PV International 0092

Business expectations in 2010: Analysis and comment from business executives

Croatian Business & Finance Weekly Established in 1953 Monday / 14th December / 2009 Year III / No 0092 www.privredni.hr

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CERTAIN UNCERTAINTY If the following year is to be marked by crisis and stagnation, many companies will muster the strength to succeed Darko Buković, Editor-in-Chief, Privredni Vjesnik

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hilst all countries in South Eastern Europe are optimistic about 2010, believing it could produce a slight economic recovery and new investment cycle after crisis and recession, there are no significant signs of optimism in Croatia.

The awareness of being on the receiving end of difficult and painful decisions, the fact that non-payment will jeopardise economic functioning, and that it will not be so problematic if some activities stagnate which will then create less income and the possibility of staff reductions, poses a question to all entrepreneurs: what to do next?

2010 will be an uncertain one for entrepreneurs. Although it was often said that 2009 was expected to be difficult, it is undeniable that 2010 will be the same, but just how much more difficult is the question we wished entrepreneurs to answer.

Without going into data on macro-economic indicators, I have to mention that major macro-economists within the leading Croatian banks feel there will be no problem with debt financing and they anticipate positive changes regarding outstanding debt levels. Conversely, the 2010 budget

will not ease development, due to cost-cutting and rationalisation.

Furthermore, all entrepreneurs are primarily concerned with the attitude of banks which are being forced to rationalise their risktaking.

Therefore, take pity on the real economy if it cannot secure its

sustainability.

A further point: we are entering 2010 after a year when unblocked negotiations with the EU have sent positive signals to investors, providing them with greater security which could cause an increase in capital inflows. Whilst the situation is good from one

point of view, on the other hand this is a great danger for the Croatian economy. Nevertheless, there are possibilities for investment. There is potential through bankruptcy and distraint which should be regarded as opportunities.

There are no ready-made solutions. Entrepreneurs will secure sustainability using their own intellect and wit, smart and sometimes conservative planning and paying greater attention to payment, in addition to opening new channels and markets.

If the following year is to be marked by crisis and stagnation, many companies will muster the strength succeed. What else can they do? Entrepreneurs need a business vision and strategy adjusted to the strenuous conditions that will be the hallmark of 2010.

They will use the time before us in making crucial decisions, organisationally and in terms of innovation, which will produce new value. Some decisions might be easier to make now, but downsizing staff numbers is always the final option since it is difficult to find quality and expert staff, especially within some sectors.

My wish for 2010 is for it to be a year of action. I wish it to bring improvements which will produce enhanced results – better than those from the solutions of the past.

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Privredni vjesnik Year III No 0092

BUSINESS EXPECTATIONS

AN UNSTABLE AND ARDUOUS YEAR; A CONTEST FOR EVERY PAYMENT LIES AHEAD Companies can alleviate the impact of the crisis through reorganisation, decreasing production and labour costs and increasing sales, perhaps all three in some combination companies, whilst 25.78% expect no change. In contrast to the 22.76% expecting a slight rise, there are 14.45% convinced that economic growth will be reduced. Of the 554 companies responding to the question relating to overcoming the effect of the crisis, 40.64% expect that they will manage to achieve this, whilst 36.36% will only ‘try’ to overcome the effects.

A further 11.27% believe they will manage to do this promptly and successfully, whilst 9.59% anticipate difficulties in overcoming the aftermath of the crisis. The highest level of optimism is expressed by companies in the service sector (56.25%); almost a quarter (24.64%) of companies (mainly construction companies) believe they will find it hard to overcome the effects.

The question on business conditions for 2010 shows the actual state of the economy, since there was a wide contrast in responses. Some 34.60% expect slight improvements, whilst 31.16% believe that conditions for investment and business Darko Buković, Vlado Smud

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n order to evaluate the current business year and find out entrepreneurial expectations for 2010, Privredni vjesnik has conducted another traditional survey of business expectations.

