financial Re-

porting – Future Steps” with representatives of the Institute of Chartered Accountants in England and Wales at Howard Johnson Hotel.

MARCH 24-26

é Call Center & Customer Care Conference and Expo.

Nearly half of Romanians feeling the pinch, GFK study reveals The number of Romanians in financial distress reached almost half the public in January, according to a recent survey. Some 44 percent of 1,000 people interviewed by market research company GFK said they were in dire financial straits, up from 30 percent in October 2008.

In comparison, only 24 percent of Czechs and 30 percent of Poles consider their own financial situation to be so bad. Bulgarians are glummer than their northern neighbors, with 47 percent pleading poverty.

GFK found that most Romanians (78 percent) are managing to keep their living costs below their income, with only 22 percent saying that they are having to use their savings or take out personal loans to cover these costs. This segment has remained constant in the last four months, according to the study.

At the other end of the scale, 18 percent of the interviewed Romanians said their families’ financial fortunes were better than last year, slightly less than Poland’s posted 21 BUSINESS REVIEW / March 16 - 22, 2009

percent but higher than the Czech Republic (14 percent) and Bulgaria (7 percent).

One in five Romanians have managed to save some money recently, compared with the almost one in four (24 percent) who were putting aside cash in October 2008.

Since then, Romanians have lost optimism over their personal financial situation, with 35 percent predicting a decrease in the next 12 months, compared with 20 percent in October 2008.

In January, 15 percent of the Romanians surveyed planned to spend more on long-term usage properties, 5 percentage points down on October 2008. Some 24 percent of the research subjects planned to carry out home improvements in the next year, a figure which has remained unchanged in the last four months.

Around 7 percent of the local interviewees hoped to buy or build a house in the next two years, another value which has stayed static since the last survey.

Magda Purice

WHO’S RADU BALAS was appointed senior associate at Romania law firm DLA Piper, in charge of the litigation and regulation department. Previously, Balas was senior associate at Nestor Nestor Diculescu Kingston Petersen. He is experienced in juridical assistance and representing clients in all areas of commercial litigation, especially intellectual property litigation, public acquisitions and contractual disputes. He started his career seven years ago at Linklaters.

RELU CIRJAN was appointed CEO of the Proffice division, a member of the RTC group. He has over nine years of experience in sales and seven years’ experience in the group.

Previously, he was manager of Office Express in 2008 and manager of sales and operations policies in 2007. Cirjan is a graduate of the Faculty of Management within the Academy of Economic Studies and, is taking an MBA at Codecs Open University Business School.

COSMIN NAE has joined the management team of Brennan Research & Consultants agency as external consultant. He has over 10 years of experience in top multinationals. He is a graduate of the Faculty of Statistics and Sociology in Bucharest. His ex-

NEWS pertise applies to both the consumer and business markets, as he has been involved in various international research in areas such as branding and communications, customer satisfaction and product testing.

FLORIN CONSTANTINESCU, 38, has joined the commercial department of Germanos Telecom Romania as product manager of mobile telephony. In this new position, he will be managing the portfolio of mobile telephony products and setting promotional campaigns in collaboration with the retailer’s marketing team. Previously, he worked for LG Electronics Romania as GSM sales manager. He has 15 years of experience in telecom and IT in companies such as MobiFon (Vodafone), DNA Software, Atlas Telecom and Radiotel.

PIETER WESSEL has joined Deloitte Balkans as tax partner specializing in VAT. He will be headquartered in Romania and will initially concentrate on consolidating the Deloitte VAT practice. Wessel first joined Deloitte in 2002, as the indirect tax team leader, and afterwards the sub-service line leader for indirect tax in the Dutch midmarket sector. His experience also includes acting as advisor on indirect tax matters to energy & utilities clients and serving clients in banking, energy and resources, private equity funds, medical and IT&C technology.

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

Local beer sales rise by 4 percent, brewers say Heineken, InBev, Romaqua Group, United Romanian Breweries Bereprod (URBB) and URSUS Breweries, all members of the Romanian Brewers Association, saw beer sales rise 4.1 percent last year, with canned beer sales up 25 percent. PET makes up the bulk of beer sales in Romania, at 46 percent, followed by bottled beer, at 37.5 percent.

Local brewers invested over EUR 200 million here last year, reaching EUR 950 million in total investment since their market entry. “Romania is in the top ten European countries for beer production,

with over 20 hectoliters. We expect sales to increase this year too, but at a lower rate,” said Shachar Shaine, president of the Romanian Brewers Association.

The five firms within the association contributed EUR 272 million to the state budget last year. They employ 6,700 staff in 12 beer factories across the country. The average Romanian drank 93 liters of beer last year, 4 more than in 2007, which put the country among the top ten European countries in terms of beer consumption per inhabitant.

Corina Saceanu 7

ANALYSIS

By Dana Ciuraru

LAURENTIU OBAE

The BCR could be a recipient of EBRD money, as global financial institution step in to kickstart the world economy after the financial crisis

EBRD, EIB and World Bank turn on the financing tap The main international financial institutions, the EBRD, EIB and World Bank, have joined forces in consistently increasing the financial resources to boost lending to private companies, especially SMEs. Since the beginning of the year, only BCR and Petrom have requested financing from the EBRD, while Immorent, Ford Europe and Bancpost have knocked at the EIB’s door. Will Romanian companies be able to access these consistent funds, as some World Bank loans are restructured due to implementation issues?

10

“The European Bank for Reconstruction and Development (EBRD) is considering a EUR 100 million loan for Banca Comerciala Romana (BCR) in order to provide mediumand long-term financing to private companies for production, investment, trade, services and working capital needs. The BCR loan is due to be submitted to the board of directors, which has to approve all projects before they are implemented, on March 24,” Anthony Williams, head of media relations for the EBRD, told Business Review.

The oil and gas company Petrom, controlled by Austrian company OMV, also awaits the EBRD’s approval for a EUR 300 million corporate unsecured loan on the same day. According to EBRD information, the Petrom loan will be used to finance a series of projects aiming at rehabilitating or enhancing the environmental and health and safety performance of facilities in the Exploration and Production (E&P) and Refining divisions of Petrom.

The financing pipe has been opened wide at the European Investment Bank (EIB) as well. Dusan Ondrejicka, information officer at the bank, told BR that there were three companies with operations in Romania which have knocked on the EIB’s door seeking financing since the beginning of the year. The bank is considering issuing EUR 100 million to Immorent Austria, to finance small and medium-sized projects to be carried out in new member states, and an EUR 80 million loan for the same purpose requested by Bancpost. Ford Europe has also asked up to EUR 600 million from the EIB for the technical rehabilitation of the Craiova plant.

These companies aren’t the only ones to jump at the opportunities offered by the international financial institutions.

