BUSINESS NEWS BULLETIN, NO 119

BUSINESS NEWS BULLETIN No 119 May 01 - 07, 1999 CONTENTS: ? CROATIA?S FOREIGN EXCHANGE DROPS 2 ? UNEXECUTED PAYMENT ORDERS REACH HRK17.9bn LATE IN MARCH 2 ? LIQUDITY RATING IN APRIL SLIGTHLY UP 2 ? 14 CROATIAN COMPANIES DECLARED BANKRUPT IN APRIL 3 ? RETAIL PRICES AND COST OF LIVING RISE 3 ? MANUFACTURER PRICES UP 0.6 PER CENT 3 ? FINANCIAL MARKETS 3 ? GLUMINA AND KOMERCIJALNA BANKS GO BANKRUPT 4 ? BANKRUPTCY PROCEEDINGS START IN GRADSKA AND ZUPANJSKA BANKS 5 ? CREDO BANKA ANNOUNCES FIRST QUARTER FIGURES 5 ? TRGOVACKA BANK MAKES A PROFIT OF HRK11.14m IN 1998 5 ? PBZ BANK LAUNCHES NEW DEBIT AND CREDIT CARDS 5 ? CROATIA INSURANCE AND PBZ TAKE PART IN REFORMING THE PENSION SYSTEM 5 ? AURUM MAKES A PREMIUM INCOME OF HRK55.72m 6 ? ENDORSED SCHEME AIMED AT ADDRESSING LIQUIDITY CRISIS 6 ? GOVERNMENT BACKS SLOBODNA DALMACIJA PUBLISHER FOREIGN AND DOMESTIC LOANS 6 ? PODRAVKA BRACES UP FOR PENETRATING FOREIGN CAPITAL MARKETS 7 ? LEDO PURCHASES HEIFERS FOR ITS CONTRACT FARMERS 7 ? CROATIAN POST REDUCES PARCEL PRICES 7 ? VIKTOR LENAC SHIPYARD CONTENTED WITH LAST YEAR?S PERFORMANCE 7 ? PLOMIN TO GET A FERRY BOAT TERMINAL 8 ? CONSTRUCTION OF PLOCE RO-RO TERMINAL SOON TO START 8 ? ERICSSON NIKOLA TESLA SIGNS TWO NEW CONTRACTS 8 ? KONCAR?S FIRST-QUARTER SALES BEYOND HRK350m 8 ? KONCAR?S DS&T SIGNS TWO CONTRACTS WITH CZECH PARTNERS 8 ? KET TO STEP UP EXPORTS AND BOOST DOMESTIC SALES 9 ? D.D. MONTAZA PLANS TO POST HRK57.98m INCOME 9 ? DILJ REPORTS HRK4.82m PROFIT 9 ? BAGAT STARTS PRODUCTION OF NEW SEWING MACHINES IN JULY 9 ? CONTRACT ON THE WORLD BANK'S LOAN TO CROATIA SIGNED 10 ? TASK FORCE FOR CROATIA'S ADMISSION INTO WTO HELD A MEETING 10 ? TALKS HELD ON CO-OPERATION BETWEEN CROATIA AND AUSTRIA 10 ? PORGES AND FASSINO HELD TALKS ON ECON. CO-OPERATION BETWEEN CROATIA AND ITALY 10 ? ZAGREB FAIR TO HOLD WINE AND VITICULTURE SHOW 10 1. ECONOMIC INDICATORS CROATIA?S FOREIGN EXCHANGE DROPS The latest data by the State Bureau of Statistics warn of a continuing shrinking trend reported by the Croatian foreign commodity exchange. In the first three months this year, Croatia?s exports were worth US$961.4m, an 11.1 per cent drop against the same period last year. At the same time, imports reached US$1.66bn, down 13.7 per cent on the first quarter last year. Croatia?s foreign exchange gap reached US$704.3m in the first three months this year against approx.US$848.5m in the same period last year. The bulk of the exports ? energy excluded - were accounted for by intermediaries at US$340.8m, down 13.1 per cent. Imports ? energy excluded - were also dominated by intermediaries, which were down 14.4 per cent at US$529.9m. record imports were reported by the energy sector, up 23.6 per cent at US$529.9m. Exports in the processing industry reached US$934.9m in that period, an 11.1 per cent drop on the first quarter of last year, and imports were worth US$1.4bn, down 13.9 per cent. European Union countries accounted for 55.5 per cent of Croatia?s exports, down 0.2 per cent against the same period last year, and imports were down 16.6 per cent at US$947.4m. Italy ranks first among Croatia?s export markets with exports to that country worth US$202m, a 1.5 per cent increase on the first quarter of last year. Croatia?s exports to Germany reached US$183.7m in the first three months this year, a fall of 5.1 per cent, and exports to Bosnia-Herzegovina dropped by 13.9 per cent to US$120m. The neighbouring Slovenia accounted for US$106m of Croatia?s exports, down seven per cent against the same period last year. Croatia reported record imports from Germany in the first three months this year, i.e. US$255.8m, a 25.2 per cent drop. US$137m worth of goods and services was imported from Slovenia, 15.3 per cent less, and Russia accounted for US$118m worth of imports, up 14.8 per cent against the first quarter of last year. UNEXECUTED PAYMENT ORDERS REACH HRK17.9bn LATE IN MARCH The amount of payment orders which couldn?t be executed because of a lack of funds in the accounts of corporate debtors with ZAP clearing house continues to grow. Later in March it reached HRK17.9bn in Croatia, up 12.2 per cent and 75.9 per cent respectively against a month earlier and March last year. The deterioration of corporate liquidity in March was mostly attributable to the growth in acceptance orders which creditors submitted for collection in the course of March, says ZAP. The freeze based on acceptance orders reached HRK10.6bn later in March, up 17.1 per cent against a month earlier. The number of insolvent companies also climbed to 28,342 companies, a 0.8 per cent increase against February. These companies employed 187,677 people. A record number of insolvent companies ? 84 per cent ? and a record number of unexecuted orders ? HRK10.2bn, 57 per cent of the overall amount ? was accounted for by privately-owned companies. By type of activity, the biggest number of unexecuted orders worth HRK4bn is reported by the retail sector. By region, the largest corporate debtors are located in the Zagreb city area and account for a HRK5.7bn debt, followed by a HRK1.3bn debt owed by Splitsko-Dalmatinska county. 58.5 per cent of the total number of insolvent companies, accounting for 70 per cent of the total debt, had their accounts frozen for over a year. The accounts of many of these companies have been dead for quite a while, and some have been frozen for a few years. LIQUDITY RATING IN APRIL SLIGTHLY UP The average credit rating of Croatian companies and other legal persons was in April this year slightly up against a month earlier. It rose by 0.1479 points to 426.1965 points. The solvency continues to be poor, without any signs of a likely recovery, says Intercredit, the Zagreb-based credit rating and collection company operating at home and abroad. The number of companies whose accounts with the ZAP clearing house are frozen continues to grow, with their profitability permanently undermined. Particularly affected are the small businesses whose debt by far outweighs the small value of their assets, while in other businesses the assets are overvalued, says Intercredit, whose experts estimate that the crisis in the banking industry was another factor that brought many businesses on the verge of bankruptcy by blocking