The survey covered 556 companies having over 11.5% of total income in the economy (€11.2 billion), who employ 11.65% of the total number of employees within companies (107,728) and which have achieved, according to final reports for the business year 2008, €3.65 billion in nett

profits or 10.52% of the totality of the Croatian economy. These companies export over 17.5% of output, and account for over 12.8% of imports.

Economic grading of 2.24 The state of the economy in 2009 has been evaluated by grades between 1 and 5, with an average grading of 2.24, which is worse when compared with the 2.82 grading from last year.

The general estimate is that economic growth for 2010 will probably be reduced, anticipated by 37.01% of surveyed

Level of company activity in your sector in 2010: 46,21

23,45 15,34 10,26 4,74 much better

slightly better

about the same

slightly worse

much worse

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generally will deteriorate considerably.

How to exit the crisis Regarding an exit from the crisis, 33.33% of companies see business reorganisation as the way out. 31.21% have a similar view in terms of cutting production costs. Some 18.86% of companies will cut labour costs in order to survive, and 13.70% will increase sales.

There is consensus on taxation and contributions. Our analysis revealed that 78.95% of companies believe these will remain the same in 2010. Some 13.41% believe taxation and contributions will increase, whilst

5.62% believe there will be a slight decrease.

Regarding liquidity in 2010, responses suggest similar conditions will pertain as in 2009, although a slight deterioration is not to be excluded. Of the 552 companies answering this question, 40.26% are convinced the state of liquidity will not change, 32.11% anticipate a slight deterioration and 14.30% expect some improvement. A worsening liquidity scenario is predicted by 12.74%, and only 0.59% expect any improvement.

Nonetheless, entrepreneurial plans and predictions for 2010 are slightly more positive, at least concerning financial re-

Financing structure 2010 (as against 2009)

sults. Some 3.21% of companies presume the achievement of higher total income, 35.45% predict they will achieve slightly higher income, and 32.76% expect their income to be more or less in line with that for 2009.

More positive plans A slight decrease is expected by 22.87%, whilst 5.72% believe total 2010 income will be significantly reduced.Only 0.16% of companies suggest they will produce considerably greater nett profits, and 28.46% say they will produce a small one. 27.34% of companies predict that their busi-

2010 plans against those of 2009 T/OVER

COMPANY FUNDING

35.45 much smaller slightly smaller 2.07%

ness will continue without any significant changes in profit in 2010, whilst 36.55% forecast a slight decrease. According to financing plans for 2010, we note the predominance of a combination of personal funding and bank loans (159 companies), a combination of all sources of finance (139 companies) and personal financing (114 companies).

The positive trend proclaimed by certain groups regarding anticipated 2010 business results also reflects predictions concerning import-export results.

For 2010, imports might be approximately the same (50.69%) or slightly higher (27.25%).

much bigger 4.07%

32.76

slightly bigger

3.28%

22.87

34.01% 56.57%

5.72

3.21 about the same

EU FUNDS

much bigger

slightly bigger

about the same

slightly smaller

much smaller

NETT PROFIT 36.55

much smaller 14.01%

much bigger 0.57%

slightly smaller 0.06%

28.46

slightly bigger

27.34

47.59% 7.49

37.78% about the same

BANK CREDIT much smaller 6.41%

0.16 much bigger

slightly bigger

No, EMPLOYEES much bigger 4.27%

slightly smaller

much smaller

43.80 35.91

20.11%

slightly smaller 14.02%

about the same

slightly bigger

9.75

8.97

55.20%

1.57 about the same

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about the same

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Privredni vjesnik Year III No 0092

A VIEW OF THE WORLD

Anton Starčević, Head Economist, Raiffeisenbank Austria

Torment and apprehension

SERIES OF BUDGET REBALANCES

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It is unlikely the government will be able to predict a future crisis, but it is certain they will be able to do a lot to soften its blow Dr. Uroš Dujšin

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he future is by definition uncertain said John Maynard Keynes. The present crisis has proved this. Regardless of refined models for prognostications and other wonders of the modern economy, the ‘navigators’ of the global economy have not predicted, nor avoided a shipwreck, or the troubles from which we need to escape.

