Fighting against value-added tax frauds
Mazeikiu Nafta Trading House OÜ
The Most Competitive Enterprise 2009
The Most Competitive Trading Enterprise 2009
MAZEIKIU NAFTA TRADING HOUSE OÜ 2008:
Sales (th EEK) 7,911,943
At first glance it could seem that the annual sales of one company reaches almost 8 billion kroons. But while facing the facts this is the company selling the fuel. Estonia has enough cars and last year economic recession had no such impact – the sale of billions seems like a logical continuation. Tõnu Ääro, the manager of Mazeikiu Nafta Trading House, states that in addition to the record sales the numbers of volume were also the largest in the history of MNTH.
The numbers are only one, but certainly the important side of the business activities. In addition to that the fighting against the tax frauds at the fuel market and supporting the youth sport from the social side is today important, as Tõnu Ääro talks about in the following interview.
To sum up, the company’s manager assesses the last year as very good. The people spent more, the transport companies worked well and also the general economic situation was good for the most of the year. The impact of economic recession could be perceived with the fall in consumption for MNTH in the last months of the year, but the major event of the year was though the abrupt fall in the prices of the world market which started in the second half of July and continued up to the end of the year. The fall in price rather increased temporarily the consumption in the face of the braking economic growth. “To sum up, this was our record year! This year we got no such good sales numbers and we do not view our activities from the position of sales. Last year the sales reached though 8 billion kroons, but this year the total sales will be maybe 3-4 billion. We view the volume in tons, not in cash numbers. The ton of petrol cost earlier for example considerably more than 1000 dollars, today though 500-600 dollars. The prices have fallen by a half, the sale also decreases, but the margins remained last year still good. In the current conditions we are forced to change our strategies to remain somehow in the competition in the face of the decreasing consumption and spoilt fuel market,”Ääro states.
There is a special situation with the sales in Estonia. But this year the rise in value-added tax was established with the super short time, the state has not been able to stop the VAT frauds at the fuel market existent for already long time. The Oil Association connecting the major fuel companies has pursued to draw the attention of different state instances to this problem to finally liquidate the economically damaging situation for both the state and honest entrepreneurs and adopt the amendments of law regarding the changing of the taxation of selling in the excise warehouses of liquid fuels. Ääro thinks that no one seems to be interested in this.
“The question is in that the tax money of tens of millions of kroons goes today to someone else’s pocket, at the same time the state makes major cuts in the budget. These are very high sums which will not be received by the state. At the same time such illegal activities cannot be directly called the fraud. The taxes will be rather unpaid as planned. The state still expects the payment of taxes from each company, but here it has been pre-programmed that no payments will be made. This strongly changes the market and today the market of liquid fuels has been totally spoilt,” the company’s manager is seriously worried. Probably the state will not receive at least twenty million kroons a month in the face of the value-added tax.
Tõnu Ääro is sure that he made a very right decision six years ago when coming to MNTH from the major corporation Gillette group, the business of essential commodities, as the work provides sufficient challenges. At first the fact that fuel is a stock exchange commodity which is daily influenced by the world market seemed most different from the previous experience for him. “If you have operated in the field of essential commodities before then the situation there is different: you create the price at the beginning of the year and if no major changes take place, then you work with this price list up to the end of the year. But here the price changes every morning – always new numbers. Most of the marketing methods are also not usable in the wholesale of fuel, the main sales argument is price, the remaining values such as additional services have a minor impact. Though I just see the improvement of the quality of services involved with the sale of products the main objective of MNTH in the future to make the cooperation as comfortable and effective as possible for our partners.
Ääro also explains the often incomprehensible logics for the regular consumer – the price of oil can fluctuate, but the fuel prices might not follow its trends short-term. One thing is the price of the crude oil at the world market and the other is the price of the world market of oil products which has been influenced by the limited production volumes, which in the long run still follow the price trend of the raw material. The wholesale prices of fuels in Estonia are established according to the prices of the world market and the fuel inventories are for up to few weeks for the local sellers. Provided these have been acquired with higher price, the retailer of fuel has no reason to sell the goods acquired with higher price with cheaper price at the abrupt decrease in world market price. The other matter is competition which has become tougher at the Estonian retail market. “Here the retail price is decreased also when the market price increases. Meanwhile the competition was quieter and the margins were good, but today the non-existent margins are played with.”
By joking the manager of the company states that he himself has not watched the oil near the derrick. And though, should he? The main principles of production technology have been specified in the trainings in the refinement plant, but something new could be found all the time, for example today the new subject is the bio fuels. The main task of MNTH is still the sale and the different parameters need to be known for the good sales. “We have four main products and it could seem that this work is very simple, but actually this is big work with high volume and liability,” Ääro summarizes.
In summer the company’s manager rides the bicycle and skies in winter. For the last two years he has been related to the one of the most successful Estonian sports club CFC, being the president of the latter, More than hundred young people train under the guidance of the good trainers in the bicycle school of Jaan Kirsipuu and ski school of Jaak Mae, but all new students are welcome. Pirita where the club operates has the excellent opportunities for bicycle sport and there are the best ski tracks of Tallinn and soon the branch of the sports club will be opened by Viimsi Secondary School. Ääro is really pleased that several companies find resources regardless of the difficult times to support the youth sport. Although one should admit that this year the support of sponsors has considerably decreased and as the situation of the club is not easy, people act based on the real saving regime. Ääro calls for the companies to support just the sports clubs where the children and young people train, this especially in the situation where several local governments have considerably decreased their support and many sports clubs are forced to close their doors. “Our children have to go in for sport regardless of the situation in economy, they are the future players of our country!“
On the way to the new markets
The Most Competitive Small and Medium-sized Enterprise 2009
RIVERSIDE OÜ 2008:
Sales (th EEK) 131,003
Riverside started from the countryside, Pala from Jõgeva area, the place where one of the managers of the construction company Jüri Põld originates from. At the better times 60-70 people were employed in the company, today the market situation is slightly more complicated and the fact has become clear that there is no sense to do everything with own forces. One fact among others is interesting: how often have you heard of the company that takes time to train its employees, knowing that therefore the sales decreases anyway? Such decision was though made in Riverside in 2007. In a year’s time the construction market collapsed, today in 2009 the situation is even more complicated. The same construction company works and stays at the market quite successfully regardless of everything.
