Business Review Issue 5, february 15-21, 2010 by Business Review

RINGIER SELLS LOCAL DAILY AND BUSINESS WEEKLY TO ROMANIAN BUSINESSMAN; SEE PAGE 9

INTERVIEW

LINKS

ENTREPRENEUR

Wojciech Zaremba, business develop-

Total IT spending in Romania last year

Dutchman Cor de Groot, owner and

ment director of PCC, Oltchim minority

reached EUR 1.8 billion, with both hard-

manager of Global Group, plans to dou-

shareholder, says the firm needs to in-

ware and software spending lagging be-

ble or even triple his firm’s turnover in

BUSINESS REVIEW vest EUR 250 million in new projects

See page 15

hind the 2008 numbers

the coming years

See page 18

See page 19

www.business-review.ro

ROMANIA’S PREMIERE BUSINESS WEEKLY

FEBRUARY 15 - 21, 2010 / VOLUME 14, NUMBER 5

THE QUIET INVESTOR

LAURENTIU OBAE

Alexander Hergan, who has invested in real estate developer Avrig 35 and set up several businesses in the US while being involved in the Sibiu stock exchange, came under the spotlight at a rare meeting with the press for the recent launch of the developer’s Pallady retail project See page 16

IN TOUCH PHOTO OF THE WEEK

Week in NUMBERS

While citizens are put through an assault course

700

on the streets of Bucharest,

The Romanian state has pledged

the local authorities are

a EUR 700 million guarantee threshold for the new chapter of

still debating where to de-

the First House program

posit the heavy show, as

dumping it in an open field

Millennium Bank posted a EUR

or in the Dambovita River

38 million loss last year, 62 per-

is punishable with a RON

cent higher than in 2008

4.9

60,000 fine or a prison

FDI to Romania fell to EUR 4.9

sentence of six months to

IN TOUCH The simple life I was interested to note that your employment article of last week (All change as recession wreaks havoc on job market, issue 3) touched on downshifting, which your contributor [Olivia Franculescu, senior consultant at SC Kilpatrick Executive Search and member of the HR Club] said was not really happening yet in Romania. This is understandable. In the UK, downshifting typically consists of a well-paid executive in a demanding field, often in the City [London’s financial services district], quitting their job, sometimes selling an expensive property in London to move to the country and live a simpler life, and often working fewer hours or switching to a more creative or enjoyable, less moneydriven profession. It’s about escaping what we call the ‘rat race’ and consumerism. In Romania, with capitalism still something new, I think it will take a while before professionals tire of the cut and thrust of the business world and want out. But

who knows – maybe we will see your first downshifting supplement soon! David Kennedy, London Return to sanity Like your correspondent last week (More room at the inn, In Touch, issue 3), I also found the high cost of hotel accommodation in Bucharest an anomaly. Of course, five-star hotels cater to foreign businesspeople travelling on a company expense account, but that doesn’t change the fact that the staff costs, to name but one thing, are far lower than they would be in the West. I can only put it down to the price madness that gripped Bucharest, the same mania that saw apartment prices soar from about USD 10,000 to five or ten times as much in a few short years. The recession has caused a lot of suffering, but if it brings some sanity to Romania and other places like it, there will be a silver lining to the cloud. Alex Miron, Bucharest

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3Q president and CEO of Atomic Energy of Canada Limited (AECL) What AECL services are included in the contract with EnergoNuclear? Our company and EnergoNuclear [the management company for the construction of Cernavoda nuclear units 3 and 4] have signed a contract covering a series of engineering, technical and commercial evaluations related to the construction of nuclear units 3 and 4 at Cernavoda. AECL has to ensure that we incorporate the most modern features of CANDU technology, fully evaluate the current site and see that everything is ready to begin the actual construction. The contract [estimated by the media at EUR 8 million] is effective immediately so we want to to mobilize our team quickly. About 3040 AECL specialists will work on the project for the next 12-18 months.

What kind of reactors are you proposing for Cernavoda? The lifetime of the new enhanced CANDU 6 nuclear reactors is 60 years, compared with the previous generation of reactors which only lasted half as long. This is the type of reactor that we are proposing for Cernavoda nuclear units 3 and 4. AECL has a tradition in Romania regarding nuclear energy that goes back to the 1980s. dana.ciuraru@business-review.ro 4

Heineken Romania will start to export its locally produced beer brand Ciuc to Italy, Spain and Canada, the main emigration destination for Romanians. The move was prompted by the demand from Romanians in the diaspora, but the brewer is targeting both Romanian consumers abroad and foreign drinkers too. Heineken will export the 0.5 and 0.33 liter products through HoReCa and retail channels, through the local distributors of Brau Union International. Ciuc Premium is produced in

A lot of bottle: Ciuc beer is going abroad

Reff sees more fiscal litigation, expects slight M&A revival

COURTESY OF REFF & ASSOCIATES

Have you discussed the reactor acquisition with EnergoNuclear? The purpose of this pre-project is to get the final go-ahead for the contract, a decision which depends entirely on EnergoNuclear, and to have everything in place for the successful completion of the project. The goal is to get all the preparatory work done so that a final agreement can be reached. The go-ahead from the investors will partially depend on the work done during this pre-project phase, the evaluation of which will ascertain the actual costs of such an investment.

Heineken exports Ciuc brand to Romanian emigration hotspots

COURTESY OF HEINEKEN

Hugh MacDiarmid

NEWS

Alexandru Reff, partner at Reff & Associates

Reff & Associates, the law firm affiliated to Deloitte in Romania, has seen an increase in the number of M&A transactions in the country lately and expects a revival in business for law firms this year. However, there have been changes related to price guarantees, as well as a sharing of the risk between seller and buyer, according to Alexandru Reff, partner with Reff & Associates. “For the first time we have seen downward adjustments and deals which have been revisited,” says Reff. Litigation work has made up a greater proportion of lawyers’ activ-

ity lately, with fiscal litigation keeping them busier. In this area lawyers have started to ask for success fees, but it is as yet too early to tell what ratio of fiscal litigation cases are successful for the firm due to the length of the process. Fiscal litigation makes up 70 percent of all litigation, according to Reff & Associates, and companies have started to ask for interest on the repayment of VAT. “We recently won a VAT repayment case after 10 months, which resulted in the payment of millions of euros to the client,” said Georgiana Singurel, manager with Reff & Associates. Overall, the law firm expects to have a similar turnover this year as it did last year. “The growth will not be as spectacular as it was in previous years, of 40 to 70 percent,” said Reff. Last year the firm handled several transactions on the real estate and retail segments, as well as on the banking scene. Overall, it assisted in EUR 1 billion of transactions in 2009, according to the firm. The company has assisted New Europe Property Investments (NEPI) in taking over a EUR 63 million retail project from BelRom and in taking out a EUR 113 million loan from KBC. Corina Saceanu

Miercurea Ciuc. The brewer produces and sells several brands in Romania, including Golden Brau, Heineken, Neumarkt, Bucegi, Gosser, Silva and Schlossgold. It has five factories in Romania, in Constanta, Craiova, Hateg, Miercurea Ciuc and Targu Mures. Heineken employs 1,300 staff in the country. In the first half of last year the beer producer increased its turnover by 12 percent to RON 436 million, the equivalent of EUR 103 million. Corina Saceanu

GTS Telecom expands Bucharest data center GTS Telecom, part of regional operator GTS Central Europe, has completed the first phase of its data center expansion project. Company officials did not disclose the investment. This first stage added about 150 sqm, corresponding to 70 stations.“The data center is the foundation of implementation of mission critical, e-commerce, content delivery applications for multinationals, an essential building block for driving business growth and cost reductions,” said CEO Dan Mihaescu. Started three months ago, the project is part of the multi-annual strategy for the enlargement of the hosting and collocation area. The extension plan was made with a modular development and execution in two phases. The entire extension area will reach a total of 216 sqm. The data center is built on top of the GTS Telecom backbone in Bucharest with an 82.5 GB/second bandwidth, and interconnected throughout the national infrastructure and the GTS CE fiber optic network, directly to European interconnection points in Frankfurt and Vienna. The management of the hosted applications and equipment is done directly over the internet or from the console room. The firm’s local clients are mostly multinationals, corporations and companies with a national presence, typically from sectors such as telecom, banking, FMCG and pharma. GTS has not yet revealed its turnover for 2009. In 2008, it posted local revenues of EUR 19.07 million, a 18.2 percent increase on 2007. Its EBITDA was EUR 4.8 million. Otilia Haraga BUSINESS REVIEW / February 15 - 21, 2010

NEWS

Rompetrol Rafinare continues to post losses, but lower ones

COURTESY OF ROMPETROL

Rompetrol Rafinare has reduced its losses

Rompetrol Rafinare registered USD 3 billion in gross revenues for last year, 32 percent lower than its 2008 result. The firm’s financial statements include the results of the parent company Rompetrol Rafinare and its subsidiaries Rompetrol Petrochemicals, Rom Oil, Rompetrol Downstream, Rompetrol Logistics and Rompetrol Gas. The company continued to post losses, but reduced them by 31 percent com-

