Spar sets sights on retail lead in Baltics

The Baltic Times, TALLINN
Jun 22, 2000
By Kairi Kurm

 Baltic Food Holding, a merchandising company with Scandinavian owners, is planning to further expand its operations in the Baltics with the support of the European Bank for Reconstruction and Development.

The chain has 65 shops and two wholesale companies in Estonia and Lithuania with a distribution center in Latvia. Financing from the EBRD, 12.1 million euros ($11.6 million), will enable the company to develop its retail and wholesale activities in the Baltic states by acquiring new supermarkets, upgrading its existing stores and expanding wholesale operations.

“The project builds on the company’s current position as one of the largest pan-Baltic food retailers and wholesalers,” said Hans Christian Jacobson, director of the EBRD’s Agribusiness team. “As a result of this project, consumers and food producers across the Baltic states will benefit from an improvement in food distribution.”

“It is still a small company. All the money they make they invest and as a result don’t make much profit,” explained Jacobson. He said that the EBRD is interested in supporting other retail companies, too.

Baltic Food Holding is currently operating under Rema 1000, Spar and Dagab trademarks in Estonia, the total sales of which will exceed 1 billion kroons by the end of 2000.

“Starting this fall, we will increase our visibility in the market by converting our retail stores into Spar,” said Stein Skjorshammer, managing director of Baltic Food. “Few, if any, chains have more stores in the Baltics than we have.”

Although it is one of the biggest pan-Baltic chains, its market share in each country is very small. Marge Rahu, marketing director at Baltic Food Holding, said the company’s market share in the regulated market of Estonia is about 10 percent. If the unregulated market, about 35 percent to 55 percent, is taken into account, the market
share is even smaller.

Hans-Jorgen Blomsemt, chairman of the board at Baltic Food Holding, said the Swedish market was also quite unregulated in the 50s, 60s and 70s until the authorities increased control over the market.

“I hope the local authorities will have more control over the market in the Baltics, and people prefer shopping at modern shops,” he said.

“Our goal is to establish neighborhood Spar stores with a nice and clean interior, low prices and high quality,” Blomsemt said. Rahu said renaming Rema’s 1,000 stores as Spar was a good reason to start training in the stores.

Spar is the world’s largest retail food store chain with over 17,500 stores in 28 countries across five continents.

Baltic Food Holding was started in 1995 in Estonia by Skjorshammer and Blomsemt. Today the ownership is even wider, including Norwegian Selvaag Group, Swedish Axfood and the Norwegian Government Regional Development Fund.

Besides managing the company, Selvaag is supporting the operations of the company on property side, and Axfood with its expertise on food wholesale and retail.


Internet boosts Eesti Telekom’s local call revenues

The Baltic Times, TALLINN
Jun 15, 2000
By Kairi Kurm

Dozens of men in black suits arrived at the Tallinn Botanic Garden on May 25 in their fancy cars to celebrate the success of Eesti Telekom, the leading provider of telecommunication services in Estonia.

On May 29 Telekom announced its results for the three months ended March 31 to the Tallinn Stock Exchange.

“Year 2000 started with strong results following our focus on innovation and efficiency,” said Toomas Somera, chairman of the board of Eesti Telekom, who quit a few days later.

Eesti Telekom’s revenue increased by 15 percent compared to the same period in 1999 to 939 million kroons ($57 million), and profit before taxes increased by 40 percent to 247 million kroons.

“An essential part of the growth resulted from the success of the group keeping up with recent developments of the world telecommunications industry,” said Somera. Another factor of equal importance to the development of the group was the expected changes of the Estonian market with the opening of the fixed communications area for new companies and competition on the market in 2001, Somera reported.

Company is working profitably

Net profit of Eesti Telekom Grupp in the first quarter of 2000 amounted to 246 million kroons, but this is not comparable to the corresponding results of the previous year because of restructuring that took place in the group.

By the end of the year, Krister Bjorkqvist, finance manager, predicts a much higher profit compared to last year, because the company does not have to pay taxes on income, and there are no extraordinary expenses. Veikko Maripuu, head of the sales and research department in Suprema, predicted the net profit to reach 1.1 billion kroons by the end of the year.

Bjorkqvist said that the first quarter results of Eesti Telekom were better than he expected.

“If we compare the earnings before income tax, depreciation and amortization to the same indicator of other telecommunication companies in Eastern and Western Europe, then we should admit that Eesti Telekom’s results are very good. In Eastern Europe the average EBITDA is about 47, in Western Europe ,40, or even below. In Sonera
it was 32 percent,” said Bjorkqvist. Maripuu predicted EBITDA to be around 52.2 percent by the end of the year.

