A Word from the Editor
Facing New Challenges Slovenes
Hard Work and Much Play Slovenian EU Presidency
Small Country, Big Issues Relocations
Moving to Slovenia?
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ECONOMY Economic Policy
Marrying Stability with Dynamism Investing Abroad
Adding Valueand Increasing Efficiency Growth Prospects
Healthy Growth in the Face of Global Turbulence SIJ - Slovenian Steel Group
With Steely Resolve
SIJ - Slovenian Steel Group
Small, but Flexible
Multinationals from Slovenia
Fuelling the Growth Istrabenz
In Pursuit of Yield FDI Promotion
Why Invest in Slovenia? JAPTI
“Becoming Europe’s Logistics and Transport Hub” Automotive Industry
Export Champions Porsche Slovenija
“In Car Industry, Every Day is a New Opportunity.” Corporate Brands
“Higher the Reputation, More Valuable the Corporate Brand” Logistics
A Magnet for Investment Luka Koper
The Gateway to Europe Financial Market
Stocks of Slovenian Companies: It’s High Time to Buy Low Ilirika Group
At the Service of Investors Banking
Bold Moves, Record Profits Kranjska Investicijska Družba
More than Just Real Estate – Changing the Face of the City
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CONTENTS CONTENTS
Contents
CONTENTS CONTENTS
Pharmaceutical Industry
A Tale of Two Companies Pristop
South-eastern Europe Offers Numerous Opportunities Telecommunications
Plugging into European Trends Si.mobil
Finally Emerging Victorious? Aerodrom Ljubljana
Flying High
Retailing and the Food & Drink Industry
Breaking the Confines of a Small Market IMOS
Specialists in Real Estate IMOS
Where Audacity Meets Elegance Real Estate
Ljubljana’s Skyscape is Getting a Facelift TriGranit
In the Heart of the Capital Emonika
A New City Centre for Ljubljana Riko
Exploring Russian Horizons Marmor Hotavlje
Forward into the Stone Age Education
Building Human Capital Alkemist Translation Agency
Your Partner on Foreign Markets
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TOURISM The Outline of Slovenian Tourism
Unlocking Tourism Potential Ministry of the Economy, Directorate for Tourism
Opportunities abound Tourism Statistics
Even Slovenes Like to Visit Hosting
Making It Happen Slovenia and its Secrets
Paradise in the Middleof Europe Slovenian Tourist Board
Steady Growth in Slovenian Tourism: a Long-Term Trend Grand Hotel Bernardin
Heaven at the Top of the Adriatic Cruising
Life on High Seas Meetings Industry
A Trio on a Stage
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Variety on the Slovenian Stage
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The Brdo Estate 103
First Class Facility for EU Presidency Natural mineral water
The Town with Not One Heart, but Three Spa Tourism
A Long and Rich History for a Healthy Future BK Studio - Dental Care
A Smile for Life
Slovenia – a Gambling Paradise? Hit
How to Hit the Jackpot Green Hazardwith Great Potential Karst
Terra Mystica The Disappearing Lake
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Sport Fishing
Slovenia: Your Sport Fishing Destination Gostilna – a Slovene Phenomenon
Can’t Find Anything More Typically Slovene Catering
The Satisfaction of All Five Senses Winemaking
Vineyards of Slovenia
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Benedict
The Sweet Way
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Posestvo Ugar
Clearing All Hurdles
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Architecture
The Architect of the Future
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About & Around Slovenia
Basic Knowledge
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Transportation
How to get around in Slovenia? Index of Advertisers
Print: Littera Picta Medvode, Barletova cesta 4, 1215 Medvode, Slovenia
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Lake Cerknica
Phone: + 386 (0)1 520 50 85 Fax: + 386 (0)1 520 50 82 E-mail: info@sloveniatimes.com Web: www.sloveniatimes.com
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Publisher: The Slovenia Times Domus, d.o.o. CEO: Brane Krajnik
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137 138 Editor-in-Chief: Marko Vuković, MSc Editors: Irena Kržan, Romana Lap
Art Direction & Design: Maja Kaplan
Contributors: Miha Bratec, Luka Dakskobler, Romana Lap, Helena Marko, Matija Pavlič, Jernej Šmajdek, Jaka Terpinc, Marko Vuković
Photos: BOBO, Slovenian Tourist Board, Luka Dakskobler, Marijan Močivnik, The Slovenia Times Translation: Alkemist, European Translation Agency; Matija Pavlič
Copy Editors: Alkemist, European Translation Agency; Terry T. Jackson Marketing Manager: Irena Kržan, Tanja Slapnik Marketing Advisor: Marko Stijepić
Distribution Manager: Aleš Smerdel Distribution Partner: Public Agency of the Republic of Slovenia for Entrepreneurship and Foreign Investments - JAPTI
CONTENTS CONTENTS
Interview
FOREWORD FOREWORD
A Word from the Editor
Facing New Challenges Now that stormy election times in Slovenia have finally come to an end, one can sit back and take stock of what has been done and what lies ahead for the country and its economy. In this publication we do just that: analyze the economic developments of the past year and offer the readers a glimpse of the challenges that the economy will face in the future. We have tried to look at Slovenia and its economy with the eyes of foreign investors and answer some of the questions they are likely to ask themselves when they start looking for investment opportunities in the country. Is there a potential for sustainable growth in a time when the global economy is slowing down and investors are fleeing emerging markets? Which sectors of the economy are the most dynamic and promise above-average returns on investment? At The Slovenia Times we pride ourselves in being one of the most knowledgable journalistic teams when it comes to the Slovenian economy and foreign direct investment in the country. We have therefore decided to design this special yearly supplement to our newspaper in a way that helps