BusinessMagazin

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  • New Wine for Connoisseurs

    In an interview given to BUSINESS Magazin, the otherwise discreet businessman, who does not want to have his photo taken, told the story of the business he founded 17 years ago together with his partner Bogdan Costachescu (an oenologist and owner of 10% of Davino).

    Catalin Paduraru, a wine critic and one of the shareholders of Vinexpert retailer, says ”Davino has seen the most spectacular evolution among all wines launched on the market over the last few years (since 2000 i.e.). ”In 1992 I started a wine import and distribution business, but I had always wanted to be involved in production,” says Balaban, who put the first bottle of Davino wine on the market in 2000. Since then, the brand has become known, especially among connoisseurs. Starting in 2006, Balaban has taken Davino out of the regular retail circuit, and has sold it only on the on-premise segment (hotels, restaurants and catering).

    Traducere de Loredana Fratila-Cristescu si Daniela Stoican

  • The African Queen

    Under the circumstances, Africa is now the queen of spring and summer collections of major designers. One of the most successful products of African inspiration on the market has been the spring/summer collection created by Marc Jacobs for Louis Vuitton.

    To add flavour to the shoe line (called Spicy), the designer has included elements usually associated with Africa – snakeskin, feathers and semi-precious stones. The collection is dedicated to Josephine Baker, the famous singer and dancer from the 1920’s Paris, whose exotic features conquered the City of Lights. The shoes now lead the African fashion caravan and, despite the crisis, are selling like hot cakes.

    Chloë Sevigny is a Hollywood star who appeared on the red carpet wearing a pair of Vuitton Spicy, and has sparked a craze for this model among celebrities. Demand is high, all the more since every pair is different, suggesting the idea of unique, handmade objects, something that Africa excels in.

    Traducere de Loredana Fratila-Cristescu si Daniela Stoican

  • Who will remain on top?

    Hopes of volumes and profit of the top companies in Romania have significantly dimmed not only compared with last year but also compared with the estimates of the first few months of 2009. The hardest hit are the companies in the industrial sector. First quarter results confirm declines for all the top ten companies by turnover, which could lose more than 4 billion euros this year, as well as their position among the biggest businesses in Romania.

    In Galati, 12,000 employees are expecting options to keep their jobs this year from Augustine Kochurampil, chief executive of Arcelor Mittal Galati. The manager decided after Easter to move to crisis Plan B, and took a few steps to keep things afloat. ”We do not expect things to go back to where they were last year any sooner than two or three years, but we hope for an improvement in demand in the second half of this year and for the time being, even though we did not need 11,700 people to work at 40% capacity, we are looking for options to cope,” Augustine Kochurampil says. The manager’s plan, to work exclusively to order (instead of building stocks), to close the coke and chemical plant, to request employees to take ten days of leave and five days of technical unemployment in rotation, complemented the European strategy of Arcelor Mittal, which decided to close 14 furnaces of the 25 it had in Europe, as well as to completely shut down the plants in Florange (France) and Liege (Belgium).

    ”I’ve been in the steel business for thirty years and I have never seen such a decline in price and demand for steel,” says Kochurampil, who, in his thirty-year career has restructured a bankrupt plant in Germany, another plant that worked based on non-performing barters in Kazakhstan, as well as a plant in Poland where he saw the most difficult strikes, thus going through several crises on the steel market. The current crisis, which reached all economy sectors, has been a hard test for metallurgy in general and for Mittal Galati in particular, with the plant now operating at 40% capacity, without too much of a chance to rebound for the rest of the year.

    The decline of the plant in Galati will probably be the most serious experienced by any major company in Romania this year. The most affected top ten companies this year (which include mostly players from petroleum and telecom industries, as well as from retail, metallurgy, distribution and industry), believes Codrut Pascu, manager of the local office of strategic consultancy Roland Berger, will be ArcelorMittal, Dacia Group, Petrom and Rompetrol, and the least affected will be the retail companies. By ”affected’ the consultant means the decline of the turnover due to the overall decline of the markets, as well as the profitability that will allow them to survive.

