2007 brings significant investments for energy and banking (top 100 Foreign Investors)

Banking industry adds new greenfield investment

Local banks' profitability dropped this year compared to the similar period of 2006 due to investments they made in expanding their physical presence throughout the country paired up with a significant trimming down of margins.
Banks invested tens of millions of euros into brick-and-mortar offices and the people to fill them up with. However, market leader Banca Comerciala Romana has proven to be by far the most costly lender so far. It has cost Erste Bank EUR 3.75 billion a year ago to buy it and its subsequent facelift and integration continue to require significant investments from the parent-bank.
“We will invest some EUR 140 million in 2007-2008 for the integration (mostly relating to consulting, training and severance), some EUR 120 million over 2006-2009 for investments in IT and optimization of the branch network. Another (maximum) EUR 116 million has been allocated in 2006 in relation to additional risk provisions. One could say that the whole amount is dedicated to the organic growth of the bank,” said Ionut Stanimir, Erste Bank spokesperson regarding investments programmed for this year.
Until now in 2007, BCR has opened approximately 60 branches. Most of them are concentrated in Bucharest with 14 units, while eight others are located in Iasi and 10 other counties with a smaller number of branches. “Thus, the largest concentration of units is present in Bucharest, with approximately 100 units. In the future, BCR looks to open new branches in those areas that offer the most potential for growth in the retail sector. The BCR expansion plans provide for the further expansion of the network, from the 532 at the present time, to approximately 700 operative units by the end of 2009,” said Stanimir of Erste bank.
One of Erste's contenders in the race for BCR last year was Millennium bcp, a leading Portuguese lender which decided to take the plunge last month and start a local business through a greenfield investment.
The bank initially invested up to about EUR 40 million in Romania, but the sum will grow to EUR 45 million next year and go over EUR 76 million in 2009 and over EUR 79 million in 2010. By 2011 total investments will sum up EUR 300 million.
Millennium bcp opened its first 39 banking units last month: 30 of them are credit centers for consumer finance customers, 11 are full-service financial centers and one unit serves private banking customers. The bank announced intentions to open 60 more units by the end of 2009. So far, the bank is present in nine of the main cities in the country: Bucharest, Bacau, Brasov, Cluj, Constanta, Iasi, Oradea, Ploiesti and Timisoara.
The number of employees is of about 500, only five of which are Portuguese. This is consistent with the group's strategy of being a multi-domestic lender, therefore “a Romanian in Romania,” according to Filipe de Jesus Pinhal, Chairman of Millennium bcp.
A domestically-owned bank, Banca Transilvania, is one of the top lenders who put a lot of money into expansion and consequently last month fell in banking performance rankings.
In April, BT invested EUR 7 million into expanding its headquarters in Cluj-Napoca and opening a banking coffee shop in its neighborhood. BT's investments this year mostly concentrated on Cluj County, where the bank opened eight new units, thus going past the 400-unit milestone in September. At the beginning of next year, BT plans to have a total of 500 offices around the country – and not only – as it has just opened last month a unit in Cyprus capital, Nicosia.
ING Bank is also investing in growing its number of branches. The growth is partly funded by the bank itself and partly by franchisors. The bank went through a rebranding process at the beginning of the year, meant to transform its somewhat elitist profile into a more down-with-the-crowds one. Consequently, ING Bank has grown organically this year and aims to go from its 110 units, plus self-banks at the beginning of 2007 to an estimated total of 280 – 300 units by the end of 2008. The management has estimated the investments in organic growth at around a couple of million euros every year.
The French at BRD-SocGen, however, invested in excess of EUR 45 million in opening banking units this year. The bank had about 740 branches at the end of September, 200 more than in the same month of last year. BRD-SocGen is thus the local leader in terms of territorial presence, aside from the oldest local lender, CEC, with its roughly 1,400 units.
“Banks expand, they hire and this is why their profitability has dropped. The number of employees in the banking system grew from about 56,800 people at the end of September to roughly 63,500 people after the first months of 2007,” said central bank vice-governor Florin Georgescu.
Profitability indicators might have dropped in nominally, but the total net profits in the local banking system amounted to EUR 1.888 billion in the first nine months of the year, higher than the EUR 1.743 billion corresponding to the same period of last year.

