Cautious Austrian investors not giving up battle for Romania

Austria ranks top of the foreign investors to Romania with over EUR 10 billion invested so far. EUR 500 million was spent last year and the same amount is estimated to be reached in 2010 too. Beyond facts and figures, Austrian companies have become deeply involved in the local economy, filling top positions in more than just banking and the energy industry. And the Teutonic march shows no signs of abating.

Simona Bazavan

Statistics released by the National Bank of Romania (BNR) show that Austria has been the number one source of foreign direct investments to Romania since 2006. About EUR 10 billion has been invested in the country by Austrian investors over the years, according to data from the Commercial Section of the Austrian Embassy to Bucharest. In the 50s trade between the two countries amounted to EUR 8.2 million, only to reach EUR 2.2 billion last year. There are over 5,800 Austrian-capitalized companies in Romania, about 1,000 of which are active investors, and approximately 100,000 Romanians work for an Austrian company. Some firms, like Austrian Airlines and Voestalpine, have been present locally since before 1989.

But perhaps more important than the numbers and the official statistics is the fact that Austrian companies have managed over the years to gain key footholds in many local industries, some of which, like energy and banking, are of strategic importance. “Austria is proud to be an economic investor here and it is proud of its interest in the long-term development and prosperity of its partner, Romania. It has done this by bringing here new technologies, know-how and generating new jobs” said Rudolf Lukavsky, commercial counselor of the Austrian Embassy in Romania. He added that Austrian companies will continue to invest in Romania and said no important firm had left the country in spite of the economic turmoil.

According to Rene Schoeb, partner with audit and consultancy firm LeitnerLeitner, one of the main problems that local Austrian, German and Swiss companies face is the bankruptcy of local business partners along with related cash flow challenges and the increased rigidity of the tax authorities in collecting money. “We see that foreign investors would like to invest but are currently hesitating since the political and financial situation of Romania is unstable,” he added. There is increased interest from their side in agriculture, FMCG and the health industry. Investments in real estate are also likely to resume, this time with a focus on higher construction quality and more balanced prices, he said.

“Prior to the EU accession, there was a big wave of investors, especially from Austria, and we’re seeing certain indications that a second one might follow. However, it will be a relatively smaller wave of SME companies providing high quality services and work,” Schoeb predicted.

The Austrian way of managing money

Finance and banking is by far the sector with the strongest Austrian presence. Back in 1998 Austrian RZB Group founded its first subsidiary in Romania. The merger with Banca Agricola, which was acquired for EUR 52 million in 2001, created Raiffeisen Bank Romania. In 2005, Erste Bank bought the majority stake in state-owned Banca Comerciala Romana (BCR) for EUR 3.75 billion, making it the largest Austrian investment in Romania so far. Other players

on the market are UniCredit

Tiriac Bank, Volksbank and Porsche Bank.

“Romania is still a hot spot for investors, despite the currently tough market situation (…) As regards the banking sector, there is still room for growth given that financial intermediation is still below peer countries (with total assets to GDP at around 70 percent in 2009),” Manfred Wimmer, CFO and CPO of Erste Group, told Business Review.

BCR posted a RON 488.5 million (EUR 117 million) consolidated net profit after taxes and minority interests for the first half of the year, 19.5 percent down on H1 2009. According to company representatives the decrease was mainly generated by higher provision expenses “which are due the contracting economy heavily impacting BCR’s customers”.

The bank announced that it holds a share of about 22 percent of the local lending market. BCR operates a network of 668 local subsidiaries, seven of which have been opened since the beginning of the year. “Following the acquisition in 2005/06, BCR is one of Erste Group’s key operations in CEE. With assets worth EUR 16 billion and 4.3 million customers, it is Romania’s largest banking group.(…) Erste Group’s exposure in Romania currently stands at EUR 7.7 billion, up from EUR 7 billion in 2009,” said Wimmer.