    Each company among the biggest in Romania is taking into account significant two-digit declines of its business, with the first quarter results confirming their suppositions: Petrom is talking about 33% lower business in 2009, Rompetrol Rafinare anticipates 50% full-year decline, Rompetrol Downstream could go down by 20%. Mittal has already resigned itself to a potential 60% drop, while Lukoil Romania estimates decreases of 30% (the decline for Petrotel-Lukoil refinery is estimated to be even more serious, around 40-45%). The biggest companies in industry in Romania are now talking about a halving of their business, while the telecom and retail companies are somewhat luckier, as their decline will be less serious this year.

  • Three Moldavian beers

    Martens. Bermas. Albrau. Galati, Suceava, Onesti. The smallest three brewers in Romania are not necessarily the last independents in the field, as other beer businesses not connected to the multinational giants are that of brothers Ioan and Viorel Micula, the biggest local food group, as well as Romaqua’s, the producer of the Borsec water, which has recently entered the beer market with the Albacher brand. What the three small producers, all of them focused around Moldova, have in common is that they lack large production capacity, nationally known brands and promotion, on a market dominated more and more authoritatively by the world’s biggest brewers.

    Heineken, InBev and Ursus Breweries have bought local producers one by one, and the sale of Bere Azuga at the start of this year ended the row of major transactions in this field. ”The rest are not important because they have very low market shares and low production capacities,” says Gheorghe Grec, one of the former shareholders of Bere Mures, who believes only the real estate factor could help stir some interest in the takeover of one of the three producers. Martens Galati, Bermas Suceava and Albrau Onesti are present in their areas with less established brands and production capacities of about 200,000 hectolitres (in comparison, Heineken, the leader of the market, has a technical capacity of 7.7 million hectolitres, 1.6 million hectolitres of which acquired with the takeover of Bere Mures). In a word, they lack exactly what a multinational seeks when it looks at acquisitions on a local market – a significant production capacity and strong brand.

    ”The producers that are still independent do not have any powerful brands and the major ones already have enough production capacity in Romania,” believes Shachar Shaine, chairman of United Romanian Breweries Bereprod, which makes Tuborg, adding that the multinational he represents has not been and is not interested in any acquisition. The three small producers have not given too much thought to this lifeline: Vasile Joanta, the manager of the Galati-based producer Martens, says that although he has not received any takeover offers until now, just ”various questions exploring the possibility”, he is open to such talks in the future.

  • Business on the ski track

    In fact, Austria has been the No. 1 destination for Romanian tourists this winter season. Over 30% more Romanians have been willing to travel over 1,500 kilometres and spend 650 euros per person on average for a 7-night package in Austria.

    The same standard applies in resorts throughout the country. Firstly, the pistes fall into three categories – blue ones are easy, red ones are of medium difficulty, and the black ones are the most difficult. The pistes are usually accessible by means of a gondola or a cable car that takes skiers up, to a main centre. From there, they take ski-lifts or by chairlifts (increasingly rare) and are taken to the higher pistes. Every year, Austrian resorts invest over 50% of the season’s earnings in developing the ski infrastructure. In the last season, investments totalled 557 million euros, with a significant share (203 million euros) being dedicated to developing the artificial snow infrastructure. Additionally, the 2008- 2009 season saw investments worth 122 million euros in building a new piste, ski lifts, car parks and other facilities.

    The après-ski offer (i.e. after-ski entertainment) has also become a tradition in Austria. Cable facilities close at around 4 PM, after which skiers find their way to outdoor or indoor bars. One of the most famous is Elizabeth in Ischgl, the bar on the ground floor of the English-style Elizabeth hotel, where tourists dance in ski boots, while the entertainment is provided by girls dancing in traditional Tyrolean outfits.

    Skiing seasons are opened and closed by major concerts. For instance, Ischgl saw the season end on May 2nd with a Kylie Minogue concert, as part of the Top of the Mountain concert. Additionally, investors and the Austrian authorities are spending significant sums into extending the ski season. Whilst December, January and February are considered to be peak months, one can ski for more than 6 months on glaciers, from November to May. And, given that the quality of snow is greatly prized, 203 million euros were invested in developing the artificial snow infrastructure alone, so over 60% of Austrian pistes are covered with artificial snow.

