CITY: Top-notch radio orchestras from all over Europe are gathered in Bucharest for the first edition of the International Festival of Radio Ensembles RadiRo, taking place under the artistic direction of Christian Zacharias »page 13
ROMANIA’S PREMIER BUSINESS WEEKLY
DEUTSCH INVESTMENT
SEPTEMBER 24 - 30 / VOLUME 16, NUMBER 30
AUSTRIAN AND GERMAN INVESTORS ARE PROMINENT ON THE LOCAL BUSINESS SCENE AND SAY THEY ARE HERE TO STAY DESPITE THE UPS AND DOWNS OF THE ECONOMY »PAGE 6
Lego, which has opened its own subsidiary in Romania, puts the local toy market at EUR 90-100 million. The company expects market growth and says it plans to reach a market share of 20 percent over the next few years »page 4
3Q
NEWS
INTERVIEW
PLUS
E-merging
Palm springs
High spirits?
Iulian Stanciu of eMag says the company will benefit greatly from Naspers knowhow in online retail, and regional expansion is in the cards
Some 4,800 tons of palm oil were imported into Romania last year, and the amount could rise as demand is expected to go up
Nearchos Papacharalampous, GM of liquor distributor PPD, says brand loyalty is declining and price sensitivity increasing for all local market segments
A masqarade ball from the Friends of the Opera Association » page 13
» page 4
» page 5
» page 8
Find out what’s on in town with BR’s cultural agenda » page 14
Photo: Silviu Pal
LEGO MAKES PLAY FOR LOCAL TOY MARKET
www.business-review.ro Business Review | September 24 - 30, 2012
NEWS 3
NEWS in brief sqm of space was allocated to shops, service outlets, restaurants, an entertainment area and a seven-screen cinema.
ENERGY Lukoil Overseas starts seismic survey in Black Sea Lukoil Overseas, the international arm of Russian oil and gas firm Lukoil, has started a 3D seismic acquisitions survey on two blocks in the Romanian section of the Black Sea, marking the firm’s first upstream operation in the EU. The operation is being carried out by CGGVeritas in the East Rapsodia and Trident block, and involves the survey of 2,000 sq km, which should be completed by November. The blocks are some 100 km off the Romanian coast, where water depths range from 90 to 1,000 meters. A consortium in which Lukoil Overseas has an 80 percent stake, while US Vanco International owns 20 percent, is developing the two projects. The firms were the successful bidders in a tender held by the Romanian government in June 2010. The concession agreements were signed in February 2011 and ratified by the government in October 2011.
FMCG Study puts Coca-Cola’s contribution to local economy at EUR 446 million in 2010 The direct value added by Coca-Cola to the Romanian economy was EUR 48 million in 2010, while its direct and indirect contribution was EUR 446 million (representing 0.37 percent of GDP), according to a study carried out by Prof. Ethan B. Kapstein of INSEAD with Dutch company Steward Redqueen for CocaCola. Tax payments from the Coca-Cola system reached EUR 19 million, and the brand is associated with EUR 204 million in tax flows to the government (representing 0.57 percent of total Romanian tax income).
INFRASTRUCTURE US military puts USD 1 million into Cincu military base construction A combat training center will be built in Cincu, a commune in Brasov county, with USD 1 million sponsorship from the US Office of Defense Cooperation (ODC) at the US Embassy in Bucharest. The facility is set to be a world-class training center providing combined arms training capabilities. The construction project will be used to upgrade infrastructure at the base. Through the Office of Defense Cooperation, the European Command Hu-
R&D EC approves EUR 180 mln financing for nuclear physics project in Magurele
IMAGE of the week Talkin' 'bout my generation Around 3.2 million children started school last week in Romania, where the education system has undergone two major changes: the introduction of the “zero” class and the vocational baccalaureate. The pre-school class – or class “zero” – has seen the first day of school for six-year-olds now made part of school rather than kindergarten. The other change in the school year is the introduction of the vocational baccalaureate, for high school students who wish to enter the labor market directly, who can now obtain a certificate suited to the professional world. manitarian Assistance program has also provided USD 92,000 to refurbish the medical clinic in Cincu.
INVESTMENTS Italian Battistero to build EUR 50 mln panettone factory in Jucu Italian company Battistero will invest some EUR 50 million in a panettone factory in Jucu, near Cluj-Napoca, which the company estimates will reach sales of EUR 100 million by 2015, according to Mediafax newswire. The factory will be built on a 28hectare plot of land located in the Tetarom III industrial park where Nokia had a factory which it closed down last September. The new plant will produce both panettone sweet cakes and biscuits and should become operational in September 2013. It will employ 500 people according to representatives of ClujNapoca County Council, who will sign the agreement with Battistero next week.
PROPERTY Echo Investment buys additional land for Brasov center Echo Investment has purchased additional plots with a combined area of approximately 9,000 sqm for its Korona shopping and entertainment center in Brasov. The firm has become the owner of two plots with a total area of 9,096 sqm, which are located next to a plot the company had bought earlier. The purchase of the land completes the administrative and acquisition-related stage of the development process and marks the start of the preparation phase for the implementation of Echo Investment’s first foreign project. The developers of the project say the new acquisition increases the shopping and entertainment center’s leasable area. Korona is a multifunctional entertainment and shopping center. In the first stage of the project the 35,000
Support for the Extreme Light Infrastructure-Nuclear Physics (ELI-NP) project has been approved by the European Commission (EC). ELI involves nearly 40 research and academic institutions from 13 EU member countries, forming a pan-European laser facility that will host the most intense lasers worldwide. The facility has obtained a financial commitment exceeding EUR 700 million and will be based at four sites. The first three will be situated in Prague (the Czech Republic), Szeged (Hungary) and Magurele (Romania) and should be operational in 2015. The fourth site will be selected in 2012 and is scheduled for commissioning in 2017. In Magurele the ELI pillar will focus on laser-based nuclear physics. For this purpose, an intense gamma-ray source is foreseen by coupling a high-energy particle accelerator to a high-power laser. The financial contribution from the EU for the project hosted in Magurele will come from structural funds, in the form of an investment of almost EUR 180 million.