“The International Financial Corporation (IFC) is discussing with different banks potential cooperation over crisis initiatives, mainly oriented towards micro, small and medium enterprises and agribusiness. The IFC is financing banks for on-lending to specific sectors with high development impact or offering credit guarantees to help banks continue their lending activiBUSINESS REVIEW / March 16 - 22, 2009

ANALYSIS ty in key sectors, like infrastructure,” Andreia Radu, investment officer at the IFC, Southern Europe and Central Asia department, told BR.

INTERNATIONAL LENDERS JOIN FORCES FOR SEE SUPPORT The EIB representative says, “Within the recent months in Romania, as well as in other countries of the region, the economic situation has weakened markedly. The current situation is marked by a protracted financial crisis and more widespread economic downturn resulting from a liquidity squeeze, capital constraints and declining confidence.”

This lies behind the latest move from the international financial institutions. The EBRD, EIB Group, and the World Bank Group have pledged to provide up to EUR 24.5 billion to support the banking sectors in the region and to fund lending to businesses hit by the global economic crisis.

“The EBRD is preparing a significant increase in its investments in Romania this year from over EUR 300 million last year. The priorities this year are to support the real economy by helping to ensure banks are in a position to carry on lending to small and medium-sized enterprises and also working particularly in the energy and energy efficiency areas,” said Anthony Williams.

According to EBRD data, the bank has invested about EUR 3.8 billion in 249 projects in Romania up until now and helped mobilize a further EUR 7.2 billion from external sources.

The IFC official says that, “The crisis threatens to undermine significant economic growth that has been achieved over the past several years, and many countries are facing a pullback in investment, a sharp decline in business and consumer confidence, local currency devaluation, and rising unemployment.”

According to Eurostat, the unemployment rate in the Euro zone reached 8.2 percent in January, up to 13 million people, the highest level since 2006.

CRISIS

IMPACTS ON THE FINANCING ACCESSING RATE

Recently, President Traian Basescu stressed that Romania mustn’t allow itself to lose such an important source of liquidities, but unfortunately an unused one, up unBUSINESS REVIEW / March 16 - 22, 2009

til now. According to his statements, Romania has access to funds of EUR 3.55 billion from the EIB and the World Bank which have not been used.

“Romania has already started to pay fees for some of these loans for not using the money, fees which reach millions of euros annually,” said the president.

His statements relate to a recent announcement made by a World Bank (WB) official. Some existing loans from the International Bank for Reconstruction and Development (IBRD), part of the World Bank, might be restructured, due to issues related to their implementation, said Orsalia Kalantzopoulos, manager for Central Europe, Central-South, and Baltic states, during a recent visit in Romania.

According to Finance Ministry information, the restructuring allows for the partial or total annulment of some loans with an unsatisfactory level of implementation followed by a reallocation of those funds through IBRD instruments, based on a common analysis of the Romanian institution and the World Bank.

EIB data reveals that Romania accessed EUR 6.2 billion between 1990 and 2008, and is way behind Poland, for instance, which implemented projects costing EUR 18.3 billion during the same period.

This state of affairs is surprising considering that the international financial institutions do not require collateral from the companies or institutions which access the funding. ”We don’t request specific guaranties, but we specifically request the money be used for this specific purpose,” confirms the EBRD representative. The EIB official told BR, “The IFC has specific eligibility criteria in order to track the development impact of the respective projects. We have launched or expanded five facilities aimed at addressing problems experienced by the private sector: microfinance enhancement facility, expanded trade finance program, IFC recapitalization fund, infrastructure crisis facility and the IFC advisory services.

IFC loans to the banking sector are in most cases unsecured.”

Authorities and private players in the economy have their work cut out both accessing these funds and then implementing the projects, an even harder task in Romania. dana.ciuraru@bmg.ro 11

ANALYSIS

By Corina Saceanu

LAURENTIU OBAE

Eastern European countries share several effects of the crisis, but also come with major differences

Fears over Eastern Europe fail to acknowledge country differences Eastern European economies have stopped being resilient to the financial crisis which has crossed the ocean, and commentators fear the region could see sovereign defaults. Most of the countries have reacted the same to the crisis, as they've been similarly linked to the West, but the structure of their economies and the strengths of their local markets differ. Business Review looks at how Romania stands among its regional peers.

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Eastern European countries are treated as a whole, although there are important differences between their economies. For example, the Baltic States and Bulgaria have fixed exchange rates, which makes the impact of external shocks on the economy stronger. Romania runs on a controlled floating of the rate, and the local currency has depreciated, the Central Bank governor Mugur Isarescu says.

Romania is less dependent on exports than other countries in the region, as they barely make up 30 percent of the GDP. By comparison, Hungary's economy used to be buoyed by exports, which have seen a decline. The Hungarian government, which expects the economy to contract by 3 percent this year, had to line up EUR 20 billion of loans from the International Monetary Fund, the European Union and the World Bank.

The lifeline was meant to cover Hungary's high external debt, estimated

by Fitch rating agency at 99 percent of GDP at end-2008 and forecast to rise to 129 percent of GDP by the end of 2009.

Servicing the external debt was also one of the main reasons Romania has asked for money from the same financial institutions as Hungary. The funds, which have so far been put at EUR 20 billion, target the payment of a much lower external debt, and much of the future funding is aimed at creating a safety net. Romania’s medium- and long-term external debt stood at EUR 49.7 billion at the end of November 2008. Mid last year, the debt was 52 percent of the GDP, while countries like Bulgaria, Estonia, Latvia and Lithuania had more than 100 percent of GDP in external debt.

However, as high as this debt may be, it's lower than in Western Europe, according to Erste Bank analysts.

“Recent reports leave the impression countries in the region are highly indebted. Actually, the situation is the opposite. The states with the highest external debt levels are barely reaching the average of the countries in the Eurozone,” say Erste Bank analysts.

SEVERAL

MACROECONOMIC CHALLENGES IN COMMON WITH THE REGION

The Romanian economy has relied heavily on domestic consumption, which was fueled by the now

frozen lending and which also triggered an increase in imports. The crisis has led to a drop in consumption, while foreign direct investments have also dropped as a result of the credit squeeze, as is the case in most Eastern European economies.

“Romania is strongly affected by the crisis. External demand for Romania's exports has slowed considerably, even collapsing in some sectors.

Internally, the lack of financing has also negatively affected demand and companies' ability to deal with the crisis,” Matei Paun, managing partner with BAC Investment, tells BR. Romania is facing macroeconomic challenges which are similar to those of other countries in the region, says Bill Bowman, deputy senior partner with KPMG in Romania. “It has seen large capital inflows in recent years, and much of this financing has now started to withdraw, with a negative effect in particular on the RON, which has depreciated sharply, just like most currencies in the region,” Bowman adds.

