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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 and Romanian-based companies are concerned about Romania's poor performance in terms of public investments, in national infrastructure and EU funds attraction, and in lacking legal predictability and transparency. A report by Petre Barac

2017-12-04 13:50:02 - From the Print Edition

5 Photos
Romania is host for almost one million companies, according to the National Trade Register Office, of which around 90 per cent have either 100 per cent Romanian capital (more than 870,000), or in part (38,000). The sectors with the highest interest among Romanian companies are construction, wholesale and retail trade, repair of motor vehicles and motorcycles, professional, scientific and technical activities, manufacturing industry, and hotels and restaurants.

The Diplomat - Bucharest talks to important local entrepreneurs and Romanian-based companies to stress their development during this year and their views about Romania's economic environment and the future.

Corina Popescu, Transelectrica: An important concern of mine and a challenge for the company is the human resources component

Transelectrica is currently at the onset of a broad transformation phase and faces two types of major challenges: internal challenges and mechanisms inside the company, and external challenges such as the expropriation issue that they have begun to solve with Government support, according to Corina Popescu, CEO of Transelectrica.

"But in order to overcome this kind of situation, to develop important and successful projects, we need to improve ourselves in the company's internal mechanisms," Popescu told The Diplomat-Bucharest. "For example, there is a high need for an improvement in quality in the public tenders area. My goal is to start this top-down transformation, to clarify the processes, to use our internal resources in the most efficient way. First of all, we started this process by thinking of a redefinition of the IT infrastructure strategy. We identified the processes and made a timely schedule for their deployment. Another important challenge for Transelectrica is the SCADA project, which has been on the table for two years. I hope that in the near future we will have a specification for the modernization of the current system."
According to Popescu, Transelectrica is only at the beginning of this process of transformation, and the steps they have taken over the past six months have laid the foundations for things that we will see very well developed over the next one to three years, and which will make the company more efficient both internally and externally.

"An important concern of mine and a challenge for the company is the human resources component," said Popescu. "The company now has just over 2,000 employees, mostly in the second half of their professional activity. And I would like to point out that Transelectrica has extraordinary professionals. There are rigorous standards that govern the correct and safe operation of the power system. But I noticed that there is a gap between the professionals with vast experience and young people in need of training. That is why I proposed to implement the concept of ‘knowledge transfer' in the company. There must be an evolution from juniors to seniors, and seniors must aim to train future specialists. This should be a performance indicator. Seniors should do mentoring for young people. These are healthy tools for the company that ensure continuity and flow in terms of the professional resources that Transelectrica needs in the future. Transelectrica offers through CSR programs a series of scholarships to very good students from the Politehnica University in Bucharest. We are working to improve these programs in such a way that Transelectrica is an attractive company for young people, to provide them with a thorough professional training, because we have great specialists who can transfer valuable knowledge to the professional development of the younger generation."

Last year, Transelectrica suffered major power damage that affected Arges and Valcea counties, with a great impact on the performance indicators, according to its CEO: "This year, we have already faced a number of power failures, and to minimize the risk of such incidents, the investment and maintenance part has to work more efficiently than before. Refurbishment involves the reduction of the maintenance component, but not the removal of it. As a result of the damages that we have had lately in the Capital, we have prepared a weekend revision plan, during the time when energy consumption is lower."
On the other hand, since Transelectrica's activity is regulated, the company must have a profit at a regulated level, and the works that are necessary and are recognized through the tariff must be done. "Sustainable efficiency is not achieved by not performing those works," Popescu explained. "Efficiency must be detailed through process restructuring, through implemented investments. These are the elements that need to bring more efficiency. We must not forget that 2017 was a year with sometimes extreme weather phenomena and Transelectrica suffered from this. Surely, we did not have as big a volume of undelivered energy as in 2016."

Next year, Transelectrica has to remake its development plan, which is reviewed every two years.
"Until then, we need to conduct a series of studies to see the effectiveness of what has been implemented," continued Popescu. "When reviewing this plan, all work must have a justification for the efficiency of that investment in the context of transport activity. So that after the upgrading is complete, we can check that the work has achieved its effectiveness. There must also be monitoring after the work is completed, and there must also be a learning process to identify ways to improve and streamline the work. We have changed the vision a little at the conceptual level as well and we are trying with all responsibility to build an investment plan. Not that the company hasn't had a plan until now, but there were fractures and no continuity. And the latest development plan, which underpinned the current investment plan, should probably have been better substantiated."