TRANSPORT CFR Marfa privatization attracts over 80 bidders The Ministry of Transport has received 86 offers from rail companies, investment groups and banks for the rail freight operator CFR Marfa, which should be privatized by year end, according to Agerpres newswire. The government initially agreed with the IMF to sell a majority stake in the state-owned company, but recently decided to fully privatize it. CFR Marfa, which holds a 61.1 percent share of the freight market, estimates a loss of RON 95 million (EUR 21 million) this year and revenue of over RON 1.2 billion (EUR 266 million). Meanwhile, the firm claims to have RON 409 million (EUR 90.7 million) in receivables. The privatization includes the conversion of a RON 700 million debt into shares, to be funneled to the state budget and CFR. The full share package will be sold next, at a market value that exceeds RON 1.1 billion (EUR 244 million).
www.business-review.ro Business Review | September 24 - 30, 2012
4 NEWS TOYS
3Q Iulian Stanciu GM eMag
Lego Romania plans to build 20 percent market share after assembling local subsidiary
I Courtesy of eMag
What went on behind the scenes during the eMag and Naspers transaction? Negotiations were pretty tough, but eventually we managed to find the winning formula for both sides, which materialized into a contract that was over 2,000 pages long. There were over six months of negotiations, they analyzed our business from all sides and analyzed us as people, but we passed their tests. I met more than 10 Naspers managers, from their European office to South Africa. There are two people whom I want to mention: Craig Allwright, senior lawyer at the European office, who has a solution for anything, and Cristina Berta Jones, head of M&A MIH Allegro, Naspers Europe, the only Romanian in the Naspers management, who believed in this business from the start and who was in charge of the most difficult part of the negotiations.
conic toy manufacturer Lego has set up its own subsidiary in Romania and plans to increase its market share to 15-20 percent over the coming years from the present 13.8 percent by making “consistent” investments in marketing, company representatives announced last week. The Danish company has been present in Romania with its toys since 1993 and until setting up its own subsidiary the main local Lego distributor was Varuna-S. Lego plans to continue its collaboration with the Timisoara-based company but says it will directly handle sales to large key accounts. The Lego Group decided to directly come to Romania in 2010 as the country is a growth engine in Eastern Europe, which Lego considers a strategic regional market, said John Ungermand, senior director for emerging Europe. Also, the Romanian toy market is seen as having considerable growth potential in the years to come.
After setting up the local subsidiary The Danish company estimates that the local toy market has increased by the toy manufacturer plans to claim up to 5 percent annually over the past 15-20 percent of the market by infew years and now has a value of creasing sales by 30 percent annually. around EUR 90-100 million. “We are In order to achieve this, it will make convinced the market will accelerate “consistent” investments in marketing, and so the timing is right for us,” said said company representatives, without disclosing the actual figure. Ungermand. Lego Romania has been operational In addition to the market potential, Lego is a popular and well received since the beginning of the year and brand by local children and parents, has 10 employees. Danish construction toy company he added. “In many aspects Romanian consumers are asking for the Lego was set up 80 years ago and consame products as elsewhere. However, tinues to be a family business with a my feeling is that they look for single owner. The Lego Group began and value Lego toys that have an ed- in the workshop of Ole Kirk Chrisucational aspect,” Mads Thuesen, tiansen, a carpenter from Billund, Dencountry manager for Lego Romania, mark, who began making wooden toys in 1932. told BR. Nowadays the company posts globLego representatives say the company has managed to grow sales over al sales of EUR 3 billion and over the the past couple of years and this year past eight years it has constantly been alone it has more than doubled its posting growth. Lego has increased its business by business, said Thuesen. Presently the firm has a 13.8 percent market share more than 20 percent annually over and is the leader on the Romanian the past five years, according to the toy market, according to data from company. ∫ Simona Bazavan Nielsen.
What criteria did Naspers use? eMag already has a team, experience, strong logistics, an awarded brand and a portfolio that can be found at no other retailer in South Europe. Their expansion plans in the region matched perfectly with the stage eMag is at and with our targets. Berta Jones, who had a key role in negotiations, said that eMag has the right DNA to face the continuous evolution of e-commerce. Naspers does not absorb or integrate, it leaves entrepreneurs the management freedom they need. The first step has already been made: we have started expansion on the Bulgarian market.
otilia.haraga@business-review.ro
Photo: Silviu Pal
Do you plan to start other online ventures in the future? I am always planning. I already have four large companies with a cumulated turnover of several hundreds of million EUR a year, and I hope that eMag will reach EUR 1 billion turnover in the not very distant future. I do not rule out a possible investment in a new opportunity. Jorgen Vig Knudstorp, CEO Lego Group and John Ungermand, senior director emerging Europe for the Lego Group at the opening event of the Bucharest office
www.business-review.ro Business Review | September 24 - 30, 2012
NEWS 5
AGRICULTURE
PARTNER CONTENT
Malaysia sees Constanta port as potential gateway for regional palm oil trade
Romanian Renewable Energy market: What should we expect in 2013? by Ilias Papageorgiadis CEO of MORE Green Energy of them are serious and determined. Any good project whose owner will not ask for a fortune will be sold. At the same time, this is the sector with the biggest % of “ghost projects”: Someone with “an idea and some connections” who tries to sell a “project” that does not exist and requires time, expertise, devotion and perseverance.