Notwithstanding that, the earthquakes in financial markets, immobilised production and mass unemployment, force us to look to the future. Optimists say the global economy will revive in the next several quarters. Households will start to spend once more, albeit more humbly. Companies that have sold their inventory will increase production, which will restock them. Construction will probably recur, so the economy could rise again after the fall.

However, huge debts that are a burden on banks and households will be a source of pressure for many years into the future. Before the recovery takes its full course, these debts need to be repaid.

Is it possible the crisis will return in 2010? It is unlikely the government will be able to predict a crisis, but it is certain they will be able to do a lot to soften its blow if it does occur. If this threat is excluded, then it is possible to foresee with greater IMPRESSUM: Privredni vjesnik Kačićeva 9 10000 Zagreb +385 1 5600020 uprava@privredni.hr www.privredni-vjesnik. hr/subscription

certainty that recovery will take place in USA, but it will not be equal to those of past recessions.

It is more probable the recovery will be long and slow, similar to Japan in the 1990’s.

Is it possible to overcome our current exhausted condition in 2010, by increased investment by companies? Perhaps, but investment is encouraged, as Keynes tells us, primarily by the level of demand. However, if production continues to grow, any significant decline in unemployment should not be anticipated. All in all, it seems that an even more severe crisis (Depression) as seen in the 1930’s will not recur, but any speedy recovery will not happen. It is most probable that the state of the global economy in 2010 will be similar to that of Western Europe in the 1980’s - large deficits, high public debt, slow or non-existent growth and a high level of unemployment.

After all the anxieties of the previous year, this seems to be some kind of progress.

FOR PUBLISHER Nikola Baučić +385 1 4846661 uprava@privredni.hr

IMC MANAGER Dea Olup +385 1 5600028 olup@privredni.hr

EDITOR IN CHIEF Darko Buković +385 1 5600003 bukovic@privredni.hr

TRANSLATION Tr@duco traduco@zg.t-com.hr

EXECUTIVE EDITORS Andrea Marić maric@privredni.hr Vesna Antonić antonic@privredni.hr

COUNSELLOR, INTERNATIONAL OPERATIONS, LANGUAGE EDITOR Ray Fletcher fletcher@privredni.hr

he anticipated GDP growth rate for 2010 is in the range of -2% and +1%, although achievement risks are greater on the negative side. The main risk regards the movement in exchange rates with foreign countries. More precisely, this year the global recession has forced us to spend less on the import of goods, particularly energy. he predicted global recovery in 2010 will result in an increased demand for energy and raw materials, which will create a greater balance sheet deficit and more pressure for the liberalisation of prices and utility services.

Due to this process, we predict the return of mild upward pressure in terms of price increases.

However, without any significant recovery in the demand for lending and investment, the consumer price index on an annual level should not exceed 3.5%.

The demand for personal lending will not increase next year,

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since there will be no increase in residential and other purpose long-term loans. Unemployment will continue to grow in 2010 due more company closures, which will impact on decreased retail sales of between 3% and 5%.

The planned 2010 budget will not be achieved regarding income, and we are expecting a series of rebalancing ‘events’ during the year, in order to achieve a total budget deficit of between 3% and 3.5%.

We think there will be no problems with financing the growing deficit in 2010, since liquidity is at a high level on both local and foreign financial markets.

Alen Kovač, macro-economic analyst, Erste&Steiermärkische Bank

POSITIVE SIGNS ANTICIPATED

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hereas 2009 was marked by the expected intense contraction in economic activity, 2010 will be a year of hoped-for positive signals and economic recovery. Whilst it is quite possible the bottom was reached in the first half of the year in terms of GDP growth, we can conclude that signs of recovery remain weak as 2010 approaches. Rapid recovery will depend on the speed and sustainability of recovery of regional economies, specifically major trading partners and a recovery in demand for Croatian exports. On the other hand, the recovery will be also determined by a new investment cycle by the corporate sector, which will correspond to an uptick in sentiment and the dynamics of company lending.