The Romanian currency has slipped to five-year lows and continuously depreciated since the beginning of this year, after both foreign and Romanian buyers fueled demand for the European currency. Intervention from the Central Bank has kept it stable for some time. The RON went from a rate of of RON 3.68 per EUR on average last year, to as high as RON 4.31 per EUR this year. The Hungarian currency has depreciated too, from 264.78 HUF per EUR on average last year to 298.53 HUF per EUR on average in February. The Czech Koruna went from an exchange rate of 25.3 Koruna per EUR in February last year to 28.4 Koruna per EUR in the same month this year.

However, “The RON’s depreciation can have some positive effects, as it boosts exports, and Romania does not face the problems which Latvia is confronted with. The Latvian currency is pegged to the EUR, and the fixed exchange rate is becoming increasingly difficult to maintain,” Bowman goes on. Romania has a large current account deficit, in common with many other countries in the region, which will need to be corrected, and RON depreciation should help reduce this, the KPMG representative added.

EXPORTS

START TO RISE SLOWLY

Meanwhile, Romania's trade deficit, one of the country's main problems, halved in January year on BUSINESS REVIEW / March 16 - 22, 2009

ANALYSIS

LAURENTIU OBAE

The Romanian Central Bank has slashed the key interest rate

year, according to the National Institute of Statistics. Imports dropped by 22 percent in RON compared to December last year, while exports grew by 6.9 percent also in RON compared to December last year.

Romania imported more than it exported last year by a difference of EUR 22 billion, up 3.4 percent on 2007. Further growth in exports for Romania may be fueled by, for example, the increasing demand from Germany for Romanian carmaker Dacia's Logan, after it had to reduce Ro-

BUSINESS REVIEW / March 16 - 22, 2009

manian production last year on dropping external demand.

Although many foreign investors were squeezed by the lack of financing and have delayed investment plans, some are still putting money in. Procter & Gamble is one of the active investors, with a production unit in Urlati underway. “The trust we have in the economic and political stability of Romania represents an important element in the decision to start this year the first P&G Greenfield investment in Romania. Also, we’re hoping that P&G will become the economic development engine of the town of Urlati and of the region,” Ramona Brad, head of external relations in the Balkans with P&G, told BR. Central banks across the region have been slashing interest rates over concern economies may cool further, while governments are cutting growth outlooks and crafting measures designed to foster a recovery.

The BNR lowered the key interest rate from 10.25 percent in August last year to 10 percent in February this year, after constantly increasing it throughout 2008 from 8 percent.

“Compared with Bulgaria, which has a currency board arrangement, in-

flation in Romania is lower, as the central bank has been hiking interest rates, although large borrowing in foreign currency introduced significant noise in monetary policy, making it less effective,” says Standard and Poor's chief analyst for Romania, Marko Mrsnik.

He also says economic developments in the Baltic countries are useful reminders for economic policy management in Romania and Bulgaria, given that these sovereigns have been experiencing broadly similar economic trends to what Latvia and Lithuania were experiencing a few years ago.

EASTERN EUROPE IS NOT THE CORE OF THE CRISIS As far as Central and Eastern Europe goes, although the level of external debt is high across the region, there is no risk of payment default here, according to the IMF. "This is something that happens last. I don't see the danger of even the fiscally embattled countries not being able to make their repayments", said Marek Belka, the head of the Central and Eastern Europe States department in the IMF, quoted by Reuters.

Optimism came from the Euro-

pean Bank for Reconstruction and Development too. The EBRD president Thomas Mirow, who is coming to Romania this week, said that once the present situation has been stabilized, Eastern Europe will bounce back strongly. “There are strong underlying fundamentals in Eastern Europe which remain in place and need to be protected,”said Mirow. “What we are now facing in some countries in Eastern Europe is a severe recession but not a collapse. The adjustment process will be painful enough and test the strength of all involved – from politicians to bankers to the people. But this is not a crisis with runs on banks, or with sovereign defaults. The economic performance in most countries of Eastern Europe remains no weaker, and often stronger, than that in Western Europe,” the EBRD president added.

He believes that Eastern Europe will come out of the present crisis, perhaps bruised and battered, but not beaten.

“But will Western Europe do much better? This seems unlikely and therefore I think it is at least misleading to portray the current crisis as a crisis of Eastern Europe,” Mirow concluded. ■

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ANALYSIS

STOCKEXCHANGE

Banks active locally posted record profits last year but expect a weaker 2009

Banks climb to peak before looking downhill in Romania With EUR 1.27 billion in total profits in the banking system in Romania in 2008, up 67 percent on 2007, locally active banks had a good year. Those banks which have already made their financial data public have reported historic increases in profits and bigger than ever incomes in terms of volumes. It was the peak – lenders are now preparing to go downhill.

By Corina Saceanu

All banks agree that 2009 will be challenging in Romania for all players, but no more so than in other countries where they operate. In fact, the profits generated by Romanian subsidiaries last year were in many cases higher than in other Eastern European countries. What all countries in the region had in common were the rising cost of risk, the volatility of local currencies and increasing provisions, which had an impact on profit. 2009 will bring a lower growth pace, although most players expect to post some profit even this year, despite the 14

challenging market. This year banks will focus on health rather than growth, freeze territorial expansion and keep a closer eye on cutting costs.

The largest local lender assets wise, Austrian-owned BCR, saw a two-fold increase in its net profit last year on the previous, to EUR 541 million. Moreover, BCR has become the most efficient bank in the portfolio of its owner Erste, the Austrian bank has said.

BCR's results last year included the positive impact of the sale of its insurance business, which helped it reach the highest level in the history of the BCR Group. Excluding the revenues from the sale of BCR's minori-

ty shares in Romanian insurer Asiban and in the Italian bank Banca ItaloRomena as well as the insurance business BCR Asigurari, BCR's net postprofit grew by 39 percent on 2007, to EUR 348.4 million. Even after excluding the one-off gains, the lender’s profit was both in volume and in increase percentages better than in other countries where its mother bank operates. However, Romania also brought the group a write-down in goodwill of EUR 480 million for BCR. The reduction of the book value of the subsidiaries’ goodwill happened in Serbia and Ukraine also, but the amounts were significantly lower.

“Without the write-down of intangibles in Romania, Serbia and Ukraine, net profit would have been up by 14.1 percent to EUR 1.3 billion,” according to Erste officials.

The second largest profit so far on the local market went to Frenchowned BRD Societe Generale. The bank posted a EUR 367 million profit last year, up 33 percent on the 2007 level. Last year's profit also included a EUR 61 million cashing from the Asiban sale.

Societe Generale, which had to deal with the Jerome Kerviel fraud and its exposure to the defunct Lehman Brothers last year, saw a net total income of EUR 2 billion.

