French firms keep sang-froid despite no vie en rose

Newsroom 05/10/2010 | 19:24

French companies active in Romania are not exactly experiencing an economic belle époque with the recession slashing profits and terminating or postponing many investment plans. However investors say that they are here to stay, as business opportunities haven’t run dry. So far, French investments in Romania are estimated to have reached approximately EUR 7 billion. Almost EUR 600 million was spent last year alone, making France the fifth largest investor in the country.

Simona Bazavan

 

About 100 new French firms have decided to take a chance in Romania and started a business locally in the past two years, according to Daniela Apolozan, executive director of the Chambre Francaise de Commerce, d’Industrie et d’Agriculture en Roumanie (CCIFER). However the economic crisis has taken its toll; 2010 saw a 30 percent decrease in the number of French companies prospecting the local economy, says Apolozan.

Big players such as BRD-Groupe Societe Generale, Orange, Carrefour and Lafarge, to name but a few, already have deep roots in Romania. Newcomers such as Bongrain and Axa have pledged future expansion and others are expected to join them.

“Not only do French companies have no intention of leaving Romania, but there are 50 more considering investing here,” said Bruno Roche, president of CCIFER. Guy Poupet, chairman and CEO, of BRD-Groupe Societe Generale, feels the same way. “Romania still is a country with a high potential for foreign investors. The businesses of the big international groups that came here – be it in the banking sector, the automotive industry or in retail – have seen a high development rhythm. In fact, there hasn’t been any exit from Romania. Even though the country is going through a difficult time, in the long run I think that Romania still has all its advantages for foreign investors,” he added.

ICAP statistics show that there were 3,155 “active” French companies registered in Romania at the end of August 2010, more than 10 percent with direct French shareholding. In December 2009, these firms accounted for a EUR 13.4 billion turnover compared to EUR 11.8 billion in December 2008, and 111,161 employees. Out of the total number of French businesses active locally, 119 reported a final 2009 turnover above EUR 10 million. According to ICAP, in December 2009, out of the firms which declared financial data, 1,063 (44.70 percent) recorded a profit and 1,315 (55.30 percent) a loss.

 

Noblesse oblige… when it comes to money

Back in 1999, Societe Generale bought BRD, which was at that time state-owned, since when it has invested nearly EUR 800 million. “In 1999, net profit was EUR 21.2 million, whereas by 2009 it had risen more than 10 fold, to EUR 269.6 million,” said Poupet. The bank’s number of employees has doubled from 4,500 to 9,000 over the same period.

In 2010, the lender plans to concentrate on risk management. ”In this context, the main objective in 2010 is to maintain our profitability in the conditions of a very low demand for banking services. On the commercial side, it is important to continue launching new products and services with a strong innovative dimension, and to adapt existing products to market changes,” added the CEO.

In the first semester, BRD registered a RON 367 million (EUR 88.6 million) net profit, down 13.7 percent on the same period of last year. The lender’s provisions surged by about 54 percent, reaching RON 628 million (EUR 151 million). At the end of June BRD had 2.5 million customers and managed assets worth EUR 11.1 billion, 2 percent down on H1 2009.

“The bank’s activity is affected by the lingering economic crisis which translates into a low demand for banking products and therefore into high risk costs. BRD’s efficiency was sustained by internal cost control measures which have led a to a very good cost/income ratio,” said Poupet at that time.

At the end of 2009, Groupama Asigurari was the third biggest player on the local insurance market in terms of market share. After three years of mergers and acquisitions estimated at EUR 500 million, the Groupama brand was officially launched last September. The company is the result of a merger between BT Asigurari and Asiban and the takeover of OTP Garancia.

The premium income of the Romanian subsidiary of Groupama and OTP Garancia Asigurari was down 9 percent, falling to EUR 96 million in the first half of the year. “Property and casualty insurance fell by 7.6 percent over the period, largely due to the decline in the motor segment related to the continued drop in vehicle sales and strong competition in pricing between market players. The difficult economic climate meant there were fewer personal loans (the primary life and health insurance market in Romania), which negatively impacted life and health insurance premium income (down by 22.1 percent),” reads the company’s report for the first semester.

Worldwide, the company has 16 million customers and over 38.500 employees. The group has extended its operations mainly to emerging and fast growing markets, such as Hungary, Romania, Bulgaria, Turkey and Slovakia.

After the buyout of the minority interests of its Hungarian, Czech and Polish subsidiaries held by the EBRD in December 2009, French insurance giant AXA bought local Omniasig from Vienna Insurance, turning it into AXA Life Insurance.

The Romanian market, with its low life insurance penetration rate compared to the rest of the European Union, offers AXA significant growth potential, the company believes.

The French insurer has recently invested approximately EUR 3.7 in its local subsidiary through a capital increase. In 2009, Omniasig reported a EUR 3.4 million loss.

The total revenues of mobile phone operator Orange Romania, whose main shareholder is France Telecom, sank 7.4 percent in Q2, 2010, from the second quarter of last year, to EUR 247 million.

Compared to the first quarter of this year, when Orange Romania posted EUR 237 million, company revenues were 4.2 percent higher in the second quarter of 2010. “In Europe, the quarterly trend in Romania gradually improved (-7.4 percent in the second quarter, after -10.1 percent in the first quarter of 2010,” said a France Telecom press release.

“According to our estimations, the market value of our company increased as a result of the evolution of the ARPU and of the database of clients with subscriptions. Even though the prepay base has decreased as a result of the deterioration of economic conditions, we estimate that on this segment, the value remained stable,” said Thierry Millet, CEO of Orange Romania.

