BusinessMagazin

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  • Alchemy of Stock Exchange investments

    Identifying the best investment opportunities is a difficult task given the current context of the worldwide economic crisis, but crisis periods are also those that provide the best investment opportunities on the Stock Exchange. As a paradox, the first half of this year, which overlapped with the Romanian economy’s slide into the worst recession after 2000, brought some of the biggest profits of the last few years on the Stock Exchange.

    The excessive panic experienced by the world’s capital markets since October 2008, after the collapse of the US Lehman Brothers bank, took the Romanian shares down to as much as 95% lower levels than the all-time highs of 2007, and the rebound that ensued brought investors on the stock market profits of more than 200% in some cases in a matter of months.
    The overall Stock Exchange index, BET-C, has posted 5.4% growth since the beginning of the year (as of July 9, 2009), while the index of the ten most important listed companies, BET, has gone up by 17% and SIFs have gained an average of 28%. In the meantime, seven stocks on the Stock Exchange generated more than 100% profits, while five other posted growth of 50 to 100%.

    Those who would have invested 10,000 RON in Rompetrol Rafinare (RRC) shares for instance, the company that controls the Petromidia refinery, or in shares of pharmaceuticals producer Zentiva – the former Sicomed (SCD) would have gained more than 14,000 RON in net amount, ten times the average interest offered by a one-year banking deposit in RON. A similar investment in SIF Oltenia (SIF5) shares, would have generated a 4,200 RON profit, three times the banking interest, given that the SIF Oltenia shares were down 40% in the first two months of the year compared with the beginning of 2009, which means a potential loss of 4,000 RON at an initial investment of 10,000 RON. For those who were not scared by the sharp plunge at the beginning of the year and went ahead and bought shares, the profits were even higher than in the first half of 2007, when the economy was going strong and the Stock Exchange was following a significant upward trend.

    On the local market, the exit of some foreign investment funds and especially the sales by local investors based on their sentiment alone, made the shares spiral downwards even further, in some cases even reaching unjustifyingly low values, so that about half of the shares listed on the main market of the Bucharest Stock Exchange are now valued at less than 20% of their price in July 2007, when they reached their all-time highs, even after the spectacular increases of the last few months. At the same time, a peculiarity of the Romanian market, the extremely low liquidity, which most brokers see as a handicap, made Romanian shares decline more than those on the neighbouring markets, thus becoming undervalued on a regional scale. The same low liquidity may lead to a stronger rebound when investment funds return.
     

    “In our opinion, the capital market in Romania is valued attractively compared with other markets considering the rate of economic growth (decline) expected for the next two years and the sovereign risk at the moment. We believe the companies with high stock market capitalisation are trading at a discount of over 30% at the moment compared with other countries. This is why, if taking into account the risk undertaken, the investment in shares with a high market capitalisation seems attractive compared with investment in smaller companies (which, besides the higher liquidity risk, also run the risk of being more affected by the macroeconomic performance),” explains Marius Mure[an, deputy chief executive of STK Financial, the company that manages STK Emergent investment fund, which is listed on the Stock Exchange, as well.

     

  • The Hotel at the Spa

    “In 2005 I was trapped on the financial market and seeking a place to escape to for a bit of relaxation,” says the owner of Eden Spa, Liliana Paraipan, who had tried the spa centres outside Romania and realised this market needed to be opened in Romania, as well. In August 2005, Liliana Paraipan, at the time deputy general manager at the Romanian Commodity Exchange, decided to open her own spa, the first such centre in Romania, – after training in spa management and marketing in the US.

     

    In 2005, three months after the launch of the spa business, Paraipan left her position at the Commodity Exchange and started to work on educating the market: “It was not easy for me to sell the spa therapy concept, because relaxation was directly associated with spending time in beauty parlours and body contouring. The spa concept, on the other hand, is based on the idea that beauty starts from the inside out, placing the psyche and the body on the same level.” It took about a year until the new owner created a client base for Eden Spa, much smaller than her current one – 5,000 clients (around 1,200 new clients come to the spa per year, half of whom return regularly for treatment).