Bjorkqvist said that Telekom’s success was resulted by its ability to cut costs. He said that Eesti Telekom’s operating expenses were much higher last year due to the costs related to the IPO, listing of the shares of the company on Tallinn and London Stock Exchanges and restructuring.

Local call revenue, which exceeded last year’s results by 34 percent, was the fastest growing part of the revenue in the first quarter. The main factor behind the growth was Internet.

“We expect very much from Internet. That is why we make big investments in this field,” said Bjorkqvist. Bjorkqvist said Eesti Telekom is planning to start its own portal soon. Currently, dial-up minutes are over 31 percent of the total minute volumes, including local, domestic, international and mobile calls.

The management of Eesti Telekom also said that the prices of local calls for private clients, which at present are subsidized by international and local business clients, would increase to their actual level and the prices of mobile phone calls will decrease.

Big resources mean huge plans

Eesti Telekom Grupp invested 244 million kroons in three months of 2000. Maripuu said the company intends to become stronger and make further investments before the special rights of Eesti Telefon to provide fixed communication services expire on January 1.

“The company has a lot of money,” said Maripuu. “It has more cash than loans. For an investor, it means a company is working inefficiently, but it may also mean that they have some acquisition plans.” Maripuu added that Telekom paid out a very small amount of dividends, which may also indicate a need of money for investments.
He said it is very difficult to analyze the company now that Eesti Telekom gives consolidated results and does not give information on its subsidiaries.

Both Bjorkqvist and Maripuu agreed if the state would sell its 27 percent stake in the company as promised in an IMF memorandum, Telekom’s share would become more attractive for foreign investors and its liquidity would rise.

“If the state sells its shares in Telekom, the free float would increase from $300 million to $600 million-$700 million . Most foreign investors are not interested in companies with a float smaller than $500 million. They want to be sure they are able to sell the share in two days if necessary,” said Bjorkqvist.


Former president accepts helm at central bank

The Baltic Times, TALLINN
Jun 15, 2000
By Kairi Kurm

President Lennart Meri named Vahur Kraft the president of  the Bank of Estonia on June 7 on the basis of the proposal of the Board of the Bank of Estonia. Vahur Kraft was appointed for the post of the governor of the central bank for the second time. His last term ended in mid-April this year. His appointment came after two candidates warmed the president’s seat briefly and then departed.

Kraft received five votes for and three against from the council of the bank. “His strength lies in his experience in this field,” said councilor Juri Sepp, who had proposed Kraft’s candidacy.

“It [experience] is very important now after this big mess [in finding the right candidate]. It is sometimes necessary to bring new people into the company. This time we did not succeed in finding a new leader and another attempt would have been illicit. Kraft is the best man to restore stability,” said Sepp.

Kraft, 39, was appointed for the post of the governor on the third attempt after the council’s first candidate Vello Vensel resigned due to health problems and the second candidate, ex-Finance Minister Mart Opmann, was rejected by Meri.

Kraft told journalists at his first press conference as president of  the central bank that he would like to increase central bank’s transparency and favors the president’s idea to support the development of innovation in the society through founding a state resource and development fund with the help of the central bank.

Several media sources claim that Meri had preferred the first candidate Vensel to Kraft in the job of governor of the Bank of Estonia because Vensel favored Meri’s SITRA-type innovation fund idea. SITRA is an innovation fund in Finland set up by the Bank of  Finland to finance technology projects.

“I am glad that this soap opera kind of action around the Bank of Estonia is over,” said Kraft, who returned to the bank after the first defeat to save the bank’s image.

Kraft graduated from Tartu University in 1984 with a degree in  finance and credit. He worked for six years as branch manager at Eesti Hoiupank, one year as vice chairman of the board at Eesti Sotsiaalpank and five years as the president in the Bank of Estonia.

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Accor hotel chain loses ground in Baltics

Teh Baltic Times, TALLINN
Jun 08, 2000
By Kairi Kurm

 Estonian-Austrian businessman Alexander Kofkin, the owner of the previous Grand Hotel Mercure in Tallinn, terminated the contract with the French operating company Accor on June 1, and has started to run the hotel on his own under the name Grand Hotel Tallinn.

The two companies ended their cooperation with a conflict between the two parties in which the operating team blamed the owner for not paying for work. Kofkin in turn did not want to pay as long as he did not see the results the operator had promised in his budget, said an Accor spokesman.

Today the total unpaid invoices to the operator amount to 4.7 million kroons ($300,000), said Barre. On May 18, Accor informed Kofkin it would continue the contract on the condition it receive the full payment of its dues, but Kofkin rejected the offer and terminated the contract without notice.

“In this way he wanted to show to everybody that he decided to fire a huge company, and not that he was fired because he didn’t fulfill his commitment,” said Herve Barre, general manager from Accor’s hotel in Moscow, who was sent to Estonia in order to solve the conflict.

