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SEE TOP 100

SEE in 2010 – a mixed picture

In a year when economic activity and consumption levels in Southeast Europe (SEE) showed some signs of recovery, the performance indicators of the companies in our annual SEE TOP 100 ranking paint a mixed picture.

The highlights of this year’s SEE TOP 100, which is the fourth edition of the ranking, include an in-depth look at oil production and consumption in SEE, the state of the pharmaceuticals market, the business of fuel retailers and the renewables versus nuclear energy debate and how it is playing out in the region.

We have added a lot of new content, including profiles of some of the region’s most high-powered executives that offer a behind-the-scenes look at 2010’s top corporate success stories.

This year’s edition also features an exciting new chapter dedicated to sustainable development, an area that will come into an even sharper focus as concerns mount about global overpopulation and resource depletion. Relevant issues are explored in a number of interviews and exclusive analyses.

We also talk to the CEOs of the biggest stock exchanges in SEE about market challenges and opportunities.

Our strategic partner, A.T. Kearney, provides an insightful analysis of M&A Editor-in-chief activity in the region while the current edition’s exclusive content partners from Euromonitor International offer thought-provoking profiles of the 11 SEE economies.

Disclaimer: SeeNews is not liable for the content of the published advertisements. Full liability rests with the advertisers.

Editor-in-chief: Raina Lazarova •Senior editors: Valentina Gerasimova, Georgi Georgiev • Editors: Nevena Krasteva, Doinita Dolapchieva • Analysts: Ilko Mitkovski, Valentin Stamov, Tsvetan Ivanov • Reporters: Dessislava Dimitrova, Iliana-Carmen Ionescu, Ina Ignatova, Iskra Pavlova, Kire Nedelkovski, Kristina Belkina, Sabina Kotova, Svetozara Davidkova, Valentina Dimitrievska • Marketing & sales: Adriana Popova, Vladislav Ognyanov, Antonia Petkova, Marieta Zhekova, Penka Angelova • Design & prepress: Stanislav Botev • Print: Alliance Print

SeeNews, SEE TOP 100 and their logos are registered trademarks of AII Data Processing Ltd. All rights reserved. Re-publication or re-distribution of SeeNews content, including by framing, is strictly prohibited without the prior written consent of SeeNews. Contact us: 64 Kiril i Metodii Str, 1202 Sofia, Bulgaria, tel: +359 2 8012 609/610, email: [email protected] SEE TOP 100

Table of contents

Chapter 1 p. 3 SEE TOP 100 Companies

Chapter 2 p. 16 SEE TOP 100 Banks Chapter 3 p. 26 SEE TOP 100 Insurers

Chapter 4 p. 32 SEE TOP 100 per Capita

Chapter 5 p. 34 SEE TOP Industries

Chapter 6 p. 49 SEE Sustainability Chapter 7 p. 74 SEE Corporate Management

Chapter 8 p. 96 SEE Country Profiles

2 Sponsored by SEE TOP 100 Companies

Pushing off the bottom Lowered costs, prudent spending key for the success of SEE companies

By Raina Lazarova

The telltale signs of an economic recovery of the SEE economies. According in SEE, reporting an annual growth of recovery in Southeast Europe (SEE) were to the International Monetary Fund, five 23.14% in total revenue to 3.291 billion visible in both the top- and bottom-lines out of the seven countries represented in euro in 2010. The company turned to a of the companies in the SEE TOP 100 SEE TOP 100 recorded a positive annual net profit of 239.3 million euro in 2010 ranking. The total revenue of the biggest growth in gross domestic product (GDP) from a net loss of 86.4 million euro a year companies in SEE increased by 15% year- in 2010 with Croatia and Romania as earlier, mainly as a result of increased on-year to 87.4 billion euro in 2010 after the only economies to experience a hydrocarbon production from North shrinking by 14% in 2009. The combined contraction. GDP growth rates were Adriatic offshore fields and Syria. net profit of the top 100 firms jumped much more modest, between 0.2% and by 105% on the year to 2.3 billion euro 1.8%, compared to the results of the Bulgaria’s LUKOIL Neftochim Burgas in 2010, driven by the pursuit of cost- SEE TOP 100 companies. In contrast, in was in a good position to grow its revenue efficiency and the cautious spending 2009 the GDP of all countries displayed by 29% year-on-year to 2.794 billion euro mood among companies of all sectors. negative growth values. in 2010, slashing its net loss by one- third to 61.6 million euro. Bulgaria’s No change at the top Despite the positive signs, the only refinery covers about 80% of the performance of SEE businesses in 2010 The first five companies in the SEE domestic motor fuel demand and exports was far from their pre-crisis levels. In TOP 100 ranking retained their leading about a third of its output, making it one 2008 the companies in the SEE TOP positions from last year with Romanian of the country’s major exporters. 100 ranking boasted a combined revenue oil and gas group OMV Petrom of 95.7 billion euro and a net profit of remaining the unchallenged number Renault-owned Dacia kept its fourth 3.048 billion euro. A lot of businesses fell one, followed by Croatian oil and position in the SEE TOP 100 ranking into a slump in 2009 in the wake of the gas group INA, Bulgarian oil refinery with a total revenue of 2.709 billion global economic meltdown. LUKOIL Neftochim Burgas, Romania euro in 2010, up by 27.81% year-on- car manufacturer Dacia and Slovenian year, on the back of a 12% growth in Combined revenue/net profit of the SEE energy company Petrol. worldwide car sales. Net profit came in TOP 100 companies at 70 million euro. Outside Romania, OMV Petrom ended the year with a Dacia has production units in seven

100 000 Revenue Net profit 10 000 total revenue of 3.627 billion euro, up countries, including Morocco, Russia by 8.5% year-on-year. Net profit came in and Colombia. 80 000 8 000 at 420 million euro, up by almost 30% 60 000 6 000 on the year. OMV Petrom has said this Slovenia’s Petrol took fifth place with a 40 000 4 000 result was due to favourable crude oil total revenue of 2.482 billion euro, up by prices and the completion of a series of nearly 20%. The group sold 2.35 million 20 000 2 000 strategic projects. OMV Petrom, in which tonnes of oil products in 2010, up 5.0%

in millions of euro in millions 0 0 the Romanian government still owns from the previous year. 2010 2009 2008 20.64% after recently failing to sell half of its stake, ended the first half of 2011 The sixth and seventh spots in SEE Eighty companies in the SEE TOP 100 with a consolidated growth in revenue TOP 100 went to Romania’s Rompetrol ranking recorded growth in total revenue of 23% year-on-year to 10.271 billion lei Rafinare, the oil refining unit of Dutch- in 2010 compared to 2009, while 74 of (2.426 billion euro) after benefiting from based Rompetrol Group, which climbed all entrants ended the year in the black increased production levels and resurgent two positions, and the Bulgarian unit versus 71 a year earlier. fuel and gas demand. of Hamburg-based copper producer Aurubis, which gained seven places. The improvement of the companies’ Croatia’s INA kept its second place in The copper smelter, based in Pirdop, financial health reflects the overall the ranking of the biggest companies in western Bulgaria, reported a total

3 SEE TOP 100 Companies

revenue of 1.952 billion euro in 2010, sectors with 16 and 13 representatives, Newcomers club up by 43% from the previous year on respectively. The metals and food/ The new entries in the SEE TOP 100 the back of rising copper prices and drinks/tobacco industries had five ranking were altogether 16, including no improving demand. companies in SEE TOP 100 each, closely less than 11 companies from Romania. followed by the transportation and motor The average revenue growth of the Oil and gas holds a big lead vehicle sectors. newcomers was just over 80% year-on- Romanian presence spreads year and the biggest growth rates were Companies from 15 industries were registered by companies in the oil and represented in the SEE TOP 100 ranking Southeast Europe’s most populous gas sector, up to 250% in the case of for 2010, with the oil and gas sector country, Romania, not only continued Romania’s OMV Petrom Gas. unsurprisingly holding a significant to prevail in the SEE TOP 100 ranking lead with a collective revenue of 32.2 but also strengthened its presence in the billion euro, up by 25%, and a total of 2010 edition where it had 47 entrants, six 27 entrants, three more compared to last more than a year earlier. The combined Seventeen companies in SEE TOP year. The companies operating in the oil revenue of the largest companies in 100 advanced by five or more spots in and gas sector turned to a combined net Romania stood at 40 billion euro or the revenue ranking and 11 of them profit of 855.7 million euro last year from 46% of the total revenue of all SEE climbed by 10 or more positions in 2010 a combined loss of 156.3 million euro in TOP 100 companies. Bulgaria came compared to 2009. Among the biggest 2009. According to industry officials, in second with 14 companies in 2010, advancers are Croatia’s Hrvatski Telekom last year’s performance was helped by down from 16 a year earlier. The third (up to 20th from 35th) which merged higher oil prices, cost cuts and improved spot is shared by Croatia and Slovenia, its mobile and fixed line operations operational efficiency. each with 13 representatives, followed in 2010, Romania’s OMV Petrom by Serbia with 11, and Macedonia and Marketing (up to 22nd from 73rd), steel Eighteen companies operating in SEE’s Bosnia and Herzegovina, each with one producer U.S. Steel Serbia (up to 32nd second biggest industry, the electricity company. Albania, Kosovo, Moldova and from 52nd), Hungarian-owned MOL sector, entered the 2010 edition of the Montenegro were once again shut out of Romania Petroleum Products (up to 48th SEE TOP 100 ranking, followed by the the SEE TOP 100 ranking. from 70th) and Romanian aluminium wholesale/retail and telecommunications producer Alro (up to 70th from 92nd).

Breakdown of the SEE TOP 100 industries in 2010 Pharmaceuticals 1 536 Transportation Diversified holdings 2 277 950.4

Other 2 608 Petroleum/Natural gas Food/Drinks/Tobacco 32 210 2 921

Automobiles 4 661 2 2 27 4 5

The outer circle indicates Metals 5 4 855 total revenue by industry 3 (in millions of euro) 5

Telecommunications 9 739 13

16 The inner circle indicates the number of companies by Electricity industry 12 891

Wholesale/Retail 12 803 4 SEE TOP 100 Companies

Moving toward higher value-added economies

Methodology SEE TOP 100 ranks the biggest companies By Branko Zibret, A.T. Kearney in Southeast Europe by total revenue for the fiscal year ended December 31, 2010. Both 2010 Every year, the SEE TOP 100 rankings performance by two indicators, annual figures and 2009 comparative counterparts are show the performance of non-financial sales growth and profitability in 2010, sourced from 2010 annual non-consolidated companies, banks, and insurers. Beyond the real winners are Croatian telecoms reports. the actual results, it is essential to look at company Hrvatski Telekom with key trends and messages. Are there any excellent results and the highest growth The SEE TOP 100 ranking covers non-financial fundamental changes and what can we which is partly due to the internal companies registered in Albania, Bosnia and expect in the future? consolidation of mobile and fixed-line Herzegovina, Bulgaria, Croatia, Macedonia, ferent sectors like retail and wholesale operations, followed by Krka, Telekom Moldova, Montenegro, Romania, Serbia and trade, telecommunications and banking. Srbije, Romgaz, Naftna Industrija Srbije, Slovenia. Banks, investment intermediaries, insurers and real estate investment trusts There are different scenarios that could OMV Petrom, Nokia Romania and (REITs) are excluded from the ranking as total unfold. How would SEE companies Aurubis Bulgaria. revenue is not an accurate indicator of their and financial institutions manage the performance. We have compiled separate challenges this time around? What are As already mentioned, the SEE rankings of the region’s largest 100 banks and the critical issues? economies lack value added and high- insurers. Holding companies, on the other tech driven companies with scale. The hand, are represented in the ranking by their Four industrial sectors traditionally countries in the region need economic subsidiaries. dominate across SEE - oil and gas, development programmes to shift their electricity, retail and wholesale, and domestic businesses and therefore All data is sourced from national commercial telecommunications, followed by auto economies towards higher value added registers, stock exchanges, government and corporate websites, industry regulators and manufacturing and metals. What is products and services. This is the only companies themselves. common for all four sectors is that they way towards a sustainable future and are driven by domestic consumption. manageable vulnerability. The initial pool of companies exceeds 1,200. The oil and gas sector is additionally The ranking does not include companies that influenced by the global market volatility, There are still signs of the past crisis - declined or failed to provide financial results by which is also partly valid for the retail moderate growth and profitability of the time the SEE TOP 100 content was finalised. and wholesale trade. Most of the SEE the companies, lower growth of banking As a result two Romanian companies from last economies have a negative energy balance assets and premium written in more year’s edition, Petrotel LUKOIL SA and Cosmote and therefore depend on electricity developed parts of SEE like Slovenia and Romanian Mobile Telecommunications SA, are imports. In addition, the SEE economies Croatia. Economies like Romania, Serbia not included in the ranking. In February 2011 Croatia’s T-Mobile Hrvatska d.o.o. was deleted have a very limited external exchange of and Bulgaria are in this respect catching from the national trade register after merging know-how. Slovenian pharmaceutical up faster. However, SEE is still too with Hrvatski Telekom d.d. company Krka is one of the rare successful much dominated by the basic industries examples of a knowledge-based exporter. driven by domestic infrastructure and To allow comparison, all local currencies in the consumption. The region needs to rankings have been converted into euro using A close look at company level confirms make a shift towards a knowledge-based the respective central bank’s official exchange this general picture. Seven out of the economy which will consequently bring rate on the last working day of 2010 and first ten companies in SEE TOP 100 more high-tech companies with higher 2009. Year-on-year changes in the companies’ are from the oil and gas sector. The value added among the SEE TOP 100 financial indicators have been calculated using the figures in the original currency. structure of the first thirty companies in finalists. the ranking reflects exactly the industry Elsewhere, local currency figures referencing structure. Twelve out of thirty come from past periods have been converted into euro oil and gas, six from trading including using the respective central bank exchange tobacco, four from telecommunications, rate as of the end of the relevant period three from electricity, two from auto while all other local currency figures have manufacturing and metals and one from been converted using the exchange rate as of the pharmaceuticals sector. Measuring the date the relevant editorial content was finalised.

5 SEE TOP 100 Companies

SEE TOP 100 Companies in millions of euro

Total Y/Y Net profit/ Net profit/ 2010 2009 Company name Country Industry revenue change loss loss 2010 in revenue 2010 2009

1 1 OMV Petrom SA Romania Petroleum/Natural gas 3 627 8.48% 419.9 323.6 2 2 INA d.d. Croatia Petroleum/Natural gas 3 291 23.14% 239.3 -86.4 3 3 LUKOIL Neftochim Burgas AD Bulgaria Petroleum/Natural gas 2 794 29.16% -61.6 -90.0 4 4 Automobile Dacia SA Romania Automobiles 2 709 27.81% 70.0 54.5 5 5 Petrol d.d. Slovenia Petroleum/Natural gas 2 482 19.97% 37.9 10.7 6 8 Rompetrol Rafinare SA Romania Petroleum/Natural gas 1 959 16.82% -156.3 -112.1 7 14 Aurubis Bulgaria AD Bulgaria Metals 1 952 43.31% 31.7 107.3 8 7 Konzum d.d. Croatia Wholesale/Retail 1 721 0.38% 55.9 46.8 9 12 Naftna Industrija Srbije AD Serbia Petroleum/Natural gas 1 716 33.86% 156.3 -392.5 10 10 LUKOIL-Bulgaria EOOD Bulgaria Petroleum/Natural gas 1 714 4.93% 3.0 3.4 11 9 Hrvatska Elektroprivreda d.d. Croatia Electricity 1 708 3.44% 133.6 41.0 12 6 Poslovni Sistem Mercator d.d. Slovenia Wholesale/Retail 1 670 -5.10% 36.8 19.3 13 19 Nokia Romania SRL Romania Telecommunications 1 644 57.06% 42.3 37.7 14 11 Natsionalna Elektricheska Kompania EAD Bulgaria Electricity 1 601 10.48% 52.4 4.4 15 16 Rompetrol Downstream SRL Romania Petroleum/Natural gas 1 446 17.36% -23.1 -19.5 16 15 Revoz d.d. Slovenia Automobiles 1 331 3.10% 18.6 20.5 17 13 Metro Cash and Carry SRL Romania Wholesale/Retail 1 238 -8.74% 32.6 30.1 18 17 JP Elektroprivreda Srbije Serbia Electricity 1 202 19.46% 16.9 -1.6 19 20 British American Tobacco (Romania) Trading SRL Romania Food/Drinks/Tobacco 1 137 9.48% 51.8 77.3

20 35 Hrvatski Telekom d.d. (formerly HT - Hrvatske Telekomunikacije d.d.) Croatia Telecommunications 1 127 56.79% 252.4 122.6 21 28 Kaufland Romania SCS Romania Wholesale/Retail 1 108 27.23% 40.2 18.7 22 73 OMV Petrom Marketing SRL Romania Petroleum/Natural gas 1 079 151.78% 26.4 8.5 23 34 LUKOIL Romania SRL Romania Petroleum/Natural gas 1 067 37.81% -38.7 -19.9 24 25 Arcelormittal Galati SA Romania Metals 1 015 11.37% -79.9 -335.4 25 27 Romgaz SA Romania Petroleum/Natural gas 989.1 12.37% 151.9 135.4 26 18 Orange Romania SA Romania Telecommunications 983.7 -6.22% 217.9 271.2 27 24 Krka d.d. Slovenia Pharmaceuticals 960.6 0.18% 165.9 170.8 28 26 GDF SUEZ Energy Romania SA Romania Petroleum/Natural gas 934.9 5.66% 46.5 89.9 29 21 Carrefour Romania SA Romania Wholesale/Retail 933.1 -10.05% 32.8 20.8 30 22 Telekom Srbija AD Serbia Telecommunications 916.5 0.39% 149.7 162.2 31 31 Holding Slovenske Elektrarne d.o.o. Slovenia Electricity 916.3 14.04% 79.5 60.2 32 52 U.S. Steel Serbia DOO Serbia Metals 868.4 70.13% -142.3 -153.1 33 23 Vodafone Romania SA Romania Telecommunications 851.5 -12.13% 113.7 244.9 34 30 Selgros Cash & Carry SRL Romania Wholesale/Retail 846.3 4.58% 23.5 24.7 35 39 OMV Bulgaria OOD Bulgaria Petroleum/Natural gas 829.3 29.19% 17.1 11.2 36 32 real,- Hypermarket Romania SRL Romania Wholesale/Retail 816.6 4.66% -21.2 -57.9 37 36 JP Srbijagas Serbia Petroleum/Natural gas 807.0 25.33% 8.4 9.9 38 48 Hidroelectrica SA Romania Electricity 796.2 35.25% 68.2 11.4 39 New Prirodni Plin d.o.o.* Croatia Petroleum/Natural gas 794.6 194.30% -46.7 -61.4 40 29 Romtelecom SA Romania Telecommunications 764.1 -8.24% -54.2 26.7 41 37 Delta Maxi DOO Serbia Wholesale/Retail 739.5 15.77% 17.9 18.9 42 New CFR SA Romania Transportation 721.3 130.71% -302.1 -218.5 43 38 Engrotus d.d. Slovenia Wholesale/Retail 678.0 0.72% 7.9 11.7 44 43 Gorenje d.d. Slovenia Electronics 677.2 10.29% 2.9 -6.1 45 New Grup Servicii Petroliere S.A. Romania Petroleum/Natural gas 674.1 169.69% 1.5 6.6 Compania Nationala de Autostrazi si Drumuri Nationale 46 59 Romania Construction 672.3 33.07% 23.4 -124.9 din Romania SA 47 45 Bulgargaz EAD Bulgaria Petroleum/Natural gas 655.8 4.61% -19.1 15.4 48 70 MOL Romania Petroleum Products SRL Romania Petroleum/Natural gas 637.6 39.97% 19.1 17.4 49 46 C.N.T.E.E. Transelectrica SA Romania Electricity 625.4 5.43% 2.2 1.5 50 57 Electrocentrale Bucuresti SA Romania Electricity 620.9 19.38% 38.9 -10.1 (*) denotes gross profit/loss for 2010 and 2009 6 SEE TOP 100 Companies

SEE TOP 100 Companies in millions of euro

Total Y/Y Net profit/ Net profit/ 2010 2009 Company name Country Industry revenue change loss loss 2010 in revenue 2010 2009 51 60 RCS & RDS SA Romania Telecommunications 601.9 19.72% -16.4 50.1 52 49 CEZ Elektro Bulgaria AD Bulgaria Electricity 598.2 0.94% 1.6 2.8

53 40 E.ON Energie Romania SA (formerly E.ON Gaz Romania SA) Romania Petroleum/Natural gas 592.2 -4.18% -22.3 33.5 54 New OMV Petrom Gas SRL Romania Petroleum/Natural gas 587.8 250.65% 24.3 14.4 55 47 Termoelektrane Nikola Tesla DOO Serbia Electricity 586.9 7.83% 3.8 -17.7 56 74 GEN-I d.o.o. Slovenia Electricity 580.4 35.25% 10.9 9.9 57 New Naftex Petrol EOOD Bulgaria Petroleum/Natural gas 579.5 27.71% 11.7 -103.9 58 50 Lek d.d. Slovenia Pharmaceuticals 575.9 -0.99% 47.9 55.3 59 42 Mobiltel EAD Bulgaria Telecommunications 572.0 -8.28% 112.6 134.1 60 New Renault Industrie Roumanie SRL Romania Automobiles 571.6 61.99% 0.181 1.8 61 56 Bulgarian Telecommunications Company AD Bulgaria Telecommunications 563.1 6.28% 58.1 44.2 62 51 CFR - Calatori SA Romania Transportation 560.5 0.10% -20.2 -49.8 63 53 Mediplus Exim SRL Romania Wholesale/Retail 559.8 5.23% 8.6 19.1 64 64 OMV Slovenija d.o.o. Slovenia Petroleum/Natural gas 556.5 17.05% 16.1 14.9 65 54 HEP-Proizvodnja d.o.o.* Croatia Electricity 537.5 1.14% 72.7 3.6 66 New Daewoo-Mangalia Heavy Industries SA Romania Transportation 515.3 71.97% -32.7 -100.2 67 41 Zagrebacki Holding d.o.o.* Croatia Diversified holdings 515.1 -16.02% -67.3 3.1 68 81 Okta AD Macedonia Petroleum/Natural gas 511.6 24.78% 1.8 2.1 69 61 HEP-Operator Distribucijskog Sustava d.o.o. * Croatia Electricity 511.3 3.37% 14.6 -8.8 70 92 Alro SA Romania Metals 511.1 34.81% 37.3 18.5 71 New IMPOL d.o.o. Slovenia Metals 507.8 44.22% 2.2 4.1 72 76 OMV Hrvatska d.o.o.* Croatia Petroleum/Natural gas 505.8 19.73% 7.5 2.1 73 79 Overgas Inc. AD Bulgaria Petroleum/Natural gas 492.2 18.54% 7.1 4.1 74 90 YugoRosGaz AD Serbia Petroleum/Natural gas 489.7 39.83% 18.9 13.7 75 66 Mercator - S DOO Serbia Wholesale/Retail 487.4 13.70% 6.9 12.1 76 New Uljanik Brodogradiliste d.d.* Croatia Transportation 479.4 42.81% 4.5 2.4 77 58 Philip Morris Trading SRL Romania Food/Drinks/Tobacco 474.3 -7.73% 6.8 18.8 78 71 Enel Energie SA Romania Electricity 468.2 3.23% -7.6 -11.0 79 62 VIPNet d.o.o.* Croatia Telecommunications 467.7 -4.37% 90.3 83.8 80 75 J.T. International (Romania) SRL Romania Food/Drinks/Tobacco 455.4 7.81% -14.1 -4.4 Bosnia and 81 63 JP Elektroprivreda BiH d.d. Herzegovina Electricity 452.5 -6.25% -7.4 31.7 82 67 Enel Energie Muntenia SA Romania Electricity 444.1 -4.44% 0.607 3.2 83 65 Telekom Slovenije d.d. Slovenia Telecommunications 441.1 -6.48% -235.4 62.2 84 New Cargill Agricultura SRL Romania Agriculture 440.8 66.23% -14.8 -12.9 85 New Interagro SA Romania Diversified holdings 435.3 34.06% 20.6 -13.6 86 68 Coca-Cola HBC Romania SRL Romania Food/Drinks/Tobacco 433.7 -6.37% 44.2 40.8 87 84 Nuclearelectrica SA Romania Electricity 422.0 7.57% 3.8 11.7 88 85 JT International Manufacturing SA Romania Food/Drinks/Tobacco 421.1 7.37% 1.2 2.1 89 69 Metro Cash and Carry Bulgaria EOOD** Bulgaria Wholesale/Retail 417.6 -9.97% 35.3 40.6 90 78 AETs Kozloduy EAD Bulgaria Electricity 416.2 -2.87% 30.9 33.3 91 New Continental Automotive Products SRL Romania Rubber/Rubber products 413.4 19.33% 44.6 48.6 92 72 Cosmo Bulgaria Mobile EAD Bulgaria Telecommunications 411.0 -8.80% 47.2 67.7 Business and consumer Croatia 404.3 6.13% -2.1 1.9 93 91 Tisak d.d. services 94 86 Elektrovojvodina DOO Serbia Electricity 403.6 12.09% -11.4 -6.9 95 New Mercator - H d.o.o.* Croatia Wholesale/Retail 401.1 30.00% -8.6 -3.7 96 New Arabesque SRL Romania Wholesale/Retail 398.4 25.90% 8.9 -2.1 97 New Oscar Downstream SRL Romania Petroleum/Natural gas 398.2 96.82% 8.6 12.5 98 New Alfred C. Toepfer International (Romania) SRL Romania Wholesale/Retail 396.0 31.19% -7.0 -1.3 99 80 Mobitel d.d. Slovenia Telecommunications 395.0 -4.60% 37.4 41.2 100 94 Idea DOO Serbia Wholesale/Retail 391.8 19.16% -22.3 -26.0 (*) denotes gross profit/loss for 2010 and 2009 (**) denotes net sales revenue for 2010 as per Capital 100 7 SEE TOP 100 Companies

The regional leader: long-term vision and tough decisions in a turbulent market

Mariana Gheorghe

By Sabina Kotova Mariana Gheorghe first came in Ethics, respect, partnership and a viable contact with OMV Petrom via the boost efficiency. OMV Petrom failed to management vision. These are the European Bank for Reconstruction find a credible buyer that would have business principles Mariana Gheorghe and Development (EBRD) where the experience and financial resources says underpin her work as chief executive she had worked since 1993, first necessary to safely and sustainably operate the plant. officer and president of the executive as an Associate Banker and then board of OMV Petrom, the biggest oil and gas group in Southeast Europe. as a Senior Banker for Southeast Asked how the global financial crisis Europe and the Caucasus Region. has changed her management style and “I have faith in people, because in the After Petrom was privatised the way she does business, Gheorghe end they are the ones that add value to in 2004, Gheorghe became a said that in times of crisis, when risks increase, the mitigating factors are the our business. I think teamwork is one of Member of the Board of Directors most important. These include cash flow the most important business principles of Petrom as EBRD representative. optimisation by reducing and postponing and, as a CEO, I believe in the power of spending and restructuring and selling example.” non-core assets. “We have a balanced mix of managing investments and balancing between a heavy restructuring turnaround with “What we must learn from these experience and technical expertise. Over measures is that they must be applied the last years I encouraged diversity by capturing growth opportunities, the CEO said. regardless of good or difficult economic creating mixed teams of Romanians situations; companies must return to the and expats and by promoting young basic fundaments of market. This return managers,” she said. “The toughest decisions were the ones to the fundamental market data will related to the restructuring process make companies that respond to market Gheorghe became the head of the group and, more specifically, the personnel provocations, generate solid cash flow in June 2006, two years after Romania restructuring, particularly when it affects and are close to what the market wants, sold a majority stake in Petrom to the lives of tens of thousands of people. emerge victorious from this crisis,” she Austria’s oil giant OMV. This is never an easy process, because it explained. has a lot of social implications for the people affected. In May last year OMV The post-privatisation period went along name: with tough challenges and responsible Petrom revealed a five- Mariana Gheorghe In order to turn challenges into year business strategy position: decision making, said Gheorghe. CEO and President of opportunities I consider it is important under which it will the Executive Board to balance the immediate needs with need to invest more company: “I usually like to say that the toughest OMV Petrom the long-term projects. By balancing than 1.0 billion euro web: challenges are also the biggest annually through opportunities and that was the case the short-term needs with the long-term www.petrom.com objectives and by staying committed 2015 to support its with Petrom as well. One of the biggest development. problems Petrom had was its situation to our strategic direction, we ensure a solid foundation for our sustainable deriving from being a state-owned An important aspect to that strategy is company for so many years, with all development and competitiveness in the energy market.” environmental sustainability. By the end the faults that derive from it: lack of of this year, the group plans to launch investments, aged assets and equipment, commercial operations of its Dorobantu operational inefficiency, bureaucracy, When asked to mention any event or wind park and the Brazi combined cycle political interference in commercial decision occurring at OMV Petrom gas-fired plant power plant. decisions, etc.” that required top-draw executive skills, Gheorghe said that “one such decision stands out in 2010 and that was the “We are aware of the risks our business Petrom carried out a large modernisation poses to people and the environment, and efficiency increase programme over decision to permanently close the Arpechim refinery.” and we are committed to manage them the last six years, aimed at the profound appropriately. Our strategy concerning restructuring of the company. environmental protection aims towards In March this year OMV Petrom officially the efficient management of energy One of the most important steps in announced its decision to close the and natural resources as well as control this direction was the elaboration of refinery as part of its strategy to maximise of emissions and discharges into the a coherent strategy and, of course, the integration value of the company and environment.” 8 SEE TOP 100 Companies

Unbeatable quality-price ratio, new models help Dacia weather crisis

Jerome Olive

By Carmen-Iliana Ionescu Dacia, Romania’s first carmaker, Q: Dacia has been one of the most was set up in 1966, when the anticipated the decline tendency even successful Romanian companies during Mioveni plant, in the southern from last year on account of rising prices the crisis, with net profit rising by nearly part of the country, was built. for raw materials and cessation of these 30% on the year in 2010. What were France’s Renault currently programmes. the top three factors which generated a owns 99.43% of Dacia. higher profit? Dacia produces passenger vehicles Q: Which are the most attractive markets such as Logan sedan, Logan at this point? Do you plan to enter new A: The economic and financial crisis MCV, Dacia Sandero and Duster markets this year or in 2012? changed both the clients’ and the and commercial vehicles such as companies’ mentality: the first became Logan Van and Logan Pick-Up. A: Presently, more than 90% of our more judicious, and the companies had In 2010, Dacia sold more than production is exported. Up till now, the main markets were those from to review their business model in order to 348,000 vehicles, exporting Western Europe. Thus, in the top export adapt to the market’s change in demand. most of its production to France destinations for Dacia in 2010 there are Dacia’s success during this period was (110,076 vehicles), Germany to be found exacting markets like France, (40,500) and Italy (21,930). first and foremost generated by the ratio Germany and Italy. This year, however, quality-unbeatable price, a guaranteed there are other markets where we have formula for success, especially during recorded a significant progress. Thus, profit do you expect this year? times of crisis. Secondly, Dacia lived for instance in Turkey, for the first five the crisis with a new range of models, months there was an increase of 71% adapted to the market’s demands. Duster A: Car sales went down last year, the compared to the same period of 2010. was the driving force for Dacia’s growth Romanian car market in 2010 reaching with more than 100,000 orders to be the level from 2003. However, Dacia Q: Are you planning to produce new exported on foreign markets last year. managed to increase its market share. We models at the factory in Mioveni? Currently, the SUV stands for half of expect 2011 to be a difficult year but we the Dacia production at Mioveni. With shall stay market leader waiting for the A: In 2012, two new models will be added respect to the profit, by the end of this local market to grow. to the Dacia range. However, they are year we shall see its evolution. not to be manufactured at the Mioveni Q: Passenger car registrations under the industrial site, but at the Tangier plant in Dacia brand in France decreased by 22% Q: How does the company expect to Morocco. However, we make investments on the year in the first half of 2011. In perform in 2011 versus 2010? What net at Mioveni in order to prepare for the Spain, car registrations under the Dacia future. brand fell by 39% in the first six months of the year. What is the reason that has Q: What are name: Jerome Olive led to this fall and what is Dacia’s strategy Dacia’s plans position: to increase sales on these European for future Chief Operating Officer company: Union markets? growth? Automobile Dacia web: www.daciagroup.com A: It is true that there is a certain decline on some markets, but we should stick to A: The objective is to consolidate our the big picture: Dacia does not export market share, while being committed only to Western Europe, and its exports to manufacturing accessible cars for this year are at a comparable level to an unbeatable ratio price-roominess- those from last year. In the previous performance. We wish to cope with years on some of the most important economic challenges in an unstable Western markets we benefited from car context and we shall continue to meet scrappage programmes. Meanwhile we the clients’ requests and needs.

9 SEE TOP 100 Companies

Hypo Group eyes leaner, more customer-centric business model

Gottwald Kranebitter

By Georgi Georgiev Hypo Alpe Adria was founded in Q: How did market developments in Klagenfurt, Austria, in 1896. As our SEE countries after a severe slump your core markets in 2010 affect the pace at December 31, 2010 the group in 2009 and 2010 following the global and format of restructuring at the group? was present in 12 countries – financial crisis. Despite this difficult Austria, Italy, Slovenia, Croatia, environment we were able to increase the A: The whole banking sector and the Bosnia and Herzegovina, Serbia, number of our customers to 1.1 million economy in general faced tough market Montenegro, Bulgaria, Macedonia, and we also increased significantly retail conditions in Southeast Europe (SEE). Germany, Hungary and the deposits in all our countries and also in In the banking sector, a shortage of Ukraine. The Republic of Austria the business sectors corporate and public liquidity and a significant increase in became the sole owner of Hypo finance. Also in the leasing business, risk provisions have been only two of Alpe Adria in December 2009 developments have been encouraging. several indicators. Despite this difficult and the ownership structure However, the recovery remains fragile environment in our core markets remained unchanged in 2010. and uneven throughout the region. Slovenia, Croatia, Serbia, Bosnia and For Croatia we expect a boost from the Herzegovina and Montenegro, our coming EU accession as the preparations group managed to increase its customer pillars: sale of the units in Austria and will lead to additional investment and base and deposits. Adapting to the new Italy, strengthening of the SEE network also increase the country’s attractiveness challenges, Hypo Alpe Adria continues and shut-down of all non-core units and to foreign investors. to work on the permanent improvement activities. A combined SEE network will of its products, services and processes. have clear advantages, for instance, in Q: In what shape is the capital base of The new management which took over areas such as funding, procurement and your SEE units? Do you expect any of in April 2010 is implementing a new IT over the separate units. them to be recapitalised over the near to strategy to transform Hypo into a smaller, medium term? more efficient and even more customer- Q: Earlier this year, the group said it oriented bank. We are in a good shape to expects to break even in 2011. Are you A: Our holding in Klagenfurt ensures reach our ambitious goals but of course sticking to this forecast and what is the that all entities fulfil the regulatory this is a continuous process. role of your units in SEE in hitting this capital and liquidity requirements. target? name: Gottwald Kranebitter Q: Could you provide an update on your Q: What position: intentions to start the sale process for A: By implementing our new strategy product Chief Executive Officer company: your domestic and Italian units in 2011 and strengthening our customer-centric categories do Hypo Alpe Adria web: and on plans to follow those up with the efforts, we see good chances to break you expect to www.hypo-alpe-adria.com disposal of the group’s business in former even in 2011 and to record sound profits set the pace for Yugoslavia? in 2012. This would depend not only your revenue growth in the SEE region on our hard work, but also on the wider in 2011 and over the medium term? A: We started a formal sale process for our macroeconomic environment. However, businesses in Italy and Austria by inviting despite considerable challenges we have A: It is our strategy to strengthen our expressions of interest. The sale is part of encouraging signals from our banks that retail business in all countries by offering our new strategy which will restructure we will be able to meet our targets. best-in-class products and conditions Hypo as a network bank for SEE with to our customers. We will also further a holding in Klagenfurt. Our current Q: How is the turnaround story unfolding develop our products and services in owner, the Republic of Austria, is only a in your SEE markets this year? Are you corporate and public finance as well as temporary owner and it is obliged under seeing any pockets of strong recovery in the leasing sector. Another important EU law to re-privatise the bank within and, conversely, countries where return goal is to use our cross-selling potential the next few years. The strategy, which to growth is still uneven? and to become a “life-cycle service is currently also being discussed with the provider” for our customers. European Commission, is based on four A: We do see a slight recovery in all 10 AlwAys there for our customers. supportive. Friendly. Fair. that’s our motto at the hypo Alpe Adria. so we help all our customers further and further - also beyond pure banking business. www.hypo-alpe-adria.com SEE TOP 100 Companies

SEE TOP 100 SUCCESS MAP 1 300 - 800 Y Bosnia and Herzegovina Bulgaria Croatia Macedonia Romania Serbia Slovenia 800 - 300 500 million euro 300 - 200 200 - 100 Delta Maxi DOO 100 - 0 400 Compania Nationala de Autostrazi si Drumuri Nationale din Romania SA OMV Petrom SA MOL Romania Petroleum Products SRL

OMV Petrom Gas SRL 300

Naftex Petrol EOOD Hrvatski Telekom d.d. INA d.d. OMV Hrvatska d.o.o. 200 Orange Romania SA Krka d.d. Mercator - S DOO Naftna Industrija Srbije AD Romgaz SA Philip Morris Trading SRL Hrvatska Elektroprivreda d.d. Telekom Srbija AD 100 Mobiltel EAD Vodafone Romania SA

VIPNet d.o.o. HEP-Operator Distribucijskog Sustava d.o.o. 80 Holding Slovenske Elektrarne d.o.o. YugoRosGaz AD Natsionalna Elektricheska Kompania EAD Overgas Inc. AD HEP-Proizvodnja d.o.o. Automobile Dacia SA Cosmo Bulgaria Mobile EAD Hidroelectrica SA Nokia Romania SRL 60 Coca-Cola HBC Romania SRL Bulgarian Telecommunications Company AD Konzum d.d. Continental Automotive Products SRL British American Tobacco (Romania) Trading SRL Metro Cash and Carry Bulgaria EOOD Lek d.d. GDF SUEZ Energy Romania SA 40 Mobitel d.d. Alro SA Electrocentrale Bucuresti SA Kaufland Romania SCS Petrol d.d. AETs Kozloduy EAD Carrefour Romania SA Metro Cash and Carry SRL Poslovni Sistem Mercator d.d. Aurubis Bulgaria AD Interagro SA OMV Petrom Marketing SRL 20 Arabesque SRL Selgros Cash & Carry SRL Revoz d.d. Oscar Downstream SRL OMV Bulgaria OOD Engrotus d.d. JP Elektroprivreda Srbije Nuclearelectrica SA JP Srbijagas Lukoil-Bulgaria EOOD 0 JT International Manufacturing SA Gorenje d.d. X Tisak d.d. Alfred C. Toepfer International (Romania) SRL -20 Mercator - H d.o.o. Bulgargaz EAD Elektrovojvodina DOO real,- Hypermarket Romania SRL Rompetrol Downstream SRL Idea DOO Enel Energie Muntenia SA Grup Servicii Petroliere S.A. -40 JP Elektroprivreda BiH d.d. Lukoil Romania SRL C.N.T.E.E. Transelectrica SA Cargill Agricultura SRL Prirodni Plin d.o.o. J.T. International (Romania) SRL Romtelecom SA CEZ Elektro Bulgaria AD Lukoil Neftochim Burgas AD -60 Enel Energie SA Arcelormittal Galati SA Termoelektrane Nikola Tesla DOO Uljanik Brodogradiliste d.d. IMPOL d.o.o. Renault Industrie Roumanie SRL Okta AD -80 Arcelormittal Galati SA RCS & RDS SA Daewoo-Mangalia Heavy Industries SA Zagrebacki Holding d.o.o. E.ON Energie Romania SA -100 OMV Slovenija d.o.o. CFR - Calatori SA Mediplus Exim SRL Mediplus Exim SRL US Steel Serbia DOO GEN-I d.o.o. Rompetrol Rafinare SA

-200 Telekom Slovenije d.d.

-300 CFR SA

-400

200 400 600 800 1 000 1 200 1 400 1 600 1 600 1 800 2 000 2 500 3 000 3 500 4 000 million euro

The chart illustrates the position of each of the SEE TOP 100 companies in terms of total revenue, net profit/loss and total revenue per capita for 2010. The X axis is a measure of 2010 total revenue, the Y axis represents net profit/loss and the size of the bubbles corresponds to the total revenue per capita.

12 SEE TOP 100 Companies

1 300 - 800 Y Bosnia and Herzegovina Bulgaria Croatia Macedonia Romania Serbia Slovenia 800 - 300 500 million euro 300 - 200 200 - 100 Delta Maxi DOO 100 - 0 400 Compania Nationala de Autostrazi si Drumuri Nationale din Romania SA OMV Petrom SA MOL Romania Petroleum Products SRL

OMV Petrom Gas SRL 300

-200 Telekom Slovenije d.d.