investors identify promising investment opportunities as well as establish contacts with potential business partners in the country. This year’s edition of Slovenia: Business & Investment focuses not only on different sectors of the economy, from retail to telecommunications, but also provides a broader discussion and analysis of the latest economic data. We are confident that this will prove to be of great interest to business people and investors interested in doing business in or with the country. Slovenia has become an attractive tourist destination in the last few years, with the number of foreign visitors steadily rising. This calls for increased investment in tourism infrastructure. Analysts expect that tourism sector will continue to grow strongly, although increasingly feeble global growth might dent the optimism. Still, we have decided to include in this publication a survey of what Slovenian tourism has to offer, not just to guests, but also to those who want to invest in it. In order to make it easier for business people from abroad to get in touch with their Slovenian counterparts, we have offered the latter to present themselves and their businesses to international business community. The response was enthusiastic. Slovenia: Business & Investment thus brings you interviews with movers and shakers in Slovenian business, together with contact details of the companies they lead. Our ambition here at The Slovenia Times is to provide our readers with the analysis of the developments in the Slovenian economy. The publication you hold in your hands at the moment represents, to the best of our knowledge, the only collection of analytical articles in English that take an independent look at the state and prospects of Slovenian economy. Enjoy it. Marko Vuković, Business and Finance Editor, The Slovenia Times
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SLOVENES SLOVENES Slovenes
Hard Work and Much Play Defining something typical “Slovenian” always puts us onto a slippery ground. To help foreign journalists navigate through Slovenia’s EU presidency in the first half of 2008, the government put out a Media Survival Kit in which it has decided to also shed some light on the national character. So, we could, among other more or less useful information, read that the average Slovene is conscientious, hardworking and industrious with well-established working habits, and that Slovenes are not a submissive and subservient nation.
Of course, not everyone was happy with that statement, but not because they would mind being labelled as hard working and not submissive, but because publishing such a highly relative judgement sounds like propaganda. The angriest were of course journalists, since the paragraph read as the underestimation of their ability to make their own thoughts about the nation they report on. In addition, when someone feels the urge to scream out that he is hard working and not submissive, could that be because there is a lack of evidence in reality? Not to worry, in the case of Slovenes it is more a sort of yet another fear of a small nation – a fear that anyone would get a bad impression about us. So, if not for anything else, self-irony is definitely something we would be largely familiar with, especially in comparison to the British or Bosnians. 10
The submissive thing is better to be left alone, but for the working habits, there is some evidence available that we at the Slovenia Times can rely upon. Actually, we have received some honest comments from the northern nations, which in the eyes of Europe stand for order, discipline and work ethics: they somehow point towards the idea that Slovenes love to work, but more in a sense that we always need to have something to occupy ourselves with, rather than we would enjoy too much discipline and some strict and pure labour. A man from the Far East was even more illustrative, saying that Slovenes indeed know how to work, but live for their free time, which they can very well tell from what they do as their profession. Another thing that we should keep in mind is that there is far from just one typical “Slovene” and that there are quite a few regional variations of “Slovenes”. So, if we keep with
working habits, an urban legend tells us that in the region of Dolenjska employees can get pretty fidgety in early afternoons as their workday approaches its end. This occurs especially when the season is right, as most of them own a vineyard, which is always a priority. A similar anecdote could be found for any of the regions. We can establish that a variety of climates, landscapes and consequently temperaments make a very diverse Slovene person, and this diversity is something Slovenes particularly enjoy, but it also causes confusion when defining “Slovene”. If we ask Aleš Debeljak, a poet and sociologist who is able to see a bit further than our government, we are dealing with incredible variety in the Slovenian landscape and mindscape. In an interview for the Slovenia Times, he said that simple, off-hand definitions like “Slovenians are like Austrians, except they have a soul” will not do. While Triglav, the three-peaked mountain, is our national symbol that implies the Alpine Slovenians indeed know how to character, it has actually work hard, but still very much nothing to do with the appreciate their free time, which people from Prekmurje they can very well tell from what or Bela Krajina. Debeljak they do as their professions. also points out that this is a country and a nation that enjoys a tremendous variety, including a good 50 distinct dialects, which blows the mind of any Pole or Russian, speakers of languages without historical dialects. Yes, we are talking a multitude of temperaments, tunes, cuisines… Our historical experience in this sense is unique too. Despite the mythomaniacs, who keep to the idea that the essence of Slovenes lies in the long-gone Slavic duchy of Karantanija (7-9th century