Photo: Silviu Pal
Tan Sri Bernard Dompok
E
astern Europe’s demand for palm oil is expected to grow considerably over the coming years and Romania could become a hub for Malaysian palm oil imports in the region through the port of Constanta, said Tan Sri Bernard Dompok, the Malaysian plantation industries and commodities minister, during the Malaysia-Romania Palm Oil Trade Fair and Seminar (POTS) organized in Bucharest this week, the first of its kind to be held in an EU country. “The first step has been taken. We are here because Romania is the ideal gateway to countries like Bulgaria, Hungary, Serbia and Ukraine (…). POTS Romania represents an important platform for Romanian and Malaysian private companies to meet and explore future business opportunities,” he said during the event. The seminar was organized by the Malaysian Palm Oil Council, which represents 39 percent of global palm oil production and 44 percent of trade. Dompok said Malaysian companies are interested in shipping palm oil into the region through the Constanta port, but no formal agreement has been reached so far. “I have met with the minister of transport and some private sector interest has been shown to see how we can take part in the development of the Constanta port. Perhaps there could be some development that could help us in trying to get palm oil to Eastern Europe through Romania. This is an ongoing discussion and it is in an early stage but there are companies who would like to see this kind of business operating in Romania,” he said. Some 4,800 tons of palm oil were imported into Romania last year but this quantity could more than double in the coming years as demand for edible
oil and fats goes up and sunflower oil production fails to cover it. By comparison, the domestic production of vegetable oil is estimated at 350,000 tons per year out of which 6 percent is used for non-food purposes. Malaysian producers forecast that demand for palm oil will go up in the region, promoting it as a cheaper alternative to most edible seed oils and a healthy and sustainably grown product. Demand should grow also because the product is used as an input for the confectionery, pastry, dairy and cosmetics industries and fuel for renewable energy production, said Malaysian officials. Palm oil was introduced on the Romanian retail market in 2006 and the country is so far the only one in the region where it is sold in small consumer packs. At present there are seven local distributors of frying palm oil, most of which are Romanian companies. Malaysia is the largest exporter of palm oil in the world and the second largest producer. Last year it produced some 18 billion tons of crude palm oil from crops that cover 5 million hectares of land. Bilateral trade between Romania and Malaysia amounted to EUR 36.8 million in 2011, up 36.6 percent y-o-y, according to Dompok. The bulk of Malaysian exports to Romania took the form of electrical and electronic products while palm oil accounted for 6 percent of the figure. Trade between Malaysia and countries in Eastern Europe was recorded at EUR 3.11 billion in 2011, an increase of 20.5 percent from 2010. Exports posted an increase of 25 percent from EUR 1.73 billion in 2010 to reach EUR 2.16 billion in 2011, while imports rose 11.3 percent from EUR 0.85 billion in 2010 to EUR 0.94 billion last year. ∫ Simona Bazavan
As September is about to end, we are preparing for the last quarter of the year and it’s possible to extract the first conclusions for 2012, but also prepare for 2013. Let’s check what the situation in the Romanian Renewable Energy market is like, one sector at a time. Wind Currently the balance is the opposite than in previous years as several good projects can be found, with less available investors. The market is not as hot, but transactions are still sealed. 80% of the investors I have discussed with focus on small projects, while 20% eye large scale ones. The big players continue their domination and by next year the 2.000 MW commissioned capacity will be surpassed.
Biomass - Biogas Having received a mandate for 20 MW of Biogas and Biomass projects, I had the chance to study this segment, which is still at the beginning. Very few projects are advanced, even less are “Ready to Build”. Many owners have obtained approvals for European Grants but they don’t really know how to proceed. But if there is one sector which may explode in 2013 – 2014, it will be energy production through cogeneration. Romania is almost ideal for it and the national grid needs it. PPA – Financing We are hoping that the PPA contract legislative problems will be resolved during the following months. This does not mean that we have not been active in this sector, but there is much more to be done than what has been done thus far. Without PPA, very few projects are constructed, using private equity. In order for a project to be financed, usually a PPA is needed, which is why everything has been delayed and the majority of investments were pushed for 2013.
Photovoltaic This is definitely the “hottest” sector of the year in terms of transactions of projects (but not yet of constructions). Transactions have been and will be sealed this year on projects with capacity of hundreds of MW, most in the 5 – 10 MW range. Smaller (good) projects are very attractive but the supply is limited. Only a small part of big size projects are really good and they will probably be sold in the following months, if they haven’t yet. Investors are preparing to construct and commission during 2013, multiplying the actual operational projects. During next year, roof top projects will also probably become very attractive, but there are many challenges for someone who wants to get involved in the sector.
Challenges The Romanian Renewable Energy segment still faces many challenges and issues that need to be settled. Some problems were resolved in July, others remain. But the potential is here and careful investors with good consultants will be able to conclude profitable investments. There are many similarities to the problems faced by investors in the Real Estate sector of the past. But Renewable Energy has several differences and advantages, allowing us to resolve the problems and eliminate most risks. 2012 is expected to be active until the end and 2013 will also be a very good year.
Micro Hydro There aren’t as many investors in this sector as in others, but the majority
Ilias Papageorgiadis CEO of MORE Green Energy info@more-group.eu
What is your opinion?
6 FOREIGN INVESTMENTS
www.business-review.ro Business Review | September 24 - 30, 2012
Teutonic team top local investment ladder Germany and Austria remain committed to Romania as their combined foreign direct investment of over EUR 15 billion sustains the recovery of the local economy. The Teutonic countries are focusing their investment on the oil and gas sector, renewable energy, financial services and retail, at a time when the Euro zone has to put its own fiscal house in order. ∫ OVIDIU POSIRCA Economic growth in the Euro zone took a hit in the first half of this year, as the area is currently grappling with a sovereign debt crisis in peripheral countries. The economy of the 17 member states that have adopted the Euro remained stagnant in the first quarter and shrank by 0.2 percent in the second quarter, according to Eurostat. Germany, dubbed Europe’s economic power house, added 0.3 percent to output in the second quarter, while Austria moved up by 0.2 percent. Romania boasted the fourth largest economic growth in Europe of 0.5 percent in the second quarter. The Euro zone woes impacted foreign direct investments (FDI) in Romania, which fell by 30 percent to EUR 621 million in the first semester. Nonetheless, companies from Germany and Austria haven’t put the brakes on investments and have announced plans to develop businesses in manufacturing and infrastructure, among other fields.
Close ties with Romania Romania hosts over 19,000 companies with German capital, whose FDI amounted to EUR 5.6 billion last year, according to the Romanian-German Chamber of Commerce and Industry. German FDI stood at EUR 424 million last year. Meanwhile, Austrians have set up 6,300 companies locally, which had invested EUR 9.4 billion by the end of 2010, according to central bank data. “We estimate that there are roughly 1,000 active Austrian investors in Romania, many of whom have more than one company set up here,” said Arnulf Gressel, commercial attaché at the Austrian Embassy. Germany is Romania’s most important commercial partner, as the total trade volume between the two countries last year stood at EUR 17.2 billion, which was 17.7 percent of Romania’s total foreign trade, according to data from the German Embassy. Romania received EUR 8.7 billion worth of German imports, while exports amounted to EUR 8.4 billion.