-300 CFR SA

-400

200 400 600 800 1 000 1 200 1 400 1 600 1 600 1 800 2 000 2 500 3 000 3 500 4 000 million euro

13 SEE TOP 100 Companies

Ranking of SEE most profitable businesses top-heavy with telcos

By Kire Nedelkovski

The telecommunications sector accounts 22.16% return on revenue in 2010 versus Telekom Srbija AD, Romania’s Romgaz for as many as nine of the 20 entries 25.52% in 2009. Orange Romania had SA, Croatia’s HEP Proizvodnja, Vodafone in the SEE TOP 100 Most Profitable total revenue of 983.7 million euro and Romania and OMV Petrom SA filled the Companies ranking for 2010, including a net profit of around 218 million euro remaining spots in the ranking’s top 10. positions one through four. last year. The other companies from the telecoms sector that earned spots in the ranking The leader in the ranking is Croatia’s The Bulgarian unit of Telekom Austria are: Cosmo Bulgaria Mobile (11th), biggest telecoms company, Hrvatski Group (TAG), Mobiltel, ranked third the Bulgarian Telecommunications Telekom, with a return on revenue among the region’s 20 most profitable Company (13th) and Slovenia’s Mobitel of 22.39% in 2010. The company, companies with a return on revenue of (15th). 51%-owned by Deutsche Telekom, 19.69% in 2010 versus 21.51% a year posted total revenue of 1.127 billion earlier. The carrier’s total revenue was Romanian state-owned natural gas euro last year and a net profit of 252.4 572 million euro in 2010, down 8.28% producer Romgaz, ranked seventh, had a million euro as it was able to alleviate from 2009, as it faced subdued demand 15.37% return on revenue in 2010 versus the impact of the recession through in both the residential and business 15.18% a year earlier. Companies from tight cost control, retention of existing customer segments and lower prices the petroleum/natural gas, electricity, and the addition of new customers, and for voice telephony due to competitive retail/wholesale, FMCG and rubber investment in the majority of its business pressure. industries round off the top 20 of the divisions. region’s most profitable businesses in Croatian telecommunications company 2010. In 2009’s Most Profitable ranking, VIPnet, also part of TAG, and Slovenian the top spot was occupied by Hrvatski drug maker Krka ranked fourth and fifth, Telekom’s subsidiary T-Mobile Hrvatska respectively. Methodology with an unrivalled return on revenue of 33%. As part of a major organisational VIPnet’s return on revenue was 19.31% Most Profitable is a ranking of the top 20 revamp, T-Mobile was folded into the in 2010 versus 16.95% in 2009. The companies with the highest return on revenue parent company and ceased to exist as an 5.2% decline in revenue to 451.9 million in SEE TOP 100. Return on revenue is calculated independent unit as of the beginning of euro that the telco recorded in 2010 was as net profit divided by total revenue, both in 2010. mainly driven by lower roaming and euro terms. To allow comparison, all local interconnection revenues. currencies have been converted into euro, Internet and mobile services provider using the central banks’ official exchange rates Orange Romania was the second most Krka’s return on revenue in 2010 was on the last working day of 2010 and 2009, profitable company in the ranking with a 17.27% compared to 17.81% year ago. respectively. SEE TOP 100 Most Profitable Companies SEE TOP Return on Return on No Company name 100 No Country Industry revenue 2010 revenue2009

1 20 Hrvatski Telekom d.d. (formerly HT - Hrvatske Telekomunikacije d.d.) Croatia Telecommunications 22.39% 16.87% 2 26 Orange Romania SA Romania Telecommunications 22.16% 25.52% 3 59 Mobiltel EAD Bulgaria Telecommunications 19.69% 21.51% 4 79 VIPNet d.o.o. Croatia Telecommunications 19.31% 16.95% 5 27 Krka d.d. Slovenia Pharmaceuticals 17.27% 17.81% 6 30 Telekom Srbija AD Serbia Telecommunications 16.33% 16.14% 7 25 Romgaz SA Romania Petroleum/Natural gas 15.37% 15.18% 8 65 HEP-Proizvodnja d.o.o. Croatia Electricity 13.52% 0.67% 9 33 Vodafone Romania SA Romania Telecommunications 13.35% 24.95% 10 1 OMV Petrom SA Romania Petroleum/Natural gas 11.58% 9.55% 11 92 Cosmo Bulgaria Mobile EAD Bulgaria Telecommunications 11.48% 15.01% 12 91 Continental Automotive Products SRL Romania Rubber/Rubber products 10.79% 13.84% 13 61 Bulgarian Telecommunications Company AD Bulgaria Telecommunications 10.32% 8.34% 14 86 Coca-Cola HBC Romania SRL Romania Food/Drinks/Tobacco 10.20% 8.68% 15 99 Mobitel d.d. Slovenia Telecommunications 9.46% 9.94% 16 9 Naftna Industrija Srbije AD Serbia Petroleum/Natural gas 9.10% -27.83% 17 31 Holding Slovenske Elektrarne d.o.o. Slovenia Electricity 8.67% 7.50% 18 38 Hidroelectrica SA Romania Electricity 8.57% 1.92% 19 89 Metro Cash and Carry Bulgaria EOOD Bulgaria Wholesale/Retail 8.44% 8.74% 20 58 Lek d.d. Slovenia Pharmaceuticals 8.32% 9.51% 14 SEE TOP 100 Companies

Romania home to most of SEE biggest loss-makers in 2010

By Svetozara Davidkova

Romania was home to the biggest and Majority state-owned Telekom Slovenije continued to negatively impact the most numerous in Southeast Europe had the region’s second highest loss of Romanian consumer environment, last year. 235.4 million euro in 2010 - compared Romtelecom’s majority owner, Greece’s to a net profit of 62.2 million euro a OTE, said in early 2011. No less than 13 out of the SEE TOP year earlier - primarily owing to the 100 Money Losers ranking’s 20 entries impairment of financial investments. Romania’s Rompetrol Rafinare, part of were accounted for by companies from The company’s market shares in Slovenia Rompetrol Group, came in third on the Romania as the economy of that country were down slightly on 2009 with pricing chart with a net loss 156.3 million euro had to stomach a 1.3% contraction in pressure from alternative operators last year, up from 112.1 million euro in gross domestic product (GDP) and an playing a significant factor in that process. 2009. Flagging demand and reduced refining capacity were among the factors average annual inflation of 6.09% last that contributed to the company’s ending In order to exploit synergies and year. the year with a negative net result. strategic advantages, Telekom Slovenije merged earlier in 2011 with its wireless Romanian state-owned railway company Another six companies in the petroleum arm Mobitel into a single entity. The CFR topped the chart with a net loss sector ranked among the region’s top company, which posted a net profit of 302.1 million euro in 2010, up from 20 money losers: Bulgaria’s LUKOIL of 54.7 million euro in the first half a net loss of 218.5 million euro a year Neftochim and Bulgargaz, Croatia’s of 2011, said the merger will facilitate earlier. The company, with total debts Prirodni Plin and Romania’s Rompetrol the rounding off and optimisation of of 7.6 billion lei (1.8 billion euro) as Downstream, LUKOIL Romania and service-related business processes in one of the end of 2010, is in the process of E.ON Energie Romania. reorganisation and reform of its spending location. and operations as part of an aid deal led Two other telecommunications by the International Monetary Fund. The companies, both Romanian, ranked Methodology deal also covers state-owned passenger among the 20 biggest money losers last carrier CFR-Calatori, which ranked year – eighth placed Romtelecom, and Money Losers is a ranking of 20 companies with 16th in the Money Losers chart, as well RSC&RDS, in the eighteenth spot. the most significant losses in SEE TOP 100. as freight company CFR Marfa. CFR To allow comparison, all local currencies have slashed its loss by 42% to 165.37 million In the fourth quarter of 2010, decreasing been converted into euro, using the central lei (38.8 million euro) in the first five household income, higher value added banks’ official exchange rates on the last months of 2011 due to ongoing efforts to tax and rising unemployment, as well as working day of 2010 and 2009, respectively. improve its operational efficiency. a higher-than-expected rate of inflation,

SEE TOP 100 Money Losers in millions of euro SEE TOP Industry Net loss Net loss No Country 100 No Company name 2010 2009 1 42 CFR SA Romania Transportation -302.1 -218.5 2 83 Telekom Slovenije d.d. Slovenia Telecommunications -235.4 62.2 3 6 Rompetrol Rafinare SA Romania Petroleum/Natural gas -156.3 -112.1 4 32 U.S. Steel Serbia DOO Serbia Metals -142.3 -153.1 5 24 Arcelormittal Galati SA Romania Metals -79.9 -335.4 6 67 Zagrebacki Holding d.o.o.* Croatia Diversified holdings -67.3 3.1 7 3 LUKOIL Neftochim Burgas AD Bulgaria Petroleum/Natural gas -61.6 -90.0 8 40 Romtelecom SA Romania Telecommunications -54.2 26.7 9 39 Prirodni Plin d.o.o.* Croatia Petroleum/Natural gas -46.7 -61.4 10 23 LUKOIL Romania SRL Romania Petroleum/Natural gas -38.7 -19.9 11 66 Daewoo-Mangalia Heavy Industries SA Romania Transportation -32.7 -100.2 12 15 Rompetrol Downstream SRL Romania Petroleum/Natural gas -23.1 -19.5 13 100 Idea DOO Serbia Wholesale/Retail -22.3 -26.0 14 53 E.ON Energie Romania SA (formerly E.ON Gaz Romania SA) Romania Petroleum/Natural gas -22.3 33.5 15 36 real,- Hypermarket Romania SRL Romania Wholesale/Retail -21.2 -58.0 16 62 CFR - Calatori SA Romania Transportation -20.2 -49.8 17 47 Bulgargaz EAD Bulgaria Petroleum/Natural gas -19.1 15.4 18 51 RCS & RDS SA Romania Telecommunications -16.4 50.1 19 84 Cargill Agricultura SRL Romania Agriculture -14.8 -13.0 20 80 J.T. International (Romania) SRL Romania Food/Drinks/Tobacco -14.1 -4.4 (*) denotes gross loss 15 SEE TOP 100 Banks

Romania’s BCR takes lead in SEE TOP 100 Banks ranking

By Iliana-Carmen Ionescu, Doinita Dolapchieva

Three quarters of the SEE TOP 100 bank reported the highest net loss in the Victoriabank, which placed 94th. The Banks increased their asset value in 2010 region at 183 million euro. other Moldovan bank included in the but most of the lenders saw a fall in ranking, Banca Comerciala Moldova profits. The top two Southeast European NLB said its operations were strongly Agroindbank, jumped to the 87th spot (SEE) banks in terms of assets switched affected by the lingering economic crisis in from the 100th a year earlier. positions last year, as Banca Comerciala Slovenia and in the majority of countries Romana (BCR) took the lead, overtaking where the group operates, which was Garantibank International N.V. Branch Slovenia’s Nova Ljubljanska Banka reflected in slow growth in lending and Romania jumped 31 places to the 44th (NLB). increase in the share of bad claims. The spot as its assets climbed to 1.426 billion latter, in particular, has required a high euro in 2010. Its loss, however, widened Each of the SEE’s top four banks had level of asset impairments. In addition to to 29.6 million euro. assets exceeding 11 billion euro at the the impairment of the credit portfolio, end of 2010. The same banks led the the impairment of capital investments Bulgarian Development Bank was the ranking in the previous year, with assets and securities received as collateral, and second-best advancer with a jump of 21 above 10 billion euro each. provisions for reorganisation costs also places to the 78th spot. Its assets rose by had a significant impact on results. half to 704 million euro last year and its The net profit of most banks in SEE profit climbed to 14.7 million from 8.9 decreased in 2010 as the financial crisis Croatia’s Zagrebacka Banka (ZABA) million. The state holds a 99.97% stake continued in the region. Only one of ranked third for a second year running, in the bank. the four largest banks registered a rise with 13 billion euro in assets at the end in its net profit. The banking industry of 2010. ZABA posted the highest net Bosnia’s Hypo Alpe-Adria-Bank d.d. has been hampered by non-performing profit among the SEE TOP 100 Banks Mostar slid 11 places in the ranking to loans since the economic crisis hit the of 173.5 million euro, up from 166.4 no. 63. Its assets fell 17% while its net region and some banks said the level of million euro in 2009. loss widened to 70.9 million euro from bad loans was not likely to decrease in the 9.8 million in 2009. short term. Romanian bank BRD, a unit of French banking group Societe Generale, kept The number of active banks in SEE at The highest net profit posted by a bank its fourth position in the SEE TOP the end of 2010 was 238, flat compared included in the SEE TOP 100 Banks 100 Banks ranking with total assets to 2009. ranking was 173.5 million euro, while the of 11 billion euro. BRD reported the biggest loss was 183.4 million euro. third highest net profit in 2010 of 116.8 million euro, down from 184.3 million The leader in the ranking, BCR, had euro in 2009. Methodology total assets of 16.3 billion euro at the end of 2010, representing an annual growth Serbia and Bulgaria lead the SEE TOP SEE TOP 100 Banks is a ranking of the largest of 8.4% which was helped by improved 100 Banks ranking by the number of banks in Southeast Europe in terms of total corporate lending and mortgages. entries with 18 each, Slovenia follows assets from non-consolidated balance sheets with 17 and Romania with 15. In 2009, as of December 31, 2010. BCR also ended last year with the second Romania took the top spot with 21 To allow comparison, all local currencies have highest net profit among the top 100 lenders, but the Romanian banking been converted into euro, using the central banks in SEE at 170.8 million euro, system has suffered from a continued banks’ official exchange rates on the last down from 262.7 million euro in 2009. economic contraction of 7.1% in 2009 working day of 2010 and 2009, respectively. The fall in profit was mainly due to lower and 1.3% in 2010 and from austerity Local currency figures have been used when net income and high provision expenses, measures implemented last year to keep calculating year-on-year changes. as the continuing difficult market an IMF-led bailout package on track. conditions have been heavily impacting All data is sourced from central banks, national BCR’s customers, the bank said. Bosnia has 10 lenders in the ranking, commercial registers, financial supervision compared to six in 2009. Croatia and commissions, bank associations, government and corporate websites, and the companies Slovenia’s largest bank, NLB, dropped Albania had nine and five, respectively, themselves. to the second position in the SEE TOP similar to a year earlier. Macedonia and 100 Banks ranking after leading it in Montenegro have three representatives The initial pool exceeds 230 banks registered 2008 and 2009. Its total assets fell 11% each, unchanged from last year. Moldova in the region including branches and to 13.8 billion euro at end-2010. The had a new entry, Banca Comerciala representative offices of foreign banks. 16 SEE TOP 100 Banks

Romania’s BCR learns tough lessons in business, human resource management during crisis

Dominic Bruynseels

By Doinita Dolapchieva Before being appointed BCR Romania’s Banca Comerciala Romana CEO, Bruynseels served as Senior needs. “We need to know our customers (BCR) learned some valuable lessons by Executive Director of Barclays’ better, to serve them better, to offer going through the financial crisis and Emerging Markets Division them simple and accessible products managed to keep its leading position in Dubai. He has served the meeting their needs and possibilities, on the local market by focusing on prestigious Barclays Bank for more suitable savings options and, also, developing its human resource and 27 years – over this period he affordable financing solutions. Banks meeting the needs of its clients, its CEO, gained an extensive professional have a responsibility to try to improve the Dominic Bruynseels, said. way that customers trust them.” experience following a variety of UK-based branch, regional There are also a number of lessons that Dominic Bruynseels was brought to and head office roles as well the helm of BCR in July 2008 with the have been learned, primarily about as international positions. task of managing its growth, which had handling unsecured lending. “We’ve been strong in the previous years. But Asked what is the business designed new risk standards and systems the financial crisis hit the Southeast principle that he would never make that we think would allow us to better European (SEE) country hard that year a compromise with, Bruynseels pick and choose the risks that we want so he also had to steer one of Romania’s answered: “Selling someone to take. top banks through the financial turmoil. something I know they don’t need” Generally, the crisis taught us that you And he did a good job. In 2010, BCR, need to have a very clear strategy of majority owned by Austria’s Erste, rose what you’re trying to do, the risks you’re to the no.1 spot in the SEE TOP 100 some with the communities in which we prepared to take, and stick to it.” Banks ranking after being the runner-up live and work. He said BCR is trying to support in 2009. customers who try to repay their debt To be successful we need to communicate, but has a zero tolerance policy towards “2010 was an especially difficult year. The to collaborate, to fill gaps left by others, delinquent borrowers. economy was subjected to a significant to motivate, to rescue, to encourage, austerity programme. The most difficult to be skilled and ensure our own skills BCR is also making efforts to promote challenge was finding solutions for and knowledge, to take collective environmental sustainability. In 2009 it supporting clients in distress. It is in responsibility for the outcome, successful launched ECO BCR - a project meant our very interest to support them, or not, and not wait for someone else to to increase awareness of environmental negotiate appropriate terms, restructure make the first move.” issues and more efficient use of their loans,” Dominic Bruynseels told electricity, fuel and water. BCR is the only SeeNews. In order to achieve that, BCR made Romanian financial institution that has sure its organisational culture is well joined the United Nation Environmental name: Dominic Bruynseels He believes the articulated by defining relevant mission, Programme Financial Institution (UNEP position: main strength of the CEO vision and values and that it is well FI). company: bank lies with its promoted through extensive internal Banca Comerciala Romana employees. dialogue as well as intensive top-down Besides the parent bank, the BCR web: and bottom-up feed-back. Group also includes BCR Banca www.bcr.ro “Customers don’t Pentru Locuinte, BCR Securities, BCR bank with BCR, “Additionally we implemented Chisinau, BCR Asset Management, they bank with BCR’s people. So if we performance monitoring and employee Anglo-Romanian Bank Limited, BCR have the best people, if they are well recognition schemes for identifying Leasing IFN, BCR Pensii and mobile motivated, well trained, well led and given and acknowledging the best-performing banking business good bee Service RO. the tools to do the job, they will serve our employees together with a development customers brilliantly, and if they do that and a talent management programme.” “We are the leading savings bank in the then we will be very profitable, enabling country, the leading corporate bank, the us to share some of the rewards with Bruynseels believes the crisis has taught leading mortgage bank and a leader in them, some with our shareholders and bankers to be more sensitive to clients’ the SME market as well.” 17 SEE TOP 100 Banks

SEE TOP 100 Banks in millions of euro

Total Y/Y Net profit/ Net profit/ 2010 2009 Company name Country assets change loss loss 2010 in assets 2010 2009

1 2 Banca Comerciala Romana SA Romania 16 324 8.40% 170.8 262.7 2 1 Nova Ljubljanska Banka d.d. Slovenia 13 830 -10.83% -183.4 -23.6 3 3 Zagrebacka Banka d.d. Croatia 13 020 3.60% 173.5 166.4 4 4 BRD – Groupe Societe Generale SA Romania 11 084 2.37% 116.8 184.3 5 5 Privredna Banka Zagreb d.d. Croatia 9 120 4.39% 116.4 126.9 6 6 Erste & Steiermarkische Bank d.d. Croatia 6 839 3.20% 82.6 83.1 7 7 UniCredit Bulbank AD Bulgaria 5 765 -2.11% 81.2 99.6 8 8 Raiffeisenbank Austria d.d. Croatia 5 473 2.34% 50.9 55.8 9 9 Hypo Alpe-Adria-Bank d.d. Croatia 5 240 0.52% 30.8 16.2 10 15 Raiffeisen Bank SA Romania 5 086 9.64% 81.3 73.6 11 12 CEC Bank SA Romania 5 049 4.09% 8.1 13.8 12 16 Banca Transilvania SA Romania 5 039 10.87% 22.8 14.6 13 13 UniCredit Tiriac Bank SA* Romania 4 855 1.81% 39.9 77.7 14 14 Nova Kreditna Banka Maribor d.d. Slovenia 4 807 0.36% 9.4 12.1 15 17 Abanka Vipa d.d. Slovenia 4 551 0.90% 6.6 22.9 16 18 DSK Bank EAD Bulgaria 4 378 -2.01% 66.8 88.0 17 26 SID – Slovenska Izvozna in Razvojna Banka d.d. Slovenia 3 896 28.78% 5.9 0.948 18 19 United Bulgarian Bank AD Bulgaria 3 815 -8.47% 37.7 51.2 19 20 Societe Generale – Splitska Banka d.d. Croatia 3 621 -3.18% 23.0 42.7 20 24 Banca Intesa AD Serbia 3 404 16.62% 72.2 62.7 21 22 Raiffeisenbank (Bulgaria) EAD Bulgaria 3 355 -1.19% 22.6 25.6 22 21 Bancpost SA Romania 3 299 -5.92% 4.2 -30.1 23 25 Eurobank EFG Bulgaria AD Bulgaria 3 226 4.70% 17.9 10.4 24 23 UniCredit Banka Slovenija d.d. Slovenia 2 996 -8.29% 13.1 8.8 25 27 SKB Banka d.d. Slovenia 2 692 -1.64% 27.0 22.9 26 29 Banka Celje d.d. Slovenia 2 598 1.52% 4.5 6.8 27 35 First Investment Bank AD - Fibank Bulgaria 2 528 20.72% 15.8 16.4 28 34 Komercijalna Banka AD Serbia 2 425 24.66% 23.9 19.5 29 30 Banka Koper d.d. Slovenia 2 260 -6.88% 17.4 22.3 30 31 Hypo Alpe-Adria-Bank d.d. Slovenia 2 188 -6.17% -26.3 2.7 31 40 Piraeus Bank Bulgaria AD Bulgaria 2 085 12.47% 22.5 23.5 32 39 Hrvatska Postanska Banka d.d. Croatia 2 002 5.77% 6.9 -61.4 33 41 Raiffeisen Bank – Albania Sh.a. Albania 1 993 9.84% 38.0 33.5 34 38 Gorenjska Banka d.d. Slovenia 1 981 2.23% 21.1 33.8 35 33 Raiffeisen Bank d.d. Sarajevo Bosnia and Herzegovina 1 903 -11.31% 3.0 4.3 36 42 UniCredit Bank d.d. Mostar Bosnia and Herzegovina 1 842 4.37% 16.2 15.0 37 36 Banca Romaneasca SA Romania 1 802 -10.53% -6.3 1.8 38 43 OTP Banka Hrvatska d.d. Croatia 1 728 1.70% 10.2 12.1 39 45 Eurobank EFG AD Serbia 1 715 23.19% 24.8 28.7 40 37 Raiffeisen Banka AD Serbia 1 695 -7.59% 26.4 33.2 41 48 UniCredit Bank Srbija AD Serbia 1 583 22.99% 33.5 29.8 42 46 Societe Generale Expressbank AD Bulgaria 1 494 1.15% 15.4 11.6 43 44 RBS Bank (Romania) SA Romania 1 472 -13.85% 28.1 17.7 44 75 Garantibank International N.V. Branch Romania Romania 1 426 11267% -29.6 -0.599 45 49 Raiffeisen Banka d.d. Slovenia 1 398 1.18% 2.3 0.377 46 59 Corporate Commercial Bank AD Bulgaria 1 380 32.59% 38.0 30.9 47 47 Hypo Alpe-Adria-Bank AD Serbia 1 371 3.94% 3.3 16.7 48 54 AIK Banka AD Serbia 1 342 29.39% 53.0 58.2 49 51 Probanka d.d. Slovenia 1 294 1.52% -1.7 5.5 50 60 Societe Generale Bank Srbija AD Serbia 1 293 36.83% 15.3 16.7

(*) denotes consolidated figures 18 SEE TOP 100 Banks

SEE TOP 100 Banks in millions of euro

Total Y/Y Net profit/ Net profit/ 2010 2009 Company name Country assets change loss loss 2010 in assets 2010 2009

51 50 Credit Europe Bank SA* Romania 1 280 -14.15% -0.809 -4.0 52 63 Central Cooperative Bank AD Bulgaria 1 168 24.23% 11.9 11.4 53 61 Komercijalna Banka AD Macedonia 1 152 16.67% 23.3 17.6 54 64 Banka Kombetare Tregtare Sh.a. (National Commercial Bank) Albania 1 126 21.74% 18.7 8.9 55 56 Stopanska Banka AD Skopje Macedonia 1 110 3.80% 14.2 11.9 56 55 Banka Sparkasse d.d. Slovenia 1 099 0.54% -4.3 0.139 57 57 Factor Banka d.d. Slovenia 1 083 2.77% 5.8 5.4 58 58 Volksbank d.d. Croatia 1 045 1.05% 4.6 6.1 59 53 Alpha Bank SA - Sofia Branch Bulgaria 1 033 -9.84% -38.3 -35.3 60 68 NLB Tutunska Banka AD Macedonia 1 020 13.74% 7.7 7.5 61 65 Dezelna Banka Slovenije d.d. Slovenia 980.1 7.58% 1.4 0.335 62 62 CIBANK AD Bulgaria 956.8 -2.56% 1.2 2.3 63 52 Hypo Alpe-Adria-Bank d.d. Mostar Bosnia and Herzegovina 944.1 -17.33% -70.9 -9.8 64 67 Banka Volksbank d.d. Slovenia 935.9 3.54% 3.3 0.345 65 79 Alpha Bank Srbija AD Serbia 932.4 33.56% -16.3 -28.5 66 81 Banca Comerciala Intesa Sanpaolo Romania SA* Romania 922.2 29.45% -10.1 -17.4 67 77 OTP Bank Romania SA Romania 920.8 18.21% -8.4 -2.5 68 69 Intesa Sanpaolo Bank Albania Sh.a. Albania 906.0 6.15% 13.8 11.7 69 74 MKB Unionbank AD Bulgaria 885.9 6.21% 2.2 2.3 70 66 Vojvodjanska Banka AD Serbia 871.0 5.48% -10.0 3.1 71 73 Allianz Bank Bulgaria AD Bulgaria 841.2 0.60% 1.9 2.6 72 76 EximBank SA Romania 825.5 4.20% 15.7 37.4 73 78 Postna Banka Slovenije d.d. Slovenia 818.5 4.01% 5.1 5.0 74 80 Volksbank AD Serbia 787.1 20.16% 9.2 9.0 75 70 Hypo Alpe-Adria-Bank a.d. Banja Luka Bosnia and Herzegovina 775.0 -7.85% -24.9 0.716 76 72 Crnogorska Komercijalna Banka A.D. Montenegro 724.9 -16.65% -61.7 1.5 77 84 Poljoprivredna Banka Agrobanka AD Serbia 705.4 26.13% 10.9 13.2 78 99 Bulgarian Development Bank AD Bulgaria 704.2 52.53% 14.7 8.9 79 71 Banca Comerciala Carpatica SA Romania 684.6 -18.54% -36.1 -5.0 80 82 ProCredit Bank AD Serbia 660.4 7.27% 3.6 7.4 81 85 Tirana Bank Sh.a. Albania 655.3 7.44% 10.8 13.0 82 86 Intesa Sanpaolo Banka d.d. Bosnia and Herzegovina 655.0 10.48% 3.1 1.8 83 89 Investbank AD Bulgaria 614.6 17.93% 0.892 4.0 84 90 ProCredit Bank Bulgaria AD Bulgaria 590.4 13.74% 1.7 6.6 85 88 Erste Bank AD Serbia 588.9 19.50% 3.0 4.1 86 83 NLB Razvojna Banka a.d. Banja Luka Bosnia and Herzegovina 538.4 -9.31% 4.5 3.0 87 100 Banca Comerciala Moldova Agroindbank SA Moldova 532.4 7.80% 17.4 8.7 88 95 Piraeus Bank AD Serbia 532.2 24.98% -1.6 -5.8 89 91 NLB Montenegrobanka A.D. Montenegro 523.5 1.60% 0.652 1.4 90 New Credins Bank Sh.a. Albania 511.6 43.20% 5.0 3.8 91 New Municipal Bank AD Bulgaria 509.8 20.49% 0.933 1.1 92 97 NLB Banka AD (former NLB Continental Banka AD) Serbia 483.8 14.47% 0.173 -6.3 93 New NLB Tuzlanska banka d.d. Tuzla Bosnia and Herzegovina 473.1 10.83% 0.232 0.988 94 New Banca Comerciala Victoriabank SA Moldova 457.2 20.40% 22.2 8.2 95 New Credit Agricole Banka Srbija AD Serbia 449.4 18.58% -10.8 -15.7 96 92 Hypo Alpe-Adria-Bank A.D. Montenegro 447.9 -11.70% -35.8 -18.3 97 New Nova Banka A.D. Banja Luka Bosnia and Herzegovina 429.4 2.02% 4.4 6.9 98 New Volksbank BH d.d. Sarajevo Bosnia and Herzegovina 410.5 1.13% 0.708 1.7 99 96 OTP Banka Srbija AD Serbia 404.3 -4.89% -23.7 -32.6 100 New Sparkasse Bank d.d. Sarajevo Bosnia and Herzegovina 3 18.55%97.4 0.934 -3.3

(*) denotes consolidated figures 19 SEE TOP 100 Banks

Y SEE BANKING SECTOR SUCCESS MAP

200 million euro

Zagrebacka Banka d.d.

Banca Comerciala Romana SA

150 BRD – Groupe Societe Generale SA Banca Comerciala Victoriabank SA Banca Comerciala Moldova Agroindbank SA Nova Banka A.D. Banja Luka NLB Tuzlanska banka d.d. Tuzla NLB Banka AD UniCredit Bulbank AD Erste & Steiermärkische Bank d.d. NLB Montenegrobanka A.D. Privredna Banka Zagreb d.d. 100 Poljoprivredna Banka Agrobanka AD Raiffeisen Bank SA Erste Bank AD Banca Intesa AD ProCredit Bank Bulgaria AD Investbank AD AIK Banka AD DSK Bank EAD Raiffeisenbank Austria d.d. Credins Bank Sh.a. 50 NLB Razvojna Banka a.d. Banja Luka Stopanska Banka AD Skopje Tirana Bank Sh.a. Raiffeisen Bank – Albania Sh.a. Bulgarian Development Bank AD Gorenjska Banka d.d. Poljoprivredna Banka Agrobanka AD Piraeus Bank Bulgaria AD 40 UniCredit Tiriac Bank SA Corporate Commercial Bank AD ProCredit Bank AD United Bulgarian Bank AD Intesa Sanpaolo Banka d.d. UniCredit Bank Srbija AD Hypo Alpe-Adria-Bank d.d. 30 Volksbank AD SKB Banka d.d. EximBank SA RBS Bank (Romania) SA Raiffeisen Banka AD Raiffeisenbank Intesa Sanpaolo Bank Albania Sh.a. Eurobank EFG AD (Bulgaria) EAD Komercijalna Banka AD Banca Transilvania SA Komercijalna Banka AD Societe Generale – Splitska Banka d.d. 20 Banka Kombetare Tregtare Sh.a. Banka Koper d.d. Societe Generale Bank Srbija AD UniCredit Bank Eurobank EFG Bulgaria AD Societe Generale d.d. Mostar Expressbank AD First Investment Bank AD Nova Kreditna Banka Maribor d.d. Central Cooperative Bank AD 10 OTP Banka Hrvatska d.d. UniCredit Banka Slovenija d.d. NLB Tutunska Banka AD Hrvatska Postanska Banka d.d. CEC Bank SA Factor Banka d.d. Hypo Alpe-Adria Bank AD SID – Slovenska Izvozna in Razvojna Banka d.d. Abanka Vipa d.d. Volksbank d.d. 0 Raiffeisen Banka d.d. Raiffeisen Bank d.d. Sarajevo Banka Celje d.d. Bancpost SA X Municipal Bank AD Credit Europe Bank SA Piraeus Bank AD Probanka d.d. Volksbank BH d.d. Sarajevo Banka Sparkasse d.d. Banca Romaneasca SA -10 Sparkasse Bank Banka Volksbank d.d. d.d. Sarajevo Dezelna Banka Slovenije d.d. Credit Agricole EIBank AD Albania Bosnia and Herzegovina Bulgaria Croatia Macedonia Moldova Montenegro Romania Serbia Slovenia Banka Srbija AD MKB Unionbank AD -20 Alpha Bank Srbija AD Allianz Bank Bulgaria AD OTP Banka Srbija AD Postna Banka Slovenije d.d. OTP Bank Romania SA 7,000 – 3,000 Hypo Аlpe-Adria-Bank a.d. Banja Luka Banca Comerciala Intesa Sanpaolo Romania SA Hypo Alpe-Adria-Bank d.d. -30 Garantibank International Hypo Alpe-Adria Bank A.D. N.V. Branch Romania Banca Comerciala Carpatica SA Vojvodjanska Banka AD 3,000 – 1,000 -40 Alpha Bank SA - Sofia Branch 1,000 – 500 500 – 200 -50 200 – 0 Crnogorska Komercijalna Banka A.D. -100 Hypo Alpe-Adria-Bank d.d. Mostar Nova Ljubljanska Banka d.d.

-200

0 500 1 000 1 500 2 000 2 500 3 000 3 500 4 000 4 000 6 000 8 000 10 000 12 000 14 000 16 000 million euro

The chart illustrates the position of each of the SEE TOP 100 Banks in terms of total assets, net profit/loss and total assets per capita for 2010. The X axis is a measure of 2010 total assets, the Y axis represents net profit/loss and the size of the bubbles corresponds to the total assets per capita.

20 SEE TOP 100 Banks

200 million euro

Zagrebacka Banka d.d.

Banca Comerciala Romana SA

-200

0 500 1 000 1 500 2 000 2 500 3 000 3 500 4 000 4 000 6 000 8 000 10 000 12 000 14 000 16 000 million euro

21 SEE TOP 100 Banks Reputation Management

Bulgarian banking industry Making sense of the media buzz

Key topics Leadership issues, financial results and (Conventional media vs. social media) products are the main topics that shaped 01/01/2011 - 30/06/2011 the media image of the Bulgarian banks during the first half of 2011, research by AII Data Processing showed.

The study assesses the media reputation of the sector by comparing the image the Bulgarian lenders that secured some of the top-tier spots in the 2010 edition of the SEE TOP 100 Banks ranking enjoy in the traditional and social media, as well as the sentiment towards these banks in the context of a variety of topics.

Two completely different and unrelated agendas set the tone for the conversations in the conventional and social media. On the one hand, conventional media outlets were focused on the overall state particular banks (usually debit and credit Bulgarian banks got rating downgrades of the banking industry and its role in the card and online banking) and the quality or rating outlook upgrades. Other events Bulgarian economy. The social media, on of customer service at those banks. which increased media coverage were the other hand, was abuzz with a more announcements of first-quarter results, In-person media appearances mundane type of topics and discussions comments on profit and asset figures, such as the best debit or credit card for good for reputation dividend distribution freezes and credit online shopping, bank fees and impolite The conventional media’s interest in guarantee agreements. employees at local bank offices. the banking industry stems from its vital importance for the economy. The major While the financial performance theme Positive and less so media outlets focus on the overall health in general provoked mixed sentiment of the banking sector and its impact on towards the sector, the industry leadership Overall the coverage, both in the the economy. The majority of the articles topic invoked a mostly favourable media conventional and the social media, was dealt with the banks’ financial results, tone. The conventional media actively positive in tone. The positive coverage in their credit portfolios and cash reserves sought the expert opinion of high- the conventional media was prompted as well as the development of the Greek ranking Bulgarian bankers regarding by the solid financial results posted by financial crisis and its potential impact industry developments and events on the the Bulgarian banks as well as by the on the Bulgarian banking sector and global financial scene, which also granted overall stability demonstrated by the local economy. the leadership theme the greatest volume banking sector. of coverage. News related to industry The financial performance theme became rankings and awards served to further Yet, the tone in the social media coverage more visible after Greek lenders National enhance the sector’s media reputation. was not as positive. The stories in the Bank of Greece, EFG Eurobank Ergasias, social media, the nature of which allows Alpha Bank and Piraeus Bank saw their In the context of banking products, for spontaneous, unchecked expression credit ratings slashed by Standard & media outlets closely tracked short- of the opinion of the authors, revolved Poor’s, French-owned Societe Generale term deposits, mortgages and consumer around the personal experience of was warned by Moody’s due to its high credit lines in light of the overall sate the authors with certain products of exposure to the Greek crisis and some of the industry. Many stories were also 22 SEE TOP 100 Banks Reputation Management

dedicated to products and services of service, loan-financing of corporate quality of customer service. The use of particular banks. deals and consulting of major projects debit and credit cards issued by Bulgarian by banks inspired a mixture of more banks for online shopping from foreign Changes in interest rates, promotional neutral to negative coverage. Attempted websites was a recurring theme in the credits and deposits, high bank transfer bank office robberies, hacker attacks social media. fees, new products like mobile banking and litigation pitting banks against their and contactless payment cards were other clients provided further examples of Problems with the use of credit cards, factors which triggered significant media events that tarnished the sector’s image. ATMs, online banking services, coverage. getting approval for loan and mortgage applications and changes in interest rate Tone of most discussed topics (Conventional media) 01/01/2011 - 30/06/2011

500 450 400 Financial 350 performance Leadership 300 250 Products/Services 200 Industry 150 outlook CSR 100 Customer Management Security 50 service moves Marketing M&A

number of mentions 0

Extremely negative Mildly negative Neutral Mildly positive Extremenly positive

Colours denote sentiment. Size of rectangles and columns indicate volume of coverage.

Banking products generate terms often drew negative comments. The A topic which produced extremely most social media chatter tone fluctuated from extremely positive positive coverage, thus contributing and praising to extremely negative and to the media reputation score, was The conversation in the social media critical when users discussed loan and corporate social responsibility. revolved almost exclusively around deposit terms and online shopping banking products and services and the with credit cards. Service fees and On the contrary, security issues, customer Tone of most discussed topics (Social media) 01/01/2011 - 30/06/2011 250 Products/Services 200

150

100 Customer service Marketing Leadership 50 Financial Industry performance CSR Management outlook Security moves number of mentions 0 Litigation M&A

Extremely negative Mildly negative Neutral Mildly positive Extremenly positive

Colours denote sentiment; size of rectangles and columns mean volume of coverage.

23 SEE TOP 100 Banks Reputation Management

Share of voice (Conventional media vs. social media) 01/01/2011 - 30/06/2011 Share of voice The Bulgarian lenders that secured some of the top-tier spots in the 2010 edition of the SEE TOP 100 Banks ranking were 17% the subject of or were mentioned in a 21% 4% total of 1,607 articles by local major news 8% 18% UniCredit Bulbank and business sources and 509 postings by

Eurobank Postbank social media sources between January 1 and June 30, 2011. 9% UBB

Societe Generale 26% security followed attempted hacker 12% 21% DSK attacks and only the fast reaction of the

First Investment Bank banks in thwarting them and warning 8%

Piraeus their customers prevented the sentiment

6% in those postings from being of an 11% Raiffeisen Bank 6% 6% extremely negative nature. 15% 12% That theme was also in the focus of a lot of discussions as a result of bank office Percentage of total articles. Outer circle indicates conventional media. Inner circle indicates social media. robberies.

When they speak, blocking of accounts gave rise to most customer inquiries and issues, about cases when people were especially vocal illicit contract clauses and interest rates everyone listens in their negative sentiment toward the and fees. sector. Neutral in tone were many of the conversations centered on what banks’ The topic that drew almost entirely Christofor Pavlov, Chief Economist clients should know when taking out a negative comments was the security at UniCredit Bulbank, Levon mortgage, drawing a consumer credit or at bank offices as well as in terms of Hampartzoumian, the CEO of using their debit and credit cards abroad. banking services. The postings on bank UniCredit Bulbank, and Momchil Strong interest and completely negative Andreev, Executive Director at Top 10 industry spokespeople Raiffeisenbank, were the most frequently comments regarding the sector were 01/01/2011 - 30/06/2011 prompted by a case in which a customer cited industry spokespeople in the media. successfully sued its bank over an 7 All three of them commented on various Petya Dimitrova - Executive Director, Eurobank Postbank incorrectly calculated interest. developments, the state of the Bulgarian 12 * During the study period (in April) banking sector, the economic situation in Violina Marinova - CEO, DSK Assen Yagodin stepped down from his Bulgaria and the European Union. Their Additionally, people frequently expressed Postbank’s CEO role moving to head their frustration with the quality of the 13 Bulgarian Development Bank expert opinions appeared exclusively in Anthony Hassiotis - CEO, Postbank customer service they encountered at the conventional media outlets. the local branches of certain banks. 14 Boncho Ivanov - Portfolio Manager, UBB The customer service topic sparked Other topics discussed by top executives negative to extremely negative sentiment 14 include the state of the agricultural sector, Alexander Madjirov - Portfolio Manager, UBB towards almost all banks included in the deposit market, export-oriented the study. Occasionally, users would 17 enterprises, dividend policies of public Asen Yagodin - Executive Officer, Eurobank Postbank* compare mortgage offers as well as companies and government bonds. customer services at the larger banks 19 Kaloyan Ganev- Chief Economist at Raiffeisen Bank leading to praise for some banks were praised on account of their professional 22 Reputation score Momchil Andreev - Executive Director, Raiffeisen Bank attitude towards clients and better credit conditions. 37 The banking industry’s Net Promoter Levon Hampartzoumian - CEO, UniCredit Bulbank Score – an index which measures a Furthermore, bloggers and internet users 41 business entity’s reputation through Christofor Pavlov - Chief Economist, UniCredit Bulbank complained about the delayed response the eyes of its end consumers, thus 05 10 15 20 25 30 35 40 of customer service centres to certain based mainly on social media coverage number of mentions 24 SEE TOP 100 Banks Reputation Management

Net effect of conventional media coverage on banking sector by topic and tone 01/01/2011 - 30/06/2011

35000

25000

15000

5000

-5000

-15000

performance moves service Services outlook Products/ Leadership Financial Industry CSR Security Marketing M&A Management Customer

Size of bubbles shows volume of coverage weighted Negative Positive Neutral through media-outlet reputation; Position of bubbles shows the absolute net effect on the reputation of the banking industry

– stood at 60,6% (of max. 100%). The Evaluated through the coverage of the conventional media - dragged the index index was pushed down by the users’ traditional news sources, the leadership, down, but not enough to dampen the predominantly negative tone when products and services and CSR themes, overall positive tone of most journalists discussing banking products and services being the ones that provoked the most towards the industry. and the customer service at the banks. positive attitude and interest, boosted Besides, the volume of postings on these the industry’s reputation index to 0.76 The reputation index is based on the themes outnumbered all other topics in (of max.1). On the other hand, the volume of articles in the conventional the social media, which also weighed on security theme – mostly discussed in a media outlets, the major themes the index score. negative context both in the social and discussed in the conventional media as well as on the attitude of the media Reputation index of the banking industry towards the respective banks and topics. The most influential media outlets in terms of readership, trust and overall image also weigh on the index, as they guarantee a certain effect from the media massage on the potential target audience.

AII Data Processing provides reputation measuring and management services for more than 100 international companies and leading business information suppliers worldwide.

For more information, visit www. aiidatapro.com, email to reputation@ aiidatapro.com or call +359 2 8012 609 (Bulgaria), +43 720 072 688 (Austria), +44 208 002 8768 (UK), +1 212 359 1647 (USA).

25 SEE TOP 100 Insurers

Putting middling 2010 behind, SEE insurers focus on longer run

By Kristina Belkina, Georgi Georgiev

The crisis has interrupted the growth The Slovenian group’s units in Croatia Dunav Osiguranje with 138.9 million of the insurance sector in Southeast (Triglav Osiguranje), Serbia (Triglav euro premium income, down from 153 Europe (SEE) – the combined gross Kopaonik) and Bosnia (Triglav BH million euro in 2009. The state–owned written premium income of the SEE Osiguranje) also earned spots in the SEE insurer is among the top five insurers in TOP100 insurance companies dipped TOP 100 Insurers ranking for 2010 at Serbia. to 6.5 billion euro in 2010 from 6.6 34th, 67th and 74th place, respectively. billion euro in 2009, but the prevailing Romania leads the SEE TOP 100 Insurers sentiment among the market players is Croatia Osiguranje occupies the second ranking for 2010 in terms of number of that business will again return to normal place in the ranking with a gross premium entrants with 22 companies, followed by and that the longer–term prospects of income of 392.7 million euro last year. Bulgaria with 19 and Croatia with 18. the region, where insurance density Its gross premiums were 4.43% down Slovenia and Bosnia and Herzegovina rates have a long way to go to catch up from 2009 as the overall recessionary are represented by 10 companies each. to Western European standards, remain environment and the problems dogging Serbia has 11 entrants. Macedonia is undiminished. the financial industry as a whole represented by five insurance companies– reflected on the performance of Croatia’s Vardar Skopije, Sava Tabak, QBE Companies from the smallest and the insurance sector which contracted 1.8% Macedonia, Eurolink Insurance and biggest country in the region, Slovenia in 2010. Osiguritelna Polisa. Two Montenegrin and Romania, nearly muscled out insurers, Lovcen Osiguranje and Sava everyone else from the top of the SEE Slovenian insurer Adriatic Slovenica Montenegro, and two Moldovan, TOP 100 Insurers ranking. Only one Zavarovalna Druzba ranked third with Moldasig and Asito, also qualified for the Croatian and one Serbian insurer 261.4 million euro premium income, ranking. Albania participated with one prevented their clean sweep of the top slightly up from 260.8 million euro in insurer, SIGAL UNIQA Group Austria. 10 of the biggest players in terms of gross 2009. Slovenia’s Zavarovalnica Maribor premium income in 2010. came in fourth with 259.6 million euro in gross premiums in 2010, down from The unchallenged leader in the SEE TOP 266 million euro. Fifth–placed was 100 Insurers ranking remains Slovenia’s Romanian insurer Astra with 252.8 Zavarovalnica Triglav with gross written million euro premium income last premiums of 721.3 million euro for 2010, year, up by 33.82%. Astra was followed down from the previous year’s 744.5 by Slovenia’s Vzajemna Zdravstvena million euro. Zavarovalnica. It had 240.3 million euro gross premium income in 2010, down from 248.3 million euro. The company said it mitigated the Methodology negative impact last year from the Three Romanian insurers – Allianz– weaker demand for insurance products SEE TOP 100 Insurers is a ranking of the largest Tiriac Asigurari, Ominiasig Vienna most vulnerable to fluctuations in the insurers (excluding re-insurers) in Southeast Insurance Group and Groupama purchasing power of households and to Europe in terms of gross written premium from Asigurari, filled in spots seven through non-consolidated income statements for 2010. slowing economic activity by redesigning nine, respectively. several insurance classes, adapting to its To allow comparison, all local currencies have clients’ needs, paying more attention to been converted into euro, using the central Allianz–Tiriac Asigurari posted a 20.65% risk assessment and underwriting and banks’ official exchange rates on the last fall in premium income in 2010 to cutting operating costs. working day of 2010 and 2009, respectively. 238.1 million euro. Omniasig Vienna Local currency figures have been used when Insurance Group recorded 213.8 million calculating year-on-year changes. The company said earlier this year it plans euro in gross written premiums, down by to enter Romania, Bulgaria and Turkey. 17.79% compared to 2009. Groupama All data is sourced from central banks, national commercial registers, financial supervision Across SEE, Triglav Group is currently Asigurari boosted its gross written commissions, insurance associations, present in Slovenia, Macedonia, Serbia, premiums to 181.9 million euro from 127 government and corporate websites, and the Montenegro, Bosnia and Herzegovina million euro in 2009. companies themselves. and Croatia. It also does business in the Czech Republic. The 10th place was occupied by Serbia’s The initial pool exceeds 230 insurers.

26 SEE TOP 100 Insurers

Team work Triglav’s top man sees swift response to abrupt market changes as main key to executing successful executive challenge shift in business focus

By Georgi Georgiev

Steering into a new direction a business would not make a compromise with. organisation with over 5,100 staff strewn across 31 subsidiaries in eight “My colleagues and I share this view Southeast European countries requires point and have therefore set firm ethical a well-coordinated team effort, steady guidelines in our day-to-day business leadership and a high level of employee operations, first and foremost by adopting engagement. a Code of Good Business Practice.”