2018 will be a busy year for Transelectrica from two perspectives, in Popescu's view: "We are at the beginning of a vast process of internal transformation and reorganization of the company, and we are in the midst of a sustained effort - like a race against the clock - to complete the investment works that we have included in the development plan and which ANRE has recognized. 2018 will be a real challenge, because when you begin a transformation process, it′s hard to start the engines - that is, to mobilize people to deliver as much as possible to investment projects. As far as the financial outlook is concerned, Transelectrica is allowed to make a regulated profit, and it must do so... no more, no less. If less, due to factors independent of Transelectrica, such as the amount of energy transported, the CPT purchase price, or the one for the technological services of the system, these things are corrected. According to ANRE methodology, theoretically the authority should adjust all these forecasts at some point."

Transelectrica is focused on the necessary investments to maintain the national electricity system's safety, on investment projects to increase the interconnection level, and to close the 400 kV energy ring.
From the perspective of investment projects, Transelectrica has two years of challenges, as Popescu mentioned . "We are in the fourth of the five years of the regulatory period. In the first three years, there was an investment plan which involved about 600 million RON of investments. For the last two years, July 1, 2017 - July 1, 2019, the plan provides investments of 1.4 billion RON. In the first three years, about 50 per cent of the 600 million was achieved. We have ongoing projects and projects that we have to start. These are essential projects for the proper functioning of society and for the national energy system - I refer to closing the 400 kV ring. There are projects for the construction of 400 kV power lines, which would lead to greater safety in the functioning of the national energy system. At the end of October, the connection between the Romanian power line section (Reşiţa - the RO-SE border) and that of Serbia (Pancevo - RO-SE border) was made. The objective of this investment was to increase interconnectivity. Transelectrica's investment works cannot be done overnight. In the last 20 years, Romania has not built a 400 kV line. We are talking about a lasting, highly complex project that engages specialists from many areas. Transelectrica's work requires multidisciplinarity, and because of this the projects are very complex."

Another priority for Transelectrica is the SCADA project that is currently stuck, and which Popescu wants to unlock in the next few weeks.
"When I came to Transelectrica I found many large investment projects blocked, both inside and outside the company," said Popescu. "Inside, the bottlenecks were caused by very long procedures, and by the non-standardization of the documentation, which allows for many delays, discussions and complaints. Outside, bottlenecks were caused by the slow route of expropriations, and of obtaining permits and authorizations. In order to have a continuous and predictable trajectory, these investment projects require the adoption of additional Government decisions and faster documentation approval. We have succeeded in unlocking some of these projects over the past four months, thanks to government support for the company, who understood the importance of investing in the energy system and which wants to support us in achieving what we have in mind."

For the next two years, Transelectrica wants to start all the 400kV lines towards closing the 400kV ring.
"This is the priority investment objective," Popescu underlined. "Romania is not balanced from the perspective of electricity production. 80 per cent of electricity production is concentrated in the southern area and only 20 per cent in the northern area of the country and the most efficient and most economical way of transporting energy is on high voltage lines, of 400 kV. There, the energy losses are much lower, and they also improve system security. There are complex projects involving expropriations, removals from the forestry fund, permits. At the same time, we try to explain that these works are necessary if we are to transform our infrastructure, and we emphasize that it addresses energy security and safety, that these are works that need to be done. The longer we wait to make these upgrades, the more risks increase so it is very important for investments to be made on time."

In 2016, Transelectrica reported a net profit of 272 million RON, 24.4 per cent lower than in the previous year. Its turnover in 2016 was 2.7 billion RON, down by 8.8 per cent versus 2015.
The connection of the electricity line section in Romania (Resita - RO-SE border) with that in Serbia (Pancevo - the SE-RO border) is due to complete. Transelectrica stated that this is one of the final stages in the realization of the interconnection project within the Romania-Serbia relationship.
The 400 kV Resita-Pancevo OHL is a project of common interest at the European level and it recognizes the interconnection with Serbia with the role of strengthening not only the Romanian national electricity system but that of southeast Europe. The 400 kV Resita-Pancevo OHL will allow the elimination of major congestion in the Romanian and Serbian power systems as well as the increase of the transfer capacity between Romania and Serbia and across the South-eastern Europe.