Energy sector sees continuous flow of investments, deal of the year
The oil & gas industry has reported one of the most impressive investment programs. First in ranking is the Austrian company OMV. “With our ambitious investment program in excess of EUR 3 billion for the next few years, we firmly believe in the development of Romania as a truly European business location. We believe that our sustained efforts in modernization, improved efficiency operations will strengthen the energy supply of Romania. Petrom's position as the leading integrated oil and gas company in South-Eastern Europe will furthermore be strengthened,” said Thomas Huemer, OMV's spokesperson.
Also, Romania's Rompetrol Rafinare, the refining arm of the country's second largest oil company Rompetrol, plans to invest $250 million to boost the refining capacity from its current 3.7 million tons of oil per year to 5 million tons. The local energy sector witnessed a spectacular ownership change after Dinu Patriciu, the majority shareholder of Rompetrol Group (80 percent), and his associate Phil Stephenson (20 percent) announced the sale of 75 percent of the company for an enterprise value of $3.6 billion. The buyer was the Kazakh state-owned company KazMunayGas. KazMunayGas (KMG) is a Kazakh state company which has just started construction of a giant petrochemical complex evaluated at $5.2 billion.
Lukoil and MOL are likely to stress retail development more. Zsolt Szalay, CEO of MOL Romania told Business Review, that the company will invest EUR 15.4 million in order to expand its fuel station network by nine new units and will take into consideration greenfield investments. “We established that we will develop our gas stations network on pan European roads. For this project we plan to invest $20 million. Also, to accomplish the ‘biodiesel' program we plan to invest $15 million in a biofuel factory,” said Constantin Tampiza, GM of Lukoil.
Gas producers and distributors have rolling million of euros investment plans as well. For instance, ButanGas Romania invested in the first nine months of this year EUR 3.4 million in technical equipments and modern transportation systems for liquefied petroleum gas. E.ON Gas Distribution officials say that the company has plans to invest approximately EUR 300 million until 2012 in modernization of pipelines and infrastructure. “In the first ten months of this year we have done investments of EUR 42 million in network expansion, improvement of the distribution network and other IT and technical equipments,” said Adela Botan, spokesperson for E.ON Gas Distribution. According to her, the company plans to invest next year EUR 53 million to modernize 1,000 kilometers in the natural gas distribution system.
Energy companies are also present in the foreign investments top in the first 20 positions. The Czech company CEZ representatives have said that each year the total amount of money invested reached EUR 180 million. Italian company Enel started in 2005 an investment program in Electrica Banat and Dobrogea. “In 2005 and 2006, in both regions we invested EUR 87 million to improve the network condition and increase the quality of service. Our long term investment plans for Banat and Dobrogea network amounts to EUR 1 billion in the next 15 years, while another EUR 1 billion is allocated to Electrica Muntenia Sud over the same period of time. These funds will be used both for increasing the network reliability, reducing power interruptions, as well as for new services and improving infrastructure in the supply area,” say Enel officials.
Heavy industry is an area which as well registered a positive growth due to generous investments programs. ArcelorMittal decided to turn the Galati plant into a center of excellence for plates, entailing expenses of $200 million for plate production. “Apart from this, we have another program worth millions of dollars for investments in plant and machinery and processes that will help us modernize our operations,” said Augustine Kochuparampil, CEO ArcelorMittal Galati. The company's executive said that ArcelorMittal Romania is currently implementing 64 environmental projects worth $53 million.

Automotive industry rolls on
The automotive industry counts well internationally-known representatives in the ranking of foreign investors such as Renault, Continental AG or Pirelli. French company Renault announced investments of EUR 300 million for the construction of a gear box factory and a design center. In its turn, Continental invested on the local market over EUR 250 million until last year in the six factories it owns here. “We have plans to continue investments especially for extending the existing production units. This means almost EUR 40 million in all units and EUR 15 million to expand the tyre plant,” said Martin Kleinbrod, GM of Continental Romania. Pirelli CEO, Enrico Malerba said that besides the two production locations from Slatina and Gorj, next year Pirelli will focus on the new factory of anti pollution filters- a rolling investment of EUR 235 million.