So when Matjaz Rakovec, the The move enhanced Triglav’s president of Slovenian insurer Triglav’s responsibility towards both insured management board, was given the task Matjaz Rakovec parties as well as its business partners. to shift the company’s strategic focus This code, which is binding for all away from revenues and market shares employees of the company, lays down and onto a development model based on an engine of progress but sees the sudden ethical standards for any type of conduct, profitability and safe business operations, shifts in the conditions and trends on business decision and contact. he made sure that he had surrounded the insurance market as providing a himself with reliable co-workers and that stern test for his executive leadership In addition, Triglav is a signatory to the there was clear division of work and going forward. “Our main challenge in Declaration on Fair Business, an initiative responsibilities. the future will be finding and providing of the Slovenian chapter of the United timely and successful responses to these Nations Global Compact (UNGC). “The change was significant and some changes.” The UNGC is the world’s largest global effort and time was needed in order to corporate responsibility and sustainability incorporate this strategic shift into the As an insurance and financial services initiative that currently connects close corporate culture and to motivate our business, Triglav is a typically conservative to 5,000 companies and NGOs from employees,” Rakovec told SeeNews. organisation but the top executive is 120 countries that are committed to confident this plays to its strengths and aligning their operations and strategies A graduate of the University of Ljubljana’s has proven to be a sound bet in terms of with ten universally accepted principles economics faculty, he has over fifteen investment. in the areas of human rights, labour, the years of professional experience in the environment and The economic crisis had an impact on name: insurance industry. Rakovec began his anti-corruption. Matjaz Rakovec career at Triglav in 1994. In 2005, he Triglav’s operations, causing events position: and opportunities that required a new President of the transferred to a management position at “I am very proud Management Board another local company before rejoining approach to how the company is run. to say that we were company: “This was a challenge for all of us on the Zavarovalnica Triglav the Triglav team a year later as the head one of the first web: of its Ljubljana regional office. managing board. But we have successfully companies to sign www.triglav.eu changed the focus of our business the declaration in The Triglav executive is especially proud philosophy from maintaining our market Slovenia and that we take this extremely of the management talent that he share at any cost to profitability and seriously. We are ready to show that we managed to pool after taking the helm safety of business operations. We want are conducting transparent and fair of the 400 million euro market cap to consolidate the group and help all our business,” Rakovec said. company in 2009. “We quickly changed companies achieve profitability by the the manner in which we operate, most end of 2013.” The company’s goal of building a importantly by changing the focus to our safer future for its business has led it core business - insurance. This change Rakovec, whose interests away from the to enter into a responsible dialogue resulted in the profitability of the core office include running Slovenia’s ice with stakeholders in the broader social business, which was a great success and hockey association as well as dabbling environment in which it operates. “We confirmed that we are on the right track.” in international water polo match strive to recognise the needs of this refereeing, feels very strongly about environment and to offer an appropriate following high ethical principles in his response through responsible long-term Rakovec, 47, is a firm believer in change as work and said this was something he partnerships.” 27 SEE TOP 100 Insurers

SEE TOP 100 Insurers in millions of euro

Gross written Y/Y Net profit Net profit 2010 2009 Company name Country premium 2010 change loss loss in GWP 2010 2009 1 1 Zavarovalnica Triglav d.d. Slovenia 721.3 -3.10% 32.1 -1.8 2 2 Croatia Osiguranje d.d Croatia 392.7 -4.43% 5.9 9.5 3 6 Adriatic Slovenica Zavarovalna Druzba d.d. Slovenia 261.4 0.22% 10.5 10.5 4 4 Zavarovalnica Maribor d.d. Slovenia 259.6 -2.42% 10.6 -0.555 5 8 Astra SA Romania 252.8 33.82% 5.9 1.5 6 7 Vzajemna Zdravstvena Zavarovalnica d.v.z. Slovenia 240.3 -3.27% -0.220 12.5 7 3 Allianz - Tiriac Asigurari SA Romania 238.1 -20.65% -4.4 7.0 8 5 Omniasig Vienna Insurance Group SA Romania 213.8 -17.79% 0.747 10.3 9 15 Groupama Asigurari SA Romania 181.9 45.18% -11.8 -9.0 10 9 Dunav Osiguranje AD Serbia 138.9 -0.15% 2.1 1.5 11 12 Euroherc Osiguranje d.d. Croatia 135.7 -3.94% 12.2 8.2 12 14 Allianz Zagreb d.d. Croatia 133.2 -0.22% 9.8 5.9 13 16 ING Asigurari De Viata SA Romania 126.8 3.10% 9.1 18.3 14 10 Asigurarea Romaneasca - Asirom Vienna Insurance Group SA Romania 123.9 -17.81% 4.3 1.2 15 13 BCR Asigurari Vienna Insurance Group SA Romania 121.8 -9.38% 0.280 -13.1 16 17 Generali Asigurari SA Romania 102.7 -13.22% 4.9 3.8 17 18 UNIQA Asigurari SA Romania 100.9 -12.95% -13.1 0.586 18 22 Delta Generali Osiguranje AD Serbia 99.2 11.55% 2.1 1.3 19 19 DDOR Novi Sad AD Serbia 99.1 -6.39% 10.1 2.7 20 21 DZI - Obshto Zastrahovane EAD Bulgaria 94.1 -6.50% 4.0 -12.9 21 20 Bulstrad Vienna Insurance Group AD Bulgaria 92.4 -13.76% -10.5 0.049 22 23 Jadransko Osiguranje d.d. Croatia 86.9 -2.98% 6.2 5.2 23 26 Armeec AD Bulgaria 79.4 4.74% 3.4 1.5 24 31 Generali d.d. Slovenia 77.8 15.67% 1.6 0.194 25 29 Zavarovalnica Tilia d.d. Slovenia 73.8 2.25% 1.5 0.820 26 28 Allianz Bulgaria AD Bulgaria 72.4 -0.05% 5.7 5.6 27 35 BCR Asigurari De Viata Vienna Insurance Group SA Romania 71.7 20.47% 3.2 2.7 28 30 KD Zivljenje d.d. Slovenia 70.3 1.53% 1.9 0.789 29 34 Euroins Romania Asigurare-Reasigurare SA Romania 70.3 7.08% -0.978 -1.9 30 27 Kvarner Vienna Insurance Group d.d. Croatia 69.2 -5.39% -0.677 -2.8 31 24 Lev Ins AD Bulgaria 69.1 -19.55% -12.8 3.7 32 40 Carpatica Asig SA Romania 68.1 48.36% 6.5 5.3 33 38 Basler Osiguranje Zagreb d.d. Croatia 55.4 10.28% -8.4 -5.1 34 37 Triglav Osiguranje d.d. Croatia 54.9 1.35% -3.3 -14.5 35 36 Grawe Hrvatska d.d. Croatia 53.9 -4.33% 3.1 3.6 36 25 Asigurare Reasigurare Ardaf SA Romania 50.7 -33.62% 0.062 -21.4 37 41 Alico Asigurari Romania SA Romania 47.9 7.07% 16.1 16.4 38 39 Wiener Stadtische Osiguranje AD Serbia 46.4 8.91% 1.7 0.309 39 45 Generali Osiguranje d.d. Croatia 41.5 12.58% 0.187 -4.3 40 43 Merkur Osiguranje d.d. Croatia 39.3 -1.87% 4.2 3.4 41 49 UNIQA AD Bulgaria 36.8 14.11% -1.1 -1.1 42 44 Euro Ins AD Bulgaria 36.7 -3.24% -1.1 -0.700 43 47 GRAWE Zavarovalnica d.d. Slovenia 34.9 -1.34% 4.0 3.9 44 50 UNIQA Osiguranje d.d. Croatia 32.5 2.40% 0.471 0.345 45 46 Lovcen Osiguranje AD Montenegro 32.3 -9.67% -5.7 -7.4 46 61 NLB Vita d.d. Slovenia 32.2 33.35% 3.2 2.5 47 54 Sarajevo Osiguranje d.d. Bosnia and Herzegovina 30.0 8.55% 0.778 0.680 48 52 AGRAM Zivotno Osiguranje d.d. Croatia 28.0 -9.24% 4.7 4.4 49 53 Generali Zastrahovane AD Bulgaria 27.7 -5.02% 4.1 0.796 (*) denotes gross profit for 2010 28 SEE TOP 100 Insurers

SEE TOP 100 Insurers in millions of euro

Gross written Y/Y Net profit Net profit 2010 2009 Company name Country premium 2010 change loss loss in GWP 2010 2009

50 48 Energia AD Bulgaria 26.5 -23.02% 12.2 12.3 51 60 UNIQA Non-Life Insurance AD Serbia 26.2 19.30% 0.002 -0.698 52 57 Victoria AD Bulgaria 25.5 6.63% 0.114 -1.565 53 56 Allianz Bulgaria Life AD Bulgaria 25.4 5.17% 5.2 5.1 54 58 Sunce Osiguranje d.d. Croatia 23.9 -2.27% 1.9 1.9 55 59 Bosna - Sunce Osiguranje d.d. Sarajevo Bosnia and Herzegovina 23.7 -2.29% 0.361 1.4 56 84 Helios Vienna Insurance Group d.d. Croatia 23.7 74.95% 1.4 -1.4 57 51 Garanta Asigurari SA Romania 22.6 -28.04% 0.893 2.5 58 55 Bulgarski Imoti AD Bulgaria 22.6 -12.02% -8.3 0.385 59 66 HOK - Osiguranje d.d. Croatia 22.4 14.02% 0.599 -1.1 60 64 Vardar Skopije AD Macedonia 21.7 1.21% N/A N/A 61 63 Takovo Osiguranje AD Serbia 21.4 7.28% 0.292 0.606 62 62 Aviva Asigurari De Viata SA Romania 20.7 -12.81% -4.6 -3.2 63 93 SID – Prva Kreditna Zavarovalnica d.d. Slovenia 19.9 79.63% 6.8 -6.5 64 67 Euroherc Osiguranje d.d. Bosnia and Herzegovina 19.9 5.61% 0.926 0.890 65 71 Croatia Osiguranje d.d.* Bosnia and Herzegovina 19.4 7.92% 0.503 0.513 66 70 Grawe Osiguranje AD Serbia 19.1 16.91% 2.8 2.0 67 68 Triglav Kopaonik AD Serbia 18.9 12.14% -2.2 0.129 68 75 UNIQA Osiguranje d.d. Sarajevo Bosnia and Herzegovina 18.0 10.59% 0.275 0.291 69 81 OZK - Insurance AD (formerly Municipal Insurance Company AD) Bulgaria 17.8 20.76% 0.490 0.179 70 79 Interamerican Bulgaria AD Bulgaria 17.4 11.18% -2.8 -1.2 71 65 Chartis Romania SA Romania 17.0 -19.02% -0.419 -0.471 72 72 DZI AD Bulgaria 16.7 -5.05% 1.5 3.7 73 82 Moldasig SRL Moldova 16.3 2.96% 4.9 5.8 74 76 Triglav BH Osiguranje d.d. Sarajevo Bosnia and Herzegovina 16.3 1.06% 0.952 1.5 75 78 SIGAL UNIQA Group Austria sh.a. Albania 16.2 6.57% N/A N/A 76 74 Sava Tabak AD Macedonia 15.2 -8.62% N/A N/A 77 83 Sava Osiguranje AD Serbia 15.0 17.48% 0.090 -1.5 78 New City Insurance SA Romania 14.7 121.70% 0.324 0.076 79 88 Erste Osiguranje Vienna Insurance Group d.d. Croatia 14.5 20.19% 0.782 0.002 80 77 AMS Osiguranje AD Serbia 14.3 -1.77% 0.575 1.2 81 73 Grawe Romania Asigurare SA Romania 14.2 -18.39% 0.327 1.8 82 86 Bulstrad Life Vienna Insurance Group AD Bulgaria 13.6 5.96% 0.398 0.005 83 New SiVZK Bulgaria 13.5 163.92% 0.049 0.094 84 80 QBE Macedonia AD Macedonia 13.4 -9.43% 0.166 0.544 85 90 VGT Osiguranje d.d. Visoko Bosnia and Herzegovina 13.4 12.76% 0.253 0.343 86 85 Croatia Zdravstveno Osiguranje d.d Croatia 13.2 0.21% 0.588 0.613 87 92 Јahorina Osiguranje a.d. Bosnia and Herzegovina 12.5 10.38% 1.8 -1.6 88 95 Asito SA Moldova 11.9 6.14% 1.3 0.823 89 99 HDI Zastrahovane AD Bulgaria 11.7 19.05% 0.116 0.115 90 New UNIQA Life AD Bulgaria 11.0 17.09% 0.169 0.092 91 97 Eurolink Insurance AD Macedonia 10.8 8.78% N/A N/A 92 New Merkur BH Osiguranje d.d. Bosnia and Herzegovina 10.0 8.21% 0.742 0.573 93 New Grawe Osiguranje d.d. Sarajevo Bosnia and Herzegovina 9.9 6.44% 0.257 0.409 94 94 Sava Montenegro AD Montenegro 9.7 -10.91% -2.1 -2.7 95 87 Eureko Asigurari SA Romania 9.7 -20.48% -4.7 -4.5 96 New Asito Kapital SA Romania 9.6 24.38% 0.030 -0.373 97 New Osiguritelna Polisa AD Macedonia 9.0 9.22% N/A 0.646 98 98 Credit Europe Asigurari-Reasigurari SA Romania 8.9 -9.69% 0.246 0.878 (*) denotes gross profit for 2010 29 SEE TOP 100 Insurers

SEE INSURANCE SECTOR SUCCESS MAP 400 - 75

75 - 50 Y 50 - 10 35 million euro 10 - 7 Zavarovalnica Triglav d.d. 25 7 - 0 Bosnia and Herzegovina Bulgaria Croatia Macedonia Moldova Montenegro Romania Serbia Slovenia 20 Zavarovalnica Maribor d.d.

Alico Asigurari Romania SA 15 Adriatic Slovenica Zavarovalna Druzba d.d.

Euroherc Osiguranje d.d. Energia AD Allianz Zagreb d.d. 10 DDOR Novi Sad AD SID – Prva Kreditna Zavarovalnica d.d. HOK - Osiguranje d.d. Takovo Osiguranje AD Jadransko Osiguranje d.d. ING Asigurari De Viata SA Croatia Osiguranje d.d Carpatica Asig SA Allianz Bulgaria Life AD Bosna - Sunce Osiguranje d.d. Sarajevo Allianz Bulgaria AD Astra SA 5 Generali Asigurari SA Moldasig SRL Vardar Skopije AD AGRAM Zivotno Osiguranje d.d. Bulstrad Life Vienna Insurance Group AD DZI - Obshto Zastrahovane EAD 4 Croatia Zdravstveno Osiguranje d.d Merkur Osiguranje d.d. Asigurarea Romaneasca - Asirom Vienna Insurance Group SA Erste Osiguranje Vienna Insurance Group d.d. Generali GRAWE Zavarovalnica d.d. Triglav BH Osiguranje d.d. Sarajevo Zastrahovane AD Armeec AD Grawe Hrvatska d.d. 3 NLB Vita d.d. Grawe Osiguranje AD BCR Asigurari De Viata Cardif Osiguranje d.d. Vienna Insurance Group SA AMS Osiguranje AD Sunce Osiguranje d.d. Dunav Osiguranje AD 2 Jahorina Osiguranje a.d. Helios Vienna Insurance Group d.d. KD Zivljenje d.d. Ј Sava Osiguranje AD DZI AD Wiener Stadtische Osiguranje AD Generali d.d. Delta Generali Osiguranje AD Asito SA Euroherc Osiguranje d.d. 1 Garanta Asigurari SA Zavarovalnica Tilia d.d. Sarajevo Osiguranje d.d. Omniasig Vienna Insurance Group SA UNIQA Osiguranje d.d. BCR Asigurari Vienna Insurance Group SA Vzajemna Zdravstvena Zavarovalnica d.v.z. 0 Victoria AD Generali Osiguranje d.d. X Asito Kapital SA UNIQA Non-Life Insurance AD Asigurare Reasigurare Ardaf SA Credit Europe Asigurari-Reasigurari SA Chartis Romania SA Kvarner Vienna Insurance Group d.d. -1 Croatia Osiguranje d.d. Euro Ins AD Milenijum-Osiguranje AD UNIQA Osiguranje d.d. Sarajevo UNIQA AD Euroins Romania Asigurare-Reasigurare SA City Insurance SA OZK - Insurance AD -2 Grawe Osiguranje d.d. Sarajevo Sava Montenegro AD Triglav Kopaonik AD -3 Interamerican Bulgaria AD Grawe Romania Asigurare SA Triglav Osiguranje d.d. SiVZK -4 QBE Macedonia AD HDI Zastrahovane AD Allianz - Tiriac Asigurari SA VGT Osiguranje d.d. Visoko Aviva Asigurari De Viata SA -5 Eureko Asigurari SA Lovcen Osiguranje AD UNIQA Life AD Basler Osiguranje Zagreb d.d. Bulgarski Imoti AD Bulstrad Vienna Insurance Group AD -10 Merkur BH Osiguranje d.d. Groupama Asigurari SA Lev Ins AD UNIQA Asigurari SA -15

-20

20 30 40 50 60 70 80 90 100 100 200 300 400 500 600 800 million euro

The chart illustrates the position of each of the SEE TOP 100 Insurers in terms of gross written premium, net profit/loss and gross written premium per capita for 2010. The X axis is a measure of 2010 gross written premium, the Y axis represents net profit/loss and the size of the bubbles corresponds to the gross written premium per capita.

Albania's SIGAL UNIQA Group Austria and Macedonia's Vardar Skopije, Sava Tabak, Eurolink Insurance and Osiguritelna Polisa were not included in the graph as no net profit/loss data was available.

30 SEE TOP 100 Insurers

400 - 75

75 - 50 Y 50 - 10 35 million euro 10 - 7 Zavarovalnica Triglav d.d. 25 7 - 0 Bosnia and Herzegovina Bulgaria Croatia Macedonia Moldova Montenegro Romania Serbia Slovenia 20 Zavarovalnica Maribor d.d.

Alico Asigurari Romania SA 15 Adriatic Slovenica Zavarovalna Druzba d.d.

-20

20 30 40 50 60 70 80 90 100 100 200 300 400 500 600 800 million euro

Albania's SIGAL UNIQA Group Austria and Macedonia's Vardar Skopije, Sava Tabak, Eurolink Insurance and Osiguritelna Polisa were not included in the graph as no net profit/loss data was available.

31 SEE TOP 100 per Capita

Slovenian companies shine again in SEE TOP 100 per Capita

By Valentina Dimitrievska

SEE TOP 100 per Capita in euro Companies from Slovenia, an EU– Revenue Revenue SEE member country of some two million per capita per capita TOP No. Company name Country 2010 2009 people, performed best in this year’s 100 No. edition of the SEE TOP 100 per Capita 1 5 Petrol d.d. Slovenia 1 230 1 032 ranking, with 46 firms in the list, two 2 12 Poslovni Sistem Mercator d.d. Slovenia 827.7 877.6 more compared to a year ago. 3 2 INA d.d. Croatia 743.0 601.7 4 16 Revoz d.d. Slovenia 659.6 643.7 Fuel retailer Petrol ranked first for a third 5 27 Krka d.d. Slovenia 476.0 478.1 year running with revenue per capita of 6 151 Elektroprivreda Crne Gore A.D. Montenegro 454.3 459.7 1,230 euro in 2010, up from 1,032 euro a 7 31 Holding Slovenske Elektrarne d.o.o. Slovenia 454.1 400.6 year earlier. In terms of total revenue, the 8 8 Konzum d.d. Croatia 388.6 386.1 company placed fifth in the SEE TOP 9 11 Hrvatska Elektroprivreda d.d. Croatia 385.7 371.8 100 ranking. 10 196 Kombinat Aluminijuma Podgorica A.D. Montenegro 374.8 156.5 11 3 LUKOIL Neftochim Burgas AD Bulgaria 371.0 300.2 Slovenia’s largest food retailer Mercator 12 43 Engrotus d.d. Slovenia 336.0 335.6 was the runner–up with 827.7 euro in 13 44 Gorenje d.d. Slovenia 335.6 306.1 revenue per capita. It was the region’s 14 56 GEN-I d.o.o. Slovenia 287.6 214.0 12th biggest company in terms of total 15 58 Lek d.d. Slovenia 285.4 290.0 revenue in 2010. 16 64 OMV Slovenija d.o.o. Slovenia 275.8 237.0 Aurubis Bulgaria AD Bulgaria 259.2 189.1 Companies from Croatia, a country of 17 7 (formerly HT - Hrvatske Telekomunikacije d.d.) Croatia 254.5 161.9 over four million people, were the second 18 20 Hrvatski Telekom d.d. most widely represented with 16 firms in 19 71 IMPOL d.o.o. Slovenia 251.6 175.5 the list, down from 19 in 2009. 20 68 Okta AD Macedonia 247.5 199.4 21 341 Jugopetrol AD Montenegro 239.6 199.6 Croatian oil company INA, which 22 9 Naftna Industrija Srbije AD Serbia 232.0 191.1 ranked second in SEE TOP 100 in terms 23 10 LUKOIL-Bulgaria EOOD Bulgaria 227.6 226.7 of total revenue, climbed one position to 24 83 Telekom Slovenije d.d. Slovenia 218.6 235.2 the third spot, with 743 euro in revenue 25 14 Natsionalna Elektricheska Kompania EAD Bulgaria 212.6 201.1 per capita in 2010. 26 99 Mobitel d.d. Slovenia 195.7 206.4 27 102 Goodyear Dunlop Sava Tires d.o.o. (formerly Sava Tires d.o.o.) Slovenia 193.1 148.3 The second best Croatian performer was 28 103 Slovenske Zeleznice d.o.o. Slovenia 193.0 178.3 retailer Konzum, which kept the eighth 29 446 Crnogorski Telekom A.D. Montenegro 183.3 191.0 spot in the ranking with revenue per 30 115 CIMOS d.d. Slovenia 180.9 160.8 capita of 388.6 euro. Konzum also came 31 117 Geoplin d.o.o. Slovenia 180.1 161.1 in eighth in SEE TOP 100. 32 119 Merkur d.d. Slovenia 179.7 266.1 33 39 Prirodni Plin d.o.o. Croatia 179.4 60.8 Ten Bulgarian companies entered the list 34 114 EVN Macedonia AD Macedonia 176.8 168.6 of the 100 best performers in terms of 35 127 Makpetrol AD Macedonia 169.3 138.3 revenue per capita. LUKOIL Naftochim 36 1 OMV Petrom SA Romania 169.2 152.5 Burgas was the leader of the group, 37 18 JP Elektroprivreda Srbije Serbia 162.5 150.0 ranking 11th with 371 euro in 2010. It 38 143 Druzba za Avtoceste v Republiki Sloveniji d.d. Slovenia 156.9 135.8 placed third in terms of total revenue in 39 158 Kemofarmacija d.d. Slovenia 146.0 146.0 the overall ranking. 40 160 Elektro Ljubljana d.d. Slovenia 143.6 150.9 41 162 Hypo Leasing d.o.o. Slovenia 141.6 87.0 The second best placed Bulgarian firm 42 159 Elem AD (Elektrani na Makedonija) Macedonia 141.1 128.3 was metals company Aurubis Bulgaria, 43 176 BSH Hisni aparati d.o.o. Slovenia 135.3 120.8 at the 17th spot. In the SEE TOP 100 44 181 Tobacna Grosist d.o.o. Slovenia 133.8 128.6 ranking it came in seventh. 45 4 Automobile Dacia SA Romania 126.4 96.7 46 193 Hella Saturnus Slovenija d.o.o. Slovenia 125.6 88.4 Serbia, Montenegro and Macedonia have 47 30 Telekom Srbija AD Serbia 123.9 136.1 seven companies each in the ranking. 48 587 Telenor D.O.O. Montenegro 123.1 130.7 Although it did not make it into the SEE 49 199 Termoelektrarna Sostanj d.o.o. Slovenia 122.6 118.3 32 SEE TOP 100 per Capita

SEE TOP 100 per Capita in euro Revenue Revenue SEE per capita per capita TOP No Company name Country 2010 2009 TOP 100, Montenegrin power company 100 No. Elektroprivreda Crne Gore took the 50 65 HEP-Proizvodnja d.o.o. Croatia 121.4 119.7 sixth position in the SEE TOP 100 per 51 198 Feni Industries AD Macedonia 120.2 72.3 Capita ranking with 453.3 euro in 2010. 52 205 SCT d.d. - in bankruptcy proceedings Slovenia 119.4 200.1 53 32 U.S. Steel Serbia DOO Serbia 117.4 76.1 Macedonia’s best performer was oil 54 210 Posta Slovenije d.o.o. Slovenia 117.2 116.7 refinery Okta, taking the 20th position 55 211 Primorje d.d. Slovenia 117.0 119.7 in terms of revenue per capita. Okta is 56 67 Zagrebacki Holding d.o.o. Croatia 116.3 138.1 the sole Macedonian company in SEE Bosnia and 57 81 JP Elektroprivreda BiH d.d. Herzegovina 116.1 104.6 TOP 100 – in 68th place. 58 69 HEP-Operator Distribucijskog Sustava d.o.o. Croatia 115.4 111.4 59 605 Roksped D.O.O. Montenegro 114.9 93.4 Serbia’s best performer was oil company 60 72 OMV Hrvatska d.o.o. Croatia 114.2 95.1 NIS, placed 22nd in terms of revenue per 61 223 Talum d.d. Slovenia 113.1 69.7 capita and ninth in the main ranking. 62 35 OMV Bulgaria OOD Bulgaria 110.1 89.1 63 37 JP Srbijagas Serbia 109.1 96.0 Only four companies from Romania, a 64 235 Gradis-Energoplan d.o.o. Slovenia 108.6 30.8 country of some 22 million people, and 65 236 Salus d.d. Slovenia 108.5 111.6 three from Bosnia qualified for SEE TOP 66 76 Uljanik Brodogradiliste d.d. Croatia 108.2 75.6 100 per Capita. 67 79 VIPNet d.o.o. Croatia 105.6 110.1 68 247 Elektro Maribor d.d. Slovenia 104.4 100.9 Romania’s OMV Petrom, the company 69 245 Makedonski Telekomunikacii AD Macedonia 102.4 107.5 leading SEE TOP 100, was the country’s 70 262 Renault Nissan Slovenija d.o.o. Slovenia 100.4 93.9 best performer in terms of revenue per Serbia 100.0 95.2 capita, but ranked only 36th in the 71 41 Delta Maxi DOO 72 644 Rudnik Uglja A.D. Montenegro 96.4 102.7 list. Another Romanian company that Bosnia and performed well in the overall ranking but 73 111 ASA Prevent Group Herzegovina 95.8 67.6 74 152 CEZ Shperndarje Sh.a. Albania 94.1 72.8 poorly in the per capita ranking was car (formerly Operatori i Sistemit te Shperndarjes (OSSH) Sh.a.) producer Automobile Dacia. It ranked 75 283 Helios d.o.o. Slovenia 93.8 58.5 45th in terms of revenue per capita while 76 289 Secop Kompresorji d.o.o. Slovenia 91.5 75.2 in the overall ranking it grabbed the 77 6 Rompetrol Rafinare SA Romania 91.4 76.5 fourth position. 78 93 Tisak d.d. Croatia 91.3 85.8 79 95 Mercator - H d.o.o. Croatia 90.6 69.5 Elektroprivreda BiH was the best among 80 47 Bulgargaz EAD Bulgaria 87.1 87.0 the Bosnian companies, occupying the 81 109 Pliva Hrvatska d.o.o. Croatia 85.5 87.9 57th position. It was the sole Bosnian 82 315 GEN energija d.o.o. Slovenia 84.9 99.7 firm to make it into SEE TOP 100, where 83 319 SI.Mobil d.d. Slovenia 84.3 89.7 it ranked 81st. 84 321 Iskra Avtoelektrika d.d. Slovenia 83.9 56.4 85 113 Vindija d.d. Croatia 83.1 86.5 The energy sector had the biggest number 86 328 Droga Kolinska d.d. Slovenia 83.0 84.9 of entries in SEE TOP 100 per Capita for 87 333 Nuklearna Elektrarna Krsko d.o.o. Slovenia 81.7 76.7 2010. 88 123 Plodine d.d. Croatia 80.7 75.2 89 332 T-Mobile Makedonija AD Macedonia 79.9 85.2 90 337 Adria Airways d.d. Slovenia 79.9 82.1 91 52 CEZ Elektro Bulgaria AD Bulgaria 79.4 82.3 Methodology 92 55 Termoelektrane Nikola Tesla DOO Serbia 79.3 81.1 Bosnia and 93 148 BH Telecom d.d. Herzegovina 78.8 67.1 SEE TOP 100 per Capita is a ranking based on 94 347 Perutnina Ptuj d.d. Slovenia 78.2 78.4 the same pool of 1,200 companies as in SEE 95 351 Cinkarna d.d. Slovenia 77.3 64.6 TOP 100. The ranking is compiled by dividing 96 57 Naftex Petrol EOOD Bulgaria 76.9 63.0 the total revenue in euro of each company by the population estimate in the country of 97 13 Nokia Romania SRL Romania 76.7 47.7 registration. This benchmark indicates the 98 59 Mobiltel EAD Bulgaria 76.0 86.6 importance of individual companies for the 99 357 Ljubljanske Mlekarne d.d. Slovenia 75.6 74.0 local economies. 100 61 Bulgarian Telecommunications Company AD Bulgaria 74.8 73.5 33 SEE TOP Industries

Oil & gas sector turns profitable in 2010, remains SEE’s powerhouse

By Sabina Kotova

The four leading industries in this year’s The metals and automobile industries of them reporting a higher output in SEE TOP 100 ranking maintained their switched places in the SEE Industrial 2010. positions from 2009 in terms of total ranking last year, occupying fifth and annual revenue. sixth position, respectively. The automotive industry showed signs of recovery from the economic crisis as total Oil and gas companies led the SEE revenue and net profit both rose last year, The total revenue generated by the five Industrial ranking in terms of total by 21.5% and 15.5%, respectively. metals companies in SEE TOP 100 revenue for the third year running. increased by 35% to 4.86 billion euro The 27 companies from the oil and The sectors of agriculture and rubber with two of them ending the year in gas industry that entered the SEE TOP products were newcomers in this year’s the red. As the European economies 100 had combined revenue of 32.2 edition of SEE Industrial. They ranked emerge from the financial meltdown, the billion euro in 2010 – more than double 13th and 14th, respectively, pushing demand for the products of SEE-based compared to the revenue of the runner- business and consumer services to the metals producers is recovering with most up industry, electricity. bottom position in the ranking.

The companies operating in the oil and gas sector switched to a combined net SEE Industrial in millions of euro profit of 855.7 million euro last year Total Y/Y Net profit/ Net profit/ 2010 2009 Industry revenue revenue loss 2010 loss 2009 from a combined loss of 156.3 million 2010 change in 2009. According to industry officials, 1 1 Petroleum/Natural gas 32 210 24.58% 855.7 -156.3 last year’s performance was helped by 2 2 Electricity 12 891 7.01% 504.4 158.3 favourable crude oil prices, cost cuts and 3 3 Wholesale/Retail 12 803 1.91% 248.0 171.7 improved operating efficiency. 4 4 Telecommunications 9 739 6.15% 815.6 1 348 5 6 Metals 4 855 35.46% -151.0 -358.6 Eighteen companies operating in SEE’s 6 5 Automobiles 4 611 21.47% 88.8 76.9 second biggest industry, the electricity 7 7 Food/Drinks/Tobacco 2 921 1.86% 90.0 134.5 sector, entered the SEE TOP 100 8 12 Transportation 2 277 49.06% -350.5 -366.1 ranking, four less than in 2009. 9 8 Pharmaceuticals 1 536 -0.26% 213.8 226.1 10 10 Diversified holdings 950.4 0.14% -46.7 -10.5 The combined total revenue of these 11 11 Electronics 677.2 10.29% 2.9 -6.1 companies rose by 7.0% last year and 12 9 Construction 672.3 31.31% 23.4 -124.9 their combined net profit tripled to 13 New Agriculture 440.8 64.04% -14.8 -13.0 504.4 million euro. In 2010 the SEE 14 New Rubber/Rubber products 413.4 17.76% 44.6 48.6 404.3 5.00% -2.1 1.9 electricity demand remained almost 15 13 Business and consumer services flat on the year, recording a thin 1.4% increase to 188.1 terawatthours (TWh), while production rose nearly 9.0% on Methodology the year to 211.1 TWh. SEE TOP 100 Most Profitable Industries The SEE Industrial ranking pools together the The third strongest industry in the Return revenue generated by all companies in SEE TOP No Industry on revenue 100 and ranks sectors by cumulative revenue. region remained wholesale/retail. Twelve 2010 The comparative figures for 2009 are revised to companies from this sector entered the 1 Pharmaceuticals 13.92% allow a fair comparison. SEE TOP 100 ranking, with a combined 2 Rubber/Rubber products 10.79% total revenue of 12.8 billion euro. While 3 Telecommunications 8.37% The sub-ranking of the industries with the revenue was flat, net profit increased by 4 Electricity 3.91% highest return on revenue was calculated by Construction 3.49% 45% last year. 5 dividing the cumulative net profit/loss within 6 Food/Drinks/Tobacco 3.08% each industry by the cumulative revenue. 7 Petroleum/Natural gas 2.66% The telecommunications sector ranked 8 Wholesale/Retail 1.94% We have based our rankings on an industry fourth in terms of total revenue with 9 Automobiles 1.93% classification which treats filling station 9.7 billion euro in 2010, up 6.0% from 10 Electronics 0.43% operators and gas trading/distribution 2009. The net profit of the 13 telecoms 11 Business and consumer services -0.52% companies as Petroleum/Natural included in the SEE TOP 100 ranking 12 Metals -3.11% 13 Agriculture -3.36% gas companies, and pharmacies and dropped by 40% to around 816 million 14 Diversified holdings -4.91% pharmaceutical distributors as Wholesale/ euro last year. 15 Transportation -15.40% Retail businesses. 34 SEE TOP Industries

SEE oil output flat, consumption down

Total oil production (barrels per day) By SeeNews team Country 2010 2009

The oil sector in Southeast Europe Albania 10 926 5 411 economies in the region. (SEE) in 2010 was dominated by crude Bosnia and Herzegovina* -59 -59 Bulgaria 2 925 2 925 oil imports of 20.98 million tonnes, Croatia 23 226 24 223 In 2010 gas and diesel oil accounted for which exceeded more than three Macedonia* -116 -116 47% of petroleum products consumption times domestically produced oil which Serbia 107 056 112 393 in SEE, excluding Bulgaria, Romania and amounted to 6.33 million tonnes. Five Slovenia 5.0 5.0 Slovenia. Petrol was the other fuel with countries in the region have proven Serbia 14 307 12 307 a larger share in domestic consumption Source: U.S. Energy Information Administration oil stocks, of which only two have (*) Negative value indicates refinery processing loss at 17% in 2010. Croatia, Macedonia, considerable reserves - Romania and Serbia and Romania were less dependent Albania. million tonnes in 2020. on imports of petrol, gas and diesel oil, as their production exceeded domestic Consumption of crude oil is expected to consumption. Montenegro, Kosovo and Stock of proven reserves continue its steady rise, which will lead Moldova were the countries entirely of crude oil as of Jan 1, 2010 in millions of bbl to a significant increase of imports to reliant on imported fuels. 14.68 million tonnes in 2020 from 8.62 Country Oil reserves million tonnes in 2010 and the risk of EIHP forecasts that annual total even greater dependency of the region on consumption of oil products in SEE, Romania 600 imported oil. EIHP expects that imports excluding Bulgaria, Romania and Albania 19 911 of crude oil in Croatia, Serbia, Bosnia Serbia 77.5 Slovenia, will increase by 10% to 13.78 Croatia 73.35 and Herzegovina and Macedonia will go million tonnes in 2015 and by a further Bulgaria 15 up by 35% in 2015 and by another 26% 8.0% to 14.93 million tonnes in 2020. Source: U.S. Energy Information Administration in 2020. Annual imports of petroleum products are expected to rise by 7.0% to 6.45 In line with the persistent economic crisis million tonnes in 2015 and by another In 2010, total oil production in the region in the region, consumption of petroleum 3.0% to 6.64 million tonnes in 2020. was 158,270 barrels per day (bbl/d), products decreased to 641,500 bbl/d day almost flat compared to the previous in 2010 from 661,500 bbl/d in 2009. The major supplier of petroleum products year, when the countries’ output totalled The biggest consumers in SEE - Romania for the region is Russia, delivering 73% 157,089 bbl/d. Romania remained and Bulgaria, reduced their consumption of the total crude oil imports in Bulgaria, the top crude oil producer in SEE. Its by 17% and 6.0%, respectively. In most 36% in Romania and 88% in Croatia, output of 107,056 bbl/d was larger other countries there was a slight increase according to 2009 Eurostat data. Other than the combined output of the rest in consumption of petroleum products sources of crude oil imports are Ukraine, of the SEE countries. The two leading in 2010 compared to 2009, but it was Algeria, Libya and countries in the producers in the region - Romania and insufficient to compensate for the decline Middle East, including Iran, Iraq and Croatia, recorded annual declines of in the two leading petroleum-consuming Saudi Arabia. Albania and Montenegro 5.0% and 4.0%, respectively, while Albania more than doubled its output to 10,926 bbl/d. In 2010 the country’s Annual domestic consumption of petroleum products in 2010 in tonnes production exceeded its domestic needs, making Albania the sole net exporter of Country Petrol Gas/diesel oil Other products Total crude oil in SEE, according to data of the Albania 92 900 446 000 483 200 1 022 100 Croatian-based Energy Institute Hrvoje Bosnia and Herzegovina 300 000 933 000 316 900 1 549 900 Pozar (EIHP). Bulgaria N/A N/A N/A 4 200 000 EIHP forecasts show that crude oil Croatia 689 200 1 781 000 1 419 500 3 889 700 production in SEE, excluding Romania, Kosovo 78 900 244 900 249 300 573 100 Bulgaria and Slovenia, will almost double Macedonia 115 000 396 000 307 900 818 900 to 3.88 million tonnes in 2015, driven Moldova 219 100 395 000 146 600 760 700 by sharp rises in Albania and Serbia. Montenegro 67 300 192 200 140 800 400 300 However, the depletion of oil stock over Romania N/A N/A N/A 9 100 000 the following five years will reduce the Serbia 511 000 1 461 300 1 566 400 3 538 700 production in the region by 12% to 3.43 Sources: EIHP, British Petroleum 35 SEE TOP Industries

Annual imports of petroleum products in 2010 in tonnes Croatia’s INA was second in the ranking Country Petrol Gas/diesel oil Other products Total with Bulgaria’s sole oil refiner, LUKOIL Neftochim Burgas, which is majority– Albania 92 900 374 000 277 100 744 000 owneby Russia’s LUKOIL, coming in Bosnia and Herzegovina 168 000 595 000 127 000 890 000 third. Bulgaria* 238 000 626 000 N/A N/A Croatia 235 800 703 000 400 000 1 338 800 LUKOIL Neftochim Burgas’ revenue Kosovo 78 900 244 900 249 300 573 100 rose by 29.16% last year to 2.794 billion euro, while INA’s revenue in 2010 stood Macedonia 6 000 130 000 106 300 242 300 at 3.291 billion euro, up 23.14% on the Moldova 219 100 390 000 139 600 748 700 year. Both companies also performed Montenegro 67 300 192 200 140 800 400 300 better in terms of their bottomline. Romania* 64 000 821 000 N/A N/A Serbia 2 000 544 300 558 700 1 105 000 However, there are big fuel chains in Slovenia* 666 000 1 973 000 N/A N/A SEE that for now are out of the grasp Sources: EIHP, Eurostat (*) Figures are for 2009 of foreign owners. Bulgaria’s Petrol AD import their crude from neighbouring d.d. and Romania’s leading fuel retailer Top 5 fuel retail chains SEE countries like Greece and Italy. Petrom SA, part of OMV. Croatia’s top oil and gas company INA d.d., with a In an attempt to stimulate local retail chain of 476 filling stations in SEE, production and reduce dependency on is another local company in the portfolio 11% of a foreign parent – Hungarian oil and 36% 20% gas group MOL Nyrt. The Hungarian Annual crude oil imports in group is looking to seize a larger share 14% SEE in 2010 in tonnes of the regional market and in May 2011 10% 9% Country closed a deal for the acquisition of 19 filling stations operated by Slovenia’s Albania -193 300 TUS Holding d.o.o. INA d.d Bosnia and Herzegovina* 1 150 000 LUKOIL OAO Rompetrol SA Bulgaria 5 468 000 OMV AG Petrol d.d. Other Croatia 4 435 200 As can be expected, Romanian oil and Macedonia* 1 104 000 gas group OMV Petrom, majority-owned Serbia 6 894 000 by OMV, ranked first in the top 20 of Serbia 2 119 300 the biggest oil and gas companies in the operates 371 filling stations on its home Sources: EIHP, Eurostat, Bulgarian National region in terms of total revenue last year. Statistical Institute market, its Slovenian peer Petrol d.d. has (*) Figures for 2009 a chain of 441 stations in several SEE OMV Petrom’s total revenue rose by countries while Dutch-based oil company 8.48% to 3.627 billion euro in 2010. The Rompetrol Group manages 283 filling Russian oil, the Serbian government company was also among those firms in stations in Romania, 58 in Bulgaria and has restricted imports of oil and oil the sector that boosted their earnings last 32 in Moldova. derivatives until 2011. year. Its profit was up to 419.9 million Strong presence of foreign- euro from 323.6 million euro in 2009. owned retail fuel chains Filling stations across SEE at end - 2010

Fuel chain operators in SEE continued Country MOL INA LUKOIL Petrol AD Shell OMV Petrom Eko Rompetrol Petrol d.d. Makpetrol with the expansion of their retail network Albania 2 10 across the region, bringing the total Bosnia and 64 Herzegovina 45 221 28 3 38 number of filling stations to some 4,300 Bulgaria 23 371 112 94 82 58 in 2010. Nearly a third of them are under 43 424 the control of foreign oil and gas giants Croatia 62 79 like Russia’s LUKOIL OAO and Austria’s Kosovo 3 OMV AG, which in 2010 operated 890 Macedonia 12 110 116 and 609 stations under their brands Moldova 110 102 32 across the region, respectively. Montenegro 1 10 37 3 Romania 126 372 159 387 283 The above figures exclude the pump Serbia 33 185 159 47 5 stations of their local subsidiaries that Slovenia 12 6 n/a 105 313 sell fuel under their own brands such as Total 278 476 890 371 112 609 387 289 373 441 116 LUKOIL Croatia d.o.o.-owned Crobenz Sources: Company websites and annual reports 36 SEE TOP Industries

Annual change in prices of petrol and diesel in SEE as of Slovenia’s Petrol placed fourth in the September 2010 (in euro) SEE TOP 20 Oil & Gas ranking for 2010 with total revenue rising 19.97% to 2.482 Eurosuper 95 Superplus 98 Diesel billion euro and its net profit more than tripling to 37.9 million euro. 25.00

Romanian oil refinery Rompetrol 20.00 Rafinare, Rompetrol Group’s main asset, took the fifth spot, generating a total 15.00 revenue of 1.959 billion euro, a 16.82% rise compared to 2009. 10.00 In spite of the 17% increase in Rompetrol’s revenue in 2010, the company widened 5.00 its net loss to 156.3 million euro last year from 112.1 million euro in 2009. 0.00

Further consolidation of the fuel retail (%) change Y/Y -5.00 Bosnia market in SEE seems unlikely for the and Bulgaria Croatia Macedonia Montenegro Romania Serbia Slovenia Herzegovina time being as markets in the region, Source: Touring Club Suisse excluding Albania, Kosovo, Macedonia and Moldova, currently accommodate Fuel prices in SEE imposed by the governments to cushion three to five well-established players. budget deficits and fluctuations in Almost all of the countries in SEE saw a currency exchange rates. For instance, In 2010 retail sales of local fuel growth in fuel prices last year, prompted Romania’s government raised the Value distributors dropped 4.2% to 7,262 by rising crude oil prices. At the beginning Added Tax rate to 24% from 19% as of kilotonnes (kt), mainly due to a hike in of the year, the price of a barrel of crude July 1, 2010 as part of a wider austerity fuel prices, tight household budgets and oil was traded on international markets package drafted together with the lower sales of new vehicles. at an average of 55 euro, while at the International Monetary Fund and aimed year’s end, the price was up to 70 euro at curbing the country’s widening budget Although the region has a well-developed per barrel. Crude oil prices were mainly deficit. and expanding network of filling stations, buoyed by expectations for an economic further efforts are needed to invest into recovery. The SEE countries that reported the the modernisation and construction of highest annual growth in fuel prices were Among the other factors for the increase storage facilities. those that enjoyed the lowest fuel prices in fuel prices in SEE were higher taxes in the run-up to the global economic turndown. Romania and Bosnia and Herzegovina were the countries to report Petrol and diesel prices in SEE as of end-November 2010 the sharpest increase in fuel prices, with diesel fuel marking an annual Superplus 98 Eurosuper 95 Diesel growth of more than 25%. In Bosnia 1.4 and Herzegovina, unlike most of the countries in the region, the prices of petrol are not regulated. 1.3 The average fuel prices in SEE remained lower than the EU average in 2010. 1.2 Generally, the highest fuel prices were reported in Slovenia, while filling up was cheapest in Bosnia and Herzegovina. 1.1 The higher price levels in Slovenia were reflected in the country’s average annual liquid fuels consumer price index which

in euro per litre in euro 1 stood at 128.9 in 2010 compared to 70.9 in 2009. Bosnia Albania and Bulgaria Croatia Macedonia Romania Slovenia Montenegro Serbia Herzegovina In SEE, diesel was cheaper than petrol in 2010, with the widest price margin Source: Touring Club Suisse 37 SEE TOP Industries

between the two seen in Croatia and Montenegro. Macedonia was the only exception as the country’s Energy Regulatory Commission hiked the price of diesel and cut the cost of Eurosuper 95 and Superplus 98 in 2010. The move was the result of international crude oil average prices and the U.S. dollar/denar exchange rate.