Transelectrica recently inaugurated the 220/110/20 kV Campia Turzii (Cluj County) electricity station, after an investment of about 42 million RON (nine million Euro). This station in Campia Turzii is very important because of its role in securing the electricity supply to the northern area of Transilvania, said Popescu.
The works started in 2014 and consisted of the complete retrofitting of the station, including primary and secondary equipment, the SCADA system, telecontrol of the National and Territorial Power Dispatcher, the installation of a 220/110 kV autotransformer and the installation of the second 110 / 20 kV transformer.
"The refurbishment of this station ensures the exploitation conditions required by the current international standards, as well as the maintaining of operating costs and replacement of equipment considered used morally and physically," said Popescu. "For the next two years, Transelectrica has an ambitious investment plan, totalling about 1.4 billion RON and one of our major concerns is the refurbishment of the power stations."

Bogdan Badea, HIDROELECTRICA: Simplification of public tenders legislation would help speed up the company's work

Romania is on a positive economic trend and Hidroelectrica is one of the most solid pillars on which the economy of our country is based, Bogdan Badea, president of the management board at Hidroelectrica, told The Diplomat-Bucharest.

"We are committed to changing the philosophy of doing business for the company," said Badea. "We have successfully overcome the financial difficulties and the time has come to focus very clearly on the investment, development and maintenance area. There are things that have been neglected in recent years, but which are vital to the healthy and sustainable evolution of the company. We really have many obstacles to overcome. I recall, for example, the issue of historical investments. Here we have to make a quick decision because, from an economic point of view, not all are justified for the company in terms of cost-benefit ratio. When these investments were designed, they were not oriented only to basic activity, such as electricity generation and profit making, and there was no obligation to demonstrate their economic viability."

Badea speaks of water supply or irrigation and other issues that should be the responsibility of local authorities: "Unfortunately, the law no longer allows us to make free transfers of objectives to those who manage these activities at the moment. The values of these investments - made over long periods of time - are very high, and this creates problems. We carefully analyze before we make decisions, we want to have a very clear picture to confirm that the values of the investments are realistic."
The management board president also said that the company needs to strengthen its internal structure for performance in the long run: "We need an activity-based consolidation, a clear assumption of the role in the company that everyone has, from director to simplest employee. I am a follower of specialization and responsibility for everyone. We have taken concrete steps in this direction: we have reduced some of the leadership positions where we have found redundancies and overlapping roles. We have consolidated the specialized areas where we have to rely on a broader background of people able to analyze documentation and to give very fast specialist views. In this latter area, we had very long delays. Another problem that we want to solve as soon as possible is that of the Hidroserv insolvency. It is a crucial company for us and it supports the many activities carried out by Hidroelectrica. It is necessary to have courage, even if that means reducing the number of staff. Decisions on the restructuring of Hidroserv have taken too much time. There is a need for urgent cost optimization."
Hidroelectrica is working on projects of national interest, which have all the necessary permits for construction, but they have major environmental problems where they are asked to revisit the procedures so critically that they may as well be fresh proposals for new investments.

"I believe that the Romanian state must decide if it wants to promote investments and then bureaucratic procedures and interpretations of laws need to be clarified in a single supportive direction," said Badea. "We are in various stages with the issuance of HGs for expropriations. But we have positive signals from the Government, which supports the investments, and we hope for the quick approval of the HGs' expropriation from Rostolnita. I also believe that simplification of public tenders legislation would help speed up the company's absolutely-necessary work."

The results for the first nine months of 2017 show that Hidroelectrica recorded a gross profit of 1.1 billion RON and a turnover of 2.4 billion RON. Gross profit increased by five per cent over the same period in 2016, while the net profit margin increased from 36 per cent on 30.09.2016 to 42 per cent on 30.09.2017.

With these results Hidroelectrica is ranked first in terms of profitability in the top of Romanian companies, EBITDA of the company being, in the first nine months of 2017, 68 per cent of the turnover.
"We hope that this year we will exceed the psychological threshold of three billion RON and I think we will succeed," said Bogdan Badea. "We have launched a market study on identifying opportunities for diversifying Hidroelectrica's activities and identifying new investments. This was totally missing, yet it is very important to identify the areas on which Hidroelectrica plans to focus, especially in the context of an IPO. We do not want to be listed for the sake of listing. We want this moment to find us with solid plans and very clear ideas about which businesses to invest in. There are many investment opportunities for Hidroelectrica both in the national and regional energy markets. The basic principle from which we start is that they must be economically justifiable and profitable."