BUSINESS REVIEW / February 15 - 21, 2010

pared to 2008 figures, to USD 180.6 million. According to company information, the decrease in gross revenues is mainly the result of falling international petrol prices. The financial results were strongly influenced by the global financial crisis, crude oil and fuel quotations and also domestic macroeconomic factors such as the depreciation of the RON. Regarding the parent company, Rompetrol Rafinare its gross revenues reached USD 2.7 billion in 2009, 36 percent down on the previous year. The company registered losses, but they fell by 7.5 percent compared with the 2008 level, to USD 143.6 million. Data reported by the company to the Bucharest Stock Exchange reveal that the operational results for 2009 were influenced by the squeezed margins from lower sales of petroleum products, both diesel crack (200 USD/t in 2008 compared with 66 USD/t in 2009) and Ural/Brent differential (3 USD/bbl in 2008 compared with 0.73 USD/bbl in 2009). The weakening RON brought about

significant foreign exchange losses. Last year, the refining capacity utilization rate was 80.66 percent in the context of reduced margins obtained from petroleum product sales. Despite the economic crisis Rompetrol Downstream managed to increase the volume of quantities sold, due to the wholesale channel which recorded variances of 24 percent for the year. The retail area suffered a slump in volume of 8 percent in 2009 compared with the year before. As against 2008, Rompetrol Downstream’s EBITDA increased by 57 percent in 2009 and tripled in the last quarter. This trend was supported by the increase in volumes, as well as the company’s efforts to reduce costs, the impact of which was felt strongly in the fourth quarter. Despite the global economic downturn, Rompetrol Downstream continued to extend its distribution network in 2009. At the end of the year, the distribution sector was operating a network of 800 stations, 31 percent up on 2008. Dana Ciuraru

BRIEFS BIOTECH PHARMA PRODUCER AMGEN OPENS LOCAL SUBSIDIARY é US biotech medicine producer Amgen has recently opened a Romanian subsidiary, which is headed by Regis Lhomme, the former CEO of Pfizer Romania until 2006. Amgen products have hitherto been available on the Romanian market through third party distributors. The firm has already recruited 30 staff and plans to reach 50. ALTEX’S 2009 REVENUES SLASHED TO HALF é Altex saw its revenues reduce by half, to EUR 180 million, in 2009. The figure was in line with last year’s forecasts, according to Dan Ostahie, owner of the company. He said he expects the electronics retailing market to stay at last year’s level in 2010. “We will most likely see the same trend in 2010.

NEWS

BRIEFS

AGERPRES

LOCAL M&A NEAR TO EUR 1 BILLION é The Romanian mergers and acquisitions market reached EUR 1.45 billion last year, while 80 deals worth over EUR 1 billion were shelved, according to a Capital Partners report. However, research by Thomson Reuters indicates that 86 deals were completed last year in Romania, worth USD 2.1 billion (EUR 1.45 billion). Raiffeisen Investment was involved in EUR 5.3 billion of M&A in Romania in 2008, a 20 percent decline from a year earlier. Investors and financiers have clearly changed their approach to the emerging M&A market, which should contribute to the recovery of the local market, a Capital Partners official said. The investment company’s official expects little deal activity in the first quarter of the year.

S&P and Moody’s give RCS&RDS positive ratings

RCS&RDS general manager Alexandru Oprea

RCS&RDS has received positive ratings from financial assessment agencies Standard & Poor’s and Moody’s. S&P assigned a ‘B’ long-term corporate credit rating to the cable company, placing it on CreditWatch with positive implications. S&P also assigned a ‘B+’ rating to the firm’s proposed USD 200 million bond. “The rating on RCS&RDS is constrained by our view of increasing competition in its core markets of opera-

tion, Romania and Hungary, as market players are focused on competing on bundled offers to attract customers,” said S&P’s credit analyst Michael O’Brien. “The ratings are also constrained by RCS&RDS’s weak free cash flow generation to date, given its high level of network investments. In addition, it faces the need to refinance significant amounts of debt compared with what we consider a relatively low, but increasing, level of free cash flow generation over the next three years,” say S&P analysts. Moody’s Investors Service assigned new corporate family (CFR) and probability of default (PDR) ratings of Ba3 to RCS&RDS with stable outlook. Moody’s also assigned a (P)Ba3 to senior unsecured notes being issued by the firm. “The rating is constrained by the company’s relatively smaller size compared to its similarly-rated peer group and its exposure to emerging market economies,” said Moody’s. Otilia Haraga˚

BauMax opens first Bucharest store Austrian do-it-yourself retailer BauMax has opened its first store in Bucharest, the retailer’s tenth outlet in Romania. The new 11,000-sqm BauMax shop is located in the Sun Plaza retail project in south Bucharest, the grand opening of which is set for February 27. BauMax is the seventh DIY retailer to open up in the capital, where 12 such stores are operating. The Austrian retailer joins others such as Praktiker, Hornbach, Bricostore, Mr. Bricolage, Obi and Dedeman. BauMax is planning to open four more shops in Bucharest in the near future, the first two of which are to begin trading next year. Overall, the retailer would like to double its Romanian chain of stores in the following three years. Even through profit margins are tipped to shrink on the DIY market segment in Romania over the next year, the market is still interesting for expansion because the demand for renovation and construction products will grow, say BauMax representatives. Corina Saceanu

BUSINESS REVIEW / February 15 - 21, 2010

NEWS

Wizrom Software posts USD 9 mln turnover

COURTESY OF WIZROM

Wizrom managing director Zemy Apfelbaum

Global corporates tiptoe cautiously into 2010 The percentage of global companies looking to pursue new opportunities in 2010 has risen to 34 percent, by the beginning of December 2009 while over half agree that surviving 2010 is still a challenge, according to a global research carried out by Ernst & Young during November-December 2009: Lessons from change: Findings from the market.It was conducted on executive directors from 900 multinationals. For a significant minority, 2009 was a year when earning improved. Remarkably, despite the global recession, 7 percent of

all businesses saw an increase in earnings of more than 20 percent. More than a third of the firms surveyed reported that their EBITDA had grown by over 5 percent in the last 12 months. In Latin America (26 percent), Western Europe (28 percent) and Eastern Europe (29 percent), the proportion reporting 5 percent or more EBITDA growth was lower. By sector, more than 40 percent of pharmaceutical, aerospace, defense companies and banks exceeded the 5 percent growth threshold. Staff

BRD launches ‘a la carte’ bank card

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Wizrom Software posted a turnover of USD 9 million in 2009, which includes revenues from Wizrom Software, WizSalary Software and its external branches. It also signed up 150 new clients. “In 2010 we expect to maintain our turnover at the same level and will continue to focus on promoting solutions for business process optimization which I believe will continue their upward trend,” said managing director Ze-

my Apfelbaum. The bulk of the revenues in 2009 came from the sale of licenses and services for the financial-accounting solution WizCount and WizPro ERP (Enterprise Resource Planning). Logistic solutions like SFA (Sales Force Automation) and WMS (Warehouse Management System) posted the highest increase in 2009, 20 percent on a comparative base from 2008, amounting to in excess of USD 1.5 million. “This is part of companies’ general trend of focusing on business process optimization solutions that should translate as soon as possible into a significant reduction in operational costs,” said Apfelbaum. The Business Intelligence solution Panorama maintained the same level as in 2009, at USD 700,000. WizSalary, a solution for pay-roll administration, personnel management and human resources, covers over half a million clients, meaning WizSalary administers payments to 20 percent of private sector employees and is used by 1,550 firms. Otilia Haraga

BRD has more than 2.2 million valid cards

BRD has launched its first ‘a la carte’ bank card, which allows users to personalize the card with their own photos. The new product, which has international coverage and comes with an attached chip, is being issued under both the Visa and MasterCard brands.