Regarding loans, it is possible to expect that banks will maintain their current cautious approach in the light of economic circumstances. Although a rise in interest rates should not be assumed, their stabilisation will positively impinge on the level of uncertain-

ty and investor alacrity to venture into new investment projects.

Trends in the labour market will remain negative, with salaries stagnating even in the event of a more favourable scenario. If we add stagnation to personal lending, surprises are not likely to occur. In this context, we expect GDP to stagnate as a more optimistic scenario for 2010, whilst real risks remain negative. On the other hand, the recession will continue to have a positive effect on balance sheets, so the demand for new external financing will decrease. This should secure stable exchange currency movements in addition to maintaining a stable external environment and foreign debt refinancing capacity.

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Dr Marko Škreb, Head Economist, Privredna banka Zagreb

ANOTHER YEAR OF MISSED OPPORTUNITIES

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n 2010 GDP rate might range might hover around zero, whilst unemployment might continue to rise This is how Twitter’s response to the question concerning expectations for 2010 might look: Production stagnation, rising unemployment and high fiscal burden. Banks will increase bad debt provisions and decrease profits and interest rates.

Even this micro-blog reveals that we do not foresee any optimistic scenarios. With all the risks and uncertainties that anticipations usually carry, we think that GDP growth will be fortunate to hover around zero in 2010. We need to stress that zero growth will mean a smaller cake, since this year GDP registered a real fall of 6%.

The end result of this will be felt in reduced disbursements in 2010 even in comparison with 2008.

Moreover, it is possible that the final numbers (published in three years time) might show positive growth, but we think it will be at

a minimal level, if it happens at all. There is also a possibility that GDP might turn out to be negative in 2010. We do not anticipate a sustainable high level of growth even during the following two years.

Therefore, the level of GDP might not reach its 2008 level until 2013. We cannot even begin to

Hrvoje Stojić, Director of Economic Research, Hypo Alpe-Adria-Bank

deliberate on the loss in potential growth this could well bring during this period. As a result, we anticipate unemployment to further increase.

The proposed budget for 2010 gives us no cause for optimism, even though we had been expecting a more radical movement towards structural reform.

However, the suggested budget appears to accept the status quo.

With the current level of taxation and no serious changes to structural policies, any dynamic economic growth will be difficult to say the least.

The problem with Croatian public finance is not with the high deficit level, but in the high level of fiscal expenditure which shows no inclination to decrease. Higher state expenditure levels will contribute in slowing more rapid growth which in turn will have a

knock-on effect and increase unemployment. The current level of secured privileges will become unsustainable. In other words, we are an overly expensive country.

The year 2010 will not be easy for the finance industry. They will undoubtedly be faced with decreasing levels of profitability, primarily due to the continuing growth in bad, and potentially bad debts, especially in the first half of the year. However, it needs to be mentioned that system stability will not be threatened, and we anticipate a slight fall in passive and active interest rates.

To summarise, we do not see a furtherance of the crisis in 2010, but rather another year of missed potential and opportunities to move Croatia further towards a higher level of sustainable potential growth for the benefit of all.

Zdeslav Šantić, Head Economist, Societe General - Splitska banka

ECONOMIC CONTRACTION WILL DIFFICULT TO PREDICT A REDUCTION IN INTEREST RATES CONTINUE

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n addition to GDP fall in 2010 by some 2% due to further adjustments in local demand, more important are the numerous uncertainties and downside risks in the background of these anticipations. This regards the rate of adjustment in the labour market that has become stronger in the past long-term period in those sectors having the biggest debts (construction and trade) or they developed through state support (construction).

The elimination of over-indebtedness in the private sector, primarily companies, will principally set the level of liquidity in the economy as a whole and a further decline in investment.