Source: provided LUKOIL Neftochim Burgas refinery

SEE TOP 20 Oil & Gas Companies in millions of euro

SEE Total revenue Y/Y Net profit/ Net profit/ No TOP 100 Company name Country 2010 change loss loss No in revenue 2010 2009 1 1 OMV Petrom SA Romania 3 627 8.48% 419.9 323.6 2 2 INA d.d. Croatia 3 291 23.14% 239.3 -86.4 3 3 LUKOIL Neftochim Burgas AD Bulgaria 2 794 29.16% -61.6 -90.0 4 5 Petrol d.d. Slovenia 2 482 19.97% 37.9 10.7 5 6 Rompetrol Rafinare SA Romania 1 959 16.82% -156.3 -112.1 6 9 Naftna Industrija Srbije AD Serbia 1 716 33.86% 156.3 -392.5 7 10 LUKOIL-Bulgaria EOOD Bulgaria 1 714 4.93% 3.0 3.4 8 15 Rompetrol Downstream SRL Romania 1 446 17.36% -23.1 -19.5 9 22 OMV Petrom Marketing SRL Romania 1 079 151.78% 26.4 8.5 10 23 LUKOIL Romania SRL Romania 1 067 37.81% -38.7 -19.9 11 25 Romgaz SA Romania 989.1 12.37% 152.0 135.4 12 28 GDF SUEZ Energy Romania SA Romania 934.9 5.66% 46.5 89.9 13 35 OMV Bulgaria OOD Bulgaria 829.3 29.19% 17.1 11.2 14 37 JP Srbijagas Serbia 807.0 25.33% 8.4 9.9 15 39 Prirodni Plin d.o.o. Croatia 794.6 194.30% -46.7 -61.4 16 45 Grup Servicii Petroliere SA Romania 674.1 169.69% 1.5 6.6 17 47 Bulgargaz EAD Bulgaria 655.8 4.61% -19.1 15.4 18 48 MOL Romania Petroleum Products SRL Romania 637.6 39.97% 19.1 17.4 19 53 E.ON Energie Romania SA (formerly E.ON Gaz Romania SA) Romania 592.2 -4.18% -22.3 33.5 20 54 OMV Petrom Gas SRL Romania 587.8 250.65% 24.3 14.4 38 SEE TOP Industries

Mix of nuclear/renewables to help SEE meet energy demand, goals

By Ilko Mitkovski, SeeNews Energy Analyst

Any debate over the phasing out of terawatthours (TWh), while production of Energy for South-East Europe (IENE). nuclear reactors currently in operation in rose nearly 9.0% to 211.1 TWh. The Back in 2008 consultancy firm KPMG Southeast Europe (SEE), which account average increase in electricity production and German research institute European for nearly 15% of the region’s electricity across SEE stood at 13.7%. It was Stability Initiative warned that unless supply, is off the agenda for now even in highest in Albania and Montenegro due SEE countries invest in new power plants, the aftermath of the disaster at Japan’s to extremely favourable hydrological the region would become increasingly Fukushima nuclear power plant (NPP) conditions, while Kosovo and Slovenia dependent on electricity imports in earlier this year. What is more, SEE registered a drop in their production by the following years. Energy trading and countries like Bulgaria, Romania and 5.8% and 4.1%, respectively. investment company EFT Group argues Slovenia plan to bulk up their nuclear that electricity demand in the region will capacity going forward. Keeping generation higher than the remain higher than production because demand for electricity is crucial for the additional generation capacity would not The region will perhaps choose a course countries in the region, as most of them be delivered before 2012. of development for its energy industry are net importers. Croatia, Kosovo, that will avoid a clash between nuclear Macedonia and Moldova were the Renewables and renewable energy interests and the countries where electricity consumption SEE countries will instead focus on surpassed the output of the local power In 2010 Romania issued 48 green ensuring the safety and reliability of plants in 2010, while Bosnia, Bulgaria certificates for electricity production power generation. and Romania covered their domestic from renewable sources, including 26 demand and had reserves to export. for wind farms and 18 for hydro power Keeping the generation curve Bulgaria, for instance, produced almost plants. Croatia has a pipeline of over 350 higher 13 TWh above its demand curve. renewable projects at different stages of the permitting process, including 137 wind In 2010, SEE electricity demand However, the electricity balance in SEE farms and 91 small hydro power plants. remained almost flat on the year, is delicate with electricity demand seen Serbian power utility Elektroprivreda

recording a slim 1.4% increase to 188.1 rising 2.5%-3.0% per year by the Institute Srbije (EPS) has calculated that the

Electricity generation and consumption in 2010 (in GWh) 59 766 Electricity generation Electricity consumption

50 520 46 011

35 855 33 212 34 073

17 784 16 068 15 260 13 282 12 266 12 159 8 567 7 743 7 172 6 773 5 506 5 037 3 916 4 022 3 340 881

Albania Bosnia and Bulgaria Croatia Kosovo Macedonia Moldova Montenegro Romania Serbia Slovenia Herzegovina Sources: national energy regulatory and statistical offices, SeeNews 39 SEE TOP Industries

unused potential for small hydro power 19,344 MW of installed hydro capacity, could become operational in 2016 and plants (SHPPs) in the country stands according to KPMG’s Central and the second a year later, on condition that at some 1,700 gigawatthours (GWh). Eastern European Hydro Power Outlook. the two sides resolve the financial issue Macedonia and Montenegro regularly Unfortunately, the countries utilise less and construction works start in 2011. announce tenders for construction and than half of their technical potential. concession of SHPPs, attempting to make Although water is a renewable resource, The nuclear plans of Romania envisage use of their hydro potential. In February only the SHPPs with an installed capacity additional capacity of 1,440 MW. The 2011, Macedonia called an international of 10 MW or less are recognised as government has been searching for new tender to award a design-build-operate- truly renewable. KPMG’s Hydro Power investors in the project after previous transfer concession on 44 SHPPs. Also Outlook shows that SHPPs account for strategic partners RWE, GDF Suez, CEZ at the beginning of 2011, Montenegro 8.4% of the total installed hydro capacity and Iberdrola bowed out of the venture. invited potential investors to a tender for in SEE. Presently, Romanian officials are in talks the construction and operation of SHPPs with Chinese company China Nuclear at eight sites. The abundance of hydro resources in Power Engineering Co. Ltd. for its the region is apparently neglected for participation in the planned Cernavoda The geography of the region allows for the time being with investors’ interest 3 and 4 units. The other partners in the the development of all types of renewable directed at wind and solar projects, project are Italy’s Enel with a 9.15% share sources, yet wind, sun and water are the which might be due to the higher feed- and Luxembourg-based ArcelorMittal most popular options. in tariffs afforded to those segments. with 6.2%. The commissioning of the However, harnessing the power of water second pair of reactors at Cernavoda The power of wind across the region for electricity generation, particularly in NPP has been extended by two years to exceeds 7.0-8.0 metres per second, with Croatia, Macedonia, Montenegro and 2019. Bosnia, Bulgaria, Croatia, and especially Kosovo, would reduce their reliance on Romania, benefiting most from their exports from their neighbours. After sharing Krsko NPP with Croatia location and relief. Bosnia’s wind for 30 years, Slovenia will have to decide potential is estimated at 2,000 megawatts Given the favourable climate, it would on a fully-owned 1,100-1,600 MW unit (MW) while Bulgaria could develop wind be natural for the local governments at Krsko. In January 2010, the owner of projects of up to 3,400 MW, according to make more effort to promote green Krsko NPP - GEN Energija d.o.o., applied to the Bulgarian Academy of Sciences. energy across SEE. Adequate legislative for a permit to build another reactor Romania’s wind capacity leapt to 462 measures may also be instrumental in at the site. The Slovenian Ministry of MW in 2010 from a modest 14 MW a pouring capital into the local energy Economy is expected to return an answer year earlier. sector. by end-2011. Nuclear Electricity production from photovoltaic If all those projects get the green light installations in the region is also The majority of the SEE countries have and secure investors, the three countries considered to have potential. Several never relied on own nuclear sources. A areas in Albania enjoy over 2,000 hours quick reference to the energy profiles and Electricity production from RES and of solar irradiation a year, Bosnia’s strategies of the countries reveals that nuclear in SEE in 2010 capacity for solar power is estimated only Bulgaria, Romania and Slovenia at some 1,900 TWh, Macedonia has have any tradition in nuclear power. Generation untapped resources to produce 10 GWh from nuclear of solar energy per year. Montenegro Bulgaria is the leader among the three has outstanding solar irradiation levels, countries in terms of installed nuclear gathering nearly 50% of all possible sun capacity with the two 1,000 MW rays for a year. Serbia offers almost 40% reactors of the Kozloduy NPP. The Generation higher annual levels of solar irradiation country’s nuclear ambitions include the from other that the average in Europe. construction of a second 2,000 MW sources nuclear plant near Belene, in northern Hydro power is vital for SEE electricity Bulgaria. The project is currently making Generation from generation since it is the most widely little progress because Bulgaria and RES used resource, apart from fossil fuels Russia disagree over the price of the and nuclear energy. More than 50 large units. According to the World Nuclear Sources: national energy regulatory and rivers flow in the region, delivering some Association, the first unit of the plant statistical offices, SeeNews 40 SEE TOP Industries

will become the undisputed electricity carbon belching. Still, the region is far Choosing wisely giants in SEE. The catch in that case behind western European countries in would be a compromise with the EU’s harnessing the power of the sun, wind The most important choice that SEE energy target by 2020, as the production and water for electricity generation. countries have to make will not be a of more nuclear energy will reduce the EU members Bulgaria, Romania and matter of which, nuclear or renewable, share of renewables in the final electricity Slovenia stand the best chance of but a matter of how - how to achieve safe, efficient and reliable power supply generation. meeting their goals through the adoption through diversification of the energy of legislative changes and investment resources. The 20:20:20 targets incentives. Romania, for instance, introduced favourable conditions for Debates on the pros and cons of The commitment of the EU to cut developing wind power projects and in nuclear and renewable energy are greenhouse gases brought about the 2010 the country registered a 33-fold rather superfluous because both types climate and energy package, which has set increase of installed wind capacities. of energy have strong proponents and ambitious targets for at least 20% cut in staunch critics. However, it would be emissions of greenhouse gases by 2020, Wind and solar resource maps and fair to mention some of the most widely compared with 1990 levels, a 20% cut in assessments by the National Aeronautics spread arguments for and against the energy consumption and a 20% increase and Space Administration (NASA) show two types of energy sources. in the share of renewables in the energy that the region has good prospects for mix of the bloc. It was exactly the desire developing renewable sources - Albania, Renewables of the EU to tackle the climate issue Macedonia and Serbia have high solar (+) no need for fuel, directly utilises the and its deepening reliance on natural irradiation levels, while Bosnia and existing natural resources; gas imports that gave stronger impetus Herzegovina, Bulgaria, Croatia and (+) safety of wind turbines, solar to renewable energy across Europe Romania have potential to harness wind installations; through Directive 2009/28/EC. As the power. The plentiful water resources (+) lower initial capital requirements; member states were in different stages of throughout SEE will also help the (+) constantly improving energy introducing green sources to their energy countries to attain their RES goals. In efficiency of renewable technology, mix, the proposed RES target varied Albania nearly 90% of the electricity which reduces the generating costs; between countries. comes from HPPs. However, the (+) solar systems can be close to the point of demand. requirement for an HPP to be green is SEE countries, which in their past that its capacity is 10 MW or less, while (-) require vast areas of land for relied extensively on fossil fuels for the majority of HPPs operating presently delivering more installed capacity; electricity production, will have to meet in SEE exceed that limit. (-) difficult to meet base-load demand relatively lower targets in recognition due to their intermittent nature; of their previous efforts to reduce (-) storage capacities to accumulate produced power when not needed; Share of renewables in SEE final energy in 2009 (-) environmental concerns such as bird mortality, soil overheating, soil erosion, flooding; (-) hydro dams are expensive to build.

Nuclear (+) largest power output per unit of all energy sources; (+) fuel can be used over a long period of time and is claimed to be inexpensive.

(-) requires large capital investments; operation and maintenance costs are also high; (-) logistical difficulties in storage and transportation of spent nuclear fuel; (-) risk of a nuclear disaster. Sources: Renewables 2011, Global Status Report 41 SEE TOP Industries

Company name: Shareholders/Investors: LUKOIL Neftochim Burgas AD LUKOIL Europe Holdings BV Established: (the Netherlands) - 99.47% 1999-10-12 Other - 0.53% Headquarters: Burgas 8104

LUKOIL Neftochim Burgas is the biggest crude oil refinery in Southeast Europe and one of the major Bulgarian exporters. The refinery produces fuel, petrochemicals and polymers. LUKOIL Neftochim holds ISO 9001:2008, ISO 14001:2004 and OHSAS 18001:2007 certifications. An acknowledgement for the efficient quality management system in LUKOIL Neftochim Burgas is the quality award of the Trade Leaders’ Club in Europe and the Club 9000 association. The company is the only winner of this award in Bulgaria.

Capacity production of bitumen component B4 under EN-590 (Euro-5), • gas treatment and sulphur-acid jet fuel A-1, fuel oil, bitumen and vacuum LUKOIL Neftochim’s production alkalisation residue; facilities are located in Burgas, on the • catalytic treatment of fuels Black Sea coast of southeastern Bulgaria. • catalytic cracking Other products: The company has capacity to process 9.5 • production of polypropylene Propane-butane under EN-589, processed million tonnes of crude oil annually. sulphur (palletised and lumps); The petroleum products produced at the The major units consist of the refinery Burgas refinery are grouped into three Polymers: complex and the petrochemical and categories: Polypropylene. polymer production sites. The company owns sea, railway and road transport Fuels: terminals. A-92 exported outside the EU, A-95 Markets & sales under EN-228 Euro-5,A-98 under EN- The refinery has process units responsible 228 (Euro-5), low octane gasoline (LOG), LUKOIL Neftochim exports a great part for: diesel fuel without bio component under of its production to nearly 30 countries • atmospheric-vacuum distillation and EN-590 (Euro-5), diesel fuel with bio around the world.

Market 2010 2009

Domestic 38% 43%

EU countries 8.0% 13%

Non-EU countries 54% 44% Investments

Russia’s oil company LUKOIL OAO plans to invest nearly 1.5 Corporate history billion U.S. dollars (1.096 billion euro) in LUKOIL Neftochim for the construction of a gudron hydrocracking complex with an annual capacity of 2.5 million tonnes. Oct 12, 1999 – The Bulgarian Privatisation Agency sells 58% in Neftochim AD to LUKOIL Petrol AD. The state retains In the period 2000-2010 LUKOIL Neftochim’s indirect a golden share in the company. Neftochim is renamed to majority owner, LUKOIL OAO, invested more than 1.0 billion LUKOIL Neftochim Burgas AD. U.S. dollars in the reconstruction of existing units and construction of new ones in Bulgaria. May 3, 2001 - The Privatisation Agency sells another 13.89% in Neftochim AD to LUKOIL Petrol AD. As a result of LUKOIL’s substantial investments in the overall June 21, 2005 - LUKOIL Neftochim’s general assembly renovation and modernisation of the production units, and votes to strike the company from the register of public the introduction of a contemporary management system, companies and other issuers of securities kept by the LUKOIL Neftochim Burgas is today a modern oil refining Financial Supervision Commission. plant, operating in compliance with leading international standards.

42 SEE TOP Industries

Company name: Headquarters: LUKOIL-Bulgaria EOOD is the fuel LUKOIL-Bulgaria Sofia 1303, 42 Todor Aleksandrov trading arm of Russian oil and gas group LUKOIL OAO. The company is EOOD Blvd. responsible for the marketing of the petroleum products, produced by the Established: No of employees: LUKOIL Neftochim Burgas refinery. The 1998-06-18 3,014 (2010); 3,041 (2009) company holds ISO 9001:2008, ISO 14001:2004 and OHSAS 18001:2007 certifications.

Capacity

LUKOIL-Bulgaria operates 10 fuel storage depots in Iliyantsi, near Sofia, Asparuhovo and Karnobat, in eastern Bulgaria, Stara Zagora and Ihtiman, in central Bulgaria, Ruse, northeastern Bulgaria, Pleven, northern Bulgaria, Plovdiv and Vetren, in southern Bulgaria, and Blagoevgrad, southwestern Bulgaria.

Markets & sales The LUKOIL group of companies in Bulgaria:

• Accounts for 9.0% of the gross domestic product (GDP) of Bulgaria

• Contributes 25% of the total tax revenue into the country’s budget; Corporate history • The annual turnover is more than 3.0 billion dollars, with annual sales June 18, 1998 - Russian oil and gas company LUKOIL OAO, through its Dutch subsidiary in Bulgaria of 2.5 million tonnes of LUKOIL Europe BV, sets up LUKOIL-Bulgaria EOOD as a fuel trading company based petroleum products; in Sofia. June 2001 - LUKOIL-Bulgaria launches a franchise programme for expansion of its • The LUKOIL chain includes 193 network of filling stations. own points of sale and 27 franchises with an approximate market share of April 15, 2002 - Dutch-based LUKOIL Europe Holdings BV takes control of LUKOIL- 26% in retail sales in the country. Bulgaria. The LUKOIL filling stations are some of the safest points of sale from an environmental point of view. Structure of LUKOIL-Bulgaria’s net sales revenue Every fuel dispenser is equipped with a special vapour recovery system. 2010 2009 2000 1800 Total LUKOIL has received numerous 1600 1400 Petrol products recognitions for its contribution to the wholesale development of Bulgaria’s economy: 1200 1000 Investor of the Year and Biggest Strategic 800 Investor; Exporter of the Year; Company 600 Fuel sales via Lukoil with Highest Sales; Taxpayer of the 400 filling stations Year; Biggest Company; nomination for 200 Goods sales via Lukoil filling stations Insurer of the Year. of euro In millions Products sale Services

Source: Annual report 43 SEE TOP Industries

CEZ: more decisive steps towards market liberalisation needed

Petr Dokadal

By SeeNews team CEZ Group is one of the leading Q: How has the investment climate in European energy companies, technology costs in power distribution Bulgaria changed since CEZ entered the which has been present on the from 22% in 2005 to 14.2% at the end country? Bulgarian market since 2004. of 2010, we are ready to do much more. The company has majority stakes However, our capabilities depend on the A: As a whole the last few years volume of investments approved by the saw significant improvement of the in the three power distribution regulator and it is currently insufficient. investment climate, administrative and companies in western Bulgaria – In February we proposed to the regulator tax concessions, for example. Naturally, Elektrorazpredelenie Stolichno AD, to expand investments from 71 million as a representative of the energy sector ELektrorazpredelenie Sofia Oblast levs on average per year to 152 million I can speak in any detail about the AD and Elektrorazpredelenie levs, which, according to our calculations, energy market situation, where the Pleven AD. For the seven years is necessary to reach the European trends of the last seven years have not quality standards in the shortest possible been very favourable. When in 2004 it has been in Bulgaria, CEZ time considering the state of the power CEZ stepped on the Bulgarian market, has invested more than 1.7 network in the country. This year our we had great ambitions. A large part of billion levs (869.2 million euro). proposal was declined but we hope our plans, however, stumbled into the next year to get approval for larger over-regulation of the energy market and investments. If this happens we will be more specifically the low regulated prices, able to consider implementing modern the lack of balancing groups and the because they are an obstacle for investors. technologies such as the so-called smart numerous contracts and administrative It is very important that the steps towards networks, as well as contributing to the hurdles. Also, the wholesale market the liberalisation of the market are more development of electric transport in the has been monopolised due to the high decisive. To date only 30% of the total country. export tax which every exporter owes the volume of energy sold is traded on the National Electricity and Transmission liberalised market. In comparison, in As regards power generation we are Company and the Electricity System Romania the share of the liberalised considering raising the energy efficiency Operator. The export tax is present market is about 50%, which is the of blocks 4, 5 and 6 of the Varna TPP. in only two EU countries - Bulgaria minimum for sufficient liquidity. In Renewable energy projects will be and Romania, and the tax in Romania order to register significant improvement developed by CEZ’s subsidiary CEZ is almost half that in Bulgaria. You of the business environment, strong Bulgarian Investments. understand that this and similar factors political will is necessary. I am convinced affect competitiveness. that the Bulgarian leaders will continue Q: What is the role of environment to demonstrate such will. protection in your development strategy Q: What else should change in the for Bulgaria? business environment here so that name: Q: Where will CEZ direct the large part Petr Dokadal foreign investors feel more secure? of its investments in Bulgaria in the A: CEZ has position: Regional Manager for Bulgaria future? a long-term company: A: The business environment in commitment CEZ Bulgaria can benefit from some general web: A: Our investment plans are divided into to projects www.cez.bg recommendations for the EU and for the three major areas – power distribution, related to the countries affected by the recession as a power generation and renewable protection of theenvironment and raising whole. At the moment, it is of the utmost energy projects. With regard to power consumer awareness of energy efficiency. importance to take steps towards the distribution, our policy is based on one We are investing in the reduction of rapid neutralisation of the recessionary single aim - to improve the quality and technological costs which results in effects. Bulgaria should continue and security of power supply for Bulgarian improvement of energy efficiency. Our expand its fight against some long- consumers and to upgrade our services to company is also continuously conducting standing issues such as corruption, crime European standards as soon as possible. information campaigns for its clients. and the sluggish administrative system. We will continue to invest as much as our Since October 2010 all CEZ Bulgaria True, some progress was made in these resources allow us in raising the reliability employees have been using electronic fields in the last few years but more needs of supplies. receipts. Since August this year the to be done. electronic receipt option has been available to household clients as well. As regards the energy market, some Although we have already booked good It has already attracted considerable legislative frameworks need rethinking results in this aspect, such as reducing interest among consumers. 44

SEE TOP Industries

Sponsored by

SEE pharmaceutical market healthy in 2010

By Valentin Stamov, Iskra Pavlova

The pharmaceutical market in Southeast Bulgaria in 2010. 2010 Sopharma’s exports increased by Europe (SEE) continued to grow in Pharmaceuticals producers in the region 19.44% and totalled 145.7 million levs 2010 despite the economic volatility kept their focus on the manufacturing or 69.72% of its net sales revenue. brought on by the global financial of low-cost generic drugs with the major crisis. Pharmaceutical sales in the region companies generating the bulk of their Sopharma ended up in the fifth spot are still dominated by generic drugs, sales revenue abroad. in the ranking of the 15 biggest SEE especially in terms of volume, due to low pharmaceutical companies in terms of per capita income and underinvestment The Bulgarian pharmaceutical market total revenue for 2010. It was the highest in research and development activities grew in terms of value in 2010. The placed Bulgarian drug manufacturer in focused on new medicines. However, pharmaceutical companies sold drugs the ranking with total revenue rising the introduction of brand-name drugs worth 2.019 billion levs in 2010, which nearly 12% and net profit up 21% last is expanding and their share in terms is a 9.0% increase compared to 2009, year. of value is getting close to that of according to data from global market generics. For instance, brand-name drugs research company IMS Health. In terms In Serbia, pharmaceutical sales were registered a 15.40% year-on-year growth of volume, the market shrank by 2.0% on estimated at 67.1 billion dinars (636 in Bulgaria to 959.6 million levs (490.6 the year. However, the decrease was not million euro), down from 71.2 billion million euro) in 2010 and their market caused by lower consumption of drugs dinars in 2009, according to market share reached 48.90% in value terms. but by the fact that the pharmaceutical intelligence company Business Monitor companies started to put more tablets in International. The export of basic Value of the pharmaceutical market in some SEE countries pharmaceutical products jumped by 21.9% year-on-year to 157.6 million euro 2011 (forecast) in 2010. Serbia’s major pharmaceutical Country Y/Y change 2010 Y/Y change producers are state-owned Galenika AD and Hemofarm AD, controlled Bosnia and Herzegovina N/A N/A 0.269 12.63% by German generic drug-maker Stada Bulgaria 1.094 6.00% 1.032 9.0% Arzneimittel.

Croatia 0.785 1.74% 0.779 0.17% Hemofarm ranked fourth among the Romania 2.357 4.80% 2.260 18.70% SEE pharmaceutical companies in 2010, while Galenika was sixth. Hemofarm Serbia 0.689 4.50% 0.636 -5.76% saw a 2.93% rise in total revenue last year while Galenika posted an increase Slovenia 0.772 3.80% 0.744 4.50% of 5.16%. Both companies, however, in billions of euro Sources: Business Monitor International; IMS Health; Cegedim Romania slipped in the red in 2010.

The growth of the over-the-counter a single package, according to industry In 2010, the pharmaceutical market (OTC) pharmaceutical market in SEE experts. Sales of brand-name drugs in Romania marked an 18.7% annual in 2010 was driven by higher sales of marked growth in both value and volume increase to 9.620 billion lei (2.26 billion analgesics, digestives, vitamins and terms but the market is still dominated euro), data from research company minerals. Oncology drugs also recorded by generic drugs, which accounted for Cegedim Romania indicated. The higher sales because of an increase in 80% of the total number of units sold. growth was fuelled by retail sales, which prices and in the number of cancer The country’s largest Bulgarian-owned accounted for 89.4% of the total. The patients. generic drugs maker is Sopharma AD, prices of drugs in the country remained which recorded non-consolidated sales among the lowest in the region. The Pharmaceutical demand in the SEE of 63.31 million levs on the domestic low prices boosted the so called parallel countries continued to be covered mainly market in 2010. The company produces export – wholesalers bought medicines by imports and their share in terms of the market’s top-selling medicine in the from Romania and exported them value reached 80% in both Romania and past 10 years – the analgesic Analgin. In to countries with higher drug prices. 46 SEE TOP Industries

Annual change in total revenue of major pharmaceutical companies in SEE medicines were generics but there was an increase in the sales of high-cost drugs, particularly oncology medicines. The combined sales of the oncology drugs of Novartis and Roche stood at 11.675 25 million marka in 2010, up 38.3% on the 20 year. 15 The value of the Croatian 10 pharmaceuticals market rose 0.17% to 5 5.750 billion kuna (779 million euro) 0 in 2010, according to data of Business Monitor International. The market is -5 expected to reach 5.850 billion kuna -10 2010 2009 2008 in 2011 but the negative demographic -15 trends and strict reimbursement criteria -20 may halt its growth in the long term. Y/Y change (%) change Y/Y The country’s largest pharmaceutical Bosnalijek Sopharma (Bulgaria) Pliva Hrvatska (Croatia) (Bosnia and Herzegovina) manufacturer Pliva Hrvatska, part of Israeli-based Teva Group, took third Hemofarm (Serbia) Krka (Slovenia) Lek (Slovenia) place in the SEE ranking for 2010 despite a 3.0% drop in total sales. It is Croatia’s In 2010, the share of parallel exports pharmaceutical products totalled 1.612 only entrant in the ranking of the biggest reached 15% of the Romanian drug billion euro, up 6.7% on the year and 15 drug-makers in SEE. market. France’s Sanofi-Aventis and imports came in at 744.4 million euro, Swiss Hoffmann La Roche were the compared to 686.5 million euro in 2009, According to market experts, the SEE leaders on the Romanian pharmaceutical data from the country’s Statistical Office pharmaceutical sector will maintain market in terms of sales value in 2010, showed. its growth throughout 2011 as well as each with a market share of 9.1%. Pfizer over the next few years. The market’s ranked third with a market share of 6.5%, The value of the pharmaceutical market development will be supported by the followed by Swiss Novartis with 6.2%. in Bosnia and Herzegovina reached economic recovery, primarily export-led, Romanians take mainly medicines for 526.1 million marka (269 million euro) the ageing population and the improving cardiovascular diseases, digestive system in 2010, up from 467.2 million marka in health consciousness among the middle and metabolism disorders and as part of 2009, according to the country’s Agency class. As the pharmaceutical market will cancer treatment. for Medicines and Medical Devices. continue to rely on imports, currency The value of imported pharmaceuticals exchange fluctuations could impact Only one Romanian company featured continued to account for more than its growth in value terms in countries among the biggest pharmaceutical 80% of the market. However, domestic like Romania, Croatia and Serbia. The makers in the region last year. Majority producers managed to raise their share to major pharmaceutical producers in state-owned Antibiotice ranked 10th 19.35% in 2010 from 16.70% in 2009. the SEE region will keep their focus on after posting nearly flat net profit on a manufacturing of generic drugs for export revenue gain of 18.75%. Bosnia’s largest pharmaceutical company markets to achieve better sales revenues. Bosnalijek d.d. kept its leading position in The industry’s development, however, Slovenia is home to two of the largest terms of sales revenue with 65.049 million could be impeded by factors such as pharmaceutical companies in the region marka for a market share of 12.38% in a weak healthcare system, especially – Krka d.d. and Lek d.d. These companies 2010. That revenue performance was funding difficulties experienced by the generate some 90% of their sales revenue good enough for the 11th spot among the government hospitals, low per capita from exports, while nearly 60% of the biggest pharmaceutical companies in the income, a lack of clear government policy local demand is covered by imports. region last year. for promotion of investments in the sector and the latter’s strong focus on Krka was the region’s top drug maker last Slovenia’s Krka was runner-up on the generic drugs. year in terms of total revenues with Lek as Bosnian market with a share of 9.64% the runner-up. Krka’s total revenue edged and sales of 50.644 million marka. Mergers and acquisitions up 0.18% last year, while Lek’s fell 0.99% Among the other major companies compared to 2009. Both companies saw a with market shares exceeding 5.0% were The SEE pharmaceutical market saw minor decline in net profit in 2010. Serbia’s Hemofarm, UK-based Wellcome no major mergers and acquisitions Limited, Swiss Roche and Croatia’s in 2010. The only notable deals took In 2010, Slovenia’s export of Pliva Hrvatska d.o.o. The best selling place in Bulgaria. Sopharma continued 47 SEE TOP Industries

to increase its stake in its associate state-owned stake of 19.26% in local drug The sharpest year-on-year growth in Unipharm AD as part of a consolidated producer Bosnalijek attracted no buyers total revenue was reported by Romania’s effort to boost its competitiveness on in May 2010. The auction of 1,507,724 Sanofi-Aventis, Europharm Holding the domestic market. Sopharma also shares owned by the government of and Farmexpert D.C.I. All of the major merged its pharmaceutical logistics Bosnia’s Muslim-Croat Federation failed companies reported net profits with provider Sopharma Logistics AD and as no bids were placed. The Federation Farmexpert D.C.I. topping the list with drug distributor Sopharma Trading AD government is the biggest single net earnings of 12.5 million euro. in September 2010. shareholder in Bosnalijek. Other major shareholders include the World Bank’s Bulgaria’s Sopharma Trading, majority In June 2010, Bulgarian drug retailer private sector arm, the International owned by Sopharma, retained its top Farmahold EOOD received a nod to Finance Corporation (IFC), with 8.4%, position on the local pharmaceuticals acquire local pharmaceuticals distributor and the Libyan government with 8.8%. market with a 22.8% share by May 2011, Higia EAD from Dutch-based Actavis In November 2010 IFC too failed in its according to data of IMS Health. Holding for an undisclosed sum. Actavis attempt to exit Bosnalijek due to lack of Holding bought Higia in 2005 in a deal interest towards its stake. Croatia’s leading drug wholesaler Medika valued in Bulgarian media reports at 33 d.d. announced its market share stood at million levs. In December, U.S.-based drug maker 29.36% as of June 2010, compared to Alvogen confirmed it was still interested 28.15% a year earlier. Pliva Hrvatska, the In 2010, the Serbian government cancelled in acquiring Bosnalijek but said it leading pharmaceutical manufacturer its long-standing plans to sell Galenika, wanted to buy the state-owned stake first. in the country, holds a 25.32% stake in the country’s largest pharmaceutical The U.S. company, however, did not Medika. 2011 is shaping up as another producer, because none of the bidders place a bid for the state-owned stake in profitable year for the leading drug could meet its requirements. Offers for May, hoping for a lower price later on. wholesalers in SEE. In the first half of 100% of Galenika were filed by UK- Alvogen said at the time it aimed with 2011, Sopharma Trading reported a based AstraZeneca, Greece’s Alapis, the Bosnalijek acquisition to expand to 59.7% increase in its net profit to 2.765 India’s Surya Pharmaceutical Limited Europe and become one of the world’s million levs on an 18.16% increase in its and Cyprus-based investment fund RPG top 10 drug makers. total revenue to 224.9 million levs. Partners Limited. Back in 2009, the Wholesalers government announced it would not Medika’s total revenue was up by 6.70% consider bids lower than 200 million to 1.052 billion kuna and its net profit euro. In 2010, all of the largest drug wholesalers rose by 19.26% to 9.070 million kuna in in the SEE countries managed to increase the first half of 2011. In Bosnia and Herzegovina, the sale of the their total revenue on an annual basis.

SEE TOP Pharmaceutical Companies in millions of euro SEE Total revenue Y/Y Net profit/ Net profit/ No TOP 100 Company name Country 2010 change loss loss No in revenue 2010 2009

1 27 Krka d.d. Slovenia 960.6 0.18% 165.9 170.8 2 58 Lek d.d. Slovenia 575.9 -0.99% 47.9 55.3 3 109 Pliva Hrvatska d.o.o. Croatia 378.5 -3.02% 90.7 7.1 4 224 Hemofarm AD Serbia 228.0 2.93% -8.0 36.5 5 450 Sopharma AD Bulgaria 119.8 11.87% 20.7 17.1 6 469 Galenika AD Serbia 113.6 5.16% -13.6 7.0 7 513 Bayer d.o.o. Slovenia 100.2 -5.57% 3.7 5.1 8 572 Alkaloid AD Macedonia 86.1 9.27% 9.5 8.2 9 637 Biovet AD Bulgaria 66.9 10.37% 3.2 2.9 10 651 Antibiotice SA Romania 61.3 18.75% 2.9 2.8 11 662 Bosnalijek d.d. Bosnia and Herzegovina 54.6 -3.83% 2.1 4.6 12 676 Balkanpharma Dupnitsa AD Bulgaria 45.8 20.08% 7.3 4.0 13 737 Balkanpharma Troyan AD Bulgaria 16.3 13.20% 3.2 0.185 14 744 Balkanpharma Razgrad AD Bulgaria 8.2 -4.50% 0.084 -0.397 15 748 Actavis Operations EOOD Bulgaria 5.5 35.84% 1.4 -8.4 48 SEE Sustainability

Siemens eyes 40 bln euro revenue from green technologies

Wolfgang Hesoun

By Svetozara Davidkova Siemens AG (Berlin and Munich) is Q: Southeast European (SEE) capitals a global powerhouse in electronics on natural gas and will be about 20% Sofia, Bucharest, Belgrade, rank at the and electrical engineering, more efficient than the existing power bottom of your European Green City operating in the industry, energy plant. The new headquarters of Petrom Index – what are the most important and healthcare sectors. For over in Romania were equipped with smart steps countries in the region should take 160 years, Siemens has stood automation solutions from Siemens to to boost city sustainability? for technological excellence, make the building more energy-efficient. innovation, quality, reliability and Q: What is the size of Siemens’s revenue A: Siemens is the largest supplier of internationality. The company from sustainability projects? environmental technologies in the is the world’s largest provider of world. We have set ourselves the target environmental technologies. More to achieve around 50% of our overall A: In the fiscal year 2010, Siemens turnover in green technologies. Our than one-third of its total revenue generated global revenues of around 28 focus as Siemens Austria – responsible for stems from green products billion euro from products and solutions the Cluster Central and Eastern Europe and solutions. In fiscal 2010, from its environmental portfolio. In the which comprises 19 countries – is to be ended September 30, revenue coming years Siemens wants to exceed the a strong partner for cities in SEE and from continuing operations 40 billion euro revenue mark from green CEE to become greener. The European (excluding Osram and Siemens technologies. We strive for sustainability Green City Index shows that Belgrade IT Solutions and Services) in every project for the benefit of our displays good performance regarding totalled 69 billion euro and net customers – be it through highly efficient energy, as does Sofia concerning the income stood at 4.3 billion euro. combined–cycle power plants, eco- energy efficiency of buildings. Without a friendly trains and metros, energy saving doubt there is always a sound basis for building technologies or transformers. further improvement – for the benefit hand we want to clarify that at the end of the people, the environment and the of the day investments in environmental Q: What other areas apart from economy. The eight indicators which technologies pay off and save money in sustainability are reviewed in the index are the focal the long run. Let me give you an example. and energy name: points for sustainable cities and for our Wolfgang Hesoun Nowadays highly efficient combined- efficiency position: integrated solutions. cycle power plants require less gas and are in your Chief Executive Officer company: exhaust less CO2, ecofriendly trains company’s Siemens Austria Q: What are the biggest challenges related or energy saving building technologies web: SEE focus? www.siemens.at to sustainability that cities in SEE face? optimise electricity consumption and therefore save a lot of money. Siemens as A: It’s a fact that public budgets are a whole is focusing more and more on A: Siemens as a company lives its values getting tighter and tighter. In this cities by setting up a new field of activity – responsible, excellent and innovative situation environment–friendly solutions – Sector Infrastructure and Cities by – for over 160 years. In many SEE and are often not the first priority. However, October 2011. CEE countries we have a history which there is a need for modernisation in reaches back for more than 100 years. We infrastructure and energy supply, as well Q: What are Siemens’s major projects in believe that sustainability, innovation as in the industry sector. Growth rates urban sustainability and energy efficiency and efficiency are the tasks of today to are of course not as strong as before the in the SEE region and how are they successfully master the challenges of crisis, but we recognise a perceivable progressing? tomorrow for the society, the industry and demand even if it lasts a bit longer than the economy. Investments in innovative before the crisis. We have a clear vision A: In Croatia we have received an order and efficient technologies like for example and strategy: firstly, we don’t want for 16 wind turbines for two wind parks, in the healthcare sector, designing energy to offer only technical advice to our which will provide clean energy for saving computed tomography systems customers, but also financial expertise around 30,000 households. For the city with reduced radiation which are able to and assistance in financial matters in of Plovdiv in Bulgaria we are the general be almost fully recycled – pay off quickly, cooperation with financing institutions contractor for a new electric and heating are sustainable and therefore attractive in like the EU or the EBRD. On the other power plant. This new plant will run times of economic adversity. 49 SEE Sustainability

Sponsored by Moving towards a more sustainable future

For Siemens, sustainability is not just The responsible use of natural resources, sustainable development and lay the the latest buzz word. The company has targeted investments in future-oriented basis for its successful future. made the three areas of sustainable technologies that support profitable development – environment, business growth while offering customers Sustainability lies at the core of and society – the cornerstones of its competitive advantages, and a company company values operations. ethic that goes beyond mere compliance As Siemens history shows, its “I will not sell the future for a short-term profit!” understanding of sustainability is closely linked to company values – responsible, This quote from German industrialist Werner von Siemens excellent and innovative. From the very explains better than anything else how Siemens views the issue of first day, Werner von Siemens insisted sustainability and has done so for over 163 years. that his company fulfill its responsibilities to its employees, society and nature. When it comes to the environment, with the law and places integrity at the Achieving excellence, capturing leading Siemens provides innovative products centre of business operations – these are positions in the markets of tomorrow and solutions to improve both its own the factors enabling Siemens to drive and developing innovative technologies eco-balance and that of its customers and suppliers. In business, it is focusing on Siemens’s sustainability goals reflect the company’s major long-term value creation. And to ensure challenges. They have been developed and defined in joint efforts sustainable development in society as a with the relevant departments. whole, the company is investing in human capital and adhering to the principles of good citizenship in all communities Sustainability global goals where it is active. - Help customers reduce their carbon dioxide emissions by 300M illion tonnes Although decisions in these areas are - Grow Environmental Portfolio revenue to 40 billion euro not always free of conflicting interests, - Improve carbon dioxide efficiency by 20% Siemens aims to make them all transparent - Increase water efficiency by 20% and to find the best solutions possible.

that help ensure the future viability of modern civilisation – these have always been Siemens’s vision and challenge.

Sustainability Programme 2011

All actions at Siemens are governed by the fundamental resolve to act responsibly on behalf of future generations to ensure economic, environmental and social progress. Siemens’s sustainability activities are an essential factor in achieving its objectives to generate profitable growth and create long-term value for its stakeholders.

50 SEE Sustainability

Siemens regularly identifies sustainability to megatrends and intensive dialogues Siemens Austria CEO Wolfgang topics based on their importance for with stakeholders. During fiscal 2010, Hesoun: the company and its stakeholders, and Siemens consulted more than 30 external prioritise them on the principle of stakeholders and experts from science, ”Sustainability is the basis for our business materiality. These topics are the basis industry, politics, non-governmental activities – with the goal of guaranteeing of Siemens’s Sustainability Programme organisations and consultancies. Internal long-term value creation through and are subsequently implemented by its working groups combined the outcomes responsible interaction with people and specialist functions, Sectors and Regions. of these dialogues with the assessments of the environment. Our economic success is founded on innovative products and The goals and activities of the specialist functions and the results were solutions. These help our customers to Sustainability Programme are focused on then discussed with the Sustainability achieve their business goals while at the same time facing global challenges such as demographic change, urbanisation, climate change and resource scarcity. We pursue ambitious goals with regard to resource efficiency and environmental protection. We view our employees as our most valuable capital and ensure their long-term development. We invest in job security and diversity, such as in promoting our trainees with special needs, because we believe in a company culture of high integrity. We work very closely with our suppliers to integrate our sustainability principles into all relevant business processes. We promote education, social responsibility, art and culture in the places we do business in order to make an important contribution to our society as a corporate citizen. Innovation is the key to success. For this reason, we place an emphasis on this valuable and important work of building the future in the CEE region as well. We are expanding our environmental portfolio with products and solutions that contribute to lowering greenhouse gas emissions as well as environmental Board and the Siemens Sustainability the three fields Business opportunities, technologies for maintaining air Advisory Board. The result is the 2011 Walk the talk and Stakeholder and water purity. The largest single materiality portfolio which defines dialogue. For objective perspectives contributions to CO2 savings were Siemens’s sustainability roadmap for the on the sustainability challenges and achieved in 2010 by high-efficiency current fiscal year. performance, Siemens formed the combined cycle power plants, wind Sustainability Advisory Board, a power plants, the renovation of older The Environmental Programme, body consisting of nine independent power plants, energy-efficient lighting introduced to reduce Siemens’s carbon individuals from science and industry and environmentally-friendly trains. footprint and boost its resource and who represent a variety of disciplines and Additional growth drivers in the future energy efficiency, exemplifies what will include smart grids and their key who hail from different continents. the firm is doing to take advantage of components. opportunities. Using high-efficiency Materiality portfolio As the headquarters for the region of technology in its own manufacturing Central and Eastern Europe, or CEE, operations not only plays an important our focus naturally lies on this group of Siemens’s materiality portfolio highlights role in Siemens’s risk management by countries. The CEE region, which offers key sustainability topics and their helping it hedge against rising energy high medium- and long-term growth importance for the company and its costs, but also enables it to showcase potential and where we have deep stakeholders. The portfolio is prepared our capabilities to customers and historical roots, is of major importance annually in a process that closely integrates demonstrate what Siemens can achieve to our business.” analyses of general trends, its orientation with our solutions. 51

It takes more than a single technology to sustain an entire way of life. That‘s why Siemens is creating lasting answers for people, businesses and the environment.

In 1884, our founder made a simple vow: “I will not sell Our commuter trains reshape cities like Paris and Kuala the future for temporary gain.” That’s the philosophy Lumpur. And our affordable healthcare solutions help we still live by today. In Ontario, our wind turbines hospitals cut costs in Cairo and Colombia. Every day generate clean, renewable power. Our smart building we’re working with the world to create answers that technologies dot the skyline in New York and Dubai. will last for years to come.

siemens.com/answers SEE Sustainability

Smarter grids Short-term solutions not a smart choice for Southeast Europe

By Atanas Georgiev, Publics.bg Atanas Georgiev is a full-time assistant professor at Sofia Uni- Southeast Europe is the smallest regional versity St. Kliment Ohridski and regulation of the European Parliament market within the future single European secretary of the Economics and and Council as part of the Third electricity and gas market. However, it Management in Energy, Infra- Liberalisation Package. still remains one of the least connected– structure and Utilities master pro- Process in progress, but both in terms of cross–border capacities gramme. Georgiev has published a and national grid coverage. A potential number of articles about the ener- something still missing solution may be the smart grid – securing gy sector and other public services. both better management and better Since January 2010 he is manag- According to the European Commission’s allocation of power. ing editor of Publics.bg – the Bul- blueprint for an integrated European energy network entitled “Energy Vision for a single market garian online professional media for development of public services. Infrastructure Priorities for 2020 and Beyond” and published in November According to the EU vision for a single 2010: “The [European] grids must also European power market, Southeast be urgently extended and upgraded to Europe has to better connect all national through improved regulation and foster market integration and maintain grids and improve coordination in terms liberalisation. The Energy Community the existing levels of system’s security, of grid codes, and legal and regulatory process includes regular meetings of but especially to transport and balance framework. The process is still moving at stakeholders for discussing energy issues electricity generated from renewable a slow pace. including grid development. sources”. The same document also stated that “[…] the grids must also become Currently, all national transmission The newly formed Agency for the smarter. Reaching the EU’s 2020 energy grid operators in the Balkans, except Cooperation of Energy Regulators, based efficiency and renewable targets will not those of Turkey and Albania, are in Slovenia, is also part of this process, be possible without more innovation connected within the European network with regard to cross–border trading of and intelligence in the networks at both of transmission system operators electricity and monitoring of internal transmission and distribution level.” (ENTSO–E) framework. Turkey is in markets in electricity and natural gas. This leads to the main challenge for the final stage of inclusion in the grid The agency was founded with a special SEE power grid operators – innovation operators’ association, as in June 2011 Electricity market liberalisation is still going on slowly, according to the EC limited commercial exchanges of power started between Turkey’s transmission system operator TEIAS and the network operators of Bulgaria and Greece – ESO and PPC. All national operators within the ENTSO–E develop ten–year network development plans which should provide transparency for investors in both generation and industrial consumption.

Part of the efforts for creating a single market in the region are also shared by the Energy Community of SEE, where Ukraine and Moldova are contracting parties, although they are not members of ENTSO–E yet. One of the main objectives of the Energy Community is to (C) The European Commission promote energy trade between countries 54 SEE Sustainability

ENTSO-E member countries in the Balkan region the big “elephant in the room” that nobody noticed. By addressing cross– border bottlenecks and national needs for new infrastructure all European top energy priority issues will be tackled simultaneously, allowing both easier electricity trade and integration of new generators. As we are now close to grid parity for onshore wind generation, for example, feed–in tariffs will be less important and grid connection and integration will be the most important issue that needs a solution. Moreover, it has to be supported by a sound legal and regulatory framework for grids management and development, as stated by many investors. They need a clear sign from public authorities and grid

(C) ENTSO-E operators in order to move on with new projects. RES connections and upgrade of existing transmission friendly and improving security of supply and distribution electricity networks through generous feed–in tariffs and Investors in RES are currently in a strange in order to make them ready for the long–term contracts. However, the sale position. They received a promise from new challenges ahead – climate change, of large quantities of energy through the EU for the implementation of the security of supply, and competitiveness, long–term contracts and not on a market 20/20/20 target with the RES directive after the global economic crisis is finally basis impedes the development of a which says that “The main purpose of over. The solutions of these challenges competitive market. mandatory national targets is to provide related to the electricity market include certainty for investors and to encourage investments in renewable energy sources, These actions resulted in some national continuous development of technologies carbon capture and storage, etc, as well imbalances and slower regional market which generate energy from all types as demand–side management for better integration within the SEE and are now of renewable sources”. The electricity energy efficiency. increasingly regarded as wrong. In fact, market directive (2009/72/EC), part of The obvious solution the need for quick development of the the Third Liberalisation Package, takes transmission and distribution grids was this promise further: The solution seems obvious and yet it has long been neglected, at least in some SEE Grid operators claim that wind generators need large balancing capacities countries. According to the European energy policy, there are three main priority areas: • environment protection and climate change mitigation; • security of supply; and • fostering a single European competitive energy market.

