about us | newsletter | contact | archive | members area
Mircea Turdea, Farmec
The cosmetics industry is an extremely dynamic field and requires active players»
  Features:      COUNTRY FOCUS   |   SECTOR ANALYSIS   |

Swiss firms stay watchful over local openings

Ranked among the top 10 foreign investors on the local market, Swiss companies see Romania as a hub of strategic and economic potential for them in the region, due to the size of the local market

July 2012 - From the Print Edition

5 Photos
The Diplomat – Bucharest talked to the main Swiss investors in order to find out the perspectives for this year’s investments and what the future may bring.
Locally represented by large companies operating in each key industry, Swiss companies currently rank eighth in terms of direct investments, with FDI in excess of EUR 2 billion, according to the latest available data from the Council Member Delegation (Senate) of the Swiss Confederation. According to the most recent meeting between the Romanian president and Hans Altherr, president of the Swiss Confederation Council of States, in May, the main local industries for Swiss investors remain food and tourism, and such developed segments are capable of boosting the bilateral trade relationship. The main names are Holcim, Expur, Nestle, Novartis, Ringier, Roche, Swisspor, Rieker, Helvetia Profarm and Top Brands, to name but a few.

Holcim puts faith in infrastructure

One of the largest Swiss investors locally, Holcim Romania, part of the Swiss group Holcim, with almost EUR 700 million of investments made in Romania in the last 15 years, operates on the most damaged market by the economic turmoil of recent years. According to the company’s representatives, the cement market contracted almost 35 percent between 2008 and 2010, while in 2011, cement consumption registered a slight increase, but this may not be sustained in the future due to the market uncertainties and volatilities.
Still, in 2011, the cement market compensated for the losses of recent years and rose by approximately 5 percent in comparison with 2010. “The increase was the result of favorable weather conditions and investments made in the nonresidential segment and infrastructure, but it was not a substantial one. The market remains unstable and insecure,” Daniel Bach, general manager of Holcim Romania, told The Diplomat – Bucharest.
Regarding the company’s local operations, its cement sales volume decreased by 6.7 percent in Q1 2012, while the aggregates sales volume fell by 7.5 percent, against the same period of 2011, according to the first quarter report from Holcim Group. The main factor was the unfavorable weather conditions which made any construction activity difficult, said the company official. The highest demand for cement, which influenced the firm’s business turnover in a positive way in 2011, came from nonresidential (industrial, retail, wind farms etc) and infrastructure projects. “Unfortunately the residential investments continued the negative trend of the previous years, which will continue, due to a decrease in the number of building permits,” Bach added.
Given these conditions, the company sees Romania as very important for Holcim Group in the region, due to the size of the market, but still, the present macroeconomic context comes with uncertainties and questions. The company official said that although Romania has put its macroeconomic house in order in the last few years, the country might be affected in the near future by the debt situation faced by some countries in the European Union. One of main concerns for the construction market in the region is the economic uncertainty caused by the debt crisis in the European Union, which may affect Romania’s export markets as well as financing by the banks. Also, the lack of infrastructure could neutralize the effects of certain local advantages.
“Unfortunately, the government didn’t manage to absorb the EU funds for infrastructure, but there are some positive signs taking in consideration that Corridor IV is almost entirely under construction,” Bach said.
Regarding local investments, over 2009-2011 Holcim Romania invested approximately EUR 100 million in production efficiency and green technologies. Most of this went into two cement plants in Alesd and Campulung and the grinding station in Turda.
An example of the company’s latest significant projects is the waste heat recovery system at its
Alesd cement plant, a EUR 14 million investment due to be completed in the second quarter of 2012. The system will replace approximately 15 percent of the total amount of electric energy used by the plant, which for the moment comes from the public network, with green energy.
The company expects volumes to be at least at the same level as last year, with a slight upside potential, particularly if the ongoing infrastructure projects proceed and there are no significant difficulties due to the development of the debt crisis in the Euro zone. “A big problem is that on the medium term there are many possible scenarios for the evolution of the economy, as well as for the construction sector, and the visibility is very low. The effects of the crisis have not yet disappeared and we still have to deal with pending real estate projects and difficult access to credit for potential new ones. However, if the government continues the infrastructure projects started last year, this will have a positive impact on cement sales in particular and on the economy in general,” Bach commented.
Cement producers, including Holcim, announced that they had managed get sales back on track in 2011, after two years of falling results, with increases ranging between 5.5 and 7.3 percent last year. Swiss cement producer Holcim increased its sales volume by 7.3 percent last year. In 2011, Bach said, “It’s still risky to speak about the sustainable recovery of the market, but one positive sign is that there is currently a significant number of infrastructure projects planned, which if launched will help not only with the recovery of the construction market, but also with that of the economy. We are hoping for such an evolution, because on the construction market, the proper use of materials and the responsible development of constructions are essential.”

