French investments at a glance: Interest still high

France, Romania's fourth largest foreign direct investor, has been around since the early 1990s, with flagship names the likes of Societe Generale or Groupe Renault taking the lion's share when it comes to capitalising on the country's attractiveness. Still, there still is room to grow, despite political decisions which could worry any solid business suitor.

2018-07-03 09:58:29

France and Romania became business partners in the early 1990s and since then the bonds have been built on trust and mutual commitment. Over 2,300 French companies are present in Romania, employing 94,000 people and generating a turnover of 13 billion Euro (eight per cent of Romania's GDP).

France ranks fourth as an FDI stock country of origin, reaching 4.2 billion Euro to date, with a bilateral trade amounting to 7.8 billion Euro in 2017 (+4.4 per cent compared to 2016).
Romania's workforce has attractive skills and a solid foreign languages background. The country also benefits from low energy prices compared to the EU average and has the seventh largest population within the EU, generating opportunities for companies. After a strong GDP growth in 2018 (6.9 per cent), the economy should probably decelerate this year to around five per cent according to the European Commission and IMF forecasts.

Michele Ramis, French Ambassador to Romania: "French enterprises had to absorb important legislative changes in a short period of time"

"Household consumption should remain the main growth driver this year, albeit at a slower pace, due to a less accommodating fiscal policy, to higher inflation (5.2 per cent year-on-year in April) and to the tightening of the monetary policy (three interest rates hikes)," Michele Ramis, French ambassador to Romania, told The Diplomat - Bucharest.

"This economic slowdown seems to be confirmed by the Q1 flash estimate GDP growth, which is flat compared to Q4 2017," she added. "As a result, the main risk is that public deficit may exceed the three per cent of GDP threshold in 2018, according to EC forecast. There are also concerns about the widening of the current account deficit, as strong domestic demand raises imports and weighs on the trade balance even if exports should perform well and continue to gain market share. Romanian authorities have declared their intention to improve the absorption of EU funds, which could be a strong boost to the country's potential growth."

The French ambassador went on to say that the fiscal reform implemented in 2017 impacted the most the companies and prompted them to stress once again the necessity of predictability and public consultations.

"French enterprises had to absorb important changes in a short period of time," she said. "We also had some concerns regarding legislative initiatives in the pharmaceutical and banking sectors. On the positive side, the Government has adopted early May a memorandum to adapt its PPP legislation to EU standards. Should some amendments be made (duration of pledge of receivables in line with the financing contracts and possibility for private equity funds to participate), this text could raise even more interest among French companies in the Romanian market."

Thanks to strong economic outlook both in Romania and in the EU, French companies performed well in 2017, Ramis added. "On the local market, the retail and wholesale sectors recorded a solid growth due to the sharp increase of wages (more than12 per cent). The development pace of the IT sector in 2018 will create good opportunities for French companies. The agricultural sector took advantage of the historical harvest last year and, even if it is always hard to predict weather conditions, expects a positive development. Finally, the industrial field should benefit from both local market (although to a lower extent compared to last year) and external market."

Dacia generates almost 20 per cent of Groupe Renault's global sales

In the first quarter of this year, the Dacia brand, owned by French Groupe Renault, sold 171,577 vehicles, a 13.8 per cent increase compared to the same period of 2017. Dacia's market share in the group also increased, from 17 to 18.5 per cent.

Global registrations of cars and commercial vehicles of Groupe Renault had a 4.8 per cent increase in the first quarter, on a market that grows at a rate of 2.7 per cent. The group's market share is four per cent (+ 0.1 per cent from 2017). The Renault and Dacia brands each set a new sales record for the first quarter this year.

In Europe, the group's registrations have increased by 2.8 per cent on a market that grows at a rate of 0.6 per cent, due to the success of the new Duster and Koleos models. Outside Europe, the group's sales have increased by 22.1 per cent in Eurasia and 21.3 per cent in Central and South America. Sales have slowed down in regions such as Africa-Middle East-India (-5.3 per cent) and Asia-Pacific (-18.6 per cent).

According to Renault officials, it is estimated that in 2018 the global market will advance by 2.5 per cent, while the European market will grow by one per cent, Russia by ten per cent, Brazil and China by five per cent, and India by six per cent.

In this context, Groupe Renault is sticking to its objective of growing turnover, maintaining the group's operational margin at over six per cent and generating a positive operational cash-flow in the auto activity.