The initial approach at national, regional and European level tackled these priorities one by one. For instance, national policies for improving energy security relied on local fossil fuels, the use of which has environmental implications. Renewable energy sources (RES) for their part were hailed as being environment– (C) The European Commission

55 SEE Sustainability

Desertec is a concept proposed by the Desertec Foundation for mak- “A well–functioning internal market in ing use of solar energy and wind en- (2010/31/EC), all new buildings after electricity should provide producers with ergy in North Africa and the Middle 2020 will have to consume zero net the appropriate incentives for investing East. Produced electricity would energy, meaning they will have to in new power generation, including be transmitted to European and generate on–site. This move toward in electricity from renewable energy African countries by a super grid of distributed generation would put even sources”. At the same time, more and high-voltage direct current cables. more pressure than on the transmission more national governments seem less grids, as generating capacities will be enthusiastic about the development of The European Supergrid is a numerous and dispersed. They will green energy production, their main specific concept involving inter- need an intelligent grid operation that concern being the effect of RES on the connecting Europe and regions will be able to direct energy flows from prices of electricity. However, even the around its borders – including upper voltage grids to lower voltage and massive pullback from nuclear energy in North Africa, Kazakhstan, Ukraine, vice versa depending on consumption at the aftermath of the Fukushima Daiichi etc – with a high-voltage di- different locations. disaster is not blowing enough wind in rect current (HVDC) power grid the green energy sails. Currently, there are still only small–scale smart metering pilot projects in the region. Meanwhile, national grid operators are RES–rich regions like Africa to Europe Their purpose is to show the real benefits complaining that current grids may not resembling an energy highway. Part of the of smart metering investment in terms be able to accommodate many renewable HVDC lines will have to cross the Balkan of better demand–side management, energy projects. Both dispatchers and region eventually, which may change the distributed generation integration and managers of grid operators claim that regional market in an unpredictable way. prevention of energy thefts. In order to renewable energy sources, mainly start more and larger smart grid projects, wind and solar capacities, bring a Part of the transmission level solutions there has to be a consensus in society risk to network operations with their also includes large–scale energy storage regarding how future energy costs will be intermittency and unpredictability. facilities, which will be able to store off– distributed both in terms of technologies Experts say that either new balancing peak electricity for the hours of peak (generation vs. grid) and cost allocation capacities should be developed together consumption and thus – reduce both (business vs. households). with RES (i.e. gas–fired power plants), prices and grid loads. or other technical solutions within the The current economic situation makes RES generators should be developed in Their main task will be to accommodate choices harder, as short–term solutions order to increase substantially the share more distributed renewable energy are more attractive – they keep prices of green energy. sources like rooftop solar panels and lower. However, long–term solutions are other building–integrated generating needed and their implementation has to Smart grids in Southeast capacities. As stated by the directive on start very soon. Europe the energy performance of buildings

All above–mentioned problems, related The Supergrid and Desertec projects would bring green energy from the Middle East and Africa to RES, together with EU policies regarding energy efficiency, may find a solution with the implementation of smart grids – both at distribution and at transmission level. Even though there is still no smart grid standard, usually smart metering, distributed generation, THERE IS STILL NO SMART GRID STANDARD and electricity storage solutions are considered to be the main characteristics of this new technology. At transmission level there is still no move towards smarter grids, except from the pan–European projects like Desertec and the Supergrid. These initiatives include investment in high voltage direct current (HVDC) lines that have to bring electricity from (C) Desertec Foundation

SEE Sustainability

Sustainability is EVN Bulgaria’s way to ensure high quality customer services

Joerg Sollfelner

By Dessislava Dimitrova EVN Bulgaria has business Q: A highlight in EVN’s business strategy activities in distribution and sale the current best available techniques. In is achieving sustainable growth by of electricity, and heating supply. this respect the new cogeneration plant of lowering grid losses through investments EVN Bulgaria Elektrosnabdiavane EVN Bulgaria’s district heating utility in and know-how. What specific steps do provides electricity and all related Plovdiv is a good example of combining you plan to undertake? services to 1.5 million customers efficiency with modern technology. The in southeastern Bulgaria. EVN plant with a capacity of 49.9 megawatts A: EVN started its activity in Bulgaria Bulgaria Elektrorazpredelenie (MW) electric and 54 MW heating power with the privatisation of two state- is the electricity distribution is being developed in partnership with owned grid companies in 2005 and since company and EVN Bulgaria Siemens who are the prime contractor then EVN has invested more than 790 Toplofikatsia supplies with on the project. million levs (404 million euro) in the heating energy 35,000 clients country. One result of these investments Q: A few years ago EVN launched a mainly in Plovdiv and Asenovgrad. is lowering grid losses by more than 5.0 project aimed to raise awareness of energy percentage points since 2005 and today efficiency issues among school children. they are already below 12%. This allows What is the scope of this project? us to save 450 gigawatthours (GWh) of year after year. energy annually. We have also reduced A: This school project is very special for the number of outages by 39% for the Q: What are the focal points of your us because it creates awareness among period between 2005 and 2010. environmental policy? children on the importance of energy efficiency in our daily life. The project A: EVN Bulgaria follows a detailed All this is a direct consequence of our started in 2009 and is now expanding corporate social responsibility programme investment programmes which directly to more schools. So far more than 1,800 with focus on environment, education, affect our customers. Here we are talking children from first and second grade health and energy efficiency. In regards about building new lines, transformers have taken part in it and we are very glad to the environment, I can point out our and switching stations, replacement of to see the positive reaction of children, work with the Bulgarian Society for Birds thousands of kilometres of existing parents and teachers. grid, etc. Protection about installing isolators on electricity posts in southern Bulgaria. Q: Your collaboration with educational This way endangered species such as the One example is the complete renovation establishments Imperial Eagle of which only 20 couples of the grid in Plovdiv’s residential district also involves name: have survived in Bulgaria will not suffer Joerg Sollfelner of Stolipinovo. The investment of more projects position: from their contact with the grid. We than 6.0 million levs helped us reduce with local Chairman of the Management also work with Green Balkans, a nature Board grid losses in Stolipinovo from 40% to universities. company: conservation NGO, on installing safety EVN Bulgaria less than 5.0%. In what areas web: nesting platforms for storks. In addition do you work www.evn.bg we also follow a strict policy when it All these efforts directly affect the end together? customer because security of supply comes to waste management in all of our is higher and the quality of service is 39 client centres. A few months ago we A: We started our cooperation with increasing. started a project for the restoration of a forest which has been destroyed by a fire. universities just a few months ago and we already have signed one agreement For us it is clear that when you operate for cooperation with the University of a distribution grid of more than 60,000 Q: How does your sustainability strategy Food Technology in Plovdiv which is a kilometers in length and a large part of apply to EVN’s new co-generation plant very promising start. We are working on which is more than 30 years old, there is whose commissioning is due shortly? expanding this cooperation with other one way to go if you want to provide high technical universities because we believe quality services in the long term. This A: The combined production of that we can contribute to the training of way for EVN Bulgaria means keeping a electric and heating power has proven students with our experience and know- high and sustainable level of investments its qualities as an effective and nature- friendly method when combined with how. 58

SEE Sustainability

Titan Zlatna Panega looks to alternative fuels, additives to cut CO2 footprint

Ioannis Anagnostou

By SeeNews team TITAN Group is an independent Q: The Titan Zlatna Panega plant has multi-regional producer of additives in order to be able to produce recently launched a refuse-derived fuel cement and other related building high-quality cement with lower clinker (RDF) installation which is expected materials. With a track record content by using additives in the form of to provide about a quarter of the fuel of continuous growth since its residues from the metallurgy and power establishment in Greece 109 years needed for the plant’s furnaces. What plants. These blended types of cement ago, it has expanded its production is Titan Zlatna Panega’s long-term goal have a significantly lower CO2 footprint and distribution operations regarding the share of alternative fuel it into 13 countries in Southeast compared to the pure clinker cement. uses? How does it plan to achieve this Europe, the USA and the Eastern goal? Mediterranean. The group has Q: How does Zlatna Panega Cement plan been present in Bulgaria for more to decrease its CO2 footprint? How big A: Our long-term target is to replace than 15 years – it owns the cement a reduction of CO2 emissions does the 75% of the coal use of our Zlatna Panega plant in Zlatna Panega and is one plant target? plant with alternative fuels by 2016. Since of the leading manufacturers of 2003, we have been utilising waste tires as high quality cement in the country. A: Zlatna Panega Cement has a long-term a substitute of 5.0% of the required coal. Furthermore, the company plan for decreasing the CO2 footprint of In the end of August 2011 the installation operates ready mix units in three its operations. As elaborated before, the major cities planning to enter for refuse-derived fuel (RDF) was put activities already started are related to the other locations and is also looking in operation and it will allow further replacement of the use of fossil fuels with for new gravel and sand quarries. reduction of the coal consumption by alternative fuels made from waste. The 20%. Refuse-derived fuel is a mixture of tires and the RDF have a certain biomass different solid waste materials like plastic, and after harvesting can be shredded content – natural rubber and textile (in paper, textile, rubber, oil sludge, biomass, with the new pre-processing equipment tires and RDF) as well as non-recyclable etc. RDF is not waste, but a marketable and used directly in the kiln as 100% paper, wood, etc (in RDF). All these product that must meet strict end-user CO2 neutral fuel. As Zlatna Panega is waste materials, used as fuel, are carbon requirements for a solid fuel. a poor and agriculturally undeveloped neutral. The two alternative fuel streams region, motivating the local stakeholders – waste tires and RDF - already lead Q: As part of its alternative fuels policy, to grow biomass could be beneficial for to 20% reduction of CO2 emissions, the Zlatna Panega plant has launched a both sides. compared to a name: Ioannis Anagnostou biomass research project. Could you tell scenario with position: Q: What investments has the company Plant Manager us more about it? exclusive use of company: made in equipment allowing the use of fossil fuels. The Titan Zlatna Panega web: A: The launched biomass project includes alternative raw materials (additives) in utilisation of www.titan.bg research for availability of wood chips the cement production process? additives as well produced from logging residues and as the strategically envisaged investments rice husk and the experimental growing A: In conformity with EU standards the in renewable energy will further decrease of energy crops and fast growing trees. cement producers are allowed to add the CO2 footprint of our products and Small experimental plots of land have specific types of waste materials such as operations. already been planted with miscanthus, fly ash, blast furnace slag, and industrial switchgrass, poplar, acacia and gypsum to the produced cement. In Q: With energy prices constantly paulownia. In 2011, additional land will the last couple of years, Zlatna Panega increasing, what are your plans in energy be planted with artichoke and sorghum. Cement has invested in two new vertical efficiency and the use of renewable This sort of biomass dries up in the field cement mills and silos for cement energy?

60 A: In our view, the most cost-effective A: In order for us to get a clearer idea What are the highlights in your water way of meeting our energy demands about the existing flora and fauna in the management strategy? while fighting climate changes is, on one Zlatna Panega quarry and allow us to hand, to use energy more efficiently and, prepare a conservation plan and proper A: Cement production requires water on the other, to make use of energy from operation plans, an environmental for cooling the hot gases in the kiln, the renewable sources. In order to achieve study was conducted in 2009 by the UK production equipment and for irrigation. our long-term goal of having a modern, consulting company Atkins. The study In order to improve the quality of the climate-friendly, sustainable and secure showed that various rare species were water and to make its use more efficient energy supply for our plant in Zlatna found in the vicinity of the quarry. In we have built a new sewerage system; treatment plants for industrial and Panega, the use of renewable energy order to save them, we have contacted household waters; a recycling system for will be expanded rigorously and energy specialists from the Bulgarian Academy the industrial water; a settlement tank for efficiency will be further increased with of Sciences who helped us relocate the rain water from the fuel storage. In order the final aim of having renewable energy protected orchid species Spiranthes to avoid losses, the purified water in the contribute the main share to our energy spiralis. Furthermore, this autumn we treatment plant for industrial waters is supply. plan to make a nursery for local species returned to the cycle while fresh water that will be used in the reclamation of is used only for refilling. Since 2011, our quarries. Q: The Zlatna Panega plant and quarries we also started using recycled water for are located in biodiversity-rich areas. suppression of fugitive dust at the plant What are the company’s conservation Q: Water management plays a roads. Our plans are to further decrease projects? significant part in cement production. fresh water consumption. SEE Sustainability

Social responsibility starts within the organisation

Alessandro Romei

By SeeNews team RINA (Registro Italiano Navale) Q: In today’s tough economic climate is the biggest Italian certification that RINA is performing? what is business motivation to be socially body, with over 200 offices and responsible? laboratories in 50 countries. A: RINA is involved in many other Over its 150–year history it has third- and second-party initiatives. We A: Society at large has been, is and will be established itself as the partner perform ethical and social audits on the biggest possible market, so it makes of choice not only for social behalf of our clients of their suppliers. sense for businesses to cater to society as responsibility schemes, but also Many world leading corporations have a whole and not to their own self-interest. in marine, certification, inspection their own ethical and social codes of Businesses no longer talk about brands: conduct and they expect from their and testing services. Established they talk about image and reputation. suppliers to uphold them. As a non- Reputation is the projection of a brand in 1861 in the home town of profit body we have very reasonable fees, over a longer period of time. It is the Christopher Columbus, RINA is which makes us the preferred choice in most valuable asset that distinguishes still based in Genoa and operates the almost 50 countries covered by our the companies with a sustainable as a non-profit organisation. office network. We perform audits on development from those riding the behalf of Carrefour, Metro, Adidas, wave. Being socially responsible creates Esprit, Etam, Levi’s, Burberry, Unilever goodwill and positive reputation. You and many others, either on the basis of become a preferred supplier in the eyes the first place. The international social their own ethical and social compliance of society and it entrusts its needs to accountability standard SA8000 defines criteria or on the basis of established your business. This is your source for the desired social climate in a company: frameworks, such as BSCI, WRAP, sustainable growth. starting from the strict abolishment of SMETA, etc. Our approach is to facilitate child labour and going as far as freedom the implementation of non-bureaucratic Q: Are there any other benefits apart of association and collective bargaining. management solutions by supporting from creating a positive image? It also insists on remuneration that is relationships within the organisations. above the average for the industry within A: Social responsibility attracts talent. the country. Only after creating social Q: For what other standards is RINA Social companies become the preferred justice among its own employees can giving out certification? place to work and can pick the best businesses support external initiatives specialists. Those companies have the A: Virtually all name: and insist on similar rules among their Alessandro Romei lowest human capital turnover. A good suppliers. standards in all position: work environment is the only viable way sectors. We are Regional Manager, EMEA company: to bring about a new modus operandi Q: Is RINA accredited to deliver social one of the few RINA that enables the multiplication of benefits certification web: accountability certification? www.rina.org for all, while reducing social costs that bodies that derive from poor management and bad A: There are a few certification bodies can deliver a entrepreneurial choices. As I said, the that are authorised by the Social complete solution: we certify products, public is the largest market: a public Accountability Accreditation Service systems, processes and personnel. Our boycott can ruin a company in weeks. By (SAAS) to assess organisations and marine surveyors are all over the world. contrast, people trust, respect and buy issue accredited social accountability We have full accreditation by several from socially responsible companies. certificates. RINA is one of these accreditation bodies. We are licensed by certification bodies. Being a non-profit the Italian Ministry of Environment to Q: Many people believe that social organisation, this is a natural fit for supply services in the field of emission responsibility is just a PR stunt. Is it us. RINA is a real social company, in trading. Our clients include companies enough to support the odd initiative which the well-being of the employees such as Eni, Fiat, SAP, Volvo Penta, here and there to be considered socially and creating value for society is more Telecom Italia, KPMG, Enel and responsible? important than any profit or short term E.ON, and practically all Italian public benefit. institutions. We recently concluded a A: Definitely not. Businesses must be contract to certify the Municipality of socially responsible to their employees in Q: Is SA8000 the only social assessment Sofia in Bulgaria. 62

SEE Sustainability

Green building solutions offer longer-term advantages over conventional approach

Boris Borisov

By SeeNews team Sopharma Properties REIT is the Q: One of the few big real estate projects sole investor in the Sopharma solutions an advantage over conventional that were not put on ice during the Business Towers project. The construction. economic crisis was Sopharma Business Sopharma Business Towers Towers which is due to open doors consist of two towers with two Q: What are the specific green solutions on October 6. What is the key to the common basement levels, an that you applied in Sopharma Business successful completion of a real estate underground parking lot, a ground Towers? project? floor and a mezzanine. Sopharma Business Towers are unique for A: Redirecting the daylight is one of the A: Good planning, innovative thinking Bulgaria with their remarkable most important issues. On a nice clear and last but not least – location. It is smart building silhouette, double- day, people in the office space should not very important that everyone involved skin facade and electronically- use any additional artificial light. This is achieved by blinds built in the double in the project during construction controlled blinds that adjust to glazed facade which are controlled and managing the building after its the movement of the sun. The electronically and adjust to the sun. The completion starts working together from building is certified as Class A, the the very beginning. The architects, the 7,000-square metre grass roof on the highest European and world grade top of the retail centre and, respectively, investor, the real estate consultants and for the technology employed in the people involved in the property and in the foot of the office buildings is the construction of commercial facility management need to coordinate another distinctive feature. It acts as a and office space. Class A office their work throughout the whole process. filter and lowers the temperature during buildings use the energy of the sun the summer and increases isolation and wind, the natural temperature during the winter. It also serves to hold In times of economic crisis, it is necessary of the soil and groundwater. rain water and as an additional sound- to have the financing in full even before proofing barrier. Maximum glazing is the project begins However, the crisis led another feature. Thanks to it, the facade to lower costs because of falling concrete, retains the building’s internal energy, steel and equipment prices, and thanks is in place. plus the glazing brings a sense of space. to sound planning Sopharma Imoti even managed to upgrade some of the project’s Q: What are the main advantages of Q: Are lesser details with more expensive parts green architectural solutions? name: Sopharma Boris Borisov and still stay within budget. position: Business Towers CEO A: The benefits of ‘green’ construction are certified as company: Q: Do you consider investment in a Sopharma Properties REIT two-fold. For investors it means quickly green? web: green office building to be riskier or safer renting out the property and the long www.sopharma-imoti.com www.businesstowers.bg than in a conventional one, especially in period that the investment maintains A: The times of crisis? its value, as well as the return on certification process is underway. investment. For the customers it means Preliminary data and research shows that A: Investing in a green and sustainable low maintenance costs and utility bills, Sopharma Business Towers will get a gold building nowadays is inevitable due to a healthy and comfortable environment, certificate by the German Sustainable the requirements which appear on the and consequently higher productivity, Building Council, DGNB, standard. local and international level. The time reduced periods of idleness for when green and sustainable buildings will maintenance or repairs, and easy facility Q: Do you plan to include more green be the accepted standard is not far off, management. The technologies that are projects in Sopharma Imoti’s portfolio? and in that sense the earlier you invest used and the building automation make in such a building, the sooner you will possible saving up to 50% of energy. The A: We are concentrated mainly on our start reaping the benefits. The difference amount spent on construction is merely current project. The state of the market between investments in a conventional 20% of all the costs incurred throughout will determine the area of our future and a green building is between 10 to the lifetime of a building, which in the investments but we will undoubtedly 15%, provided that a good management long term gives ‘green’ architectural have green projects in our portfolio. 64

SEE Sustainability

The green valley of Europe

Dimitar Stoyanov

By SeeNews team Dimitar Stoyanov is an advisor Q: What is sustainable development? to the Bulgarian Green Building the community and central and local Council. He has served as chief authorities. Whoever understands and A: The concept of sustainable operating director of the Council succeeds in generating and developing development rests on three pillars. and advised incumbent Minister this process will be a growth driver and These are economic development, of Regional Development generator of good practices. This would social development and conservation of and Public Works Rossen lead to the emergence of local leaders the environment. The three pillars are Plevneliev on regional policy. in sustainable development and the interrelated and determine the major creation of more effective and efficient development trends for a community at local models. This way, the processes the global, regional and local level. They of planning, programming and policy have, naturally, various dimensions in A: This role is tied to the processes of implementation would be completely in terms of management and balance of adapting and reforming the central tune with local specificities and would interests between the parties involved, e.g. and local administration in order carry high value added for the specific business, environmental organisations to respond to new challenges and community and economy. and local communities, and in terms of opportunities related to the development the creation of value added for present of more environmentally friendly Sustainable development and future generations. The place of and competitive economies based is a continuous process Southeast Europe (SEE) in this process on knowledge and innovation with and whether we could talk about high levels of employment, leading Q: What are the major challenges for sustainable development depends on to social and territorial convergence. the EU27 and can SEE turn into a the state and readiness for reforms in the Sustainable development is a constant sustainable factor for the growth of the separate states in the region. process of integrating economic, social biggest economy in the world? and environmental policies, their Q: What has an effect on sustainable relations with the potential for growth A: This is the main question we should development opportunities in SEE? and coordination between businesses, ask when discussing the prospects of the

A: The main factors describing the state and opportunities for growth and development are the economic environment and the performance of the national economies in the region; efficiency and competitiveness of the business; the state and development of the basic infrastructure; the state of the health, environment and education sectors in the respective countries; and the legal framework and compliance with it, the efficiency, competence and competitiveness of the central and local authorities.

Q: What is the role of the central and local administration in the development of more environmentally friendly and Photo: provided competitive economies? 66 SEE Sustainability

region and the national economies in it. develop its water sector. The potential movement involving local and regional It is a fact that the EU27 has an ageing for energy efficiency coupled with the authorities, voluntarily committing to population. The shortage of qualified creation and development of outsourced increase energy efficiency, a methodology labour force in the engineering field and research and development centres would for the management of energy resources those in the exact sciences affects the reinforce the position of European assessed by the EU as the best in Eastern value added of these sectors’ output. At and other international companies at a Europe. Serdika Centre Bulgaria was the same time, its claim to the title of reasonable price. the first sustainable building in Eastern the world leader in green technologies Bulgaria needs 5 billion euro Europe to be certified as such. has been challenged by China and the for its water sector U.S. The financial instability in part of The opportunities for using revolving The prospects of SEE as a region of the eurozone completes the picture of instruments and grant schemes coupled stability, its potential for economic challenges we face as European citizens. with low taxation and administrative growth and high quality of life fully loads would position the region as concur with the three pillars of the EU27. Q: How can SEE contribute to and the “green valley” of Europe. The The experience of new member states act as catalyst for the rebuilding of the prerequisites are in place with the so- combined with coordinated policies, European economy? called Danube strategy, which could the development and implementation

A: The SEE region can realise its potential for reform policies coupled with reinforcing cohesion as a coordinating instrument for economic development. It is a fact that basic infrastructure in the region is improving, the opportunities for concessions, logistics and intermodal terminals is growing. Political stability with the desire for accession to the European community will guarantee economic and social stability and offer opportunities for economic development. The cost/quality ratio of the labour force and the potential for young specialists’ return could lead to opportunities for the export of services related to the knowledge processes of the economies. The basic infrastructure in the region is improving Photo: provided Services related to healthcare, including health tourism, at reasonable prices are of vital importance for the European turn into a successful benchmark for of instruments of convergence and community and the region’s prospects in the combination of policies, economy green economic development would view of its natural and cultural specifics and culture that would make the region have little effect without a dialogue with are very good. proud. the business sector, identifying growth potential opportunities and the informed The opportunities for organic agriculture Q: Does Bulgaria already boast any inclusion of communities in the region, are also good and could turn into a growth sustainable development projects? for which education and the development factor for regions with poor population of the information and communication and scarce development opportunities. A: Bulgaria already has unique projects in technology infrastructure are of key the area of energy efficiency. The World importance. There is also growth potential in urban Bank’s best project for two years in a row management and infrastructure (water, is the Bulgarian Energy Efficiency Fund. In conclusion, I would like to stress that waste, power, urban mobility, etc.) and We have funding programmes supported SEE could be an example that would the transformation of cities into places by international institutions, upgraded prove that Europe and its business of sustainable economic development. apartment blocks, municipalities, part community are the leaders in sustainable Bulgaria alone needs 5 billion euro to of the Convent of Mayors – a European development.

SEE TOP Industries

MICE segment to help ease seasonality of tourist flows to SEE

By Euromonitor International

Tourism promotion authorities and the MICE international arrivals to SEE region and GDP private hospitality sector in Southeast MICE international arrivals GDP (euro current terms, y -o -y exchange rate) Europe (SEE) are increasingly fixing their 1,000 500.0 attention on the Meetings, Incentive 450.0

Travel, Conventions and Events (MICE) 800 400.0 segment, attracted by the high per capita expenditure of business travellers as 350.0 well as by the opportunities this market 600 300.0 provides to fight the seasonality of 250.0 tourism flow. 400 200.0

According to Euromonitor 150.0 International’s findings, the average 200 100.0 tourist visiting the SEE region in 2010, which for the purpose of this article 50.0 in billions of euro in billions comprises Bosnia and Herzegovina, Thousands 0 0.0 Bulgaria, Croatia, Kosovo, Macedonia, 2006 2007 2008 2009 2010 20112 0122 0132 014 2015 Montenegro, Serbia, Slovenia and Romania, spent an average of 313 euro per leisure arrival and 257 euro per Attracting and retaining MICE business arrival. Given the difference of According to Euromonitor customers International’s research, the prospects average stay between leisure and business Alongside technological facilities, there for MICE travel in SEE are bright and arrivals - seven and two days, respectively, are a number of other aspects which are may represent an interesting opportunity in 2010, it follows that business guests highly appreciated by customers and of spend on average close to three times for all industry stakeholders. more per day than leisure guests. SEE countries’ share of Fighting seasonality is also important as The MICE sector is extremely cyclical, international MICE arrivals in 2010 high seasonality puts pressure on travel as it is closely linked to economic and tourism infrastructure, which needs performance. Due to the global economic Bosnia and Herzegovina crunch, the sector performed poorly 1.1% to be developed to support high volumes Serbia of visitors for short periods of time but is in 2009 when the number of MICE 4.7% international arrivals to the SEE region Slovenia then underused for the rest of the year. 13.0% Bulgaria In 2010 seasonality of tourism arrivals declined by 15.3% to 447,000. However, 18.3% to the SEE region remained high, with the sector partially recovered in 2010 and three peak summer months accounting with a compound annual growth rate for 40.7% of total tourist arrivals. (CAGR) of 9.5% it is forecast to reach Croatia 776,000 arrivals in 2015. 11.5% Other benefits that a particular destination can derive from MICE travel In 2010 Romania and Bulgaria were the two leading countries in SEE in terms Romania include the promotional effect it has on 46.8% leisure tourism and the economic growth of MICE arrivals due to the sheer size generated by business contacts between of their markets. These two countries attendees and local companies. Although benefited from accession to the EU in Montenegro these benefits are not directly measurable, 2007 and an increase of FDI inflows, 3.5% tourism promotion authorities in SEE attracting almost two thirds of total Macedonia 1.1% are well aware of their impact. MICE travellers to the SEE region. Kosovo 0.1% 69 SEE TOP Industries

Penetration of international MICE arrivals within total tourist arrivals of the threat of a double-dip recession 0% 2.0% 4.0% and possible austerity measures. Favourable consumer trends fuelling that Slovenia momentum include:

Serbia • the companies’ growing need for highly skilled employees, and Romania more importantly, the growing need Macedonia for training in a constantly changing business environment; Bosnia-Herzegovina • Increasing importance of Bulgaria networking for executives, a factor that Montenegro is more relevant in SEE than anywhere else as it is a region known for a business Kosovo culture based on strong personal Croatia contacts; • Bright prospects for the which all players in this sector need to be pharmaceutical, medical, scientific, aware of in order to be successful in such Customers’ shortened notice period for financial and IT sectors, which are the a competitive environment. reservations and the rising percentage most important MICE customers; of women and older attendees are • The SEE region uses MICE as First of all, following last decade’s additional factors that should be taken a tool to promote its local industries and terrorist attacks, natural disasters and into consideration by sector players. attract FDI. the international crises that followed This affects the whole range of services them, safety and security have become provided from accommodation, Deteriorating economic conditions paramount in order to host international transportation to food and drinks. could prove to be somewhat of a benefit meetings and events. MICE travel to Finally, as competition gets tougher, for the MICE industry in the SEE, as countries such as Israel and Egypt has developing long-term relationships able Western European and global companies suffered for this reason while, conversely, to generate repeat business is increasingly seek cheaper locations to organise their European destinations benefited from important in order to thrive in this sector. events and, in that sense, the MICE it. Stringent border entry procedures are Therefore, co-operation among national pricing offer in SEE is very competitive also largely disliked by MICE travellers, convention bureaus is very effective. compared to that of western European hence Europe’s upper hand over the U.S. competitors. Nevertheless, as the global in that respect and also Russia’s failure so Hotels-key infrastructure travel infrastructure improves, MICE far to fully exploit its potential. facilities for international MICE services providers in SEE must not forget that they are also competing globally with In addition, corporate and social According to Euromonitor emerging and much cheaper destinations responsibility is increasingly taken into International’s findings, 92% of all such as China or India which are consideration by meeting planners, international MICE attendees in SEE in investing heavily in this sector. especially as far as environmental issues 2010 booked a hotel with the remainder are concerned. A negative environmental availing themselves of private as well If prospects for the MICE sector in SEE score can be a valid reason for a as other accommodation options at are generally positive, some countries destination to be considered unsuitable universities, fairs and other institutions are expected to put in an even more to host an international meeting. where events are held. This ratio is impressive performance. substantially different if compared to The appeal of a destination also plays the significance of hotels in total tourist The highest growth rates are expected a key role given the importance of the arrivals: in 2010 hotels in SEE accounted to be seen in Montenegro followed leisure aspect in MICE travel, where for 57% of total inbound tourist bed/ by Kosovo and Croatia. Growth in emotional factors are as important as nights. This high dependence of MICE Montenegro (CAGR 17% over next in tourism in general. This is why cities travel on hotels infrastructure shows that five years in terms of international such as Vienna, Paris and Barcelona are strong cooperation between NSOs and MICE arrivals) is attributed to its fast permanently among the most popular private hotel owners is needed in order developing infrastructure: the country meetings destinations and this is also to further develop MICE offerings. is investing heavily and promoting its the major challenge to the further accommodation, traffic and MICE Outlook for MICE travel in SEE development of the MICE industry in facilities which, complemented by SEE which lacks globally recognisable The MICE sector in SEE is expected to the natural beauty of the country and destinations. continue to grow in the mid-term in spite relatively affordable prices there, makes 70 SEE TOP Industries

for a perfect MICE product mix. travellers are attracted by Zagreb which largely underdeveloped, with the has business visitors all year round. international professional community Kosovo is the second fastest growing On the other hand, business arrivals to not yet recognising the country as MICE market in SEE albeit from the very coastal destinations are highly seasonal suitable for the hosting of conferences low base. Its MICE capacities, however, as the majority of business is connected and other large events. Thus, despite are unsatisfactory. Because of the to tourism. Growth of business arrivals hosting a couple of economic forums and industry’s relative underdevelopment, over the next five years is set to outpace the annual International Fair in Plovdiv small independent hotels with low leisure arrivals as Croatia nears EU in May, international business visitors capacity prevail in Kosovo. membership. MICE accounted for 15% only accounted for a 22% share of all of all business arrivals in 2010 and this inbound business trips. The majority of business arrivals are individual trips, carried out to finalise investment deals or Hotels pricing profile in SEE attend specific business venues.

Luxury Mid-priced Budget Romania’s business tourism sector 100% remains the biggest in the SEE region, despite its average perspectives for growth over the forecast period. 80% The MICE segment has seen good development after Romania joined the 60% EU as an increasing number of investors and business people have become interested in sectors of the local market 40% from real estate to manufacturing and industry. However with the onset of the global financial crisis, the MICE 20% segment was severely affected, posting a drop of more than 16% in 2009. In 0% 2010 most of the EU countries emerged from the downturn and returned to 2010 2011 2012 2013 2014 2015 positive growth of GDP. Consequently the business meetings, congresses All the leading hotels in Kosovo are percentage is showing consistent growth and international conferences held in located in the capital of Pristina. over the reviewed period. Potential for Romania also picked up. Unfortunately, growth is still large because MICE events the Romanian economy is recovering Croatia, the SEE country receiving the are dominanted by domestic tourists at a slower pace, but MICE recorded a highest number of inbound tourists, is with a lack of world-known conferences. 15% upsurge for 2010, as the country set to grow by a CAGR of 15% in terms is becoming more aligned to the EU’s of international MICE arrivals over the Bulgaria is also expected to see strong framework. MICE represented 3.0% of next five years. growth in MICE international arrivals business departures in 2010. over the next five years, although it will In 2010, Croatian tourism was still be lagging behind Croatia. Of all SEE countries, Slovenia is structurally underdeveloped: only 0.6% forecast to have the lowest growth over of the total number of arrivals are MICE With the grip of the global financial the 2010/2015 period with MICE tourists and this share is the lowest of all crisis weakening and Bulgarian exports international arrivals growing by CAGR SEE countries. Croatia is investing in gaining momentum in 2010, the need of 3.0%. Ljubljana, Bled and Portoroz its MICE industry in order to meet the for new connections between Bulgarian are the most visited cities for MICE challenge of reaching a high percentage business and international partners purposes and the infrastructure there is of MICE within the total number of contributed to a high growth of inbound expected to remain of equal capacity over arrivals, something that has been achieved MICE trips. Most of these trips were for the period 2010/2015. However, even by its neighbour Slovenia where that shae the single purpose of arranging export though MICE arrivals are expected to is 3.7%. As Croatia is mainly a holiday or production deals, rather than repeat remain relatively flat, Slovenia is expected destination, business inbound travel visits for establishing closer cooperation to invest in additional high-value MICE accounted for less than 5.0% of arrivals between partnering organisations. offerings and in that way improve the in 2010. The majority of corporate Bulgarian business tourism remains profitability of the sector.

71 SEE TOP Industries

Park Inn by Radisson offers “Yes I can” service attitude to business, leisure tourists

Christian Dangel

By SeeNews team As one of the world’s fastest Q: Park Inn by Radisson Sofia is part growing hotel companies, The business segment. of The Rezidor Hotel Group. Why did Rezidor Hotel Group (Regent, the company decide to invest in Bulgaria Radisson Blu, Park Inn by Q: What knowledge from your previous now, in times of crisis, rather than during Radisson, Missoni and Country international hospitality experience do the investment boom a few years ago? Inn) ranks among the five largest you apply in the management of Park hotel management companies Inn Sofia? A: The acquisition of new properties in with more than 400 hotels and Rezidor’s portfolio depends on multiple 87,000 rooms in 62 countries A: Overall, open communication factors. Certainly, it is easier to have across Europe, the Middle East and personal business relations with additional hotels in booming markets, and Africa. The Park Inn by guests, staff and suppliers. I’m a strong but first of all the property itself – its size, Radisson Sofia has 113 units, a believer that only as a well-organised infrastructure, location, the quality of the restaurant with a garden, a bar, and motivated team we can provide the building and overall image - has to fit into meeting and leisure facilities. expected services to our clients. This the standards of the chain. The former is what I call the “software” and the Greenville Hotel in Sofia fulfilled most spirit of a hotel. Unfortunately, in too of these criteria but was not “available” many properties the “hardware” is still before. Furthermore, we believe in the areas. So far, we have no particular what is most important. To my mind, growth of the SEE region and could mark projects. this is wrong. Having worked for many our territory with the first international years with very different mentalities has branded four-star hotel in Sofia. Q: What was your approach to the local opened up my mindset and formed my market – did you add any local flavour multi-cultural management style. Q: Park Inn by Radisson Sofia is to the hotel to respond to the Bulgarian positioned among the best hotels in environment? Q: What are the challenges you face as the middle segment, targeting business a manager? Have you met any unfair travellers. What additional business A: As the Greenville Hotel was managed competition so far in Bulgaria? opportunities do you see in Bulgaria? by a local company, we rather added international standards to the new Park A: We all face name: challenges Christian Dangel A: Our segmentation is about 75% Inn by Radisson Sofia. By that time, position: there was no four-star branded hotel on on a daily General Manager corporate and 25% leisure business, on company: average. Even if the property is not located the market. basis as our Park Inn by Radisson Sofia business is very web: in the city centre, it offers advantages for www.parkinn.com leisure travellers, such as a terrace and Q: Did the Bulgarian market surprise you human-related a garden, a large fitness and spa centre in any way? In what ways is the market and every with an indoor pool, quiet and green different from other markets you have single person has a different character. surroundings and a very personalised experience from? This makes our profession so exciting “Yes I can” service attitude. We would and different. In general, I always see love to see more tourists visiting the competitors as a positive factor of A: Every market with its specifics is market dynamics. Without competition capital, but this requires specific and a new challenge. This makes our job constant marketing activities. we would get stuck in our procedures so interesting and diversified. If there because we will miss the push to be better. were surprises, they were only positive. Q: Do you consider additional business Nevertheless, there are quite a lot of It is difficult to judge what is fair and opportunities outside Sofia? things Bulgaria needs to improve to unfair. Everyone needs to defend their find its place on the world map. Well- own business, especially in a market A: The Rezidor Hotel Group is constantly organised and supported marketing which is not growing fast. My only searching for new business opportunities. activities are needed to increase concern is about price dumping. For me, Major cities, such as Plovdiv, but also the international awareness, not only in the this is a very dangerous way to build a Black Sea coast could be new potential tourism sector but also in the corporate solid long-term foundation. 72

SEE Corporate Management

A-brand shelf space under How CPG companies can defend against private labels in SEE attack

By Miloš Fidler and Mitja Pirc, A.T. Kearney

The rise of private labels and healthy, just as well as manufacturer brands and Dominating through cost fresh and convenience foods is changing thus offer good value for money; leadership the consumer packaged goods (CPG) – private label products are industry. As these products take away cheapest in their respective product In the cost leadership strategy, CPG shelf space from A-brands, more CPG categories. companies take on both private label companies are preparing to defend their • The popularity of private label and other branded labels (A, B and C) territory using four strategies – fighting is spreading into many non-food simultaneously in order to dominate head on, dominating a category, moving categories and formats. a chosen category. A combination of into fresh/convenience foods or going Private label share in Western Europe approaches across the whole corporation multi-channel. Winners in this battle (WE) is much higher compared to (e.g. usage of new production and logistic on the shelf space will be the ones that Southeast Europe (SEE) therefore further technologies, leveraging economics of choose the right mix of these strategies. growth opportunity in SEE region is scale, synergy implementations) is being attractive to both existing retailers as well used in order to decrease costs. As CPG The retail game has changed. Private as Western discount retailers entering companies originating from SEE region labels (PL), initially at the tail of the the region (e.g., Hofer and Aldi). are smaller compared to their global food retailers’ product range, have competitors it is not very likely for CPG gone up the assortment ladder and are We believe that CPG companies in SEE companies in the region to use this now offering exclusive product ranges still have the time to prepare to compete strategy. – sometimes at even higher prices with further private label expansion. Enter the fresh/convenience than the original A-brands (premium Based on our extensive number of lines of private label). Big change in projects both for retail as well as CPG category consumer behaviour has been induced companies we have identified four main Unlike products manufactured in by promoting ideas of “healthy, fresh strategies that can be used to compete factories, the clock starts ticking for and convenient”. The fact that such with private labels: fresh, less processed food (FLP) products products (ready-made combination Fight head-to-head as soon as the base components – meat, dishes or fresh, healthy microwaveable fruits and vegetables – leave the farm. meals) where not yet branded caught the Compete with private labels head-to- Freshness of products can be boosted eye of retailers and they moved quickly head by demonstrating to consumers by supply chain innovations which to capitalize on the opportunity. The the added value of an A-brand will need to be driven by high and impact on CPG companies has been product. Added value needs to match stable demand supported by adequate striking. By all accounts, it has been an consumer expectations for a specific marketing campaigns. A research done attack on their retail shelf space as more product category and is typically based by GfK identified a trend within FLP: space is now devoted to private labels and on customer decision trees-quality, almost 60% of the respondents in 2008 fresh/convenience products, and less to packaging material, size, design, variety included eco, bio products to their daily A-brands. (e.g., flavour, scent). Equally important purchases. This trend was supported with is to stay at the forefront of the product 20% yearly growth of Slovenian eco farms Studies ordered by The Private Label category by focusing on relentless in the last 10 years. Some manufacturers Manufacturer’s Association (PLMA) innovation and marketing. This default try to respond to customer demand for reviled the following facts: strategy is still very present in the SEE FLP by making their products healthier. • Private label is poised for further Slovenian dairy producer Ljubljanske region with brands as Activia (yogurt), expansion, as the percentage of Mlekarne developed functional milk with Sensodine (toothpaste) and Cocta shoppers who say they will increase calcium (“good for bones”), omega 3 oils their private label purchases by far (beverages) focusing on added value in (“good for heart”) and enzyme Q 10 and exceeds the number of those who say quality. Yogurt’s brand “Slim & Vital” is vitamin E (increased vitality). Functional they will reduce their private label an example of targeting healthy lifestyle food is capturing an emerging consumer purchases; customer segments. Argeta, a pate brand healthcare market segment dealing with • There are two main reasons for of Slovenian-based Droga Kolinska, is on risk factors. shoppers’ decision to buy private the other hand demonstrating additional label: value by establishing different packaging Employ a multi-channel – private label products perform for children and adults. strategy 74 SEE Corporate Management

Company’s relative position and category potential A-brands can put pressure on retailers determines strategic direction retailers are developing premium brands by expanding beyond the one-channel and therefore entering in a top category sales approach and using additional/new brand segment there is yet no need to be direct and indirect channels both for worried. Their brands are believed to be so communicating with customers as well as unique (by taste, quality and ingredients) providing additional sales opportunities. that cannot be easily replicated by When it comes to customer retailers’ PL. Moreover, their long-lasting communication many companies have regional presence established large successfully used an integrated approach segment of very loyal consumers. Enzo combining traditional media (TV, Smrekar says: “Consumers have made radio, print, outdoor) with web and their own calculations: they perceive mobile. Many major Slovenian brands the value of our brands to be higher (e.g. Gorenjka, Lasko) are increasingly compared to competitors or PL, even entering two-way communication with though our brands are more expensive. their customers/consumers, which have Our consumers have established numerous opportunities to voice their can compete head-to-head. a strong emotional bond with our opinion (e.g. social networks). When brand offerings.” He also believes that it comes to new sales channels we have The first and the second element set the innovation and product development are seen examples of moving from retail strategic direction. the key success factors when competing environment to hotels/restaurants/ Insights from the first two elements with private label. Constant investments catering (e.g. Cedevita) as well as moving should be tested against a third element, in package redesigns, development of from services environment to retail (e.g. i.e. the performance level of the available additional tastes and overall product Syoss) capabilities. For example, moving into innovation are therefore the focus areas of product development teams. What is the appropriate fresh/convenience requires supply chain, quality control and packaging strategy mix? capabilities. Misjudging the demands of The rise of private labels and fresh/ distribution and storage in this category convenience products has changed the Of these four strategic options, some are can be disastrous. Similarly, dominating retail food business. While keeping in being used more than others. Fighting a category requires mixing two different mind that retailers are not necessary head-to-head via heavy negotiations and archetypes: the traditional CPG strategy the enemy – from their perspective, an ongoing innovation is the most natural built on experiences, innovation and optimal mix of private-label and A-brands and de facto default strategy. We are convincing marketing, with branding is the best way to maximise profits – seeing more CPGs leveraging other strategies that persuade consumers CPGs should learn from the private (online) channels and shifting toward to buy your product. It also requires label development in WE and prepare fresh/convenience products. However, it strategies more typically associated with to fight back. Whether you decide to is not very common for CPG companies private labels, such as minimising costs, fight private label head-on, dominate originating from SEE to dominate using a copycat approach where required, a chosen category or enter a new one categories through cost leadership. and employing different packaging for such as fresh/convenience, expand into different regions and retailers. multi-channel distribution or decide on a Which strategy, or mix of these four mix of strategies, success will depend on strategies, makes the most sense for Management at the CPG producer of developing the right strategy today and today’s consumer packaged goods top SEE brands (e.g., Argeta, Cocta, making sure you have the flexibility to companies? We believe three elements Donat, Smoki) believes that although adjust it as necessary tomorrow. should be considered. Recognise crucial capabilities and develop strategies accordingly First, understanding the relative position of the CPG versus its competitors and the retailer provides insight into the negotiation power. Naturally, CPGs that contribute significantly to the category revenue of a retailer can more easily discuss preferred category tactics. On the other hand having sizable competitors in the same space weakens the negotiating position. Secondly, knowing the gross margin potential of the category and CPGs contribution to adjusted gross margin (AGM) allows for another stance. If CPG delivers “top value” to the retailer, then it

75 SEE Corporate Management

Strong worldwide flight connections to boost SEE economic growth

Philip Nordfeldt

By Ina Ignatova Austrian Airlines offers a global Q: Austrian Airlines said last year it route network of around 130 the whole region. With our flights, we plans to generate a positive operating destinations. In Central and offer a strong product for business and result in 2011. First-quarter traffic results, Eastern Europe, the route network leisure travellers. however, showed that the crisis in the is particularly dense: with 46 Middle East and the natural disasters destinations Austrian Airlines is Q: How would you describe the general in Japan affected negatively long-haul the market leader throughout the business environment in the region? flights. What are the repercussions of region. Thanks to its favourable geographical location at the that trend for Southeast Europe (SEE)? A: We definitely see a positive business heart of Europe, the company’s Is the company on track to achieve profit? environment in the region. There is hub at the Vienna International room for economic growth and for direct Airport is the ideal gateway investments in the region. A: The crisis in the Middle East and the between East and West. Austrian tsunami in Japan had a considerable Airlines is part of the Lufthansa Q: Apart from the recent introduction effect on Austrian Airlines, since these Group and a member of the of 21 Airbus A320 aircraft to your fleet, regions account for 20% of our flight Star Alliance, the first global do you plan any other major investments programme. The demand for air travel to alliance of international airlines. whose effect would be felt in the region? these countries and regions fell sharply, making our goal of a positive operating A: For our customers from the SEE region, result in 2011 even harder to reach. But next year will bring a big improvement we are still reaching for this goal and we several of the SEE countries. in terms of passenger comfort: at our are working hard on achieving it. hub Vienna, we will move into the new We will continue to establish new and terminal called Skylink. It features new Speaking about our performance in expand our existing powerful connections lounges, a modern atmosphere and easy Europe, we are pleased with having to Western Europe, America and Asia. connections. transported almost 5.0 million passengers And we will continue with our growth name: So if a Philip Nordfeldt from January to July, which is a plus of strategy in SEE in the future. Already passenger position: today customers have the choice to fly General Manager Bulgaria & 3.6% compared to last year. from the Macedonia via the hubs Vienna, Munich, Frankfurt, company: SEE region Austrian Airlines Also in our whole network, we are Dusseldorf or Zurich. We offer the travels on a web: www.austrian.com growing in terms of passenger numbers: strongest product for our customers in connecting We carried more than 6.2 million the region. The combinability of tickets flight with passengers from January to July, which is gives our customers more flexibility in Austrian, this flight will be smoother and a plus of 2.0%. travel and also helps them save time on more comfortable than ever. their journey. Q: How did the consolidation with Q: Passenger traffic at the airports of Q: Which are Austrian Airlines’ top Lufthansa affect Austrian Airlines’ Sofia, Varna and Burgas rose in the first markets in the region and where do you positions in the region? What is your half of the year. Did Austrian Airlines see the biggest growth potential? business strategy for SEE in 2012? too see passenger numbers go up? A: It is almost impossible to compare A: In the past, Austrian Airlines was a A: Yes, we are pleased with the pioneer in opening up flight connections single countries or markets, since every market has its own specifics and development we have in the passenger between the SEE states and Western parametres. What we are working on is to numbers, especially in the SEE region. Europe, and we still are. We have a provide powerful connections from the We grew by 3.6% in our European traditionally strong expertise in the SEE SEE region to the world, which in the end network - the SEE region doubtlessly markets, which is why we also took over will encourage further economic growth. contributed a big share to this satisfying the lead for the Lufthansa Group in We see high potential for investments in development. 76 130 ways of arriving with a smile. Fly to 130 destinations worldwide with Austrian Airlines and enjoy Austrian charm, renowned hospitality and award-winning service.

