BUSINESS NEWS BULLETIN NO 355

E-mail: Slavica.BocekŽhina.hr BUSINESS NEWS BULLETIN No 355 November 17 th - 24 th 2003 CONTENTS: SLOWER, YET MORE SUSTAINABLE GROWTH OF CROATIAN ECONOMY IN 2004 LIVING COSTS FOR FOUR-MEMBER FAMILY ROSE BY 1.7 % IN OCTOBER INDUSTRIAL PRODUCTION IN OCTOBER UP 2.3 % A MILD INCREASE IN NUMBER OF UNEMPLOYED CROATIANS 276.5 MLN LITRES OF WATER CONSUMED IN FIRST NINE MONTHS OF 2003 BEVERAGE EXPORTS KEEP INCREASING 6,619 BUSINESSES OPEN IN CROATIA BY END OF SEPTEMBER 1.2 MLN PASSENGERS TRAVELLED BY AIR IN CROATIA IN FIRST NINE MONTHS NEW CYCLE OF LOANS FOR BUSINESSES RUN BY WOMEN, YOUNG PEOPLE UO HFP REJECTS SWISS FIRM'S BID TO BUY JADROPLOV CROATIAN FARM MINISTER TO ATTEND VENICE CONFERENCE ON FISHERIES GOVT ASKS FOR PROPOSED RESTRUCTURING OF SHIPYARD TO BE EXPANDED LURA: INCOME ON RISE, NET PROFITS DOWN KRAS CONFECTIONERY PRODUCER BUYS PRIJEDOR-BASED BISCUIT FACTORY ZADAR TOBACCO FACTORY TO START MANUFACTURING TWO NEW BRANDS KERUM - NEW OWNER OF FORMER DIOKOM RAJIC APPOINTS NEW DIRECTORS OF FAVARGER MODERN PLANT FOR PRODUCTION OF OLIVE OIL OPENED IN SOUTH CROATIA ZAGREBACKA BREWERY SOLD 1.5 MILLION HL OF BEER IN 1ST TEN MONTHS GETRO OPENS ITS THIRD SHOPPING CENTRE IN ZAGREB GERMAN COMPANY OFFERS TAKING OVER ZAGREB'S FARMACIJA 1. ECONOMIC INDICATORS SLOWER, YET MORE SUSTAINABLE GROWTH OF CROATIAN ECONOMY IN 2004 The growth rate of the Croatian economy next year will be slightly lower than this year and is expected to be around three per cent. In view of the causes of the slowdown, this rate should be more sustainable than the present one, according to an assessment by CAIB Invest, the investment agency of Bank Austria Group. CAIB economic analyst Goran Saravanja has said at a press conference that the forecast is based on present signs of an economic slowdown in Croatia -- a decrease in industrial growth, retail sales, credit financing, and building activities -- the prime movers of this year's growth, which he said was expected to be 4.3 per cent. He said that all this would be additionally spurred by an anticipated weakening of the kuna exchange rate (he predicted next year's euro exchange rate at about 7.65 kuna on average) as a result of higher foreign debt repayment instalments and a slightly higher inflation rate (which he predicted to reach 2.9 per cent). Saravanja said he expected a drop in personal consumption and building activities to result in a substantial decrease in exports of 0.7 per cent in US dollars, or two per cent in euros, in 2004. The export growth rate, which is expected to be considerably lower than this year, should be higher than the import growth rate and stand at 3.6 percent in dollars. Saravanja said that all this indicated a stabilisation of the macroeconomic environment in the country and provided a framework for slightly slower, yet more sustainable economic growth at a time when Croatia is preparing for the start of talks on membership in the European Union. LIVING COSTS FOR FOUR-MEMBER FAMILY ROSE BY 1.7 % IN OCTOBER The consumer basket of a four-member family, which amounts to 7,079 kuna according to calculations made by the Independent Trade Unions (NHS), shows that the minimum living costs of a four-member family in October increased by 1.7 percent (i.e. 96 kuna) compared to September. The increase was mostly caused by higher costs for clothes, which rose by two percent last month as against September, and housing costs which increased by 4.9 percent. The average salary can cover 55 percent of the monthly costs of a four-member family, the NHS said. INDUSTRIAL PRODUCTION IN OCTOBER UP 2.3 % Croatia's industrial production in October increased by 23 percent in relation to the same month the year before, the Central Bureau of Statistics said in a statement on Tuesday. In this year's first nine months the industrial production rose by 4.8 percent as against the same period the preceding year, the Bureau said. A MILD INCREASE IN NUMBER OF UNEMPLOYED CROATIANS In late October there were 312,313 Croatians on the dole, according to the state-run Employment Office. The number of unemployed persons rose 1.6 percent in comparison to September, but dropped by 16.7 percent in comparison to October 2002. A mild rise in the number of the registered jobless this October as against September is ascribed to the 'return' of seasonally employed persons who have again qualified for the dole money with local job centres, and to the influx of those who have finished secondary education and are now looking for employment. 