The card has all the normal uses, while the photos on it need to respect certain legal conditions such as copyright, intellectual property and trademarks. “Everything started with the idea that people like to be able to choose. The card is becoming more than it has been until now, a reflection of the personality of the customer, who has the opportunity to own a unique and personalized banking product,” said Phillipe Lelarge, executive director of the strategy and marketing department at BRD. The lender has more than 2.2 million valid cards and operates through over 1,450 ATMs and 20,000 POSs. According to its own data, BRD is the leader of the local e-commerce market, with a processed volume of more than EUR 80 million in 2009 and a market share of over 90 percent. Anda Dragan

Toyota Romania recalls 12,500 cars for checks Japanese carmaker Toyota will recall 12,500 vehicles sold in Romania which could have defective acceleration pedals to check them, company representatives have announced. According to media estimates, the total cost, which will be borne by the carmaker, could reach some EUR 1 million in Romania. The recall covers models such as the Aygo, iQ, Yaris, Auris, Corolla, Verso, Avensis and RAV4 and is part of a wider, international recall program. Toyota Motor announced last week that it was recalling some 2.3 million cars and trucks in the US and another 1.8 million vehicles in Europe. According to Toyota Romania officials, owners will receive notification from their Toyota dealers inviting them BUSINESS REVIEW / February 15 - 21, 2010

to have their cars checked. The recall is a preventive measure and covers all vehicles specified by Toyota Motor Europe, irrespective of whether their drivers have experienced any problems with their cars’ gas pedals. Romania, like the rest of Europe, has not had reports of any accidents caused by faulty gas pedals in Toyota models. The carmaker’s sales in Romania slumped 60 percent last year, to 3,996 vehicles. Since last fall, Toyota Motor has recalled more than 8 million vehicles because of braking problems. Similar deficiencies with the acceleration pedal have been reported in some Honda, Peugeot and Citroen models, which have recall programs underway. Dana Ciuraru 7

NEWS

BRIEFS MECHEL ACQUIRES STEEL MILL IN ROMANIA é Russian mining and steel group Mechel will soon add the Romanian steel mill Laminorul Braila to its Eastern European steel division, as its Cypriot subsidiary Zoneline Limited is nearing the completion of the acquisition of the Austrian metal trader Donau Commodities, which owns an 87.81 percent stake in Laminorul. The transaction, the cost of which is expected to amount to USD 20 million, is currently being examined by the Romanian Competition Council. DACIA RECORDS RON 230 MLN PROFIT LAST YEAR é Carmaker Dacia, part of French group Renault, recorded a RON 230.28 million profit last year, up 3.7 percent against 2008, according to figures published by the company in a merger project with Auto Chassis International Romania. At the end of December 2009, Dacia Automobile receivables amounted to RON 851.99 million. The information has not yet been audited or approved by shareholders, said Dacia representatives. TRANSELECTRICA BORROWS RON 33 MLN é Transelectrica has taken out a RON 33 million loan from BRD Groupe Societe Generale for ongoing investments. The loan was contracted in RON, for a period of seven years. The operator says that following the completion of these investments the national electricity system will become safer, in line with European energy standards. EU GIVES ROMANIA AN EXTRA YEAR TO CUT BUDGET DEFICIT é The European Commission (EC) has welcomed Romania’s attempts to bring its budget deficit under control, and given the country more time to do so. “Romania has made a serious effort to limit the deterioration of its budget deficit and to preserve macroeconomic stability during the past year,” said EU Monetary Affairs Commissioner Joaquin Almunia. 8

The Xilinx case: a new landmark in transfer pricing? TAX&LAW

TAX&LAW

By Ariadna Popa

By Anamaria Acristini

Manager, Tax Advisory - Mazars

Supervising Senior, Tax Advisory - Mazars

On 13 January 2010, the US Court of Appeals withdrew its opinion and dissent filed in May 2009 in one of the most important transfer pricing disputes in recent years – Xilinx, Inc. and Subsidiaries vs. Commissioner of Internal Revenue. The surprise move by the US Court of Appeals leaves both Xilinx and the IRS uncertain about the outcome of the case.

ment including, but not limited to, administrative, legal, accounting and insurance costs. Acquired intellectual property rights costs: costs incurred in connection with the acquisition of products or intellectual property rights. In determining the allocation of costs pursuant to the cost-sharing agreement, Xilinx did not include in research and development costs any amount related to the issuance of employee stock options.

The story... Xilinx Inc. (“Xilinx”) is a US company, active in the business of researching, developing, manufacturing, marketing and selling field programmable logic devices, integrated circuit devices and other development software systems. The company is the parent of several subsidiaries, including Xilinx Ireland. Xilinx Ireland was created in 1994, as a manufacturer of field programmable logic devices, with a view to increasing the group’s European market share. It manufactured, marketed and sold field programmable logic devices, primarily to customers in Europe, and conducted research and development. In 1995, Xilinx and its Irish subsidiary entered into a cost-sharing agreement, providing that all new technology developed by either of the two companies would be jointly owned. Each party was required to pay a percentage of the total research and development costs based on the respective anticipated benefits from the new technology. The cost-sharing agreement further provided that each year the parties would review and, when appropriate, adjust such percentages to ensure that costs continued to be based on the anticipated benefits to each party. Within the cost-sharing agreement, both companies were required to share the following types of costs: Direct costs: costs directly related to the research and development of new technology including, but not limited to, salaries, bonuses and other payroll costs and benefits. Indirect costs: costs incurred by other departments that generally benefit from all research and develop-

...the case... In 2000 and 2002, the IRS issued notices of deficiency relating to 1996 through 1998 and 1999, respectively. In these notices, the IRS determined that Xilinx was required, pursuant to its cost-sharing agreement, to share with Xilinx Ireland the costs of certain employee stock options – and originally tagged Xilinx with over $120 million in additional taxes and penalties. Under the US transfer pricing regulations in effect at the time, it was unclear whether such costs were required to be included in the pool of costs to be shared under a cost sharing agreement. During the Tax Court’s consideration of the case, the IRS conceded that the stock-based compensation costs would not have been shared by unrelated companies operating at arm’s length, but, nevertheless, argued that the regulations in effect at the time still required such costs to be shared. Still, after lengthy procedures, a tax-court decision issued in late 2005 ruled in Xilinx’s favour, exactly based on the fact that such sharing of costs would not be accepted by unrelated companies in an arm’s length transaction. The ruling was issued in spite of the fact that the wording of the legislation specifically that “all costs... related to the intangible development area” be shared – as it was considered that the arm’s length principle should in fact be at the heart of such costsharing agreements. But Xilinx’s victory was only temporary. The case was taken to the US Court of Appeals, and, in May 2009, the court ruled that companies

in a cost-sharing arrangement must share all costs related to the joint venture, including employee stock options. The court has effectively ruled that the arm’s length standard does not apply to costs incurred in connection with cost-sharing arrangements, as the arm’s length standard was irreconcilable with the all-costs requirement. The court stated that in the context of a cost-sharing agreement, the arm’s length standard would require the sharing of costs related to the costsharing arrangement only in those cases in which unrelated companies would also share such costs. On the other hand, the all-costs requirement would mandate the sharing of all costs related to the cost-sharing arrangement, regardless of whether unrelated companies would share such costs. Relying upon the rule of statutory construction that a specific provision controls a more general provision, the court found that the all-costs requirement was more specific than the arm’s length standard under the regulations and, thus, precluded the arm’s length principle. And still further along the timeline, in January 2010, the US Court of Appeals made the most surprising move in this case, withdrawing its opinion and dissent issued in 2009 – but without stating any particular reasons in this regard. This withdrawal has left both Xilinx and the IRS uncertain about the outcome of this lengthy litigation. ...and the conclusions While we are still left waiting for the final decision in the litigation, we nevertheless need to note the importance of the decision issued in 2009, i.e. that it is not the arm’s length standard that should be followed in all inter-company transactions. In this one case, the US Court of Appeals held (and maintained its opinion for almost a year) that the arm’s length standard is not to be followed in cost-sharing arrangements, supporting the IRS in issuing regulations that may result in non-arm’s length results. On the short term, this approach could clearly lead to difficult doubletax cases with US tax treaty partners who have generally embraced the arm’s length standard. Could this mean that we may be facing a completely new era in transfer pricing? It is this particular question that makes the Xilinx case a possible landmark in the transfer pricing history. BUSINESS REVIEW / February 15 - 21, 2010

CALENDAR/WHO’S NEWS

EVENTS, BUSINESS AND POLITICAL AGENDA FEBRUARY 16 é Darian DRS organizes a press conference at the InterContinental Hotel

Bucharest. By invitation only.

FEBRUARY 17 é 9:30 RBS Romania organizes the official launch of the RBS Visa credit

card at the RBS Royal Preferred Banking Lounge, World Trade Center. By invitation only.

FEBRUARY 17 é 9:00 IMOPEDIA organizes a roundtable on the topic of real estate

prices in 2010 at the InterContinental Hotel. By invitation only.

MARCH 1 é 11:00 The Embassy of Switzerland in Bucharest organizes the ‘Swiss

Investment Report’ at the Residence of the Swiss Ambassador. By invitation only.

MARCH 18 é 18.30 CEU Business School organizes an open masterclass with Sandy

Vaci, adjunct senior lecturer with the school on “Global Best Sales Practices. How to Beat the Recession and Come Out Ahead!” The event takes place at the J.W. Marriott.