The rate of fiscal adjustment is also becoming a more important obstacle to economies running a procyclical fiscal policy. Also to be mentioned are the possible positive implications on the cost of state financing, the economy and the availability of capital if negotiations with the EU are speeded up plus the related structural reforms required. Decreased external risks combined

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with restrained inflation, the impossibility of the state to eventually become expansive, both impact on the progress of capital (or rather trade) and open up the possibility of weakening monetary restraints. Therefore, the relentless rhetoric of the Croatian Chamber of Economy is not surprising regarding a further balance between restraining external disequilibria and enabling lending activity if the exchange rate is stable.

Considering the fact that in 2010 the state might absorb the largest share of local lending potential of banks together with their riskaverse attitude due to escalating dubious loans and bad debt provisions, it is difficult to expect a general, let alone any significant, decrease in interest rates.

fter a difficult 2009 year for the economy, it would seem that 2010 will not bring much optimism. It is anticipated that the economy will continue to contract in 2010 and it is doubtful whether any stabilisation will occur before the second half of the year.

GDP reduction will be mostly as a consequence of reduced personal consumption following a continued decrease in the level of employment and a fall in the real value of nett salaries. The tax increases which came into force in 2009 will similarly contribute to lower household spending in the forthcoming period. The current high cost of foreign debt, the low level of capacity-utilisation in industry and the need to downsize the budget deficits of both government and local administrations, will result in a diminution of capital investment. That is a certainty.

In 2010, the main challenge will remain the creation of specific conditions that will ensure long-term sustainable economic growth, primarily by changing the current fiscal and structural

policies. We must also bear in mind that foreign debt and its servicing costs have considerably increased in the past year and a half. Therefore, it is necessary to use reform in order to speed up future potential economic growth.

Any further deterioration in the macroeconomic environment will reflect negatively on corporate business. A reduction in business income and profitability is likely to continue during the following year. Those companies without a strategy for weathering the crisis as well as a reasonably well-crafted business policy will be faced with additional problems. However, more favourable movements could well occur in the second half of 2010.

6 Ante Markov, Board President, Janaf

ON-GOING INVESTMENT

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eflecting upon this year’s business, I can say that I am satisfied with the business results we have achieved. In 2009, Janaf continued its investment cycle regarding the modernisation of pipe lines, the construction of new storage facilities and the purchase of currently existing ones as well as work on enabling reversible transportation. During the first nine months of 2009, we registered growth in the transport and storage of oil and oil derivatives, increasing profit by 35% year-on-year.

Regarding company plans for 2010, I am delighted to announce that Janaf plans to continue investment in accordance with our development plans. We will invest in the additional construction of new tankage facilities at terminals, the modernisation of pipeline systems and the completion of the reversible SisakOmišalj route as well as commencing work on a project for the construction of a sea transit route of the pipeline between the island of Krk and the mainland.

As in the past, we plan to use our own resources in the majority of instances for these investments.

We also believe there will be no problems with liquidity, since Janaf covers most of the value of its total assets with its own financing. Moreover, our indebtedness coefficient stands at 0.08, and by 2010, we will have no repayments relating to longterm refinancing loans for the construction of pipelines which will also contribute greatly to our future success.

I also believe that income from transport and storage operations will be maintained at the same level as this year and perhaps even increase to a limited extent throughout the year.

Privredni vjesnik Year III No 0092

Hrvoje Vojković, Board President, Croatia osiguranje

I AM NEVERTHELESS OPTIMISTIC

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uring the first nine months of 2009, Croatia osiguranje achieved a nett profit of €10.59 million, some 44.1% more than in the same period last year.

Gross profit came in at €13.23 million, 36.2% higher than in the same period of 2008, and 34.7% higher than planned.

Even though the insurance industry has managed to resist the economic crisis longer than other areas of the economy, its consequences have been felt nonetheless. We share the same destiny as that of the wider economy, which means that our business results, any recovery and the entire country’s exit from crisis directly affect our business results. It is a known fact that GDP growth directly impacts upon any income growth for life and non-life insurance products. As insurers take on risks from the real sector, which is in recession, it is also a fact the crisis has lowered the demand for insurance, whilst sales are weak. As we are also institu-

tional investors buying financial instruments on the capital market in Croatia, the crisis has also decreased the asset growth rate available for investment as well as income from such investment. This means that next year any positive changes on the capital market will directly reflect on the efficiency of Croatian insurers’ investments. Overall increased liquidity in the total economy will also have a positive effect on insurance.