For the year 2017, Hidroelectrica wants to carry out a volume of investments of about 472 million RON, financed entirely from its own sources. Out of the total amount, 261 million RON are allocated for development, 107 million RON for refurbishments and 77 million RON for maintenance with capitalization.

"Furthermore, we want to come up with a clear strategy on the refurbishments program," said Badea. "After the refurbishment from Stejaru, there are those from Vidraru, Mariselu, Raul Mare, and so on. There are important capabilities that continue to ensure the company′s profitability. We also allocated significant resources for investments from Siriu Surduc, Racovita, Bumbesti. Rostolita will evolve at a different rate as HG expropriation is issued. At Stejaru, things are progressing, we had a staffing problem there that we will solve with the implementation of the new organizational chart."
According to Hidroelectrica's official, the energy industry needs stability and long-term plans: "The fact that a strategy to develop the National Energy System is to be transformed into law, as announced by the Ministry of Energy, helps to create the premise for the stability that we want. Long-term development plans would be protected from political regime changes that often translate into a change of vision regarding the future of the energy system.

As of 31 July 2017, Hidroelectrica had a total of 3,292 employees. However, Hidroelectrica has recently announced a new organizational structure to accelerate the listing process and to orient the company towards development and investments.

"We will employ around 140 specialists as soon as possible, in accordance with budgetary constraints this year and recruitment procedures. We need these specialists in areas of maintenance, refurbishment, technical and production support, design, and critical infrastructure," concluded Badea.
Sorin Boza, CE OLTENIA: My dream is the listing of CE Oltenia on the Bucharest Stock Exchange
There is a close connection between the GDP of a country and its energy consumption, according to Sorin Boza, general manager of CE Oltenia, who told The Diplomat-Bucharest that a growing economy leads to higher electricity consumption, which of course enables energy producers to increase their output, revenues, and turnover.

"In our case, given the current European energy guidelines saying coal-based energy is the main cause of global warming, the biggest challenge for a conventional energy producer is to maintain its position on the energy market, given that Romania is the country that has outpaced the greenhouse gas capacities established for 2020, and also considering how the limitations imposed by European legislation on emissions of pollutants are increasing more and more, which implies new major financial efforts (from clean technology investments to the acquisition of CO2 certificates within the required compliance deadlines)," said Boza.

In his opinion, CE Oltenia is strongly disadvantaged by the current legislation resulting from the "decarbonization" trend, although there are studies that show European greenhouse gas emissions reach only ten per cent worldwide.

"We should think about the winter period we will have to go through, and for which we make every effort to ensure fuel stocks and to maintain production capacities safely, given the well-known fact that coal-based energy has always been the main spur to the security of the national energy system during those times of the year with extreme temperatures," added Boza.
CE Oltenia's CEO suggested there are a number of external factors that are not controllable by society and which depend on European energy policy, which has considerable influence over the company′s results.

"We are forced to buy green certificates amounting to about five million Euro annually, although the big energy consumers in Romania, except CE Oltenia, have been exempted from the acquisition of a considerable amount of green certificates. CE Oltenia is the third largest energy consumer in Romania, after Alro Slatina and ArcelorMittal Galati," Boza underlined .
According to the legislation, producers are exempted from green certificates corresponding to the energy used in their own technological consumption and the energy used by CE Oltenia for the exploitation of coal is not considered to be their own technological consumption.
Boza explained: "We are obliged to pay for the same water from the Jiu River four times, because all four plants are located on the Jiu River. For the cooling of the aggregates, the water is taken from the river, treated, cleaned, cooled and subsequently evacuated back to Jiu in a proportion of 95 per cent, but we pay it 100 per cent at each plant, as if consumed entirely. CE Oltenia together with the Ministry of Energy is currently working on a series of measures aimed at creating a fair legislative framework for market entry for all producers."

This was a year that finally saw another direction for CEO, according to the company's manager: "I would not compare 2017 with last year, but with the last three years, because after three years of loss, 2017 will be a year of profit. I am proud to say that this year is the first time in history when CE Oltenia had no debt to the consolidated state budget. The total value of the taxes paid by the EC Oltenia is extremely high: about 600 million RON annually. Revenues from energy sales this year have helped us pay off debts to suppliers, repay bank instalments on time and without penalties, and pay CO2 certificates. On long-term credits - those made years ago for the implementation of environmental installations - the grace period has passed, and 2017 is the year with the highest repayment rate to banks, over 350 million RON."