Ringier sells Evenimentul Zilei and Capital, focuses on few remaining brands Swiss publisher Ringier has sold daily newspaper Evenimentul Zilei and business weekly Capital to a company controlled by Romanian businessman Bobby Paunescu, in a deal estimated by media reports at between EUR 4 million and EUR 8 million. The sale was accompanied by a services contract which will allow Ringier to supply the new owner of the two publication with distribution, advertising sales, human resources, IT and printing services, as well as to continue to host the editorial teams in its existing headquarters in Pipera. Ringier Romania has also axed its glossy title Diva and intends to focus on its tabloid Libertatea and another glossy magazine, Unica. However, the Swiss firm is planning further staff layoffs for its remaining business structures. The new owners of the two sold publications have taken onboard Claudiu Serban, former deputy general director at Ringier. He will head the newly created firm, in which he also owns a 10 percent share package, alongside Paunescu, who holds a 70 percent stake. Marius Hagger, the head of Ringier Romania, will also take the BUSINESS REVIEW / February 15 - 21, 2010

helm of Libertatea, of which the editor-in-chief is Ana Nita. Ringier has said it is planning to focus on digitizing the newspaper. Prior to the sale, B1TV, the news stations owned by Paunescu, formed a partnership with Evenimentul Zilei, which resulted in the TV program Evenimentele Zilei. Paunescu plans to merge all his media businesses, which include the B1TV, Vox News and Gazeta de Sud brands. He partners News Corporation in the B1TV business, of which the international media company owns 12.4 percent. Ringier entered the Romanian market in 1992, when it launched business weekly Capital. It acquired Evenimentul Zilei in 2003. Mid-last year, the publisher set up its online division in the country. Ringier also owns a 25 percent stake in Kanal D TV station in Romania. Its Romanian business has been suffering because of falling ad sales. In 2008, it saw its ad revenues plummet by 21.4 percent due to portfolio sales. Overall, it had a 27 percent decline in turnover owing to the economic crisis. In 2008 it posted CHF 61.5 million, around EUR 39 million. Corina Saceanu

WHO’S THOMAS TOLAZZI is the new CEO of BCR Leasing after Claudiu Stanescu, who formerly held the position, left the company. Tolazzi has been working in Romania for about ten years and has much professional expertise in corporate banking, leasing and risk management. He previously held a senior management position at BCR in the risk management area. MARIAN PIRVU is the new vice-president of Ruukki Construction Romania and Bulgaria. This is the first time the position has been given to a Romanian manager since the company entered the market. Pirvu joined the firm this month, having previously been GM of ArcelorMittal Construction Romania SA. He has fourteen years of experience on the construction market. He is a graduate of the Romanian Construction University and of numerous management courses at the London Business School and ArcelorMittal University. EUGEN ANTOHI, 36, joins A&D Pharma Marketing&Sales as director of the consumer healthcare business unit. In this position he will be responsible for the development of the consumer healthcare segment, coordinating five marketing and sales divisions. Antohi has over seventeen years of experience in marketing and sales, having previously worked for Walmark in Romania, Bulgaria, Ukraine and Spain. In 2005 he was appointed counsellor on pharmaceutical matters to the Romanian minister of health. He is a graduate of the Faculty of Commerce of the Academy of Economic Studies in Bucharest. DAN COSTINESCU was appointed new partner on dispute resolution by Schoenherr for its Bucharest office. He has over ten years of legal experience and has advised the Petrom group during several high level cases, as well as in negotiations of collective labor agreements. Alongside the office managing partner Sebastian Gutiu, he will run the dispute resolu-

NEWS tion practice group in Bucharest. RAMONA TEPELEA has been appointed managing director of F&R Worldwide. She has experience working for both companies and trade associations in international and inter-regional business partner development, in the US and Romania. Over the last 10 years Tepelea has helped several US companies launch and grow their business operations in Romania, and has coordinated the implementation of a USAID funded project in Romania. She has been with the firm, leading its business development efforts, since 2005. She holds a degree in Business Administration from James Madison University, Virginia, USA. ELA MARIN has been appointed senior associate at Popovici Nitu & Asociatii. Her practice focuses on real estate transactions, and she has advised on several forward purchase and joint venture schemes for the development of logistic parks, shopping centres and office buildings. Marin also advises on general corporate and commercial matters and has been involved in several merger and acquisition processes. She joined the firm in 2005. Marin holds a degree in Law, a LLM in Private Law Institutions and is a member of the Bucharest Bar Association. LUANA DRAGOMIRESCU has also been appointed senior associate at Popovici Nitu & Asociatii. Her area of practice focuses on energy end environmental compliance, with particular emphasis on renewable energy projects on which she advises energy producers, utility suppliers, renewable energy project developers as well as various public institutions. She is also involved in infrastructure and public to private projects, concession and PPP assignments, drawing on solid corporate and commercial expertise. She joined the firm in 2005. Dragomirescu has a degree in Law and is a member of the Bucharest Bar Association.

Business Review welcomes information for Who’s News from readers. Submissions may be edited for length and clarity. Feel free to contact us at editorial@business-review.ro 9

INTERVIEW

Den Braven eyes more export destinations, works with flexible production Dutch polyurethane foam and adhesives producer Den Braven Romania wants to start exporting to Far Eastern countries and South America, after seeing domestic demand for its products shrinking, says ADRIAN STATE, general manager of the company. While eliminating bad debtors from its customer base and being flexible with production capacity based on COURTESY OF DEN BRAVEN

current demand, Den Braven says it’s not yet time for another greenfield project. Corina Saceanu What are the main export target countries for Den Braven Romania and how much of last year’s sales did the top three export destinations bring to the company? Last year we sold Romanianmade products in 29 countries, compared to 20 export destinations in 2008. The value of exports increased by 33 percent, to EUR 12.1 million. The top export destination countries were Poland, Austria, the Czech Republic and Slovakia. Sales in Poland were normal given that it was the only EU country which saw economic growth, while in Austria last year we became the only supplier of polyurethane foams. 10

This year we want to expand exports to 35 countries in total. We are in discussions with countries in the Far East, such as China and Vietnam, but we would also like to expand exports to South America – Peru, Uruguay, Argentina and Chile, after entering the Brazil market last year. What are the main growth areas for the company in Romania this year, what sales channels do you expect to bring you growth? Last year we saw growth in market share in all regions of the country, because we took advantage of the fact that many of our competitors had halted their activity. Our best results were in the Moldavian

region of Romania, where our market share grew by 20 percent, while in the north, where we opened new subsidiaries in Oradea and Baia Mare, and in Muntenia and Oltenia we saw market share increases of 10 to 15 percent. The main sales channel this year will be end-users, where we expect to see a 10 percent growth, while last year we witnessed an increase in market share from 47 to 50.5 percent on this segment. In the main chains of stores, we have upped our sales by 10 percent through Praktiker, and by up to 60 percent through Dedeman. The business-to-business segment will continue to be affected this year, but we will try to sell to this sector too. We will offer new

products, like rigid polyurethane foam, which will start to be produced in Romania this year. How many of the firms in your client portfolio had problems in paying you last year and how did you deal with them? How do you choose your clients in order to avoid such problems, and what safeguard measures are you taking in this respect? In the first half of 2009, over 65 percent of our clients were making late payments, so we decided to restrict deliveries depending on how fast they were paying their debt. This measure, which we plan to use this year too, led to a drop in bad debtors to 30 percent in June and 28 percent in December. BUSINESS REVIEW / February 15 - 21, 2010

INTERVIEW These percentages refer to customers who are more than 30 days’ late with payment. The proportion of bad debtors, which includes those whose payments are less than a month late, reaches 55 percent of our clients. However, we have given up on the around five percent of customers we didn’t trust to be able to pay their bills through tracking their financial indicators. We preferred to reduce the number of orders but ensure a cash flow.

declarations. We have also cut transport costs by opening subsidiaries in Oradea and Baia Mare. All these measures have led to a drop in total costs of 10 percent. The savings were used to reinvest in expanding the staff and increasing the car fleet. Bearing in mind the domestic demand and exports, to what extent could the Romanian market host another Den Braven factory? How must sales evolve and for

how long a period in order for the company to think about opening another plant in the country? The two production lines in the factory have an annual capacity of 13 million tubes of polyurethane foam, a product which makes up 90 percent of the total production in the unit. Around 3 million tubes of polyurethane foam are sold every year in Romania. If we bring in another work shift on Saturdays, which would mean 15 employees per shift, we could reach

a capacity of 18 to 20 million tubes. If demand exceeds this amount, we could introduce a third production line, for which there is room in the factory. However, I don’t think we will see a big enough market increase in Romania in the next three to five years to merit such an expansion of production capacity. Should this happen, we would install a third production line, because a new greenfield investment is not called for at the moment. corina.saceanu@business-review.ro

How much of the Romanian factory’s production capacity is currently being used? How do you expect this to evolve this year? In the first four months of 2009 we operated at 50 percent of capacity, because of the high stocks left after the market started to fall in autumn 2008. But in the last eight months of the year we had an average of 90 percent production capacity, in some months as high as 120 percent, meaning we had to work on Saturdays too. We expect to step up production by 40 percent this year, an increase which is fueled by the contracts we have already signed and by expansion on new markets. In January we had to raise the factory’s production capacity by over 50 percent. How much of this production is covered by domestic demand and how much by exports? Currently, around 60 percent of our turnover comes from domestic production, and the rest from imports of products we get from our subsidiaries in Europe. In terms of quantities, of the domestic production, around 75 percent of polyurethane foams and 50 percent of hotmelt is sold abroad and the rest in Romania. This year we plan to increase exports by entering new markets. What cost-cutting measures did you take last year and what was their effect? What additional costcutting measures are you planning for this year? Firstly we cut fuel costs by reconfiguring transport routes. We also cut costs on stationery, which are not extremely high, but make up a significant weight. For example, we have to print around 100,000 bills every month, as well as conformity BUSINESS REVIEW / February 15 - 21, 2010