Even though we are not in for a stable year, I remain optimistic.

Next year we will do all within our power to maintain the level of good business, strengthening our market position the crisis notwithstanding.

Matko Bolanča, Board President, Pliva

NEGATIVITY WILL FOLLOW US THROUGH 2010

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xports comprise 90% of Pliva’s trade and our intention is to grow whilst maintaining our share of the local market. Pliva produces some 3 billion tablets and our plan is to produce 5 to 6 billion over a short period. This figure represents 10% of the Teva Group and a doubling of production.

We are continuously developing 40 molecules, not only for the Croatian market, but for the world as a whole; on-going development of new products is a prerequisite. We have applied for 15 new patents and are expecting 10 to 20 new products next year.

Pliva has no plans for further restructuring, although smaller adjustments are always an option.

The company is a regular paymaster to over 1,000 suppliers, which means we collect over €0.14 billion from the local market which we redistribute via exports. In future the state should treat such suppliers as exporters in order to enhance their research and development programmes, in order to export more via ourselves. I believe this is the only right way towards a more effective economy.

On the other hand, we anticipate a more rational and efficient state administration.

We are hoping that the state budget for 2010 will in some way respond to future needs. However, whether any rebalancing will occur after the first quarter remains an open question, together with salaries, sales and the collection of VAT. Observing all these parameters, I fear negativity will follow us next year.

Emil Tedeschi, Board President, Atlantic Group

ELIMINATE BUSINESS AMATEURISM AND CORRUPTION

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ven in the face of arduous macro-economic conditions, the Atlantic Group has increased business and preserved financial stability. During the first nine months of 2009, we achieved €0.24 billion in income, some 10.3% higher than in the same period last year.

The Croatian economy is faced with another difficult year, since structural reforms have not started, although there is a high level of awareness on the necessity for painful cuts that would decrease the burden on the economy and the general public. The public sector needs to be downsized, local administration completely reformed, state companies totally reorganised, and the criteria for providing subsidies changed.

Politics should never interfere in the business of public companies, and business amateurism and corruption has to be eliminated.

I welcome the efforts made in fighting and prosecuting corruption and economic crime that have already shown results.

The budget for 2010 does not bring hope. It still promotes living beyond our means on the expenditure side, which has become our trade mark. Any rationalisation of expenditure is sorely lacking as are stronger saving measures and the redirection of funding towards development programmes.

What brings greater hope concerns less any internal progress but more the recovery in external markets, in particular in Europe and USA. It is an imperative that this moment is seized, and funding directed towards new production and export efforts above all in the wider region.

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Damir Oštrić, Director, Nin Salt Factory

Drago Tadić, Board President, Osijek Koteks

TRADITIONAL PRODUCTION AS A POTENTIAL EXPORT

ONLY THE BEST WILL SURVIVE

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eing a small salt factory situated on the island of Pag producing some 5,000 tonnes annually, we have found we are facing huge competition. At our current levels of production we cannot satisfy the local market and have to import supplies in order to survive.We nevertheless have recognised our competitive advantage in that we are the sole Croatian company producing salt under traditional methods – hand tools and solar drying. We have developed a series of special products based on this traditional system and aim to market the range to restaurants, health food stores and wellness

centres within Croatia and possibly in the wider region. However, the bulk will be for export since there is a high level of demand across Europe and beyond for ecolabelled products.The problem we face is that we are currently unable to obtain an eco-label since salt and similar products are categorised as mining operations and we are not registered thus. The Ministry of Agriculture cannot issue the required certification which is a significant drawback for us in our efforts to create added-value from our production capacities.