We meet Jüri Põld, the manager of the company one morning when he has quite little time. After the interview he rushes to the airport with the car to fly fast to Ukraine. Also several other construction companies look into this country and many others do not dare to enter the Ukrainian market. But at the beginning we start from the reasons of establishing the company.
All started from the fact that there was no serious construction company in Pala rural municipality which would fulfil the major orders. “As at that moment the money of the state and the European Union was directed thereto, the thought came from there. This is actually the outskirts and Pala area was like in the role of orphan for a long time. We had the idea to operate in this area quietly and provide the competitive construction service to the local people. Then, for the best or for the worst, the slightly larger organisations incurred the competition with which was already difficult and then we started to look for the way to Tallinn. Finally we moved to Tallinn and here really everything grows and develops constantly,” Põld explains the background.
Põld is the man who, if needed, also takes the trowel into hand, piles up the wall and carries the heavy blocks at the construction site. In any case – one thing is clear that the managers of the company are not afraid of the work or major challenges: slightly after when it clarified that the construction market in Estonia falls, the company decided to expand to Ukraine. “Currently I do not deal directly with management in Estonia, as the expansion to the Ukrainian market is quite labour intensive. The representation has been established there and the first works are under process. In July this year we started with works there. The objects to be built there are currently still a secret – when completed, we talk about it,” Põld says modestly.
The choice was made for the benefit of Ukraine due to the fact that this country has not yet reached so high in its development than the vicinity of Russia and its major cities. Riverside has understood that the construction boom in Ukraine just started and there are relatively few companies with good structure and experience. Ukraine has surely major companies, but these are not so flexible.
As no construction orders come from the private sector, Riverside keeps itself in process such as many other Estonian construction companies with the public procurements at the local market. They participate actively where possible and the statistics indicates that in average of 10% of the tenders are won. Põld tells that the market is adjusting - small Estonia has very many construction companies established during the boom which have no work and now these companies with 2-6 men disappear with high probability. “Our problem is that when there were good times, then every employee having been a specialist for a couple of years, decided to establish own company and thus very many valued and good people were lost and several nothing-telling companies were received without correct administration and management of the company. The Estonian is also very tough, even if it can be seen that the situation is bad and there is no sense in continuation, he still continues. We have lost the tenders to relatively unknown companies and if their annual report is reviewed there is nothing, a long column of tax debts can be seen and just the moment before making the tender everything will be arranged. I do not know how they are able to fulfil the order and the quality is questionable,” Põld thinks. There is one more thing that disturbs the company’s manager. Namely that the documentation of the procurements has been poorly prepared. “I do not know whether people could not deal with this documentation or why is this like that, but the requirements are thus absurd.“
The year 2006 was an excellent year for the company and then the problem of training the personnel arose. Thus it was decided not to expand in 2007, but to contribute to one’s employees, this in its turn naturally decreased the sales and results. In 2008 Riverside had the next year of rise, but as Põld says – maybe at the wrong time, as the market started to fall. Anyway, several big and small projects were completed in 2008.
“The office tower, i.e. Audi house was built in 2008 by the centre of Rocca al Mare – this was our major contract last year which also reached the year 2009, as my aim was the expansion towards Ukraine. One object should be immediately completed in Konguta – renovation of one kindergarten and school, one shed-drier is in progress which is under heritage protection and therefore the construction works require high skills. One object is also in Võru City Government which will be completed in March 2010 and many small objects are also in Tallinn,” Põld views the long list of works.
To sum up Põld says that the men will always remain children. When in the childhood the children play with small blocks, then now the blocks are slightly bigger. “Construction is actually very interesting, you build something and this will remain for the tens of years. It feels extraordinarily good when something especially interesting could be set up!“
The company was established in 2003 and is based on the Estonian capital. Last year 25 persons worked in the company. In addition to regular general construction works also the services of construction management and design are provided to its clients. Among other things, it is also interesting that the permit for the conservation and restoration of architectural monuments has been issued by the Heritage Protection Board to the company. Also, Riverside carries out the research works through different architectural monuments.
BLRT – surviving and building during hard times
BLRT Grupp AS
The Most Competitive Industrial and Energy Enterprise 2009
BLRT GRUPP AS 2008:
Sales (th EEK) 5,990,127
In case of some company it might seem that nothing changes, everything is in place and sure. Though, at the closer inspection and as a result of discussions the facts can become clear that everything is not as it seems. For the larger companies the changes and the keeping pace with time are the bases for success, but also a big challenge. This also applies to BLRT. The ship repair yard at the edge of Kopli in Tallinn stands firmly, Klaipeda plant works actively and Turku Repair Yard in Finland also stays firmly. Fjodor Berman, the chairman of the management board of the company, still talks about big changes and about that one has to keep updated to compete with the European top players. The state has to provide its contribution to be successful.
The year 2008 was the best year of history for BLRT.
The company has been able to preserve good tradition to move each year towards increasingly high economic indicators. Still at the end of 2008 the first sure signs of the fall in the world’s ship construction market could be detected and therefore the major fall of the current year was not a surprise for Fjodor Berman. Then it was clearly seen that several clients and contracts remain without financing. The surprise or not, the general situation in ship construction is quite poor at the world market. Especially high quality and flexibility is required from the company. According to Berman he can’t remember as hard time as now.