    Paraipan also runs the largest spa in Romania, which was opened at the end of last year on a 2,000 square-metre area within the 5-star hotel Hilton in Sibiu. The around 4 million-euro investment in opening the spa at the Hilton was made by the hotel, as a result of a partnership between Liliana Paraipan and Nicolae Minea, owner of Hilton Sibiu. The collaboration between Minea and Paraipan began in mid-last year, when the hotel was still under renovation, but it also targets the opening of at least three hotels “equipped” with a spa, similar in format to the one in Sibiu. However, the discussion on this partnership came last, according to Minea, who chose to work with Liliana Paraipan after several distributors of spa equipment and products sent him their offers. “Liliana, however, came with a fully developed operational plan, so we found her proposition to be the most interesting one.” This made the two decide to extend their collaboration to the hotels to be opened under the Hilton brand in the near future.

     

  • Sailing again

    Millionaires are tired of not spending and yacht producers have been quick to react, launching more products that ever. A stroll in the marinas and harbours on the Mediterranean is enough to take the pulse of the economy. Two years ago, the harbour of Monte Carlo was a permanent exhibition of mega-yachts that used to bring the rich and famous to their favourite love nest. This happened at the time when the economy was booming and yachts were one of the symbols of the social status for which businesspeople often led a fi ercer battle than that for a company takeover. Meanwhile, the fi nancial crisis has tempered the consumers’ appetite for the biggest, most expensive, most powerful yacht, and marinas in some cases have become sale showrooms.

     

    For instance, the marina of Varazze, Italy, where every second ship displays the ”Vende” (for sale) sign. In this context, the yacht market has coped with strong winds, even storms in some cases. Ferretti, one of the biggest yacht producers, which in 2007 was acquired by Britain’s Candover investment fund, was on the point of entering under the Italian state’s control because of debts. The French producer of luxury yachts Couach has fi led for bankruptcy protection. ”The yacht market dropped by 20-30%, and in the November 2008-February 2009 period it was completely blocked,” explains Paolo Vitelli, founder and CEO of Azimut-Benetti group, the world’s biggest producer of yachts, which in 2008 produced ships worth 960m euros. Vitelli says the group was somewhat more sheltered from the storm because of the family business structure and the decision not to get listed.

     

    The company’s founder admits the company’s activities were reshuffl ed, costs were slashed and everything was rationalised. The effects were visible at the third edition of the Azimut-Benetti Yachting Gala, an event the group organises annually for dealers and clients. However, Vitelli maintains the market is showing signs of a rebound. ”The very rich, though they lost 20-30% of their wealth, have got tired of not spending. As a result, the high-end market is coming back to life”. As for the medium segment, the founder of Azimut-Benetti says it is made up of a category of clients that was rather psychologically affected by the crisis. To relaunch sales, the company sealed a contract with CGMER, a fi nancial group specialising in fi nancing services for yacht owners.

  • Fire of change ?

    After all, the crisis is beneficial in one way: real estate developers will have more time from now on to structure their projects more carefully and they have already ”started to also seek input from a manager again as they used to in 2003-2004,” Lucian Anghel, managing partner and founder of Building Support Services (BSS), one of the leading office building and logistic space management companies, said in a conversation with BUSINESS Magazin.

     

    In his opinion, the new office buildings erected in major cities are of a lower quality than those built at the beginning the real estate boom. ”It was the rush to build and sell as fast as possible, it was the dwindling labour supply. They were erected to be sold fast,” the BSS head said without referring to any project in particular. The recent fire at the Millennium Business Center, a building whose manager BSS is, brought to the forefront again the opinions voiced by managers or consultants in this field over time, who were mentioning, off the record, problems found at some buildings in the Capital after completion.

     

    ”The more sophisticated a market becomes, the better the buildings will become, that is normal. However, if you sell a building it does not mean its quality is poor; there were developers who used to build well five years ago, and still do, and there are others who do not build that well. Very important here is the manager of the project,” says Hora]iu Florescu, chairman of The Advisers and the most experienced office space rental broker.

     

    In the days after the fire at the office building close to the Armenian Church, many brought up the issue of the small distance between the building and the church, as well as the material the faÁade was made from, which allowed the fire to spread quickly, and the lack of sprinklers on the floors of the building. ”No one expected a fire to start from the outside,” BSS manager comments.