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The first five months of his year saw EUR 3.5 billion in exports and EUR 3.7 billion in imports. Romania’s trade with Austria reached almost EUR 3 billion last year, close to pre-recession levels. Austrian exports grew by 10.3 percent in 2011 to EUR 1.8 billion, while imports grew 18.7 percent to EUR 1.1 billion, according to data from the Austrian Embassy. Trade is expected to expand by a further 5 percent this year.
Engineering German investments German companies have developed a supply chain for the automotive industry after building plants that produce car components. “Romania will remain attractive due to its geographical location and relatively low labor costs. It is an established location for the German automotive industry,” said Dr. Sonja Kreibich, economic and commercial counselor at the German Embassy. Continental, the tire manufacturer, is set to invest EUR 6 million in expanding its Timisoara plant, creating 400 new jobs that will join the 700 ex-
isting ones. Continental has seven production plants and three R&D centers. The firm employs 10,500 people locally and has invested over half a billion Euros in Romania. Meanwhile, the German Bosch Group will make a EUR 77 million greenfield investment in a car component plant in Jucu, Cluj County. And the firm will put another EUR 43 million into adding new capacities in the Blaj factory, Alba County. Kirchhoff Automotive will manufacture components for the new Ford B-Max model in Craiova, following a EUR 12 million investment that was inaugurated this April. Draexlmaier Group announced in late 2011 plans to extend its Satu Mare plant where it produces car cables. The company planned to make a EUR 30 million investment, according to the government, adding to past investment of EUR 200 million. The German group employs 12,000 people and has five plants in Romania, which manufacture electrical systems and car components. Premium Aerotec, the German producer of aircraft components, opened
last year a plant in Ghimbav, Brasov County, following a EUR 40 million outlay. The company plans to invest another EUR 50 million to accommodate manufacturing facilities for Airbus models. It currently has more than 500 employees in Brasov. The German utility E.ON will invest around EUR 78 million in upgrading gas and power distribution networks and has announced its intentions to set up two business service centers in Cluj and Berlin. The Berlin center will have 500 human resource specialists, while accounting professionals will work in Cluj. The centers will create around 1,100 new jobs and should become operational by 2015. Meanwhile, Romania’s incentivized renewable industry has attracted Steag, Germany’s fifth biggest electricity provider, which will invest EUR 200 million in a 108 MW wind farm. The utility firm said the Crucea North park will become operational by the end of 2013. The industrial gas producer Linde Gas opened this summer a new air separation unit at ArcelorMittal Galati steel company, following an investment of
www.business-review.ro Business Review | September 24 - 30, 2012 over EUR 100 million that began in 2008. The firm has invested EUR 260 million in Romania since 1996. Elsewhere on the market, German retailers are expecting consumption to bounce back and have continued their investments in domestic facilities. The German Metro Group controls the Metro Cash & Carry and the Real hypermarket chain, which employ more than 12,000 people. Metro launched this March a franchise for independent retailers called La Doi Pasi. It was taken up by about 200 local grocery stores in four months. The German group Schwartz has further developed its retail presence through discount retailer Lidl and hypermarket chain Kaufland.
Reaching for the top – Austrian style Romania holds a commanding position in the banking and insurance sectors and has kept the investment tap open for energy, both from traditional and green sources. Austrian retail players also continued to expand locally. Construction and infrastructure were other sectors that remained on the investment radar of Austrian companies. BCR, majority owned by Austrian Erste Group, is the largest lender in Romania, holding 20 percent of the market, with assets of around EUR 17 billion. However, the slow recovery of
the local economy and higher provisioning led to a loss of EUR 125 million in the first half of this year. BCR continued to finance SMEs, but this proved to be a double-edged sword, as these companies took the brunt of the crisis and are having issues in paying back their loans. Hence, the volume of non-performing loans reached almost one quarter of the total loan book, which was over EUR 12 billion in the first semester. BCR’s new CEO, Tomas Spurny, said the lender will make every effort to reverse the “disappointing results.” The bank has strong support in Erste, which purchased last year a 24.1 percent stake in BCR from four minority shareholders in a deal worth around EUR 400 million. This gave Erste control of around 90 percent of BCR. Raiffeisen Bank Romania registered an increase of EUR 50 million in the first semester, which was 28 percent of the level during the same period of last year. The lender’s assets gained 9 percent to EUR 5.6 billion. UniCredit Tiriac Bank registered a net profit of EUR 17 million in the first half, which was a 17 percent decrease from the same period of last year. However, it boosted lending by almost 20 percent to EUR 3.8 billion, due to higher demand form SMEs. Meanwhile, real estate developer Raiffeisen Evolution is in the final constriction stages of the Sky Tower office
FOREIGN INVESTMENTS 7 building, which is part of Floreasca City Center. Real estate investor and developer Immofinanz Group announced this year plans to build new office buildings in Iride Business Park. In Romania the Vienna-listed firm holds a portfolio comprising shopping centers and office buildings. The local operations of Vienna Insurance Group (VIG) were hit by portfolio restructuring. First half gross written premiums took a nosedive of 17 percent to EUR 236 million leading to a loss of EUR 4.1 million. VIG leads the Romanian insurance market as it holds controlling stakes in Asirom, BCR Asigurari de Viata and Omniasig VIG. The retail sector remained vibrant as companies like Baumax, Billa and Kia continued to increase their local footprint. Energy is still a key industry for Austrian companies, although it requires a significant amount of capital. Oil and gas firm OMV Petrom registered a first half profit of EUR 455 million and added 19 percent in sales to EUR 2.7 billion. The financial figures were supported by higher oil prices and a stronger US dollar. OMV Petrom, which is Romania’s largest corporate taxpayer, will annually invest between EUR 800 million and EUR 1.2 billion in the years to come, according to Mariana Gheorghe, the firm’s CEO. OMV Petrom has boosted its explo-
