Dutch polyurethane foam and adhesives producer Den Braven Romania wants to start exporting to Far Eastern countries and South America, after seeing domestic demand for its products shrinking, says Adrian State, general manager of the company. While eliminating bad debtors from its customer base and being flexible with production capacity based on current demand, Den Braven says it’s not yet time for another greenfield project.
By Corina Saceanu
What are the main export target countries for Den Braven Romania and how much of last year’s sales did the top three export destinations bring to the company?
Last year we sold Romanian-made products in 29 countries, compared to 20 export destinations in 2008. The value of exports increased by 33 percent, to EUR 12.1 million.
The top export destination countries were Poland, Austria, the Czech Republic and Slovakia. Sales in Poland were normal given that it was the only EU country which saw economic growth, while in Austria last year we became the only supplier of polyurethane foams.
This year we want to expand exports to 35 countries in total. We are in discussions with countries in the Far East, such as China and Vietnam, but we would also like to expand exports to South America – Peru, Uruguay, Argentina and Chile, after entering the Brazil market last year.
What are the main growth areas for the company in Romania this year, what sales channels do you expect to bring you growth?
Last year we saw growth in market share in all regions of the country, because we took advantage of the fact that many of our competitors had halted their activity. Our best results were in the Moldavian region of Romania, where our market share grew by 20 percent, while in the north, where we opened new subsidiaries in Oradea and Baia Mare, and in Muntenia and Oltenia we saw market share increases of 10 to 15 percent.
The main sales channel this year will be end-users, where we expect to see a 10 percent growth, while last year we witnessed an increase in market share from 47 to 50.5 percent on this segment. In the main chains of stores, we have upped our sales by 10 percent through Praktiker, and by up to 60 percent through Dedeman.
The business-to-business segment will continue to be affected this year, but we will try to sell to this sector too. We will offer new products, like rigid polyurethane foam, which will start to be produced in Romania this year.
How many of the firms in your client portfolio had problems in paying you last year and how did you deal with them? How do you choose your clients in order to avoid such problems, and what safeguard measures are you taking in this respect?
In the first half of 2009, over 65 percent of our clients were making late payments, so we decided to restrict deliveries depending on how fast they were paying their debt. This measure, which we plan to use this year too, led to a drop in bad debtors to 30 percent in June and 28 percent in December.
These percentages refer to customers who are more than 30 days’ late with payment.
The proportion of bad debtors, which includes those whose payments are less than a month late, reaches 55 percent of our clients.
However, we have given up on the around five percent of customers we didn’t trust to be able to pay their bills through tracking their financial indicators. We preferred to reduce the number of orders but ensure a cash flow.
How much of the Romanian factory’s production capacity is currently being used? How do you expect this to evolve this year?
In the first four months of 2009 we operated at 50 percent of capacity, because of the high stocks left after the market started to fall in autumn 2008.
But in the last eight months of the year we had an average of 90 percent production capacity, in some months as high as 120 percent, meaning we had to work on Saturdays too.
We expect to step up production by 40 percent this year, an increase which is fueled by the contracts we have already signed and by expansion on new markets. In January we had to raise the factory’s production capacity by over 50 percent.
How much of this production is covered by domestic demand and how much by exports?
Currently, around 60 percent of our turnover comes from domestic production, and the rest from imports of products we get from our subsidiaries in Europe. In terms of quantities, of the domestic production, around 75 percent of polyurethane foams and 50 percent of hotmelt is sold abroad and the rest in Romania. This year we plan to increase exports by entering new markets.
What cost-cutting measures did you take last year and what was their effect? What additional cost-cutting measures are you planning for this year?
Firstly we cut fuel costs by reconfiguring transport routes. We also cut costs on stationery, which are not extremely high, but make up a significant weight. For example, we have to print around 100,000 bills every month, as well as conformity declarations.
We have also cut transport costs by opening subsidiaries in Oradea and Baia Mare. All these measures have led to a drop in total costs of 10 percent.
The savings were used to reinvest in expanding the staff and increasing the car fleet.
Bearing in mind the domestic demand and exports, to what extent could the Romanian market host another Den Braven factory? How must sales evolve and for how long a period in order for the company to think about opening another plant in the country?
The two production lines in the factory have an annual capacity of 13 million tubes of polyurethane foam, a product which makes up 90 percent of the total production in the unit. Around 3 million tubes of polyurethane foam are sold every year in Romania.
If we bring in another work shift on Saturdays, which would mean 15 employees per shift, we could reach a capacity of 18 to 20 million tubes. If demand exceeds this amount, we could introduce a third production line, for which there is room in the factory.
However, I don’t think we will see a big enough market increase in Romania in the next three to five years to merit such an expansion of production capacity. Should this happen, we would install a third production line, because a new greenfield investment is not called for at the moment.