Earn miles with Miles & More. Information & booking at www.austrian.com or at your travel agency.

329835_aua_Netzwerk_SEE TOP_206x298abf_e_COE.indd 1 26.08.11 14:39 SEE Corporate Management

Bella Bulgaria – the ideal food industry business partner in Southeast Europe

photo by: Yulian Donov, Manager Magazine Miltos Triantafillou

By SeeNews team Bella Bulgaria is the country’s food Q: Bella Bulgaria is the biggest food industry leader. The company’s are already available in Spain, Germany, producer in Bulgaria with a rich portfolio turnover exceeded 130 million Belgium, Dubai, Australia, Turkey, the of over 200 products. On which segments euro last year. It operates eight U.S., Portugal, Iraq, etc. do you register strongest growth? Are you processing plants with a daily planning to launch more new products? capacity of over 300 tonnes, Q: Does the food industry see signs of high-technology monitoring economic recovery? What is the biggest A: The Bella pastry products – the puff of production processes and challenge facing it now? pastry, the ready-made frozen big and quality management systems small pastries with different fillings and A: We can say that Bulgaria’s food (ISO 9001:2000, IFS). The the pies – have brought us our biggest industry is coping well with the crisis. popularity both at home and abroad. company has a fleet of more However, high unemployment reduced The products under the Bella brand than 90 refrigerated trucks with people’s purchasing power. Most markets are part of the daily life of millions of a load capacity of 1 to 20 tonnes. contracted and competition became families. Our partners and consumers It exercises direct control over more aggressive. Consumers became very recognise us as the producer that offers the Bulgarian market through price-sensitive and seek for products that consistent food quality and the best value over 12,000 points of sale and offer quality and affordable prices. At the for money. all retail chains. The company same time we are witnessing a unique has a commercial structure in international coincidence – a rise in the Traditionally, we are flexible, creating Romania and a distribution prices of raw materials. products that consumers on the different network in Greece. It exports its On the other hand, EU legislation strictly markets need and expect. We conduct production to four continents. regular surveys of consumer attitudes in regulates production processes, the The company’s sound business tracebility of raw materials and product the countries we want to export to. We strategy, its application of global are also exploring potential new markets. safety, recipe standardiation, etc. All this know-how in different areas and If we see demand for a new product, we makes the environment in which we are will definitely respond. This is where we its financial stability contribute operating very difficult. In order to make base the success in exports business. This to its high credit rating at home a profit, producers have to offer products is the way we make our products popular and abroad and guarantee the of sustainable quality at affordable prices on the local market. success of all its new activities. and support name: their products Miltos Triantafillou in the best position: Q: Do you plan investments in COO developing? Are you planning to set foot possible way. In company: production? Bella Bulgaria on new markets? Bella Bulgaria web: we have a www.bella.bg A: Over the past year we optimised A: In Romania, Bella’s products are continuous our pastries production and we started the most preferred in various categories priority – give our consumers satisfaction. to develop a specialised production – pastries, phyllo dough, banitsa. We We do this by offering products that base for the needs on foreign markets. operate our own commercial structures respect the role “best value for money”. Despite the recent rough patch, I there. We have successful business in the think that the economic climate is entire region of Southeast Europe, with a Q: How would you comment on the favourable for investments. Bulgarian fully operational distribution network in government’s initiative to introduce companies continue to invest in food Greece and production of private labels quality standards for staple food production. Sustainable development for the Turkish market. products? and restructuring of the industry also are continuing. Bella Bulgaria is among the We are looking into possibilities for A: Where there are standards, there is driving forces of this process and we are new partnerships in Southeast Europe, order, no chaos. An ethical business looking for new business opportunities. the Persian Gulf and North Africa. We cannot and should not tolerate chaos. believe that Bella’s real expansion is yet The new standards are a step towards the Q: How are your Romanian operations to come, even though Bella products new order that consumers require.

SEE Corporate Management

Level of M&A activity in SEE flat

By Igor Maroša, A.T. Kearney

A slower pace of recovery from the Number of SEE M&A deals by industry in 2010 recession compared with some other 21 parts of Europe and a lack of liquidity 19 has influenced the level of mergers and acquisitions (M&A) activity in Southeast 13 13 Europe (SEE). The total number of 10 registered deals in 2010 was 150, down 8 7 7 6 from 155 a year earlier. On the other hand, the combined value of the deals grew to 1.9 billion U.S. dollars (1.42 billion euro) last year from 1.5 billion U.S. dollars in Food and Financial Construction Retail ICT Metals Utilities Pharma Media beverages institutions 2009, indicating that stock markets and company valuations recovered faster than GDP growth in the SEE countries. in 2010. Three of these deals were struck Looking at the SEE utilities sector, the Food and beverages, media, in Croatia and one in Serbia. The wave total value of M&A deals there was 342 utilities and financial of consolidation in the beverage sector million U.S. dollars in 2010. Seven deals continued in 2011 with the acquisition were done in this sector with top-billing institutions riding the by Serbia’s Nectar of Slovenia’s Fructal going to the acquisition of the water consolidation wave and some other deals in the pipeline. utility in Bulgaria’s Sofia, Sofiyska Voda, Industry-wise, three sectors stood out in by Veolia Water UK for 271.4 million terms of M&A activity in the SEE region The region’s second largest industry in U.S. dollars. There were also some deals in 2010. The first of them is the food and terms of deal-making value last year was done in the electricity sector. beverage sector where a total 21 deals media where there were six transactions were concluded with a combined value of with a total value of 400 million U.S. Financial institutions were the sector 406 million U.S. dollars. The biggest deal dollars. The bulk of the M&A value was with the second highest number of was the 325 million U.S. dollar take-over contributed by the deal in which Central M&A deals last year, notching up 19 of Slovenia’s Droga Kolinska by Croatia’s European Media Enterprises Ltd bought of them with total value of 172 million Atlantic Grupa. Other deals were split News Corp’s terrestrial TV broadcasting U.S. dollars. The deals were more or less mainly between the brewing and food business in Bulgaria. The majority of evenly split between banking, insurance processing sub-sectors. Brewers in the the other media-related deals were also and other financial institutions such as region are following the global pattern of concluded in Bulgaria. fund management companies, pension consolidation with no less than four deals funds, etc. The largest deal by value was done in Croatia where the government Value of SEE M&A deals by industry in 2010, (in millions of U.S. bought 29% of Postanska Banka for 80 dollars) 406 400 million U.S. dollars. 342 In the oil and gas industry, the majority of M&A deals last year were done in Croatia’s gas sector although the biggest 172 single deal was cooked up in Romania 134 131 123 within the Rompetrol group.

63 Other interesting industries from an M&A point of view are construction Food and Media Utilities Financial Oil and gas Construction Retail ICT and information and communication beverages institutions

80 SEE Corporate Management

Value of SEE M&A deals by country in 2010, (in millions of U.S. dollars) three deals were done there in 2010. 781 With nine deals in 2010, Serbia is picking up pace, but the rest of the SEE countries are yet to reach the stage where their industries would be interesting in 373 338 332 the M&A endgame.

EU accession could be defined as an 53 M&A driver. Looking at the countries in 25 the region, the bloc’s latest newcomers - Bulgaria Croatia Romania Slovenia Macedonia Serbia Bulgaria and Romania, and the next in line for accession - Croatia, are far ahead technology (ICT). The crisis in the The country-by-country overview shows of the pack in terms of the number of construction and real estate sector that the companies in Bulgaria, Croatia M&A deals. has triggered a consolidation wave in and Romania were the most interesting construction materials, services and real M&A targets last year. Bulgaria generated The room that commercial banks are estate, especially in Croatia. 31 deals with total value of 781 million leaving in terms of loan-financing of U.S. dollars; Croatia contributed 38 M&A deals in the region is giving a In ICT, the majority of acquisitions were deals with total value of 373 million U.S. chance to multi-lateral lenders such as the done in the IT services area. The biggest dollars; and Romania accounted for 59 EBRD to step in and become a driving deal was Hrvatski Telekom’s take-over of deals with total value of 338 million U.S. force behind deal-making activity in Combis for 42 million U.S. dollars. dollars. Foreign investors are apparently SEE. A significant growth in the number leaving Slovenia by the wayside so only and value of M&A deals should not be expected before the equity firepower of Number of SEE M&A deals by country in 2010 the commercial banks in the region is 59 sufficient to support the expansion of their corporate clients.

38 And finally, looking at the industry 31 overview, traditional industrial sectors are still leading the merger endgame. SEE still has a lot of work to do to develop 9 3 3 new industrial sectors to drive future M&A activities. Romania Croatia Bulgaria Serbia Slovenia Montenegro

The acquisition of Bulgaria’s Sofiyska Voda by Veolia Water UK was the top M&A deal in the utility sector in Southeast Europe in 2010

Photo: provided

81 SEE Corporate Management

Mobiltel firmly on track to become first operator in Bulgaria to launch 4G services

Andreas Maierhofer

By SeeNews team Mobiltel, the Bulgarian unit of Q: How is Bulgaria’s mobile broadband Telekom Austria, is the largest is an excellent potential for growth here Internet segment performing compared mobile phone operator in Bulgaria. too. It is a fact that the year over year sales to other markets where Telekom Austria At the end of June it had almost 5.3 volume of smartphones has increased by operates? million customers, and its mobile 40% for the first eight months of 2011. market share stood at 49.3%. This goes hand in hand with the growth A: We have a huge potential in mobile The telecom has entered the fixed of mobile data traffic. Our clear focus is broadband Internet that we can utilise. market in recent years. In 2010 to hold more and more campaigns and the company acquired two major In the last few quarters Mobiltel has a promotions in order to point out the Internet operators in Bulgaria. very significant increase in the number advantages for the customer in buying a Thus the company strengthened of mobile broadband users, in the second smartphone and support this increase in its position on fixed market as well. quarter we had a more than 120% the next couple of year. Mobiltel was the first Bulgarian increase compared to the same period in operator to offer EDGE, 2010. This is one of the biggest increases UMTS, HSDPA and HSPA+ In terms of smartphone users, the in Central and Eastern Europe and we services to its clients. In subscribers with smartphones have are very proud of it. August it received regulatory increased by 30% compared to July last permission to test the country`s year. I think if the trend for year-on-year This is the positive side of the coin. The first 4G wireless network. growth continues in the next two or three negative side is that mobile broadband years, I will be very satisfied. penetration in Bulgaria is the lowest in the European Union. So we have reached with this share. Of course, in other Q: How is the tablets market performing? now approximately 3.5% compared countries, some highly advanced markets like Austria, the Netherlands and Italy, to a 7.5-8.0% average in the EU. This A: Tablets are another story. First of all, this share is approximately 45–50%. Our means huge investments are required what we need to do is communicate in goal is to bring our share in Bulgaria up from the operators, and this is really the right way and convince the customer to this level, I would say that 40-45% is the big challenge. On the one hand, of the difference between a smart definitely a feasible target in the next two customers require much higher speed phone and a and capacity and, on the other, revenues to three years. The subscribers share is name: tablet. The Andreas Maierhofer are shrinking, meaning that we have to approximately 6.0%, which is two times position: functionality CEO adjust investments as well and this is more than one year ago. company: of an iPad and Mobiltel the big challenge facing us in the next an iPhone web: Q: What is the share of smartphone www.mtel.bg couple of years, not just on the Bulgarian is more or users in your customer base? What share market. less the same. Of course, an iPad is do you target? much more convenient to work with, Q: What is the share of users with mobile especially when you check emails with A: The number of smartphone buyers broadband data plans in Mobiltel’s presentations, or when you are surfing and smartphone users is definitely overall subscriber base? the Internet, and here we need still to increasing significantly in a year-on-year explain the advantage of having an iPad comparison. Smartphones are simply the A: The share of traffic related revenues in and an iPhone, and generally, having a the second quarter of this year is close to future. We already have a huge percentage smartphone plus a tablet. 28% and this is a huge increase compared of handset sales volume generated by to the same period in the previous 2010. smartphones - approximately 21%, which Compared to other comparable countries is two times higher compared to 2010. In Unfortunately, in Bulgaria tablet sales like Serbia, Macedonia, and Romania, smartphone sales the goal is to increase are not very promising but we have we are quite well positioned in Bulgaria the share to maybe 40% or 50%. There clear plans, especially for the Christmas 82 SEE Corporate Management

period, and for the next year to focus on cities as well. We have a quite satisfying it is much cheaper than laying a cable. tablet sales. This device needs to have a growth. Unfortunately, there are areas in Bulgaria reasonable price. where there is no infrastructure at all. In Fibre optic is a precondition to offering the past nobody was investing in these Q: How are your plans for the launch of in the future a connected home. A areas, so we are the first. connected home means you can enjoy services based on Long-term Evolution everything - you have the highest Internet (LTE) technology progressing? Q: The Bulgarian telecoms regulator access of up to 100 megabits per second recently announced it plans to cut - by far the highest in Bulgaria and in A: As a market leader, Mobiltel is the first termination rates twice in 2012 and the EU, you have a mobile phone, you to hold a demonstration of how an LTE once more in 2013. What will be the have a fixed-line phone, you have IPTV- implications of these moves for Mobiltel? network works, to show the difference delivered entertainment where we offer of having LTE compared to having 3G. special content like video-on-demand With LTE you are reaching up to 100 A: I have been working in this industry and other content that we will bring next for 17 years in different countries and I megabits per second. This will change the year, and in addition all your electric am really surprised that this is such a big mobile world in the next couple of years. circuitry is connected so you can handle story in Bulgaria. The regulator is saying surveillance services and different remote it will bring down the prices of mobile A commercial launch depends first of all controls. This is the vision that we have telecommunication very sharply, and this on the licence itself, and the regulator at Mobiltel. is simply not true. has still not decided when there will be a tender for the licence, or when the This is why we went into this strategic Interconnection prices are the prices licence will be awarded. I would expect it direction and bought two companies - that the operators are paying to each to happen some time next year. Spectrum Net and Megalan, and started other, they have nothing to do with to deploy fibre optic infrastructure in the end consumer price. Bulgaria has Commercial launch also very much Bulgaria. This vision is already partial the lowest end-consumer prices in the depends on the availability of LTE- reality and what we need to do in the EU according to the 16th report of enabled devices. Devices are still too next 12 to 18 months is combine all the European Commission; the wholesale expensive and you do not have a really services that we are already offering. prices do not have significant effect on big choice. So I cannot tell you when we the consumers. We are not against a It is no secret that such a deployment of are launching it but definitely we will be decline in termination rates and we will a fibre optic network costs a lot of money the first one to do so. You have to realise definitely apply it, but it needs to be done and I would like to emphasise that we that we still have a lot of potential to in a very professional way, reflecting the have been the biggest investor in terms utilise in terms of our 3G network, and market situation as all operators will lose of telecommunications infrastructure then go on to the next stage. from this and this would finally reflect for years. The overall investment in on investments. Q: Following the acquisition last year of Bulgaria’s telecommunications sector is roughly 450 million euro, and more local cable operators Spectrum Net and Since 2007, when Bulgaria entered the than 60% of this comes from mobile Megalan, Mobiltel committed to building European Union, we have started to out its fibre-optic network. Could you operators, meaning a big portion comes from us. gradually reduce wholesale prices. We provide an update on that process? are still above the EU average, but now In 2010 we invested, including in the suddenly the regulator is coming with A: Our fibre optic deployment is acquisition of the two companies, 150 a proposal that the price should go definitely very satisfying because we are million euro in Bulgaria and we are down below the EU average, taking as reaching by the end of the year roughly continuing this intensive investment plan a benchmark highly advanced markets one million households in Bulgaria, this and next year. First of all, we would such as the Netherlands, France and and this is a huge potential, especially in like our fibre optic network to cover the Italy. But we don’t need to be world Sofia and in some other big cities. We main cities and then, if we see economic champions here. just launched in Plovdiv our fibre optic sense, we are moving to the rural areas. network. We are moving forward. We are However, in the rural areas our goal is to My proposal is for a reasonable decrease aiming for further deployments in Sofia, use the mobile infrastructure because, to the EU average, and hopefully we Varna, Burgas, Plovdiv and then in Stara especially with 3G, you can provide will have here a discussion and rational Zagora, Veliko Turnovo, and some other very good coverage in rural areas and thinking, not populism. 83 SEE Corporate Management

LAVECO’s offshore companies offer benefits beyond direct taxation

László Váradi

By SeeNews team LAVECO Ltd. was established Q: How has the role of offshore in Budapest, Hungary, in 1991. is no requirement to file accounts. This companies developed over the years? The firm specialises in forming reduces the cost involved in maintaining companies and other related the company and also means it is not A: In the international business world services such as opening of necessary to gather all the receipts etc. nowadays, offshore companies still play bank accounts, arrangement of and deal with bureaucracy. In addition, an important role although it has shifted various legal documentation if an offshore company is the owner of a Bulgarian enterprise, it is not easy to primarily to holding, administration and secretarial services. Over and protection of assets. We can set up establish officially who the company and the last 20 years LAVECO has tax-free and low-tax companies for our its assets really belong to. clients in some 40 jurisdictions. We have provided thousands of clients connections with more than 15 leading with ready-to-use companies Q: Isn’t this still a privilege of the super- banks worldwide. It is possible to open primarily in jurisdictions with rich? bank accounts for the companies formed advantageous tax regimes. which can be managed in complete A: Absolutely not. The structures offered comfort from anywhere in the world. by LAVECO are by no means beyond the possible to register offshore private reach of the average businessperson and Q: What have been the effects of the foundations and trusts. These have been are not at all expensive. A company bank global economic crisis on the company developed primarily for the purpose of account can be managed quite simply formation business? asset protection, and in England, for and it is very rarely that you actually example, the trust has a tradition dating need to call the bank. In addition, we A: Naturally, the world of company back 800 years, making it a completely at LAVECO are always there to help in formation has not been left unaffected reliable vehicle which is maybe not so resolving more complicated issues. We by the worldwide recession. Considerably well known in continental Europe. have plenty of experience in dealing with fewer companies have been registered, both company and banking matters. for example, by enterprises and business Q: From the client’s perspective, what are There are even structures where it is people involved in the construction the advantages? possible to form and maintain a company industry. At the same time, stability purely for the purpose of employing or has taken on even greater importance. A: When it comes to offshore companies, appointing an experienced manager. LAVECO’s clients show preference for everybody automatically thinks of the jurisdictions where the legal system name: advantages in relation to direct taxation. Q: What makes László Váradi has remained unchanged for many The companies registered by LAVECO, LAVECO stand position: years and which have a well-established Managing Director however, offer much more, and today it out among its company: infrastructure. As 2011 has progressed, is not so much direct taxation benefits competitors? LAVECO Ltd. for example, more and more companies web: which are the priority. Today, just as much www.laveco.com are being formed in Hong Kong. as ever, discretion is extremely important. Similarly, companies registered in Cyprus It is not only the state which can pose a A: There are numerous company are enjoying increased popularity due to threat to an entrepreneur’s hard-earned the EU’s most advantageous tax regime, formation agents throughout the world, income, as there are many potential providing the same or very similar which covers various taxes, not just profit sources of danger in the immediate tax. services to those offered by LAVECO. surroundings. Entrepreneurs may face There are, however, a number of elements numerous ill-intentioned people who which differentiate LAVECO from the Q: What do customers get if they choose want to get hold of their money one way crowd. We have offered stability to our LAVECO to set up an offshore company or the other. But even a business partner, customers for more than 20 years. We for them? family member, friend or girlfriend may have a clear pricing policy and our prices have designs on part of one’s personal are affordable for the average business A: A ready-to-use, convenient and wealth. An offshore company can provide person. Our bank account opening practical corporate structure which a very convenient solution in a situation periods are much shorter. And finally, we provides the client with the utmost like this. It may also be an advantage that have our own international background security. In addition to the various types in many cases, such as the British Virgin infrastructure and a multilingual of tax-free offshore companies, it is also Islands, Belize and the Seychelles, there customer service team. 84 lav eco ® since 1991 The company Maker

highly effecti ve international ta x pl a nning structu res * registration of offshore compa nies in 40 jurisdictions * opening of ba nk accounts in 15 ba nk s * fiduci a ry serv ices * professional consultation

L AV ECO EOOD Adriana Budevska No.2, Floor 5, Apartment 42, 1463 Sofia, Bulgaria Tel.: +359-2-953-2989 Fax: +359-2-953-3502 Mob:+359-888-126013 E-mail:[email protected] www.laveco.com SEE Corporate Management

SEE bourses still scrambling to boost liquidity

By Dessislava Dimitrova

The equity markets in Southeast Europe The bourse’s capitalisation fell by 8.8% Romania’s equity market was positively are still struggling to break out of the rut to 10.754 billion levs (5.498 billion euro) influenced last year by a significant of low liquidity that has always held back as of end-2010 while its total turnover improvement in the transparency of their development. At the same time, their dropped by 40.7% to 920.3 million levs. operation and corporate governance growth potential remains significant and among the listed companies. In addition, should be boosted by legislative changes Ivan Takev, CEO Bulgarian in a bid to lead by example, the Bucharest currently afoot in some countries in the Stock Exchange Stock Exchange, BVB, went ahead and region and by the development efforts of listed itself on its own regulated market. their managements. “The macroeconomic situation in the country has had a significant influence In the second half of 2010, investors’ Investors’ low risk tolerance on the market participants’ behavior in disposition towards the equity market among liquidity dampeners on the last years of financial crisis. improved, once the government announced its privatisation plans and Sofia bourse The main challenge facing the market effective steps were taken in the listing is still to regain the confidence of of property restitution fund Fondul Unlike quite a few of the capital markets the investors; however, the ongoing Proprietatea. worldwide that, to a large extent, clawed problems, not only on local, but also on their way back to pre-crisis levels in 2010, regional level, substantially reduce their Valentin Ionescu, General the bourse in Sofia lagged behind the risk tolerance. Manager of the Bucharest broader recovery. The overall result is a persistently low Stock Exchange Blue-chip indices of major SEE bourses in 2010 5 400 Jan Dec “Liquidity is the main issue not only in the region, but for all exchanges 4 400 worldwide, as the largest part of their revenues come from the trading side. 3 400 Our main focus is to attract companies 2 400 for listing at the exchange, to increase the range of financial products available 1 400 for trading and to align the trading mechanisms to the best practices in the 400

points field. In order to reach those targets, we support our intermediaries in developing the services they provide and the state in BELEX15 MBI10 SOFIX CROBEX BET SBI TOP the privatisation process.

We are expecting initial public offerings The low liquidity on the Bulgarian Stock market liquidity and low interest towards (IPOs) coming from RASDAQ-listed Exchange (BSE) and the weak interest of the market as a whole.” companies wanting to transfer to the foreign investors towards the local capital regulated market, and secondary public market throughout the year can once Romanian bourse eyes liquidity offerings from the largest Romanian again be cited among the main reasons companies in which the state is a for its underperformance in 2010. push, more listings shareholder.”

The main performance indicators of a The regulated market of the Bucharest New capital market law regulated market - market capitalisation, Stock Exchange had a total of 74 expected to bring about first turnover and transactions volume, have companies at the end of 2010 with a significantly deteriorated over the last combined market capitalisation of 24 IPOs in Serbia two years in the case of the BSE. In 2010, billion euro. its blue-chip index, the SOFIX, declined The performance of the Belgrade Stock by about 13%, ending the year at 362.35 The total turnover on the bourse’s floor Exchange in 2010 was marked by a points, while most of the other European last year rose slightly to 1.3 billion euro contraction in both turnover and activity markets recorded moderate growth rates. from 1.2 billion euro in 2009. among domestic and foreign investors.

86 SEE Corporate Management

Total turnover fell to 23 billion dinars EU’s Markets in Financial Instruments makes big foreign institutional investors (228 million euro), equal to just 55% of Directive and as such represents a good reluctant to invest. Croatia is still a pretty the turnover in 2009. basis for further improvement of the much bank-centred system and one of the domestic market and for an increase its missions of the Zagreb Stock Exchange is The bourse’s two main indices, BELEX15 attractiveness to foreign investors.” to raise the still inadequate awareness and BELEXline, recorded a slight EU Entry, new market rules among local businessman that raising negative change in their value last year. capital through the stock exchange could The BELEX15 ended the year at 651.78 to draw foreign investors to be a great option. points, down 1.8% from the previous Zagreb bourse year, while the BELEXline fell by 2.2% to Athough there are no IPO’s in sight at 1,282.66 points. 2010 was shaping up as another tough the moment, further policy actions, year for the Croatian capital market until especially in the financial sector in Foreign investors contributed around mid-December brought an unexpected this election year, will be essential to one third of total annual turnover at the uplift for the Zagreb Stock Exchange’s induce a recovery. We anticipate further Belgrade Stock Exchange last year. trading statistics when Hungary’s MOL government action as well as the use of offered to buy 800,910 ordinary shares of other tools to stimulate growth. Gordana Dostanic, CEO Croatian blue-chip oil and gas company Since June, the Zagreb bourse has new Belgrade Stock Exchange INA held by small shareholders. MOL controlled 47.26% of INA as of January rules enabling us to list foreign issuers. “A new capital market law that will be 31, 2011 with the Croatian government We have pushed for this amendment adopted in 2011 by the Serbian parliament holding a 44.84% stake. that finally opens up the perspective of should, in the regulatory sense, enable becoming a regional hub for top issuers the further development of the Serbian In the trading flurry that followed from ex-Yugoslavia. adding foreign stocks financial market. Therefore, the main MOL’s move, some of the daily turnovers to our offering, we will expect to be able activities of the bourse in 2011 will be notched up in December ranked among to increase the liquidity. New rules also focused on the harmonisation of existing the top ten daily turnovers in the history open the possibility of new products and legal documents and reorganisation of of the bourse while the stock indices services in the Croatian capital market such as structured products or short Market capitalisation of major SEE bourses in 2010 selling.” Jan 30 000 Dec Macedonia bourse in search of supply/demand balance 25 000 The Macedonian stock market touched a virtual bottom in 2010 as total turnover 20 000 fell by 13% to 95 million euro while its blue-chip index, the MBI10, lost 17%. 15 000 The Macedonian Stock Exchange used 10 000 the period of market slowdown in 2010 for further improvement of its operation. 5 000 Ivan Steriev, CEO Macedonian

0 Stock Exchange in millions of euro in millions “In 2005 and 2007 we had a problem Serbia Macedonia Bulgaria Croatia Romania Slovenia on the supply side, because the demand was high. Now the problem again is the market in accordance with new law recorded double-digit percentage growth, primarily on the demand side. Passivity and by-laws. ultimately resulting in a total turnover or withdrawal of foreign portfolio increase of 18.2%, an excellent growth investors and insufficient buying power The interest of the of foreign investors in comparison with the previous year of domestic investors contributed to a towards the Belgrade Stock Exchange will when total turnover suffered a decline of significant reduction in demand. Low depend primarily on the overall situation almost 65%. liquidity is the main problem which the in the Serbian economy, which is still stock markets of all small-sized economies in the zone of high macroeconomic On a yearly basis, the 25-share benchmark are facing. instability, significantly reducing the CROBEX index recorded a growth of appeal of the domestic capital market to 5.3% in 2010 while the narrower blue- We expect one IPO to be carried out by foreign investors. chip index, the CROBEX10, ended the the end of 2011 as an announcement year 9.5% in the green, a gain unmatched to this end was made recently by the In institutional sense, the domestic market by any other comparable regional stock company in question. is committed to providing the necessary exchange last year. preconditions for attracting investments A good performance of the listed from abroad. The most important step Ivana Gazic, CEO Zagreb Stock companies as well as modern and efficient in this direction is certainly the adoption Exchange trading infrastructure and professional and implementation of new law on the services are the basic preconditions for capital market that complies with the “Shallow liquidity is a problem which attracting investors, domestic or foreign.”

87 SEE Corporate Management

Sofia office building segment going green

Galina Dimitrova

By SeeNews team Danos in alliance with BNP the standard offer? Q: How much time do you think it will Paribas Real Estate, International take for the Sofia office market to absorb Property Consultants and Valuers, A: The office market is tenant-driven the current surplus stock and for vacancy is a leading company providing and tenants are the active parties within rates to return to the pre-crisis levels? a wide range of real estate the process, that is to say that they have services. The company has offices plenty of options as regarding location, A: The office stock in Sofia is in Athens, Thessaloniki, Nicosia, building specifications, etc. In order to continuously growing. Danos, an alliance Limassol, Crete, Tirana, Sofia and attract the tenants the investors have to be member of BNP Paribas Real Estate, has Belgrade. ever more flexible, this includes offering registered total office stock of 1,350,000 flexible commercial terms, shorter rent square metres (sq m) within Sofia which BNP Paribas Real Estate has periods, relocation packages, etc. is exactly double compared to 2007. local expertise on a global What is interesting is that the bulk of this scale through its presence in 30 Q: How interested are office tenants in supply came onto the market within the countries, 15 wholly-owned and Bulgaria becoming in the green profile past two years. 15 alliances, across Europe, India, of the premises they are leasing? What is Middle East and the USA with your outlook for the demand for green 3,300 employees and more than office space? The bullish supply combined with a 150 offices. sluggish demand led to a vacancy rate A: The “going green” process is underway of 29%. Furthermore, there is still a and particularly so within the office latent pipeline which, when eventually segment. Not only is it of vital necessity completed, will increase the vacancy Q: What are the new locations for for the environment we live in today, but rates. contemporary office space that are more importantly what we make of it

emerging in Sofia? tomorrow. Q: What is your outlook for Class A office space rent levels in Sofia for the A: Close to 60% of the office stock is still remainder of 2011 and for 2012? Half of the new projects located within the periphery of Sofia. are sustainable The locations along major roads and A: During the first half of 2011 the junctions have always been preferred by rental levels within the office segment developers and tenants. The area along Many multinationals now have a green- experienced a further decrease of 4.0% Tsarigradsko Shausse has experienced only policy, that is to say that it is a must as compared to 2010 or approximately rapid development for example, with for them 1.0 euro per sq m on a monthly basis. three major projects located along it and to relocate name: Most of the dynamics within the office several more in the pipeline. to a green Galina Dimitrova segment are generated by relocations, position: building. Country Manager i.e. companies that are already present company: New office projects are being developed Danos on the market and opt to improve their web: along Todor Alexandrov Boulevard due The office www.danos.bg office and otherwise environment. to its proximity to the downtown. The market in area along Bulgaria Boulevard, which is Sofia is catching onto this momentum With this said, the well thought-out already an established address for office and a great example of this is that half and planned projects will attract these users, is continuing to expand as well. of the new projects being delivered there tenants by not only providing a better are sustainable. environment, but also better lease terms. Q: The market oversupply in Sofia has intensified the competition for office Our projections are that we will see a tenants. What tenant inducements more stable environment within 2012 as (grace periods, covering of relocation regarding office rental levels. expenses, etc) have now become part of 88

SEE Corporate Management

Good tax services crucial for SMEs successful market entry

By SeeNews team Sofia-based Business Tax provides Q: How has the market for tax and tax, accounting, foreign investment We also offer valuations for tax purposes, accounting services in Bulgaria and legal advisory services to assistance in lowering tax risks, mediation performed so far in 2011? Are there any public and private customers. in real estate investment, litigation, etc. notable trends compared with 2010? The company’s expertise covers a wide range of industries from Q: Cash-strapped governments around the world are clamping down on tax A: The tax services market is, as usual, telecommunications, water supply evasion in order to improve their fiscal very dynamic, with the local companies and mineral resources through trying to find their pace in the first half standing. How good is the Bulgarian power production and aviation to of 2011. The value of the tax services government at collecting its taxes and do market is relatively low, amounting to construction and shipbuilding. The you have any policy recommendations in about 15 million euro. The tax business, list of its clients features Alstom/ that respect? however, has steadied and, hopefully, Areva, BASF, Raiffeisen and A: In the past year the government can only grow from now on. We are very HeidelbergCement. launched many campaigns and projects supportive of this process, trying to stay related to tax collection and excise duties. focused on improving the range of our The collection level has significantly services and introducing attractive new among international companies looking increased due to massive checks and ones in order to strengthen our leading to do business in Bulgaria tell you about audit reports and now corresponds with position on the Bulgarian market. the progress of the recovery of foreign the levels of collection in the leading direct investment inflows? European countries. Entirely new excise Q: The SME sector is a bellwether for the duty collection methods were introduced health of the economy and if it is doing A: Foreign investments have grown in the fuel industry and health care well it needs more tax advice and book- significantly since last year but still system. keeping expertise. What demand are fail to fully make up for the capital you seeing for your services among local going out of the country. However, Q: How has Business Tax grown over the SMEs? Bulgarian companies are investing past couple of years? What part of the more abroad. Considering the global business has grown most quickly and are A: The development of small and economic situation, Bulgaria can be there any new areas you plan to focus on medium-sized enterprises is not very considered a fast-growing country. The in 2011? different here from that in the EU and major infrastructure projects which the the rest of the world. SMEs are very government has launched are almost A: Business Tax has grown significantly in demanding legal entities and require entirely funded by foreign investments. the past few years. name: We managed to Nikolay Ivanchev the same amount of time and energy as Completing such projects and improving position: the large enterprises and multinational the infrastructure can attract higher level attract new local Managing Partner and international company: corporations. SMEs request more and of investments. Business Tax more from their tax and book-keeping customers. At web: advisors. Business Tax we www.businesstax-bg.com Q: Are you developing any new products/ think the need services? Business Tax is highly specialised in for qualified tax advisors is very high now. preparing SMEs for market entry A: The new projects we have developed and avoiding any losses that they may since last year aim to assist our clients in The tax business is very specific - a single incur due to improper taxation and paying their taxes and fees. We offer a mistake can lower profits and disrupt a accounting. Good tax services can easily full range of services helping our clients company’s cash flow. In addition to the lead you to very lucrative economic in their relations with the national accounting services and tax advisory activity and Business Tax can provide all institutions. services, we have developed a strong the necessary services. Attracting more link with a highly specialised law firm SMEs can easily give you a pivotal role in We also managed to improve assistance and we now successfully consult clients the Bulgarian tax services market. to customers regarding a wide range on mergers and acquisitions. We are of investment projects and customer assisting our client with their investment Q: What does demand for your services relations with the financial institutions. projects abroad. 90 Tax & Financial advisory

Tax accounting services

Asset valuation services

Merger & Acquisition (M&A) services

Real estates advisory services

Minimizing tax risks on investments

Phone: (02) 980 81 26; 987 30 60; 987 00 46 +359 898 600 907

E-mail: [email protected] http://businesstax-bg.com/ SEE Corporate Management

OKIN GROUP brings new value to facility management services in CEE

Petar Krastanov

By SeeNews team Czech-based OKIN GROUP Inc. Q: When did OKIN GROUP enter the is a leading provider of support our business and we constantly improve Bulgarian market? services for businesses in Central all process-related activities as well as all and Eastern Europe where other supportive factors that make our A: The group’s Bulgarian subsidiary, it employs more than 1,500 job more efficient and client-oriented. OKIN FACILITY BG, was officially professionals. In Bulgaria, the established in October 2008. Ever company operates under the name Q: You mentioned that your clients since we have been developing and OKIN FACILITY BG and provides operate in different business areas, could implementing a strategy for expanding a full scope of support services you elaborate on this point? our business in this region. in the facility management area. A: Internally, we split our potential Q: How is the Bulgarian subsidiary clients into two main segments – Industry performing? Have you seen any fallout professionals, who guarantee proper (production plants, factories, etc.) and from the global financial crisis? maintenance of their properties. In Commercial Centers (administrative general, I can conclude that technical buildings, corporate headquarters, trade A: Back in 2008 we started out with no maintenance, together with cleaning and centers, shopping malls, etc.). Of course contracted clients in Bulgaria and at security services, are the activities most there are other types of buildings as that time the concept and the need for frequently requested by our clients. well but let’s say that we place highest integrated facility management was not importance on these two segments. much appreciated by the local business. Q: In what way are the services that you We basically started from scratch and offer different from those of professional OKIN FACILITY BG currently provides each new account that we acquire over cleaning companies and of licensed facility management services to an time is a step upwards for us. technical maintenance and security international utility company with 83 In addition to this, our business aims to companies? offices and branches in Western Bulgaria. streamline all operational costs of our In addition to this we maintain the two clients related to their non-core activities. A: First of all, I would like to say that headquarters of a big international This means that our services are highly we very often cooperate with the types insurance corporation. We also provide appreciated in times when all costs of companies you mentioned. We have services to a U.S. - owned food factory as should be minimised as much as possible. established very close relationships with well as to a few administrative buildings some of them. It means that we could be in Sofia. Q: The service portfolio of OKIN competitors but at the same time partners FACILITY BG is very extensive. Could when it makes services more efficient. Q: Tell us more you point out the most typical services name: OKIN FACILITY BG is an integrated about the other Petar Krastanov you provide on-site? position: facility management provider and is subsidiaries Sales and Marketing Manager capable of covering all support services of OKIN company: A: From the experience we have we still OKIN FACILITY BG within a business organisation. It means GROUP. web: observe the fact that local companies that we are a single point of contact which www.okinfacility.bg associate facility management mainly facilitates the whole communication A: As the with cleaning services. However, process with the client. company is based in the Czech Republic, they tend to eventually understand it made sense to direct the first wave of that integrated facility management In addition to this, having many accounts expansion towards Slovakia, followed by includes far more services related to around Bulgaria gives us an opportunity Ukraine, Bulgaria, Sweden and, this year, the proper maintenance of a property to explore the synergy aspects of our Poland and Romania. and its technical equipment.Most of projects, to achieve quick response times the international companies operating and to price our services at efficient The company strategy includes entering in Bulgaria are aware of this concept levels. the remaining Central and East European and that is why they cooperate with Last but not least, facility management is markets over the coming years. 92 SEE Corporate Management

Company name: OKIN FACILITY BG

Established: Oct 2008

Headquarters: 201 Tzar Boris III Blvd, Sofia 1618, Bulgaria The parent company OKIN GROUP Inc. is headquartered in Prague, the Czech Republic.

Products & services

Overview OKIN FACILITY BG strategy is to deliver quality solutions that contribute to the effectiveness of all operational activities. Our OKIN FACILITY BG is a strictly-oriented B2B facility management core business includes the management and the performance company, part of the Czech-based OKIN GROUP Inc. of all support services related to the maintenance of our clients’ properties.

The provided activities include a wide range of facility Owner management services such as technical maintenance, cleaning, gardening, security, waste management and others. OKIN GROUP Inc., the Czech Republic We provide services to industrial companies as well as to office buildings, network clients with branches and offices, trade centres and logistic areas. Subsidiaries & affiliated companies

OKIN GROUP Inc. subsidiaries are OKIN FACILITY CZ, OKIN FACILITY SK, OKIN FACILITY UA, OKIN FACILITY RO, OKIN Markets & sales FACILITY PL, OKIN FACILITY SE. The company was established in Bulgaria at the end of 2008 with the aim of becoming a recognized provider of comprehensive facility management services.

In the forthcoming years the company developed its business Number of Employees and started providing services to international organisations operating in different fields – from production companies to OKIN FACILITY BG has 40 employees, and the parent company OKIN administrative buildings and corporate headquarters. GROUP Inc. – more than 1,500 in all its offices. The list of clients in Bulgaria includes CEZ Bulgaria, Generali Bulgaria Holding, KRAFT FOODS Bulgaria, Euratek Auto, Perform Business Center, etc. Executives OKIN FACILITY BG targets clients in all regions of Bulgaria and Michal Jelinek, Chairman of OKIN GROUP Inc. is capable of providing high quality services in the vast facility Martin Smid, CEO of OKIN FACILITY BG & RO management area.

OKIN GROUP Inc. spreads out its services across the territory of Certificates Central and Eastern Europe.

OKIN GROUP Inc. holds ISO 9001, ISO 14001 and ISO 18001 certifications. The international sales accounts include names as: Telefonica 02, Philip Morris Int’l, Raiffeisen Bank, Komerční Banka (member of Société Générale), Česká Spořitelna (member of ERSTE Bank), ČSOB (member of KBC Bank), Strategy Philips, Siemens, Makro Cash & Carry.

The company aims at becoming a leader in IFM services in whole Central The annual turnover of OKIN GROUP Inc. for 2010 was 48 and Eastern Europe. million euro.

93 SEE Corporate Management

CallPoint sees vast potential for SEE outsourcing industry

Xavier Marcenac

By SeeNews team CallPoint New Europe employs Q: What makes CallPoint New Europe some 800 at its offices in Sofia and the transformation solutions, where different from the other players on the Plovdiv, Bulgaria, and in Bucharest, we apply our know-how to review and outsourcing market in Eastern Europe? Romania. It offers business reengineer clients’ processes in order to processes outsourcing and client improve efficiency and optimise cost. Part A: I believe that our experience as a of our core group of service offerings are contact centre and a business process interaction services to industries also the Risk Management and Finance outsourcing (BPO) provider, the quality such as travel, financial services, and Accounting solutions. As part of our of our service and our investments in retail and e-commerce, software strategy to respond to the dynamic needs state-of-the-art technology are the main and telecommunications. of our customers, we intend to diversify factors that set CallPoint aside from its our portfolio with a newly designed competitors. solution, currently in very high demand Romania represent a combined talent on the market, namely Social Media Operating since 2004, with an experience pool of some 30 million people – highly Monitoring. gained through 50 plus customers qualified, possessing strong language and 200 workflows, we have acquired skills and work ethics. Q: What are your expectations for the comprehensive expertise across diverse development of the outsourcing industry business verticals: travel and leisure, In brief, the skills and knowledge of in Bulgaria and Romania? e-commerce and retail, financial services, the labour pool, political and economic telecommunications and software. stability, cultural similarities with the A: The potential of the region U.S. and Western Europe as well as a is tremendous and there are still We have set quality as an integral part of very competitive cost base are some of unexploited areas. Regardless of the our service delivery model. Monitoring the overarching benefits that make both natural changes and evolution of the key metrics such as productivity and countries the ultimate locations for outsourcing industry, I believe that its accuracy is integrated in our operations contact centre and BPO outsourcing. growth in both countries has only just and helps identify improvement begun. As has already happened with the opportunities that result in added value. Q: What prospects does the EBRD global shift in manufacturing locations, To ensure the quality and information investment open for your company? I expect similar changes and processes security of our processes, we have on the global servicing map. Speaking in implemented the ISO 9001:2008 A: CallPoint is rapidly growing and figures, my expectations are for a growth and ISO 27001:2005 international EBRD’s equity investment made in July rate of the name: management standards. this year will sustain our growth rate and industry in Xavier Marcenac will support our future plans to expand Bulgaria and position: the operational capacity of our delivery Co-founder, Executive Director, Furthermore, by investing in best-of- Romania of member of the Board of Directors breed technologies, we deliver secure centres, improve our competitiveness above 20% company: among mid-sized vendors of business CallPoint New Europe and stable services to our customers per year over web: while bringing to them the benefits of processes outsourcing services and the next 4-5 www.callpoint-group.com all the latest industry innovations like, become a regional leader in the industry. years. for example, social media monitoring platforms, home shoring, full compliance Q: Do you plan to add new services to Q: What are your company’s top with Payment Card Industry Data your portfolio? priorities over the medium term? Security Standards, etc. A: CallPoint currently offers three main A: First and foremost, since we are a Q: What makes Bulgaria and Romania business lines of end-to-end solutions. client-comes-first organisation, as a top attractive outsourcing destinations? The core of our offer are multilingual priority I’d like to pinpoint our focus on multichannel customer interaction keeping delivering high-quality services A: Bulgaria and Romania emerged as solutions, including customer support to our clients. From another perspective, outstanding players a few years ago in (via chat, email, phone, fax), customer having such great plans for the future, an otherwise highly competitive global acquisition and loyalty programmes, one of our challenges will be to sustain field of contact centre and BPO players. technical support, back-office support the growth of CallPoint – a compound Both countries are member states of the activities, quality monitoring of average growth rate of 60% over the last European Union since 2007 and have multilingual in-house operations and five years, on one side, and of course to harmonised their legal systems with that multilingual mystery shopping. A very nurture the management talent within of the bloc. On top of this, Bulgaria and strong point of our service offering are the company, on the other.