“We remain fully committed to Romania, to supporting the Romanian economy, companies and people. Erste’s aim for BCR is to become the market leader in terms of service quality, profitability and efficiency. BCR will continue to strengthen its leading position in a sustainable way by being the first choice bank in terms of savings and investments, undertaking prudent lending and offering efficient services,” Wimmer concluded.

Raiffeisen Bank SA posted a net profit of EUR 49.98 million for the first half of 2010, down by about 5 percent against the same period last year. The bank has also announced an operational profit of EUR 83.8 million. Raiffeisen’s gross income for the same period of 2010 dropped by 12 percent on H1 2009, falling to EUR 210.4 million, mainly due to a decrease in income from treasury activity, according to bank representatives.

“I am satisfied we have again managed to achieve good results that are very close to the ones we posted last year, despite the fact that the economic situation in Romania has continued to worsen,” said Steven van Groningen, CEO of Raiffeisen Bank. “The decrease in revenues was only due to trading activities, whereas the revenues from purely banking activities have slightly increased, which means that we performed very well in our core businesses. Furthermore, we have managed to control our costs: provisions dropped sharply, we have managed our expenses more effectively, thus preserving our profitability. We owe this good result to the solid position the bank has on the market, to our prudent risk management policy in the past years, and to our balanced exposure in terms of segments and industries.”

Elsewhere, the local subsidiary of Austrian tax and advisory firm LeitnerLeitner estimates a growth of over 20 percent this year, thus contributing 5 percent to the total turnover of the firm. Locally, the company employs 40 people. It has been present on the Romanian market since December 2008, when it opened a tax advisory office. In January 2010, it merged with the local Adevaris to offer integratedfinancial advisory services.

In IT, S&T Romania was founded in 1994 as a subsidiary of S&T System Integration & Technology Distribution AG-Austria. The company’s portfolio has developed significantly over the years into a series of integrated IT solutions. Globally, S&T employs 2,600 people and posted sales of EUR 411 million in 2009.

Austrians get energetic

Austrian OMV Aktiengesellschaft is the majority shareholder (51.01 percent) of OMV Petrom, one of the two giants on the local oil and gas market. Five years after the OMV takeover, about EUR 5 billion has been invested in Romania, mostly in restructuring and modernizing the company’s local facilities. In the past two years, about EUR 130 million has been put into building Petrom City, the company’s headquarters in northern Bucharest which will cover 117,000 sqm. Work on the site is estimated to be finished in the spring of 2011.

In 2009 Petrom saw its turnover plunge by about 33 percent on the previous year, reaching approximately EUR 3.03, mainly due to the contraction of oil and fuel markets and lower oil refining margins. Its EBITDA also fell by approximately 28 percent to EUR 696 million. The company’s net profit reached EUR 323 million, 16.5 percent more than in the previous year but a large share of it was generated through oil price hedging.

The company’s future strategy includes the modernization of the Petrobrazi refinery in order to be able to process 100 percent domestic crude. The process is aimed at reducing the energy loss to 10 percent (from 14 percent in 2004), increasing the yield structure of diesel and aviation fuel to approximately 45 percent (from 30 percent in

2004) and reducing heavy fuel to approximately 7 percent (from 15 percent in 2004). In Romania, the optimization of oil and gas production will be achieved through partnerships with other operators in selected fields.

OMV Petrom announced earlier this year that exploration and production (E&P) activity will focus on securing long-term oil and gas supply and developing activities in the Caspian Region (Kazakhstan). According to OMV Petrom information, the company plans to invest RON 3.5 billion, about 50 percent of its total investment budget, in E&P.

Renewable energy is one of the most attractive local industries to foreign investors and Austrian companies are no exception. The largest electricity producer in Austria, Verbund, plans to invest an estimated EUR 200 million in the construction of a 200 MW wind farm project in the Casimcea region. Works at the site are estimated to begin in June 2011.