On June 30, 2010, Orange Romania had 10,471,000 customers, which represents a 1 percent growth compared to the same period last year. On the segment of mobile data, Orange obtained a 29 percent growth in revenues in the second quarter of the year compared to Q1, 2010.

The mobile operator posted EUR 1.055 billion in revenues last year, down 19.5 percent from the previous year, in spite of further expanding its customer base, according to data from France Telecom.

 

Industry is the piece de resistance

In the ten years since Renault came to Romania it has invested EUR 1.5 billion, according to its data, and employs 18,000 Romanians.

Since opening the Renault Technologie Roumanie (RTR) technical center in Titu, the French carmaker has in Romania everything from design and test centers, to the production of components, cars and sales centers for all three brands of the Renault Nissan alliance. Renault invested EUR 166 million in the Titu center with some 25 percent of the total investment, about EUR 44 million, being provided by the European Bank for Reconstruction and Development (EBRD).

The center covers 350 hectares and is formed of 100 testing spaces, for vehicles and components. By the end of the year, the center will have a team of 300 employees. The first tests on tracks are scheduled for October this year.

This September, Renault Romania also opened a new spare car parts center in Oarja, 20 km from Pitesti. According to representatives of the carmaker, the investment in equipment for the center is EUR 3.5 million, with the remaining sum the property investment made with partners.

The center has a total surface of 65,000 sqm and supplies parts for the Renault, Nissan, and Dacia brands on both the local and international market.

“The new center will improve the after-sale services of Renault group, ensuring the availability and delivery of original car parts in the shortest times,” said Jacques Daniel, after-sale manager with Renault Group.

The carmaker recently announced that Dacia’s worldwide sales had risen by 12.1 percent in the first eight months of 2010, to 221,092 units, giving it a 0.6 percent share of the market. By August 2010, Reanault had sold almost 30,000 Dusters, the SUV it launched this April. Orders have been placed worldwide for a further 64,000 Dusters.

This June, Lafarge Ciment announced a EUR 1 million investment in a new ash storage, loading and transport system at Electrocentrale Isalnita, a subsidiary of SC Complexul Energetic Craiova. The system was installed on the already existing ash silo which has been completely rehabilitated.

“We plan to grow the segment of our operations that generates products with a low carbon footprint, as climate change and CO2 levels are a constant concern for a responsible company such as Lafarge. A high technological integration of alternative fuels and materials is a priority for all our cement factories,” said Sorin Bogdan, industrial manager of Lafarge Ciment Romania.

This latest investment is tipped to reduce the amount of ash dumped by CET Isalnita and allow Lafarge to produce more environmentally-friendly cements.

According to Lafarge representatives, the outlay is part of the company’s EUR 90 million investment plan for 2006-2011. In the next two years the cement producer is planning other such projects so that the investment target is reached.

Glass producer Saint-Gobain announced this May plans to invest another EUR 6 million in an industrial production line for laminated safety glass at its existing facility in Calarasi. The unit will be commissioned around the middle of 2011.

The new investment is the third in a series, coming soon after an initial over EUR 100 million investment in a float glass plant, commissioned in 2007, and a EUR 30 million coating line, which was opened for business in 2008, making Saint-Gobain Glass one of the biggest greenfield investors in Romania. All three production lines are located within the company’s industrial site in Calarasi.

“The construction industry at large has taken the brunt of the crisis, in Romania and elsewhere. In Romania things were worse because the decline came on the heels of explosive growth, so psychologically is more difficult to accept that what can go up can also go down and that there are economic cycles”, Constantin Hariton GM of Saint-Gobain Construction Products Romania and at the same time coordinator of Saint-Gobain Group’s activity in Romania told BR.

However, there are sign of recovery in his opinion. “The main element of change in our 2010 strategy was that we were more prudent, we improved the efficiency, focused more on cost savings, postponed less urgent investments, secured our cash flows and kept all valuable people in place. We did not push the brake, just controlled better the gas pedal”, he explains.

 

Retailers slow down expansion plans but keep bon appetit

This August French retailer Carrefour opened its 23rd local hypermarket in Drobeta Turnu Severin, Mehedinti County. The new outlet is located in the Severin Shopping Center and is the first hypermarket the retailer has opened this year, after opening six Carrefour Market supermarkets in 2010 so far. Carrefour established its first supermarket in Bucharest in April.

The firm’s sales in Romania in Q1 of 2010 amounted to EUR 269 million, a 3.5 percent rise on a like-for-like basis due to the expansion of sales space. Carrefour employs over 495,000 people in Romania, and runs 23 hypermarkets and 26 supermarkets.

Cora has adopted a similar strategy to Carrefour, choosing to invest in smaller stores. The retailer has announced plans to open two 4,500-sqm hypermarkets in Baia Mare and Constanta in the last quarter of the year following an investment of EUR 5 million per store. So far there are four Cora hypermarkets locally, owned by Romania Hypermarche, the local subsidiary of the Louis Delhaize group.

Earlier this summer Bongrain Europe completed its acquisition of a 52 percent stake in Delaco, one of Romania’s leading players on the cheese market. The closing of the transaction took place on July 27, following clearance from the Romanian Competition Council.

The selling shareholders will continue to be actively involved in the company’s further development and also retain the management of the company, with Tudor Comaniciu acting as CEO.

“Delaco and Bongrain will combine their respective resources and expertise to offer a large portfolio of high-quality cheese products to Romanian consumers,” said Comaniciu.

Bongrain was started in France in the mid-50s and had a 2009 turnover of EUR 3.3 billion with 17,076 employees worldwide.

Delaco was set up in 1996, and since 2000 has focused on the cheese products segment and become one of Romania’s leading market players.

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