their access to their own funds in their own accounts. The rise in the number of companies declared bankrupt is seen by Intercredit as a positive development because it should lead to the liquidation of loss- makers which directly endanger the survival of profit-making companies. For the time being, the Croatian companies are reporting a negative trend in terms of their credit rating, Intercredit concludes. The lowest average credit rating grade reported in the last week of April was 435.9000 points. By company size, the best grade was awarded to medium-sized companies. By ownership structure, the best-performing were privately-owned companies at 419.1184 points, followed by 427.3582 awarded to trading companies, while the third-ranking are service companies with an average grade of 445.8421 points. A credit rating assessment was mostly commissioned by Intercredit?s Croatian clients, which accounted for 29.9 per cent of all assessments done by Intercredit. This is followed by Austrian clients which contributed 27.6 per cent, French 11.1 per cent, German 10.7 per cent, Belgian 11.5 per cent and others represented nine per cent. As far as debt collection is concerned, Intercredit says the situation continues to deteriorate, especially given that the old debt grows as new invoices mature. In April, the success rate in debt collection was 23.43 per cent of the overall debt. 14 CROATIAN COMPANIES DECLARED BANKRUPT IN APRIL A bankruptcy proceeding was launched at 14 Croatian trading companies in April this year according to Bonline credit rating company that co-operates with Dun & Bradstreet (D&B) international company in assessing the credit rating of Croatian businesses. By type of activity, the largest number of official bankruptcies ? four ? is accounted for by companies whose core or side-line business involves trade, among them Agrariacoop based in Zagreb. Two companies in the wood and timber industry - DIP heavy furniture factory based in Ogulin and Delnice d.d. ? were also declared bankrupt and so were two agricultural companies. The other companies declared bankrupt belong to the architecture and fitting, banking, metal and textile industries and research. Bankruptcy proceedings were completed at 21 trading companies last month; four proceedings were suspended, and three companies filed for bankruptcy. Bankruptcy proceedings were completed at 12 companies, 33 petitions for liquidation were filed and the proceedings started at two companies. RETAIL PRICES AND COST OF LIVING RISE Retail prices in Croatia in April posted a 0.3 per cent rise against March and a 3.6 per cent rise against April last year. At the same time, cost of living grew by 0.4 per cent against March and 3.2 per cent against April last year. Retail prices and cost of living in the first four months this year reported a 3.5 and 3.2 per cent increase compared to the same period last year. Retail prices of goods and retail prices of services rose in April by 0.4 and 0.2 per cent against the previous month respectively. This rise was primarily the result of the 15 per cent increase in the prices of agricultural products with seasonal products and 0.9 increase without seasonal products. Retail prices of industrial products posted in April a 0.3 per cent rise against March, of non food products a 0.5 per cent rise, of drinks a 0.4 per cent rise while the prices of tobacco and food products remained the same. The rise in the prices of services was caused by a 4.4 per cent increase in the prices of PTT post and telecommunications services and a 0.1 increase in the prices of craftsmanship, financial and social welfare services. On the other hand, prices of housing and municipal services fell by 0.4 per cent while prices of education dropped by 0.1 per cent. Prices of traffic, administration and health services remained the same. As to cost of living, goods and services posted a 0.3 and a 0.9 per cent rise in April compared to the previous month respectively. Rise in the cost of living is the result of a 0.9 per cent increase in prices of apparel and footwear, a 0.8 per cent increase in prices of traffic services and a 0.6 per cent rise in prices of education, culture and leisure goods and services. Prices of food went up by 0.3 per cent, prices of tobacco, drinks and health products and services by 0.2 per cent while prices of housing products and services reported a 0.1 per cent rise. (Source: State Bureau of Statistics) MANUFACTURER PRICES UP 0.6 PER CENT Manufacturing prices in Croatia increased by 0.6 in April against a month earlier and 1.7 per cent against April last year. The biggest rise by main industry group was reported in the prices of energy, up 1.8 per cent. Non-durable consumer products were 0.5 per cent more expensive; capital products were up 0.2 per cent and intermediaries ? energy excluded ? were up 0.1 per cent. The prices of durable consumer products remained unchanged at their March level. By area and sector of the national classification of activities, prices in the mining and digging industry increased by 8.3 per cent; those in the processing industry were up 0.3 per cent, and those in the electricity, gas and water supply remained unchanged. Ten out of 27 manufacturing sectors reported a price increase, with a record rise ? 11.6 per cent - reported by the crude oil and natural gas exploitation. Prices in the leather processing, leather fancy goods and footwear production industry increased by seven per cent, and coal mining was up 3.4 per cent. At the same time, four sectors reported sliding prices, with a record drop of 3.8 per cent posted by radio and television sets and communications devices. The remaining 13 manufacturing sectors reported no price change. In the first four months this year, manufacturer prices of industrial products increased by 0.6 per cent on the same period last year. (Source: State Bureau of Statistics) 2. FINANCIAL MARKETS EXCHANGE RATE - HRK Curency Unit 03-May-1999 07-May-1999 % change USD 1 7,171669 7,030285 -1,97 DEM 1 3,882425 3,879574 -0,07 ITL 100 0,392164 0,391876 -0,07 GBP 1 11,560727 11,483980 -0,66 ATS 1 0,593363 0,551426 -0,07 CHF 1 4,716342 4,723067 0,14 JPY 100 6,002904 5,829424 -2,89 EURO 1 7,593363 7,587787 -0,07 (Source: Croatian National Bank - HNB) MOST TRADED STOCKS AT THE ZAGREB STOCK EXCHANGE, MAY 04 - 07, 1999 No Stock Final price (HRK) % change Turnover (HRK) % change 1. Zagrebačka banka 0 796 31,57 14.668.867 827,47 2. Pliva 575 3,23 6.658.764 688,90 3. Gospodarsko kreditna banka 50 - 1.389.200 - 4. Plava laguna 325 1,56 904.725 298,05 5. Riviera Holding 50 8,70 457.745 1.366,57 6. Splitska banka 50 0,00 150.000 500,00 7. Istraturist 16,50 -8,33 80.372 1.016,27 8. Croatia osiguranje A 1.000 - 70.000 - 9. Kraš 62 3,33 50.508 68,36 10. Podravka 73 4,29 46.493 -77,32 TURNOVER 24.541.540 648,05 CROBEX 755 6,59 TRADED STOCKS AT THE VARAŽDIN OTC MARKET, MAY 03 - 07 , 1999 No Stock Final price (HRK) % change Turnover(HRK) % change 1. Ericsson Nikola Tesla 67 -25,56 99.989 1.211,68 2. Bjelovarska banka 2.900 -3,33 26.500 -55,83 3. Croatia line 30 0,00 20.940 35,24 4. Varteks 19 0,00 3.800 669,23 5. Riviera Holding 45 0,00 1.800 -98,13 TURNOVER (stocks) 153.029 -91,19 No Stock Final price (HRK) % change Turnover(HRK) % change 1. Expandia fond 19 0,00 135.432 241,95 2. Središnji nacionalni fond 10 0,00 30.836 970,69 3. Velebit fond 10 - 21.140 - 4. Dom fond 11 - 11.041 - TURNOVER (privatisat .funds) 198.449 365,95 TURNOVER ALL 351.478 -80,25 VIN 268 -1,47 SHORT-TERM SECURITY ISSUES Date Issue Maturity Amount subscribed (kn) Interest rate 04-05-99 HNB (repo auction) 2 - days 721.371.716,20 12,52% 05-05-99 HNB T-bills 35 - days 115.000.000 10,10% 05-05-99 HNB T-bills 91 - days 5.000.000 11,00% Total amount of subscribed HNB T-bills as of May 05, 1999: HRK 557.100.000 3. BANKING AND INSURANCE GLUMINA AND KOMERCIJALNA BANKS GO BANKRUPT On April 30, the bankruptcy tribunal of the Zagreb commercial court passed a decision that bankruptcy proceedings should start in the case of the Glumina and Komercijalna banks. After the two banks? accounts were blocked for a long time due to which they were unable to settle payments, Hrvatska Narodna Banka (HNB), Croatia?s central bank, decided to propose bankruptcy procedings in both cases. Vedran Sinovcic has been appointed official receiver of Glumina bank and Zlatko Micin has been apointed to the position of the Komercijalna bank?s official receiver. Immediately after taking office, the two receivers announced layoffs and closedowns of both banks? subsidiaries and representative offices abroad, claim the union representatives. Vedran Sinovcic informed the trade union that he would act in compliance with the Bankruptcy Law. The law provides for the severance of employment contract with a one-month period of notice, and Sinovcic expressed his willingness to cooperate with the trade union on the matter of the bank?s 230 workers. According to the Komercijalna bank?s trade union representatives, Zlatko Micin said that no more than 30 to 40 people, out of the bank?s total staff of 118, would be retained to carry out the bankruptcy. BANKRUPTCY PROCEEDINGS START IN GRADSKA AND ZUPANJSKA BANKS Early this week, the bankruptcy tribunal of the Osijek commercial court has decided to start bankruptcy proceedings in Gradska Banka d.d.Osijek and Zupanjska Banka. Vedrana Raff has been appointed official receiver of Gradska bank and Vinka Ivankovic is to perform the same duty in Zupanjska bank. The decision on bankruptcy proceedings in Gradska bank follows the inquiry into the bank?s affairs which showed its inability to meet its debts on a longer- term basis. The investigation based its findings on the fact that the bank?s giro-account with HRK44.59m had continuously been blocked for 113 days and the bank was to repay a bridging loan of as much as HRK29.15m to HNB only, Croatia?s central bank. Contrary to the Novalic concern which claims that the enclosed traslations of letters received from the bank?s Italian and German associates, certified by a public notary, show their preparedness to provide a US$10m surety for the rehabilitation of the bank in the future, the bankruptcy tribunal considers that the letters "do not mention specific surety but rather focus on the required information on the debtor", attempt to hold a meeting with the HNB governor and do not point to a specific strategic investor/ investors interested in the debtor. The decision to start bankruptcy proceedings in Zupanjska bank is grounded in the investigation report which shows that Zupanjska bank?s giro-account has continuosly been blocked since November 2 last year, the total amount of its unsettled liabilities has reached HRK131.82m, and the bank has not repaid a HRK18.94m bridging loan taken in HNB. CREDO BANKA ANNOUNCES FIRST QUARTER FIGURES In the first quarter this year, Split-based Credo Banka d.d. made a total income of HRK18.24m, an increase of 55 per cent on the same period last year. The bank?s total expenditures rose 66 per cent reaching HRK17.1m. This year?s first quarter pre-tax profit was at HRK1.14m, a drop of 22 per cent, and there was a 27 per cent decrease in the after-tax profit which went to HRK970,090. Compared to the first quarter last year, the bank?s net income from interest rates rose 87 per cent reaching HRK9.32m. The bank?s assets increased by 14 per cent going to HRK290.57m, and there was a 13 per cent rise in its loan portfolio to HRK188.09m. Corporate lending went up 4 per cent to HRK161.81m, and loans to citizens increased 73 per cent reaching HRK36.28m. The bank?s capital was at HRK65.92m, approximately the same level as in the first quarter of 1998. The bank?s total savings amounted to HRK46.66m, HRK45.34m of which were foreign currency savings. Credo Banka has five branches and employs 67 workers. TRGOVACKA BANK MAKES A PROFIT OF HRK11.14m IN 1998 Trgovacka bank closed the year 1998 with a profit of HRK11.14m, an increase of 9 per cent on the year before. At this week?s foundation session, the bank?s supervisory board appointed Branko Kondic from Trgovacka bank to the position of the president and Daniel Skoro from B-C institute was appointed Kondic?s deputy. New members of the supervisory board were appointed at the bank?s recently-held general meeting, these being Vladimir Jurasic from Vodoprivreda d.o.o., Zlatko Mance from Ekoteh d.o.o., Josip Medunic from Croatia?s state directorate for roads, and Tanja Petkovic-Mazalin from the Arko lawyer?s office. Trgovacka bank, which has 149 