     

    Lucian Anghel adds that the construction regulations in force do not stipulate the mandatory installation of sprinklers ”unless the thermal load exceeds a certain level”, with the thermal load established based on the materials used for every floor. Since the tenants of an office building are free to use whatever furniture they like for their space, the initial calculation loses some of its relevancy. ”There were hydrants on every floor, anyway,” Anghel says. ”I am convinced, however, that from now on much harsher regulations in this field will be issued.”

  • See you in ten years

    ENERGY

    Going green –  Renewable energy, of course – no one talks about anything else. This goes for Romania, too, though for a while we will not feel as much pressure to radically replace traditional energy sources with green ones as others do. What kind of energy, then? Currently, 29% of production comes from renewable sources: the high-yield hydroelectric power, which allowed Romania to look like it had complied with EU’s directions.

     

    When it comes to other types of renewable energy, Romania is the country with the lowest investments in the EU, and its luck of having hydroelectric power is up to the flow of rivers, which is dwindling, and with it so is the willingness of international organisations to accept hydropower as renewable energy. Therefore the green future of the Romanian energy is connected to wind, sun and biomass.

     

    For now, gas and coal are the preferred sources, which are highly pollutant and generate 70% of the energy production. However, ”Wind is Romania’s biggest chance for green energy,” believes Ondrejs Safar, who supervises the installation of 240 wind turbines at Fantanele Wind Farm, as part of a CEZ project to build a 600 MW installed power (equal to one nuclear reactor of Cernavod=) wind farm in Dobrogea.

    IT

    Reality of virtual reality  – The dream of smart homes and offices is still on the mind of those who imagine the evolution of technology in the next decade. Guided by technology every minute and constantly connected to the Internet, the man of the future seems like a part of an ever-expanding virtual gear. Adobe Romania’s CEO Alexandru Costin, believes that we are now at a crossroads in every fi eld and especially in IT, when the speed at which knowledge is acquired and innovation is applied has become exponential. He thinks this speed will maintain for decades from now on.
     

    TELECOM
     Universal gadget –  Over the coming years, the phone will continue its metamorphosis, from a mobile terminal we can use to talk to sort of a Swiss army knife capable of doing everything. Or at least something more than it does today. Mihnea {erbu, senior product manager of Orange Romania says, ”The phone will continue its transformation along with the technology: camera, internal memory, screen, size and uses.” Therefore we will have a portable computer on our hands: ”We will soon see a phone that will be part of the computer family, equipped with processor, graphics memory or hard drive.”

     

    LABOUR MARKET
     Fle-xi-bi-li-ty – How we will work in the future will obviously depend on the health of the world economy. Yet demand for productivity and efficiency will increase, regardless of the context. A phenomenon, though helped by the crisis, which was already a trend, is the shift from permanent employment contracts to working with independent contractors. The shift to this system will also entail adjusting internal processes of companies. Most contracts with independent contractors are signed for singular projects, which generates fl exibility both for companies – which can get top specialists without having to hire them for an indefinite period of time and for specialists, who can choose only those projects they are interested in.
     

  • Customisation

    The idea came during a friendly chat with the marketing manager of the Dinamo club, Mircea Copaci. The Dinamo official wanted the football team to have a uniform image, consistent with the demands of the big international clubs. The first order for such clothing came from Dinamo Sports Club in 2006 (around the same time Bigotti had a similar contract signed with rival football team Steaua). ”The first official appearance of the team wearing the shirts we created was at a game with England, with Everton, and Dinamo then won 5 to 1,” the Dinasty representative recalls.

    Custom-made collections for company employees are a business with good prospects in fashion retail, which can bring money, but entails significantly lower costs than classic retail. However, this niche is as yet little explored in Romania – those who have tried this business model can be counted on the fingers of one hand. There has been demand for such clothing from companies in Romania for many years, but they had to resort to classic retail stores, in the absence of firms specialised in corporate clothing. ”A company’s image means much more than letterheads and business cards,” says Gabriel Muraru, who decided to launch a new division within the company he controls, dedicated exclusively to business wear for corporate employees (from suits to shoes and to cufflinks). Last year, before a clear strategy had been devised for this segment, orders for corporate clothing accounted for 5% of the company’s 6 million-euro turnover.