“The situation in economy is really bad. Currently one could say that now this is the time of stabilization, but there are no signs of the improvement, let alone the new rise. At the beginning of the year there was abrupt fall, 30% of the fleet of many countries are also now unused, as there is nothing to transport. If there are no goods and the ships are so to say put aside, we have also nothing to repair. The banks relate to the ship construction projects extremely repellingly – no ship construction contract was concluded in May in the world, I do not remember this kind of situation.”
Regardless of the current market situation no one has put the tools aside in BLRT. Vice versa – BLRT continues construction. The very important moment by the activities is also that BLRT is not focused only on ship construction and the sustainability is guaranteed by different market niches where one has settled down. At the beginning of the year the market of purchase of scrap metal decreased and as the company sells in the Baltic countries quite a lot, the sale of BLRT dropped by half. According to Berman the situation would be very sad, if the company would operate only in one field of activity. Luckily this is not the situation.
“We have contracts concluded for long term and we get the orders also now, we try to operate strongly in the niches – we construct the ferries, special vessels for the projects of sea wind parks. For example the sea wind park is under construction at the open sea, 80 kilometres from the coast of Germany. We are connected with this project for several reasons. The special ship with the value of 1.5 billion kroons for the construction of wind park, floating transformer platform and 70 tripod foundations of seamills have been completed. The market demand in this part increases almost everywhere, even in Estonia. The negotiations are currently held also for the construction of the new similar products for Norway,” Berman states by adding that the renewable energy is one strategically important trends of BLRT Group to be developed.
The flow of labour has improved
A couple of years ago, when economy was still on the rise the companies found it hard to have access to skilled labour. BLRT suffered quite much due to the lack of labour and then the decision to purchase subcontracting from the Chinese companies to Klaipeda plant was born. The hiring of foreign labour has been profitable – the Chinese are very decent and there are practically no problems with them. The Chinese are not cheap labour, as they have worked in USA and Europe and they are internally higher disciplined than the people coming from the European Union with the same qualification.
Since September this year the Chinese companies are also in Tallinn plant of BLRT by subcontracting, as regardless of the improvement of the labour market there are still not enough specialists of adequate qualification and experience who would be able to participate in the international infraprojects. Thus BLRT has cooperation with the Chinese in the projects of ship repair, renewable energy and stainless steel processing.
“The government and parliament has made the steps for accelerating the process of importing the term foreign labour from the third countries. This is the policy of many countries – Germany, Poland, Sweden. Another question is that life changes – yesterday we had also higher salary level in Estonia, today the salary level has fallen, but according to law we should keep the average salary level of the last year by paying salary to the foreign labour – this is absurd. World has changed, but we are inflexible, we still live as before. This though means that we lose so competitiveness,“ Berman is worried.
The company’s manager is pleased that the situation has still generally improved. These professionals who went to work aboard once are employed in Marketex belonging to BLRT Grupp. Now these approximately 40 persons are back and their work is satisfactory. “These are the specialists at high level who are satisfied both with the attitude of BLRT and the salary level,“ Berman says.
The orders from the foreign countries bring success
When Europe encountered economic recession, most of the governments started to take steps by supporting the purposeful investment to the infrastructure objects and export. BLRT has got quite major projects for itself – for example, currently the order for the construction of the metro tunnel to Stockholm is being fulfilled, 1000 tons of ready products have already been sent there and soon the same quantity will follow. In Denmark BLRT won the national competition of bridge construction – for that purpose the metal parts of the bridge will be made. According to Berman the key question of the whole Estonia is how to improve the capability and competitiveness of the companies. “We adjust the state budget for already third time, as not enough cash is collected, but I say that by increasing just the taxes and excises this would be received even less. The question lies in raising the competitiveness!“
Due to the market situation BLRT will not plan to expand this year, it will rather focus on keeping stability, competitiveness and effectiveness.
By surprising the consumers
A. Le Coq AS
The Most Competitive Food Industry Enterprise 2009
A. LE COQ AS 2008:
Sales (th EEK) 1,126,485
The team of A. Le Coq has proven that when the idea is good, then it is possible to win the market fast. Surely many are reminded here how this summer the market of drinks were in good sense overflood with Estonian own fermented kvass. Some things can be especially fast and wittily done: thus the drink producer decided not to do anything at first glance – the old beer “Alexander“ with the trademark with traditions was taken and bottled into the can of a pint for a change. The company’s manager Tarmo Noop confirms that this beer has had phenomenal success in the recent times and it is fast rising brand, whereby without advertising costs. People need something special. It was the same when some years ago the folium cover was put back on the beer can – only this fact increased the sale of can beer by 60%. But the below interview is not only about the victories.
How good was the year 2008 for A. Le Coq?
The last year was not a good year for the beer producer, the beer market has had the falling trend since 2006. People purchase less, but at the same time the percentage of strong beers has not increased which is a good sign. Already 8 years ago the Estonian beer producers decided that strong beer is not advertised. The beer drinking of the Estonians is not like the beer drinking of Irish and English who go to the pub after work, take one or a couple of beers, chat a little bit and go home. The percentage of restaurant beer in England is 70% and upto 80% in Ireland. An Estonian is different and we drink beer on grilling evenings and this year it can be felt that less is grilled. Regardless of the latter beer is number one drink in Estonia as to the consumption.
How has the competition changed – have there been any special changes?