The positive results were recorded not only because they sold more energy, but also because CEO has cut production costs per tonne of coal as well as on each kWh produced.
"Without CE Oltenia, the national energy system is in great danger; in Romania you have no alternatives at this time to replace 3,000 MW," said Boza. "In the new energy strategy, it is stipulated that, at least for the next five to ten years, CE Oltenia will be an important pawn in the National Energy System and we must consider how investments of around one billion Euro have been made, so that today CEO produces clean energy. My dream, for the end of the mandate, is to see the upcoming years with profits, and in the fourth year to start preparing for listing on the Bucharest Stock Exchange."
Besides the technological investments that result in the safe operation of the production capacities, the rehabilitation and modernization of the energy groups included in PNI, and the meeting of limits imposed by the European legislation on the emissions of pollutants into air, water, and soil, CEO allocates important amounts for rendering of the land areas affected by the mining exploitations in the forestry or agricultural circuit and for the fulfilment of all the necessary conditions for the production activity without affecting the local communities.

"In other years, the completion level of investments was 30-35 per cent," said Boza. "This year, the achievement rate will be around 80 per cent, allocating an amount of about 650 million RON. For 2018, we are preparing an investment plan five per cent bigger than in 2017, of about 688 million RON. This year we have completed a large investment in the Seventh Isalnita group. This is an investment to increase productivity. We will produce as much energy with this group as in the past year, but using one less trainload of charcoal per day - 2,200 tons less per day. Monthly, we can save 70,000 tons of coal. Group Five from Rovinari was unlocked this year, being one of the Ministry of Energy′s priorities. We are talking about an investment of nearly 500 million RON. We have other investments in group Three - Turceni, and group Two - Craiova. We also have a major repair program at Group Four - Rovinari. Almost 200 million RON have been invested in mining, in major repairs for two excavators, conveyor belts motor, etc."

Boza explained that CEO will exceed budgeted figures this year, namely 14.1 TWh and 21 million tons of predicted coal: "I think we will finish the year with almost 15 TWh and 22 million tons of coal. The operating profit at the end of the year is estimated to be around 168-170 million RON."
The large "family" of CE Oltenia currently has 13,650 members, but the company indirectly provides 130,000 jobs not only in Gorj county but also in Dolj and Mehedinti counties.

"We have to keep in mind the low number of employees in the productive area as a result of the repeated layoffs and, last but not least, the need to build up the workforce - an objective in our staff strategy, for which we have involving partnerships with school inspectorates for the development of qualification programs through state vocational schools, as well as training through dual education," said Boza. "Of course, in order to establish a plan for reorganization / restructuring / efficiency of the company in such a way that it is viable and profitable in the short and medium term, there will always be consultations with the social dialogue partners to bring additional benefits to our employees."

Mihai Patrascu, evoMAG: For next year, we want to focus more on the corporate segment

The very high competition in the categories they are dedicated to, and the increasing costs of online marketing are two of the most important challenges, Mihai Patrascu, CEO evoMAG, told The Diplomat-Bucharest.

"However, competition is beneficial to the end customer, and we are forced to invest constantly and earn their trust," said Patrascu. "For example, we have introduced services that are not found in our competitors' portfolio, such as delivery in one hour. Another example is delivery with our own fleet in Bucharest. We have changed our website's interface to improve our customers' buying experience. We also introduced the ability to place orders without having to set up any client account. We have inaugurated several delivery points."

According to Patrascu, innovation in technology evolves very quickly, and this reality must be translated into the business model and is thus part of the evoMAG strategy to bring customers the latest technology, materialized in the newest products.