“The crisis only affected Romania in the fourth quarter of last year, and it had only marginal consequences. We anticipated an economic slowdown in the first quarter of this year and we have taken measures to cut general costs,” said Patrick Gelin, president of BRD-Societe Generale.

2008 was the end of a favorable economic cycle and the beginning of a difficult period, with uncertainty over macroeconomic evolution, an increase in the cost of financing and concerns over the profitability of operations, Gelin said.

Raiffeisen Bank's profit increase last year was 75 percent on 2007, to reach EUR 165 million. It was another record profit posted by a bank active locally. With plans to use the profit mainly for capitalization, the Austrian lender said in 2009 it would focus more on current maintenance activities at network level rather than on expansion.

Raiffeisen International, the mother bank of the local lender, grew its profit in 2008 by 17 percent to reach EUR 982 million, according to its preliminary results. The Austrian lender, which has access to a EUR 1.75 billion line from the Austrian Government, joins its rival Erste in taking the

Austrian state’s helping hand. Erste signed up for a EUR 2.7 billion capitalization.

Greek Piraeus Bank made a EUR 43 million profit in Romania last year, almost double on the previous year.

But the mother group’s post-tax profit fell to EUR 315 million, from EUR 503 million the previous year, even lower that the EUR 337 million profit in 2006. The group's profit was impacted by the planned EUR 173 million provisions, to which an additional EUR 215 million of provisions was added in the last quarter of 2008.

Another Greek lender, Alpha Bank, posted EUR 45.8 million of its total 512 million profit in Romania last year. The bank's profit was 20.8 percent up from 2007, mainly affected by its provisioning of EUR 33.2 million.

Foreign banks were not the only ones to post record profits last year.

The two remaining local lenders Banca Transilvania and CEC Bank's profits were boosted by the sale of their participations in insurer Asiban. The EUR 108 million profit posted by Banca Transilvania was up 17 percent on the previous. The bank reported an increase in risk provisions, with some EUR 22.5 million in provisions added in the fourth quarter of last year.

Local state-owned CEC Bank, the former Romanian Savings Bank, made almost EUR 100 million in profit last year, much of which was due to the sale of its shares in Asiban.

The profit, which was five times higher than the figure posted in 2007, was boosted by the bank's cashing in some EUR 87.5 million from the sale. CEC Bank’s profit excluding the Asiban sale was some EUR 44.5 million, up 40 percent on the previous year.

2008 was the year which saw banks racing to increase their loan portfolios, both consumer loans and mortgages, fueled by a softening of regulation by the Romanian Central Bank. Loans in exotic currencies were on some of the banks' top sellers’ lists, as well as those in the usual foreign currencies, until the new BNR ruling last fall slowed down the increase in offered loans.

For several years, banks have been fueling the growth of the Romanian economy, with increasing consumption and investments mainly backed by bank loans, during a period of boom in Romania. With both of them dropping due to the international crisis, banks may now see themselves fighting for a piece of a smaller pie. corina_saceanu@bmg.ro BUSINESS REVIEW / March 16 - 22, 2009

Estates&Construction

MARKET

MARCH 16 - 22, 2009 / VOLUME 14, NUMBER 9

BUSINESS REVIEW FORUM

Manage your business environment !

Westhill Romania head leaves helm for consultancy as firm delays local projects

COURTESY OF WESTHILL

Andrei Panculescu, former country manager with Westhill, now consultant with Thames Property

Andrei Panculescu, former country manager of developer Westhill, has left his position with the company to become consultant for Thames Property Development, a retail and

office consultancy firm active in Romania, Business Review has learned.

Panculescu had been with Westhill for almost three years.

“Considering the internal and in-

ternational economic situation and talking to the owners of each project, Westhill has decided to delay these projects by six to nine months, which prompted me to go it alone in consultancy. I will also stay on as a consultant for Westhill,” Panculescu told Business Review.

The businessman had previously worked in the consultancy area while he was general manager of real estate agency Eurisko.

Thames Property Development is currently working on several consultancy projects on the hotel market, on consultancy for three office buildings in Bucharest and a shopping center elsewhere in the country, according to Panculescu.

Westhill had planned to build two shopping centers in Romania, Zenith shopping center in Ploiesti, and Crizantema Plaza in Targoviste.

Zenith, a EUR 140 million investment from Lewis Charles Romania investment fund, was on track for opening in 2010, while Crizantema was expected to require EUR 60 million in investment.

“The local market is in a state of expectancy. […] Probably in a few months we will see the first bankruptcies and the acquisition prices will settle with a normal economic basis, to re-start a correct development of the market. We must not forget that the banking system needs to re-launch mortgage lending with acceptable interest rates for this period,” Panculescu adds.

Corina Saceanu

ESTATES & CONSTRUCTION MARKET

Black Sea Global Properties to delist Fabian’s shares from AIM

Cometex brings C&A and New Yorker to Aurora Shopping Mall Buzau

COURTESY OF COMETEX

The mall expansion will start this May

Cometex Suceava, the real estate arm of local retailer Altex and developer of Aurora Shopping Mall Buzau, is expanding the mall’s shopping gallery with the addition of two more shops, C&A and New Yorker.

C&A, part of the Swiss group Cofra, will open on a commercial area of 1,500 sqm in May. To the same schedule, New Yorker will deliver a sales area of 900 sqm within Aurora mall, the developer has said.

Besides the newly opened shops, Aurora Shopping Mall comprises a Carrefour unit, on 6,500 sqm. The shopping galleria, some 18,500 sqm of retail space, is mostly covered by anchor tenants, and also hosts 50 smaller stores. It includes brands such as Intersport, Takko, Deichmann, Drogerie Markt, Kenvelo, Alexandria Bookshops and City Pharma.

The latest financial results released on the BSE showed than Cometex’s profit was four times lower in 2008 than in 2007, at EUR 1.4 million. Turnover also fell to EUR 4.2 million in 2008, similarly four times lower year on year.

In April 2008, Cometex, the real estate division of IT&C and electrical household goods retailer Altex, announced EUR 42 million of plans consisting of four retail projects in Brasov, Timisoara, Arad and Buzau.

The Buzau-based Aurora Shopping center was completed in November 2008, having been up to 80 percent financed with a credit from Investkredit Viena.

Magda Purice

The real estate market is changing – the end user has the final word

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fund at around EUR 50.8 million.

Following the fund’s financial highlights based on DTZ valuations, Fabian’s net asset value (NAV) was estimated at EUR 1.501 per share at 31 December 2008, a decrease of 9.8 percent compared with the third quarter's NAV of EUR 1.665 per share, the official statement reads.