More flights connecting Bucharest to Zurich

Business relations between Romania and Switzerland have increased demand for transport between the two countries. “This year we have invested in our flight schedule between Romania and Switzerland by increasing capacity. We now offer two daily services connecting Bucharest to Zurich with an early morning service and an afternoon service; this gives our passengers an ideal connection into the Swiss network, especially to North America,” said Bernhard Wodl, head of Swiss Austria and Central Eastern Europe. Despite the difficult environment he is aiming for successful and profitable flights to Romania. “Romania is a very interesting market for us and we are seeing additional demand, not only to Zurich but also to other destinations we serve like New York, Madrid and Lisbon. We also believe that our high-quality product at reasonable fares will be well appreciated in the local market in the future,” added Wodl.
The airline is constantly looking at the development potential in different regions worldwide and adapts its services according to business opportunities. This is why it increased flights between Romania and Switzerland. The market environment remains difficult, and the volatility in the airline industry has reached unprecedented levels. “We face a very unfavorable currency exchange rate situation with the strong Swiss Franc and high fuel prices. Competition from low-cost carriers and other carriers serving the same destinations is another factor that has a negative impact on our industry. We do see a lot of overcapacities in the market and a continuing pressure on yields,” said Wodl, adding that this year the company will invest in products and its aircraft fleet.
The eleventh and twelfth of 15 new Airbus A330-300s were delivered in January and February, and a further A330 will follow in October. Two new Airbus A320s also entered service since this spring. Network-wise, the company opened its 25th intercontinental destination, Beijing, in February, served non-stop to and from Zurich. Further recent network developments have included a new Geneva-Nice service and increased frequencies to London, Moscow and Madrid. At the beginning of April, it opened the brand new arrival lounge at Zurich Airport for premium customers.
“I believe that the air transport sector will remain volatile throughout this year with fuel prices and currency movements unlikely to change in a more favorable way in the near future. With regards to Romania, the current development looks very promising for us,” added the head of Swiss Austria and Central Eastern Europe.

Ringier rings the online changes

Currently, Ringier the largest media company in Switzerland, has an international strategy to develop its digital business (e-commerce websites), which gets its income mainly from transactions and not advertising. “Romania is an extension of this strategy, and business will grow much more in the future. Also, in the near future we do not have in mind a clear acquisition, while looking for opportunities, and do not exclude any organic development,” Mihnea Vasiliu, CEO at Ringier, told The Diplomat – Bucharest about the media company’s strategy in Romania. Today’s online segment represents 6 percent of trust income, but in the coming years the strategy is to increase this segment to 10-15 percent.
The shock of the economic crisis was felt in 2009-2010 when the firm made massive cuts to staff and costs, sold newspaper Evenimentul Zilei and Capital and was rumored to be pulling out of the market. “In 2010 the media group had quite large losses, in the millions of euros, but 2011 was an unexpectedly good year,” said Vasiliu.
At the end of 2011 Ringier acquired Edipresse, but it has not helped the profit. The general director added that the print market had decreased by 20 percent between 2008 and 2012 while advertising was reduced to one quarter. Other markets where the Ringier group is present are bigger, so profits are higher. “It is unlikely that the print market will recover. Nor do I think the advertising market will recover anytime soon. The crisis does not help the advertising industry, as people cut consumption and marketing,” added Vasiliu.

Expansion on the money for Swiss Franke

Franke too is looking to up its presence. “The investments we made in 2011 were directed towards expanding the distribution channel by opening new showrooms with strategic partners at national level. We also invested in events to celebrate the first 100 years since the company was established. In 2012 we intend to be even more visible, ensuring a wider geographical coverage at national level, and will invest in marketing activities to increase the power of the brand,” said Florin Porojan, general director at Franke Romania. He plans to expand the firm’s activity in Romania, mainly by expanding the distribution network and developing the product portfolio.
To date Franke’s total investment on the local market is over EUR 4.3 million and in 2012 the company intends to invest another EUR 100,000. “We are planning to open new showrooms across the country, closing strategic partnerships with local partners that meet the standards imposed by a premium brand such as Franke. Also, we have increased the level of our services by providing free additional pre- and post-acquisition services,” outlined Porojan. One of the objectives is to increase the company’s turnover by 5 percent.
The biggest problem Franke is facing is the decrease in consumption, which is an effect of the economic downturn felt across all industries. It will take some time before consumers resume their pre-crisis habits, regain their trust and start personal investments again. “We aim to educate consumers that quality kitchen systems represent a long-term investment for their homes which can prove particularly profitable, especially in times of economic recession such as the ones we are facing now,” added Porojan. Also, the manager says that he expects an improvement in the market in the following two years based on economic stability measures that will lead to a consumption increase, encouraging customers to adapt their homes to provide a modern and comfortable lifestyle.