276.5 MLN LITRES OF WATER CONSUMED IN FIRST NINE MONTHS OF 2003 More than 276.5 litres of mineral water were consumed in Croatia in the first nine months of this year, of which 249.1 million was produced by domestic companies, while the rest was imported. According to figures from the national association of beverage producers, 18.6 million litres or 68 percent of all imports came from Slovenia, while 5.2 million or 20 percent was imported from Bosnia-Herzegovina. Domestic producers sold a total of 198.4 million litres of mineral water, or eight percent more than last year, while imports totalled 20.2 million litres, an increase of 57 percent. Domestic producers exported 12.5 million litres of mineral water, the same quantity as last year. BEVERAGE EXPORTS KEEP INCREASING In the first nine months of 2003, Croatian producers of non- alcoholic beverages exported more than nine million litres of beverages, which is 11 percent more than in the same period last year, the national association of beverage producers has reported. Between January and September this year, the consumption of non- alcoholic beverages (excluding mineral and spring water) reached almost 291 million litres, an increase of 23 percent compared to the same period last year. Domestic beverages accounted for 241.3 million litres of the amount (an increase of 24 percent), while the remaining 49.1 million litres (an increase of 17 percent) was imported. 6,619 BUSINESSES OPEN IN CROATIA BY END OF SEPTEMBER In the first nine months of this year, a total of 6,619 new businesses were opened, 2,054 were removed from the business register, and 1,352 had to adjust to the Law on Companies. According to the State Bureau of Statistics, companies accounted for almost two-thirds, or 4,494, of these businesses. 1.2 MLN PASSENGERS TRAVELLED BY AIR IN CROATIA IN FIRST NINE MONTHS The number of passengers transported by air in Croatia in the first nine months this year rose by 16.5 percent to over 1.2 million as against the January-September period 2002, according to the Central Bureau of Statistics. The number of passengers on international flights increased by 14.5% to 892,000, while the number of passengers on domestic flights climbed by 21.8% to 363,000. 2. ACTIVITIES OF GOVERNMENT, MINISTRIES AND STATE INSTITUTIONS NEW CYCLE OF LOANS FOR BUSINESSES RUN BY WOMEN, YOUNG PEOPLE The Ministry for Trades, Small and Medium-Size Businesses has signed 49 agreements with regional and local self-government units since September to financially support businesses launched by women and young people. Since some units have already spent the initial funds, and there is a growing interest of business owners in more loans, the ministry will grant them additional funds, between 100,000 and 400,000 kuna more than the amount earmarked for local administrations. The interest rate on the new loans will be two per cent, and loans are to be repaid within two to ten years with a grace period of two years, according to a statement from the ministry. UO HFP REJECTS SWISS FIRM'S BID TO BUY JADROPLOV At a session on Wednesday, the Board of Directors of the Croatian Privatisation Fund (UO HFP) rejected a bid by the Swiss firm Doris to privatise the Split-based shipping agency Jadroplov d.o.o., because the Swiss firm failed to prove who backed its investment collateral. Upon examining the firm's business records, the HFP established that its financial indicators did not guarantee its capability of making the necessary investment in Jadroplov. On October 20, the UO HFP accepted the bid by Doris to buy 72.03 per cent of the shares of Jadroplov - 31 million kuna for shares, US$10 million in investments over a period of three years and a further US$2 million of additional capital over the next two years. Since Doris's condition was that the Fund should cover any new, now invisible, debts of Jadroplov (the overall known debt of this shipping company totals 600 million kuna), the UO HFP requested an additional examination of Doris's financial soundness and bank guarantees, which revealed low financial results of the Swiss firm. CROATIAN FARM MINISTER TO ATTEND VENICE CONFERENCE ON FISHERIES Croatian Agriculture Minister Bozidar Pankretic will take part in a ministerial conference on sustainable fisheries, scheduled for 25 and 26 November in Venice. According to a press release issued by Pankretic's