Verbund owns a 50.07 percent participation in the Romanian company Alpha Wind, which was acquired in December 2008 for EUR 2 million. Alpha Wind will develop a wind power project with a planned installed capacity of 150 MW. “In the course of the first-time consolidation, property, plant and equipment were estimated at EUR 3.7 million and non-current liabilities at EUR 6 million,” reads the company’s annual report. In December 2009, Verbund bought another Romanian firm, CAS Regenerabile , for EUR 3.4 million. In addition, equity capital totaling EUR 2.6 million was injected into the project company. CAS Regenerabile is to extend the planned wind power project in the Casimcea region by an additional 50 MW.

Austrian investors knock on wood for future profits

Kronospan, an Austrian wood panel producer for the furniture and construction industries, began its business in Romania back in 1998. “Both industries have been very much affected by the economic crisis but there is still great potential and we believe that in 2011 the situation will improve. Anyhow compared to 2009, in 2010 we have already registered an increase of 20 percent in our turnover,” Oana Bodea, PR manager for Kronospan, told Business Review.

Last year the company finished a EUR 200 million investment in a production unit in Brasov which now employs 300 people.

“It was a very hard decision to invest in the production of construction materials at a time when the local construction industry was down. But our product in fact proved to be the best solution for affordable houses in times like these and we are proud to have the only factory in Romania which is producing wood based panels for construction,” Bodea added.

After investing a total of EUR 172.1 million in 2009, Kronospan plans to put another EUR 140 million into increasing the capacity of the factory in Brasov and the construction of a sawmill. “We have invested more than EUR 500 million until now and we employ over 700 people in Romania,” Bodea concluded. Elsewhere, Austrian wood-based material manufacturer Egger has been present in Romania since 2002. In 2006 the company finished a EUR 210 million investment in a unit in Radauti. Last year, Egger reported a positive evolution in Romania. “In 2009, Egger Romania had a turnover of approximately EUR 90 million and improved its profitability. The good financial figures have also influenced the profit of the company from Radauti, which was approximately EUR 4.1 million. The ongoing investments in Radauti will develop the efficiency of the plant and optimize production costs,” said company representatives.

For 2010 Egger has announced plans to continue the development of its plant in Radauti into an integrated production site, by investing approximately EUR 53 million in a glue installation and a biomass power plant that will create 50 new jobs.

An active player on the local construction market, Strabag has been operating in Romania since 1998. “There are fewer of them but there are still chances on the market. Nevertheless the field of construction is very difficult at this time due to the missing private investors and the effects of the financial crisis on the public sector,” Diana Klein, head of corporate communications & investor relations and spokeswoman for Strabag SE, told Business Review. “There is a huge problem with the budget and payments from clients and therefore we have to be very careful with our investments in 2011,” she explained. Among the setbacks in the local economic environment, Klein mentioned the difficulty in finding skilled workers, problems in tender procedures with unclear tender conditions and therefore a lot of appeals and huge delays for planned construction sites, missing or delayed payments from public authorities, the lack of legal security in court as well as an overall pessimistic atmosphere.

Locally the company is involved in various infrastructure improvement and building construction projects such as Asmita Gardens Residential Development (a contract worth EUR 100 million) finished last year, Cernavoda I Wind Farm (worth EUR 9.41 million) with a deadline in 2010 and the Metropolis office building in Bucharest (EUR 14.6 million) which was also delivered last year. Strabag has also signed a EUR 3 million deal with OMV for rehabilitation, maintenance and construction works at the Pitesti and Ploiesti refinery platforms which should be completed by the end of 2010. With approximately 75,500 employees, Strabag posted an output volume of around EUR 13 billion in 2009. Another important Austrian investment was announced last year by Voestalpine Group. The steel manufacturer plans to invest EUR 20 million in a steel service center in Giurgiu, southern Romania. Company representatives said that the plant will be finished in 2011 and by 2013, it is expected to reach a 130,000 ton per year production capacity. For the 2010/2011 financial year, Voestalpine Romania posted a EUR 44 million turnover, about 0.5 percent of the group’s total turnover.

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