ration expenditure by 23 percent to EUR 67 million, due to exploration drilling in the Black Sea. The project is being developed with the US ExxonMobil. The companies announced this winter that potential gas deposits had been found off the Romanian shoreline. This August Petrom began to operate an 860 MW gas power plant in Brazi, following a EUR 500 million investment. The firm also operates the 45 MW Dorobantu wind park in the Dobrogea area. Verbund, the leading electricity company in Austria, commissioned this month a 100 MW wind farm, close to the Romanian Black Sea coast. Another wind farm of similar capacity is currently under construction. Wood working industry and related biomass plants have been established by companies such as Egger, Kronospan and Schweighofer, with operations in Sebes, Brasov and Radauti. Looking forward, Austria intends to develop the automotive supply business, while Germany is planning further investments in the automotive, services and retail sectors. Representatives of both countries stated that Romania remains an attractive market, although investors are grappling with regulatory insecurity and lack of transparency in public procurement. ovidiu.posirca@business-review.ro
www.business-review.ro Business Review | September 24 - 30, 2012
8 INTERVIEW
Spirits market continues to drink in lower purchasing power Romanians drank 12 percent more imported vodka in 2011 than in 2010 while whiskey sales posted just a slight increase. However, the local spirits market is far from raising a glass to the end of the crisis as consumers continue to search for the best deal and price wars still are being fought, Nearchos Papacharalampous, general manager of beverage distributor PPD Romania, told BR. ∫ SIMONA BAZAVAN
2007-present – general manager of Photos Photiades Distributors (PPD) Romania 2003-2007 – PPD area sales manager for the city of Limassol, Cyprus 2002-2003 – Store manager and later buyer at Carrefour Cyprus
around 5.5 to 6 percent; now we are discounting by more than 10 percent. The whole industry has moved in this direction in order to be more accessible. Why have you decided to launch your own vodka brand and what was the investment? The affordable premium vodka category is a very dynamic segment of the local market and one of the segments which has really grown. We immediately saw the opportunity and wanted to capitalize on it. I want to stress that Romanians are connoisseurs when it comes to good quality vodka. They have a trained taste and are very informed about the price-quality issue. The Tazovsky Vodka brand was built from scratch with Ogilvy Group Romania and we have worked on this project for the past two years after doing a lot of
consumer research. It is our first own brand in Romania. I can tell you that we have invested more than EUR 300,000 in research alone. Overall, it was a considerable investment. The vodka is produced and bottled in Latvia. What are your sale expectations for this new product and do you intend to launch new brands of your own in Romania? We expect to reach a ten percent market share of the affordable premium vodka category in the next ten months and to boost this to 25 percent over the next three years. In the first year it should be more than 100,000 liter cases. The shelf price for a bottle is around RON 32 to RON 33. It will be present in horeca, international key accounts as well as a big proportion of traditional trade which is a major driver for this segment of vodka. We are always thinking about the future
Evolution* of the Romanian whiskey and imported vodka market Whiskey Imported vodka
*million liters
2007
2008
2009
2010
2011
3.8 1.2
5.3 1.3
4.5 1.4
4.61 1.5
4.63 1.7
Source: PPD Romania
Has consumers’ price sensitivity affected all your distribution channels? In our industry major volumes generally come through international key accounts and horeca. We are also present in traditional trade but the main distribution channels for us are the large retailers and the horeca industry. Today both channels are relatively equal in terms of volume share. Price sensitivity was felt less in horeca – pubs, bars, restaurants, clubs – than in international key accounts. There hasn’t been a big drop in the margin of horeca outlets and price wars are more common in the international key accounts where you can influence the shopper’s choice. We have had to be flexible and respond to consumers’ new reality. Before the crisis we gave maximum discounts of
CV Nearchos Papacharalampous
Photo: Silviu Pal
How has the Romanian spirits market performed so far this year overall and have you noticed changes in consumer behavior? Well in general the market is stable with no major ups and downs and the same applies for imported spirits. Last year there was actually a slight increase for whiskey. The imported vodka segment had the best performance and it’s a category which continued to post doubledigit growth, around 12 percent last year against 2010. Vodka, I would say, was the winning category. Cognac had the poorest performance in comparison with the other categories, but there is a need to build more awareness around this product in Romania. As far as consumer behavior is concerned, there have definitely been two major changes over the past few years. Brand loyalty is declining and price sensitivity is increasing for all market segments. Price sensitivity is the main driver now when consumers make a purchase. Of course there is a good proportion of people who remain loyal to brands but the reality is the vast majority of consumers have downgraded to more affordable brands within the same category. Romanian consumers are very cost conscious – this is something that became clear a year after the crisis and it still applies today. We expect the same pattern to apply next year too and it is hard to say exactly when the market will pick up.