AD) who could object such a view, Slovenes are a relatively young invention. The idea that peoples living under different rules in the areas between the Adriatic, Alps and Pannonian plains could be branded as Slovenes, comes from the middle of past millennium, turning into a real identity matter in the late 18th and 19th centuries along with ideas of political self-organization. However it took nearly two hundred years and a few more forms of government above us to finally become a nation in 1991. The rest you know: the European Union and NATO in 2004, the euro in 2007 etc. You might wonder what has created a sense of togetherness between relatively different peoples, many times split between different rulers. One thing is a common language of a Slavic origin, the rest are some mysterious and complex circumstances which turn people into believing they could make a good nation, and, yes, there is something on work habits there too. As in many cases, it is easy to define something in contrast to another. So, while in Yugoslavia, Slovenes seemed to have La dolce vita share of Slovenes who are satisfied with their lives, in %
Relishing it: Skiing is one of Slovenes’ favourite pastimes
less trouble with positioning themselves facing southern, “Balkan” nations, or accept their definition. To simplify, we had more developed technology, higher living standard, ability to get organized and yes, work ethics, while they had better sense of food, entertainment and ways to relax. The exchange was at hand, until it lasted, but nevertheless, it still does. But all in all, Slovenes are Europeans. Even statistically measured values such as the importance of work, family, state and mobility puts us near or among the other western European nations. As for the hard facts, in geographic sense, Slovenes can use (and offer) our territory for skiing above 2,000 metres and swimming in the Adriatic and the many rivers we Slovenia nowadays boasts the title managed to keep clean. of the economically most prosperous You can enjoy a variety of of the European newcomers. small towns, some of them Among the member states that older than a thousand joined after 2004, it is the first years. You can pick a variety of grapes, which become one with the euro in its purse, the great wines. You can cross first one to preside over the Union the country on a nearly and is a member of the border-free completed motorway Schengen area. network in a matter of Unsatisfied hours; however you would feel sorry if you didn’t get off to see the countryside. On the economic and political side, Slovenia nowadays boasts of the title of the economically most prosperous European newcomer. Among the member states that joined after 2004, it is the first one with the euro in its purse and the first one to preside over the Union. The above-mentioned Media Survival Kit concludes: Generally, Slovenes describe themselves as industrious, Satisfied honest, and good singers who enjoy a good glass of wine, and are perhaps a bit on the melancholy side. Well… see for yourself. Carefree? most pressing problems for Slovenes, in % Economy
Unsatisfied
Unemployment
Inflation Satisfied Source: Eurobarometer, Autumn 2007
Health system Source: Eurobarometer, Autumn 2007
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PRESIDENCY EU PRESIDENCY Slovenian EU Presidency
Small Country, Big Issues With Slovenian presidency of the EU in the first half of 2008 behind us, the time is ripe for an assessment of how Slovenia fared in its role. With the most contemptuous EU issues partly settled under the preceding German and Portuguese presidencies, Slovenia’s stint at the head of the EU was forecast to be more routine. Nevertheless, the fledgling EU member has proven its capacity to steer EU affairs in challenging economic and political times.
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Before Slovenia assumed leadership of the Council of the EU, sceptics argued that it would only be an interim presidency, nestled between high profile German and French agendas. They also claimed that the fact that Germany, Portugal and Slovenia were the first three EU members to draw up a joint 18-month presidency programme, guaranteeing the continuity and coherence of their respective policy plans, was another facilitating factor for the first post-2004 member of the Union to assume the rotating presidency. Slovenia simply had to avoid blunders, they continued, and its term at the helm of the EU would be seen as positive.
Keep the momentum going It is true that the breakthrough in the overriding EU issue of recent years – its institutional reform and the search for the alternative to the failed constitutional treaty – had been achieved during Slovenia started its half-year term the German presidency, on a wave of optimism when after painstaking in the Union. negotiations EU leaders agreed on the draft text of the reform treaty, and the Portuguese presidency, when the final text was drawn up and signed in Lisbon. Furthermore, Slovenia also inherited from the German presidency the agreement on binding goals of a joint EU response to what is arguably the most pressing global issue of today– the fight against climate change. Hence, Slovenia started its half-year term on a wave of optimism in the Union. The uncertainty over its new legal basis on how to make the group of 27 more effective in its decision-making and to strengthen its role as a global player was dealt with, while the enlargement of the borderfree Schengen zone to new member states just days before Christmas last year marked another milestone in European integration. However, Slovenia chose not to shy away from responsibility and did its best not to be regarded simply as a bridge to the upcoming French presidency. On the basis of the already mentioned 18-month programme, it drew up its own agenda that was described in official circles in Brussels as ambitious but realistic at the same time.