BRD boasts 28 per cent hike in Q1 profit over growth in lending/ deposits

BRD - Groupe Societe Generale, the third largest bank in Romania by assets, recorded a 28 per cent increase in net profit, to around 84 million Euro in the first quarter of 2018 versus the same period of last year, according to a statement submitted to the Bucharest Stock Exchange (BSE).
The banking income was up by 13.2 per cent, to 145 million Euro in the same period, while BRD's assets were up by 8.7 per cent to roughly 11.5 billion Euro.

At group level, including BRD - Groupe Societe Generale, BRD Sogelease, BRD Finance IFS and BRD Asset Management, the net profit grew by 26 per cent, to 88.7 million Euro, on the back of an increase in revenues and the reduction of costs.

"The first quarter of 2018 was very dynamic, which is seen in the continuous growth of loans, deposits and trading volumes and, together with the favourable interest rate environment, led to a two-digit growth of the net banking income," said Francois Bloch, CEO of BRD - Groupe Societe Generale.
The net interest income was up 14.2 per cent, while the net income from commissions rose by 5.2 per cent.

The rate of non-performing loans stood at 6.2 per cent at the end of March 2018 compared to 10.3 per cent in the same period of last year. BRD said it has 1.44 million retail customers using its internet and mobile banking services, out of 2.18 million retail customers in total.

ALD Automotive to focus on digitalisation and electric vehicles

French companies are among the earliest investors on the local market, being present on all sectors and having an important early footprint in fields such as industry, financial services and retail, said Frederic Banco, CEO of ALD Automotive.

"As French investors, I believe that we are close to Romania not only through our mutual business interests, but also through our shared values and professional culture," he told The Diplomat-Bucharest. "And this is also visible on the larger scale, if we look at the commercial balance between the two countries. In the first half of 2017, for example, the exports from Romania to France capitalized 1.8 billion Euro, while imports were at an almost equal level, 1.65 billion Euro. The auto industry plays the most important role in the exports sector, Romania being the fourth largest car maker in the region, with almost 50 per cent worth of exports value according to the National Statistics Institute (INS). The evolution is clearly positive, and the local market shows potential for even more growth. One more reason for the French investors to see Romania as an important market for business."

When it comes to its activity sector, Banco feels the operational leasing market will continue its evolution. "We are counselling local companies over the best instruments they can choose for developing and managing their mobility needs," he said. "The results can be seen in the dynamic of the auto market: in 2017, the operational leasing companies have registered more than 13.000 vehicles in Romania, which represent 15 per cent of the total newly registered vehicles. According to the Operational Leasing Companies Association, the market has increased by 11 per cent compared to 2016."

According to its CEO, ALD Automotive's activity has been in line with its expectations: "We've maintained a positive evolution on the market. The SMEs proved to be one of the most successful sectors and we have expanded our list of clients in this area. For 2018 we estimate that the general evolution we have seen so far will continue and will bring demand for new solutions we brought on the market last year, such as ALD Electric."

Launched last year, ALD Electric, an operational leasing product designed especially for green fleets.
"It is the first operational leasing product in Romania that offers full-services for electric and hybrid vehicles," Banco says. "For the clients that opt for eco-friendly fleets we also provide charging stations, that we can install at the company's headquarters, and the cost is included in the monthly installment. ALD Electric was launched under the ALD Bluefleet umbrella, our programme designed for cutting down CO2 emissions, as well as the fuel consumption. Besides the opportunity of using hybrid and electrical vehicles, our clients can also benefit from counselling in eco-friendly auto policies."

He went to say that ALD wants to focus on digitalisation and electric vehicles. "First, digitalisation is clearly one of the trends of the moment," said Banco. "Fleet managers and drivers expect to know everything about their vehicles at any given time, therefore we are focusing on offering them the best digital solutions. We have the My ALD portal, that provides live data for the managers, as well as the mobile app, that helps drivers contact the nearest suppliers or directs them to auto services, when the vehicles are near maintenance dates. The second important phenomenon visible lately also in Romania is the environmental care. The demand for green fleets is steadily growing, while the popularity of hybrid and electric vehicles is on the rise. ALD Automotive is a promoter of the concept of greening the fleets while actively supporting alternative transport options."

ALD Automotive will also focus on maintaining and expanding its customer portfolio, both in the SMEs and corporate segment - which represents most clients.

"We are seeing an increase of interest from the SMEs regarding the full-service operational leasing solutions, because they are acknowledging the benefits of this product," Banco added. "They are receiving solutions customized to their specific needs which capitalise afterwards in money being saved with the auto fleets, that are invested in the business development. The White Label is one of the products especially designed for the SMEs and we will be continuing to develop it, in order to partner with more car makers. At the same time, another of our priorities is to expand the services we provide, in order to suit every business. Digitalisation and eco mobility solutions are the future in operational leasing and ALD Automotive is already offering products from these areas. Through our collaboration with Titi Aur Academy we are providing our clients defensive and eco driving lessons, that are helping them develop safer driving skills, resulting in less unpleasant incidents and also lower costs for company fleets."