    The amount was, however, enough to persuade Muraru that this project would work. The specialised division should, of course, have contributed much more to the 2009 turnover, and Dinasty representatives admit that the timing for launching the division onto the market was not the best. Gabriel Muraru is aware that providing clothing for employees is not a priority in companies’ spending budget at this time. However, ”image counts in a time of crisis, as well,” says the Dinasty shareholder, who has started the new business with tens of signed contracts. Its clients include Coca- Cola, European Drinks, Ursus, Perroni, Banca Transilvania, Automoldova, Mobexpert, Iptana, Transgaz, Terapia Cluj, Antibiotice Iasi, Neocity, Rifil and Baumit.

    Traducere de Loredana Fratila-Cristescu si Daniela Stoican

  • Digital Revolution in Cinemas

    Soon, Romania will also benefit from the new technology that allows Christian Bale to plunge into the audience, and fans to shake Bono’s hand at a U2 concert. At the end of last year, the first 3D film featured on Romanian screens, ”Journey to the Center of the Earth” became the most profitable movie of all time on the Romanian market, collecting almost 2 million RON at the box office, although critics on the international market deemed the movie as mediocre.

    So, critics concluded, it was technology that made the difference, not the love story on the most famous boat in history. Cinema operators, inspired by the unexpected success of the start of the digital revolution in Romania, now compete in the field of technology. ”Our experience tells us that in Central and Eastern Europe, whenever a significant infrastructure was created, the number of annual visits per capita approached those in Western Europe, and we think the same will happen on the Romanian market,” says Corina Gonteanu, marketing manager of Cinema City, a part of Cinema City International, the largest multiplex network in Central and Eastern Europe.

    According to company data, Romania ranks last in Europe in terms of the average number of cinema visits per capita, with 0.2 visits a year. That compares with 0.3 visits in Bulgaria, 1.5 in Hungary, 0.9 in the Czech Republic, whilst Ireland is at the top of the ranking, with 4.5 visits. ”Romania could easily reach 0.7-1 if the infrastructure is developed, and the number of tickets could rise five-fold. In Warsaw, for instance, where there are 8-9 multiplexes, the ratio of visits exceeds 3,” says Moshe Greidinger, CEO of Cinema City International. In this context, Cinema City will open the first IMAX (Image MAXimum) within the AFIPalace Cotroceni mall in October.

    The IMAX will be part of a 21-screen, 4,300-seat megaplex. IMAX, considered to be the largest cinema in the world, actually amounts to a three-dimensional experience lived on a large scale. The screen, which is the size of an eightfloor building (18 metres high and 24 metres wide) is curbed in order to fill the peripheral vision of everyone in the audience. ”The investment in the IMAX system is worth around 1,8 million euros,” says Greidinger. The IMAX in Bucharest, a 400-seat cinema, will feature both 40-50 minute-long documentaries, and Hollywood productions.

    Traducere de Loredana Fratila-Cristescu si Daniela Stoican

  • Around the World for a Website

    Two years ago, Ciprian Enea (35) left the company he had founded in 2001 in the hands of his new business partner and left on a very long trip. For over a yearís time he travelled from the Taj Mahal to East Timor and from Nicaragua to Argentina. It was worth the effort, says Enea, because today he owns together with his partner Giani Holban (33) the first travel website in Romania with user-generated content. TVTravel.ro gathers hundreds of short films made during Eneaís travels, as well as of the over 100 users that have already signed up with the website.

    The investment that went into releasing the first Youtube for travel buffs onto the market amounted to around 250,000 euros, of which only 100,000 euros were spent on developing and actually launching the website. The rest of the money -150,000 euros – covered Eneaís travels and came in equal share from his own resources and from a partnership with travel agency Prestige Tours, held by businessman Mircea Vladu. This year another 75,000 euros will be invested in development and in the next round of travels that Enea will embark on, this time to Japan, Korea, Papua New Guinea and Taiwan. However, the two founders say they will not see a profit from revenues collected by TVTravel.ro in the next two years.