The fund is also planning a future development profit of EUR 0.298 per share, representing EUR 15.1 million, over the course of projects such as New Town, Timisoara, Oradea and Satu Mare residential schemes and the Cubic Centre, Lakeview and Romana office schemes, according to the financial statement.

Magda Purice

Mivan delivers 316 apartments in NewTown Irish developer Mivan Development has started to deliver the 316 apartments that make up the first development stage of the group’s EUR 80 million residential compound development in Bucharest, NewTown Residence. The entire project will deliver 651 apartments when completed.

The available 316 flats will be delivered within a complex of five blocks of 12 levels, while the second stage of the project, comprising 335 apartments, is estimated to be completed by the end of 2009, according to the developer.

The exclusive agent for selling the apartments is real estate agency

BNP Paribas Real Estate.

Last year, the company announced it had budgeted EUR 750 million to be invested in commercial and residential projects in the next three to four years. In 2007, the Irish developer, together with Moritz Group, planned to build at least ten Tiago malls countrywide with a EUR 700 million planned investment by 2011.

The first Tiago Mall is being developed in Oradea. The site will be opened in September, when the developers expect a daily traffic of over 15,000 visitors.

Magda Purice

Omilos completes first stage of Era in Oradea

ADVERTORIAL

The new sales organization of the Norwegian investment fund Romania Invest started a strong campaign for selling their apartments. Their new vision of the market is that the end user is the one important and his needs must be respected and accomplished.

As director of the new company, Nimrod Zvik explained the new solutions Be Igloo has for selling apartments and the new vision his team has on making business. "Starting with 2009, the accent will be on the end user of an apartment. That is why, he will need to receive exactly what he asked for, to have the certitude all the conditions from his contract will be respected, to make sure his home is exactly the one he asked for ", said Nimrod Zvik.

For the people who want to buy an apartment, we have 7 reasons to find it through Be Igloo 1. We have a huge variety of projects all over Bucharest; 2. We guide our clients when choos-

ing a home and when they decide how to pay it. Be Igloo doesn’t provide only the best financial solutions, but we also have the financial power and the ability to finance our clients when there is a worst case scenario and the bank couldn’t help.

3. In the moment when we bought apartments in a residential complex, you can be sure that we already have made all the research about the developers international activity; 4. We have the power to obligate the developers to respect their promises, because we are working only for the client’s interest; 5. The international company King Sturge analyzes and certifies every apartment, making sure that they are up to international standards; 6. We take care of all your needs. That is why we managed to put together a variety of solutions in order to make your moving in the new house easier and…cheaper.

7. We are a strong, experienced company and, first of all, we are standing by your side! Anything you want, we promise to find solutions for you. You just have to ask us!

Investment fund Black Sea Global Properties Limited (BSGL), owned by Rompetrol Holding, is about to delist Fabian Romania investment fund from the AIM market of the London Stock Exchange. The delisting will be effective starting April 8 this year.

In February, the fund officially took control of 92.9 percent of British investment fund Fabian Romania. The offer, at a price of EUR 1 per share, represented a premium of approximately 93.2 percent over the closing price of Fabian's shares on the last dealing day prior to the announcement of the offer.

BSGL's cash offer for Fabian Romania, made at the end of last year, values the British-held investment

Developer Omilos Group, through its local company Omilos Oradea, has completed the development of the first stage of Era Shopping Park Oradea, with an investment of EUR 100 million. In 2008, Ermes Holding, an Omilos Group company, took out a syndicalized EUR 65.5 million loan from a consortium of three banks, Banca Romaneasca, Eurobank EFG Group and Bank of Cyprus.

The retail park will deliver 83,000 sqm of built area and 64,700 sqm of rentable area, spread over 180,000 sqm.

The entire development is set for completion in the first half of 2010.

The first development stage delivers a 4,200-sqm shopping gallery of 33

shops with names such as Sephora, Sensiblu, Leonardo, Secuiana, Meli Melo and Mondex, besides anchors like a Bricostore unit of 10,500 sqm, a 3,300-sqm Media Galaxy and Hypermarket Carrefour on 15,300 sqm.

Carrefour formed a partnership with Omilos Group in 2008 when it rented 15,440 sqm in Era Shopping Park Iasi, following an investment estimated at EUR 20 million.

The retail park in Oradea comprises a parking area of 2,000 spaces. The second development stage will deliver a Mobexpert shop and the mall construction, for which the company has estimated completion in Q1, 2010.

Magda Purice BUSINESS REVIEW / March 16 - 22, 2009

TAX, LAW & LOBBY 2009 Administration (ANAF), the 16 percent tax applied to individuals owning and earning from real estate transaction might be inserted in the new Fiscal Code. Also, the consultants recommend a change to the current building tax calculation applied to individuals and companies. According to Biris, a fair calculation has to take into account the use of a building and not the type of owner.

Another measure backed by Biris is the introduction of social contributions in the new Fiscal Code and the calculation margin for these, in order to reduce the fiscal load. “The efficiency brought in by the introduction of the 16 percent flat tax has been largely reduced by the social contribution dimension,” said the managing partner.

COMPANIES CUT HR BUDGETS, ENERGY SECTOR CALLS FOR PROJ-

ECTS LAURENTIU OBAE

More than 150 participants attended the seventh edition of Tax, Law and Lobby; the event was sponsored by PwC, E&Y, TaxHouse, NNDKP Consultanta Fiscala and SCPA Deleanu Vasile

Fiscal Code attracts long wish list In the absence of the published Fiscal Code draft, professionals present at the Tax, Law & Lobby 2009 event last week agreed on the need for its urgent publication, as the changes could influence companies’ budgets for this year. The non-taxation of reinvested profit, forfeiting tax introduction, a legal framework for holdings and in particular the necessary measures to generate liquidity for companies were some of the topics discussed at this year’s event.

By Magda Purice

FISCAL CODE

MEASURES MUST RESULT IN MORE CASH AND CLEARER FISCAL FRAME

Updated in June 2007, the Fiscal Code must comprise measures to furnish the state budget with money and generate liquidity, argued participants 18

at the the Tax, Law & Lobby event.

One of the must-have inputs is the clarification of taxation on real estate transactions with a commercial purpose, said Gabriel Biris, managing partner at law firm Biris & Goran. The measure could result in a fairer approach to the taxation of speculation on the market and balance the treatment applied to

companies and individuals involved in such transactions.

“It is not a normal situation for companies in the construction business to pay tax at 16 percent while speculative individuals are exempt from this tax,” said Biris.

According to Paul Coman, consultant with the National Agency for Fiscal

Speaking about companies’ budget strategies in 2009, Ruxandra Stoian, HR services director at PricewaterhouseCoopers, quoted a quarterly barometer delivered by the consultancy company which found that 80 percent of firms estimated their 2009 business would reduce from 2008. A fifth of firms estimate a reduction in staff, with the first out likely to be employees on temporary work contracts. “Companies reported a 15 percent increase in salaries in April 2008. This was down to a 10 percent estimated increase in December 2008, and 5 percent in February 2009. We believe this last percentage to be the realistic one,” said Stoian.

