Swiss investors hope for clockwork year after bleak 2010

From the cement industry to pharmaceuticals and FMCG, Swiss investors have been a strong presence in Romania in recent years. In 2010, the lingering recession and gloomy economic context brought a significant downturn in the overall volume of foreign direct investments to Romania. Swiss companies were no exception, but after a grim 2010, they are now cautiously hoping for better prospects.

Simona Bazavan

Fueled by the protracted internal recession and mistrust in the government’s economic recovery measures, 2010 saw a sharp decline in FDI to Romania. Last year, non-residents’ direct investment fell to EUR 2,596 million, about 25 percent less than the EUR 3,488 million attracted in 2009, official data from the National Bank of Romania (BNR) show.

Overall Swiss investment to Romania stood at about EUR 1.1 billion at the end of 2009, with no data being available for 2010 so far, according to the Swiss Embassy to Bucharest.

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For Swiss investors doing business here, the local economy’s most important assets are its wage levels and overall labor costs, followed by the potential of the domestic market and the social and cultural environment, according to the Swiss Investment Report compiled by the embassy last year.

As for the empty half of the glass, Swiss companies active in Romania cite the bureaucracy, lack of governmental budgetary discipline, the government’s economic policies, transport infrastructure and the country’s lack of political stability as the five biggest setbacks of doing business here.

“With regard to the perceived barriers to investment in Romania, all the top-5 factors are policy or politics related. There is clearly a negative spill-over effect from politics and the lack of sound policies to Romania’s attractiveness as an investment destination,” reads the report. Since 2009, the economic scenario remains much the same.

“According to the embassy’s perception, the situation has not changed a lot since the report of 2010. Lack of legal security, corruption and a certain political instability are still affecting the attractiveness of Romania for foreign investment,” Marc Bruchez, chef de mission adjoint with the Swiss Embassy to Bucharest, told Business Review.

 Moving from investments to the bilateral trade between the two countries, exports from Romania to Switzerland between January and September 2010 amounted to EUR 187.6 million and imports to EUR 335 million. “This is not a significant change in comparison with 2009, although we note a very slight increase of exports from Switzerland,” added Bruchez.

 Major Swiss investors on the local market include Holcim, Nestle, Novartis, Ringier, Roche, Swisspor, Rieker, the companies of investor Jean Valvis, Angst, Carpatair, Franke, Heidi Chocolates, Helvetica Profarm, Inter-Spitzen and Sefar. Holcim alone is considered to have generated approximately half of the overall investments, says the embassy.

The company is cited by the Swiss Embassy as the single most important Swiss investor to Romania. Holcim Romania is part of Holcim Group, one of the main international players in the field of cement, ready-mixed concrete, aggregates and constructions-related services.

The firm’s total value of investments in Romania since 1997 is estimated to exceed EUR 650 million, according to company representatives. Its biggest investment project to date is in Campulung, where Holcim invested EUR 170 million between 2005 and 2010 in upgrading the production of the cement plant. “In 2010, we invested more than EUR 20 million to establish and maintain production capacities in all the company’s premises, modernization works, automation and reducing energy consumption,” Markus Wirth, CEO of Holcim Romania, told Business Review. In the first nine months of 2010, the local cement market continued to shrink, decreasing by an estimated 19 percent in sales volume.

“From the second half we managed to come close to the volumes achieved in the same period of 2009. The decline in the first semester was caused by unfavorable weather and difficult market conditions, but from the end of spring the average sales improved,” Wirth added. This year is likely to follow a similar pattern.

“2011 will be another difficult year for the construction market and the cement industry, as we don’t have a short-term view of the investments to be made by the state in infrastructure,” the CEO added.

The company says that in the recent recession period its business strategy was aimed at both customer-orientated programs and, internally, at cost management and employees.

“We’re planning future investments. We are focused on successfully meeting the future opportunities that will eventually rise on the local market, which in our opinion has high development potential,” Wirth concluded.

Elsewhere, the Swiss power and automation technology group ABB announced earlier this year that it had won a USD 24 million order to build a new substation to receive and transform power from a 700 megawatt (MW) wind farm and integrate it into the country’s transmission grid.

“The orders were received in the fourth quarter of 2010 from Transelectrica, the national transmission utility, and a consortium of four European companies,” said ABB representatives. As part of the turnkey contract, ABB is responsible for the design, engineering, supply and commissioning. The substation will be located in the Tulcea region on the banks of the river Danube.

The consortium financing the project is led by Verbund, of Austria, the parent company of Alpha Wind and CAS Regenerabile, two of the consortium partners.

Other partners include Beta Wind of Romania and Land Power Inergia from Italy. In 2009, ABB registered a turnover of EUR 47 million in Romania.

 In 2010, two major M&A deals took place involving local Swiss-owned companies.

Sorin Minea, a Romanian entrepreneur active on the meat market, took over 60 percent of the stake held in Angst by his Swiss partner, Urs Angst. Minea, who initially held a 15 percent stake, thus became the majority shareholder of a company with over EUR 50 million in turnover and a 22-store chain.

The value of the transaction was not revealed but the Romanian businessman said the company’s assets were put at around EUR 20-22 million last year, whilst the value of investments made by the Angst family in the meat producer amounts to around EUR 10 million.

Another transaction involving a Swiss business in Romania was the acquisition of oil manufacturer Expur Urziceni, controlled by Swiss Alimenta, by the French company Sofiproteol. The acquisition was completed via Sofiproteol’s subsidiary Saipol.

The European Bank for Reconstruction and Development granted EUR 80 million to Expur in November to achieve its development plans by introducing new products onto the market. EUR 60 million of this sum will be used for purchasing seeds. In 2009, Expur posted a turnover of EUR 86 million.