employees, currently has three branches in Zagreb, and there are also branches in Zadar, Rijeka and Kutina, as well as representative offices in Osijek and Split. The bank?s total ownership capital increased by 11.32 per cent last year, its share capital rose from HRK68.99m in 1997 to HRK71.61m, and there was an increase in the bank?s reserves from HRK27.29m to HRK35.56m. The bank?s total income reached HRK25.09m in the first quarter and its total expenditures were at HRK18.03m in the same period. The bank?s goal in the next five years is to reach quality of service and performance which would enable it to become a medium-size universal bank primarily oriented to small and medium-size companies and craftsmanship businesses. PBZ BANK LAUNCHES NEW DEBIT AND CREDIT CARDS Privredna Banka Zagreb (PBZ) bank this week launched Maestro/Cirrus international debit card and Eurocard/Mastercard credit card. The bank says it will start issuing Visa bank cards later this year. Maestro/Cirrus international debit card is designed for all current account owners as a substitute for a checking card. The massive replacement of checking cards by bank cards has already started and it will proceed gradually. By the end of the year, 350,000 cards will be issued to PBZ?s 270,000 current account owners and persons authorised by them. PBZ?s debit card can be used at the bank?s 60 ATMs and 250 ATMs operated by other banks such as Zagrebacka, Bjelovarska and Varazdinska banks. PBZ plans to set up another 100 ATMs soon. The first 100 POS machine are currently being set up, and their number is expected to gradually grow to reach 2000. The international debit card can also be used at 430,000 ATMs worldwide to withdraw cash in the local currency. By issuing the debit and credit card, PBZ has confirmed its orientation towards the retail market in addition to the corporate one, says PBZ?s management. Programme solutions for the project of issuing the cards were provided by Applied Communications Ltd. And Europay International, the major provider of personal payment services in Europe. CROATIA INSURANCE AND PBZ TAKE PART IN REFORMING THE PENSION SYSTEM Privredna Banka Zagreb bank (PBZ) and Croatia Osiguranje insurance company on Tuesday signed a letter of understanding and a preliminary agreement on the joint participation in the current reform of the Croatian pension system. These two financial institutions are committed to starting a project aimed at establishing a mandatory pension company for managing the mandatory pension fund, a voluntary pension company for managing voluntary pension funds and an insurance pension company. Pension and insurance companies will be set up as joint stock companies, while funds will be established as it is envisaged by the law. Each side will invest 50 per cent of the opening capital for each new company and will automatically gain control over 50 per cent of the shares. Minimum investment for establishing a mandatory and a voluntary pension company amounts to HRK40m and HRK15m respectively. After the Croatian State Parliament has passed the law on reforming the pension system, PBZ and Croatia Osiguranje will sign the contract on joint action. The contract will specify all major features of co-operation, international rights and liabilities as well as the legal structure of pension companies. The signatories of the letter of understanding added that they would, if necessary, include in the project a foreign investor and Croatia Lloyd company as a reinsurer. AURUM MAKES A PREMIUM INCOME OF HRK55.72m The consolidated report of Aurum, a Zagreb-based insurance company, shows that the company made HRK55.72m in premiums last year, an increase of 155.25 per cent on the year before. The structure of Aurum?s insurance portfolio shows that life assurance premiums rose 27.43 per cent reaching HRK15.28m last year, and HRK13.74m made in property insurance accounted for 24.66 per cent of the total policy premium. Car liability insurance represented 22.92 of the remaining premium income, accident insurance 11.83 per cent, and the rest was accounted for by health insurance, car hull insurance, transport and loan insurance. Aurum has so far insured a large number of buildings with a total of 55,000 flats the overall value of which exceeds DEM4bn. It should be pointed out that an estimated 1.28m flats in Croatia represent a large growth area for insurance business in Croatia. 4. ACTIVITIES OF GOVERNMENT, MINISTRIES AND STATE INSTITUTIONS ENDORSED SCHEME AIMED AT ADDRESSING LIQUIDITY CRISIS The government of the Republic of Croatia held its scheduled session this week and endorsed the report on the implementation of the government?s scheme aimed at resolving the liquidity crisis. Late in March this year, 28,243 businesses had their accounts frozen. Their debt totalled HRK17.96bn and according to unofficial data it climbed to between HRK19.5 and HRK20bn later in April. The increase was anticipated due to the abolishment of acceptance orders, which boosted insolvency by HRK2.3bn. The government also discussed the options for supporting Croatia?s tourist industry affected by NATO air strikes against Yugoslavia. Tourism in Dalmatia must be saved, concluded the government. Although it may carry a high price, we are determined to save it because it represents the country?s strategic interest, said prime minister Zlatko Matesa. Within this framework, the government endorsed the long-term market-oriented restructuring of 26 Dalmatian tourist companies, clients of Splitska Banka. The Croatian government also accepted the report on the implementation of the national employment programme. The employment office has designed a public works plan for this year, with a focus on the pilot programme in Baranja and at PIK Belje. The government also backed the decision by which the deadline for the categorisation of tourist facilities is extended until October 30 this year, which will enable all the facilities to operate smoothly until the end of this year?s tourist season. The categorisation of catering facilities under the act on the catering industry should be completed before the beginning of May this year. At this point, most catering facilities have been found to have serious defects which disqualify them from