According to Banco, the market is definitely growing, so the companies in the industry are working constantly on diversifying their portfolio of services and facilities.

"We have to offer the best mobility solutions as well as unique business experiences in terms of financial flexibility," he explained. "The competition is strong, and this is driven by the goal to offer clients professionalism and quality services. The international mobility trends started to be adopted, therefore the leasing companies must work harder in order to integrate them in their offers as quickly as possible. The White Label product remains a priority for us and we intend to expand the brand portfolio, in order to help the SMEs choose the perfect alternative for their business specific. At the same level are the green fleets and we see a lot of good news on the infrastructure projects lately, with big energy companies investing in extending their car fleets."

Arval Romania to increase its local market share

Romania is a developing market with many opportunities and a proper environment for French investors to grow and to expand a business network, said Dan Boiangiu, CEO of Arval Romania.

"If an entity mainly tackles the business to business sector, a company has to deliver trustworthy services or products to its collaborators in order to be further recommended and to benefit from support on the markets in times of need," he told The Diplomat-Bucharest. "An important factor of local retention is the very skilled human capital we have recruited and trained to ensure excellence in our service delivery to market. And by that we not only mean our employees, but also our collaborators, from the 550-network partners that share the same attributes. We must consider that activating on an emergent market also brings many challenges, such as labour market volatility and also price focus over quality. However, these challenges are tackled every day and can easily be transformed in an opportunity. In our case, the broad investment approach is shared throughout the BNP Paribas Group, since we are jointly covering many activities in Romania – BNP Paribas Corporate and Investment Banking, Cetelem - for consumer finance, BNP Paribas Leasing Solutions, Cardiff - for insurance and BNP Paribas Real Estate."

Boiangiu feels that Arval is on a global ascending trend. "The network keeps expanding, as is the international fleet," he added. "Therefore, we expect to end 2018 on a positive trend, with good numbers to report and to celebrate. The Romanian economic environment, as we feel it in the first part of 2018, moves in the same direction. In terms of growth stimulators, we have the ongoing increase of the automotive industry and this symbiosis is directly linked with our scope of work. Also, our customers seem to take advantage of the economic growth, stimulated by consumption and exports, increasing their needs for new vehicles. Public and private investment seems to re-gain a proper focus, thus accelerating the potential for the future."

According to Arval's CEO, the most important legislative change for the company is the GDPR update: "It is a double logistic challenge - first and foremost bringing ourselves fully compliant to its provisions as well as providing the necessary support and assistance to our clients. We are always focused on doing business the right way, therefore our legal departments work thoroughly on meeting all the legal requirements effective on the local markets. We focus on implementing and adapting to each change, without affecting any of our collaborators' activity."

Another legislative change that had a positive impact on Arval's activity was the ‘Rabla Plus' program, whereby it could stimulate the demand for the plug-in hybrid and fully electric vehicles.

"Arval was the first operational leasing company to obtain the approval for this programme and we have already used the entire expertise to support our clients become greener in their mobility," said Boiangiu. "But one of the most significant legislative changes is the IFRS 16 accounting norms that will enter in force in January 2019. By this new standard, the companies reporting their financial results under IFRS, will have to record the operational leasing contracts as a ‘right of use' in their balance sheets and depreciate them. This is a big change, international companies being able to benefit from all the advantages of operational leasing, but now without any prejudice to their EBITDA. Arval is already advising its concerned customers on how to tackle this change and we have concluded that all the great benefits of the operational leasing are preserved, despite the complexity."

In Romania Arval continued its growth in 2017, in line with its forecasts.

"The local growth levers were the solid existing customer portfolio that generated new orders and our expert advice capabilities that generated new clients, most of them being new to operational leasing," Boiangiu explained. "The latter is one of our main market differentiators, allowing us to bring new companies into this outsourcing experience, allowing them to focus on their core business and making sure they experience the best mobility for their employees."