Construction material companies look into opening new units
Top players on the construction material market pumped funds in three main directions this year, namely opening new production units, upgrading and expanding production lines to live up to the increase in demand and to the environment protection norms and CSR projects. These will be, along general lines, the focus in the future as well. Moreover, all of the three factories look into the possibility of opening new production units.
The investment strategy of Lafarge in Romania could roughly be summarised in a few round figures. Lafarge Cement Romania placed EUR 380 million since its arrival on the Romanian market 10 years ago, out of which EUR 50 million went into environment protection equipment. This year, an investment into environment protection of EUR 4 million was made in the Hoghiz factory. Another division, Lafarge Arcom Gips invested a total of EUR 35 million from the beginning until now, out of which EUR 21 million were industrial investments. The division of aggregate materials and concrete has put in a total investment of EUR 35 million. This year the newest investment into this division translated into the inauguration of a new concrete facility. EUR 2 million was placed into the factory in order to facilitate the increase in the concrete production and transport.
Lafarge Cement Romania announced last week it would increase its cement production capacities by 1 million tons by the end of 2008 in its production plants in Medgidia, Hoghiz and Targu Jiu. The first phase will see an increase in production capacity by 500,000 tons before the end of 2007, while the second stage will be completed next year.Total investments will amount to EUR 58 million and will also include the modernisation and restoration of two cement mills and two new packaging installations. Another EUR 40 million will represent investments in increasing by 50 percent the annual production of the aggregate materials and concrete division.
The company is also considering opening a new unit in order to cope with the high demand on the market, and it will make a final decision on this issue next year. The facility which would have a capacity of up to 2 million tons a year would require an investment of approximately EUR 200 million. This year Lafarge Romania will register a cumulated turnover for the entire of its three branches of EUR 400 million which represents a 60 percent increase compared to last year. Since its entrance on the Romanian market, Lafarge Romania invested EUR 2 million in CSR projects.
At the beginning of this year, Swiss construction materials producer Holcim Romania announced EUR 86 million investments for 2007. Holcim opened this year a new concrete production unit, which asked for a EUR 3 million investment. Investments also went into personnel, logistics, as well as launching new products and services. According to the Holcim Romania GM, Markus Wirth, the company invested during the period 2005-2007 approximately EUR 700,000 in social projects and programs.
The company increased its cement sales in Romania by 40 percent in the first half of this year, compared to the same period of last year. Holcim Romania will invest up to EUR 180 million in the next four years in Romania to expand its activities here and modernize its production facilities, the company announced. In case this is not enough, the company also plans to invest in a new facility but no decision has been made yet in this respect. A facility with a production capacity of 1.5 million tons a year would require an investment ranging between EUR 200-300 million.
German firm Heidelberg Cement, present on the local market though Carpatcement Holding, invested approximately EUR 56 million in the expansion and modernisation of their three cement factories this year, in Bicaz, Fieni and Deva. With this sum included, the total value that the company placed in Romania since its entrance on the market in 1998 is EUR 350 million.
The company also has an annual budget of EUR 300,000, according to Bogdan Arnautu, Communication Manager, funds which are spent on environment protection, urbanism and architecture and supporting local communities. In 2006, Heidelberg Cement invested some EUR 25 million in modernizing its factory in Fieni, reducing energy consumption and environmental protection in all three of its plants. By 2011, the company plans to double its production capacity by making EUR 100 million investments, with more than half of this sum to be placed in starting and modernising the second production line in the Bicaz facility over the next two years. Moreover, the Germans are also taking into consideration the construction of a new cement factory in case the upgrade and enhancement of the already existing production facilities programmed until 2011 will not be able to cover the demand.