Cristi Georgescu, public manager with the Public Energy Authority, pointed to the EUR 725 million delivered in order to support energy efficiency and secure distribution projects between 2007 and 2013. Of this sum, European funding represents EUR 638 million while EUR 87 million comes from the national budget. So far, EUR 240 million of energy funds have been assigned to three ongoing energy projects, according to Georgescu. In 2008, EUR 50 million was used on industrial operators’ energy efficiency projects from a total sum of EUR 189 million, he added.

THE PROS AND CONS OF A PENDING NEW FISCAL CODE It seems that everyone is waiting for the Ministry of Finance to make public the Fiscal Code. “The new Fiscal Code is technically ready but its publication has been delayed from political reasons,” said Gabriel Biris.

As far as the specialists in fiscal and law policies know, the legal instrument BUSINESS REVIEW / March 16 - 22, 2009

TAX, LAW & LOBBY 2009

BUSINESS REVIEW / March 16 - 22, 2009

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should include changes such as the non-taxation of reinvested profit, expected to come into effect in Q2 of 2009 or the introduction of the forfeiting tax, which has proven a controversial measure.

According to Gabriel Sincu, senior manager and head of tax advisory services at Mazars, the non-taxation of reinvested profit should be built on a clear and transparent background. The representative also brought up the reintroduction of facilities for the “good players.” “This was a measure which gave a 10 percent discount to companies paying their bills on time but it wasn’t implemented,” said Sincu. Such a move could help attract foreign direct investments. Sincu also thinks that a normal and fluent VAT return process and stability in the fiscal policies would encourage greenfield and M&A transactions.

Also on M&As, Angela Rosca, partner at Taxhouse, said that the market could expect further strategical mergers between companies and groups, running operations inside or outside the country’s borders. Cristian Parvan, general secretary of the Romanian Businessmen’s Association (AOAR), voiced skepticism over the forfeiting tax measure and pronounced it an insufficiently researched idea from the Ministry of Finance. The forfeiting tax is the removal of the 16 percent tax applied to companies’ profit, a measure meant to beat tax evasion by applying a fixed fee to companies, depending on the operated activity field.

“I think SMEs could benefit from this forfeiting tax. By not paying an amount based on their profit, but a fixed sum, they could free themselves from unnecessary fiscal inspections,” said Parvan. According to Coman, fiscal evasion amounts to 21 percent of Romania’s GDP, or EUR 30 billion.

The AOAR representative slated the ANAF’s strategy of “killing the cash cows” because of tax inspectors’ aggressiveness and over-eagerness in inspecting and slapping penalties and fees on small companies, “We have nothing against healthy businesses and when a company shows itself to be serious, but its payments are delayed for objective reasons, we can get flexible and offer a respite,” said Coman of the ANAF. Angela Rosca of Taxhouse also said that companies were getting fed up with abusive and very aggressive tax inspections.

“I can only advise those experiencing abusive inspections to fight and contest the measures unfairly applied,” she urged. ■

■ 1. Angela Rosca, managing partner of TaxHouse ■ 2.Claudia Durus, human capital manager of Ernst&Young ■ 3. Ruxandra Stoian, director of HR services at PwC Romania ■ 4. Gabriel Sincu, senior manager, head of tax advisory services, Mazars ■ 5. Mihaela Craciun, corporate tax senior manager PwC ■ 6. Gabriel Biris, managing partner of Biris & Goran ■ 7. Gabriela Popa, Principal Ensight Management Consulting ■ 8.

Cristian Parvan, general secretary of AOAR ■ 9. Gilda Lazar, corporate affairs director at JTI ■ 10. Cristi Georgescu of the Public Energy Authority ■ 11. Lorena Stoian, partner with SCPA Deleanu Vasile ■ 12.Mihai Vintu, indirect tax manager, PwC ■ 13. Bill Avery, publisher at BMG, introduces the first panel of the event ■ 14. Adrian Luca, transfer pricing specialist ■ 15. Ana Maria Miron, partner at NNDKP and joint head of NNDKP Consultanta Fiscala ■ 16. Lorena Stoian, avocat partner, SCPA Deleanu Vasile ■ 17. The event targets an audience of tax professionals ■ 18. NNDKP Consultanta Fiscala delivered a seminar on changes in tax legislation for 2009 19

FEATURE

By Otilia Haraga

LAURENTIU OBAE

Blinged out: The luxury market has flourished in recent years but the recession presents a challenge

Pundits talk tough times at Luxury Days Luxury Day will this year become Luxury Days, having been expanded to two consecutive days to allow more time to debate the challenges which the high-end industry will have to face up to this year. Sectors of this market, evaluated last year at roughly EUR 190 million, are expected to decrease by up to 20 percent. Some multibrand businesses may go under and staff will be laid off in perfumery, the luxury car industry and hotels.

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While last year there were in total 130 participants over a single day, during this edition organizers expect 100 participants a day, so approximately 200 in total.

“Since this is an annual event, we try to allot it a budget, but this year the crisis messed up our plans a bit in the sense that we had to invest directly (30 percent more than during the previous year),” says Petcu.

According to organizers, the idea to alter the concept of the event and organize it over two consecutive days means they will have more time at their disposal.

Most of the presentations that will be delivered are centered on how to tackle the crisis and what changes in approach are necessary in this context. Which means that Luxury Days makes for a very good opportunity for pundits in this domain to put all their cards on the table and discuss matters thoroughly.

What do they have to fear? From what Oliver Petcu, managing director of CPP Management Consultants Ltd., tells Business Review, they may be confronted with falls of as much as 20 percent in some areas of the industry. “This is going to be a year of re-shuffling for the luxury industry, both on emerging markets and on developed ones,” he says. As far as the Eastern European luxury market goes, there will be countries such as Bulgaria, Hungary and the Czech Republic that will bear the brunt, “with drops of up to 30 percent on all the segments of the luxury industry.” Petcu anticipates that in Romania the luxury industry will stagnate and there will be a clear downward trend in some sectors, but with a drop “no greater than 20 percent compared to last year.”

Petcu does not rule out the possibility of some business closures but only in the case of multi-brand firms. In addition to this, there will be lay-offs in the sectors of perfumery, luxury cars and hotels, where up to 10 percent of the current work force will be given their marching orders.

“Although there is no general rule, we could say all players are affected by the stand-by and even depressed state of most consumers of luxury services and products, but each segment has its own challenges to meet. For instance, while in the case of certain multi-brand fashion

businesses we will witness lay-offs and salary cuts, franchise businesses will be net recruiters, especially if we take into account the entrances announced in 2010,” says Petcu.