but for the time being we want to consolidate Tazovsky. But for Diageo brands – for which we are exclusive representatives – we are launching new ones each year. What were the company’s financial results last year and what are your targets this year? In 2011 we sold around 200,000 liter cases while a year before volumes amounted to some 196,000 liter cases. Last year we reported a turnover of about EUR 27 million, up from EUR 26.7 million in 2010. This year we are growing close to last year’s results. In 2011 our profit was EUR 2.1 million compared to EUR 1.3 million in 2010. The estimation for 2012 is that we are going to be around the 2011 profit level if we exclude the Tazovsky investment project. Our reaction to market and consumer behavior changes over recent years was that we became more trade oriented without neglecting the brand aspects. This has enabled us to get through the crisis without our business being significantly impacted. What is your market share for whiskey and vodka? We are the leader of the whiskey category in Romania with a 28 percent market share with the J&B brand leader of the scotch and whiskey category. This brand also accounts for 50 percent of our whiskey sales. We are also the leader in the imported liqueurs category with an 80 percent market share. For imported vodka we are number three on the market with Smirnoff. simona.bazavan@business-review.ro
www.business-review.ro Business Review | September 24 - 30, 2012
TAXES
Government scouts around to replenish coffers
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M Victor Ponta said last week that Romania needed to find new financing sources for the budget, as the country is lagging behind on tax collection in the EU, stressing that the 16 percent flat tax will remain unchanged. Romania’s tax collection for the budget stands at around 31-32 percent of GDP, while France achieves 57 percent, according to the PM. He said the core issues lay in the tax collection, where fiscal agency ANAF is the main authority. The PM added that the management change at ANAF that occurred this spring had brought EUR 221 million of extra revenue each quarter. “Aside from better tax collection, the government should get more involved in attracting EU funds, by improving the mechanism that ensures the internal management of these funds,” said Florin Gherghel, head of the tax department at Noerr Finance & Tax. Taxpayers in certain areas of the economy are unaware of or refuse to pay social contributions, VAT and profit tax, which impact collection rates, according to Luisiana Dobrinescu, partner at law firm Dobrinescu Dobrev. She added that the cumbersome fiscal legislation and the “rudimentary” electronic tax record system managed by ANAF suppressed collection levels. From 2013 ANAF will implement a major reform program with support from the World Bank. The agency aims to set up regional offices and move most of the regular operations online. Dobrinescu says the staff restructuring at ANAF was having a “strange outcome” as fiscal inspectors had been laid off, while those with administrative jobs were being kept on board. “This is the reason why VAT reimbursements are made in six to eight months, instead of 45 days, because
there aren’t inspector teams available for controls,” said the law firm partner. Stronger efforts to counter bribery and fiscal evasion were cited by the PM as another potential source of revenue. Fiscal evasion is set to reach EUR 18 billion this year, according to specialists. “If we want to have more money for school, healthcare and roads, it is impossible to do it with the current budget,” said Ponta. An increase in royalties for mineral resources and different VAT thresholds are currently on the table of decision makers. Gherghel said the authorities should avoid raising taxes as this will increase evasion and hit the budget collection rates.
Questioning the flat tax Romania adopted the 16 percent flat tax in 2005 in order to cut red tape and spur investments. “Maybe the flat tax wasn’t the main attraction, but it was certainly one of the main reasons why foreign investors decided to invest in Romania,” said Gherghel. He warned any increase would force foreign companies to change their business and that they could cut some of their existing investments. Dobrinescu said the flat tax was important for investors, but its benefits had been eroded by the fiscal instability. “The impossibility of entrepreneurs to budget their costs for at least three years determined the migration of many investments in Bulgaria,” said Dobrinescu. Gherghel concluded that neighboring Bulgaria, with its 10 percent tax rate, is considered to be more predictable on tax increases. ∫ Ovidiu Posirca
MONEY 9
www.business-review.ro Business Review | September 24 - 30, 2012
Slow development pace for local entrepreneurs Serial entrepreneur and angel investor Radu Georgescu, whose name is linked to companies such as Gecad and Avangate, says the pace of development and execution of a business is much faster in the West than in Romania. business model, the innovation that the product or service brings, capitalization, profitability and the team. What is the success rate in obtaining financing among online companies in Romania? The success rate is low, but this is the case everywhere. Don’t imagine that in Silicon Valley it is different, and that every idea receives financing. Most projects die because they started on the wrong foot. Either they did not gather enough information on the market and clients, or they did not select a good team to be in charge of the project, or how to capitalize on the idea was not well thought through, or any other reason for which a startup can die in the first months or the first year.
∫ OTILIA HARAGA How attractive are Romanian online businesses to foreign investors? It does not matter so much if you are from Romania or another European country, China or Russia in terms of how attractive your idea is to an investor. Attractiveness comes from the business model (product, development, technology, services, targeted market, clients, monetization, profitability) and execution (the team, respecting deadlines and so on). Romania is a market where entrepreneurship has only just started to speed up; there has to be a larger and larger pool of startups where one can invest. However, since most of the companies are at the beginning, investing money involves a very high risk and very few manage to attract financing of over EUR 500,000 or EUR 1 million from investment funds. Most projects worth investing in need EUR 30,000, EUR 50,000 or EUR 100,000. What are the most widespread methods of financing for local online entrepreneurs? These are the three Fs (friends, family and fools) and angel investment, because many local online projects are very much at the beginning, when risks are still very high. What criteria are taken into consideration by investment funds and business angels when they decide to invest in an online business? The criteria are the viability of the
When is it a good idea for an entrepreneur to approach a business angel and when an investment fund? There are several stages in the life of a business that are appropriate or not for a certain type of financing. An angel investor enters the life of a company in the first stages, when the risks are higher and the cost of financing is in direct proportion to that. An angel investor will invest a maximum EUR 100,000 and will take up to 20-25 percent of the business. An investment fund will enter a business when the company has already proven the viability of the business model, it is usually profitable and the risk of failure is lower. The fund will invest more money and hold a smaller percentage in the firm. How is the local entrepreneurial culture different from that in the West? As I have been present in Silicon Valley for a long time, I can say there are two major differences between here and there – speed and the environment. The pace of the development and execution of a business is much faster over there. Secondly, what is different is the environment in which one can evolve as startup and an entrepreneur – financing, human resources qualified at all levels, even the climate, infrastructure, and the available services (lawyers, accountants, auditors, office rentals for startups and many other things). The rest are details. otilia.haraga@business-review.ro
LINKS 11
www.business-review.ro Business Review | September 24 - 30, 2012
12 CITY
Rediscovered Luis Ramon Marin photos go on display A handful of the most outstanding photographs by Luis Ramon Marin, the figure now regarded as the world’s first photojournalist, are currently on display at the Instituto Cervantes Bucharest. BR attended the grand opening and presents the highlights of Marin’s rediscovered photographs.
