Power Net Consulting is an equally split joint venture between three managing partners – GM Eduard Dimitriev, Emil Munteanu and technical manager Stefan Mustata. So far, the company has relied heavily on public bids to fill its coffers, but Dimitriev tells BR that there are down sides to this: uncertainty due to the political context and delays in payment. This year, he wants a 50-50 split between the public and the private.
In the mix of Power Net sales, how important are public sector projects?
This year, we have not carried out an analysis at this level. Last year, around 80 percent of the projects were from the public sector, and 20 percent from the private sector. Furthermore, around 60 percent of the projects were for large companies, while 40 percent were implemented for SMEs (of course, projects for small companies were more sporadic). This is because the solutions that we are certified for require certain network architecture and a certain number of users. This year, our ultimate aim, which we do not know if we can reach or not, is to have 50 percent of the projects from the private sector and 50 percent from the public sector.
I have noticed that even though they have made great changes and the demands are more and more precise in the public sector, you cannot have a discussion at a technical level without raising certain suspicions, even though these discussions have a purpose in the initiation of a project. However, we have had negotiations even with private customers where we were told that they would buy from eMag, and we said: “Okay, it is your choice. Go for it!” Because my price for certain products includes many things. It is one thing to get something from the store and then implement it in one way or another, and quite another to buy from us. But, of course, this costs more.
What public auctions are you participating in this year?
We are involved in certain public bids and we hope they will be resolved. This year, due to the political situation, the budget was not approved until very late, and the first public auctions appeared sometime at the end of July. So there was a gap of around six months when you could not take part in any. This year, we completed a project in August with the National Veterinarian and Food Safety Authority (ANSVSA) for EUR 1.3 million. Also, we have a project with the Ministry of Administrations and Internal Affairs worth approximately EUR 870,000.
If a company decides to focus on projects in the public sector, it has to have a very well structured base and cash-flow, because, even though the projects are certain to be implemented and the money paid, it very much depends on the political situation, on the budgets and how they wish to pay. In the private sector, contracts are negotiated, in the public sector, not really – here there are standard projects.
Also, payment deadlines have never been respected. For example, we have terms of payment of 45 days according to the contract, but the payment comes in 60-70 days. Given that we are not talking about a modest sum but millions of euro, on which you are obliged by law to pay taxes, VAT and other things, you have to have a very solid cash-flow to be able to cope with this. For a short time, you become a sort of lending bank for the state.
Fortunately, we were in luck. Last year in November-December we signed some contracts for Phare funds which had an implementation period of six-eight months. Thanks to these contracts, we were covered during the time that was more critical for public bids, where most of our activity is.
How did you establish your investment budget for this year?
This year we were rather skeptical and we took a small-steps approach. We decided that this year and the beginning of the next year we would only invest in personnel certification, knowledge for all our employees and employing new personnel in the areas where it is necessary, which we consider will be beneficial for the long-awaited resumption of the economy and the passing of the crisis. The investments were in training courses, certification exams, travel to training sessions – in short, everything that had to do with training employees, and, of course, salaries for the new recruits.
As far as major investments are concerned, no. We have several ideas that are on the back burner. We are about to finish paying off the loan we took out for these headquarters. The building has 800 sqm and four levels. I think we invested somewhere around EUR 800,000 in it.
Now, I wouldn’t know what to say about its value: at the time when the contract was signed it was somewhere around EUR 1.5-1.7 million. We have not had it re-evaluated but we will do so when we have paid back the loan – which will happen in October next year. We took out the loan from the Italo-Romana Bank. Also, we have relocated our service department to Lacul Tei Boulvard because it has grown a great deal and we wanted to save this space for the offices.
Are you still recruiting?
Currently, we have 25 employees, and we want to fill positions on the sales and pre-sales side. We want to have more projects in the private sector and the pre-sales team, for which there was no need in the public bids domain, will now have an essential role. In this area, we will need two more people, one on the hardware and the other on the software side.
Until last year, when we could count on exact figures, 25-30 percent of the budget went into training and certification exams. This year we do not have any estimation, we will do the sums at the end of the year. It is not easy to find specialists now, either. Of course, salaries have decreased and it is rather difficult for those who are looking for a job to come back down to earth and not ask for astronomical salaries. For example, on the sales side, a specialist used to make at least EUR 1,000. Now, you can hire one for EUR 600-700. But still, they tend not to be well prepared for the role.
What are your financial estimations for this year?
In 2008 we posted a turnover of EUR 27 million and in the first half of this year we made EUR 14 million. Theoretically, we are on track, because this year we planned to reach a turnover of EUR 20 million, which means about a 20 percent decrease compared to the turnover last year, in line with the market.
At one point, in August, when we saw things starting to move on the market, we believed we would be able to match last year’s turnover. But now, we have reduced our initial estimations. It is a rather uncertain period because until November, nothing is settled. And everything depends on the public sector because the important projects during a recession come from the state.
There are needs on both sides, but the public sector is further behind the private one. Honestly, I do not think Romania will emerge from the crisis in 2010. Maybe, in the best case scenario, it will happen at the end of 2010. I am more pessimistic because I believe a restructuring of the economy da capo al fine is needed.