Priorities revisited Looking at the breakthroughs in the main priorities Slovenia set itself for the presidency, there seem to be sufficient grounds to feel good about oneself, although the complexity of some areas is not conducive to easy and instant solutions. The process of ratification of the Lisbon Treaty is an area where Slovenia as the presiding country had no other role but to lead by example. It ratified the treaty at the end of January as the second of the member states, just after Hungary,. Almost all member states have ratified the treaty, including France and Germany. After the resounding Irish “No” to the Treaty in June, however, the EU is now engaged in the search for a solution that could salvage the battered would-be constitution of the Union. In line with Slovenia’s priorities, the spring European Council in March launched the new cycle of the renewed Lisbon Strategy for the period 2008-2010. EU leaders reaffirmed their support for the basic guidelines of the
If you wanted to talk to the EU, you called the Slovenian foreign minister
strategy that is to make the European economy the most competitive and knowledge-based in the world while at the same time maintaining the social dimension. They called for the implementation of the strategy to gain pace and laid the foundations of the fifth EU freedom – the free movement of knowledge. The spring EU summit under the chairmanship of the Slovenian Prime Minister Janez Janša also agreed on a precise timeline in the fight against climate change. This would see the climate change and renewable energy legislative package unveiled by the European Commission in January (which shares the burden for achieving EU climate goals between member states) adopted by the beginning of 2009, while considering all the possible economic consequences of the package for individual member states and carbonintensive industries. Environmental NGOs criticized the agreement as not ambitious enough and overly favourable to industries that, in the absence of a true global agreement on binding climate change goals, fear loss of competitiveness due to stringent standards and openly talk about off shoring production to more lenient countries (so-called carbon leakage). However, in the context of slowing economic growth and increasing uncertainty, even the Commission lauded the agreement as very positive.
It’s never straightforward in the Balkans
Given Slovenia’s history, bringing the Western Balkans closer to the EU and settling the final status of Kosovo was always going to be the pillar of Slovenia’s presidency within the common foreign and security policy realm. While the question of Kosovo’s independence has inevitably turned out to be a power game with Russia and the US as protagonists, Slovenia is going to great lengths to make institution building in Kosovo a European issue. Even though member states did not agree to a unified stance in recognizing Kosovo’s independence, Bringing the Western Balkans a majority, including closer to the EU and settling the Slovenia, have already recognized it. Member final status of Kosovo was always states did, however, renew going to be the pillar of Slovenia’s their commitment to the presidency. stability of the region by supporting an EU civilian mission to Kosovo (Eulex). The deployment of the mission that is to include 1,900 police officers, judicial and administrative personnel is hampered by conditions on ground and the still unresolved institutional relationship with other international actors in Kosovo. Kosovo’s independence declaration also sparked a strong nationalist backlash in Serbia, manifesting itself in violent riots in the days after the act, but perhaps more ominously 13
EU PRESIDENCY PRESIDENCY
in the further strengthening of the nationalist element in Serbian policy. To back pro-European forces in the Balkan country and keep Serbia, which fiercely opposes Kosovo’s independence, on its path to the EU, the Slovenian presidency launched a major diplomatic effort to speed up the signing of the Stabilisation and Accession Agreement (SAA) between Serbia an the EU. The SAA, which was finally signed on 29 April, promises economic integration of Serbia with Europe, although further political integration of Serbia to the EU in accordance with the agreement still depends on its cooperation with the Hague Tribunal for War Crimes in Former Yugoslavia. With the arrest of Radovan Karadžić, a former leader of Bosnian Serbs, one of the obstacles to constructive relations between the EU and Serbia was removed. It seems that the pro-European coalition led by President Boris Tadić has firmly decided to integrate Serbia in the EU despite considerable opposition from nationalist forces in the country. On a further note, another candidate country, Croatia, opened new chapters in its EU negotiations; Bosnia and Herzegovina finally pushed through the difficult police reform through parliament and signed its SAA during the Slovenian presidency, while Montenegro is making further strides towards the candidate status. Slovenia has also gained wide support for its initiative to harmonize financial support mechanisms for the Western Balkans and the Commission’s proposal to launch a transport community with the region to improve transport infrastructure and include it in the Trans-European Transport Network projects.
Success is in the details There are further significant achievements of the Slovenian presidency, which have drawn less public attention. Take, for example, the agreement on the implementation regulation for the EUR 3.4 billion European satellite navigation project Galileo,which should rival and outperform the American GPS system by 2013. Furthermore, much has been done in the field of justice and home affairs. There has been agreement on the mandate for the Commission in its negotiations with the US on visa-related questions in transatlantic travel and on a clarification of EU and national
Border checks are no more since Slovenia entered Schengen in 2007
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Heated exchange of opinions in the wake of Kosovo’s independence
competences in this field, which effectively ended weeks of wrangling between Brussels and some new member states. Political consensus has also been reached on transforming Europol from an intergovernmental body to an EU agency by 2010 and on modernising and overhauling the management of EU external borders by 2015. Under the Slovenian presidency, the Union has also taken fresh steps in the fight against terrorism and in strengthening the rights of parties in judicial processes, where citizens of different EU member states are involved. In addition, ministers for science and research have launched the Ljubljana Process to establish an effective and unified European research area through close co-operation Slovenia succeeded in maintaining between member states the positive EU momentum of and the Commission. seeking common solutions to An agreement has been common problems. brokered on the new internal market legislative package for goods, which is intended to eliminate the last remaining obstacles to trade in industrial goods within the EU.