Balloons Contest in Madrid, 1913 Josephine Baker, 1930
King Alfonso XIII Dancing at the Venta de La Rubia Stables, 1916
∫ OANA VASILIU
The Hands of Celia Gomez, After Her Future Was Predicted by Giovani Tassani, 1933
All photos courtesy of Cervantes Institute
The Zaragoza-Lerida-Barcelona Phone Line, 1928
The exhibition is less about the large body of Martin’s work, which includes over 18,000 negatives, and more about the story behind this impressive collection. The photographs were hidden by his wife Eduarda Pla in a cavity behind her kitchen wall for several decades after the Spanish Civil War, for fear they would be destroyed due to their political content. His daughter Lucia then donated them to the Spanish Pablo Iglesias foundation, which restored and digitalized his photo archive. Marin was born in Madrid in 1884. He initially worked as a civil servant, but from the age of 24 he started his photojournalistic career by imaginatively capturing Spanish society. Marin’s talent for revealing the inner character of his sitters extended into his employment as press correspondent to the
Royal Family. During this period, he gained exclusive access to their home and also followed them on their private holidays. One great result is King Alfonso XIII Dancing at the Venta de la Rubia Stables (Madrid 1916), where the king is captured enjoying himself in the stable yard, seemingly unaware of any observers. Part of the significance of Marin’s photographs lies in their historic value. He recorded important national events, traced the development of modern industry and documented the lead-up to the Spanish Civil War right up until its end, capturing all of the grim moments in between. Marin was also known to have captured many of the women of high society. The glamorous Portrait of the artist Josefina Baker in her Dressing Room (Madrid 1930) shows the performer at the height of her success. oana.vasiliu@business-review.ro
www.business-review.ro Business Review | September 24 - 30, 2012
CITY 13
Top orchestras tune up for Opera fans don masks International Festival of for fundraising ball Radio Ensembles, RadiRo The strains of Schubert, Beethoven, Dediu, Blomenkamp, Faure, Tchaikovsky, Rahmaninov, Borodin, Stravinski, Brahms, Strauss, Dvorak, Sostakovici, Mozart, Silvestri, Mendelssohn, Bruch and, of course, Enescu, will ring out in Bucharest between September 23 and 29. Under the wand of famous conductor Christian Zacharias, four prestigious radio orchestras have announced their participation in the first edition of the International Festival of Radio Ensembles, RadiRo.
Photo: Silviu Pal
Christian Zacharias, the artistic director of the festival
∫ OANA VASILIU Christian Zacharias, the artistic director of the International Festival of Radio Ensembles, first made his name as a pianist, and has continued to appear in concertos and recitals worldwide. He has performed chamber music with partners including the Alban Berg Quartet, the Guarneri Quartet, the Leipzig String Quartet, Heinrich Schiff and Frank Peter Zimmermann. The artist began his conducting career in 1992 with the Orchestre de la Suisse Romande in Geneva. Since 2000, he has been artistic director of the Lausanne Chamber Orchestra and since 2002 he has served as principal guest conductor of the Gothenburg Symphony Orchestra. One of his influences was Romanian Sergiu Celibidache, who in 1975 conducted the Stuttgart Radio Symphony Orchestra. In the same year, Zacharias won first prize at the Ravel Competition in Paris – organized by Radio France, which will be present at the festival this week – and Celibidache invited Chris-
tian to join him in conducting the Stuttgart orchestra. For this festival, Christian Zacharias says he would like to create and conduct a new, young orchestra that would perform here every two years. Although for this first edition he could not create his own program because the festival is new, the style will be allegro appassionato, as most of his performances are. Audiences at the International Festival of Radio Ensembles, RadiRo, will have a chance to see and hear the Orchestre Philharmonique de Radio France, Symphonic Orchestra Nazionale della Rai (OSN RAI) and the BBC Symphony Orchestra as well as the Piano Quartet Rivinius, the Quartet Ad Libitum, the Quartet Voces and the Radio Chamber Orchestra. The grand opening will feature a concert by Romania’s National Radio Orchestra, accompanied by the Academic Radio Choir, under the wand of Zacharias. RadiRo intends to fill the gaps between the biennial International George Enescu Festival by bringing great radio orchestras from all over the world to play in Romania. One source of inspiration was Born in Romania, through which organizers invite famous Romanian-born musicians to be part of performances. The event will feature violinists Alexandru Tomescu, Liviu Prunaru, Mihaela Martin and Cristian Macelaru, pianists Michael Abramovich, Luiza Borac and Dan Grigore, soprano Teodora Gheorghiu and mezzo-soprano Ruxandra Donose as well as Ion Marin, who will conduct the Orchestre Philharmonique de Radio France. Orchestral performances will take place at Sala Palatului starting at 19.30, while the quartets will play at Sala Radio two hours earlier. RadiRo is being held with the support of Radio Romania, ArCub and the Romanian Society of Television, under the Patronage of the President of Romania. The full program of the event can be found at www.business-review.ro/calendar. oana.vasiliu@business-review.ro
The latest project from the Friends of the Opera Association is a masquerade ball aiming to raise funds for the Bucharest Opera House. Gilda Lazar, president of the association, tells BR more about the event and the association’s mission. STAFF The Friends of the Opera Association has organized several events in the Old Town over the last two years. What is your latest project? This time we are organizing an exclusive, elegant and amusing fundraising event at the Bucharest National Opera House (OBN), a masquerade ball, hosted in the foyers. In the first part of the evening, guests will attend a performance of Un Ballo in Maschera by Giuseppe Verdi. The masquerade ball itself will start at 21:00, and will include some special moments: a champagne toast, dinner, costume parade, raffle, dancing and live classical background music, both vocal and instrumental. Participants’ period costumes can be inspired by any historical era. What is the mission of the Friends of the Opera Association (FOA)? The association was founded by a group of opera lovers who believe that the Opera needs to catalyze all its energies to secure the future of the country’s first opera stage. The mission of the FOA is to support the activity of Bucharest National Opera by raising private funds. Did you know that Bucharest National Opera as a budgetary institution is not allowed to promote itself?! The association can fill this gap. Our long-term goals are: to develop educational programs, support young talent and help the ONB’s artists to improve their artistic skills, and to preserve and modernize the artistic, technical and professional capacity of the Bucharest National Opera. No matter
Masquerade Ball at the Opera Bucharest National Opera (ONB), October 26th, starting 18:00
More details on attendance can be found at www.friendsofopera.ro
what times we live in, and no matter how difficult it is to raise money, I think it’s our duty to contribute to the promotion and support of authentic artistic values. Can you give some examples of such projects? In the long run, the FOA intends to support the invitation onto the Bucharest National Opera House’s stage of internationally acclaimed and renowned artists, and also to foster funding for all the Opera’s major projects. We intend to provide financing for a series of cultural exchanges between artists from the ONB and those from similar institutions abroad. For the beginning, due to the similarity of repertoire, we would start with cultural institutions from the former Soviet space. In the future we could launch a scholarship program for young talented artists.