Kofkin was not able to participate in the opening of Grand Hotel Tallinn on June 1 when the flags of Estonia, Austria, Finland and the flag of the new hotel were hoisted at sunset. His substitute, a young sales director at Grand Hotel Tallinn Edvard Mihkelsaar, prohibited the press to talk to anyone else besides himself about the changes in the hotel.

The explanation given to the guests by Peedu Zeiger, chairman of the board of Irnesse Kapital, was very short and confusing.

“Mercure is the messenger of God. As a planet it is 62 million kilometers away from Earth. It is clear that a messenger has problems with coming from so far. We found that it is better to leave messengers aside and start communicating with God directly,” said Zeiger.

“The way the hotel was operated is the reason behind the termination of the contract,” said Mihkelsaar. “Their job was not successful. Mr. Kofkin started cooperation with them because they were most attractive operators. Their predictions and offers were very positive, but they could not follow it.”

Accor management said that their involvement in the project helped the Grand Hotel Tallinn to launch its operations despite its less than attractive location in Tallinn and fierce competition. As a result, occupancy rates forecast for this summer look good.The hotel is expecting to steadily make big profit this year, the management of Accor Group announced.

Problems emerged before the opening of the hotel

The cooperation between the two parties started in 1998, when the representative of the hotel chain signed a management contract with Kofkin for the renovated Hotel Tallinn. The opening of the hotel was planned on September 15, 1998 but occurred four months later in January 1999.

Kofkin refused to pay for the additional costs that the operator had done due to the subsequent opening of the hotel, said Barre. The management was obliged to squeeze on expenses to cope with the situation and was thus not able to launch a good advertising campaign for the promotion of the hotel.

The contract with Kofkin’s Irnesse Kapital stipulated that the operator should receive a percentage from the income of the hotel in order to pay management fees and from the results in order to cover incentive fees. According to Accor Group these have not been paid since February 1999.

“Kofkin also refused to recruit more than two expatriate Executives,” said Barre.

“They were obliged to train the local personnel, which they did very passively. They invested here only two people hoping that the rest would be done on behalf of them,” Mihkelsaar responded.

“You can not expect two people to be responsible for the training of 120 persons. We can see it today that our chef had done a very good training. He has been away for more than a month but the quality of food is the same,” said Barre.

The operator did not follow the budget

Barre said that the operator was unable to follow the estimated 10 years budget because there were some things they could not possibly foresee. “The years 1996 and 1997 were very good but in 1998 our business dropped a little bit because of the Russian crisis. We did not make as much profit as we planned 4 years ago but we still made profit in 1999 and we would have made it this year too,” said Barre. According to the press most of the hotels in Tallinn have been booked for the whole summer.

“A professional hotel operator should always do the right plans,” said Mihkelsaar. “The share of Russian tourists is only five percent in Estonia and this should not have had any impact on the budgeting in the travel industry. The operators should have focused on the local traditions and seasonal peculiarities instead.”

“This forecast budget does not mean that he should not pay us every month what he owes us,” said Barre. “Mr Kofkin is not patient,” said Barre.

“The owners never pay for the services that they have not received. It was a bilateral agreement,” said Mihkelsaar.

“We took along everything good from what Accor had given us and left everything bad that they had left us,” said Mihkelsaar. He added that the hotel would resort to help from international booking chains, which are more requisite and less costly.

Barre on the other hand revealed that Accor is planning to come back and find the right partner next time. Tallinn was the only place in the Baltic countries where Accor was present.�


IT College to solve Estonia’s shortages of IT specialists

The Baltic Times, TALLINN
Jun 08, 2000
By Kairi Kurm

 Government and business have finally found a solution to the lack of IT specialists in Estonia. The first Information Technology College will open its doors in Estonia on Sept. 1.

The college, in the center of Tallinn, will accept 200 students in the first year to two faculties: IT System Development and IT System Administration.

“Although Estonia may have the image of a quickly developing country, the truth is just the opposite,” said the Minister of Education Tonis Lukas at the opening of the new college.

It is often said the Estonian IT infrastructure is of a high level. As evidence people cite the Tiger Leap program, the number of Internet connections, mobile phones and PCs per person. However, the reality is somewhat bleaker. Although there is a good amount of low- and mid-range IT competence, the number of high-level IT professionals in Estonia is relatively low.

“The percentage of IT graduates in Estonia is below 2 percent, while in neighboring countries it is between 4 and 5 percent,” said Lukas. “We need 500 graduates with this kind of knowledge each year. Then we can speak about Estonia’s competitiveness and the desire of foreign businessmen to make their investments in Estonia.”

The IT education available at Estonia’s universities is under powered and under financed. There are very few teachers and the low salaries which do not motivate talented people to pursue the career in teaching. Also, a education given at existing IT departments does not correspond well enough to the needs of the companies.