The day after tomorrow With limited resources and freshman status in the EU, Slovenia really had its work cut out when it was beginning its term. Presiding over the EU in the busy first half of the year at a time when looming economic malaise was putting pressure on governments of member states and threatening to shift their focus to more national agendas, Slovenia succeeded in maintaining the positive EU momentum of seeking common solutions to common problems. Both domestic and EU circles believe that the presidency has not only met expectations, but has even exceeded them in some regards. Visitors participating in presidency events in Slovenia have commended the hospitality and organisation, top EU officials have praised the preparatory work and with the exception of some minor hiccups, Slovenia has shown that it is capable to assume a visible role in EU topics. Most of all, the presidency should serve as an invaluable experience for Slovenian politicians and public officials. The six months have enabled Slovenia to learn first hand how affairs in the Council are run. “We have scanned EU policies in all the fields,” says PM Janša. This is valuable and should be used both for Slovenia’s future EU activities as well as for its own development goals and aspirations to join the top league of EU countries in a decade. Slovenia should, therefore, carefully and systematically capitalize on this experience, avoid useless bragging and creditgrabbing following the presidency, and use the six months as an important step towards its own maturity - its next big project.
RELOCATIONS RELOCATIONS
Relocations
Moving to Slovenia?
As Slovenia continues its development as a modern European country, an increasing number of international companies are starting business in Slovenia. As Kevin Morrison, Managing Director of Ljubljlana-based company Relocations explains, he expects this trend to continue. “It is now clearly more visible that foreign companies are moving to Slovenia”. How important is Slovenian market for your company? Slovenia is a relatively small market compared to other countries in the region. We do more than 700 relocations every year from our headquarters in Budapest, but much less in Slovenia of course. However, it’s not just Slovenia as such that attracts foreign companies. Increasingly, international companies see Slovenia as being the perfect location for establishing a ‘regional head office’ for the Balkans and South Eastern Europe. With this additional selling point, it is easier to see why Slovenia is getting more attention from the international business community. Is the business going well? Obviously we are reaping some of the rewards, not only from the increase of new business, but also from our own hard work. Three years ago when we entered the Slovenian market, there was literally no translation of the phrase ‘relocation services’. In fact, not only has the number of foreign management increased in the last few years, but the number of services requested from the relocation providers is also increasing. Our business is growing in such a way that we are now opening the Relocations Virtual Office / Business Center. We can thus offer our incoming foreign clients not only personal relocation, but also provide them with temporary office facilities, virtual telephone answering in their own company name, etc. We want to provide all the services the client needs. Have you encountered any serious competition in Slovenia? I think we are the only specialist relocators operating actively in Slovenia. Some legal firms or real estate brokers offers similar services, but we provide the full range of relcoation services that international and increasingly large Slovenian companies expect.
Where does the demand for your services come from? So far, the vast majority of relocations in Slovenia are foreigners moving in. It is extremely difficult to get top level Slovenian management to move abroad. Let’s face it, with the Adriatic Sea at one end and the Julian Alps at the other, mixed with the relatively ‘employee friendly’ working environment, it is not difficult to see why Slovenes, or other foreigners for that matter, are not so enthusiastic to leave Slovenia and work elsewhere. You are active as the first president of the British Chamber of Commerce in Slovenia (BCCS). We launched the BCCS in September 2008 with 18 members from both the UK and mostly Slovenia. We will focus on business and not politics – including promoting Slovenia as a regional head office location - which is a key attraction for our members. It was also recently announced that there will be seventy five thousand business contracts awarded for the London 2012 Olympic Games – which of course we hope many Slovenian companies will benefit from. Kevin Morrison is Managing Director of Relocations Ltd, www.sloveniarelo.com
COMPANY NOTES Relokacije, d.o.o. Litostrojska c. 52 1000 Ljubljana Tel.: +386 (0)1 360 30 40 Fax: +386 (0)1 360 30 40 Mobile: +386 (0)1 40 131 744 info@sloveniarelo.si www.sloveniarelo.si
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ECONOMY
ECONOMY
ECONOMY ECONOMY Economic Policy
Marrying Stability with Dynamism After the period of transition which lasted from independence in 1991 to the accession to the European Union in 2004, Slovenia finally graduated into the prestigious club of advanced European economies, the euro area. In 2007, Slovenia’s efforts to tame inflation and get its public finances in order were rewarded by the adoption of the euro. Unlike other transition countries of Central and Eastern Europe, Slovenia opted for gradual economic reforms that eschewed the so-called shock therapies enunciated by the International Monetary Fund (IMF) and some economists. By deciding not to fix the exchange rate of the national currency, Slovenian policy makers in the 90s traded higher inflation for faster growth, especially in the export sector, and thus smoother restructuring of the economy. In the run-up to the adoption of the euro after the turn of the millenium, the inflation rate in Slovenia began to fall precipitously. The same happened with the long-term interest rates, spurring Slovenia opted for gradual economic credit growth and with reforms that eschewed the so-called it the domestic demand. economic shock therapies Pragmatic policy with clear priorities and well-sequenced measures has allowed Slovenia to persuade investors and rating agencies that it is the most stable economy in the region. Moreover, it has succeeded to complement this stability with exceptional economic growth that reached a record of 6,8 percent in 2007. Now that the European economy is entering a phase of lower economic growth, volatile stockmarkets and inflated asset prices, prudent macroeconomic management is all the more important. Slovenian policy makers have decided to stick with it. While other European emerging markets, especially in the Baltics, have to deal with unpleasant consequences of unsustainably fast economic growth such as large gaps in their current accounts and high levels of indebtedness, Slovenia is well-poised to emerge from the global slowdown relatively unscathed. Growth rates of 5,4 and 5,5 percent in the first and second quarter of 2008 testify to the resilience of the economy. Judging by the latest budget deficit numbers, the government’s fiscal policy has been anti-cyclical in the past two years. It makes sense to reduce public spending in times when the economy grows above potential and threatens to overheat. Moreover, such a policy allows for the increase in public spending when the economic climate sours without unduly straining the public finances. The government has therefore ample manoeuvering space to cushion the impact of the global slowdown on the 18