It is obvious that legislation needs amendment as currently eco-salt is excluded. We are the sole Croatian producer of sea-salt (which has ten times the level of minerals than normal table salt), we are able to supply the local market but our export efforts will have to wait until next year regrettably, even though we see tremendous potential in this area.

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would evaluate the business year of 2009 as positive, and we anticipate an income in excess of €0.24 billion. Regardless of global liquidity difficulties, we have managed to settle our obligations with all our partners, suppliers and creditors on time, as well as ensuring the salaries of our employees.

A significant event for OsijekKoteks in 2009 was the beginning of production in quarries and factories of the former (insolvent) Kamen-Ingrad company through a newly-created daughter company, Velički Kamen Velika. We expect no significant economic improvements in the first half of 2010, since Croatia has already anticipated positive signs proclaiming the end of the economic crisis in the global economy in the second half of 2010. Taking this into consideration, economic conditions may improve in the second half. However, we are expecting an extremely difficult business year throughout the

entire economy and specifically in the construction sector where only the strongest companies will survive.

Using its skills and knowledge, Osijek-Koteks can perform the most complex projects in lowrise and high-rise construction.

Also, we see further development in improving the current levels of knowledge and skills, raising work-force efficiency and the internal structure of the company to a higher plateau. In Croatia, we anticipate the maintenance of our market position since Osijek-Koteks is one of the strongest companies in the country.

Ante Miloš, Board President, Felis produkti

Željko Zadro, Board President, Viro

AGONY PROLONGED

GOOD BUSINESS IS POSSIBLE EVEN THROUGH A CRISIS

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he only thing I can say about this year is that it has been difficult. This year the crisis held our investment at a level of €2.74 million, and our revenue is half that of 2008. These business results have brought us to the level of 2003 after record results in 2008.

We expect the agony to be prolonged in 2010, although there are reasons to be optimistic. It has been announced that companies producing vehicles, such as TŽV Gredelj and Đure Đaković Special Vehicles, are expecting new orders for around 200 items which will save the industry.

There is a high level of discussion on the topic of tax reformation which should improve the

position of Croatian producers.

Regrettably, we are not anticipating any significant improvements in 2010, although I hope the situation will not deteriorate further. This is precisely the level of our expectations for next year. Felis produkti foresees next year to maintain its current level of income. However, I do expect the government and the Minister to pay more attention to the primary sector. It is precisely industry, in fact production, that needs and wants to activate the secondary and the tertiary sectors of the Croatian economy.

We, the producers, should work on enhancing competitiveness and we expect the government to help us. For companies such as ourselves, shipbuilding is our primary partner. With almost 300 companies and 12,000 jobs, we depend on Croatian shipyards.

If the situation in the shipyards is not resolved, it will have a domino-effect on company suppliers.

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am extremely satisfied with our business considering the global economic crisis and the sugar price explosion on commodity markets. This year, Viro has continued its investment in increasing capacity and the optimisation of its power requirements. We have recently completed the acquisition of Sladorana, strengthening our position on both Croatian and regional markets.

If Croatia is to pull through this crisis and thrive in the European market, we need to reduce imports and encourage exporters.

Signs of new positive trends might be visible only during the second half of 2010. In parallel, sales levels and the number of employees will continue to grow as will further expansion within the region. Viro’s market share in Croatia has not significantly changed as a result of the acquisition of Sladorana, since Viro was the leader on the Croatian market.

However, it is extremely important that our position as export-

ers continues to strengthen, since Viro and Sladorana will process over 1.1 million tonnes of beet, producing over 140,000 tonnes of sugar. The Croatian sugar industry is the only industrial branch that fully finances its subcontractors, which makes it possible for them to plan their income and expenditure in advance. Therefore, more important than any export quota is our competitiveness in sugar production.

Guaranteed payment liquidity is an imperative for us. Sugar is sold exclusively through advance payments or strong collateral, and if the crisis becomes more acute, we will decrease sales in order to avoid uncollectable debts.