This year 3-4 months ago we were ahead of Saku Brewery by a percent or two and now we are slightly behind – there will be such game of Westmann and Piibeleht (the Estonian competing literary figures). When compared to the year 1998 when we started, our market share today is at 40%, i.e. we have raised our market share by about 4 times. When considering the private beers, we have passed Saku beer already from the middle of the last year. The markets have still falling trend and this not very pleasing. I am also the member of the supervisory board of the pawn package and all producers declare their sales. Today it is seen that the sale of pawn units is upto 20% smaller than last year but this means surely the total market of drinks.
There is nothing to do when tap water is drunk instead of bottled water, energy drinks and sports drinks are less purchased. I also cannot agree with that we had nice summer this year. It was 20-22 degrees above zero in some period, but did not exceed 25 degrees. This was an average Estonian summer which also influences the human behaviour.
How do you plan to expand at the market hereinafter?
We have expanded ourselves, this year we entered the Estonian kvass market, our kvass was even the weekly news in media which was discussed. Before our arrival the Estonian kvass market was three times smaller than now, we increased it strongly.
We search constantly new possibilities, at the beginning there was beer and long drink and soft drink – now the spectre is much wider, this year we made tests also for the wine market with 3-litre cardboard boxes and we started to import these. We are volume sellers and no one in Estonia monitors the wine market, therefore I do not know exactly how it went, but what we can’t sell much, we will not sell. We are too big for starting to work in the niches, we have to win in major matters. And really, if you have 10% of the market, one can take more from there, but if you are first at the market, then it is already complicated to exceed 40-50%. If the market is not increasing, you will make new choices and create new opportunities how to guarantee the company’s development further on. And one should develop.
Which are the tips for planning your new products?
We should always answer the question why and why with this price someone should want this product. Or example, if we can’t tell why just our water should be better than any other water, then the uniqueness is missing in case of water. Actually the only Estonian producer who can boast with the uniqueness is Värska which has also preserved its market share. We have our thoughts with new products, but we do not have to launch these now, if the market is in decline and it is cold outside. All main products should develop, should not bring new tastes, much can be done with the package, slightly also with the content, playing with added values. Here there are choices, but each product should provide a surprise for the person. Compared to the old countries of Central Europe there are many surprises in Estonia and success is achieved by the ones who are innovative. When introducing the new thing and not advertising it and this is not reaching the consumer, there is no sense to introduce something at the market. In A. Le Coq we sit together twice a month and develop products. Each company should have some message on each product and one’s company – this should also be proven to the consumer and if these arguments exist, these should be somehow taken to the consumers. And marketing exists for that purpose.
How have you planned the teamwork?
Teamwork is one of the most effective methods, whereby this has been quite little handled in Estonia. We started all that when I as a young man started to manage the brewery and the initial understanding was such that the marketing deals with marketing and production with production etc. Further on: if marketing created an idea and needed money for that purpose, I told: “No, I do not believe in it, reconsider it!“ Then people discussed again and then I sent them often back and this repeated many times. Finally there was confrontation that what do you want from us. Today’s teamwork is seen so that there is a manager and his team. In good case this could be called management team, but this has nothing to do with teamwork. But then we understood that something should be changed. Together with the management of that time we purchased 11 books from Amazon and read these through. Finally we sat at the round table and made summaries and agreed finally in the principles. These are valid up to today. Shortly, the aim of teamwork is to arouse creativity in people and all are equal in the team, there are no chiefs or subordinates. 9 teams work by us in different sectors.
Contributing to the future
Merko Ehitus AS
The Most Competitive Construction Enterprise 2009
MERKO EHITUS AS 2008:
Sales (th EEK) 4,653,933
Tiit Roben, the manager of Merko, has a command of figurative language. He describes his being at the construction market today as the swimming of a whale in the ocean – you guttle the plankton and then let water out between the teeth. What does he mean by it? It means that there are practically no major public procurements at the market and many small ones are pursued to be guttled. Still the company is going concern and plans to expand. Much is going on currently in the road construction. Last year was very successful for the company – the largest object was finished which has ever been built by Merko in Estonia and some larger objects were also set up at the neighbouring markets.
How is Merko seeing the Estonian construction market? Is it worried or optimistic?
Let’s say that it goes as it goes for the whale in the ocean – you guttle plankton and let water out through the teeth. Recently it can be seen that public procurements are really small. This is a new situation, as in 2006 and 2007 we did not manage to participate in small procurements, then today we congratulate each other already in case of winning the procurement of two million kroons. Thus we increase sales object by object. At the same time the competition in road construction has become really tough. This market has been closed for years, part of the road constructors are used to keep this to themselves. And think – new others are coming who would like to do something in road construction. There is nothing to do – this is almost an only place where money flows. The road construction procurement of 100 million kroons is today a really major thing.
Which were the most outstanding projects of last year?
Our key object was Viru Prison, I believe this is our largest object of general construction made in Estonia. There has not been much talk about it, but we also finished in Lithuania the largest object of Merko history which is located in the city centre of Vilnius and the volume of this contract was 1.2 billion kroons. Last year we built Tallink’s offices, the office building Delta Plaza is also the “child“ of our last year. In Pärnu we fulfilled network procurements for 170 million kroons – thus the sales has been created. The major procurements received last year feed us also this year: Ämari airport, the centre of Solaris will be completed by autumn. The problem is that much work has been done and we see that we have managed clearly more than we have won from the new procurements. We have won relatively many pipe procurements financed through the Environmental Investment Centre. We have participated a lot in the procurements of Eesti Energia and built quite many substations.
What is the role of the state in your opinion?
If the state, today as practically the only client, cuts the expenses there is a risk that companies are put to the stop. What has remained undone? For example, there is unused money on the accounts of the companies and private persons. This money could be inserted to the entrepreneurship. Actually the PPP (private public partnership) projects could be organised or such procurements where part of the money is paid to the entrepreneur by instalment. If 85% of the money is coming from Europe, then the state could take this remaining 15% from the employee – provided that the employee gets its 15% for example within ten years and this money will be calculated into the price of the procurement. I have presented this idea here and there, but up to now such procurements have not yet been organised...