economy. Slovenian exporters are likely to be among those who will feel the pinch. They have been increasing market shares in the EU, but sagging demand abroad and higher inflation at home will probably depress their revenues and erode their competitiveness. Debates about inflation have taken centre stage in the first half of the year. Running at its highest in a decade, Slovenian inflation is also the highest in the euro area. It is true that higher food and oil prices have had a disproportionate impact on inflation this year, but some economists have pointed out that inflation in Slovenia rose faster than in other euro area countries because of the lack of competition in Slovenian retail sector. Be that as it may, higher inflation has brought forward demands for wage increases that might further undermine the competitiveness of Slovenian industries. With wage growth lagging productivity growth, unit labour costs in the manufacturing sector have been falling in the past two years. This is the result of a considerable restraint exercised by Slovenian trade unions in the face of rising living costs. As the world economy is entering uncertain times, Slovenia is well prepared for future challenges. With educated labour force, solid productivity growth and stable macroeconomic environment, investors should be looking harder at opportunities it offers. Racing ahead inflation, year-on-year, in % 7 6 5 4 3 2 1 0
Jan 07
Source: SURS
Aug 08
ECONOMY ECONOMY
Investing Abroad
Adding Value and Increasing Efficiency
Professors Marjan Svetličič and Andreja Jaklič from Faculty of Social Sciences in Ljubljana are Slovenia’s foremost researchers of foreign direct investment (FDI). In their latest research, they focused on the outward FDI by Slovenian companies. What impact does the outward FDI, i.e. investment into production facilities and opening of subsidiaries abroad, by Slovenian companies have on the competitiveness of the economy? A number of channels exist through which outward FDI can influence the growth path of an economy. It has to be pointed out, however, that the impact of outward FDI is only felt with a time lag of at least two years. How exactly outward FDI enhances the ability of firms to compete in their home and foreign markets depends on the size of assets abroad, the maturity of a particular investment and its characteristics. Would you agree that in general, notwithstanding the differences between various forms of outward FDI, the latter can be an important stimulus to the economy? Certainly. Outward FDI has been studied extensively by the economists and the consensus is that a country can benefit significantly, if its firms are active abroad, either as exporters or investors. By investing abroad, firms can help transform the structure of domestic economy in a way that puts more emphasis on the production of goods and services with a higher value-added. How exactly does that process look? You always have to think about the alternatives, i.e. about what would happen, if a company did not invest abroad. Companies usually decide to invest in those countries where labour costs are lower than at home. In that way, labour-intensive processes are relocated to cheaper locations, while more technically demanding production with a higher value-added stays at home. Where high labour costs threaten to significantly worsen the competitiveness of a company, it makes perfect sense to move a part of the production abroad. Otherwise,
the company might face the loss of its market share and possibly even insolvency. Are Slovenian firms really venturing abroad to take advantage of lower labour costs? Judging by the results of your research, lower labour costs are not a primary motivation for Slovenian outward FDI. That is correct. Slovenian firms primarily invest abroad in order to establish market presence and increase their market shares. Being present in a foreign market allows firms to be closer to their customers and to better ascertain their needs. This is especially important for Slovenian economy whose main driver is exports. Although only 2.5 percent of Slovenian companies have investments abroad, they account for over 40 percent of Slovenian exports and employ 30 percent of workforce in the country. Do you think that we will see reduced investment in the home market as companies embrace internationalization and foreign markets become increasingly important? No, outward FDI are not a substitute for, but a complement to investment at home. If a company wants to outgrow its domestic market, which is relatively small in the case of Slovenia, then it has to allocate its resources efficiently. Internationalization allows companies to produce in markets where labour force is the cheapest and export to markets where they can obtain the highest prices for their products. What about FDI in Slovenia? By letting FDI into the country, the latter can start producing goods and services that otherwise would not be produced. When a company does not possess knowledge, technology or management expertise to produce and market a particular good or service, FDIs offer a solution. And a good one at that. 19
ECONOMY ECONOMY Growth Prospects
Healthy Growth in the Face of Global Turbulence The Slovenian economy has never had it so good. Booming investment and double-digit growth of exports propelled economic growth to 5.9 percent in 2006 and to a record of 6.8 percent last year. In the next two years, however, tighter credit and slower growth of Slovenia’s main trading partners will take some wind out of the economy’s sails. In spring, the Institute of Macroeconomic Analysis and Development (UMAR), a government think tank, lowered the economic growth projections for this year from 4.6 to 4.4 percent, while for 2009 the institute expects the economy to slow down further, growing by 4.1 percent. As the world economy shrugs off the consequences of the financial crisis sparked by the subprime mortgage meltdown in the US, growth is expected to pick up modestly in 2010, to 4.4 percent.