 Media companies were among those who felt the stresses and strains of the economic recession the hardest in the past two years. After poor results in 2009, Ringier Romania, the local division of the Swiss media company Ringier AG, announced that it had no intention of selling its business in Romania but planned to increase the importance of its online business.

The company posted a turnover of RON 124.3 million for 2009, 27.6 percent less than in 2008, and a loss of RON 57.6 million. The loss was caused mainly by a 70 percent drop in the advertising market and competitive pressure from other media players such as Adevarul Holding. 

Ringier AG registered a turnover of approximately EUR 900 million (CHF 1.3 billion) last year, 15.6 percent less than the previous year, with Romania making up only 2.7 percent of the company’s worldwide sales.  In fact, Ringier Romania was the group’s worst performing division, registering the highest losses and being mostly responsible for the 20.5 percent drop in the Central Europe region, CEO Christian Unger told media representatives. 

In 2009 the Swiss firm implemented a restructuring strategy, imposing a stringent cost-cutting program. As a consequence, the free newspaper Compact and magazine Diva were closed and the Evenimentul Zilei and Capital newspapers were sold to Romanian businessman Bobby Paunescu the following February. The two newspapers were taken over by the newly established company, Editura Evenimentul & Capital, with Paunescu as major shareholder, but continue to use Ringier’s publishing structure.

Ringier Romania currently publishes the tabloid Libertatea and other magazines such as Unica, Lumea Femeilor, Bolero and TvMania.

On the pharmaceutical industry two Swiss players, Roche and Novartis, are active locally.

In the first nine months of 2010, Roche posted sales of RON 873.8 million, putting it second on the local market, while Novartis had sales of RON 583.9 million and ranked fourth, according to data from Cegedim.

 Elsewhere, another Swiss brand present locally is Franke. Franke Romania, subsidiary of Kitchen Systems Group, part of the Swiss corporation Franke Artemis, started operations in Romania back in 1998, offering comprehensive systems for domestic kitchens.

 The company currently has 36 employees and last year posted an EUR 11 million turnover. “In 2010 the profit rate was slightly above the figure in 2009. For 2011, we estimate an 8 percent growth in turnover due to the strategy to expand the distribution network at national level,” Octavian Radulescu, product and marketing manager at Franke Romania, told Business Review.

This year the company plans to focus on investing in expansion. “The instability of the economic environment and the downfall of the real estate sector resulted in a cautious investment strategy in previous years. Given the more optimistic prognosis for 2011, Franke’s strategy includes opening new showrooms at national level,” Radulescu added.

 Founded in 1999, airline Carpatair has a Romanian-Swiss shareholding structure. Some 51 percent is owned by Nicolae Petrov, who is also the company’s president and general director, and by the Air Service tour operator. The remaining 49 percent is held by a group of ten Swiss investors, businessmen, lawyers and an investment bank.For 2010, Carpatair reported a EUR 74 million turnover for 2010, a 14 percent y-o-y increase. The airline also reported a 13 percent increase in the number of passengers transported on regular flights in 2010 and a 6.5 percent increase in its occupancy rate against 2009.

 The growth was generated by the expansion strategy begun by the company in 2009 and continued throughout 2010, said Paula Ardelean, vice-president of marketing and sales at the airline. Two new operational bases were also introduced last year in Craiova and Bacau, which joined the two in Timisoara and Bucharest. Six new destinations were also introduced last year, which increased the airline’s total number of flights by 14 percent.

And the expansion will continue in 2011 both internally and externally, Ardelean says. As of this February Carpatair plans to introduce new direct flights from Iasi to Rome. In addition to this, the firm’s strategy also includes developing travel related services. Starting 2011, Carpatair has included package holidays in its portfolio. Currently the company offers ten customized city-break packages to European destinations.

The Romanian aviation market has potential for further development, thinks Ardelean, but a lot depends on the authorities’ involvement.

“In addition to sound airlines there is a need for airline infrastructure that offers proper conditions to run operations,” she said, adding that investments in airline infrastructure would increase the overall investment attractiveness of the local economy.

Carpatair currently operates through 10 domestic and 18 foreign airports. It runs over 360 flights per week to 30 destinations in 6 countries.

FMCG players count their blessings

Another Swiss investor active locally is businessman Jean Valvis, who has begun projects in the wine trade (Domeniile Samburesti), bottled mineral water (Aqua Carpatica) and the bio energy industry (Dorna Agri).

Aqua Carpatica was launched last year and Valvis says he is targeting a 10 percent market share of the local bottled mineral water market by 2012. About EUR 1.2 million has been spent promoting the brand. Aqua Carpatica is not the first investment project of this kind for the businessman. He sold the Dorna dairy business to French group Lactalis in 2008 and Dorna Apemin mineral water producer to Coca Cola back in 2002.

Last year, the chocolate market fell by about 24 percent according to Erwin Vondenhoff, general manager of Heidi Chocolat. The chocolate manufacturer – part of Swiss Laderach Group – managed to boost its turnover by 15 percent, reaching a RON 55 million turnover for 2010. The growth was mainly driven by investments in new chocolate assortments and exports, says Vondenhoff. “Exports went up by 160 percent last year which helped to boost turnover as the domestic market fell drastically,” said the GM. This year the company hopes that exports will make up 40 percent of its total turnover.

Romanian-made Heidi premium chocolate is exported to 32 countries. “The US, Poland, Australia, Chile, China and Canada are among our top export markets and Germany remains our main destination,” said Vondenhoff. As for 2011, no major changes are expected to take place on the market. “We will keep our position and perhaps even post a slight increase against 2010,” he added.

simona.bazavan@business-review.ro