94 EXTENDING YOUR BUSINESS PERSPECTIVES

7 years of excellence Delivering services in 20 languages 3 locations in Eastern Europe with 1,000 seats ISO 9001:2008 and ISO 27001:2005 certified PCI DSS Compliant Service Provider

A broad range of outsourcing solutions: Multilingual Multichannel Customer Interaction Solutions Back-Office Support Activities Social Media Monitoring Transformation Solutions Risk Management

Deep industry expertise in the following main verticals: E-Commerce and Retail High-Tech and Media Financial Services Travel & Leisure

CallPoint New Europe JSC Hermes Business Park 115 K, Tsarigradsko Chaussee Blvd. Building B, floor 2 1784 Sofia, Bulgaria T: +359 2 931 73 30/31 • F: +359 2 931 73 75 Email: [email protected] • www.callpoint-group.com SEE Country Profiles Montenegro

Economic prospects

Real GDP is expected to rise by 2.0% in 2011. Supported by demand for Montenegro’s industrial exports, improved prospects for tourism and growing confidence in the financial system, the rate of growth should accelerate in the medium term.

Montenegro’s huge current account deficit is shrinking but the pace is too slow. In 2010, the deficit was still 25.7% of GDP and it will ease to 24.5% in 2011. Improvements in competitiveness will be essential to keep the imbalance from worsening as the economy gains strength. Exporters got off to a good start in 2011 Overview of the economy as exports rose by more than 20% in the first four months of the year compared to the same period in 2010. Montenegro’s economy grew Public debt rose to 39% of GDP during the crisis and could rise steadily between 2003 and 2008 further in the medium term. To reverse this trend, harsh cuts in and inflation slowed after adoption capital spending and wages are being imposed. of the euro. Demand was supported by large increases in credit. Wages Unemployment was 19.9% in 2010. It should dip to 18.8% in rose and unemployment fell sharply 2011. It should gradually fall in subsequent years as the economy in 2005-2008. recovers but could still remain over 18%.

A process of fiscal consolidation is underway. After significant cuts in capital expenditure, the fiscal deficit in 2010 was reduced to 3.9%. Going forward, the authorities aim to balance the budget in 2012. The goal will require very tight control over spending and it is possible that deficit targets will be exceeded.

Total revenue Net profit/loss SEE TOP 100 Y/Y change Net profit/loss 2010 2010 No No Company name Industry in revenue 2009

1 151 Elektroprivreda Crne Gore A.D. Electricity 302.9 -1.97% 16.5 4.1

2 196 Kombinat Aluminijuma Podgorica A.D. Metals 249.9 137.56% 48.5 -71.6

3 341 Jugopetrol AD Petroleum/Natural gas 159.8 19.08% 8.8 1.7

4 446 Crnogorski Telekom A.D. Telecommunications 122.2 -4.80% 19.4 28.6

5 587 Telenor D.O.O.* Telecommunications 82.1 -6.59% 20.4 24.8

6 605 Roksped D.O.O. Transportation 76.6 22.06% 1.2 2.0

7 644 Rudnik Uglja A.D. Metals 64.3 -6.86% 12.6 -12.9

8 699 13 Jul - Plantaze A.D. Agriculture 38.3 5.11% 2.5 3.1

9 711 Plus Commerce A.D. Wholesale/Retail 34.0 -37.21% 1.7 0.048

10 721 Trebjesa AD Food/Drinks/Tobacco 30.3 -6.32% 5.2 2.9 (*) denotes operating profit in millions of euro

96 Montenegro

Evaluation of market potential

The economy still faces a large degree of Current Account 2005 2006 2007 2008 2009 2010 restructuring. There is a small, market- Balance oriented sector which generates the (% of GDP) -8.5 -24.1 -39.6 -50.9 -30.3 -25.7 most growth; a large, unreformed socialist system; and the hidden “black Historic | % of total GDP economy”, estimated to generate 40% of GDP. Real growth of 3.5-3.8% per year is expected in the medium term.

Agribusinesses have considerable potential. The elimination of waiting Overview of the economy times at borders would make it possible for producers to shift from low-profit frozen exports to fresh exports. In addition, the produce-growing season The country experienced a property is unique and fits comfortably with the boom in 2006 and 2007 with EU’s needs. wealthy Russians and Europeans buying property along the coast. Economic prospects should be However, the economy slipped into reasonably bright once Western Europe’s recession in 2009 when property recovery gathers steam. So far, however, prices fell by more than 50%. Real the benefits of recent progress have not GDP fell by 5.7% over the year. A reached the masses. The large current modest recovery began in 2010. account deficit limits efforts at export diversification.

2006 2007 2008 2009 2010 Foreign Debt 504.0 462.1 642.2 699.9 856.2

Historic | in millions of euro| Current Prices | Fixed 2010 Exchange Rates

Business environment

Montenegro has an ambitious privatisation programme and plans to modernise labour legislation with the goal of improving labour flexibility. The country’s large aluminium sector and most of its financial sector have recently been privatised.

The banking sector, telecommunications, and oil import and distribution in Montenegro are 100% privately owned. Some privatisations, however, have been dubious. The elite are believed to have profited excessively from privatisation. Nepotism is another problem which handicaps the judiciary. The country’s business environment is lumbered by a maze of excessive regulations. Greater flexibility in wage setting and employee protection is needed. The ability to protect property rights is also limited. Image © 2011 GeoEye US Dept of State Geographer The government has passed new legislation which will improve the environment for business © 2011 MapLink/Tele Atlas © 2011 Cnes/Spot Image development, investment and economic growth. Officials have set a flat corporate profit tax of 9.0%.The labour market remains rigid, limiting the ability of firms to restructure. The technical and administrative skills of the agencies providing business services are extremely limited.

97 E Market Newsletter

Central & Southeast Europe Regulations Projects Tenders

Contact us: Markets +44 208 002 8768 +43 720 072 688 +1 212 359 1647 +359 2 801 2610 e-mail: [email protected] SEE Country Profiles

Montenegro a business platform for the Southeast European market

investment environment to the bloc’s legal framework. The Montenegrin Investment Montenegro is rapidly changing and Promotion Agency (MIPA) is a becoming the business platform of the promoter of investment projects. Western Balkans. With a host of exciting Among other things, MIPA assists projects under way, consistent and strong investors in obtaining permits and economic development, competitive licences; helps investors in locating labour costs, close proximity and access greenfield and brownfield site to the Southeast European markets, options according to their specific emerging private universities and lifestyle requirements; it also supports benefits, euroised Montenegro already cooperation with domestic makes a compelling case as a business and supplier companies and other residential destination. With over 80% Montenegro is certainly one of the most local partners. So far, MIPA has interesting places in the world. Even of the privatisation of state enterprises provided a great amount of one- though it only covers around 14,000 completed, strong competition in the sq km and it only has about 650,000 telecommunications, transportation stop-shop services to potential citizens, its contribution to world and petrol import and distribution foreign investors. cultural heritage is impressive compared sectors, with one private bank per to its size. Montenegro is a Southern 55,000 population and one university European and a Mediterranean country per 200,000 population, the dynamics of in 2010 and in first half of 2011 (2.1% that offers a full gamut of breathtaking change can be felt all around. The tiny in the first six months). A key driver of scenic delights from mountains, glacial Adriatic state is diverse, open, forward- economic growth was an influx of foreign lakes and deep valleys to sandy beaches looking and better connected every day. direct investments (FDI). For five years in and captivating islands. At the same time, the country has a low level of public debt at around 42% of a row, the country has seen an upward trend in FDI inflows, becoming Europe’s Since regaining its independence in GDP and deficit of below 4.0%. leader in terms of FDI per capita. 2006, Montenegro has proved to be a safe, Despite the global financial crisis in politically stable and economically viable During the 2006-2008 period before the 2009, Montenegro recorded even higher state with potential for rapid growth. financial crisis, Montenegro recorded level FDI than ever before of 1.07 billion A participant in NATO’s Membership the fastest GDP expansion in the region euro with a somewhat changed structure Action Plan programme, Montenegro with the average growth rate reaching of investor preferences compared with is also an EU candidate country and is 9.0% per year. GDP shrank in 2009 by previous years and with the energy sector pressing ahead with efforts to align its 5.7% but switched to a positive value attracting more attention.

This was possible due to the overall course of continuing economic reforms relying on openness; monetary stability underpinned by the euro as legal tender; light business regulations; a low level of taxation with corporate income tax of 9.0%, as well as personal income tax and a VAT of 7.0% and 17%; a free regime of capital flows; and a high degree of privatised state assets. In addition, investors are able to fully repatriate dividend and interest income without any restrictions.

99 SEE Country Profiles

nationals can exercise property rights Testimonials on MIPA’s work in 2011: over movable or immovable assets and property, and have inheritance rights Mace: MIPA has always promoted equal to those of Montenegrins, as well Montenegro in the most professional as the right to free transfer of assets and and most representative way, and I am property to foreign or domestic legal and natural persons. There is no limit not surprised at all that your activities on the amount of investment capital. are increasing daily (MIPIM fair, Cannes, Foreign investors are allowed to invest March 2011). in any industry and freely transfer all McGuire Woods: By far, MIPA had the financial and other assets, including best and most compelling presentation profits and dividends. All major national (Business Summit, Baltimore, April 2011). and international investment insurance Gamesa Eolica: We really appreciate companies insure investment projects in the passion you showed during the Montenegro. presentation in Rome and we can tell you that you have motivated people Several important investment projects to consider your country as the priority have recently been completed, for further investments (Investment including the reconstruction of an Conference, Rome, June 2011). All this has resulted in an improvement icon of Montenegrin tourism – the St. of Montenegro’s position in various Stefan hotel which is now managed Major investment opportunities in rating lists of relevant international by Singapore-based Aman Resort; the Montenegro include: institutions and organisations like the completion of the third phase of Porto Montenegro, the first marina for mega World Bank, the World Economic • Tourism: a 13 kilometre sand beach with yachts in the Mediterranean; and the Forum, Transparency International, an unobstructed view of the Adriatic Sea, Heritage and Fraser Foundation, etc. redevelopment of the Lustica peninsula by Swiss-based Orascom. the islands Ada Bojana and Mamula, as Growing economic freedom is becoming well as the spectacular hillsides of Jaz one of the country’s hallmarks. Standard and Buljarica; & Poor’s has given Montenegro a credit Over 5,500 foreign companies from • Energy: construction of hydro power rating of BB+, confirming that it is a 89 countries are doing business in stable country with a somewhat fragile Montenegro and the number is growing plants; the Maoce coal mine project economy, interdependent on various from one year to the next. Their positive that also involves the construction of factors, but with strong motivation for experience is a resounding testimonial 500 megawatt thermal power plant; further reforms in the procces of acceding for the further attraction of new investors natural gas exploration opportunities. to the European Union. and for the country’s further progress. After signing an agreement with the Although undersized, Montenegro has a government of Italy for the coupling of Foreign investors in Montenegro are significant potential, opportunities and the electricity networks of two countries guaranteed national treatment by law. a clear vision for its future development. through an undersea cable with 1,000 Entrepreneurs can freely set up a new The confidence that is crucial for such megawatt capacity, the local energy company, invest in it or buy an existing development has already been achieved sector is becoming more and more company or a stake thereof. Foreign and serves as a guarantor for future attractive. investments. • Infrastructure: construction of two highways; railroad reconstruction; opportunities for the long-term concession on the Port of Bar and the airports in Podgorica and Tivat; privatisation of Adriatic Shipyard Bijela and Montenegro Airlines. • Banking and insurance: the sector is open for greenfield investments that can support overall economic development.

More detail information about investment opportunities in Montenegro as well as ongoing tender can be found at MIPA’s web site: www.mipa.me.

Fax/Phone: +382 20 203 140, 203 141 Email: [email protected]; www.mipa.me 100

SEE Country Profiles Romania

Economic prospects

Real GDP will grow by 1.5% in 2011 with much stronger rates of growth expected in the medium term. Exports and industrial production are robust but retail sales remain weak.

Prices soared when VAT was raised in the fourth quarter of 2010. In March 2011, inflation rose to the highest level in 2.5 years. Prices are expected to rise by 6.1% in 2011 – well above the central bank’s target of 3.0%. The government is expected to allow the country’s currency, the leu, to appreciate as part of its effort to control prices.

Private final consumption fell by 3.0% in 2010 and growth of just 0.2% is expected in 2011. Tax increases imposed as part of the programme of fiscal consolidation will slow the recovery of consumer spending. Somewhat stronger rates of growth are forecast over the next several years but gains will Overview of the economy not match those experienced prior to the recession. Public spending will rise very little in the medium term.

Unemployment reached 7.3% in 2010 and will remain at that level in 2011. Romania was one of the EU’s A significant portion of the FDI that came to the country in recent years went fastest growing member states to low-skill industries such as textiles and shoe making. Another 15-20% of in 2004-2008. Real GDP growth FDI went into retail and wholesale operations. Romania needs to attract averaged better than 6.0% per more green-field investments in export-oriented manufacturing and services year throughout most of this period that demand higher skills. FDI may exceed 3.6 billion euro in 2011 as investors’ and investment surged after entry sentiment improves. to the EU. A boom in consumer spending was driven by a rapid rise in borrowing which left Romania highly vulnerable when the global financial crisis hit.

Major export destinations 2010 Share (%) Major import sources 2010 Share (%) The economy began to weaken dramatically in 2008 and entered Europe 89.1 Europe 84.3 a sharp recession in 2009 when real GDP fell by 7.1%. Domestic Africa and the Middle East 5.2 Asia Pacific 11.0 demand contracted, capital inflows abruptly fell and the exchange Asia-Pacific 2.7 North America 1.3 rate depreciated. The deterioration

North America 1.7 Other countries 1.3

Other countries 0.9 Africa and the Middle East 1.1

Latin America 0.6 Latin America 0.9

2006 2007 2008 2009 2010 Foreign Debt 5,237.4 4,076.4 4,193.5 7,082.1 10,488.1

Historic | in millions of euro| Current Prices | Fixed 2010 Exchange Rates

Current Account 2005 2006 2007 2008 2009 2010 Balance (% of GDP) -8.5 -10.5 -13.6 -11.7 -4.3 -4.0

102 Evaluation of market potential

Rates of real GDP growth should begin to improve in 2012 but the expected recovery depends crucially on an improved performance by exporters. Restoration of investors’ confidence will be a slow process. Rates of growth will be well below the average realised prior to the recession.

With guidance from the IMF, the country’s monetary and fiscal constraints should be alleviated as the economy strengthens. The domestic market is still immature and has considerable potential to grow. Convergence to EU living standards will depend on increased investment and improvements in employment creation.

Further pressure arises from required accession-related spending which forces the government to co-finance a quarter of all post-accession EU grants (estimated to be 4.0 % of GDP in 2009). In addition, Romania is required to contribute about 1% of GDP to the EU as a member. Some help should come from the 30 billion euro fund the EU has set aside to modernise Romania. Overview of the economy Business environment

forced the government to turn to the IMF and the EU for loans amounting Bucharest has pursued a number of policy reforms in order to meet the EU’s to around 20 billion euro. A process requirements. A significant part of the energy sector was privatised in 2005 and 2006 of fiscal consolidation begun in and more sales occurred in 2010. More than 100 small, state-owned enterprises are 2010, weakening domestic demand, scheduled for sale in 2011. Many privatisations, however, have subsequently been leading real GDP to drop by another proven to be superficial and of little benefit. Labour market reforms are planned in 1.3%. 2011 in order to boost job creation. Private sector growth is severely constrained by inadequate transportation infrastructure. The economy faces other problems once it gets back on track. Romania A flat tax (16%) on personal income and profits has been implemented in order to has the lowest income per capita spur investment and draw much of the country’s sizeable black economy – estimated in central Europe, the weakest at 40-50% of GDP – into the legal sphere. Reforms to better deal with tax evasion environmental standards, the are being introduced. Regulated prices for commercial users of electricity and gas largest tax arrears, the most will be scrapped before the end of 2013. pervasive corruption and the lowest education spending. Unreported, The accelerated absorption of EU funds is a priority. Officials intend to focus untaxed economic activity is on strengthening the administrative capacity of units managing the funds and estimated to represent nearly half modernising the legislative and regulatory framework. Corruption is regarded as of real GDP. widespread.

Total revenue Net profit/loss SEE TOP 100 Y/Y change Net profit/loss 2010 2010 No No Company name Industry in revenue 2009

1 1 OMV Petrom SA Petroleum/Natural gas 3 627 8.48% 419.9 323.6

2 4 Automobile Dacia SA Automobiles 2 709 27.81% 70.0 54.5

3 6 Rompetrol Rafinare SA Petroleum/Natural gas 1 959 16.82% -156.3 -112.1

4 13 Nokia Romania SRL Telecommunications 1 644 57.06% 42.3 37.7

5 15 Rompetrol Downstream SRL Petroleum/Natural gas 1 446 17.36% -23.1 -19.5

6 17 Metro Cash and Carry SRL Wholesale/Retail 1 238 -8.74% 32.6 30.1

7 19 British American Tobacco (Romania) Trading SRL Food/Drinks/Tobacco 1 137 9.48% 51.8 77.3

8 21 Kaufland Romania SCS Wholesale/Retail 1 108 27.23% 40.2 18.7

9 22 OMV Petrom Marketing SRL Petroleum/Natural gas 1 079 151.78% 26.4 8.5

10 23 Lukoil Romania SRL Petroleum/Natural gas 1 067 37.81% -38.7 -19.9 in millions of euro

103 SEE Country Profiles Bulgaria

Economic prospects

Real GDP grew by 0.2% in 2010 and growth of 3.0% is expected in 2011. Thanks to a sharp rise in productivity, exports should provide the main impetus for growth. The recovery will gradually broaden to include domestic demand. The economy’s performance, however, still will not match pre-recession levels. Overview of the economy Obsolete infrastructure hinders the recovery.

Inflation will rise to 3.8% in 2011, pushed up by higher prices of The economy performed well in food and energy. The rate of increase should slow in 2012. 2004-2007 with growth of real GDP averaging 6.1% per year. A The real value of private final consumption fell by 1.3% in 2010 surge in capital inflows and a credit and growth of just 0.6% is forecast for 2011. A weak recovery boom during this period drove the in the jobs market and rising inflation slow gains in consumer economy but also led to external spending. Increased spending on infrastructure (funded imbalances and rising inflation. mainly through EU support) should lead to a rebound in fixed Bulgaria became a member of the investment in 2011, helping to stabilise the economy. EU in January 2007. Based on per capita income, the country is still Unemployment jumped to 10.2% in 2010 (up from 6.8% the poorest member of the EU. in 2009). It is expected to ease to about 7.9% in 2011. The Productivity growth has been slow, employment rate rose slowly throughout most of 2010 while resulting in Bulgarian firms losing the average monthly wage increased by 6.4% in real terms. ground just at the time when EU The unemployment rate is highest among young adults, membership exposed them to ethnic minorities and those living in rural areas. Job losses are especially high in the construction industry. A freeze on public wages was imposed in 2010.

Total revenue Net profit/loss SEE TOP 100 Y/Y change Net profit/loss 2010 2010 No No Company name Industry in revenue 2009

1 3 Lukoil Neftochim Burgas AD Petroleum/Natural gas 2 794 29.16% -61.6 -90.0

2 7 Aurubis Bulgaria AD Metals 1 952 43.31% 31.7 107.3

3 10 Lukoil-Bulgaria EOOD Petroleum/Natural gas 1 714 4.93% 3.0 3.4

4 14 Natsionalna Elektricheska Kompania EAD Electricity 1 601 10.48% 52.4 4.4

5 35 OMV Bulgaria OOD Petroleum/Natural gas 829.3 29.19% 17.1 11.2

6 47 Bulgargaz EAD Petroleum/Natural gas 655.8 4.61% -19.1 15.4

7 52 CEZ Elektro Bulgaria AD Electricity 598.2 0.94% 1.6 2.8

8 57 Naftex Petrol EOOD Petroleum/Natural gas 579.5 27.71% 11.7 -104.0

9 59 Mobiltel EAD Telecommunications 572.0 -8.28% 112.6 134.1

10 61 Bulgarian Telecommunications Company AD Telecommunications 563.1 6.28% 58.1 44.2 in millions of euro

104 Evaluation of market potential

Because exports are leading Bulgaria’s recovery, any slowdown in key foreign markets will sharply reduce rates of growth.

Growth in the medium term will remain well below the pre-recession performance. Regional uncertainties pose Overview of the economy risks to economic prospects. Potential rates of growth in the future are thought to have dropped owing to a sharp drop in capital inflows and the possible end to Bulgaria’s greater competition. Financial investment boom. services and construction were two of the worst hit industries. Officials still hope to realise real gains of more than 5.0% a year once a genuine recovery has started. The Capital inflows dried up in 2009 and government’s strategy will require higher levels of real GDP fell by 5.5%. This was the productivity, slower growth in wages and a resumption first decline since the country ‘s last of investment. Sustained growth will require a shift in the economic crisis in 1996. With the country ‘s macroeconomic strategy with less emphasis on recession, the gross external debt real estate and construction and a higher priority assigned ratio started to edge upward once to exports and the development of new industries. again. Bulgaria will probably still be the poorest member-state for years Per capita GDP (at purchasing power parities) was 43% to come. It will require more than 20 of the EU average in 2010. Thus, one of the government’s years for Bulgaria to achieve a per major challenges is to sustain high rates of economic capita income that is two-thirds of growth while maintaining macroeconomic stability and the EU average. continuing its economic reforms. Euro adoption could help reduce some threats and also accelerate the process of integration with the EU.

With a shrinking and rapidly ageing population, the potential for further employment growth is limited. Business environment Marginal gains in employment will be accompanied by a steady decline in the unemployment rate. Thus, the labour market situation will become increasingly tight, with Several privatisations and concession shortages developing in some industries. This is expected arrangements have been delayed but to lead to noticeably higher wage gains in the future. government officials stress that they will redouble their efforts. The authorities also intend to simplify company registration and licensing procedures, expand one-stop shops, and intensify their efforts to combat corruption. 2006 2007 2008 2009 2010 Foreign Debt The tax rate was simplified in 2008, leading 3,701.5 3,098.6 2,525.9 2,825.3 2,873.0 to some reduction in the informal sector. The informal sector is still large, however, Historic | in millions of euro| Current Prices | Fixed 2010 Exchange Rates accounting for as much as a quarter of GDP. Although workers are relatively well Current Account 2005 2006 2007 2008 2009 2010 educated, skill shortages are a constant Balance problem. (% of GDP) -11.6 -17.6 -25.4 -22.9 -8.8 -1.2

Government spending is relatively high, Historic | % of total GDP leading to concerns that it may crowd out private investors. Officials plan to keep Major export destinations 2010 Share (%) Major import sources 2010 Share (%) public expenditures to less than 40% of GDP in the future. Bulgaria lacks an independent judiciary system. Increases in Europe 85.8 Europe 89.1 excise taxes and reforms to ensure better Africa and the Middle East compliance should prevent a further drop 5.4 Asia Pacific 4.2 in tax revenues. Further reforms are also Asia-Pacific 4.2 Latin America 2.9 needed to improve the business climate. Other countries 2.4 Africa and the Middle East 1.6

North America 1.5 Other countries 1.3

Latin America 0.5 North America 0.8

105 SEE SEE Country Profiles

Agriculture, IT and BPO to attract highest FDI in Bulgaria in coming years

Borislav Stefanov

By Svetozara Davidkova

Q: Bulgaria has reversed the negative investment everywhere fell, not only bigger business and bigger revenue and foreign direct investment (FDI) outflow/ in the region, but also in Europe and they have the financial stability to repay inflow balance since the beginning of the worldwide. loans. So, in some ways this is a positive year – do you think the positive trend will thing. Will the net FDI balance be persist? Secondly, in 2011 one trend has clearly positive by the end of 2011 – I don’t see emerged – some Bulgarian subsidiaries why not. A: First of all, a very important of big international firms started to repay clarification has to be made. The FDI their loans to their parent companies. Q: Which sectors do you expect to attract data from the Bulgarian National Bank When a company in Bulgaria pays back the highest amount of FDI in the next shows the capital that flows in and out a loan to the parent company statistics two-three years? of the Bulgarian subsidiaries of foreign show this as negative FDI. So statistics companies, which does not necessarily for the first half of this year shows FDI A: Agriculture and food processing have correspond to foreign investment. If the of only about 8.0 million euro. In reality a strong potential. Agriculture did not local branch of a foreign company invests it is about 1.3 billion euro inflow, but at get much attention in the past, mainly in the country but the money comes the same time we have about a little less because the Bulgarian government does from a bank loan, it is not included in than 1.3 billion euro outflow, and the 8.0 not own large land plots to sell and the the FDI statistics as the money did not million is the positive difference between land was very fragmented. However, come from the parent company. This the inflow and outflow. About 70-80% before the crisis lots of companies means that sometimes investments are of the negative FDI is due to repayment bought farm land and now there is a much higher than statistics suggest. of loans of local companies to parent lot of consolidated land and in the long companies. term the sector can develop well. There On the other hand, if the parent is already interest from a couple of company provides money to the local Instinctively, when someone sees Chinese companies which are looking for branch this does not mean the money negative FDI they think a company has hundreds of thousands of hectares to buy. will be invested but statistics still shows closed its business or fired workers or Companies from the Persian gulf and this as positive FDI, regardless of how the sold equipment, but in reality nothing Israel too have shown interest. There is money is spent afterwards. This was quite like that has happened. definitely renewed interest in agriculture evident in the years before the financial because of the name: crisis, in the 2006-2008 period, when 60- The amount of FDI that has been coming European Borislav Stefanov position: 90% of the total FDI was concentrated in into the country is more or less the same funds and I see Executive Director finance, real estate and trade. over the years. In the last ten years the this interest as company: InvestBulgaria Agency inflow of FDI has been relatively stable – a trend. web: In finance, FDI is essentially the money apart from finance, real estate and trade investbg.government.bg which foreign banks send to their - it has always been about 1.0-1.5 billion Another sector Bulgarian subsidiaries, which is not euro per year, mainly in manufacturing, with a strong potential to attract FDI is IT necessarily investment in the country. energy, telecoms and other high value- and business process outsourcing (BPO). Similarly, FDI in trade is usually the added sectors. Only this year we have seven or eight inventory of big trading companies. So, big international companies examining in that period, according to statistics, In finance, real estate and trade normally Bulgaria as a place to outsource business. investments in these sectors were huge it has also been around 1.0 billion euro. and as a result the total FDI figure was But in the years before the crisis it was Outsourcing is growing fast but it is still very high. But in reality it was much up to 6.0-7.0 billion euro per year. So very small – we have 10,000-15,000 people lower than what statistics showed. the total amount of FDI in 2006-2008 engaged in the industry. The majority of was 22 billion euro. Regarding the people working in this industry are based Q: What are your projections for the outflow of FDI in the years before the in Sofia, while the potential of the rest total size of FDI in Bulgaria this year? crisis, there was hardly any repayment of the cities in the country is not tapped. of intercompany loans, while now local But companies have already started to A: First of all, because of the crisis, branches of foreign companies have look at other cities.

106 SEE SEE Country Profiles

Q: What are Bulgaria’s advantages and subsidiaries in The Netherlands. Then running smoothly. weaknesses as an investment destination? came Greece and Germany. Q: What steps is the Invest Bulgaria A: A very strong side of Bulgaria is stability, The Times are very dynamic and it is Agency taking to market the country both political and macroeconomic. This hard to predict changes in the top three. better abroad? is something which, at this point, most of the neighbouring countries simply do Q: Greece is a major foreign investor A: Bulgaria did not have a strategy not have. in Bulgaria. Did the crisis in the for promoting itself as an investment Mediterranean country make Greek destination until very recently. Mostly The workforce is one of the advantages investors pull out of Bulgaria? tourism was promoted but not much was of the country. Investors point to the done about the other sectors. workforce as one of the reasons to choose A: In the first months of this year there the country, either because the work was a decrease in Greek investments, In May 2010 we launched a three-stage ethics here are better, or because people I think by about 30-40 million euro, project which is financed by the European speak more languages, there are different which is negligible compared to the total Commission, under the Competitiveness factors. amount of Greek investment in Bulgaria Programme, and has a budget of about which is more than 3.0 billion euro. It is 10 million euro to promote Bulgaria as Cost is, of course, another important difficult to say what will happen though. an investment destination. factor. However, this is a two-edged The biggest Greek investors in Buglaria sword because, on an international level, are in the financial sector. There are What we have done so far is a couple the fact that Bulgaria has some of the two possibilities – one is that the banks of analyses and strategies together with lowest salaries in the region is definitely here be pressed to start sending money some of the world’s largest strategy not something to be happy about, but back to their parent companies where consulting firms to evaluate the economy on the other hand, when a company is the situation is worse than here. If this of the country, to highlight which sectors choosing a location for its investment, happens, Greek FDI will decrease. have potential to attract FDI, etc. cost is one of the most important things The other possible scenario is that the to take into account. For instance, the Greek companies decide not to put their What we are working on now is the actual fact that engineers in Bulgaria are as Bulgarian subsidiaries in a bad shape direct marketing and media campaigns. qualified as those in Germany but cost because if worse comes to worst, it is On the marketing side we will have five times less is a reason to come to this better to sell a working company. nine events worldwide marketing key country. However, Bulgaria has similar industries, such as electrical engineering, labour costs to neighbouring countries, The subsidiaries of Greek banks in machine building, transport and logistics, such as Romania or Serbia. The cost of Bulgaria are doing pretty well – it is chemicals, food and agriculture. land, offices and utilities though is lower, not in the best interest of their parent which is an important factor. companies to first run them into the We are also planning a media campaign ground and then sell them. It is better to advertise Bulgaria via some of the Q: Do you expect a change in the top to keep them in good shape and then, leading business media worldwide. three foreign investors in the near future? if necessary, sell them. It is in their best Bulgaria is small and lacks visibility but interest to keep their operations here we are making an effort to change that. A: One thing we have to note is that here again statistics and reality do not fully overlap. What the central bank does is report the foreign investment by the country where it came from, irrespective of the origin of the company. So if you have a company which is German but has a subsidiaty in the Czech Republic and invests in Bulgaria through this particular subsidiary, then this will not count as a German investment, it would count as a Czech one.

Last year we made an experiment and grouped investments in terms of where the companies are headquartered. So for 2010 the top two countries were the U.S. and Russia, because many of their companies invest through their

107 SEE SEE Country Profiles

CEIBG taps members’ practical experience to battle shadow economy

Ognian Donev

By Raina Lazarova The Confederation of Employers Q: At the end of September, the IMF and Industrialists in Bulgaria investment is a trend across Europe. downgraded its growth forecast for the (CEIBG) is an employers’ This is just the way things stand right Bulgarian economy to 2.5% for 2011 and organisation, whose mission is now. You can see that all investors have 3.0% for 2012. What do you think about to work to improve the business become more cautious when it comes to this revision? climate in the country and to macroeconomic trends. Every industry raise the competitiveness of has its own view on the level of risk and A: Reality once again proved there is more the investments it can afford to make at the Bulgarian economy. CEIBG to it than forecasts. The developments in this moment. But we are all a lot more other countries, especially the mounting participates in the National careful because no one knows what fears about the fate of Greece and its Council for Tripartite Cooperation. the extent to which the turmoil in the eurozone membership, have raised The members of the organisation eurozone can affect the micro trends in concerns across global markets and have generate three-quarters of the near future is. Businesses are looking taken their toll on the pace of growth. Bulgaria’s GDP and provide over to cut back on spending in order to build 700,000 jobs at over 10,500 a financial buffer. The IMF’s revised forecast seems logical companies. but everything depends on the events It is true that affecting the countries that surround there is an name: Ognian Donev Bulgaria. It is not possible to say that if possibility of non-compliance with the outflow of position: Greece eventually defaults on its debt, investment Chairman laws of the country, which might include organisation: which will most probably happen, it concealing economic data or under- but this is CEIBG will not affect in any way the Bulgarian just one web: reporting income in a bid to avoid paying www.ceibg.bg economy. We cannot predict the exact insurance contributions. These are the side of the impact it will have, but it will certainly two mechanisms that generate resources coin. There affect us. for the flourishing of unfair competition, is also another side and it is that the which all our members oppose. quality of investment is much higher Q: What are the measures that CEIBG than during the years of the construction has included in the new package This package of measures is an open boom. Back then there were mainly of proposals it has prepared for the system, which I hope will be extended financial investments and investments government in its role as an employers’ with the help of individual industries in construction in Bulgaria, which did organisation? that have their CEIBG representatives. not provide permanent jobs. While This actually covers all industries of the now, amidst the crisis, there are mainly A: CEIBG is proposing measures and Bulgarian economy. After that we will investments in manufacturing, which is a ideas stemming from the practical discuss the measures with the Ministry positive development. experience of our members. The state of Finance and the National Revenue Q: What goals has CEIBG set for itself does not have to pay anything for them. Agency so that we can see which of them in its role as an employers’ organisation? We are only drawing the attention of the are workable and also easy to implement. administration to some serious problems, An example of a measure we can consider A: Our main goal is to draw up criteria which we can tackle together and achieve successful so far is linking up in real-time a better result. The package includes which would be used to prepare a count the local filling stations and pharmacies of the trade-union and employers’ measures against the shadow economy with the system of the National Revenue and unfair business practices. However, organisations. We support the idea of Agency. We knew it would create severe making it clear who represents whom. in the meantime, it is not a bad idea to backlash. Some were forecasting company encourage those that play by the rules. Otherwise the dialogue between the three bankruptcies but it became obvious that main pillars – trade unions, government it was all just a lot of noise made in an and employers – is watered down. This is The government once had an idea, which attempt to postpone these measures. never came to life, about a register of good the tripartite commission which discuses taxpayers who would get VIP treatment. all the important issues related to the Q: What is your comment on the state development of the country. We don’t Other measures include increased control of foreign direct investment in Bulgaria? over suspicious sectors, where industry think it is normal to have six recognised officials themselves warn that there is a employers’ organisations as is currently A: The decline in foreign direct the case. 108 or call or call [email protected] , email us at , “The key point, “The key of course, is that consists reputation — of perceptions how others see you.” Charles Fombrun How do we measure consumer perceptions? consumer How do we measure www.aiidatapro.com How do we track changes in reputation over time? over How do we track changes in reputation How do we measure the value of intangible assets? the How do we measure management How do we measure our positioning versus the competition? positioning versus our How do we measure How do we justify our communication strategies and budget? MEDIA PERCEPTIONS, NOT ONLY COVERAGE NOT ONLY PERCEPTIONS, MEDIA

REPUTATION interplay between the How do we measure and perception? efforts, results To learn more about our reputation management products, visit products, management about our reputation more learn To +359 2 8012 609 (Bulgaria), +43 720 072 688 (Austria), +44 208 002 8768 (UK), +1 212 359 1647 (USA). 1647 359 212 +1 (UK), 8768 +44 208 002 688 (Austria), 720 072 +43 609 (Bulgaria), 2 8012 +359 SEE Country Profiles Serbia

Economic prospects Overview of the economy

Real GDP is expected to grow by 3.0% in 2011. An export-led rebound is driving the economy but employment losses and corporate restructuring slow Serbia’s economy enjoyed real GDP the recovery. growth of more than 5.0% per year in 2004-2008. However, by the Inflation has reached uncomfortably high levels in recent years. Prices are fourth quarter of 2008, the pace of forecast to rise by 8.1% in 2011. There is a danger of the economy overheating growth had fallen sharply and the as a result of higher food prices. The central bank raised interest rates to economy slipped into recession in 12.50% in the beginning of April, the eighth increase since August 2010, but 2009 when real GDP contracted by then decreased it by a quarter point in June and in July. In August it kept the 3.0%. Exports and imports fell at rate unchanged at 11.75%. a double-digit pace and industrial production also decreased during Public investment and exports are expected to provide some growth the year. The growth of credit momentum but Serbia’s tiny private sector limits the country‘s potential markets dried up while fixed benefits during the recovery. The economy’s gains in 2011 will still not investment plummeted and the be sufficient to reach pre-crisis levels. Growth is too narrowly based and dinar depreciated. insufficient to reduce unemployment. In response, the government The real value of private final consumption contracted in 2009 and grew by introduced an emergency spending just 0.3% in 2010. Another contraction of 0.8% is expected in 2011.

Remittances from Serbs working abroad typically account for a large portion of GDP but they fell (in dollar terms) in 2009 and rose by just 3.2% in 2010. Business The drop has hurt private investment (much of it in housing) and consumer spending. environment Unemployment reached 20.4% in 2010 and is expected to rise further to 20.7% in 2011. Only about half of the working age population is employed. A freeze on public wages and pensions was scrapped in January 2011 with the A shift to indirect taxes is nearly IMF’s agreement. Public sector wages and pensions were increased by 5.5% complete. Excise taxes on fuel and in April . The public sector is still Serbia’s largest employer. tobacco have been raised. Business regulations have been simplified, making it easier to start a business and access credit. A reform of the pension system has begun. Finally, an increase Major export destinations Major import sources 2010 Share (%) 2010 Share (%) in the VAT may be needed to deal with rising government deficits. Businesses Europe 89.7 Europe 92.1 complain more about sudden tax changes than about the level of Other countries 7.4 Asia Pacific 4.7 taxation.

Africa and the Middle East 1.5 Other countries 1.0 The role of the state has been reduced and the private sector’s share in total Asia-Pacific 1.2 Latin America 0.9 employment has risen. However, the Latin America 0.1 North America 0.7 remaining state-owned firms continue to experience significant losses Partial Australasia 0.1 Africa and the Middle East 0.5 sale of the state-owned incumbent telecom was planned in 2010, but it failed. Later in 2010 and especially during 2011 with general and local 2006 2007 2008 2009 2010 elections approaching, the sale of Foreign Debt Telekom Srbija became one of the most 5,394.6 4,884.7 5,165.9 7,082.7 9,076.4 hotly discussed issues by politicians and this holds the privatisation back for the Historic | in millions of euro| Current Prices | Fixed 2010 Exchange Rates time being. State ownership in banks will also be phased out. Current Account 2005 2006 2007 2008 2009 2010 Balance In 2011, Serbia entered a regional cooperation agreement with both parts (% of GDP) -8.7 -10.2 -16.0 -21.1 -6.9 -7.0 of Bosnia, Slovenia and Montenegro to Historic | % of total GDP clamp down on tax evasion. Authorities estimate that Serbia is losing more than 210 million U.S dollars due to tax evasion.

110 Evaluation of market potential Overview of the economy The economy still faces a large degree of restructuring. Politically difficult reforms will be necessary to achieve sustainable growth. programme valued at 3.0 billion The reform agenda includes measures to address the oversized euro to stimulate production public sector, steps to follow up on the recent pension reform and and exports. Nevertheless, the the rationalisation of public enterprises economy was growing too slowly to stem employment losses. The government’s goal is to move the economy away from The economy turned around consumption-led growth by creating an environment more in 2010 when real GDP rose by conducive to investment and exports. There is a small, market- 1.5%. However, the transition of oriented sector which generates the most growth, a large, a pattern of consumption-led unreformed socialist system and an informal economy. Serbia has growth to one where exports figure little hope of joining the EU before 2018. more prominently has proven difficult. Smaller firms are going The country ‘s population has been declining since the 1990s and through a particularly troublesome is rapidly ageing. Officials plan to boost the minimum retirement adjustment, and employment age from 53 to 58 years for both men and women. in both the formal and informal segments of the private sector fell The government had set a growth target of 7% per year by in 2009 and 2010. 2012. They also hope to reduce inflation to around 4% by 2012. However, there is broad agreement that these targets will require some fundamental reforms as well as significant improvement in the economies of the EU. A volatile political climate and a host of vested interests are other barriers to reform. All in all, these targets can be considered too ambitious.

Total revenue Net profit/loss SEE TOP 100 Y/Y change Net profit/loss 2010 2010 No No Company name Industry in revenue 2009

1 9 Naftna Industrija Srbije AD Petroleum/Natural gas 1 716 33.86% 156.3 -392.5

2 18 JP Elektroprivreda Srbije Electricity 1 202 19.46% 16.9 -1.6

3 30 Telekom Srbija AD Telecommunications 916.5 0.39% 149.7 162.2

4 32 U.S. Steel Serbia DOO Metals 868.4 70.13% -142.3 -153.1

5 37 JP Srbijagas Petroleum/Natural gas 807.0 25.33% 8.4 9.9

6 41 Delta Maxi DOO Wholesale/Retail 739.5 15.77% 17.9 18.9

7 55 Termoelektrane Nikola Tesla DOO Electricity 586.9 7.83% 3.8 -17.7

8 74 YugoRosGaz AD Petroleum/Natural gas 489.7 39.83% 18.9 13.7

9 75 Mercator - S DOO Wholesale/Retail 487.4 13.70% 6.9 12.1

10 94 Elektrovojvodina DOO Electricity 403.6 12.09% -11.4 -6.9 in millions of euro

111 SEE Country Profiles Slovenia

Economic prospects

Real GDP should grow by 1.9% in 2011 with somewhat higher rates in the medium term. Driving the tepid recovery is export demand in Germany, Austria and France. Investment will remain subdued owing to tight credit conditions and slow adjustment of the construction sector. Overview of the economy Domestic demand will be slow to recover. The real value of private final consumption was unchanged in 2010 and will grow by just 1.4% in 2011. A hike in excise taxes and a cut in public spending will slow the recovery of domestic demand. Healthy rates of growth are not expected to return before 2014. Before accession, Slovenia’s per capita GDP (at purchasing power Unit labour costs have steadily risen, weakening the country’s competitive parities) was about 50% of the position. Labour productivity is also dropping in most sectors. Unemployment EU average. But in the 27-country was 7.3% in 2010 and it will rise to 7.5% in 2011. bloc that includes so many poorer countries, that figure has risen to 91%. At this level, Slovenia is not eligible for structural funds given to the EU’s poorest regions.

The economy grew at a rate above Business environment economic potential from 2005 until mid-2007. However, the pace decelerated in 2008 and a The government plays a major role in the economy with government spending recession began before the end of accounting for about 45% of GDP. Officials have also moved very slowly on the year. The ensuing global crisis privatisation but as the recession began to bite they have indicated their exacerbated existing imbalances willingness to accelerate the process. The government is now prepared to sell off most state-owned enterprises, except for a small number of “strategic” companies. These apparently include energy infrastructure, railways and some financial services. Revenues from these sales are expected to cut the public debt by around two percentage points.

More progress has been made in the financial sector where changes in regulations and new legislation have moved firms toward greater integration into global markets. In 2011, Slovenia entered a regional cooperation agreement with both parts of Bosnia, Serbia and Montenegro to clamp down on tax evasion.

Taxes are high (40%) by regional standards. Excise taxes were raised in 2010. There are generous public benefits and superior, though costly, public services. Wage guidelines are set to lag productivity growth but are often breached. Labour rules are rigid with trade unions that are large and influential compared to most post-communist countries.

Payroll taxes were abolished in 2009 in an effort to improve labour flexibility. Labour markets, however, are still highly regulated and hinder the growth of productivity. Officials cut the corporate tax rate to 20% in 2010.

2006 2007 2008 2009 2010 Foreign Debt 2,116.0 2,625.0 3,319.0 6,254.0 7,722.0

Historic | in millions of euro| Current Prices | Fixed 2010 Exchange Rates

Current Account 2005 2006 2007 2008 2009 2010 Balance (% of GDP) -1.7 -2.6 -4.7 -6.6 -1.5 -1.2

Historic | % of total GDP

112 Evaluation of market potential

The recovery will be slow but real GDP is expected to grow by 2.0-4.0% per year in 2012-2014. The government’s large debt is a serious impediment to growth. A fragile banking system is another danger. Potential output is likely to fall owing to slow growth in productivity, difficult financing Overview of the economy conditions and high levels of structural unemployment. More than 40% of the economy remains in state hands, compared to 8.0% in Hungary. A large chunk of what is private belongs to a handful of former state companies in Slovenia’s economy. A sharp privatised in the 1990s. Nearly half of public spending is drop in both domestic and external on social transfers, with very little reaching those truly demand followed. Ultimately, real in need. In the field of privatisation, steel and energy GDP contracted by 8.1% in 2009. holdings could all attract serious international attention The economy began a recovery but none will be sold in the near future. There is a danger during 2010 and real GDP ultimately that private consumption will prove to be weaker than recorded gains of 1.2%. expected owing to the poor performance of the labour market. The downturn resulted in a large fiscal deficit, higher unemployment Generous welfare and retirement benefits have reduced and a loss of competitiveness. labour participation. In addition, Slovenia also has one While there is evidence of increasing of the fastest ageing populations in Europe. Both these specialisation into high-tech facts serve to highlight the challenge to long-run fiscal sectors, the pace of export-quality sustainability. upgrading lags behind other countries in the region.

Total revenue Net profit/loss SEE TOP 100 Y/Y change Net profit/loss 2010 2010 No No Company name Industry in revenue 2009

1 5 Petrol d.d. Petroleum/Natural gas 2 482 19.97% 37.9 10.7

2 12 Poslovni Sistem Mercator d.d. Wholesale/Retail 1 670 -5.10% 36.8 19.3

3 16 Revoz d.d. Automobiles 1 331 3.10% 18.6 20.5

4 27 Krka d.d. Pharmaceuticals 960.6 0.18% 165.9 170.8

5 31 Holding Slovenske Elektrarne d.o.o. Electricity 916.3 14.04% 79.5 60.2

6 43 Engrotus d.d. Wholesale/Retail 678.0 0.72% 7.9 11.7

7 44 Gorenje d.d. Electronics 677.2 10.29% 2.9 -6.1

8 56 GEN-I d.o.o. Electricity 580.4 35.25% 10.9 9.9

9 58 Lek d.d. Pharmaceuticals 575.9 -0.99% 47.9 55.3

10 64 OMV Slovenija d.o.o. Petroleum/Natural gas 556.5 17.05% 16.1 14.9 in millions of euro

Economic prospects

Croatia’s recession should end in 2011 with real GDP growing by 1.3%. A good performance by the tourism sector and a gradual strengthening of consumer spending will provide initial support. The economy’s performance should improve in the medium term but will not match historical trends. Inflation has fallen as the output gap has widened.