8 Mario Sever, owner, Eko Sever

Privredni vjesnik Year III No 0092

Peter Fuchs, Board President, Valamar

I EXPECT MANAGEMENT EXPERTISE IS OUR STRONGEST LINK NOTHING FROM year’s results to the best of our well be conability. Due to the strength of as extremely difThissideredyear might THE STATE

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otwithstanding all the current market difficulties, according to our financial indicators for 2009, we will have the best business year thus far. I sincerely hope 2010 will be no worse than this.

The market for all agricultural products, as well as our ecological range, has experienced great disruption due to payment deadlines being exceeded plus decreasing subsidies and aid or the lack of their payment. The situation has become extremely complex, although I believe that next year will not bring too many problems and that agreed payment schedules will be met. I believe the market will be aware of us and our ecological products, and that our sales levels will experience no problems.

I expect nothing from the state.

This especially relates to the fact that rather than subsidies we have received aid in vouchers for chemical fertilisers that we, as eco-producers, cannot use. This year, despite all promises, subsidies have not increased in relation to conventional producers. Considering the considerable budget reduction, which the Minister of Agriculture has implemented, we have no idea who will receive funding, to what level and when.

This year, a proposal was made on a new law covering financial assistance, which aims to elevate eco-producers to a higher level, thus bringing us closer to the level of EU producers. However, I do not believe this will happen soon.

In 2010, we expect to finish our investment in production development that we started. However, since our investment comes primarily from our own internal financing much will depend on the overall financial situation. Therefore, I fear other investment will have to wait for better times.

ficult and challenging.

The negative predictions due to the global recession and an increasing trend towards later booking have caused panic in the tourist sector. However, regarding the general characteristics of this tourist season, I would point out that Croatia as a destination, has achieved better results than other tourist countries despite a mild fall-off in relation to 2008, whilst the Valamar Group has produced results in accordance with our expectations, with the exception of Dubrovnik.

It is difficult to evaluate the further scale and duration of the crisis, but there is a mild dose of optimism within our foreign export markets that the economy is slowly recovering even as subsidies for arrivals by air have been announced.

Regarding the measures from the state, a long-term development strategy needs to be designed concerning hotels and accompanying activities. I expect the tourist sector to achieve greater competitiveness through

the lowering of the number of fiscal and parafiscal contributions, and introducing a lower rate of VAT. The currently applied measures and those that have been announced are too little too late, even though they are basically positive. In 2010, Valamar expects to avoid this

the Group as well as its size, I believe we will successfully achieve our plans as well as more ambitious ones.

With the recent signing of the first management contract with the Luna Hotel on Pag, we have turned a new page in directing our resources in what I call our “strongest link” – our management expertise. We are negotiating with several other hotels and are also negotiating to take over the supply of other companies, where we are presently achieving excellent results.

Goran Štrok, Board President, Adriatic Luxury Hotels

NEW SALES TRENDS

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peaking in general terms, the year has been marked by new sales trends, primarily last minute booking and an increase in online booking, which, for Adriatic Luxury Hotels, registered a 70% increase in comparison with 2008. These trends will continue during the following years, since the global crisis has

resulted in new ways of travelling and spending.

Considering extremely difficult business circumstances, this business year has been relatively positive for the tourist sector, especially due to Croatia’s position as a destination.

The ALH Group has achieved relatively good results, since we have taken a series of anti-crisis measures on time as well as adjusting our sales strategy to the market. The Group will finish this year with 8% less income, but with a 3% higher gross operating profit than in 2008, which thus exceeds our expectations.

I feel the state of the Croatian economy has only partly been influenced by the global crisis. The main problem is that our economy continues to rely on imports and foreign indebtedness, and it cannot prosper in such conditions. If

we wish the Croatian economy to recover, we certainly need a set of emergency measures that will boost it, new investment and would halt the decline in production and trade.

In the state of crisis that will continue in 2010 albeit on a reduced scale, the ALH Group anticipates healthier business results in the following year compared with this, specifically an increase in income of 10.5% and higher profitability. We will continue to reposition our hotels on current markets.