    Traducere de Loredana Fratila-Cristescu si Daniela Stoican

  • Good bye, Rompetrol

    At 3 p.m. last Friday, two press releases announced the sale by Dinu Patriciu of the last 25 percent in Rompetrol. Over the following few hours, nobody would comment on the sale. Everyone was waiting for somebody else to start talking ”on the record” about one of the most eagerly awaited deals in Romania. All with whom BUSINESS Magazin tried to talk on Friday evening brought up a few common points: how much Dinu Patriciu sold for is not that important, how he did it is.

    The deal was announced by two press releases: one sent by KazMunaiGaz, whereby chairman Kayrgeldy Kabyldin said the acquisition of the last stake of Rompetrol was in line with KMGís strategy to develop abroad, and the second release came from Dinu Patriciu, who said he had decided to exercise his right to sell to KMG the remaining 25 percent stake in Rompetrol Group. That the two parties did not send a joint release says one important thing about the relationship between the Kazakhs and Dinu Patriciu. ”I believe Dinu Patriciu has never had a very good relationship with those to whom he sold the business, but I think that by selling Rompetrol, he made two masterful moves in this time of crisis,” said one of the businessmen in the petroleum world interviewed by BUSINESS Magazin.

    The price at which the sale was done is an interesting topic, too. According to sources on the market, last weekís sale was tightly connected to the sale in August 2007, when Dinu Patriciu and Phil Stephenson sold 75 percent in Rompetrol to the Kazakhs at KazMunaiGAz for 1.6 billion dollars, with the company thus valued at 2.2 billion dollars. Patriciu is the winner of the crisis twice, because with the deal sealed two years ago he checked, as he sold, before the crisis, a company whose rating has significantly gone down in the meantime. He now checkmated: he sold at a time when the crisis is in full swing and also escaped the deadline of the debts (which is June 2010). According to sources on the market, the contract initially signed by Patriciu included a mention that the sale of the 25 percent was to be done at a price at least equal to the company estimate in 2007. If we take that estimate into account, Patriciu collected approximately 533 million euros for the 25 percent. Even though he sold, Patriciu is still involved in the court case of Petromidia privatisation.

    Traducere de Loredana Fratila-Cristescu si Daniela Stoican

  • A Matter of Speed

    ”To be honest, at the end of last year I thought the first bankruptcy I would hear about on the low-cost airline market would be Wizz Airís,” Stefan Mladin, manager of the Baneasa Airport, the main gateway for low-cost flights in Romania, said last week. Mladin is one of the first people to get a feel the market from the pace at which airlines operating on Baneasa request their slots and had felt a significant slowdown of demand from Wizz Air at the end of last year.

    Early in 2009, however, the Hungarian company got a capital inflow and resumed growth. Sky Europe, on the other hand, had significantly reduced the number of flights in Romania by mid last year, when it was operating only two flights from Bucharest and had given up part of its fleet, keeping only five aircraft. Back then, the Slovaks at Sky said they kept only two flights on Baneasa as a result of the partnership they had signed with MyAir (an Italian company that has been operating flights to Italy and France from Baneasa since 2005), which allowed them to operate only on the markets not served by the Italian operator.

    ”The partnership between Sky Europe and MyAir only entailed selling tickets on the website, with the two companies deciding to complement their flight portfolios by booking seats in each otherís aircraft, but have never operated together,” explains Alina Rus, MyAir manager for the Romanian market. Over the last two years, the Slovakian company has not received any capital inflows from its shareholders, and its shares on the Vienna Stock Exchange, where it is listed, have had a preponderantly negative performance. Sky Europe had started out in 2001 with enough funds from its shareholders, and its fast development drove the national airline carrier out of the market.

    At the end of March this year, the company announced a 31.9 million euro net loss for the first half, while debt stood at more than 100 million euros. After these results were published, the officials of the company in Bratislava tried a number of strategies to rebound, but last week they filed bankruptcy-law protection to be able to start a reorganisation and streamlining programme. The last campaign conducted by those at Sky Europe was one in which they sold 1 million tickets for 1 euro each, which made more than 100,000 CEE passengers buy tickets for this summer. The company announced it will operate the flights, but problems began soon after announcing bankruptcy on several airports to which Sky Europe owed money. Low fare campaigns have been the main weapon used to gain market share by low-cost airlines in Romania over the past year.

    Traducere de Loredana Fratila-Cristescu si Daniela Stoican