the category they applied for. The deadline set for removing those faults was April 30th. It has now been extended because many catering companies failed to renovate their facilities in a way to meet the requirements for a given category. At the same meeting, the government accepted the proposal by the Ministry of Agriculture and Forestry to introduce temporary quantity-based tariffs for the import of tomato and strawberries. The tariffs currently stand at HRK2 per kilogram of tomatoes and HRK3 per kilogram of strawberries. The tariffs on the import of tomatoes and strawberries will be in place until the end of September and mid- July respectively. GOVERNMENT BACKS SLOBODNA DALMACIJA PUBLISHER FOREIGN AND DOMESTIC LOANS In order to facilitate the business of Slobodna Dalmacija d.d. publisher and printer, whose majority owner is the State Agency for Deposits Insurance and Bank Rehabilitation, and which plays a critical role in the country?s media life, the Croatian government decided in its closed meeting this week to issue a letter of intent for three state guarantees to back Slobodna Dalmacija?s foreign and domestic loan applications. This marks the beginning of the bail- out of the company. The government endorsed the composition of the working group responsible for resolving the debtor-creditor relations for the liquidated branches of Jugobanka d.d. Beograd which used to operate in Croatia. In addition, the government gave the go-ahead for a commodity loan of the 1998 wheat crop from the state reserves to benefit Belje d.d. based in Darda. Furthermore, it decided to help the institute for the professional rehabilitation of disabled persons through employment by writing off its debt owed in interest.The Ministry of Tourism will pay the HRK10m performance royalties owed by hotel companies. 5. COMPANIES PODRAVKA BRACES UP FOR PENETRATING FOREIGN CAPITAL MARKETS Podravka, the Koprivnica-based food group, is bracing up for penetrating the global capital market, which hinges upon its ability to meet the profit projections this year and over the next few years. The projections will be met by increasing the company?s domestic and foreign sales. Although the group?s shares are listed in the first quotation of the Zagreb stock exchange, which proves them to be among the most attractive for the investors, their trading price is still much lower than the nominal one. Podravka says this is due to the fact that the Croatian securities market is underdeveloped and sluggish and that it has failed to create a demand which would substantially impact the price of the group?s shares. In addition, the slump in the price of shares has been critically impacted by the withdrawal of foreign investors caused by the Russian crisis and political volatility in southeastern Europe. The group has recently unveiled its last year?s figures. According to the report, its net profit increased last year by over 223 per cent against the previous year to HRK68m. The reported profit is the result of consolidated profits and losses of the parent company and other member companies within the group, achieved in a fairly unfriendly business environment, both at home and abroad, says Podravka. Last year, the group was exposed to some major risks which had not been anticipated such as the Russian crisis, the collapse of some domestic distribution chains, the difficulties faced by the Croatian healthcare sector, which significantly impacted the degree to which projections were met. Although the company has faced many difficulties, its operations continue to be stable and its stability will be further strengthened by its orientation towards exports. In order to cope with the ever-fiercer foreign competition, the company needs to expand its markets, launch new products and cut the price of its products. This in turn requires the introduction of a new technology in order to cut input costs, boost productivity and allow for a successful management of business processes, says the company. This is the only way Podravka can create the necessary pre- conditions for meeting its projected profit over the next five years and ensure a stable cash flow. Belupo, the group?s pharmaceutical company, will open a new drug factory this year. A new information system will be introduced and the bulk of works at the new Vegeta food seasoning factory in Koprivnica will be finished, as well as the works at the Vegeta, soup and powder product factory in Poland. If the shareholders at their scheduled annual meeting endorse the board?s proposal, a dividend, which hasn?t been paid out over the past few years, will be paid out this year. LEDO PURCHASES HEIFERS FOR ITS CONTRACT FARMERS Ledo, the leading domestic ice-cream manufacturer and part of Agrokor group, plans to purchase about 500 heifers in calf for its contract farmers and milk manufacturers. Contract farmers will repay the loans for heifers and the loans for the construction of a milk-collecting tank in milk deliveries. In October last year Ledo stated purchasing rich milk from Sisacko-Moslavacka and Bjelovarsko-Bilogorska counties. The company currently has long term contracts with over 1,000 contract farmers and daily purchases 30,000 liters of milk. Purchased milk is processed in Veliki Zdenci-based Zdenka dairy plant in raw materials such as butter, skimmed powder and pasteurized milk necessary for the production of ice-cream. Ledo's management plans to purchase about 25m liters of milk yearly. According to the management, Ledo paid contract farmers milk for the first three months this year together with a state premium regardless of the fact that the state hasn't been refunding Ledo since December last year. The average price per liter of milk amounts to HRK2.47. In addition to the base price and state premiums, contract farmers receive HRK0.30 of the factory premium for the best milk. Likewise, Ledo granted loans to contract farmers for preparing spring sowing offering them fertilizers, seeds and protective agents at a lower price. CROATIAN POST REDUCES PARCEL PRICES According to the decision of the management of Hrvatska Posta d.d. (HP), Croatian post, domestic prices of all parcel-mailing services have been reduced by about 60 per cent as of May 1, 1999. Moreover, instead of the