In 2018 Arval Romania will focus on service quality and expert advice, with a significant digital component on their customers and drivers interface. "These efforts should reinforce the solid growth we project for 2018, already confirmed by the very good figures of our first quarter," said Boiangiu.
He went on to say that Arval will invest in their fleet growth, with over 50 million Euro slated for investment in 2018: "Apart from that, we have plenty of investments in our network and in our systems, mostly in transforming our drivers and customers experience, by digitalising our interactions and increasing our operational efficiency. Moreover, we invest in new products and services, enabled by these technological investments. Two examples are the recently launched Arval Active Link and Arval Integral Fleet. The first product, Arval Active Link, is a telematics solution enabling Arval to proactively advise its customers about fleet costs savings, based on the driving patterns and driving behaviour of their employees, in full respect of their privacy and data protection. Arval Integral Fleet is also a digital service, enabling our customers to consolidate their fleet data in a single reporting tool, even if the fleet is shared with a different provider or it is owned. This tool enables strategic decision making for the fleet topic, offering a simulator and a cost control tool."

Arval wants to increase its local and global market-share, but also reducing the CO2 emissions and increasing the sustainability of its customers' mobility.

"This will push towards increasing the use of hybrid and electric cars within the leased fleets and also act as an overall consultant for our customers in order to identify what categories and what types of usages are most suitable for these new energies. This consulting approach is called S.M.a.R.T. (Sustainable Mobility and Responsibility Targets) and is a complete program allowing us to correctly size the mobility needs and analyse the shift towards green energies and alternative mobility solutions," Boiangiu explained. "Apart from this, we are also keen on our people, the local teams that make everything possible. They have not only responded to the company's standards, but also exceeded them and raised the stake for the years to come. Therefore, we are implementing different internal human resources programmes to reward their work. Moreover, we also involve ourselves in supporting different causes and we are honoured to be part of many wonderful CSR projects."

He went on to say every challenge is an opportunity for Arval: "We deliver mainly corporate high-scale services; however, we have also produced a shift in our local strategy starting last year and we steered our services towards smaller companies, with tailor-made needs. For example, if you run an SME, we are here to meet your business needs in terms of mobility. Getting to serve the local mid companies is clearly a challenge, as we must adapt the way we structure our approach. Access to operational leasing or to full fleet outsourcing may be a big step forward for this type of clients and we need to carefully structure our approach to fit these expectations at our high-quality service standards."

The main development strategy Arval focuses on is the consultative approach. Arval's CEO added: "In a price-driven market, especially when we discuss about the mid-sized and even small companies, we need to move the focus towards the added-value services that can really bring the real savings. We are a long-term fleet consultant looking after the efficiency of our customer's mobility. Sure, it is important to have a very good price while signing an operational leasing contract. However, there are external factors increasing the total cost of ownership (TCO) of our customers' fleets by five per cent every year. By being a long-term consultant, we convince our customers that the strategic choices and fleet decisions we will take together during the contract duration will generate cost savings to compensate those natural increases and will lead to to the motivation of their employees, to improving the public image of their company and, ultimately, their business."

Orange Romania's turnover on the up in Q1 2018

Orange Romania has announced that its Q1 2018 turnover stood at 270 million Euro, an 11.1 per cent growth compared to the same period of last year.

According to the company's statement, the growth was mainly supported by the positive evolution of the use of mobile data, the sales of mobile devices and of converging services. On March 31, 2018, Orange Romania was offering mobile, landline and TV services for 10,449,000 clients.
At the end of March, over 3.3 million Orange clients were using the Orange 4G services, almost 40 per cent more than in the first quarter of 2017, and the 4G network was covering 93.4 per cent of the country's population.

"The same growth trend is seen for mobile data traffic, which grew by 85 per cent compared to Q1 2017, while the 4G traffic had a threefold increase," the company release read. "This evolution is sustained by smartphone sales and by continuous investments in the 4G and 4G+ networks, which ensure the superior quality of internet and calls. For example, starting in March, our clients have had access to the performance of the 4G+ network, with speeds of up to 500Mbps, in 95 cities in Romania."
The sales generated by connected devices had a 70 per cent growth in Q1, and a special interest can be noticed for connected home devices, where sales were five times higher than in the first quarter of 2017.

Orange Home TV had 418,000 clients at the end of March, having had a 22 per cent growth from Q1 2017, while fixed broadband services had over 210,000 subscribers, a 65 per cent increase. Orange's main competitors in Romania are Vodafone, Telekom and Digi Mobil.

Sanofi Romania to develop its leading market position in the pharmaceutical fields

French investors continue to perceive Romania as a country with a quite important local demand and relevant potential of growth, said Pascal Robin, Country Chair Sanofi Romania & Moldova. "There are still important gaps and unmet needs in different areas and industries, triggering various opportunities to invest," he told The Diplomat-Bucharest.