Recognizing the problem, the largest Estonian universities, Tallinn Technical University and Tartu University, joined forces with the major IT companies, the Eesti Telekom and the Estonian Government to build a new joint institution of applied higher education, called Estonian IT College.

“We want to give the best IT related knowledge in this region and then expand into the whole Baltic region,” said Jaak Anton, CEO of the Estonian Information Technology Foundation (EITF). EITF is an institution mediating the know-how and resources to support the IT college project.

“We want to give this education to people, who can value this tool. We want to give it by installments, hoping that these people with this kind of an education can pay it back easily,” said Anton. The annual tuition in the new college is 25,000 kroons ($1,515).

IT College gives a three-year IT education. In order to get the bachelor’s, master’s or doctorate degree the students have to continue their studies at other universities. Linnar Viik, one of the future teachers in the college, said that many adults are interested in receiving their second education in this college, but EITF is planning to find other alternatives for them like summer courses or supplementary education.

He said also that students applying to IT College do not need preliminary knowledge of computers. “On the other hand there aren’t many people, who have never touched the computer at all. The statistics show that 80 percent of the graduates are using Internet, so I assume that they have some knowledge of the computers,” said Viik.

Viik, who works as an adviser to the prime minister of Estonia, is planning to lecture on New Media. He said he did not believe Estonian students graduating from the college would go abroad to find a fortune. He hopes that they will stay in Estonia and work for foreign companies through Internet as he does. Unlike most of the traditional teachers, Viik appreciates students working outside school to put their new ideas into practice.


Finns acquire biggest building supply stores in Estonia

The Baltic Times, TALLINN
Jun 01, 2000
By Kairi Kurm

Finnish marketing and logistics company Kesko Corporation acquired Estonia’s biggest building material merchandiser AS Fanaal on April 30. Fanaal is the owner of the Ehitusmaailm chain of building material stores in Estonia and Latvia.

The price of the deal was not disclosed. Peeter Raudsepp, chairman of the board of Fanaal said that the sales price of the Fanaal share was higher than its nominal value and shareholders of Fanaal should be satisfied with the deal. The company belonged to three large private investors and a number of employees of the company. Shareholders of Fanaal made the decision to sell almost a year ago, said Raudsepp.

Fanaal would have survived without a strategic investor for some time but it would have been difficult to continue successfully as the competition was becoming stronger on the market, said Raudsepp, and it was difficult to compete with Western chains planning to start their operations in Estonia.

“The investment opportunities of our previous investors were depleted. The future perspectives of the company are much stronger now,” said Raudsepp.

According to Paavo Moilanen, vice president of Kesko’s Builders’ and Agricultural Supplies, this investment is a part of Kesko’s internationalization strategy and its enlargement. Kesko Corporation has 125 building material stores in Finland and seven in Sweden operating under the K-Rauta chain.

Besides the sale of building materials, the company is selling food products and agricultural goods in Finland, Scandinavia and the Baltic states. Anttila, Carrols and Citymarket are just a few of the well-known brand names belonging to Kesko.

“Our target is to be in the Baltics,” said Moilanen. “With the acquisition of Fanaal we bought a small marketshare in Estonia and Latvia. Our next step will be to apply K-Rauta’s concept in Fanaal,” said Moilanen.

Raudsepp said that unlike the Latvian market, the Estonian market is better regulated with three to four leaders on the market.

Fanaal is the biggest building material seller in Estonia with five stores in Tallinn, Tartu and Parnu and a store in Riga. The company has over 300 employees in Estonia and more than 100 employees in Latvia. The net sales of Estonian companies in 1999 were 583 million kroons, while the turnover of the Latvian subsidiary was 190 million kroons. Raudsepp said that the turnover of the Latvian subsidiary was bigger because it was concentrating more on wholesaling.

The company made a small 3 million kroon profit last year. “We had two objectives last year: to clear the balance and increase our marketshare on the falling market,” said Raudsepp. The Estonian construction market fell by 16 percent last year and will recover in a year or two, said Raudsepp. He said that the construction market is in a declining stage, where the drift is towards renovating and finishing started buildings rather than building new ones.

Valeri Kridnev, chairman of the board of the competing Famar-Desi building material company, said that Fanaal is a strong company which will become stronger by inheriting K-Rauta’s service and logistics know-how.

Famar-Desi, which is operating under the Ehituse ABC trademark, is also operating in Latvia and Russia.

“We tried to operate in Lithuania until we found that the Lithuanian market is not ready. They are trying to cope with their local material and they have problems with payment also,” said Kridnev.

Kridnev said that unlike Fanaal, their company is targeting profits rather than the market share.

“There will never become a monopoly on this market, that is for sure. Clients will gain most from the new ownership,” said Kridnev.