ministry, Croatia's participation in the coming conference is of great importance for the country in light of its position abroad after the parliament's declaration of a protected fishing and ecological zone and Zagreb's bids to ensure as good positions as possible in the future negotiations with the European Commission. The two-day Venice conference will focus on expansion of national jurisdictions through concerted action as suggested in EC documents. Participants will also consider the structure and activities of the General Fisheries Commission for the Mediterranean (GFCM). The Commission is likely adopt a declaration on harmonising measures for the sustainable fisheries in the Mediterranean. A copy of the draft declaration has already been discussed by competent bodies of the Croatian government which was notified of it. The document has a political character and that's why it will not be signed. Croatia's delegation will use the Venice event as an opportunity to explain the country's decision to expand jurisdiction in the Adriatic, based on international law under the 1982 UN Convention on the Law of the Sea. Croatian officials will stress that although it was not legally bound to do so, Zagreb postponed the application for the decision for one year so that in this transitional period it could continue negotiating with all interested parties on the matter. Croatia will inform the Venice conference that it has ratified the statute of the GFCM. Thus, Croatia shows its willingness to transfer a part of its sovereignty to this co-ordinating international body under certain conditions and contribute to the establishment of regional cooperation. GOVT ASKS FOR PROPOSED RESTRUCTURING OF SHIPYARD TO BE EXPANDED The government on Friday rejected a proposal for the financial restructuring of the ailing "Viktor Lenac" shipyard and requested that it be expanded, at the same time expecting the company's former management to sell their stake to interested parties for one kuna, Economy Minister Ljubo Jurcic said. The Economy Ministry had proposed that the government get involved in the financial restructuring of the shipyard in the northern Adriatic city of Rijeka by providing 12 million euros as collateral. Austria's Raiffeisenbank and Germany's DEG, which have withdrawn from the restructuring, are selling their stakes for one euro to anyone interested in the future of "Viktor Lenac". "The government expects the same approach from the former management, who are responsible for the present situation in the shipyard," Jurcic said. "The government expects the former management to sell their stake in 'Viktor Lenac' for one kuna as a moral and ethical act," the minister said, adding that the government could not force them to do so. According to Jurcic, the former management hold three to four per cent of the shares in the shipyard. 3. COMPANIES LURA: INCOME ON RISE, NET PROFITS DOWN Food producer Lura generated an income of 1.5 billion kuna in the first nine months of 2003, which is 15 percent more than in the same period last year, while net profits totalled 11.5 million kuna, a drop of some 69 percent. This drop in net profits is the result of increased spending caused by unfavourable exchange rate differences and loan interest rates, the company's CEO Zeljko Peric has said. The first nine months of this year were marked by the introduction of a large number of new products, a considerable increase in their sales, and continued production growth, Peric has said. Income from domestic sales, which accounts for 87 percent of overall sales income, increased by 11 percent, while foreign sales income rose by 35 percent, increasing to 13 percent of overall sales income. Peric says that particularly good results were achieved in the third quarter. Income increased by 22 percent to 585 million kuna, operational profit rose by seven percent to 40.7 million kuna, while net profits remained at last year's level, 25.3 million kuna. KRAS CONFECTIONERY PRODUCER BUYS PRIJEDOR-BASED BISCUIT FACTORY Croatian food producer "Kras" has bought 75.7 percent of the "Mira" biscuit factory from Prijedor in northern Bosnia-Herzegovina. The process of take-over started with the return of 30 percent of company shares to Kras, invested in the period between 1967 and 1991, when the two companies operated jointly. Kras then submitted a bid to buy another 45.7 percent of the shares, thus becoming the owner of 75.7 percent of the