former three destination zones which, in addition to weight and value, determined the price of the service, the company has decided to introduce two zones only. As of May 1, Zone I therefore comprises the territory covered by the same central post (the same county), and Zone II encompasses the territory of all other central posts (counties). The basic parcel weight unit has been increased from 3 to 5 kilos. As of May 1, 1999 the price of a 5-kilo parcel will be HRK4.50 for Zone I (tax included), and HRK7.60 for Zone II (the rest of Croatia). Price reductions have also been carried out with regard to the parcel?s value, urgency and volume. Prices of additional parcel services, i.e. parcel repackaging, delivery (from HRK10 to HRK5), storage charges etc., have also been cut both in domestic and international traffic. VIKTOR LENAC SHIPYARD CONTENTED WITH LAST YEAR?S PERFORMANCE The total income of Viktor Lenac, a Rijeka-based shipyard, reached HRK346m in 1998, and the shipyard?s net profit was HRK9.7m. Considering the difficult position of the ship repair business due to a slump in shipbuilding industry, Viktor Lenac is satisfied with its last year?s performance. Having been absent from the ship conversion and jumboing market for ten years, the shipyard has managed to return to that market again. However, the Kosovo-related increase in war risk resulted in the cancellation of a US$12.5m worth agreement with a British-Dutch customer. The loss, which represents 20 per cent of the company?s annual sales, is to be compensated by conversion and repair works of smaller scale. The shipyard announces its intentions to increase its share of the markets of conversion, off-shore objects and special units, and intends to continue investments into quality upgrading, environment protection, safety and information technology. The company?s geneal meeting is scheduled to take place in mid June on which occasion a new supervisory board with experts from Italy, the United Kingdom and the Netherlands will be appointed. Viktor Lenac claims that the presence of foreign experts will help potential customers see that the shipyard is a reputable company which complies with all the rules of global business. PLOMIN TO GET A FERRY BOAT TERMINAL The building of a ferry terminal in the bay of Plomin and the programme to set up small businesses and build the local infrastructure connected to Plomin thermal power plant is only one of the twenty projects related to traffic, tourism, food production, projects, small businesses and local infrastructure which are jointly built by HEP, the Croatian electrical utility and the local community as part of the scheme to create a friendly environment, says the management of Plomin-Holding d.o.o. and adds that the most important projects involve the rehabilitation of the Bay of Plomin and the building of a ferry boat terminal in order to set up a boat service connecting the port of Plomin with Venice and the island of Cres, due to start as early as July 1st this year. The building of the ferry boat terminal cost HEP DEM10m. The ferry service is scheduled to operate not only during the tourist season but throughout the year. According to the assessment by Italian partners, tourists and tourist agencies in northern Italy are very much interested in the ferry service which guarantees a high- quality, fast service compared to the poor roads and border crossings. Furthermore, the company announced that it would remove the sludge from the bottom of the Bay of Plomin. 150,000 cubic meters of sludge will be dug from the bottom of the bay in the initial stage and it will disposed of on the ground. However, the company says the first findings of the environmental impact studies it commissioned show that the heavy metal and radioactive substance content of the sludge is within the acceptable levels. CONSTRUCTION OF PLOCE RO-RO TERMINAL SOON TO START Everything is ready for the construction of a modern ro-ro terminal worth US$2m in the port of Ploce, and the tender for the works, which are to be completed by January 2000, has already been launched. The construction has been made possible by the agreement on a loan for urgent reconstruction works signed by the Republic of Croatia and the International Bank for Reconstruction and Development. Part of the loan funds has already been used for purchasing port equipment worth US$4m, and the US$8m reconstruction works on the strategically most important quay 5 are expected to be finished in September. 80 per cent of the funds necessary for the implementation of the project will be financed by the bank and the remaining 20 per cent will be covered by Croatia. ERICSSON NIKOLA TESLA SIGNS TWO NEW CONTRACTS Ericsson-Nikola Tesla (ETK) has recently signed two new agreements worth a total of approx.US$4.5m, one for the Kazahstan market and the other for that of Russia. Under the agreement with ARNA, the privately-owned Kazahstani operator, ETK is to deliver one local AXE telephone exchange 10 worth US$1.4m. This is ETK?s first AXE fixed telephony contract in Kazahstan, says the company and adds that ARNA has announced that it plans to expand the telephone exchange and purchase more Ericsson products. The other agreement was signed with ASVT, the privately-owned Russian operator, and it involves IN (Intelligent network) worth over US$3m. ETK won the contract in a public tender over its rivals Lucent and Siemens. KONCAR?S FIRST-QUARTER SALES BEYOND HRK350m Member companies of the Koncar group sold HRK350m worth of products and services in the first three months this year, a 39 per cent increase on the same period last year. The biggest contribution came from domestic sales, which accounted for HRK159.84m, a 45 per cent increase on the first quarter last year. At the same time, Koncar?s foreign sales increased by 31.2 per cent to HRK140.49m. Koncar group internal sales accounted for HRK52.39m, up 42.5 per cent against the first quarter of last year. However, only exports surpassed this year?s projections by 3.7 per cent. Internal sales were 4.2 per cent short of the projected figures, and domestic sales reached 89.4 per cent of the plan. The planned figures were surpassed by members of the Koncar group in the energy and special activities