Neogen investments target Balkans

What development strategy do you have for the next two to three years?
We want to reach a leading position in the Balkans region, including Bulgaria, the former Yugoslavia and the Republic of Moldova. We have over a year of presence on the Bulgarian and former Yugoslavian markets, and we are preparing to enter the Moldavian market this year. We opened an office there but have not launched our products on the market yet. On all the markets, except the Romanian one, we are in the phase of investing and building the branches with no profit yet. We have a similar range of products as in Romania on the other markets, except the web hosting services. In comparison with the local market, the Bulgarian and Croatian markets are more developed with a stronger competition in the internet business environment.

How much have you invested so far, what investments you will make this year and how much did you need to make the branches profitable?
The investments until now reach several million euros and we usually need about two to three years to start turning a profit. In Bulgaria, in about two years since launching operations, we have made up to EUR 1 million of investments, while for 2007 we will invest another million for the entire company. The entrance on the other markets was made mainly through acquisitions of local websites and companies. We have also bought about eight websites in Romania since starting local operations.

Are you considering making new acquisitions on the markets on which Neogen operates?
We are willing to make new acquisitions in Romania, but the value of these sites has increased a lot in the last period. The price of a website is usually determined by the number of visitors, the advertising revenue of the site, the power and awareness of the brand on the market and the final negotiation process. Until now we have invested in businesses similar to the ones that we already have in our portfolio, but for the future we are considering expanding our range of products and services through new acquisitions. For example, I would like to buy a website similar to Messenger, but this does not exist on the local market.

What market share does Neogen have in Romania for the top three most important activities in terms of generated revenue?
According to our own estimates for the recruitment segment, which is the most powerful business that Neogen has, we have an approximate 60 percent share of the local market. We host small and medium-sized companies with between 10 and 20 percent market share and online advertising with about 10 percent of the local market. For the entire company we registered EUR 1.2 million in 2006 and for 2007 we think we will reach EUR 2 million. The increase will be generated by the local market, with the other markets making a smaller contribution.

Are you willing to sell the company?
We have received offers since we started operations, but we are not interested in selling Neogen. We prefer to develop it ourselves, but don't rule out partnerships with investment funds in order to get more capital for the regional expansion of the company, but with minority participation. We are currently talking with some interested investment funds but have not reached any final agreement.

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How would you characterize the local market and how do you think it will evolve in the next few years?
The local internet market is very fragmented with only three players that count, and some important media groups currently operate here – the rest of the market is made up of small players. In my opinion, NetBridge, which is the biggest name on the market, stopped the development of websites it acquired after they completed the transactions. Nor do I think that big international players will rush to open offices in Romania in the next period as they are already present on the market with no such local representation needs; this is the case for Google, Yahoo and others. Most likely regional companies will enter the local market including some important portals from Poland and Turkey. The local market lacks big portals that offer all kinds of products and services; this is what Neogen is trying to do currently, by promoting all our activities under the Neogen umbrella.

How will internet-generated income sources evolve?
The majority of local and international internet business income is generated by online advertising. This is the segment which is expected to significantly increase in Romania. The value of contextual advertising is now around EUR 1 million, while brand advertising is reaching EUR 6 million. Contextual advertising value is expected to double year to year, with a higher increase than revenue from brand banners.

Roxana Mihul