MONEY

How to buy a house in a recession With the tightening of conditions for securing a mortgage, today’s local banking market offers would-be home owners fewer opportunities to buy a house on credit. The higher deposits required, shorter loan periods and lower income multiples banks will lend are some of the difficulties that potential buyers may face. STOCKEXCHANGE

Anda Dragan

No place like home: high prices and scarce credit are preventing young people buying property

90 percent of young people were being prevented from buying their own place by these conditions. How hard is it for someone to get a mortgage? Even bankers say that the volume of credit has fallen due to tumbling consumer demand, with a key role played by the tightening of credit conditions. “For example, the minimum deposit has increased again to 20-25 percent, and the maximum period for which credit can be obtained has been significantly reduced in some cases. Besides, even very high earners are not allowed repayments to make up 70 percent of their monthly salary,” says Marius Serban, senior editor at Conso.ro. He added that the maximum limit of debt is generally 40-50 percent of earnings. So lack of money seems to be the main obstacle to buying a house. “Secondly, there is the lack of market transparency, in addition to the fact that transaction prices are not known,” says Razvan Muntean, general manager of Imopedia. But in his opinion there is good news too: much lower property prices compared with previous years, much greater supply and a

more flexibility in negotiations from sellers. “If people are not eligible for the national program First House, it is very hard for them to buy a house on credit. In addition to the higher advance (25-30 percent of the acquisition price), customers will have great difficulty in getting a loan because of the decreased maximum limit of debt. This is exacerbated by the high cost of the credit,” adds Serban. Lenders are now paying more attention to the credit documenta-

What to consider when buying a house é Your budget. Taking on more debt or overextending is very risky at the

moment. If the worst happens – your salary is cut or you are laid off – you could lose your house. é The location. A good neighborhood brings added value which will increase your home’s resale value. Don’t necessarily be put off from looking in a desirable neighborhood, because some sellers are being much more flexible now. It is all about looking out for the best property. é Don’t be rushed. The more properties you see and owners or real estate agents you negotiate with, the more chance you have of finding a bargain.

BUSINESS REVIEW / February 15 - 21, 2010

SOURCE: IMOPEDIA

Lending has been hit hard by the recession, with credit rapidly drying up, and mortgages are no exception. But despite the crisis, some people still want to buy a house, and are interested in how to go about securing a mortgage. In the current context, what issues must be considered when buying a house? Have property prices got out of sync with salaries? Is it still possible to get a mortgage for a home during a recession? First-time buyers are asking themselves these sorts of questions. In response, real estate portal Imopedia.ro launched last October House Hunt (Goana dupa Casa), the first online reality show for people interested in the minutiae of getting on the property ladder. The initiative was meant to clear up some important aspects of buying a home, from house-hunting to choosing the method of financing, including the national First House scheme (Prima Casa). All of these indicate that people are still interested in buying a home. According to a public opinion survey conducted in 2008, young people cite low salaries, expensive property and inaccessible credit as the main barriers to home ownership The same study found that over

tion compared with previous years. Customers are sometimes obliged to submit further documents on top of the standard ones, to prove their place of residence. “Some lenders also require their customers to provide affidavits in order to prove their address or a statement signed by the owner of the apartment they are renting,” explains Serban. Lenders are also being stricter about checking out the potential borrower’s job. Despite the crisis, the chances of borrowing money have not entirely evaporated, but buyers need to understand that credit is not being handed out as freely as it once was. With higher levels of unemployment and gloomy expectations for jobless totals for the near future, in addition to falling incomes, it is natural for lenders to be more cautious before approving the issue of tens of thousand of euros to a potential customer. “What’s more, even bankers are saying that those on high incomes in management positions are the first to be refused because their jobs could be the first to be restructured,” says Serban. The sole benefit of taking out a loan now is that the borrower can buy a house for much less money than has been the case of late. And in two or three years it may be possible to re-mortgage under much better conditions. “In times of crisis, credit is more expensive and hard to achieve, which may be reflected in lenders’ conditions. Aside from the First House program, mortgages are less attractive than in the past,” adds Serban.

POWER

PCC keeps its eyes fixed on beleaguered Oltchim

Dana Ciuraru To what extent do you think that the EUR 13 million acquisition of Arpechim will allow Oltchim to be profitable in 2010? We have heard promises that Oltchim will make a profit in 2007, 2008 and 2009. I don’t see how the acquisition of Arpechim will allow Oltchim to generate positive results. Arpechim is an installation that has been closed for nearly two years now. In addition, it was inefficient and loss-generating even before it was shut down by Petrom. Therefore, I believe the acquisition of Arpechim is a big mistake for Oltchim’s future. I am afraid that Oltchim’s results will be much worse in 2010 than in 2009 or 2008, as the losses will be exacerbated by the inefficient steam cracker, assuming that it is possible to restart it in the first place, which PCC considers highly unlikely or very problematic at least. How long do you think it will take Oltchim to recover this investment? This investment will never be recovered since it will lead to an increase in losses, due to the inefficiency of the unit. Where did Oltchim get the money from for this acquisition? What will the impact on Oltchim’s performance be in terms of financial results? Neither PCC nor the rest of shareBUSINESS REVIEW / February 15 - 21, 2010

How much has PCC invested in Oltchim since it became a shareholder? We have invested over EUR 10 million in the joint venture project with Oltchim, through the Euro Urethane company in which PCC holds 60 percent. Additionally, we have invested in Oltchim shares.

COURTESY OF PCC

Oltchim’s minority shareholder remains confident of securing a further stake in the chemical maker’s privatization. WOJCIECH ZAREMBA, business development director of Petro Carbo Chem (PCC), told Business Review that the acquisition of the petrochemical division Arpechim could be disastrous for the struggling firm and will not reverse years of losses. He believes that Oltchim needs to spend EUR 200-250 million on new greenfield projects over the next two-three years to become a financially viable business.

holders know where Oltchim got the money from or the financial terms of the loan. This acquisition could be very damaging for Oltchim. As I said earlier, I foresee that Oltchim’s results will worsen due to the acquisition of Arpechim, for two reasons. First because Arpechim generates huge losses itself. Secondly, global PVC demand has declined by more than 10 percent since 2007. In Europe, the situation is even worse, with a slump of about 15 percent. The outlook for 2010 and for the coming years is very gloomy with 2007 demand levels not likely to be achieved for at least another four-five years. The price of PVC is below production costs even for efficient market players – for inefficient producers like Oltchim, with Arpechim as a source of raw materials, it will be a disastrous period. As for the share capital increase, it is currently being investigated by the European Commission (EC) and we must wait for the results of the investigation. The Ministry of Economy has claimed PCC’s strategy for Oltchim was to acquire it at the lowest price. What is PCC’s interest in Oltchim? PCC is interested in an open and transparent privatization procedure to select a strategic investor for Oltchim. We will participate for sure in such a privatization if it takes place. If so, we will do everything to make our offer the best. Even if we lose the bid for the privatization, we will remain in Oltchim as shareholder since we believe in the potential

of this company, which is not yet being exploited by the current management. How far does PCC want to get involved in Oltchim’s future? PCC was and still is interested in the privatization of Oltchim, a process in which all interested investors should openly take part. However, as precious time is being wasted by the management and no restructuring measures have been implemented, Oltchim’s accumulated losses are increasing, and the company’s situation is becoming harder to solve. This is why we have tried so hard to push for the company’s restructuring – to allow Oltchim to be saved. What is your personal relationship with the Oltchim management and board? What position do you hold? Our relationship with the Oltchim management is bad since they refuse to enter into a constructive dialogue with us and use our experience and knowledge to work out a restructuring program for Oltchim together, which we consider vital. I have not been a board member at Oltchim since October, when I was voted off during the GMS. What was the financial situation of Oltchim at the end of 2009? The results were announced by the Oltchim management. Again, we saw over EUR 40 million of losses by Oltchim last year, similar to the losses made in 2008 and 2007. The situation is just getting worse and worse every year.

What is your forecast for Oltchim’s performance in 2010? What is the total investment required in the company? My expectations regarding Oltchim’s results in 2010 are very low. As for investment, Oltchim first of all needs real restructuring and for the reasons why it loses money to be ascertained. We believe that Oltchim should reorient its production scope and invest in new and modern technology niche products in the field of polyurethane industry and OXO alcohols. If we astutely spend EUR 200-250 million on new greenfield projects the next two-three years we could completely change the company and make it financially viable. What steps have been taken at Oltchim to fight the crisis? As far as we know Oltchim has not implemented any measures except for some immediate ones like technical unemployment, which are just short-term solutions that do not actually lead to real changes in the company mechanisms which need to be changed. PCC has suggested changing and improving Oltchim’s distribution system to generate higher margins as well as changing the company’s product scope and going into products with higher margins instead of mass commodity ones which are currently facing fierce competition. How does the petrochemical market look right now? The whole petrochemical market is going through very difficult times. The drop in demand and overcapacity has led to sharply falling profit margins across the whole industry in Europe. The cost of feedstock has fallen much less than the drop in the final prices – making survival only possible for efficient producers or those offering niche and highly specialized products. That is why it is so vital that Oltchim reorients itself instead of implementing solutions from the 1960s, like integration with Arpechim – as such ideas pose a real threat to Oltchim’s survival in the near future. dana.ciuraru@business-review.ro 15

PROPERTY

Quiet man of real estate comes under spotlight with new project cause of the lack of office projects and the demand for this type of space. “Nobody who starts offices, even speculatively, will suffer,” adds Hergan. The Pallady scheme was initially foreseen to include a large housing project, but “the market is saturated now and it will take a long time for it to swallow all this residential,” cautions the Avrig 35 CEO. corina.saceanu@business-review.ro

Despite shunning the media spotlight, ALEXANDER HERGAN, the investor whose name is linked to real estate development business Avrig 35, has been a serial investor both in Romania and the US. At the same time as managing Avrig 35, which is now developing another retail project, Pallady Shopping Center, he owns six other businesses in the US and is also a member of the Sibiu stock exchange.