"We do this through a close relationship with our partners, distributors and vendors of electronics and home appliances," Patrascu explained. "And these partnerships allow us to quickly bring new products to Romania and offer them for sale to end customers at better prices. Furthermore, we are concerned about the ease of access of end-customers to their products in terms of costs. Thus, we provide them with several ways of payment, as well as payment in instalments, a solution increasingly used by our clients. All of this is challenging for us and, in the end, we are translating them into the benefits we offer to our customers. As for the next step, we are talking about personalizing services and products, about knowing customers very well, individually, by providing specific products and services they need exactly when they need it."
Talking about how the company's activity was influenced by legislative changes in the past year, Patrascu explained how evoMAG now has higher salary costs: "But being an entrepreneur means finding solutions permanently to any problems you encounter. We are definitely interested in a stable economic and political environment, a predictable climate that allows us to deliver products and services in line with our customers' expectations."

evoMAG recorded a moderate increase of about ten per cent this year, as its CEO said: "It was a year of investments. The industry in which we operate involves permanent innovation, sustained by changes in customer behaviour, which we obviously need to adapt to. Generally speaking, we talk to more informed, more educated customers who know better what they want to order online, what options they have, type of payment or delivery, return, etc. At the level of individual clients, there has been a change in their interest regarding the star products categories. So, if five years ago the focus was on laptops, now the focus is on mobile phones, for example."

For next year, evoMAG wants to focus more on the corporate segment. "At the moment, products delivered to the corporate segment reach about 20 per cent of sales," said Patrascu. "We intend to increase this segment, especially as we have our own fleet with which we can deliver very quickly. We offered our customers last year the opportunity to choose fast delivery. We found that 80 per cent of the commodities delivered in one or three hours belonged to companies that had previously purchased from evoMAG. Thus, we decided to invest more in the business segment, offering new facilities such as payment term and credit limit, dedicated offers, consultancy, financing services, priority in solving service situations, free delivery regardless of the order value, extended warranty for purchased products, and replacement of defective products during their repair."

In 2017, evoMAG entered two new categories: IT services for individual users and insurance. "These are the new areas we want to develop in the future. We have 12 years of activity in a highly competitive market and we have reached that maturity which gives us the confidence to access new markets and add services to the products on our portfolio. Thus, we have included in our portfolio ten types of IT services, especially in the maintenance area, which aim to solve some of the most common needs of our clients."

Patrascu said the retailer will continue to invest in developing new services and improving the experience of the customers: optimizing the interface, the design, the mobile application, and the platform behind the website.
"At the industry level, we see a strengthening of the e-commerce market. We witnessed several acquisitions last year, which is a good thing, especially in IT&C," said Patrascu. "It means that it is a place of growth, and evoMAG has all the prerequisites to have good results. At the same time, consolidation also means higher levels of professionalism in the market, as well as greater competition. The competitive level in the Romanian electronic commerce market is very high. However, competition is beneficial to the end customer, and we are forced to invest constantly. But as I said, it is absolutely necessary to have a stable economic and political environment and a predictable climate that allows the development of the industry."

Last year, evoMAG recorded a turnover of about 20 million Euro, and this year they estimate an increase of about 15 per cent. The retailer currently has 57 employees, but they expect their staff to increase by ten per cent in the next period.

Mircea Turdean, CEO Farmec: The cosmetics market is characterized by high competition between companies

The Romanian economy shows us that we can constantly develop as a market, Mircea Turdean, CEO Farmec, told The Diplomat-Bucharest. "The favourable economic context was also reflected in the cosmetics sector, which in 2016 recorded the largest increase in the post-crisis economic environment, namely five per cent," said Turdean.

According to Farmec's CEO, the cosmetics market is characterized by high competition between companies in the sector: "The cosmetics industry is an extremely dynamic field and, implicitly, requires active players. On the cosmetics market, our competitors are some of the largest multinational companies. At the same time, this is also a very strong stimulus, which we integrate into every Farmec development area. For example, when the Romanian market abounded in foreign brands, with enormous marketing budgets, we were able to respond with a solid and coherent strategy that would ensure a high level of competitiveness in times of crisis. In other words, we have learned to turn the challenges into chances of growth."

Farmec is the largest cosmetic company with 100 per cent Romanian capital, continued Turdean: "From this perspective, legislative changes of major interest to us are those of setting up projects that support the development of local capital. At the moment, there are very few state aid strategies that stimulate Romanian investments and provide some benefits for local enterprises. Very few measures are taken to support Romanian companies. On the contrary, many legislative regulations affect one way or another local businesses. An example would be the split VAT payment, which would have had negative effects not only on Romanian companies but on the entire private business environment. There were inconsistencies, but the fact that this provision was later modified makes us hope and believe that there are solutions to each more-problematic issue."