What is the future vision of Merko?
Today we dare not to look at the direction of Russia, the Estonian-Russian relations and the surrounding political background is such which is not supporting it. We would not still go to Minsk, the situation there is still unstable. It would be real to have a look in Kiev. The market of the Baltic countries is clearly too small and much has been done here with the previous period. Such rise as we have seen will no more come. While viewing Estonia it is clear that there are enough offices, hotels and trade centres. We clearly miss some prisons and the schoolhouses could be also repaired. Only dwellings can be built – these are needed all the time. We hope that the children of the song revolution will become adults within the next five years and want to purchase their own living place. This could be our life buoy, we see nothing else at the local market. We plan to build new apartments already this year. We have made one strategical decision – we purchase the road maintenance company Vooremaa teed from the state. On the basis of Tallinna Teed which is our subsidiary, we have mainly focused on Northern Estonia in road construction. Now we try to develop Vooremaa Teed into a serious infrastructure company and on the basis of that start to cover the direction of South Estonia.
But how to survive the current time?
This year the construction volumes fall 30-40% and when at top times 82000 constructors were working in Estonia, then now it is calculated that maybe only 40 000 will remain by the end of the year. We have more construction capacity and today we could build much.. If the market rises at one moment and the resting builders are far away, having found the new challenges, it is not possible to respond to the rise and fulfil the major volumes. We are comfortable with the current situation and we see many possibilities, we have different cooperation offers. The current period is very interesting and we think about the foreign markets. We have not been able to try ourselves in civil engineering in Latvia and Lithuania to a necessary extent and in the future we take more part in the public procurements there. The Latvians soon start to build the prisons and this would suit us very well. This what we have learned in the construction of Viru Prison based on the test-mistake method is a significant know-how base. I remember very well how the riot police got the task to test how strong are the doors of the cell. They broke several of these before we learned about how strong the door should be. Next time we need no assistance of the riot policemen.
Leaders of the information society!
Eesti Telekom AS
The Most Competitive Communication and IT-services Enterprise 2009
EESTI TELEKOM AS 2008:
Sales (th EEK) 6,189,597
The fact that times have become tougher is no particular news anymore. What makes it special in case of each enterprise is how they manage to go along with the difficult times. Looking at numbers, one could say that there is no reason to be overly optimistic. The director of Eesti Telekom Valdo Kalm says that he is generally an optimistic person, but he cannot currently foresee a quick improvement of the economic climate. Last year, three companies in the group – EMT, Elion and Microlink – developed their own common vision, which was consistently implemented in 2008 and continues to be implemented. The vision is simple and striking: “Leaders of the information society!”
EMT, Elion and MicroLink are now jointly operating in the name of improving the information society. Last year, several meetings were held with the management boards of subsidiaries and thus the vision was born. At first, the slogan “Leaders of the information society” might sound very simple and obvious, but the reality is quite different. “We see a long tunnel here, in which there are different strategies. We began to implement this in 2008 and started with the project “Come along!”, which means internet for 100,000 more people. In cooperation with the “Let’s do it!“ team, we launched the “My Estonia” project. It started with us thinking how to use technology to the benefit of Estonia even more. We could see that some changes were needed here and this fits in well with the implementation of our vision,” Kalm is convinced.
The “Come along!” project is in full swing, the internet bus is driving around in places where it has not been before. Including people in the internet world is purely a project of the three subsidiaries of Eesti Telekom. Telekom itself has contributed quite a lot and part of the money was received from the European Union structural funds. There is also very active involvement in the “My Estonia” project. According to Kalm, time is our biggest contribution in the project.
In 2008, two major factors impacted the activity of Eesti Telekom. Although mobile and broadband services have been successful, the company has been influenced by the economic downturn as well as national and European-wide regulations in the last two quarters. Regulations generally mean that prices must be lowered in the mobile sector and EMT is required to oblige. “The turnover decreased but we still managed to increase the profit and the margins of our activity also increased, which in turn shows sustainability. Increase in the number of customers in mobile as well as broadband internet has confirmed the fact that internet is a human need,” Kalm concludes with satisfaction.
Kalm recognises that although the cooling off of the economy already showed serious signs in 2008, the enterprises of Telekom Grupp have managed to adapt to the changing conditions. What does this mean? In all three enterprises, cost-effectiveness programs have been implemented already since spring 2008 in order to reconcile the costs with the benefits. In addition, EMT and Elion have managed to preserve very secure market shares in their business. “Preserving the market share has always been our goal and we have succeeded,” says the director of the enterprise.
Kalm is looking forward to this autumn. The man who is always optimistic now has notes of doubt in his words and thinks that it will be in no time soon that we will see economic recovery. “We have definitely not reached bottom yet, the number of jobs will decrease further and I think and fear that there will probably really be 100,000 people unemployed and this will have a significant effect on consumption. The way to think is that things will be good but to be ready for the situation turning bad. There is little reason for great optimism this year.”
In spite of difficult times, product development has continued at the enterprise and in connection with that, investments have not been significantly reduced either. The key words of product development and innovation in 2008 have been internet calls, the e-health project, 3.5 G network and the development of digital TV.
Finally, one would assume that a director of a telecommunications enterprise replaces his phone every six months. It appears that this is currently not the case. Kalm has conducted his business with one phone for the last three years. He has probably used the same phone to make the calls that improve the information society. “We can see that our country is operating in a manner that is too costly. We must simply find other possibilities and information technology will surely help make society less expensive,” he throws ideas in the air with a sparkle in his eyes.