divisions. The energy division exceeded the plan by 7.4 per cent, up as much as 55 per cent against the first quarter last year, while special activities companies exceeded the sales plan by seven per cent and reported 31 per cent bigger sales compared to the first quarter last year. The remaining two Koncar companies ? industry and trade ? reported respectively 17.3 per cent and 18 per cent lower sales results than planned by 17.3 per cent and 18 per cent. Nevertheless, compared to the first quarter last year, the industry division reported 26 per cent better results and the trade division posted an eight per cent increase. KONCAR?S DS&T SIGNS TWO CONTRACTS WITH CZECH PARTNERS Koncar-Distribution and Special Transformers (DS&T), member of the Koncar group that makes and distributes distribution, special and energy transformers, has recently signed contracts worth over DEM1m with two Czech partners. The first agreement, concluded with Severoceska Energetika based in Decin, involves the delivery of two kV110 energy transformers, MVA 40 and MVA16 respectively. The contract is worth DEM800,000 and the products are due to be delivered next year. The other deal is an addition to the previous one providing for a long-term co-operation WITH Severomoravska Energetika based in Ostrava. The value of the additional order is DEM240,000. It involves the delivery of 41 kV22 oil distribution transformer. DS&T is due to deliver the transformers, used for smaller transformer stations, in August this year. KET TO STEP UP EXPORTS AND BOOST DOMESTIC SALES This year, KET, a Zagreb-based member of Koncar-Elektroindustrija dealing in production and installation of electric equipment for large power systems and, is planning to make an income of HRK144.5m, and this year?s projected expenditures reach HRK142.17m. The company intends to keep increasing exports and strengthening its position on the domestic market. Last year, the HRK64.64m exports made up 45 per cent of KET?s total sales, and recorded an increase of 395.7 per cent on the year before. The largest part of the exports went to Slovenia, Albania, Belgium, France, Hungary and Germany. Domestic sales of both products and services reached HRK78.74m, a drop of 21.5 per cent against the year before. KET?s largest customers were HEP, Croatia?s electric utility, HZ, the national railways company, ZET, the Zagreb-based public tram service and Elektropromet. Nearly the same fall in sales was observed last year in the company?s internal business with other Koncar members which brought HRK770,810. KET?s total sales rose 26.11 per cent reaching HRK144.14m. The company, which also provides services of engineering and technical consultancy, is owned by Koncar Elektroindustrija d.d. which has 40 per cent of the shares and a stake of 60 per cent is in the hands of small shareholders. D.D. MONTAZA PLANS TO POST HRK57.98m INCOME Duro Dakovic Montaza, part of Duro Dakovic group, plans to earn DEM57.98m this year. Last year, the company reported an income of nearly DEM64.5m. Montaza employs a permanent staff of 850 and another 100 on a temporary job contract. 240 of its workers are deployed in Germany, bringing an annual income of between DEM20- 24m. In Slovenia, the company makes about half a million German marks a year, and another DEM30m in Croatia. In Lebanon, the company has a representative office covering the Near East. Late in March this year, works were launched on a contract in Scotland worth DEM1.6m. The Scottish project involves the mounting of a waste gas tube, due to be completed by mid-September this year. The mounting of energy facilities and bridge construction represented the bulk of Montaza?s business last year. The company says bridge construction will continue to deploy most of its capacity this year. A major job in the energy division involved the installation of a gas-fuelled power plant and a waste heat boiler at the Zagreb EL-TO power and heat plant and the completion of Plomin 2 thermal power plant. Much of the planned work on the Rijeka thermal power plant was completed, as well as works related to the overhaul of Krsko nuclear power plant and the decommissioning and relocation of the diesel aggregates from the Hrvatsko Podunavlje region to the port of Rijeka, from which they were shipped to Ghana. In the hydromechanical equipment division, important maintenance works were carried out at Sliv Jug hydro power plant. As far as bridge construction, a bridge across the river Kupa at Brest was finished early last year, and a bridge across the Sava river between Zupanja and Orasje was put into operation late last year. DILJ REPORTS HRK4.82m PROFIT Dilj, the Vinkovci-based manufacturer of building material, last year reported a profit of HRK4.82m on an overall income of HRK83.54m. With a workforce of 510, the company last year produced 62 million standard-size units of brick products, of which 37 million pieces of roofing tiles and 25 million wall bricks. The company says it worked at a reduced capacity last year since Plant 2 temporarily stopped producing earlier in the year as did assembly line 2 at Plant 1, due to higher energy costs by as much as 50 per cent against the previous period, low accumulation and a shrinking demand for brick products in the winter period. In December last year, Plant 2 completely cut production due to climbing stocks and high energy costs. Last year, the company exported 25 per cent of its output to Bosnia-Herzegovina, where it plans to sell 50 per cent of its output this year, i.e. about 20 million units of roofing tiles. The sale of 15 million roofing tiles to Bosnia-Herzegovina has already been agreed. Late last year Dilj invested DEM1.5m of its own money into purchasing a new automatic press with three prints, which will improve tile quality. BAGAT STARTS PRODUCTION OF NEW SEWING MACHINES IN JULY Bagat ? Precizna Mehanika, the Zadar-based sewing machine producer, is to increase its output from 20 machines a day to 40. The company also announces that the production of its newly-designed sewing machines will start in July. The reconstruction of Bagat?s production started in the middle of April with one assembly line able to ensure an output of about 20 "Visnja S-electronic" machines per day. The second assmebly line will make it possible to start the production of the "Ruza" machines, claims the management. The company is expected to reach an annual output of between 45,000 to 50,000 machines, the total value of which is estimated at DEM15m. Bagat?s idle production capacities will be used for other industries, international car industry for example. Talks have already been held, but the company is still no prepared to reveal more details. Bagat, which currently has a staff of 300 workers, intends to employ 50 more workers in the course of May. The delay in hiring new staff is due to a delay in the disbursement of the loan granted to the company with a guarantee of the Croatian government. The loan is part of the rehabilitiation scheme the company is entitled to due to considerable war damage. 