Turdean said that performance must be encouraged as a priority. "Also, wage growth must be driven by performance rather than by political criteria, as has been the case for massive wage increases this year, which has had repercussions on the private business environment. In a developed country with a healthy business sector, wages and legislation must support the private-sector employees."
According to its CEO, 2017 was a successful year for Farmec, which exceeded all expectations. "It was the year under the strong sign of expansion and innovation," said Turdean. "There are several directions that have characterized each of our activities: expanding the network of brand stores, upgrading the product portfolio, diversifying the facilities offered to our consumers, continuing the development of the distribution system, and last but not least, the refurbishment of the cleaning products section with latest-generation equipment".

Farmec now has a network of 19 commercial stores, with a turnover of more than one million euro in the first half of 2017, a multibrand portfolio of over 600 products, as well as a national distribution system.
"We can dedicate 2017 to the Gerovital brand, which has celebrated 50 years of tradition on the local market, which has also launched its first premium product line-up and has gained a significant amount of prizes and awards. We have set our own records this year, which we plan to multiply in 2018," said Turdean.

Farmec's development strategy is supported by three major pillars: the expansion of the brand store network, the development of unique consumer experiences, and the strategic coverage of the distribution network.

"Our own network of stores has witnessed an impressive national expansion," Turdean added. "We are proud to be the first local cosmetics manufacturer to have its own brand stores. This success motivated us to develop a unique concept where we offer our consumers perfect experiences within these spaces. As for the distribution system, we will continue to focus on its development so that we can say that we have not only the most modern distribution network but also the largest nationwide network."
For 2018, Farmec will continue to invest in research, improved technologies, expanding their network, staff development, and innovation within each company's department.

"Next year we plan to open ten new stores," said Turdean. "We will modernize and develop product lines, expand our hygiene products, as well as our hair care and face care products. Moreover, we will penetrate new market segments. All these directions of development have been established according to the results achieved this year and we are sure that they will bring us impressive achievements next year."

No area of activity can make progress in conditions of political and economic instability, including the cosmetics industry, according to Farmec's CEO. "To grow, any sector needs a healthy and prosperous business environment based on collaboration between the state and the private sector."
In 2016, Farmec registered a turnover of 196.8 million RON (43.7 million Euro), an increase of 14 per cent compared to the turnover achieved in 2015.

"We continued in the same direction this year, which allowed us to post a turnover of 105.5 million RON in the first semester of 2017, which is a nine per cent increase over the same period in 2016," added Turdean. The cosmetics company currently has 750 employees.

Marius Vacaroiu, Policolor: Next year we are planning sustainable growth alongside the development of new innovative products

Even though they have a specialized activity, Policolor is facing challenges such as increased mobility, flexibility, and maintaining a good balance between innovation and consistency, according to Marius Vacaroiu, CEO of Policolor.

"Clearly, the announced or decided tax changes have made us elaborate more budget impact assessments this year," Vacaroiu told The Diplomat-Bucharest. "What happens in the economy, globally or locally, affects a company's plans more than anyone can think. We have been through a period of instability, based on rising raw material costs or even limited availability of those materials."
According to its CEO, Policolor's evolution is directly related to the ability to innovate new products, top quality recipes at optimal costs, offering a portfolio of products that cover a wide range of high demand, from general to niche products, from DIY to professional solutions.

"We have been trying to grow the area of automotive and industrial products, both by developing our own solutions and by partnering with major global manufacturers so that our business customers can receive from Policolor complete solutions for their needs," said Vacaroiu. "2017 is a year of about seven per cent growth on a consolidated level, but it is also a year of impressive portfolio development. Next year we are planning sustainable growth alongside the development of new innovative products. Policolor is the market leader in terms of product availability nationwide in 2017. We have the largest market share in the automotive sector while DIY products have revolutionized the local market of washable paints. The strategy that unites all these results targets the leadership in the field, focusing on our clients."

Policolor will invest six million Euro for a new plant with its own warehouses to ensure faster production and distribution of their solutions. The company also invested 1.5 million Euro for R&D department this year.

"We see a slowdown in the sales of the public sector projects such as thermal insulation for the entire paint and varnish industry and a slight increase in residential and DIY products," said Vacaroiu. "The company registered a turnover of 26.7 million Euro in Romania at the end of 2016 and the expectations for 2017 are up to 29 million Euro. At the end of this year we estimate seven million Euro EBITDA at the group level, including the revenues from the Theodor Pallady land transaction.