Ready at the start line
EKE Invest AS
The Most Competitive Business Service and Real Estate Enterprise 2009
EKE INVEST AS 2008:
Sales (th EEK) 286,713
EKE Invest is a very interesting enterprise. For instance, the building of an Estonian village on Crete Island was started a few years ago and quite a few of our fellow Estonians have bought summer houses on the island by now. There are the beginnings of several projects in the new Europe as well – in Romania and Moldova. In addition to real estate and production projects, EKE Invest has holdings in three local health centres. The director of the enterprise Rein Tiik says that it is now time to reflect. This does not, however, mean that investments are stopped – quite the contrary, EKE Invest has not set any restrictions on investing money. All this promises interesting projects. “We make plans, think about things and see what else we could do and set ourselves ready at the start line,” says Tiik.
How did EKE Invest do last year?
We are currently not launching many new projects, but 2007 as well as 2008 were both relatively good years. The year 2007 was actually even better because a number of projects that were grandly started in economically good years reached their natural end and were completed. In good times, both development and business projects were started in our subsidiaries and the realisation thereof was focused in 2007 and 2008.
Which project were you most satisfied with?
There have been quite a few. One of the big and beautiful projects we participated in was the construction of the Ehituse ABC retail chain. This came about through our subsidiary and in turn, through a joint company created by the latter – the logistic chain often extends far but this was a really big and good project that was well played out. We ourselves have been more involved in completing the double tower for the people in Tallinn. The smallest project was located on Magasini Street – the restoration of a hospital building as a residential home designed by architect H. Johanson in 1926. This is located in an area of cultural and residential value, in a beautiful park environment and is protected by heritage conservation. The house almost had to be broken down to pieces and then restored in previous form as closely as possible. That was a large and specific project, for which little gratitude is expressed after the completion of the building. In addition, it is not cost effective but sometimes some things need to be done based on a sense of obligation.
If we talk a little about history, what have been your most interesting endeavours in the construction field?
During a good period at the end of the good times, when all the enterprises who had any resources looked outside Estonia, so did we and we launched two projects – one in the new Europe and the other in the old Europe. In 2006, we started to build an Estonian village on Crete. By now, two thirds of the Estonian village has been completed and Estonians are living there. Five houses are currently still on sale in the village. We are not building there at the moment but we have gained our experience. It is also interesting to observe that the downturn has not only affected us – Crete used to be very popular among the English, whose share has now decreased – the Greek banks will no longer grant them loans to buy houses. We financed the Crete project ourselves from own funds and purchasers’ advance payments.
Why are you attracted to investments in health centres?
We have contributed our energy to three Estonian health centres – Tervis, Tervise Paradiis and Värska. If an enterprise is old, some projects within the enterprise are old and long-term. During the whole independence era, they have been developed and contributed to. We have no restrictions regarding where we invest; we put money where it makes sense at the moment. It is now time to reflect – we do not have to think about eagerly investing in the next building or warehouse. You can also think that the next investment might even be in manufacturing electronics or anything else we do not want or cannot think of today, but which is something new with seeming potential at some point in the future. Why set restrictions on oneself? In the years that we invested in health centres, it was done because it gave a good business result. If we look around in Estonia now, it is no longer very original. In the 2000s, they sprang up like mushrooms after the rain.
Currently, many investments tend to struggle because there are not enough customers for this amount. We try to connect old and new projects. In developing new projects, our role is to decide whether to implement it ourselves or try to gather several enterprises behind one.
Is there a way to derive a profit on a declining market?
This offers many possibilities for brainstorming. If you are good at it, you can definitely use the potential hidden in here. You must not be a stupid optimist but at the same time, it would be healthier to be an optimist. A certain upturn occurred at the end of the summer and we now ask what is going to happen in autumn and at the beginning of winter. If no brakes are pulled again, we might hope that the process will more permanently take a turn upwards. I want to believe that the worst is over.
History of EKE:
EKE was already founded in the 1960s. When Estonia regained independence, EKE’s structure attained an economically and formally proper structure, i.e. the previous member organisations of EKE became the shareholders of the current central organisation pursuant to their contribution. EKE Invest was founded in 1993 to draw long-term financial investments together in one administrative enterprise. Several enterprises with a foreign holding have also been founded through EKE, thereby opening the way to domestic and neighbouring markets.
An organisation capable of change
The Most Competitive Financial Brokerage Enterprise 2009
SWEDBANK AS 2008:
Sales (th EEK) 15,553,500
Priit Perens, the manager of Swedbank in Estonia, says that he has never knowingly imagined himself as a bank manager, but rather considers himself to be a financial and enterprise banking specialist. Retail banking was a new and interesting world for him to thoroughly dive in. If we look at the previous year, a memorable and very visible change took place in the Estonian banking world – while the year began as Hansapank, by the turn of the year the bank carried the name Swedbank.
What was the year 2008 generally like for Swedbank?
Actually, the most important thing was that within a year, we managed to turn an organisation, the entire culture of which is built on growth, into an organisation which could adequately correspond to the needs of a shrinking market demand without revolutions and excesses, while at the same time preserving efficiency. Our revenue decreased by 2% before provisions and the level of expenditure remained the same. The operating profit only decreased by 3% before the provisions, and the revenue and expenditure ratio, which at the best times has been 38%, was slightly over 39%. We have also maintained this figure in 2009. Thus, within 2008 we managed to create a basis to further operate as efficiently in the banking environment in 2009 as before.
In which ways have the world’s financial markets and the poor state of economy in Estonia influenced Swedbank?