Exports saving the day At the first sight, Novo Mesto, a town with population of 22,000 and the capital of Dolenjska region, does not look like an industrial powerhouse deeply immersed into international trade flows. Perched on the banks above the idyllic Krka River, it is more renowned as a base for exploring the adjacent vineyards with their particular, and quite famous, blend of red wine. Yet the town is home to Slovenia’s biggest exporter, Revoz, a subsidiary of French car maker Renault, and Krka, the pharmaceuticals producer and the country’s third biggest exporter. Between them, the two firms exported EUR 1.8 bn worth of cars and medicines in 2007, a tenth of all Slovenian exports. It is hard to understate the importance of exports and export-oriented companies to the Slovenian economy. With an 8.8 percent contribution to the last year’s economic growth of 6.8 percent, exports were by a wide margin its main driver. This fact often gets lost in the statistics, because net contribution of trade has been negative in recent years, as import growth exceeded the growth of It is hard to understate the exports. Buoyant demand importance of exports and at home and abroad had export-oriented companies to the the economy running Slovenian economy. at nearly full capacity, with the firms importing equipment and investing into production in order to retain their market shares. This resulted in a current account deficit of 4.8 percent of GDP, which is set to shrink in the next two years as the companies, in the face of the global slowdown, cut back on investment in new production capacity.
Tougher times ahead
Eventually, the construction boom will peter out
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The growth of exports is expected to slow considerably as a result of the slackening of demand in Slovenia’s main trading partners in the EU. According to the latest projections, economic growth in the EU, by far the biggest export market for Slovenian companies, will drop from 2.9 to 1.9 percent, dragging the growth of exports back in single-digit territory. The workers at carmaker Revoz and Adria Mobil, another major exporter from Novo Mesto, which exported EUR
Highways to the rescue With export growth faltering, will household consumption and investment sustain the economic growth at respectable levels? Given the number of construction sites around the country and real estate projects in the pipeline, fixed capital investment, especially in buildings and transport infrastructure, is set to grow healthily, although not at the breakneck speed of 11.9 percent observed in 2007. With a share of 27.5 percent of Slovenian GDP, fixed capital investment contributed 4.5 percent to the last year’s record economic growth. In the Increased government spending on next two years, it will highways and railways will sooth not be the investment the pain from the global slowdown. into machines, roads and buildings that will push the economy forward, but exports. However, increased government spending on highways and railways will sooth the pain from the global slowdown. As for the consumers, their purchasing power is being steadily eroded by inflation driven by higher food and oil prices. Nonetheless, economists expect the household consumption to pick up marginally in 2008. This year’s wage agreements have given consumers additional
spending firepower. If they are willing to use it, then the Slovenian economy will continue grow healthily despite the deteriorating international environment. Back to normal GDP growth, in % 7 6 5 4 3 2 1 0
2003
2004
2005
2006
2007
2008
2009
2010
Source: SURS, UMAR
Big exporters, such as house appliances maker Gorenje, face falling demand
Will increased public investment in infrastructure support the growth?
21
ECONOMY ECONOMY
264 m worth of motor homes and caravans in 2007, will be the first to feel the pinch. Car sales are the bellwether for the health of the world economy and they are declining all around the globe. Although theories of the decoupling of emerging economies from those of the developed ones are now in fashion, no-one really expects that the former will emerge from the current turmoil unscathed or that they will able to pick up the slack in demand. Bad news, therefore, also for SIJ, a steel producer and, with EUR 500 m of exports, Slovenia’s fourth biggest exporter, whose revenues depend on a continuing hunger of emerging markets for commodities.