Avrig 35 projects é Avrig Business Center, Lafarge

Corina Saceanu

LAURENTIU OBAE

Alexander Hergan has been investing in real estate in Romania for the last 11 years, through his firm, Avrig 35, and is planning on retaining his focus on property and the local market. While in the minds of most people his name is linked to real estate and in particular the landmark project Charles de Gaulle Plaza, the businessman has been involved in other businesses as well, most of which have been in the United States. Hergan, who has an engineering background, says he has six other firms in the US, in areas as diverse as software and medical equipment. He is also the director of Peregrine Financial Group, a futures commission merchant (FCM). The company was among those that helped with the launch of futures transactions on the Sibiu stock exchange (Sibex) in 1998, when it also became a member of Sibex. The businessman was a founding member of the Chicago Board of Options Exchange, according to data from Sibex. He has also been involved in the project implementing derivative contracts linked to the Dow Jones Industrial Average. Hergan, who has hitherto kept a low profile, has been in the spotlight recently with the launch of Avrig 35’s latest retail project, Pallady Shopping Center.

“Real estate investors’ interest in Romania began to increase in November last year. Funds which had disappeared from the market are now active,” says the property magnate, while also announcing discussions for possible forwardpurchase sales of the recently-announced retail project. “We didn’t look for these forward-sales, but in the last three months we have seen some renewed interest in Romania, which was not here one and a half years ago,” he says. But why start a project now? Both Hergan and his partner in the venture, Alex Van Breemen of Cascade Group, say they have taken into account how the market will be in the future, rather than how it is now. “You have to look over the hill,” advises Hergan. Both investors have also seen increasing interest from retail players in the last six months. “Retailers have approached us saying they want to be in this location. Everyone is knocking at the door now, and retailers want to be in the east of the city,” says Van Breemen.

French retail group Auchan and sports firm Decathlon were the first two to sign leasing agreements for stores in Pallady Shopping Center. This is not Auchan and Avrig 35’s first project together. The French firm has also leased space in Avrig 35’s retail developments Iris Shopping Center in Bucharest and in Pitesti. “We don’t just build projects and wait for them to be leased,” says the Avrig 35 head, in answer to why he has chosen to start the project now. Paying attention to the market was his strategy. “The market will tell us what the next phase will be,” adds the businessman, referring to the future phases of the Pallady project, which will also include office and residential components. Avrig 35 group owns over 100 pieces of land throughout the country. Residential is however not his favorite type of project at this moment. “I don’t believe in residential. […] We have not hit the bottom in residential yet,” he says. He doesn’t think the office segment will suffer anytime soon, be-

headquarters, Charles de Gaulle Plaza, Canadian Embassy, Iris Shopping Center Titan, Iris Shopping Center Pitesti, Zalau Business Center, Avrig 7 Business Center, buildings throughout Romanian cities, excluding Bucharest. Avrig 35 Group also includes Strategic Asset Management, facade system producer Flexxelf, Lifetime Glazing Solutions Group, Echipamente Constructii Montaj, media production firm and TV station Pratech Production and Pratech TV, as well as architectural practice Studio Proiectare 35.

Pallady Shopping Center é EUR 80 million investment for

the retail area in the project é 100,000 sqm of retail area, to be delivered end-2011 é 20,000-sqm Auchan store é 7,000-sqm Decathlon store é the project will cover 10 hectares of the total 30-hectare plot é second and third phases of the project will feature offices and homes é each future phase will require EUR 80 million in investment BUSINESS REVIEW / February 15 - 21, 2010

PROPERTY NEPI seeks more acquisitions in Romania this year Investment fund New Europe Property Investments (NEPI) has entered into a sale and purchase agreement for the part acquisition of a dominant retail park, with a call option on the remainder of it. “The transaction is subject to a number of conditions precedent, which are expected to be fulfilled by the end of February 2010,” stated a recent financial report by the investment fund. The group is continuing to explore further investment and acquisition opportunities in Romania and is conducting various negotiations that are at different stages of advancement. It is currently negotiating the purchase of European Retail Park Focsani from owner BelRom after buying a similar retail park in Braila last year. NEPI is also in the process of selling a 6,700-sqm office property in Constanta back to the vendor, according to the report. The fund had intended to get EUR 5.7 million from the sale, which was initially expected to be completed in

May last year, according to the fund’s previous yearly report. NEPI took out a EUR 113 million loan from KBC Bank last year and bought the Braila retail park for EUR 63 million, with the remainder of the loan being set aside for similar retail projects in Focsani and Bacau, the fund said at the time. NEPI’s portfolio – 30 retail, office and industrial properties, of which 24 are located in Romania and the remainder in Germany – was valued at EUR 146 million at the end of last year. At the end of 2008, the fund’s property portfolio was valued at EUR 85 million in 29 properties. Its retail portfolio consists of 68,600 sqm and was valued at EUR 90 million. It includes ERP Braila, a 53,000-sqm retail center which was added to the portfolio last year. The Flanco portfolio, which it acquired in 2007, contains four Romanian retail assets: three street retail centers and a larger retail box. Corina Saceanu

Office and retail expect limited supply pipeline, residential to remain depressed Office projects being built in Bucharest for 2010 make up 280,000 sqm, and just 100,000 sqm for 2011, according to a Jones Lang LaSalle (JLL) report. Last year modern office space in Bucharest reached 1.5 million sqm. In Q4 2009, around 125,000 sqm were delivered in the city. Pre-leases have dried up, now at 30 percent of leased space, compared to 70 percent a year ago. Retail supply reached 500,000 sqm in Q4 2009 in Bucharest. Total Romanian retail stock rose to 1.3 million sqm, of which 260,000 sqm was added in 2009. Rents fell, with prime rents at EUR 70-85 a sqm a month for shopping centers. Five new retail projects and two extensions, totaling 240,000 sqm of GLA, will open this year nationwide, 90,000 sqm in Bucharest from the opening of Sun Plaza and Cocor. “After

those, we expect no major schemes in Bucharest in the short term, as the development pipeline has essentially been shut off or delayed,” found the report. The current supply of modern logistic space reaches 950,000 sqm. The recovery in the overall economy from Q3 of this year, says JLL, will lead to greater demand for quality logistic space. The residential segment saw 1,520 home completed in Bucharest from January to September, 16 percent more than for the same period of 2008. However, around 15 percent of all residential projects under development in 2008 were put on hold or shelved. Despite a 15 percent fall in asking prices for property, JLL expects limited mortgages to keep the pace of sales low. It foresees no improvement in housing demand until 2011. Corina Saceanu

Rewe nominated for green supermarket project Rewe’s green building supermarket project has been nominated for the Durable Energy European Award. The Berlinbased supermarket project covers 1,800 sqm and is carbon neutral, consuming 50 percent less energy than a standard construcBUSINESS REVIEW / February 15 - 21, 2010

tion to similar specifics. This is a pilot project for the chain. The Rewe group is present in Romania with Billa supermarkets, Penny Market discount stores, and Selgros Cash & Carry stores. Corina Saceanu 17

LINKS

Software and services providers set out stalls for 2010

Otilia Haraga Projects that suffered the most involved the implementation of new business solutions such as CRM (customer relationship management) and ERP (enterprise resource planning). The fields that best ‘survived’ the crisis were infrastructure services, including the outsourcing of desktops, printers and so on, Eugen Schwab-Chesaru, partner and managing director of Pierre Audoin Consultants (PAC), tells Business Review. He cites outsourcing as one sector that will have “a strongly positive trend.” Players generally focused on the near future and abstained from making investments with a long-term ROI, he said. “If we look at our sales in 2009, the most requested software products – and inherent services connected to their implementation – were in back-up and storage at all levels: small, medium and enterprise,” Eduard Dimitriev Gradines18

STOCKEXCHANGE

Total IT spending in 2009, including hardware, software, IT services, personnel and miscellaneous expenses, amounted to approximately EUR 1.8 billion, 15 percent less than in 2008. Of this sum, the hardware market made up approximately EUR 610 million, while software and services sales represented about EUR 640 million, according to data from Pierre Audoin Consultants (PAC). Despite having emerged stronger than the hardware market, software and services still slumped by approximately 12 percent in 2009.