Exports sweet for chocolate makers

Food is a major area of interest for Swiss investors such as Heidi. “Since 2008 we have nearly doubled our sales, based on our strong focus on exports, so basically Heidi stayed stable during the crisis in Romania. The main markets for exports are Germany, Poland, Hungary, China and the Netherlands. Overall, we export to 40 countries on all continents. Next will come the first shipments of Christmas chocolates to China,” Erwin Vondenhoff, general manager at Heidi Chocolat, told The Diplomat – Bucharest about the firm’s current strategy. This year it has invested EUR 500,000 in expanding its warehousing.
One of the main problems that have affected the chocolate manufacturer is that the market in Romania has decreased a lot. In 2008 people ate 1.8-1.9 kilos per year and now they eat 1.5-1.6 kilos per year, a 20 percent dip. “If you compare it with Germany or Switzerland where people eat 10-12 kilos per year you see the low level of consumption we have here. So the standard is lower in Romania, the people think more before making a purchasing decision. Four years ago it was easier to buy. Volumes have decreased heavily. Chocolate is something that you don’t really need but something you like to have,” added Vondenhoff.
Even though the market has decreased, Heidi’s performance remained flat, and increased its market share. Last year, its turnover was RON 55 million and for 2012 the management expects a turnover of RON 62 million. Also, Vondenhoff predicts that exports will increase by 25 percent this year. “We are basically trying to benefit from this crisis because people are more conscious about the price-quality ratio. The fact that the Euro is stronger than the RON has helped us a lot. In other countries our products are premium. For example, in the US Heidi chocolate costs USD 3, in Brazil EUR 5-6 and in Romania EUR 1-1.5. Only people who earn top salaries are able to buy Heidi there. They travel a lot, and they expect the same quality everywhere,” said the general director.
The biggest export markets are Germany and Poland. The top five countries represent 50 percent of the firm’s export sales and the next 10 make up another 25 percent. Heidi has a 6 percent share of the whole chocolate market. “The market share is not so important for us because we are not targeting the whole market. There are many segments, plain chocolate, filled chocolate and chocolate with ingredients. We are targeting only the last segment,” said Vondenhoff.

Crisis robs Mica Elvetie of foreign clients

Less business travel also means fewer diners for restaurants. “When I opened my gastronomy business it was much easier than now because everyone was curious and appreciated the new ideas. Now it’s not the same thing. Today I will not open another restaurant in Romania, because the gastronomy market here is based on money, not on quality. I don’t know if it’s right or bad but it’s money based,” Jakob Hausmann, owner of Mica Elvetie restaurant, told The Diplomat – Bucharest. The chef opened his first restaurant in Gradina Icoanei in Bucharest with an investment of around EUR 150,000. Hausmann has invested EUR 100,000 in the new place, located on Sandu Aldea Street.
“A normal gastronome works with a profit of 10-12 percent. When you have international gastronomy you are working with foreigners. The crisis left me without 50-60 percent of my clients. Now the expats stay only one night, they come in the morning and go back at night,” said Hausmann. “The second thing is that when you have lots of money you don’t care if you pay one leu more or not; when you must care about money, you are more careful. Now I have more Romanian clients. Before the split between Romanians and foreigners was 50:50 now it’s 70:30.” Hausmann added that now he must find ways to give good quality at a normal price.

There is 1 comment:

1: on 2012-07-22 14:37:01

Validation Code

1 Comment  |  17422 View
Daily Info
Colliers Romania appoints Laurentiu Lazar as new managing partner

Laurentiu Lazar will take over as the new managing partner of the real estate consultancy company Colliers International Romania, effective as of March. Ilinca Paun, the curre...

Skanska Romania appoints Aurelia Luca as new managing director

Skanska Property Romania, the local division of one of the largest real estate developers, announces changes at the top of management in Romania. Marcin Lapinski, Managing Dir...

Banca Transilvania has become a shareholder of Victoriabank

Banca Transilvania has become a shareholder of Victoriabank, the third largest bank in the Republic of Moldova, with a total participation of over 66 per cent alongside the Eu...

Rezidor to open a new Radisson Blu to open in Timisoara

The Rezidor Hotel Group announced the signing of the Radisson Blu Hotel, Timisoara. This takes the group’s portfolio in Romania to four hotels, with two in operation and two...

Mihai Tudose announces his resignation as prime minister

Mihai Tudose announced on Monday evening, at the end of the Social Democrat Party (PSD) National Executive Committee (CExN) meeting, that he resigns as prime minister of Roman...






More on Features
Romanian business: There is still room for improvement

Romania is still an attractive market for investors within South-eastern Europe, with advantages in terms of labour cost and skilled professionals. But local entrepreneurs ...

1 Comment

Telecom industry: Keeping pace with next-gen tech

The telecom industry is transforming before our very eyes. And in many instances, there are no hard-set rules for the new digital platforms, tools and lifecycles in which t...


Digital Banking: Challenges and opportunities

Digitalization is radically transforming the banking industry, enabling new products, services and business models. This transformation will take time to complete, forcing ...


Logistics industry: Growing demand

The industrial, logistics and office sectors in Bucharest were the drivers of the real estate development market in the first nine months of the year.

Digital transformation of energy management and automation

Interview with Marius Persinaru, Country President Schneider Electric Romania & Republic of Moldavia


Principles Governing Foreign Investments in Romania

The legal regime of foreign investments in Romania is governed by the principle of equal treatment, which means that, subject to the principle of most-favoured-nation treat...

Austrian investments in Romania: Companies are generally happy with market development

Austrian investors see Romania as an excellent investment destination and the largest market in South-Eastern Europe. Romania represents a resourceful country, dominated by...