"When considering Romania as a land for investing, I would mention two favourable aspects - the lower overall costs compared to West-European countries and the high diversified and highly skilled workforce. Unfortunately, this important potential might be limited or drawn back by the current instability and unpredictability of the political, economic and legislative environments. The lack of long term vision on country evolution is a risk to be closely managed by any foreign investors, including the French ones."
He went on to say that the current contrasting dynamics of the country with the highest GDP growth in UE in 2017 (close to seven per cent) but with warning signals of increasing public deficit, inflation, unfavourable evolution of exchange rates, and the sharpening tension in recruitment, illustrates clearly that Romania is currently not in a sustainable trend.

According to Sanofi's representative, Romania still has some growth potential, but most probably not at the same level as last year: "Persistent lack of clear perspectives regarding legislative, economic/fiscal environments tends to make investments more difficult. Considering the healthcare environment, there are unfortunately no major legislative changes; status quo is mainly dominating so far."

Robin went on to say that there are various legislation projects under debate – such as the pricing methodology for pharmaceuticals, the vaccination law, the reform of the clawback tax: "These are key for both unlocking access of drugs to patients, and also for preserving the patients' right to fair medical treatment," he explained: "Let us take the example of the clawback tax that reached 24 per cent for Q1 2018 and is expected to reach an unprecedented 30 per cent by the end of the year. This is simply not sustainable and will trigger discontinuation of some drugs' distribution in the country. A reform is hence urgently required to preserve the access of existing drugs for the Romanian patients.

"This example is just a visible part of the iceberg while considering the reforms needed for the healthcare ecosystem. The healthcare sector is currently underfinanced, it stands at one third of the EU average, and requires an ambitious investments programme on the long term, with clear priorities, to cope with ambitious goals and expectations in developing infrastructure, healthcare, human resources and access to innovative pharmaceuticals and technologies."

Despite the highly unstable political scenario triggering various economic/fiscal changes and generating an unpredictable business environment, Sanofi managed to overperform the market growth and consolidate its position and succeeded in reaching its objectives in all five business units: diabetes and cardiovascular, vaccines, specialty care (rare diseases, multiple sclerosis and oncology), consumer health care and general medicines.

"For 2018, we aim to further develop our leadership position in the pharmaceutical field, continuing to bring benefits to both Romanian patients and society," said Robin. "We have one of the most diversified offers in the local pharma market, covering major healthcare areas within the entire healthcare journey – from prevention, to cure and well-being. So, we will keep building on this strong platform, planning to launch several new innovative medicines in diabetes, rare diseases, oncology or hypercholesterolemia, to best address local unmet needs. Another milestone for our activity in 2018 will be the carving-out of Zentiva's business by the end of the year, as part of the Sanofi global divestment plan of the European generic business."

According to Sanofi Romania′s Country Chair, Romania still has huge catch-ups in terms of healthcare standards (underfinanced system leading to numerous unmet medical needs).

"There are important opportunities for us to fulfil those gaps as a healthcare journey partner," he said. Driven by our mission, Empowering Life, we will keep our focus on bringing science and innovation closer to the Romanian patients and medical communities. The biggest challenge will be in finding the best ways in ensuring sustainable operations into the country that is facing structural constraints: pricing limitation, clawback tax burden, lack of visibility and stability of legislation etc."

DPD Romania invests in two new logistic centres

Local courier company DPD Romania estimates a turnover increase by 20 per cent in 2018 and over 11 million packages delivered during the year.

For 2018 the company will invest around one million Euro in several areas of the business, out of which the opening of two logistic centres, in Arad and Craiova.
The company invested 1.5 million Euro in 2017 in the expansion of logistic capacity and software, on a turnover of 26.8 million Euro.

According to the company's representatives in 2017, the share of national deliveries was over 75 per cent of the overall.
The top areas where most of the packages were sent last year in Romania was led by the Bucharest - Ilfov area, with 27 per cent of the total, followed by Cluj county, with almost nine per cent, Timis county - eight per cent, Constanta -seven per cent and Iasi, with six per cent.

Regarding the international deliveries made by the DPD couriers in 2017, deliveries went mostly to Hungary (26 per cent), Germany (22 per cent), Italy (ten per cent) and Bulgaria (nine per cent).
The main DPD business growth increase in 2017 was the e-commerce and the industries that generated most of the deliveries were fashion, telecom, IT&C, electro, beauty and home&deco. The share of deliveries during the entire year was steady, 48.5 per cent of the packages were sent by the B2B sector and 51.5 per cent by the B2C segment.

"For the current year we estimate an increase by 20 per cent. We'll also continue the logistic infrastructure development in Romania through the investments in the new centres, at Arad and Craiova," says Lucian Iliescu, CEO DPD Romania.

According to DPD Romania, the investments will allow a higher flow in the new services development and will improve the delivery operational quality.