www.business-review.ro Business Review | September 24 - 30, 2012
14 CITY
CULTURAL EVENTS CALENDAR OUTDOOR Bikefest September 29-30 Izvor Park Bike Fest 2012 is dedicated to Bucharest’s cycling community as well as to promoting the bicycle as an alternative means of transport. This year’s event will feature pentathlon competition, World Class Fall Kick Off, and Skirtbike, an event aimed at fashion-conscious women cyclists. Moreover, a fair will be held from where visitors can buy new and second hand bikes, themed films will be screened and handmade objects will be on sale. TriKids Challenge September 30 Herastrau Park, Roata Mare meeting point TriKids Challenge is a competition for children who enjoy cycling and running. The event is part of the Triathlon Challenge, where athletes swim, cycle and run. At the last event, more than 60 children aged between 5 and 13 finished the three trials: swimming, cycling and running. This year, children’s cross-country is on the program, as well as a duathlon which involves running and cycling.
dents and creating a common approach to Development Education among teachers. The caravan presents electronic terminals, multimedia equipment, exhibits from South Global, magazines, games and movies. Information from Africa and South America can be found in this Glocal Tour, as well as success stories from the locals.
FILM Premiers Premium Rush Opens September 28
BUSINESS AGENDA September 25 11:00 Eco-Rom Ambalaje, in partnership with the Education and Environment Ministries, organizes an event to mark the launch of an educational program on recycling at the Environment Ministry. By invitation only.
September 26 Coface organizes the 2012 edition of the Country Risk Conference at Athenee Palace Hilton Bucharest. By invitation only.
September 27 New York bicycle messenger Wilee (Joseph Gordon-Levitt) finds himself on the run from a corrupt cop through the streets of Manhattan when his last delivery of the day – a routine “premium rush” run – turns out to be not so routine. Director: David Koepp Starring: Joseph Gordon-Levitt, Michael Shannon, Dania Ramirez On at: The Light Cinema, Hollywood Multiplex, Cinema City Sun Plaza, Cinema City Cotroceni, Glenade Studio, CinemaPRO The Sweeney Opens September 28
EXPO GlocalTour Multimedia Caravan September 15-30, from Tuesday to Sunday Antipa Museum Garden
11:00 Boiron Laboratories organizes an event to mark the launch of a book for pharmacists and practitioners of homeopathic medicine at Hilton Hotel. By invitation only.
September 27 ∫EVENT 17:00 Business Review organizes the German-Austrian Business Forum, an event that brings together representatives of the two countries that are active in the domestic economy. Find out more at http://business-review.ro/brevents/
The objective of this international project is to reinforce the use of peer education as a tool for raising the awareness of European stu-
Director: Nick Love Starring: Ray Winstone, Damian Lewis, Hayley Atwell On at: Hollywood Multiplex, Cinema City Cotroceni.
ISSN No. 1453 - 729X
FOUNDING EDITOR Bill Avery EDITOR-IN-CHIEF Simona Fodor SENIOR JOURNALIST Otilia Haraga JOURNALISTS Simona Bazavan, Ovidiu Posirca, Oana Vasiliu COPY EDITOR Debbie Stowe COLLABORATORS Anda Sebesi ART DIRECTOR Alexandru Oriean PHOTO EDITOR: Mihai Constantineanu PHOTOGRAPHER Laurentiu Obae LAYOUT Beatrice Gheorghiu
BR welcomes information for Who’s News. Submissions may be edited for length and clarity. Get in touch at simona.bazavan@business-review.ro
Constantin Coman will be the new country cluster manger at Coface for Romania, Bulgaria and Slovakia from October. He is replacing Cristian Ionescu, who has decided to leave the credit insurer after nine years. Coman’s previous position was deputy managing director in the services division. He has worked at Coface Romania for 12 years and has headed the receivables collection, evaluation and company information division since 2010. In addition, he managed the claims activity of the firm’s insurance operations. Coman graduated from the Faculty of Law in Craiova and holds an MBA from Sheffield University.
Lori Collin
Business Review organizes the Pharmaceutical Industry Roundtable. Find out more at http://business-review.ro/br-events/ ˚
has joined the New Europe Property Investments (NEPI) management team where she will be responsible for the firm’s office expansion strategy. Her role will be to identify new office acquisition and development opportunities and to deal with local and international real estate agencies in relation to NEPI’s existing office space and office developments. Collin has almost 20 years of experience in the real estate field, the last five of which have been spent in Romania. She gained her expertise in real estate consultancy in the USA, covering sectors such as residential, commercial and investments.
PUBLISHER Anca Ionita EXECUTIVE DIRECTOR George Moise SALES & EVENTS DIRECTOR Oana Molodoi MARKETING MANAGER Ana-Maria Stanca SALES & EVENTS Ana-Maria Nedelcu RESEARCH Catalina Costiuc SUBSCRIPTION Lili Voineag PRODUCTION Dan Mitroi DISTRIBUTION Eugen Musat
PUBLISHER Bloc Notes Media ADDRESS No. 10 Italiana St., 2nd floor, ap. 3 Bucharest, Romania LANDLINE Editorial: 031.040.09.32 Office: 031.040.09.31 EMAILS Editorial: editorial@business-review.ro Sales: sales@business-review.ro Events: events@business-review.ro
September 28 ∫EVENT 08:30 Business Review organizes the 11th edition of Tax&Law, an event that reviews the recent fiscal and legal changes that impact on the business environment. Find out more at http://businessreview.ro/br-events/
October 4 ∫EVENT A film remake of classic British crime drama The Sweeney sees a tough team of London police take violent measures to try and get crime off the streets.
WHO’S NEWS
Business Review organizes the third edition of Focus on Telecom, an event that gauges the trends of the telecom industry, at Willbrook Platinum. By invitation only. Find out more at http://business-review.ro/br-events/
October 9 ∫EVENT