I remember that at the beginning of 2008, we held an information day for the employees and after my first presentation as the manager of the bank, I felt as if a mean Santa Claus had entered the room and taken away all the presents. We then talked at length about the negative outlook on the developments in the economy and it was certainly similar to shock – on the one hand, the increasingly worsening foreign economy and on the other, the economy in Estonia after the burst of the real estate bubble. All this was discussed in the first presentation and the consequence was not a quick mental turnaround of the organisation – the change in internal attitudes to match the environment was a long and time-consuming process.
What are the most important activities that you paid the most attention to last year?
It is very easy to answer this question. Those three main activities were: Credit, Costs and Customers – three capital C-s. We obviously also had to respond to changes in the credit portfolio quality and compensate the decrease in revenue by decreasing expenditure. The growing market, which was based on providing services and products, had now become a customer-friendly market increasingly more complexly focused on the needs of the customer. For us, since the spring in 2008 inside the organisation this meant a strong shift towards the customer-friendly management model. We have also worked very seriously on improving service.
How should Estonian manufacturing enterprises be feeling at the moment?
The worst period for Estonian manufacturers was this spring, when no more orders were coming in. If you have no orders but there are employees and a bank loan, what do you do? This is a situation in which the society should have some answers in store to the question: what to do in difficult times? I am generally not in favour of aid packages but this was a really extraordinary situation. In the automobile industry, for instance, if nobody buys cars today, it is clear that the cars already purchased will wear off within about five years and people will start buying again. The question is what is the manufacturer supposed to do for the following two years? In several Estonian manufacturing enterprises, the situation was similar. By now the exporters I have been in contact with recently are saying that there is more work than in spring. It seems that recovery is taking place at the moment – I dare not predict whether there will be growth. The recovery of manufacturing does certainly not necessarily mean that the level of unemployment will not increase. We were afraid of July, but July was not actually that bad. It was probably the influence of the summer – some people went home to enjoy their holiday pay, others did seasonal work. We will now see in autumn whether the fall will be painful or not.
What would the economic forecast of the Swedbank manager be?
I think that it is currently most important that the situation will probably not get any worse. If there was a relatively sharp increase in the world’s stock markets in spring and there were no macro indicators to back it up, by now macro indicators have started to support the upturn. It is naturally different by regions. At the same time, the external environment has improved, capital markets have recovered and the availability of money is increasingly on the rise. It is interesting that the situation on the capital and money market is improving on a weekly basis and the credit risk prices keep falling. This means that the external environment, particularly the mood in the external environment, is positive.
If we look at the immediate future in Estonia, the prices of real estate, for instance, have dropped so much that the average price per square metre and the average salary are starting to come close to each other – this is a level that could be sustainable. I have talked to developers and according to them, this is the level at which we could start building again.
But everyone is currently probably waiting to see what is going to happen and when the economy in Finland or Sweden, for instance, will recover. We might be at a breaking point at the moment, but we will first have to wait for the autumn to arrive, it is too early to make far-reaching conclusions yet. I have previously rather been known as a person with a negative outlook but at the moment, I am positively minded about the future.
Striving for cleaner water
Tallinna Vesi AS
The Most Competitive Service Enterprise 2009
TALLINNA VESI AS 2008:
Sales (th EEK) 719,923
Ian John Alexander Plenderleith, the manager of Talinna Vesi surprises with that he tells that his passion is client service. This that he does not drink bottled water is no more such a surprise, but the justification is slightly it – he is sure that the tap water is of more quality compared to bottled water. And really, he has a water jug on the table instead of water bottle. Everything should be quite well with the quality of water in Tallinn, as the data measured and analysed last year indicate that the resident of Tallinn has never seen so good water flowing from the tap – 98% of the maximum indicators have been achieved.
The manager of Tallinna Vesi started his career in the international company United Utilities where he worked for total of 20 years by travelling around the world and focusing on the world’s electricity business. Plenderleith came to work to Estonia when Tallinna Vesi was privatised in 2004 and worked in the company for about three years as the financial manager. After that he married the Estonian and went back to England for a year by requiring to develop its knowledge in business development and risk management sectors. In October last year he came back here.
"In 1990s United Utilities expanded to the electricity and water business and I managed to go to South America, I stayed four years in Argentina. Working there gave me an understanding that the cultures are very different in different countries – also the business cultures proceed from that and infrastructures are at very different levels, let alone the service. The work in Latin America had excellent results and I was really pleased with it – I was part of the international business. When I came to Tallinn.. I almost jumped here.“
One could believe that water management is boring and especially in the capital city of such a small country as Estonia. Plenderleith tells that as it was known that the company is taken to the stock exchange when he came here and there will be the first public sale of shares, the arrival to Estonia was an excellent opportunity and challenge for him. When arriving to Estonia there was a surprising situation. Instead of meeting the typical management of Eastern Europe, he saw the very well functioning company with rather Scandinavian attitude ahead of him.
Tallinna Vesi is proud of the last year. First of all, the water quality reached the highest level in Tallinn ever – the measurement results reached 98%. “This increases slowly, but imagine how difficult it is to get this last five percents. This year we want to reach 98.3% and finally also 99% or even up from there,” the manager says.
Last year the level of leakages also lowered. For comparison: when Tallinna Vesi was privatised, the water loss was even 35%. In 2008 17% was achieved. When saying figuratively, the quantity of saved water is equal to the daily water production of Tartu. The other important factor in water management is the breakdowns. “We had last year no planned breakdown which would have lasted more than 12 hours – the coping with breakdowns is a challenge, as you never know which are the weather conditions and what is exactly going on underground, we can’t see this through. Imagine that the earth’s crust is in constant movement and therefore unstable, everything is under the ground and no one actually knows what is going on there. Tallinn has approximately thousand kilometres of underground water pipes. Separate leakage inspectors work in our company who view personally where the leakages could be,“ Plenderleith tells.