Slipped disk: the software market fell 15 percent last year on its 2008 value

cu, general manager of PowerNet Consulting, tells Business Review. He adds there was also a slight shift towards security and virtualization systems, “but these are just in the project stage that can reach finality in 2010.” PowerNet Consulting saw a decline in software and services, which now amounted to 20 percent of the turnover, while the year before this domain had made up 33 percent. For this year, “pundits mostly foresee a revival in ERP,” says Dimitriev Gradinescu. “The economic crisis in 2009 placed a major obstacle before companies: great caution regarding investments in IT infrastructure,” says Liviu Dan Dragan, general manager of TotalSoft. “Our strategy was to follow the general trend on the market and come up with various costcontrol and debt-collection solutions.” These included eProcurement, Expenses Control and Collection. “We think these solutions will continue to be in demand. We also expect a slight re-invigoration of demand for more complex software

services such as ERP, as well as the resumption of projects in the public sector,” predict the company officials. A decline in software and services was to be expected, however. “I believe that 2010 will bring an increase of around 10 percent, somewhere up to EUR 100 million, but this will be due mainly to the private sector since the state does not yet believe that the administration needs software. However, once the foreseen lay-offs in the administration take place, an integrated software system, especially of the ERP type, will be needed. At the moment, I think not even 5 percent of the state institutions use something like this,” says Dimitriev Gradinescu. The public sector is crucial for the IT market in 2010, according to Schwab-Chesaru, since the growth in the public sector will influence decisively the evolution of the market and most players will participate in public projects to make up for the pressure on prices and the delays

suffered by projects in the private sector. “However, it seems there are big problems in launching large projects in a transparent manner in the public sector,” he adds. As a rule, the first few months of the year are rather lean for public bids. “Few projects have been launched this year but we expect the situation to pick up from the second quarter,” says Dragan, adding that it is still too early to make any predictions. Recently, the Ministry of Justice expressed its intention to organize a public bid to acquire an IT system that will allow it to record court sessions, and the company means to enter the race. “We expect the public sector to generate approximately 20 percent of TotalSoft revenues,” he adds. The company’s turnover in 2009 amounted to nearly EUR 20 million while this year officials forecast a turnover of EUR 24 million. Last year, it was only towards the end of August that public bids started to appear. “I am under the impression – and here Gabriel Biris [ed. note: managing partner of Biris/Goran] confirmed it for me – that there is some kind of government policy to keep all investments under lock in the first half of the year to see what money the state receives. Depending on how much is raised, the funds from the budget forecast will be released. The aim is to keep tabs on inflation and other indicators. This proves a total lack of strategy and is not at all beneficial for us as no matter what estimations we make, they will be turned upside down. I don’t think the government’s policy regarding public projects will change in 2010,” says Dimitriev Gradinescu. While last year PowerNet Consulting cashed in 60 percent of its revenues from the public coffers, this year the company has changed strategy and will focus more on the private sector, where its target for 2010 is to up sales to 60 percent of the turnover, with only 40 percent coming from the public sector. For 2010, PowerNet Consulting expects on a turnover of EUR 17-18 million. BUSINESS REVIEW / February 15 - 21, 2010

ENTREPRENEUR

The Dutchman who moves businesses COR DE GROOT, the general manager of Global Group, has plenty of Dutch courage. The current downturn doesn’t scare him and he has a very ambitious target on his agenda: to double or even triple his company’s turnover in the coming years. COURTESY OF GLOBAL GROUP

Anda Dragan Cor de Groot came to Romania for the first time in 1991 as an employee of a multinational company which specialized in relocating embassies. Four years later, the board made him branch manager, as which he was responsible for the company’s operations in Romania. From that position he soon discovered various frauds that were being perpetrated within the organization, and so in 1996 decided to set up his own relocation company, which he named Global Relocation. He started the business with just one employee and a 7.5-ton truck, which was bought by leasing with help from his father. The initial investment was about EUR 20,000. Soon, de Groot became the local representative of one of the best-known relocation companies in Europe. In 2006 he also won his first international customer. “Things were different in Romania at that time, from many perspectives. Romania was the land of all possibilities and business opportunities were numerous,” remembers de Groot of the business environment in the 1990s. But he didn’t stop there. Visiting the United States, the Dutchman spotted a business model that grabbed his attention: document storage. In 2001, back in Romania, he set up an enterprise based on it: Global Archive BUSINESS REVIEW / February 15 - 21, 2010

Man of his word: Cor de Groot says that conducting oneself honorably is essential in business

Management. The investment in this business line was about EUR 70,000. From 2001-2006 this division reached a turnover of about EUR 1 million. Establishing a partnership in 2006 with two investors from the Netherlands was one of the most important steps in his business. The purpose was to ensure an easier way to develop and take the company to the next level. One year later, the three businesspeople invested almost EUR 1 million to buy a site outside Bucharest on which to build a warehouse. But 2006 was also the moment when the company became Global Group, integrating the operations of Global Relocation and Global Archive Management. “In practice I wasn’t exposed to any risk because all of those taken were carefully calculated beforehand. That’s why I wasn’t afraid of anything specific,” says the entrepreneur. He adds that he has made a lot of mistakes during his time in Romania, of which the biggest was not choosing some business partners with similar backgrounds and shared values. “When money be-

came abundant, it started the madness of expenses too,” adds de Groot. “Etiquette” is one of the most important things for an entrepreneur, whether he or she is running a start-up or a mature company. To be a person of honor in the business world is of paramount importance. “Keeping your word is a must in this business. In my opinion, to keep a promise is crucial. It means to operate properly and not cheat your customer,” says the businessman. Furthermore, employees are of great import for any enterprise, so how an employer chooses to deal with them can be a crucial matter. “How you treat your employees is a big issue. They are not there simply to be at your disposal; they have different personalities and should be treated as such,” says de Groot. Like many niches on the local scene, the segment on which Global Group is active is a crowded one. The good news is that not all its competitors are big. “Obviously there is competition on our market but there are also small companies,

some of which generally work under the counter,” says the country manager of Global Group. In his opinion, his firm has a key advantage: it is able to relocate a business in a couple of days due to its capacity. “A small relocation company can’t relocate an office with over 400 employees in a weekend alone. And I think this is what differentiates us from the crowd,” he says. According to de Groot, the company’s market share is currently about 30 percent. The crisis has also hit Global Group, and the firm has had to cut costs by freezing salaries. “But this happens constantly, at the beginning of every year,” he says. Increasing the efficiency and swiftness of operational processes through the optimal planning of activities are among the cost optimization measures the business has implemented. As for the future, de Groot is optimistic and expects to double or even triple Global Group’s turnover. “We will probably acquire a relocation and document storage company this year in order to develop the business. We also intend to build a new storage document warehouse and our own office building in Magurele, with an investment of over EUR 1 million,” says the businessman. This new launch involves IT software which is the result of an investment made by a third Dutch investor who became an associate in the company two years ago. According to de Groot, almost 200 customers use Global Group office relocations services annually, many of which are banks. But the current crisis has diversified the company’s service portfolio: it is now offering relocation services for individuals.

Global Group é 2009 turnover: EUR 1.8 million é 2010 turnover: EUR 1.2 million é Number of employees: 69 é Initial investment: EUR 20,000 é Total estimated investment:

EUR 1.5 million 19

TAX, LAW & LOBBY 2010

Specialists tax their brains over market conundrums The eighth edition of the annual event Romanian Tax, Law & Lobby, organized by Business Review, gathered over 150 professionals who participated in six conference and workshop sessions led by eminent specialists in the tax, legislation, lobby and advocacy fields. 2

■ 1. Brian Davies, BRCC president ■ 2. An-

ca Harasim, executive director of AmCham and Gabriel Biris, managing partner Biris Goran ■ 3. Gabriel Biris ■ 4. Sorin Mindrutescu, Romania country leader Oracle Romania and AmCham president ■ 5. Anca 4

Grigorescu,

partner

bpv

Grigorescu

■ 6. Oana Nastase, communication & corporate affairs director, Rompetrol ■ 7. Peter de Ruiter, partner, tax and legal services leader at PwC Romania ■ 8. Angela Rosca, 7

managing partner TaxHouse ■ 9. Mihaela 9

Danalache, partner at Ensight Management Consulting ■ 10. Alina Rafaila, senior manager tax knowledge manager CEE at PwC Romania, and Ramona Schuster, tax knowledge management coordinator Romania at

PwC ■ 11. Gabriel Sincu, head of tax&com-

pliance services partner, Mazars ■ 12. Adrian Luca, transfer pricing specialist, Transfer Pricing Services ■ 13. Robin Barnett, UK Ambassador ■ 14. Emilia Dragu, partner, TaxHouse and Manuela Licu, senior manag13

er, TaxHouse ■ 15. Blair LaBarge, econom-

ic counselor United States Embassy ■ 16. The first session tackled issues relating to the medium- and long-term strategy of the new government and emphasized the business environment’s expectations from 16

the government ■ 17. The second session ALL PHOTOS BY LAURENTIU OBAE

underlined the challenges and problems that the local lobby market is faced with ■ 18. The third session debated fiscal issues and solutions for the tax system