6. INTERNATIONAL COOPERATION CONTRACT ON THE WORLD BANK'S LOAN TO CROATIA SIGNED Representative of the World Bank and Croatian delegation signed a contract on the loan granted by the World Bank to Croatia for USD8m project of technical aid concerning institutional and legal changes aimed at boosting the development of private sector in economy. US$7.3m worth loan was granted for the period of 15 years with the grace period of 5 years and the usual interest rate. The Finance Ministry will use the money for establishing the Agency for Legal Regulation of Public Services, upgrading the work of the Agency for the Protection of Market Competitions, Central Deposit Agency and the Securities Commission. The money will also be used for conducting a study for the improvement of land registry, improving price monitoring as well as for supporting the privatization in three Croatian banks. TASK FORCE FOR CROATIA'S ADMISSION INTO WTO HELD A MEETING At its Tuesday meeting held in Geneva task force for Croatia's admission into the World Trade Organization (WTO) reviewed the report on the course and status of bilateral negotiations with particular countries and the draft of the task force's final report on Croatia's admission into WTO. The Croatian economic minister Nenad Porges informed members of the task force about the two-year formal procedure and bills the Croatian Government referred to the parliamentary procedure in order to speed up the final stage. Croatia held talks with Mexico and Switzerland during this meeting and has now formally completed negotiations with six countries. Talks on the issue of industrial products are completed. By the end of May Croatia will meet with seven countries to address the issue of agricultural products and with three countries to address the services. According to the announcement published by the Ministry of Economic Affairs, WTO secretary's office and minister Porges share the opinion that the task force might hold its last formal session in mid July. After the session, the Main Council of WTO should reach a decision on Croatia's admission. The Council's decision, after it has been ratified by the Croatian State Parliament, will guarantee Croatia full membership in WTO. TALKS HELD ON CO-OPERATION BETWEEN CROATIA AND AUSTRIA The Croatian minister of urban planning, building and housing Marko Sirac talked this week during his visit to Austria with the Austrian federal economic minister Hannes Farnleikner about the promotion of economic co-operation between the two countries. The two ministers paid special attention to the co-operation of Croatian and Austrian companies in industry, building, telecommunications, building of infrastructure, roads, possibilities of confessional investments in Croatian utilities as well as to joint presentations to the third world markets. The two ministers exchanged their opinions on the use of general-purpose DEM600m commodity loan Austria granted to Croatia for the implementation of programs and projects for the reconstruction and development of war-devastated Eastern part of Croatia. Porges and Farnleikner decided to further stimulate Austrian investments in Croatia. Minister Farnleikner expressed his hope for Croatian investments in Austria. PORGES AND FASSINO HELD TALKS ON ECON. CO-OPERATION BETWEEN CROATIA AND ITALY The Italian minister of foreign trade Piero Fassino and the Croatian economic minister Nenad Porges held bilateral talks in Modena. According to the two ministers, there are possibilities, potentials and willingness of the two countries to boost and intensify their co-operation although Italy is already Croatia's second largest foreign trade partner with US$2.3bn yearly exchange. "Italy gives its full support to Croatia's admission to European and other multilateral institutions and hopes that Croatia will soon become a member of the World Trade Organization (WTO)", said Fassino. Italy also supports Croatia in signing a free trade agreement with CEFTA countries. According to the Italian foreign trade minister, the Italian Government is willing to support Italian investments in Croatia, especially the investments of small and middle size companies and is interested in the participation of Italian companies in the planned privatization of Croatian companies. Italian businessmen are interested in participating in the modernization of Croatian infrastructure, especially road corridors, air and railway communications and Ploce port. Minister Porges announced that a joint Croatian and Italian chamber of commerce would be established in order to help small and middle size companies in exchanging information and strengthening connections. 7. FAIRS AND EXHIBITIONS ZAGREB FAIR TO HOLD WINE AND VITICULTURE SHOW Vinovita ?99, the fifth international wine and viticulture equipment show, a key exhibition event in the industry, will be held May 12 through 15 this year. 312 exhibitors from Croatia, Bosnia- Herzegovina, Italy, Hungary, Slovenia and Great Britain will display their products in an area of 5,000 square meters. The event is an opportunity for numerous representatives of the wine and viticulture industry as well as wine distributors to strengthen their co-operation with a view to improving the production and distribution of high-quality Croatian wines at home and abroad. Seven conferences will be held as part of Vinovita show, attended by about 720 participants. There will also be daily promotions and wine tasting events.