At the end of the last year also the EBRD loan was refinanced, according to the manager this was a challenge and not at all an easy undertaking. For carrying out the network expansions, the loan of 20 million euros was taken from the Nordic Investment Bank.
The satisfaction of the employees is also a key question. When Plenderleith came to the company to be a financial manager, much was done here already and no structural changes were necessary. During the privatisation of the company 650 employees worked there, less than 350, i.e. less than half had remained when Plenderleith started to work in the company in 2004. “Here many difficult decisions were made. When I came last time, I found the operating team, everything functioned. Our employees are today quite satisfied, last year we saw for the first time that the level of the satisfaction of employees also clearly increased. Surely, much work was done in this question and now it could be seen that it has paid off,“ the manager is satisfied.
The company’s manager tells about his real passion – client service. I have always been active in the financial sector, but actually my passion is client service. I love client service. If we take the key indicators, such as water quality – this has improved. But if someone comes and says that my water smells strange – what to do? Then I can ask what colour it is and how does it smell. We can examine, show interest. Always one can ask whether water pressure is all right, whether water can freely flow and after having heard the client feedback I can prepare my own business plan and all other plans and decide what to do with the problem of this sector.“
In ideal world Plenderleith does not want that any of the clients would contact them at all. Everything should ideally function so that the people do not even notice the provision of the service. Tallinna Vesi is inevitably in the privileged status in Tallinn and the company’s manager confirms that they understand their special position. “We try to deal with everyone the same way. We want to be the best service provider in the Baltic countries. We work towards this aim.“
Master course of optimising
Tallink Grupp AS
The Most Competitive Transportation and Logistics Enterprise 2009
|TALLINK GRUPP AS 2008:|
Sales (th EEK) 12,310,015
When talking to any manager of the company, they tend to remember not the previous, but still relatively stable year, but this what is going on now. This is actually right, as the business often requires the looking into the future with analysing the present. This is also the case with the Estonian largest ship company. Andres Hunt, the member of the management board of Tallink, tells that they think about different variants and plans regarding the future. What is exactly undertaken at the falling market is not sure but one thing is clear: changing of the world economy, decrease in volume of goods transport, increase in the number of passengers on the background of falling sales – this is the big challenge for the company’s management.
In July this year Tallink sets the record – more than million people travelled with the company ships, no one has seen so high number. At the same time, in the conditions of decreasing competition and income of people, the company had to decrease the ticket prices, the large number of passengers do not always mean higher sums for the company. Last year was quite a good year for Tallink. “Last year it was especially pleasant that two new ships were introduced in the line at a time: “Superstar“ in spring and “Baltic Princess“ in summer and this brought along several changes, “Princess“ came to the line of Tallinn-Helsinki and “Galaxy“ went to the line of Turu-Stockholm, from there “Silja Festival“ went to the line of Riga-Stockholm. When looking back, this was the right moment for such exchanges and we ourselves would have liked to do it earlier. The ship plant could not manage with its questions as expected. It was a right decision, as the numbers of passengers increased and the investment was needed,“ Hunt thinks.
The company’s management was not satisfied with the last year’s financial numbers. The profitability fell, the sales increased by only 3% and the number of passengers slightly increased. The growth in profitability was in its turn cancelled by the abrupt increase in fuel price. Tallink has also surely made its activities more effective. As the fuel prices though raised too high, effectiveness resulted in no benefit. The share of goods transport fell by about 30%, but the ship has to serve also the remaining shipments and the expenses for the company are still the same. Andres Hunt thinks that the client of passenger ships requires further on more training and being used to it that the travelling by ship is also the method for spending leisure time besides travelling from one point to another.
“We are not only pure transport company, we have all other services, consumptions on board which cover the expenses. If we take the income structure, the percentage of the ticket is 20%, the consumption makes a half and the percentage of goods shipments was also about 20%. The hotels of Tallink and other services to be provided still add there,” Hunt says.
The economic periods are connected with each other always in business. Thus Tallink has the possibility to be satisfied in the current difficult time that the big investments have been made and the possibilities for providing better quality as to the tender have been guaranteed. The client gets these possibilities today with also cheaper price than before. Hunt states that the client’s expectations are different and currently one’s finances are viewed with more attentive glance than before.
“We can’t confront the rest of the world, but go with the flow. You should be attractive and aggressive. We can’t exclude that bigger changes should be made. If the line has high loss, then it needs to be closed. There are different variants and we have played these scenarios through and now one should watch what the future brings. We should also negotiate with the partners and apply for the more favourable attitude, make alternative purchases, all that provides another way of thinking and cooperation between the partners. If one has to survive together, the plans should be made together,” one of the managers of Tallink is sure.
The major activity of Tallink is now the review of the saving possibilities – on account of which it is possible to save, on account of which one could earn more. The extra money of 1 euro means millions of euros for the company. Andres Hunt says that this same difficult time offers him a lot of motivation. There are different possibilities and the choice of possibilities and the success is a big challenge. He provides one simple sample of optimising. When the bottom of the ship was before cleaned for example once a year, then now this is done more often, as the bottom of the ship will be full of algae and so the ship moves slower and also takes more fuel. Small matters bring along major changes, but with one exception: nothing should visibly become worse for the client.
“We were able to implement the investment programme at the good times, we find it easier to go on from here. If we had used the old ships further on, then I do not know whether we could have been able to remain in the competition. In the big picture everything is still well. We know that this situation is not influenced by us, but from outside. We are sure that our strategy has been successful, we have not detected mistakes there. At the same time one should very seriously think at the state’s level on that Estonia would not lose attractiveness and this is greatly influenced by the state’s coping with economy,“ Hunt adds to sum up.