In the 2008 Market Review Study on the Luxury Industry, CPP Management Consultants Ltd. estimate the value of the local luxury sector (which includes fashion, accessories, jewellry, watches, auto and inside decorations/furniture), to exceed EUR 190 million. This evaluation does not include segments like hospitality and cosmetics. “The luxury industry grew by 23 percent during the first nine months of 2008, in comparison to last year. However, by the end of the year it had dropped by 14 percent on all of the luxury industry segments. This trend will be maintained throughout 2009 as well, but there will not be losses greater than 20 percent. CPP sees a slight comeback for the industry starting in November 2009,” according to the study.

In Romania in 2008, there were 13,000 people with an income greater than EUR 1 million per year, most of whom are a target for luxury goods and services. As far as the demand for luxury goods is concerned, Constanta and Iasi are at the top, with most wealthy Romanians preferring luxury branded goods and services. The wealthiest part of the country is Transylvania, with cities like Timisoara, Cluj, Sibiu and Oradea.

“Drops in prices registered in the last three months of the year across all real estate segments, as well as the Bucharest Stock Exchange, have almost cancelled out all growth registered in the first quarters of 2008.

Many wealthy people found themselves short of cash, especially those who had invested heavily in real estate and did not sell or rent at the right time. All real estate segments have registered heavy falls during the last three months of 2008. This has led to a halt in furniture and luxury decoration sales. We estimate that drops in these segments are at 30 percent compared with last year.”

LUXURY

PLAYERS TAKE MORE TARGETED CUSTOMER APPROACH

Tudor Furir, GM at Pernod Ricard Romania, says the company he heads will continue to invest in the brands it imports but more efficiently and better targeted. “We are not aiming to reshuffle or to do signifiBUSINESS REVIEW / March 16 - 22, 2009

FEATURE / FILM REVIEW cant cost-cutting. But we will cut those investments that do not bring a relevant return on investment for the company,” he says. Moreover, communication with consumers will become more targeted and efficient.

“We will diminish investment in ATL and we will invest more in BTL and trade marketing. We will try to be more creative and find unconventional means of communication,” he said.

The company will also try to avoid putting up prices. The currency exchange has a major impact on the calculation of prices in RON. Already the cost of imported alcoholic drinks has increased by up to 20 percent. “If the RON remains stable at the current level, we will no longer raise prices,” says Furir. In 2008, Pernod Ricard Romania posted a turnover of EUR 30 million and this year it is estimated to reach around EUR 33-35 million.

He estimates the market of luxury alcoholic drinks (meaning those drinks that exceed EUR 40 a bottle) at around EUR 5 million. “I don’t think we will see brands withdraw from the market but there will be no new entries in 2009,” he says.

Tatiana Stroescu, marketing & communication manager at Audi, says last year was balanced for the premium car market and estimates that had been made at the end of 2007 regarding the evolution of sales on this segment were realistic.

In Romania, Audi was market leader on the premium segment with 2,856 sold cars.

“It is too early to foresee the value of the car market in 2009 because there are very many factors which can influence it either positively or negatively. The support that authorities give to large companies will make a difference and also the way in which this support applies from one case to another,” says Stroescu.

The manager believes that as far as the premium car market is concerned, the behavior of the luxury consumer will be to spend moderately but the purchase decision will be less influenced by external factors compared to the customers of other brands. “Indeed, costs represent at the moment an important aspect in the decision to acquire a premium car but it is not necessarily the main factor,” she says.

WHERE LOOK?

SHOULD INVESTORS

At this point, it would be an overstatement to say that there are BUSINESS REVIEW / March 16 - 22, 2009

still investors who are “interested” in opportunities on this market.

“Unfortunately, in this general atmosphere ruled by panic, mostly created and maintained artificially, there are few experienced entrepreneurs who can realize the potential of certain domains. One of these promising domains is spas,” says Petcu.

However, investors should focus on certain areas. The CPP study mentions, among luxury sectors where major opportunities lie, the spa and travel domains, for several reasons. First of all, “there are no specialized travel agencies in the luxury industry. This sector is full of opportunity, especially when there are already two companies specialized in private flights. There is a growing number of people in Romania who opt for first class travel, be it business or vacation. Business Class tickets bought in Bucharest represent 7 percent of all sales made by the airlines.”

Similarly, the spa segment could be appealing for an investor since it is “the least developed one from all the sectors of the luxury industry.

There are many beauty saloons in Bucharest that describe their services as being ‘a spa’, but there is still a long way to go before they reach that objective.”

Currently there are no spa services for men. “There are many international brands that have expressed their interest over time to enter the Romanian market. Among these we could mention Molton Brown, Biodroga and Givenchy. E’SPA announced the signing of a contract for project Silver Mountain (Radisson) in Poiana Brasov, but it looks like it is going to be postponed due to the international crisis,” adds Petcu.

However, a project that is underway and very likely to be completed will be the SPA Shiseido that Tiriac Imobiliare will include in the residential project Stejarii. “The company has declared that the project is not being postponed, and it looks like 2009 will see the opening of the first sections for this project.”

In the hospitality industry, investors should look at opening boutique-type or designer-branded hotels. Last but not least, there are still opportunities in fashion: on the womenswear segments these lie in wedding dresses, business suits and formal clothing. In the menswear segment, they lie in shoes, bags and leather accessories. ■

FILMREVIEW: He’s Just Not That into You

She’s just not that into him: Scarlett Johansson strings along Kevin Connolly

He’s Just Not That into You. That brutal truth that a woman must face after the various excuses for a man’s failure to call – he’s out of town, he lost your number, he’s intimidated by your success – have been exhausted.

It inspired an episode of Sex and the City and subsequently a self-help book, and now it’s a romcom focussing on the intersecting lives of nine 20- and 30-somethings in Baltimore, as they deal with the tribulations of love and marriage, 21st-century style. Jennifer Aniston is miffed that long-term marriage-phobic boyfriend Ben Affleck won’t make an honest woman of her. Her work pal Jennifer Connelly is already hitched, but her husband has started sniffing around Scarlett Johansson, who’s already stringing along a smarmy real estate salesman. She is encouraged in her somewhat morally dubious pursuit of a married man by Drew Barrymore, who is having trouble in finding a guy outside cyberspace.