stock. The remaining 24.3 percent of shares are owned by a pension fund, a restitution fund and other shareholders, Kras company officials said last Friday. The acquisition is the first step towards the integration of the Prijedor-based company into Kras. The take-over is in line with Kras' development strategy and the strengthening of its position as the leading confectionery producer in the region. Mira company is the biggest biscuit and waffle producer in Bosnia-Herzegovina. ZADAR TOBACCO FACTORY TO START MANUFACTURING TWO NEW BRANDS The Zadar Tobacco Factory said on Wednesday that Croatia's Agriculture and Forestry Ministry had entered two of the factory's brands into the Registry of Brands, thus meeting requirements for starting production. Permission to register the brands means that the Zadar Tobacco Factory is operating in full accordance with the Law on Tobacco and the Rule Book on Tobacco Processing, Production and Brands, said British American Tobacco, the majority owner of the Zadar-based business. The two new brands will contain more than 60 percent of Virginia and burley tobacco grown in Croatia as well as the finest type of oriental tobacco. KERUM - NEW OWNER OF FORMER DIOKOM The Kerum company of a leading Croatian businessman Zeljko Kerum, bought manufacturing plants of 'Obuca', 'Konfekcija' and 'Galenterija' for seven million kuna, and thus became the owner of the all sections of Diokom, which went bankrupt. This Split-based company used to be called Jugoplastika in the past. In December 2002, Kerum paid six million euro for the eastern part of Diokom's complex, called Brodarica in the Adriatic city of Split, and this October he bought retail stores of Diokom, its administration offices and the Termoplastika section for some four million euro. After the latest acquisition he took possession of all parts of Diokom. Kerum has assumed obligation to retain all workers who have so far been employed with the company, namely 760 employees. RAJIC APPOINTS NEW DIRECTORS OF FAVARGER A Croatian business man, Luka Rajic, appointed the new leadership of the Swiss chocolate company Favarger, after he became the holder of 95 percent of shares in the company last September. The rest of five percent of shares remained in the possession of the Favarger family. Rajic appointed Yves Barbieux as the company's director and Philippe de Korodi at the marketing department's director, Rajic's Office reported last week. Of the entire sale of Favarger's products, 90 percent goes on the Swiss market, and the rest in the Near East, Europe and the United States. This company employs 60 workers. MODERN PLANT FOR PRODUCTION OF OLIVE OIL OPENED IN SOUTH CROATIA A new plant for producing edible oil was opened on the southern island of Sipan last Wednesday. The plant, which is a part of the Dubrovnik-based 'Vrtlar' company, has the capacity of processing from 600 to 950 kilograms of olives per hour. There are about 20,000 olive trees on this island off Dubrovnik. ZAGREBACKA BREWERY SOLD 1.5 MILLION HL OF BEER IN 1ST TEN MONTHS A leading Croatian brewery, Zagrebacka Pivovara, presented some business results it achieved in the first ten months of 2003 on the occasion of the promotion of its beer for Christmas holidays (the so-called Christmas Ale) last week. The sale of its beer on the Croatian market rose by one percent to 1.47 million hectolitres as against the first ten months last year. GETRO OPENS ITS THIRD SHOPPING CENTRE IN ZAGREB The Croatian chain of stores, called Getro, opened its new shopping centre, worth 70 million kuna, in Zagreb's residential area of Crnomerec last week. The new establishment, which is Getro's third shopping centre in the capital and 12th in Croatia, employs 106 workers. The shopping centre covering over 3,000 square metres, will offer over 35,000 items of goods to buyers. The chairman of GETRO's managing board, Vjekoslav Gucic, said the company was planning to open another 32 shopping centres in the coming five years. 4. INTERNATIONAL COOPERATION GERMAN COMPANY OFFERS TAKING OVER ZAGREB'S FARMACIJA The German company Phoenix International Beteiligungs GmbH, which is based in Mannheim, has tendered an offer for the take-over of the Zagreb-based company Farmacija, offering 2,090 kuna per share. The offer states that the German company does not own any stock in Farmacija. Farmacija's equity totals 61.92 million kuna and comprises 51,604 shares of which each is worth 1,200 kuna.