  • Fight for survival

    From Milan, from where he oversees the business of UniCredit Global Leasing in 17 countries, Septimiu Postelnicu gives a harsh verdict: it will be a few years before we can talk about growth again. ”When you look at 17 countries, you get a different understanding of the overall economic phenomena and of the possible solutions,” Septimiu Postelnicu told BUSINESS Magazin. The 32-year old Romanian oversaw the merger of HVB Leasing and UniCredit Leasing on the Romanian market and has been running the operations of the UniCredit Global Leasing branches in the CEE region from Milan for six months now.

    This gives Postelnicu a clearer and more integrated picture of the chances that the Romanian and European leasing markets have. Neither the present, nor the near future look comfortable, he hints; it is very clear that leasing, as many other industries for that matter, has fallen victim to the economic decline on the entire continent and the coming period will be one of a radical shakeup. ”It’ll be a few years before we can talk about growth,” Septimiu Postelnicu believes. What matters for the time being are the steps that can be taken to survive.
     

    Traducere de Loredana Fratila-Cristescu si Daniela Stoican
     

  • Feel free to cream off the milk

    Shmulik Porre, president and CEO of Tnuva Romania needed only one week to weigh the parent company’s proposal to take over the reins of the Romanian subsidiary. ”It was time to make a change in my career,” says Porre, who was general manager of the largest paint manufacturer in Israel for five years before accepting Tnuva’s job offer.

    It’s been over a year since then, and, when looking at the progression of the company he is running, Porre has no reason to regret making this decision: Tnuva Romania boasted the fastest growth rate on the market in 2008, when it reached 20 million-euro sales. This being the first full fiscal year since the company’s products hit the stores, it was in a way natural for its progression to be more spectacular than that of other milk processors. Porre takes pride in having built a project from scratch on a very competitive and dynamic market, especially since he says he is expecting a 50% turnover growth this year. So far, he has been among the few to make such appraisals; the other dairy processors expect 1-2% rises on average for 2009, at least 4-5 times lower than in past years.

    ”We think the industry will go up this year, as well, but we don’t believe it will be a two-digit rise, like in previous years,” says Traian Simion, general manager of Albalact Alba Iulia, the only large processor listed on the Bucharest Stock Exchange. The dairy market approached 1.3 billion euros in 2008, with dairy products getting top billing in supermarkets and hypermarkets over the last few years. For many years, the market saw a two-digit annual rise, surpassing all growth rates on consumer goods market.

    Now, companies anticipate that market moves have more to do with difficulties generated by the current situation, especially for small processors (which are faced with funding difficulties) than with anything else. Companies need to consolidate their position on an increasingly crowded market, with this year expected to be rich in transactions. For those that have businesses to sell, the timing is quite unfortunate, because the price has gone down significantly against the past few years, while buyers hold all the trump cards in negotiations and can afford to wait until a good deal comes along.
     

    Traducere de Loredana Fratila-Cristescu si Daniela Stoican
     

  • Not a happy time for Happy Tour

    The first year in the portfolio of GED investment fund was complicated for Happy Tour. The agency almost lost its leading position on the travel market, changed its management and organisation, and, to top it off, travel budgets were cut. This cut managed to halve the market in the first few months of the year. Actually, quite few of the expectations of Gabriel Ionescu, general manager of Happy Tour recruited by GED Eastern Fund II to run a future group of travel agencies intended to be the undisputed leader of the market, came true. GED’s plans at the moment it recruited Gabriel Ionescu were made soon after the takeover of the leading travel agency, Happy Tour (December 2007, in a deal put at 10 million euros), which should have been followed by other acquisitions on the business travel market. Meanwhile, GED’s plans changed, and the investment fund told BUSINESS Magazin ”currently we are not considering (to buy i.e.) any Romanian travel company,” and that ”in six months, we expect to complete one or two new deals, though none of them related to travel industry,”
     

    Traducere de Loredana Fratila-Cristescu si Daniela Stoican
     

  • Supermodels and financial crisis

    Last September, Romanian top model Diana Dondoe was on the cover of the first issue of the lifestyle supplement of the Wall Street Journal (WSJ) business daily. Although the headlines of the newspapers she was dressed in (Diana wore a dress created by designer Roland Mouret and made entirely of Wall Street Journal pages) announced the recession, the crisis in Romania was nothing more than a topic for the press back then. Several months later, with the crisis in full swing, Diana Dondoe told BUSINESS Magazin what the current economic situation looked like seen from the height of the catwalks or beyond the glamour of the advertising campaigns of the major brands, considering the behind-the-scenes motto of the fashion weeks in New York, London, Milan or Paris in terms of model fees was ”half price”. Designers hired fewer models and brands cut their promotion budgets.