BUSINESS REVIEW / February 15 - 21, 2010

TAX, LAW & LOBBY 2010 Anda Dragan The tax authorities in Romania should increase the efficiency of tax collection, and based on the current legal framework, the Ministry of Finance should be able to collect more taxes then it does, said Peter de Ruiter, partner and leader of the tax and legal services department at PwC Romania, speaking at the eighth annual Romanian Tax, Law and Lobby event, organized by BR last week. In his opinion, it has to do with the quality of the tax inspectors and reducing the complexity of tax law. He added that the government should implement fiscal measures to reboot economic growth, such as making the interest paid by individuals for housing loans tax deductible. “The impact of the loss of tax revenue on the state budget would be insignificant, but for the consumer such an incentive could make the difference between buying a house or not. For the construction sector – in fact for the whole economy – this would be a breath of fresh air and help bring about the resumption of growth,” said de Ruiter. Gabriel Biris, managing partner at Biris Goran, added his voice to the call. “We, as businesses, don’t have great expectations from the government, which is preoccupied with marginal measures such as the forfeit tax. I recommend they instead analyze why so little tax is collected and why fiscal evasion is so widespread,” said Biris. He called for a debate on the budget, as according to the ANAF just 70 percent of due taxes are collected. Robin Barnett, British ambassador to Romania, said that in the UK, US and other Western states, “We wouldn’t expect radical measures from the government after just eight weeks. We need to give them time to implement the new economic and fiscal policy.” The session also tackled employment. Anca Grigorescu, partner at bpv Grigorescu, presented a comprehensive analysis of the labor market and highlighted the problems companies will face with reorganization in 2010. “We are living in times characterized by massive restructuring carried out by employers, abuses by employees and excessive measures imposed by governors. The test is to strike, more than ever, a balance between the three social partners on the labor market,” said Grigorescu. The other panellists were Blair La Barge, chief of economic mission at the US Embassy; Sorin Mandrutescu, Romanian country leader at Oracle Romania and president of AmCham; and Brian Davies, chairman of the British Romanian Chamber of Commerce. The second session homed in on the local lobby market. The panellists were BUSINESS REVIEW / February 15 - 21, 2010

Gilda Lazar, corporate affairs director at JTI; Razvan Nicolescu, head of corporate public affairs at Petrom; Cristian Lutan, advocacy practice leader at Candole Partners; Cristian Busoi, deputy in the European Parliament; Oana Nastase, communication & corporate affairs director at Rompetrol; and Laura Florea, managing partner at Point Public Affairs. “In Romania people take a reactive approach to lobbying and companies are not proactive,” said Nastase. The third session saw fiscal issues and solutions for tax system debated by specialists such as Gabriel Sincu, part-

ner, head of tax & compliance services at Mazars; Diana Coroaba, director, indirect taxes and contributions department of PricewaterhouseCoopers Romania; Mihaela Danalache, partner at Ensight Management Consulting; Alexander Milcev, tax partner at Ernst&Young; Adrian Luca, transfer pricing specialist at Transfer Pricing Services; Florin Gherghel, head of the tax department at Noerr Finance&Tax; Angela Rosca, managing partner at TaxHouse; and Andrei Cristea, project manager and TV presenter. Sincu said he thought VAT might increase this year,

but advised against the measure, warning that “It would demonstrate the state’s incapacity to collect money from direct contributions.” Romanian Tax Law and Lobby also featured three workshops organized by PricewaterhouseCoopers (Fiscality Goes Online), TaxHouse (Key Aspects regarding Direct Taxation applicable since January 1, that Stem from the Recent Changes in the Fiscal Code and Accountancy Legislation) and Transfer Pricing Services (How can a Company Manage a Transfer Pricing Audit. A Practical Approach).

EVENTS

Cranberries to linger in Romania Tango Emocion premieres at the National Opera

The Cranberries were big in the 1990s

The Cranberries will perform in Romania on July 20, at an as yet unknown venue. The Irish band were

the idols of the 90s generation, alongside legends such as Pearl Jam, Smashing Pumpkins and Nirvana. They returned to worldwide attention last year after a long absence. Vocalist Dolores O’Riordan, guitarist Noel Hogan, bass player Mike Hogan and drummer Fergal Lawler played together again in 2009 and decided to tour Europe and the United States. This year the band will release a new album, over two decades since forming. Ticket prices will be announced next week when they go on sale from the Germanos, Vodafone, Carturesti and Humanitas network or from the site www.eventim.ro. Otilia Haraga

It takes two: Tango Emocion is experimental

Tango Emocion, an experimental show which takes its audience on an impassioned journey into the world of tango, premiered at the Bucharest National

Opera on February 9. The show headliners are mezzo-soprano Oana Andra, baritone Andras Chiriliuc and pianist Mihaela Valcea. It contains musical pieces by Carlos Gardel, Marcel Lattes, Astor Piazzola, Angel Villoldo, Juan Carlos Cobian, Marianito Mores, C. A. Bixio, Edgardo Donat, Gerardo Matos Rodriguez, Juan de Dios Filiberto and Julio Cesar Sanders. The show is staged by the Ludovic Spiess Experimental Studio of Opera and Ballet, which comes up with new projects for every new opera season. This performance targets in particular young people, who can discover new facets to the artistic personality of the protagonists. The next staging of Tango Emocion will take place on February 16 at 18:30. Otilia Haraga

Guitarist John McLaughlin plays third concert in Bucharest in May Dalles Gallery hosts Spring Festival Jazz guitar player John McLaughlin will perform in Bucharest on May 17, the third concert he will have played here. The show is part of McLaughlin’s 4th Dimension Tour 2010, which will start on April 22. The English guitarist and composer draws on elements including jazz, Indian classical music, fusion, Western classical music and flamenco in his performances. In 1970 he started an electric band called the Mahavishnu Orchestra which played jazz and rock with eastern and Indian influences. McLaughlin accompanied Miles Davis on his landmark electric jazz-fusion albums In A Silent Way, Bitches Brew and Jack Johnson. He also worked with Jimmy Hendrix and Carlos Santana and was part of the Guitar Trio with Al Di Meola and Paco DeLucia. Together the three went on

Art fair raises funds, showcases handmade objects Fair 4 art, an art fair and fund-raising event, will take place at Atelier 35. The fair showcases handmade objects made by designers and artists such as Virginia Toma, Biba Bijoux, Alina Panait, Republic of Tutu, Choose a Concept and ArtizArt. The proceeds from participation and ticket sales will go to the Library of Contemporary Art. The library will be open to the general public, who will be able to browse international art magazines to find out the latest happenings in the international artistic world. Otilia Haraga 22

John McLaughlin has already played here twice

The fair will offer a raft of retail opportunities

a world tour and recorded an album of the same name. Otilia Haraga

To celebrate three holidays of special significance to Romanians, a gift fair will be held at the Dalles Gallery for

Spring Festival. The fair, which will run from February 11 until March 8, marks three holidays in March: Martisor, Women’s Day and Dragobete/Saint Valentine’s Day. The fair will gather an assortment of martisoare (traditional tokens that girls and boys exchange on March 1), cards made by hand by craftsmen, flower arrangements, gifts, jewels, cosmetics, books, and teas. Couples will have the chance to win wedding rings in a raffle for Valentine’s Day and Dragobete every weekend in February. Visitors can also take pictures of themselves in the Foto Cabinet Studio, which recreates the atmosphere of Inter-bellum Bucharest in the cafe on the first floor. Otilia Haraga

Flamenco Festival takes over Bucharest for a month – ole! Bucharest will enjoy a monthlong Flamenco Festival, as February is dedicated to Spanish culture. The festival, which will feature live dance shows and concerts, will take place between February 8 and March 7 and showcase consecrated flamenco artists from the classical and modern scene. It is organized by the Cervantes Institute and the Spanish Embassy. The event opener will be Sentimientos (Feelings), a dance performance staged at Odeon Theater on February 8. The show is headlined by Yolanda Osuna, a dance

prodigy who started flamenco at the age of three and has collaborated with many important names on the scene such as Mayte Martin, Miguel Poveda, Arcangel, Chano Lobato, Julian Estrada, El Lebrijano, Luis de Cordoba, El Cabrero and Nino de Pura. The chamber music instrumental ensemble La Maestranza will play on February 16 at the Romanian Athenaeum. The ensemble is led by Jose Maria Gallardo del Rey, a composer and guitar player who breathes new life into Spanish classical music. The ensemble comprises musicians who play classical

music and jazz, tango and flamenco, using instruments such as the flute, clarinet, viola, cello, percussion and guitar. On three consecutive days in March, films by director Carlos Saura will run on the screens of Elvira Popescu cinema. Saura flies the flag for cinematography of the late 20th century, having made a series of films on tango and the art of flamenco: Bodas de sangre (1981), El amor brujo, Sevillanas and Flamenco (1995). For the full program of the event, check www.businessreview.ro, the City section. Otilia Haraga BUSINESS REVIEW / February 15 - 21, 2010