Croatia successfully handled accession talks and EU membership will be possible in 2013 since the ratification process takes at least a year and a half. Overview of the economy Unemployment reached a four-year high in 2010, amounting to 11.8%. In 2011, it is expected to rise to 12.3%. The jobless total will remain high in the Based on most economic indicators, medium term. Strict regulations constrain labour market flexibility, forcing Croatia performed better than more workers into the informal sector. Croatia’s wage levels are high relative Romania or Bulgaria for nearly to its income and productivity. Generous social benefits discourage labour a decade. The economy is open force participation. to trade and capital flows, and privatisation is well advanced, Consumption is held back by household debt which, as a share of GDP, is one although uneven. Prior to the of the highest in Central and Eastern Europe. The real value of private final recession which began in 2009, consumption fell by 1.4% in 2010 and gains of just 0.4% are expected in 2011. gains had been sufficient for the Growth will be slow in the medium term. country to reach a per capita income which was around 63% of the EU Most foreign investment has gone into existing capacities. Investments in average. new capacity – greenfield investments – have been scarce. Croatia’s location is attractive to foreign investors but they are concerned that the economy’s Croatia’s openness left the country competitiveness is waning. especially vulnerable to the recession in Western Europe. The contraction continued in 2010 when real GDP declined by 1.2%. Private sector credit declined sharply while weaknesses in consumption and investment outweighed gains in exports. Because of its Major export destinations 2010 Share (%) Major import sources 2010 Share (%)

Europe 85.9 Europe 79.9

Africa and the Middle East 5.9 Asia Pacific 12.7

North America 3.0 North America 2.7

Other countries 2.5 Latin America 1.7

Asia-Pacific 1.7 Other countries 1.7

Latin America 1.0 Africa and the Middle East 1.2

2006 2007 2008 2009 2010 Foreign Debt 6,113.1 6,069.2 4,730.7 5,703.4 6,624.3

Historic | in millions of euro| Current Prices | Fixed 2010 Exchange Rates

Current Account 2005 2006 2007 2008 2009 2010 Balance (% of GDP) -5.7 -6.7 -7.5 -8.9 -5.3 -1.8

Historic | % of total GDP

Growth should resume in the medium term but is not expected to reach pre- crisis levels. The competitiveness of Croatia’s export potential remains in doubt. Structural rigidities are another problem. Nevertheless, the EU accession process should accelerate fiscal and structural reform.

Since Croatia has successfully wrapped up the accession talks, it is on track to start benefiting from billions of euro of EU structural aid to upgrade its developing economy. Croatia will become the second former Yugoslav state, after Slovenia, to join the EU.

Overview of the economy The government has adopted a plan to resolve its long-standing debt to current pensioners, which amounts to about 1.2% of GDP. The bulk of this debt has been repaid, and will be paid off completely by 2013. The payments should help to boost narrow export base and weak consumer spending. Meanwhile, pension laws have been amended to equate the competitiveness, Croatia was statutory retirement age of women and men by 2030, penalties for early retirement unable to take full advantage of have been increased, and incentives introduced to delay retirement. the economic rebound among its trading partners.

Rapid growth in credit resulted in a significant increase in debt. The banking system has been privatised Business environment but the state’s dominance of the economy remains. An unanticipated jump in private borrowing led to a Croatia lags behind its neighbours in creating an appealing business environment. big increase in external debt along Many reforms are held back by legal battles, the objections of vested interests and a with a larger current account deficit. legal framework which favours insiders. Major barriers are a burdensome regulatory environment, a slow-moving judiciary and a corrupt bureaucracy. The country’s The large public sector imposes a telecommunications and media industries have been liberalised but monopolies drag on growth. Public agencies and dominate in other parts of the communications market. Privatisation and enterprise enterprises have not been subject to restructuring are still incomplete, keeping productivity low. strict financial discipline, and state aid in various forms exceeds that in Reforms are badly needed to reduce the cost of doing business. There are significant other Central and Eastern European “unofficial” restrictions on foreign investment which add to the overall cost of starting countries. a business. Growth of credit to the private sector has fallen sharply. Subsidies to state- owned firms further distort the economy. Total government spending represents approximately 40% of GDP.

Over the medium term, economic and structural policies will be driven by the goal of EU accession. State aid will have to be reduced further, the public administration modernised, and room made for new accession-related expenditures.

Total revenue Net profit/loss SEE TOP 100 Y/Y change Net profit/loss 2010 2010 No No Company name Industry in revenue 2009

1 2 INA d.d. Petroleum/Natural gas 3 291 23.14% 239.3 -86.4

2 8 Konzum d.d. Wholesale/Retail 1 721 0.38% 55.9 46.8

3 11 Hrvatska Elektroprivreda d.d. Electricity 1 708 3.44% 133.6 41.0

4 20 Hrvatski Telekom d.d. Telecommunications 1 127 56.79% 252.4 122.6 (formerly HT - Hrvatske Telekomunikacije d.d.) 5 39 Prirodni Plin d.o.o.* Petroleum/Natural gas 794.6 194.30% -46.7 -61.4

6 65 HEP-Proizvodnja d.o.o.* Electricity 537.5 1.14% 72.7 3.6

7 67 Zagrebacki Holding d.o.o.* Diversified Holdings 515.1 -16.02% -67.3 3.1

8 69 HEP-Operator Distribucijskog Sustava d.o.o. * Electricity 511.3 3.37% 14.6 -8.8

9 72 OMV Hrvatska d.o.o.* Petroleum/Natural gas 505.8 19.73% 7.5 2.1

10 76 Uljanik Brodogradiliste d.d.* Transportation 479.4 42.81% 4.5 2.4 (*)denotes gross profit/loss in millions of euro 115 SEE SEE Country Profiles

FDI inflows to Croatia to pick up in 2012/2013

By Ana Blaskovic, Poslovni dnevnik FDI inflows to Croatia

Source: Croatian National Bank Unlike some other countries in Central *Preliminary data and Eastern Europe, Croatia failed to use 4 500 4 216 the potential of foreign direct investment 4 000 (FDI) during the period of transition to 3 679 3 500 generate a stronger growth of its gross 3 000 domestic product. Bureaucratic obstacles 2 768 for investors, the pervasive presence of 2 500 the state throughout the economy and 2 000 2 065 the unstable macroeconomic framework 1 762 discouraged foreign direct invest. Due to 1 500 1 363 1 467 1 468 the combination of those factors and the 1 141 1 138 1 000 950 impact of the recession, there were no 850 major foreign investments in 2010 when 500 480 0 227 129 FDI in Croatia totaled 226.6 million of euro in millions euro or just a tenth of the 2009 figure. 1997 2010 1999 1998 2001 2007 2003 2002 2005 2004 2006 2009 2008 2000 Even in years without any significant Q1/11* privatisation deals, the FDI momentum The banking sector used to be a key drastically diminished. that had built up ensured that between FDI generator due to extremely high 1.0 billion and 1.5 billion euro still returns on investment, as well as due Apart from banks, FDI inflows to Croatia flowed into Croatia’s economy. For to regulatory capital requirements and have mostly to do with intercompany example, local pharmaceutical company the decision of the foreign-held banks’ loans of multinational companies Pliva was sold to U.S. company Barr owners not to repatriate profits. But with subsidiaries in Croatia and the in 2006 and that year foreign direct with the repositioning of banks on the proliferation of shopping malls that investment doubled as compared to Croatian financial market and the end started during the nineties and reached the previous year, reaching almost 2.8 of one round of recapitalisations, the its peak in the 2000s. For example, 55% billion euro. The growth of investment impulse to invest into that sector has of the total FDI in 2007 was linked to continued in the following two years. In FDI inflows to Croatia peer countries 2010, WIIW 2007, it amounted to 3.67 billion euro and at the end of 2008 the total FDI 8 000 7 319 inflow was 4.2 billion euro. However, the 7 000 beginning of the global financial crisis and the ensuing recession of 2009 had a 6 000 5 121 dramatic effect on investor interest. FDI 5 000 in Croatia first halved to 2.06 billion 4 000 euro in 2009 and then last year it shrank to just 226.6 million euro. Almost 75% 3 000 of the 2010 amount went into the real 2000 estate sector, a third was absorbed by the 1 208 1 000 trade sector with banks accounting for 630 0 397 12%. The negative trend continued this of euro in millions 227 year, with the first quarter ending with Czech Slovenia Slovakia Hungary Croatia Poland only 130 million euro in FDI. Republic Source: WIIW

116 Foreign direct investment in Croatia *Preliminary data from shopping malls and retail chains, 4 500 Intl financial institutions European developing countries the most promising sectors in terms of Other developing countries Other developed countries 4 000 EU member countries circa 2004 FDI outlook are considered to be energy, 3 500 Eu15 transport and logistics. FDI inflows will also get a boost from Croatia’s 3 000 upcoming accession to the European 2 500 Union, considering the fact that the

2 000 strengthening of the legal framework and the stronger positioning of companies in 1 500 the country depend on joining the bloc. 1 000 Companies that are already present in 500 Croatia will be required to modernise in 0 order to satisfy new regulations and keep in millions of euro in millions up with the competition. Source: Croatian National Bank When it comes to the country’s FDI outlook, a lot rides on the upcoming 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Q1/11* parliamentary election, which will be the financial sector, and nearly 9.0% was to doing business in Croatia. held at the end of the year. In its first two linked to the trade and real estate sectors. years in office, the new government will In the last few years, almost a third of According to the forecast of the Croatian have to make cuts in public expenditure FDI went to the financial sector, and, National Bank (CNB), the FDI outlook and launch structural reforms. depending on the year, between 25 and for 2011 is modest at around 800 million 40% in the trade sector. euro. Although it is a far cry from the The strength of fiscal consolidation and FDI heyday when the deals for Pliva and the budget financing needs will influence An analysis of the reasons why FDI in oil company INA were being done, the future decisions on the privatisation of Croatia has been weak compared to other expected inflow should successfully cover the state portfolio, so the FDI forecast countries in the wider region, especially 2.5% of the balance of payments deficit of 1.4 billion euro for 2012 does not transition standouts like Slovakia, would that accompanies the slow growth of the include privatisation proceeds. However, show that the key problems stem from country’s gross domestic product. even if further privatisation deals get the the lack of a stimulating investment green light, it is not clear whether that environment, the overregulation that A more significant increase in foreign would have an impact on the FDI figures entrepreneurs have to deal with and investment could be expected next year, for 2012 and 2013 given the time that is the unstable macroeconomic and legal when it is seen by the CNB at 1.4 billion usually needed to see such divestitures framework. A comparison to other euro, while the forecast for 2013 indicates through. countries in terms of competitiveness a possible 1.6 billion euro in FDI. Apart and appeal to investors doesn’t bode well Current account deficit and FDI inflows in Croatia for Croatia. Note: FDI inflows to Croatia and current account balance exclude Pliva’s transfer of patent 12 rights to the affiliated company abroad in 2003. Even though Croatia boasts advantages 10.5 in terms of technological development, 10 infrastructure, healthcare and primary Current account deficit FDI 8.8 education, investors are discouraged 8 by the institutional hassle, the lack 7.2 7.2 6.4 6.6 of flexibility in the labour and goods 6 5.9 5.8 6.0 markets and the macroeconomic 5.3 5.2 4.1 framework. The instability of the tax 4 4.1 system is especially worrying for potential 3.0 investors since the constant populist 2 2.3 mention of new entrepreneurial taxes, 1.1 0 % of GDP

like levies on banks and property, as well Bank National Croatian Source: as the enforced increase of VAT and a

crisis tax, raised the uncertainties related 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 117 SEE Country Profiles Bosnia and Herzegovina

Economic prospects

Aided by a pickup in exports of metals and minerals, real GDP should rise by Overview of the economy 2.2% in 2011. Growth of credit is still slow, limiting gains in domestic demand. Economic reforms in both parts of the country are proceeding more slowly than expected. Importantly, officials in the Federation and the Republic still A remarkable recovery took place need to agree on a common fiscal framework. after the collapse of the socialist- built economy. Real GDP growth Country-wide unemployment was 27.2% in 2010 and despite decreasing to averaged 6.0% per year in 2003- 23.0% in 2011 will still be one of the highest rates in Europe. Over 50% of 2008 but the economy slipped into young adults lack formal employment. Because labour mobility is limited, recession in 2009 when real GDP unemployment in depressed areas is very high. More than 75% of the declined by 3.1%. The U.S. dollar unemployed have been out of work for over two years. Skill gaps are sizeable value of exports fell by 6.4% and and training is outdated. Labour markets are also encumbered with out-of- inflows of FDI disappeared. Tighter date procedures for collective bargaining. credit conditions undermined growth of demand. The informal sector is estimated to account for nearly two-fifths of GDP in the Federation and more than one-fifth in the Republic. Informal jobs are much A feeble recovery began in 2010 and lower paid than in the formal sector and lack job security. has continued in 2011 but it could take more than a decade before the The country has received more than 5.0 billion U.S. dollars in aid since the war level of economic activity reaches but inflows have dropped sharply in recent years. Bosnia also relies heavily on remittances from overseas workers. This is especially important since the country has failed to attract much foreign investment. Although remittances declined in 2009, they are still more than four times the level of FDI.

Business environment

The Serb Republic is pursuing several programmes Large differences in corporate income tax between for privatisation with sales conducted at the entity the Serb Republic and the Federation make it level by separate agencies. The Muslim-Croat difficult for businesses operating in both entities. Federation, which together with the Republic make The two tax bases are also different. up Bosnia, also has a privatisation programme. The Federation has already sold more than 70% of the Bosnia’s private sector is expanding but government companies identified for privatisation, but these are spending still amounts to nearly 40% of GDP. mainly small firms and represent only 40% of total The country’s complex legal situation hinders the assets slated for privatisation. functioning of many institutions and undermines the business environment. Despite these efforts, many firms (both privatised and state-owned) are not profit-oriented. Loss- The country’s dual entity structure greatly making is widespread. The large informal sector complicates the overall business environment. poses additional problems in creating a suitable The regulatory framework is vague and often business environment. The introduction of a VAT contradictory. A variety of complex registration tax should eventually help to reduce the size of the processes in both the Muslim-Croat and the Bosnian informal economy. In 2011, Bosnia entered a regional Serb entities discourages nationwide business cooperation agreement with Serbia, Slovenia and development. Montenegro to clamp down on tax evasion.

Historic | % of total GDP

118 Evaluation of market potential Overview of the economy Domestic demand will continue to be feeble for several years as banks are reluctant to lend and keep interest rates high. The pre-war levels. Around 18% of the fiscal deficit will be another drag on the economy. Continued population still live in poverty and implementation of reforms in the public sector and adherence to another 30% (including many state the country’s agreement with the IMF should lead to somewhat employees) are only slightly better higher rates of growth in the medium term. off. Fiscal policy must be tightened, a move that will require cuts in A large portion of all economic subsidies and public spending. Additional financial assistance activity is still conducted in the from the IMF is being sought. This, most likely, will come with informal sector. Growth in the stringent conditions on spending and revenue polices. formal economy remains partially dependent on the international aid going to the country but these funds are now being supplied in smaller amounts and with conditions. Macroeconomic policies can be disorganised and poorly designed. Major export destinations 2010 Share (%) Major import sources 2010 Share (%)

Europe 96.6 Europe 98.0

Africa and the Middle East 1.1 Asia Pacific 0.8

North America 1.0 North America 0.5

Asia-Pacific 0.7 Latin America 0.3

Latin America 0.5 Other countries 0.2

Other countries 0.1 Africa and the Middle East 0.1

Total revenue Net profit/loss SEE TOP 100 Y/Y change Net profit/loss 2010 2010 No No Company name Industry in revenue 2009

1 81 JP Elektroprivreda BiH d.d. Electricity 452.5 -6.25% -7.4 31.7

2 111 ASA Prevent Group Diversified Holdings 373.3 19.63% N/A N/A

3 148 BH Telecom d.d. Telecommunications 307.2 -0.75% 70.9 73.7

4 163 Konzum DOO Wholesale/Retail 283.8 N/A 1.2 N/A

5 178 ArcelorMittal d.o.o. Zenica Metals 272.1 42.50% -5.5 -61.5

6 185 Aluminij d.d. Metals 264.3 33.79% N/A -21.0

7 197 Telekom Srpske a.d. Telecommunications 249.5 -1.13% 55.4 52.5

8 226 Elektroprivreda Republike Srpske a.d. Electricity 227.4 9.00% 5.2 3.3

9 261 Energoinvest d.d. Construction 203.2 18.34% 1.1 0.873

10 274 JP Elektroprivreda HZ Herceg Bosne d.d. Electricity 195.8 22.81% 20.8 11.9 in millions of euro

119 SEE SEE Country Profiles

Bosnia sees high promise in halal tourism

By Iskra Pavlova

Bosnia could easily become a major of foreign tourists from the Islamic in Bosnia but it is a fact that a huge halal tourist destination, tapping the countries, though we should not forget number of tourists from Turkey visit huge potential of the growing Muslim that quite a big number of people who the Balkan country throughout the year consumer market, the country’s cultural live according to halal rules and observe and the number of tourists coming from heritage and strategic geographic location, the halal practices live in the European Kuwait is on the rise. said Amir Sakic, the head of the regional Union,” Sakic said. halal certification institution – the Halal tourism is an emerging industry, Agency for Halal Quality Certification. He added that more than 15 million which hopes to ride the wave of success of Muslims live in the European Union, the Islamic food and banking industries. The halal hospitality industry caters to according to official data, and they are all Progress, however, is slow. The agency the needs of Muslim families who abide potential clients of the halal hospitality Sakic heads was founded six years ago by Sharia rules. The most strict halal industry. and since then has certified, or is in the hotels do not serve alcohol or pork, process of certifying, all the leading food they have prayer facilities and separate “It is important that these services are makers in Bosnia but has awarded only swimming pools and spa facilities for not limited to Muslims exclusively,” he one licence to a local restaurant - the men and women. said, drawing a parallel with halal food Terasa restaurant in Sarajevo - and none fans in Britain, two-thirds of whom are to a hotel yet. The mixture of different religions, non-Muslims. customs and tradition combined with This situation will change shortly as the rich historic background and natural “If we have to make a profile of those country’s first halal hotel will soon be landscape makes Bosnia a hot tourist who want such a service, these are not certified, the official said, adding that the destination. To halal tourists the country only people who come on vacation, but agency is reviewing several certification can be especially attractive with its also people who come on business and applications at the moment. cultural heritage of a territory that was for other reasons.” once part of the Ottoman empire. “We already have hotels that are 90% Sakic said that there is no comprehensive ready to provide such a service,” he said. “We definitely have a significant inflow official data about foreign tourist arrivals In June, the Agency for Halal Quality Mostar Certification signed a partnership agreement with Singapore-based Crescentrating, the world leader in providing halal–friendly rating for the travel services, on the promotion of halal–friendly travel services and facilities in Southeast Europe.

Halal–friendly hotels are ranked on a one-to-seven grade scale according to the scope of halal services they provide. A rating of one to three implies practically no adjustment to a regular hotel apart from the so-called “soft change” that includes readiness to provide guests with specific information about halal services and facilities in the hotel’s surrounding

by F. Montino area. Grades four and five mean the

120 wrapped up during the autumn and the winter, he added.

Landlocked Bosnia has only several kilometers of coastline but is rich in picturesque mountains that could be promoted as tourism destinations throughout the year.

“The mountain resorts hide significant potential and can be interesting beyond the winter season with an adequate organisation of recreation and sport activities such as mountain trekking, paragliding and others,” Sakic said. by Dieter Goerke Bosnian capital Sarajevo hosted the Sarajevo’s old bazaar, Bascarsija 1984 Winter Olympics and nine sports hotel’s restaurant should serve halal a round table to promote halal travel venues in the city and its surrounding food. services, targeting hoteliers and tourism mountains were used. agencies from Bosnia, Slovenia and Hotels graded six and seven are known Montenegro. The event has yielded In his view, Bosnia should promote as “dry hotels” as they offer no alcohol. tangible results. the full range of its attractions as a traditional tourist destination to lure Halal hotels in Bosnia can start off with “In the first week after the promotion we halal tourists – its medieval heritage, as a very good grade, as one reason for this received a line of inquiries from tourism is the progress made in the certification agencies from the Gulf countries, asking well as the numerous monuments from of food companies which guarantees us to help them establish contact with the Ottoman and Austro-Hungarian smooth supply of halal food, Sakic said. our agencies so that they could cooperate period. With a wider focus on SEE in the sector.” Halal hospitality worldwide The scope of the agency is not limited Inspired by the success, Sakic said more Singapore-based Crescentrating, which to Bosnia only. It is the only halal such promotions in other countries in the provides ratings to hotels, restaurants certification oragnisation in SEE, region will follow. The role of the local and other establishments based on their issuing halal certificates to catering tourist agencies in promoting this service halal friendliness, said that the three facilities and hotels in Albania, Croatia, and including it in tourist packages and highest places in its 2011 ranking of Kosovo, Montenegro, Slovenia, Serbia, arrangements is extremely important, he top 10 destinations for Muslim travelers Moldova, Romania, Hungary, Greece, stressed. worldwide are occupied by Malaysia, Bulgaria and Macedonia. It provides Turkey and Egypt. halal certification of the food industry, Most applications for halal hotel as well other industrial branches, on the certificates come from Bosnia and The share of Muslim travelers in the territory of Bosnia, Serbia, Montenegro Slovenia, Sakic said, adding that he 2010 global tourism expenditure rose to and Macedonia. It has so far issued expects to see interest rise after the end 9.0%, or 90 billion U.S. dollars, from certificates for more than 1,500 food of the summer season. products to companies from the ex- 6.0% in 2006, data from the United Yugoslavia countries. “Busy work on coordinating and Nations World Tourism Organization preparing for awarding certificates to and Crescentrating showed. “Excluding Kosovo where such a winter resort hotels is underway at the certification has not yet officially started, moment, and it is pretty certain that Crescentrating sees the share of Muslim all other republics of former Yugoslavia before the start of the winter season travelers in global tourism expenditure already have certified food producers,” a definite number of hotels will be moving up to between 12.5% and 15% Sakic said. completely ready to provide halal services in 2020, which translates into between to their clients.” 188 billion and 225 billion U.S. dollars, Back to tourism, in June the agency In the summer resorts the preparations based on the rising share of Muslims in together with Crescentrating organised for the launch of halal services should be the world’s population.

121 SEE Country Profiles Macedonia

Economic prospects Overview of the economy

Macedonia’s real GDP is expected to grow by 3.0% in Driven by domestic demand, 2011. This is slower than expected but much stronger remittances and higher levels of rates are anticipated in the medium term. The economy investment, the economy grew is supported by gains in construction and wholesale and steadily between 2004 and 2008. retail trade. The informal market is thought to represent A mild recession occurred in 2009 25-40% of total economic activity. when real GDP fell by 0.9%. Weaker export demand and tighter Surging inflation, propelled by rising food and energy conditions on foreign lending were costs, threaten to derail the economic recovery. Prices are the main culprits. Real GDP growth expected to rise by 5.8% in 2011, up from 2.1% in 2010. of 0.7% was recorded in 2010.

Exports should provide a boost to the economy in 2011 as In response to the downturn, the metal prices rise and additional export capacity comes on government tightened monetary stream. Domestic consumption and investment will take policy and reduced planned on greater importance in the medium term. spending. Officials also curtailed planned spending to preserve The real value of private final consumption rose by 3.1% in 2010 and gains of 5.5% are expected in 2011 as the economy gains strength. Growth rates of more than 5% per year are forecast in the medium term.

Unemployment will edge downward to about 31.5% in 2011. Though the jobless roll is huge, some of those reported officially as unemployed are working in the informal sector.

Major export destinations 2010 Share (%) Major import sources 2010 Share (%)

Europe 71.0 Europe 78.4

Other countries 25.9 Other countries 9.5

Asia-Pacific 2.5 Asia Pacific 7.2

Africa and the Middle East 0.4 North America 2.7

Australasia 0.1 Latin America 1.4

North America 0.0 Africa and the Middle East 0.8

2006 2007 2008 2009 2010 Foreign Debt 1,112.5 958.3 869.0 1,084.5 1,107.2

Historic | in millions of euro| Current Prices | Fixed 2010 Exchange Rates

Current Account 2005 2006 2007 2008 2009 2010 Balance (% of GDP) -2.5 -0.9 -7.0 -12.9 -6.7 -2.8

Historic | % of total GDP

122 Evaluation of market potential

Overview of the economy Real growth of GDP should reach 4.0% per year or better beginning in 2012. The government’s target is to achieve sustainable growth of at least 6.5% over the medium term. The stock of FDI is lower than the regional average, and substantially the target for the budget deficit. less than in Bulgaria, Croatia and Romania. An increase will be necessary if the Eventually, the slump proved to government’s target is to be reached. be short-lived and Macedonia’s economy performed better than Financial conditions in Macedonia’s traditional export markets in Western Europe most of its neighbours. remain unsettled. Negative events in the eurozone could also spill over in the form of weaker demand for Macedonian exports. Ambitious programmes to improve roads, power, water and other With high rates of unemployment, high youth unemployment, and low rates of infrastructure (mainly through labour force participation, it appears that much of the unemployment is structural internationally-funded projects) in nature. This means it will be more difficult to reduce. Macroeconomic policies could lay the basis for more must also be more carefully managed to avoid the stop-and-go outcomes that sustainable growth in the future. characterised budgets in recent years. Inflation has been rising but wage hikes have prevented a drop in consumer income.

Business environment

Privatisation has been largely Other reforms introduced in recent Macedonia is committed to completed but the methods years include the strengthening of reform of its electricity industry employed allow insiders a distinct customs and tax administration, that will eventually bring about advantage, resulting in a smaller labour market liberalisation, full liberalisation. A new energy boost in efficiency than had been introduction of a one-stop law is expected to bring the expected. The sale of the few shop for registering companies, country in compliance with its remaining state-owned enterprises and privatisation of electricity treaty obligations once it is fully has slowed owing to a lack of distribution. A flat tax rate for both implemented. investor interest. Property rights are corporations and personal incomes weakly enforced and corruption in has been introduced. the customs department add to the cost of trading.

Total revenue Net profit/loss SEE TOP 100 Y/Y change Net profit/loss 2010 2010 No No Company name Industry in revenue 2009

1 68 Okta AD Petroleum/Natural gas 511.6 24.78% 1.8 2.1

2 114 EVN Macedonia AD Electricity 365.5 5.50% -16.1 -7.1

3 127 Makpetrol AD Petroleum/Natural gas 349.9 23.12% -3.9 -4.7

4 159 Elem AD (Elektrani na Makedonija) Electricity 291.7 10.59% 4.0 3.1

5 198 Feni Industries AD Metals 248.5 67.25% 38.9 -10.6

6 245 Makedonski Telekomunikacii AD Telecommunications 211.7 -4.25% 96.7 105.8

7 332 T-Mobile Makedonija AD Telecommunications 165.2 -5.64% 60.9 65.7

8 412 Johnson Matthey DOOEL Chemicals 132.8 6 811% 1.3 -0.998

9 474 Arcelormittal Skopje (CRM) AD Metals 113.0 54.94% -5.4 -18.9

10 549 Makstil AD Metals 91.3 28.40% 0.694 0.026 in millions of euro

123 SEE Country Profiles Albania

Economic prospects

Real growth of GDP is expected to slip to 3.4% in 2011. Lacklustre domestic Overview of the economy demand and moderating exports are the main reasons for the slowdown. Bank credit to the private sector is rising but is still the lowest in the region (roughly 9.0% of GDP). Inflationary pressures are growing owing to higher food and electricity prices. Albania was Europe’s poorest country for many years, but the The real value of private final consumption rose by 5.2% in 2010 and gains of country has been the region’s 4.5% are expected in 2011. growth leader in recent years. Levels of per capita income have more With about one million Albanians working outside the country (mostly in than doubled since 2001. Despite Greece and Italy), the flow of remittances underpins consumer spending, these achievements, the economy purchases of new homes and cars, and investment in small businesses. remains vulnerable on several fronts Remittances are very important for consumer spending but began to decline because of a culture of tax evasion, during the global recession and the downward trend continued in 2010. significant amounts of long and short-term domestic public debt, Unemployment is still very high (12.4% in 2010) despite the large number and weak anti-money laundering of people working abroad. The problem is that much of the income earned laws. Investment is badly needed to abroad does not create sustainable jobs at home. broaden the export base.

The budget deficit is projected to rise to 4.8% of GDP in 2011 and above 5.0% in the medium term. Such an increase would push public debt up very close to the legal ceiling. Cuts in spending will be necessary although development needs must still be met. At present, interest, wage, and entitlement spending claim more than two thirds of every lek the government collects in taxes and fees.

Major export destinations 2010 Share (%) Major import sources 2010 Share (%)

Europe 90.8 Europe 85.6

Asia-Pacific 3.2 Asia Pacific 6.3

North America 2.6 Other countries 3.3

Other countries 2.5 North America 2.1

Latin America 0.7 Latin America 1.3

Africa and the Middle East 0.3 Africa and the Middle East 1.3

2006 2007 2008 2009 2010 Foreign Debt 1,102.4 1,012.3 1,446.7 1,942.5 2,099.7

Historic | in millions of euro| Current Prices | Fixed 2010 Exchange Rates

Current Account 2005 2006 2007 2008 2009 2010

Balance Image © 2011 GeoEye (% of GDP) -6.1 -5.6 -10.4 -15.2 -14.1 -10.1 US Dept of State Geographer © 2011 MapLink/Tele Atlas Historic | % of total GDP © 2011 Cnes/Spot Image 124 Evaluation of market potential

The economy will be increasingly driven by rising foreign and domestic export- generating investment. Public and private consumption is expected to fall as a share of GDP as the business sector assumes a larger role. Fiscal consolidation Overview of the economy will have to be a priority. A reduction in public debt will increase the possibility of sustainable growth in the private sector. Ongoing reforms to enhance the efficiency of tax administration – combined with a concerted effort to reduce the size of the The informal economy accounts informal sector – should raise tax revenue as a share of GDP. Gains in productivity for nearly one-third of GDP but this by attracting more foreign investment are another key for achieving higher rates of share is declining. Remittances are sustainable growth. critical to the economy but have fallen in the past two years. Several Sustainable growth will require reforms to strengthen governance, property rights privatisations are planned in the protection and the rule of law. The large losses in the electricity industry put a major near future. Nearly a quarter of strain on the budget and reduce potential growth. Collection rates in the industry the population still lives below the are only around 50%. poverty line. Real GDP rose by 3.5% in 2010 as exports and remittances remained weak. The incidence of poverty has been reduced from 25% in 2002 to around 18.5% Business environment today. Poverty is worst in rural areas because family farms have such very low levels of productivity. The government’s strategy to strengthen the business environment calls for the removal of administrative barriers to investment. New company laws and legal reforms have greatly improved transparency. The privatisation agenda is gaining momentum with almost all small and medium enterprises having been sold off. All commercial banks have been placed under private management.

The adoption of international best-practice regulations and their predictable enforcement is essential in order to improve the investment environment.

Poor transport, telecommunications and other infrastructure are considered the main obstacles to investment. The government plans to increase spending on transport systems during the current development plan. An estimated 6,000 kilometres of roadways will be rehabilitated by 2013.

In the future, the government plans to broaden the tax base, a move which should eventually allow a reduction in the corporate income tax rate. The share of the underground informal economy in GDP is falling as the administration of tax revenue is improved.

Total revenue Net profit/loss SEE TOP 100 Y/Y change Net profit/loss 2010 2010 No No Company name Industry in revenue 2009 CEZ Shperndarje Sh.a. 1 152 (formerly Operatori i Sistemit te Shperndarjes (OSSH) Sh.a.) Electricity 301.3 14.33% N/A N/A Korporata Elektroenergjitike Shqiptare Sh.a. 2 291 Electricity 183.0 98.18% N/A N/A (KESH) 3 366 Europetrol Durres Albania Sh.a. Petroleum/Natural gas 148.4 197.92% N/A N/A

4 371 Vodafone Albania Sh.a. Telecommunications 146.3 -13.25% N/A 10.2

5 380 Albanian Mobile Communication Sh.a. Telecommunications 142.7 -17.50% N/A 11.4

6 431 Bankers Petroleum Albania Ltd. Petroleum/Natural gas 127.7 107.73% N/A N/A

7 461 Kurum International Sh.a. Metals 115.4 44.48% N/A 0.345

8 546 Kastpetrol Sh.a. Petroleum/Natural gas 92.5 15.78% N/A 0.161

9 550 Taci Oil Sh.a Petroleum/Natural gas 91.2 9.41% N/A 0.027

10 553 Bechtel & Enka Simple Partnership Construction 90.1 -68.41% N/A 8.9

Source: Monitor magazine, Albania in millions of euro 125 SEE Country Profiles Moldova

Economic prospects

Real GDP is expected to grow by 6.0% in 2011. Improvements in financial stability and a recovery in exports are driving the economy. Moldova is most competitive in low value-added industries such as textiles.

Consumer spending depends heavily on remittances. The real value of private final consumption increased by 9% in 2010, when remittances plummeted. Up to 50% of the working population has been thought to be employed abroad in recent years. When the economies in Western Europe and Russian economy was booming, their remittances amounted to more than a third of Overview of the economy GDP. The real value of remittances fell by 36.2% in 2009 in response to the global financial crisis and didn’t manage to recover in 2010, when it grew only by 8%. The current account deficit widened to 8.3% of GDP in 2010, and is Moldova is the poorest country in forecast to be 8.8% in 2011. Europe. The economy grew at an average rate of around 5% per year Moldova’s public sector still dominates the economy and is much larger than prior to the global recession, though that in neighbouring countries. The consolidated budget deficit amounted to disputes with Moscow slowed 1.778 billion lei (110.4 million euro) in 2010, much below the agreement with progress. IMF for 3.596 billion lei, thanks to the on-going process of fiscal consolidation. Officials hope to cut the budget deficit to 1.596 billion lei in 2011 as government Real GDP increased by 6.9% in revenues rise. Efforts to rein it in are pushing up heating costs and forcing cuts 2010, totalling 5.98 billion U.S in the public sector. dollars (8.0 billion euro). In the beginning of 2011 the economic The country’s success on international markets is improving. Dollar wages are upturn continued, with GDP growing well below those in neighbouring countries, and exports have been growing by 7.5% in the first half of the year, briskly. compared to the corresponding period of 2010. In the same time

Major export destinations 2010 Share (%) Major import sources 2010 Share (%)

Europe 91.0 Europe 87.5

Asia-Pacific 5.4 Asia Pacific 9.1

Africa and the Middle East 1.5 North America 1.0

North America 1.1 Latin America 0.9

Other countries 1.0 Other countries 0.8

Australasia 0.0 Africa and the Middle East 0.6

2006 2007 2008 2009 2010 Foreign Debt 575.7 567.5 493.7 649.4 842.8

Historic | in millions of euro| Current Prices | Fixed 2010 Exchange Rates

Current Account 2005 2006 2007 2008 2009 2010 Balance (% of GDP) -7.6 -11.4 -15.3 -16.3 -8.5 -8.3

Historic | % of total GDP

The period since independence has been marked by a long-running dispute between the ethnic Russians who make up over half the population of the Transdniestria province, which borders on Ukraine, and their Romanian-speaking counterparts in the rest of the country. Transdniestria still depends heavily on smuggling and contraband and has a substantial criminal element.

The incidence of HIV/AIDS is rising quickly. About a quarter of the population lives in poverty but extreme poverty is rare.

Russia’s wine embargo has hurt farmers. Locals fear that Moscow will soon move to Overview of the economy raise energy tariffs as part of its move to raise pressure on Moldova.

the monthly disposable income of the population as of the first half of 2011 increased by 15.6% compared to the same period last year. Business environment

Unemployment dropped to 6.2% in the second quarter of 2011 from 7% Despite efforts to simplify licensing and business registration, there has in the same period of 2010. been no significant improvement in the business climate. Officials hope to accelerate the privatisation programme and during the negotiations However, Moldavians continue with the IMF in the spring of 2011 have agreed to speed up the to emigrate at a rapid pace. The privatisation of Banca de Economii and Moldtelecom. Corporate income government estimates that more taxes have been reduced and an amnesty has been granted. These than 500,000 have left the country moves are partly designed to encourage inflows of FDI. Other reforms to work abroad, either in Western aimed at improving the investment climate are underway. Europe or Russia. The government is committed to strengthening the legal framework for bank rehabilitation and ensuring the early detection of bank difficulties.

The government has issued a list of firms it intends to privatise, including strategic enterprises, so far banned from privatisation, such as pipeline operators, civil airports, etc. However, the economy is excessively over- regulated and hampered by price distortions. Corruption is widespread and governance weak.

Total revenue Net profit/loss SEE TOP 100 Y/Y change Net profit/loss 2010 2010 No No Company name Industry in revenue 2009

1 207 Moldovagaz SA Petroleum/Natural gas 237.5 7.89% -25.0 -52.6

2 275 Red Union Fenosa SA Electricity 193.1 8.89% 19.3 13.9

3 347 Orange SA Telecommunications 156.4 13.59% N/A N/A

4 353 Moldtelecom SA Telecommunications 153.6 -0.56% 23.9 27.7

5 579 Tirex-Petrol SA Petroleum/Natural gas 81.1 55.23% 2.2 0.841

6 603 Centrala Electrica Cu Termoficare 2 SA Electricity 74.4 4.79% 0.506 2.1

7 632 Floarea Soarelui SA Food/Drinks/Tobacco 61.8 16.23% 1.7 1.3

8 638 Sudzucker Moldova SA Food/Drinks/Tobacco 59.7 13.36% 7.9 1.9

9 647 Moldcell SA Telecommunications 51.9 18.66% N/A N/A

10 669 Efes Vitanta Moldova Brewery SA Food/Drinks/Tobacco 40.5 26.53% 4.6 -2.6 in millions of euro

127 SEE Country Profiles

Spain’s Gas Natural Fenosa expects higher 2011 profit from Moldovan operations

Silvia Radu

By Kristina Belkina Spanish utility Union Fenosa Q: What are your projections for the entered Moldova in 2000, when insecure with the existing one. This company’s financial performance this it bought three power distributors situation is not favourable for attracting year compared to 2010? for 25.2 million U.S dollars. The more investments in the country. company’s local unit, RED Union A: We see our net profit rising to 335 Fenosa, is now the largest power The unstable political situation makes million lei (20.8 million euro) this year distributor in the country of inefficient the operation of state from 311 million lei earned in 2010. four million people, with energy decision-making institutions, which for us translates in loss of time, efforts supplies rising 3.5% last year The company also expects turnover to and money. In the energy sector at the rise to 3.3 billion lei this year from 3.0 to 3.081 billion kilowatt hours. moment we have obsolete Soviet-era billion lei in 2010. Gas Natural Fenosa, which standards and procedures that impede a became the unit’s owner quicker evolution and development. Regarding last year’s profit, the following the merger of Spanish company decided to keep at least 70% companies Union Fenosa and Q: What are Gas Natural Fenosa’s of it in Moldova to finance this year’s Gas Natural, reported an EBITDA priorities in Moldova in the medium and investments. of 15 million euro from its long term? Moldovan operations in the first Q: What are the company’s investment half of 2011, up 7.1% on the year. A: We will continue to change our grid plans for 2011? architecture by simplifying it and at the same time increasing its reliability and A: RED Union Fenosa has earmarked at quality. The new European infrastructure least 250 million lei for investments in equipment and standards are our 2011, flat on the year. The bulk of the the World Bank. This new system will priorities in the medium term. Energy investments earmarked for 2011 will go allow the reception of more transparent efficiency and environment protection towards the upgrade of its grid network, information in time about the country’s are the core policy basis. replacement of transformers and new energy flows and will also permit the management systems in a bid to improve preparation of the sector for the new In the long term, we look forward to the quality of services. interconnections planned to be built in the smart-grid, which means having the near future in order to increase the renewable energy generation in Moldova We invest at least 17 to 30 million lei in high voltage interconnections with the in function. the construction of new transmission European system that today are so poor. name: Silvia Radu lines annually. The company expects At RED Union Fenosa, SCADA was We are also position: to build tens of kilometres of new lines implemented in 2006. preparing a President company: this year depending on the urbanisation number of RED Union Fenosa plans proposed by local authorities. Q: What are the main obstacles your legal and web: www.gasnaturalfenosa.md company faces in Moldova? regulatory We plan to keep investments at the same procedures and level in the next five years, according to A: Moldova is a country in transition measures to be taken in order to make our business plan. period so there are some issues that possible the liberalisation of the market. need solutions. For example, the existing Q: In what condition is the Moldovan road infrastructure of the country does Q: Earlier this year, the Moldovan power transmission network? not permit us to have an easy access to Economy Ministry said it plans to our technical installations, having a privatise the remaining two state-owned A: The grid is under rehabilitation direct impact on our costs. A poor road power distributors, RED-Nord and RED- now because of insufficient investment infrastructure impedes the country’s Nord-Vest, as well as other companies in during a long period of time. The economic development. the country’s energy sector. Does RED upgrade includes implementation of Union Fenosa plan to participate in the a monitoring and control system, The judicial system also needs reform, privatisation of the remaining two state- SCADA, with financial support from because the investors are feeling quite owned power distributors?

128 SEE Country Profiles

A: The rebranding is bringing a new A: When the Moldovan government Q: RED Union Fenosa has started perception of the company in Moldova. makes it clear what would be the to operate under the new brand Gas We have finalised the first stage of the conditions for the privatisation of Natural Fenosa following the absorption consolidation of the project and the new companies in the energy sector, our of Spanish Union Fenosa by Gas Natural. name and logo came just in time when company will make a decision. But for Will the rebranding bring changes in the we have started the new phase of our the moment there is no clarity on this company’s operations? company’s development in Moldova. matter.

Tax policy, judicial system among risks Suedzucker faces in Moldova

Alexander Koss

By Kristina Belkina German sugar producer Suedzucker entered the Moldovan Changes in tax policy planned by the market in 1998 and set up better than expected due to good market government and unreformed judicial Suedzucker Moldova in 2001. conditions. system are among the problems that The Moldovan unit has three German sugar producer Suedzucker faces sugar plants in the northern part Suedzucker Moldova plans to produce in Moldova, the local unit’s management of the country, two of which about 70,000 tonnes of sugar this year. board speaker Alexander Koss said. are operational. The average processing capacity of each plant “We don’t know yet what volume of “The unstable political situation in the sugar we will export this year. It depends is 3,500 tonnes of sugar beet a day. country is also a negative factor,” Koss on the situation on external markets and said. on the volume of internal production time securing financing from local banks. and consumption of sugar,” Koss said. He said the finance ministry’s plan to raise the Value Added Tax for sugar “The banks are reluctant to extend Moldova’s annual sugar demand stands producers to 20% from 8.0% starting credits to farmers due to the high risks of at 65,000–75,000 tonnes. with 2012 will hit the industry hard. lending in agriculture.” The company plans to maintain The rise will lead to a fall in the sugar Local sugar producers have to assume the investments in 2011 at the same level as producers’ profitability, a decrease in role of the banks and finance from their last year. sugar beet purchasing prices and a drop own sources local sugar beet cultivators in the area sown with sugar beet. for the purchase of seeds, fertilisers, “We will invest in cutting energy costs, in herbicides, pesticides and fuel with the improving the quality and widening the The move would also boost illegal sugar future harvest as collateral. range of our products,” Koss said. imports from Ukraine and Moldova’s Suedzucker Moldova’s net profit rose breakaway region of Transdniestria. “We “The risks [for sugar producers] here are to 127.8 million lei (8.03 million euro) hope that the government will not allow obvious,” Koss said. in 2010 from 33.4 million lei in 2009, that,” he said. according to the company’s annual He said the performance of Suedzucker report filed with the Moldovan Securities Koss added that beet growers have a hard Moldova in the first half of 2011 was Commission. 129 SEE Country Profiles Kosovo

Economic structure and major industries

Agriculture accounts for about 19% Infrastructure is woefully inadequate. of GDP and employs 16.5% of the Kosovo has only one major highway, workforce. Farmlands are fertile recently built, and energy supplies are but most farms are very small and extremely unreliable. inefficient. The majority of agricultural land is privately owned. Wheat, corn and The process of privatising the country’s wine are the major products. post and telecoms operator Telekom Kosova is underway. The main The industrial sector accounts for about candidates are Telekom Austria and one-fifth of GDP. The sector consists of Croatia’s Hrvatski Telekom. small firms engaged in metal processing, production of simple types of machinery, leather processing and wood processing and furniture.

Indicator 2005 20062007 2008 2009 2010

CPI (y/y % change) -1.4 0.7 4.3 9.4 -2.4 3.5

Real GDP (y/y % change) 3.9 4.0 5.0 5.4 3.8 4.0

Jobless (% of workforce) 41.4 44.9 43.6 47.5 45.4 45

FDI (in millions of euro) N/A N/A 440.74 366.5 291.4 311.2

Cons budget balance (in millions of euro) -57.7 76.5 241.8 -8.1 -85.5 -93.2

Current account balance (in millions of euro) -247.6 -226.1 -354.1 -628.7 -603.5 -684.4 Sources: Statistical Office of Kosovo, Central Bank of Kosovo, Ministry of Finance of Kosovo

Overview of the economy

Kosovo is one of the poorest countries in Europe. Remittances account for an estimated 10-15% of GDP while foreign assistance makes up as much as one- third of GDP. There is a thriving informal economy in which smuggled petrol, cigarettes and cement are major commodities.

Despite a host of problems, the economy has performed moderately well in the past few years. Public spending is the main support for the economy, but has also created a large fiscal imbalance.

Unemployment is as high as 45% according to some estimates.

Exports contracted slightly in 2009 but are expected Image © 2011 GeoEye US Dept of State Geographer to grow at a double-digit pace in the medium term. © 2011 MapLink/Tele Atlas Their contribution to the overall economy is limited © 2011 Cnes/Spot Image however owing to the narrow export base and low levels of productivity.

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