    For a model, the fashion market is divided into two important fields – fashion shows and advertising campaigns. ”I can say I can feel a decline in the payment for campaigns. But I prefer to work less and do other things unrelated to fashion, to focus on other interests, such as continuing my education at NYU (New York University i.e.).” As for shows, the Romanian top model, ranked among the top five models of the world last year, says they have not been part of her regular schedule for the last three seasons, and that she only does two or three major shows per season.

    After having been on the catwalks for six years, she decided to focus on advertising campaigns, which are more profitable. She picked only one show this season, Marc Jacobs, at the New York fashion week. After all, the fashion week in the crisis city was one of the most affected events by the current situation of the economy. Even before the end of 2008, designers like Vera Wang and Betsey Johnson had announced they would not participate to the Bryant Park event where a show may cost up to 750,000 euros, opting instead for a traditional and much cheaper presentation in their own showrooms. All in all, there were 30 fewer designers attending the event compared with last year.
     

    Traducere de Loredana Fratila-Cristescu si Daniela Stoican

  • The rise and fall of a broker

    Everyone knows Petru Prunea, 63, to be an authoritative leader and a man with a strong personality. His employees at Broker know it best, as they had ended up smoking in the bathrooms of the company’s headquarters on 119, Calea Motilor in Cluj- Napoca, like high-school kids, after he had banned smoking on the premises.

    However, the company he founded and has run since 1994 was shaken by the biggest scandal on the capital market after 2000 at the beginning of the year, after the head of the Deva office of Broker was found to have defrauded customers by almost one million euros. An extensive probe of the National Securities Commission, the supervisory authority of the capital market, followed and found problems at other branches, too, leading to the harshest penalties on the Stock Exchange thus far: total fines worth 843,000 RON (200,000 euros) for the company and 22 of its employees and a five-year suspension for Prunea from the capital market. How did Petru Prunea, who developed one of the biggest businesses on the capital market, with about 10,000 customers and 15,000 shareholders, end up being held responsible for such serious wrongdoings? Those who have worked with him say that everything stemmed from his wish to control everything and from not having delegated part of the responsibilities as the firm was growing.

    ”If Mr. Prunea had the inspiration to work more closely with the members of the board of directors in making decisions, maybe things wouldn’t have got where they are now,” says Anton Ionescu, 68, Broker’s third shareholder, who controls 4.16% in the company. He took over as chairman of Broker in March, after a ‘coup-de-palace’ whereby he and other members of the Board of Directors, who in turn were significant shareholders of the firm, ousted Prunea from the helm.

    ”Prunea regarded himself as the undisputed owner of the firm; he wanted to control everything and maybe this is what caused what happened to him. There wasn’t any trouble at first, the trouble started as the company was growing. When you already have hundreds of employees, very much money and the power is in the hands of only one man, trouble begins,” Ionescu explains. He says he joined Broker as a shareholder in 2005, after having concluded his political career as a deputy, which included a short stint as Transports Minister of the Radu Vasile Cabinet in 1998.

    ”I had known Petru Prunea for many years, as we were co-workers when I was the dean of the constructions faculty (of the Technical University of Cluj – i.e.). I was happy with the idea of working together, because he was one of the first people to have taken the step from socialism to the capitalist economy and founded this brokerage firm,” Ionescu recalls his first meeting with Broker.

    ”People change, they no longer communicate, no longer work with others like they used to, and show sides of their personality that may have not been visible in the beginning,” says Ioan Cartis, 73, the principal shareholder of Broker, with 8.22%.

    Petru Prunea says he has always taken shareholder opinions into account, when they showed common sense, but believes he is the only member of the board capable of running Broker, given his expertise with the capital market, after the fourteen years of almost constant growth of the firm he has run.

    A day before CNVM’s verdict, Prunea said he was thinking of stepping down as chief executive of Broker, and even sell his shares, after having been ousted as chairman by the other board members, two of which had been brought into the company by him. Now, he is determined to stick with Broker, even though he says CNVM’s penalties against it and against him could prove fatal for the firm.