Currently, the Policolor Orgachim Group has more than 1,000 employees and they want to achieve a more effective ratio between the number of staff and the new production technologies implemented for the benefit of the clients, namely the quality of products and services.

"Over the years, we have sought to find the optimal formula between the experience gained by older employees and the dynamism of young people willing to put into practice their acquired knowledge and their professional activity rhythm. We do this by both calibrating the number of employees and by allocating the time and resources required for continuing training," concluded Vacaroiu.

Tester Group rebrands and expects to close the year with a turnover of 53 million Euro

Tester Group, operating in the automotive, real estate, manufacturing, retail, insurance and hospitality industries, has implemented a rebranding process to align the company′s identity with its services and business philosophy.

The group, founded in 1993 by entrepreneur Bogdan Pitigoi, expects to end the year with a turnover worth 53 million Euro, an increase of 18 per cent over the previous year. Casa Auto (Auto House), the car division of the group, is the dealer with the most brands represented in Romania. The Group owns the largest logistics park in Moldova and is one of the largest office owners in Iasi.

The rebranding aims to ensure a unitary identity for the group and its major divisions, both at the level of employees as well as customers and partners. It also aims to express and update the image of the group companies with the Tester Group personality.

"Tester Group is a mature but growing business," said Bogdan Pitigoi, founder and chairman of the Group. "We have learned to do things the right way, but we still have the dynamics of an entrepreneurial business. We operate just like a multinational company, but we have the involvement of a family business. We have adapted to the times but in spirit we are the same: doing things with pleasure and finding our satisfaction in that of our clients, colleagues and all those with whom we interact. This rebranding is not a reinvention of the Tester Group, it is the synthesis of what we are and what we have always been."

Through Casa Auto, Tester Group is a leading automotive dealer in Iasi, having the right to represent ten auto brands – Mercedes, Dacia, Land Rover, Jaguar, Hyundai, Mitsubishi, Nissan, Opel, Honda and Mazda. The group also owns the largest car fleet in Moldova. Casa Auto provides a complementary and integrated service ecosystem that covers insurance, damage centre, service, assistance and towing and rent-a-car. In 2017, Casa Auto launched Caby, the first fully electric car-sharing service in Romania.

Transgaz posts 21 per cent profit increase to 433.5 million RON in first nine months

Transgaz, the operator of Romania's national transport system for natural gas has increased its net profit by 21 percent year-on-year in the first nine months of 2017, to 433.5 million RON.
The financial results of the third semester however show that profit decreased by 57 per cent, to 33 million RON. Transgaz increased its turnover by 26.2 per cent year-on-year in the first semester to 1.03 billion RON. The business increase was due to the increase in the volume of gas transported - up 16.8 per cent in the first semester - to 6.86 billion cubic meters.

Recently, the European Investment Bank (EIB) announced a loan of 50 million Euro to Transgaz, to finance the construction of a new European gas transmission corridor to increase security of the gas supply and to reduce energy dependence by making it possible to diversify gas supply routes and sources.

This operation is backed by the European Fund for Strategic Investments (EFSI) under the Investment Plan for Europe (IPE). The new pipeline represents the first phase of the Romanian section of the gas pipeline from Bulgaria to Austria via Romania and Hungary (BRUA). The Transgaz-Brua Gas Interconnection project, estimated to cost over 500 million Euro, has been awarded a grant of 179 million Euro by the European Commission under the Connecting Europe Facility (CEF). This facility, established in 2013, is a key EU funding instrument to promote growth, jobs and competitiveness.
The EIB funds will finance the construction of a 478-km natural gas transmission pipeline between Podisor and Recas and the construction of three compressor stations located in Podisor, Bibesti and Jupa in Romania.

EIB vice president Andrew McDowell said: "This strategic project implemented under the Investment Plan for Europe will interconnect the Southeast and Central European gas transmission infrastructures and eliminate the dependence of South-eastern European countries on a single gas supplier. It will improve the security of supply for these countries, opening up access to potentially cheaper gas, and delivering improved price convergence and transparency. It will have a significant impact on employment, creating some 4,000 to 5,000 jobs during the construction phase and 300 to 400 positions during the pipeline's operation."

Transgaz is controlled by the Romanian state via the Ministry of Economy with over 58 per cent of shares.

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