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Retail and FMCG
In October last year, the German retailer Kaufland had 13 hypermarkets in Romania of which only the first local Kaufland store was in Bucharest. The retailer has estimated EUR 130 million of investment for expanding its network of stores. The German retailer has so far invested EUR 350 million in Romania in its 31 stores around the country. Kaufland is part of Lidl & Schwartz group.
Turkish Fiba Holding includes several companies active in Romania, like Credit Europe financial group, developer Anchor Group, retailer GimRom and real estate project management company Novatec.
Anchor Group owns two shopping malls in Bucharest and an office building. The office building was constructed last year and finalized towards the end of the year after a EUR 25 million investment. The company is also working on InCity Residences, worth EUR 40 million and located in Bucharest and plans to go countrywide. IT also plans to further invest EUR 100 million in other Bucharest offices.
GimRom operates G'Market stores in Romania and has this year opened two new stores in Focsani and Bacau, with EUR 4.5 million of investment. The two new stores were added to the existing five in Bucharest and Iasi. Gimrom Holding estimates EUR 62 million in sales at the end of this year, with some EUR 5.5 million customers.
Colgate-Palmolive group paid in 2006 over $25 million for 24 percent of its Romanian subsidiary, thus increasing its participation to full ownership over Norvea Brasov.
Dutch Unilever South Central Europe accounted for EUR 163 million in turnover in 2006, which represented a 18 percent increase on the previous year. The company sold this year one of its factories in Romania, the one in Otopeni, to Mondial Elite for an undisclosed amount. In 2006, Unilever invested EUR 4 million in a food factory in Ploiesti, where it transferred this year the margarine production from a Bulgarian facility.

IT&C companies focus on broadband expansion
Romtelecom invested heavily this year for the modernization and development of its network infrastructure, making it possible the roll out its new services: broadband Internet, which is estimated to reach more than 300,000 customers by the end of 2007. Its digital satellite television service already surpassed 300,000 customers in less than one year since it was launched. The average yearly investment over the past two years stood at EUR 200 million.
With an announced investment plan of EUR 500 million for the first three years of operations in Romania, Cosmote has so far committed a significant amount to expand and upgrade network coverage in order to secure quality services for a rapidly growing subscriber base. According to Cosmote officials, this year represents the peak for local investments and an estimated total value of over EUR 200 million. Investments were also geared towards creating more that 500 new jobs in the past two years, developing the operations, supporting the rapid growth of customers (exceeding 3 million by the end of the year), and consolidating the retail networke.
Telecom and cable TV provider UPC had an investment of EUR 40 million for the financial year 2006-2007 in modernizing the company's communication network and implementing a distinct billing system to be used in all the companies offices around the country, the company's general manager Richard Anderson said in the first part of 2007. According to plans, the two call centers of the company are expected to reach a response rate from clients of 100 percent by yearend, against a 50 percent response rate registered in 2006. The company invested EUR 10 million in 2006 for modernizing the company's IT systems and finalized the implementation of the automatic system for clients' management. In Q1 of 2007, UPC reached 1.39 million clients in 200 towns. UPC became one of the major investors in local cable communication market after the company acquired Astral Telecom in 2005, following a EUR 500 million worth transaction.
According to Liliana Solomon, general manager of mobile operator Vodafone, the company invested since its first operational year in Romania in 1997, an amount of EUR 1.5 billion. “The local investment will continue since the mobile telecom market still holds a growing potential in the next years,” said Solomon. For the first nine months of 2007, Vodafone disclosed a 1.4 percent higher operating profit, following the increase in the number of clients which reached 8.58 million, with 20 percent more compared to 2006. From the total, 34.1 percent are subscription clients, according to the company. The number of clients using 3G services was estimated at almost 496,000 by October 2007. Vodafone reported a EUR 596.75 million total income and earnings from services valued at EUR 570.23 million following the company's nine-month report.
Mobile operator Orange Romania reported EUR 1.4 billion investments since the company entered the Romanian market in 1997, according to Richard Moat, general manager of Orange Romania.
Moat said the company expects a turnover of EUR 1.2 billion by yearend while the clients' portfolio is estimated to exceed 10 millions registrations by the start of 2008. By September 2007, Orange registered earnings of EUR 904 million from 9.31 million clients.
Regarding services, Orange plans expanding 3G+ data mobile transmission technology in 79 Romanian cities from 10 counties. Orange counted 8.271 million clients at the end of Q1 of 2007.

Ana Maria David, Dana Ciuraru, Otilia Haraga, Magda Purice, Corina Saceanu