Though less of a big name than her A-list co-stars, the center of the film is Ginnifer Goodwin’s Gigi, Baltimore’s most hopeless dater, who makes the litany of romantic textbook errors – misreading all the signals, suspending her life while she waits for Mr So-so to call, seeming way too keen, cyberstalking, dropping in “unexpectedly” at her date’s local hangout when she happens to be “in the area”… The tragic list goes on. But Gigi gets an insight into the murky world of the male brain when a pal of one of her latest dumpers takes pity and starts to decipher guy signals for her. Which generally translate to He’s Just Not That into You. Meanwhile, the other interconnecting stories are played out, with all their ups and downs. Can Jen and Ben’s non-marital relationship survive her sister’s wedding? Will Scarlett succeed in wresting Jennifer’s de-

creasingly appealing husband away from her? Will Drew score away from the virtual world? It is all as light and fluffy as a skinny decaf latte. Styled like an early Sex and the City episode, with random characters delivering pithy – or frighteningly psychotic – observations on love and sex straight to camera, He’s Just Not That into You is clearly aimed at the SATC demographic. There’s the standard visual grammar of funky bars and enviable clothes – although fortunately the film is not quite as fashion-fixated as the series – plus the usual sprinkling of comedy gay men.

Like the TV series, the laughs and sex chat are offset with pathos.

Break-ups, infidelity and family health problems punctuate the trite and the comic. Though it’s not as smart or consistently funny as the show that spawned it, there are some laugh-out-loud moments and some great one-liners. And it’s all delivered by a stellar romcom cast, even if the female side – which is naturally the focus and the heart of the movie – is much weightier than the male (weightier in terms of reputation – not in terms of body mass, obviously). Of course, the complaint that this is yet another movie that reduces women’s miscellaneous desires to spotting, snaring, keeping and marrying a man is valid. But surely nobody who comes to see a film called He’s Just Not That into You, starring some of the doyennes of the chick flick, expects depth and realism.

At more than two hours, the plot strands take a little longer than necessary to reach their predictable happy/sad-yet-uplifting conclusions.

Whether you’re crying tears of joy or tears of boredom by the time the credits roll is probably related to whether your second chromosome is an X or a Y. Debbie Stowe Director: Ken Kwapis Starring: Ben Affleck, Jennifer Aniston, Drew Barrymore, Scarlett Johansson, Justin Long, Jennifer Connelly, Ginnifer Goodwin, Kevin Connolly, Bradley Cooper On at:: Hollywood Multiplex, Movieplex, Starplex, The Light 21

EVENTS

Deloitte Romania sends representative Romania officially joins Earth Hour to international forum for first time

LAURENTIU OBAE

LAURENTIU OBAE

Deloitte has now sent three people to the event

Deloitte Romania sent one student to attend the Deloitte International Student Business Forum (ISBF) in Lausanne, Switzerland, at the end of February. The forum is aimed at helping future leaders develop the skills, knowledge and experience to allow them to make an immediate impact on the business world. Hosted in association with global business school IMD, 63 students from 21 countries participated in the three-day forum. Cosmin Neamtu, 22, was selected by the Deloitte Romania HR team from among over 300 candidates.

Otilia Haraga

British ambassador Robin Barnett called for people to reduce, recycle and reuse

Romania has joined annual global

STOCKEXCHANGE

Maschere di Venezia, a fine art print exhibition by Simion Buia about the mysteries and glitter of the Venice Carnival, will be open throughout March at the UniCredit Tiriac Bank on Victoriei Avenue, across from the Royal Palace. The exhibition comprises 20 spectacular pictures of the enigmatic Venetian masks made in a unique manner, by imprinting them on canvas. The Venice Carnival took place this year between February 13 and 24 and has a tradition of 741 years. Buia lives and works in Dusseldorf and Bucharest. He studied the aesthetics of photography at the Becher Schule within the Kunstakademie in Dusseldorf.

Amway campaign One by One is marking its sixth year of activity supporting children in 50 countries. In Romania Amway has helped UNICEF implement the project Maternity – the Child’s Friend, as part of which, maternity wards are refurbished, breastfeeding is promoted and training provided for medical staff and mothers. The project started in Bucharest in 2008 at the St. Pantelimon Maternity Ward, and later moved to Sibiu, receiving in total RON 220,000 from Amway and its distributors.

DJ David Walters, whose music mixes electronic beats with acoustic folk, will perform at the Elvira Popescu hall of the French Institute on March 20 at 9 pm. Walters has in the past been the opening act at the concerts of famous musicians such as David Bowie, Les Negresses Vertes and Gotan Project. In 2006, he launched his solo effort Awa, which made him even more visible on the music stage, opening concerts for the likes of Lenny Kravitz, Morcheeba and Jamiroquai. Walters’ repertory is a fusion between electronic vibes and acoustic folk with Afro-Caribbean influences.

STOCKEXCHANGE

22

This year’s ADOR has undergone a major facelift. The advertising festival will boast a foreign jury made up of industry experts, new organizers, clear rules and a new structure. The festival will be organized by Millenium Communications for the next five editions. Applications – works that were released between May 1 2007 and May 1 2009 which have not competed in previous years – are invited between June 1 and July 31.

Otilia Haraga

Two of the most renowned DJs of electronic music in Europe, Mr Flash and Vicarious Bliss, will play sets in Bucharest on March 21 in Studio Martin. The two musicians are promoted by the French label Ed Banger Records, founded by the former manager of Daft Punk, Pedro Winters, aka Busy P. Mr Flash (real name Gilles Bousquet) mixes a music that is a combination between hip hop and French house music and has had dance hits such as Disco Dynamite and Over The Top. In 2008 he produced three songs for New York rapper Mos Def. Vicarious Bliss (Andrew Gardiner) describes the atmosphere of his music as depicting “a castle in the French region Dordogne and empty Bordeaux wine bottles on the table.” In 2008, Bousquet produced the latest Ladytron album.

STOCKEXCHANGE

COURTESY OF HABITAT FOR HUMANITY

Habitat for Humanity Romania in partnership with the Foundation “Pentru Voi” (For you) gathered 23 women volunteers from Timisoara who helped build Casa Cristian, a dwelling for five people with severe intellectual disabilities.

The construction was financed by the Open Society Mental Health Initiative in partnership with Vodafone Romania. This month, more volunteers are expected to get involved in projects of this kind. “It is not necessary to have experience in construction and the specialists within Habitat for Humanity Romania will guide the volunteers all the way,” said representatives of the NGO.

ADOR festival resumes after facelift

environmental campaign Earth Hour for the first time. On Saturday, March 28, at 8.30 pm local time, people will switch off their lights for one hour to mark their concern about climate change. The initiative was applauded by British ambassador Robin Barnett. In total, 931 cities are in the program, including seven in Romania: Bucharest, Timisoara, Iasi, Brasov, Botosani, Cluj-Napoca and Tulcea.

The Parliament Palace, Romanian Opera, Athenaeum, National Art Museum and National Military Center are participating.

Otilia Haraga

BUSINESS REVIEW / March 16 - 22, 2009