ECONOMY ECONOMY
SIJ - Slovenian Steel Group
With Steely Resolve
SIJ - Slovenian Steel Group focuses on niche production of specialist products with high added value. As we are relatively small, we can be very flexible and can react quickly to the needs of our customers. The Slovenian steel industry has a long and rich tradition. With abundant reserves of iron ore, vast forests, substantial quantities of wood from which to obtain high-quality charcoal and huge potential for harnessing hydro energy, Slovenia has always been the perfect home to steel production. In the 1990s, after Slovenia declared independence, the industry faced its greatest challenge: losing Yugoslavia as one and the only market. But with 400 years of experience in steel making, the industry was not ready to signal its demise. Immediately after independence, in 1991 and 1992, the government adopted plans for the restructure and privatization of the Slovenian steel industry. The most important goal of this process was to prepare steel manufacturers to compete successfully with their counterparts in the EU and beyond. At the outset, the industry was nationalized, after which a number of measures were implemented to modernize plants and increase productivity. Although painful at times, the restructuring process was concluded successfully in 2007, when the government sold a 55.35% stake in SIJ - Slovenian Steel Group to the Russian steel giant Koks, a part of the Industrial Metallurgical Holding (IMH). We discussed future prospects for the industry with Tibor Šimonka, the CEO of SIJ -Slovenian Steel Group. Are you satisfied with the business results in 2007? What are the expectations for this year? Generally speaking, we are satisfied. Of course, our performance within each of the market segments varied. We can be proud that we are growing faster than our competitors in certain niche markets. Taking a global view of the industry, however, we can not compare ourselves to the steel makers producing so-called commercial steels. Such steels are in great demand in a number of fast-growing markets in Europe and Asia, including China. The conditions for doing business have not been getting any easier for steel producers. Energy and commodity prices are rising. Inflation in Slovenia has reached record levels, 22
putting upward pressure on labour costs. Despite these developments, we expect business results in 2008 to be broadly in line with last year’s figures. Although revenue is expected to decline marginally to EUR 750m, production is set to increase by 10 percent. Net earnings will come in at around EUR 60m. SIJ - Slovenian Steel Group is one of the biggest Slovenian exporters. Who are the buyers of your products? The EU market accounts for 62.5 percent of our sales. The rest is distributed between the US (4.1 percent), ex-Yugoslav markets (2.1 percent) and other markets, including Russia (7.2 percent). The domestic market is quite important for us, as it absorbs almost a quarter of our production. Germany and Italy are by far our most important customers. Around 13 percent of Metal Ravne’s exports go to the US. It is true that the US dollar is losing value relative to the euro, but up to now we have succeeded in offsetting this by sourcing our raw materials from dollar markets. What are your advantages over other steel makers? SIJ - Slovenian Steel Group is a so-called niche steel manufacturer that can not compete through economy of scale. We therefore focus on niche production of specialist products with high added value. As we are relatively small, we can be very flexible and can react quickly to the needs of our customers. Our ambition is to develop a business model similar to other steel centres in Europe and the US. You have entered an intensive investment cycle. That is correct. Even before the company was sold to Koks, we decided to invest heavily in new technology. In 2007 we spent 42 percent more on upgrading our production facilities than the year before. This year, investment in technology will amount to EUR 101m, an 85 percent increase over 2007. We will continue to invest in new technologies. In the period from 2009 to 2012 we will spend an additional EUR 150m to modernize our production. This will not change much as far as the volume of production is concerned.
ECONOMY ECONOMY Cold-rolled coils in Acroni’s cold-rolling mill.
However, the investments will pay off by increasing the value of our products by more than half, in line with our strategy of focusing on products with high added value. Does being a part of a larger steel group help with putting this strategy into practice? The Koks Group boasts good business and financial potential, allowing us to be quicker and more efficient in realizing our development plans. By continuing to invest in new technology we will be able to compete successfully on the world market. The financial muscle provided by the Koks Group makes it easier for us to acquire other companies. Recently, we took over a company that deals in scrap metal in the markets of former Yugoslavia. We have thus widened the range of raw materials we hold in our portfolio. This means that we can plan our production and marketing activities more effectively, which is especially important in times when demand and supply of different metals have proved highly volatile. Has the partnership with the Russian group Industrial Metallurgical Holding (IMH) opened doors to the Russian market? Our new owners are not what you would call ordinary steel makers, as they are involved in a number of other business activities. That the doors of the Russian market would be flung open just because we had been acquired by a Russian company has always been an illusion. However, we expect to become an important player in Russia, especially as suppliers of specialist and machine tool steels to the automotive industry and thick steel plate for energy infrastructure projects. The global economy is slowing down. How will that affect the steel industry? Of course, the industry has already picked up signals that growth is slowing. But I do not expect that the world economy will enter a long period of recession. It is more likely that we are on the threshold of a period of sluggish growth. But steel makers are also facing a range of other challenges, not just a fall in demand. Increasingly stringent
environmental standards and unfair business practices are one reason for the worsening business results. The other is soaring commodity prices. These are definitely here to stay, not just because of the environmental premium, but also because huge investment is needed to bring new mines on line. How do you implement the principles of corporate social responsibility in your business? First of all, we are aware that as large energy consumers we have a significant environmental footprint. We have therefore invested heavily in the implementation of various environmental standards such as IPPC as well as in technological solutions that allow us to reduce our energy needs and become a more energy-efficient company. Our main responsibility as a corporation is, of course, to our owners, employees and partners. As a profitable company we have lived up to that responsibility. We have been awarded the Rating of the Year 2007 award by Dun & Bradstreet, the world’s greatest rating agency. This testifies to the success of our company and enables us to support our local environment with sponsorships and donations.
COMPANY NOTES SIJ - Slovenian Steel Group Gerbičeva 98 1000 Ljubljana Tel.: +386 (0)1 242 98 00 Fax: +386 (0)1 242 98 55 info@sij.si www.sij.si SIJ - Slovenian Steel Group with its core companies:
is a part of
INDUSTRIAL METALLURGICAL HOLDING
23
ECONOMY ECONOMY SIJ - Slovenian Steel Group
Small, but Flexible SIJ – Slovenian Steel Group, a member of Industrial Metallurgical Holding (IMH), is one of the leading Slovenian economic groups. It is comprised of 15 companies. Their products with high added value are appreciated at home and in the European Union, as well as in the United States and other countries around the world, which account for over 70 percent of the export of their products. The steel companies Acroni, d. o. o. and Metal Ravne, d. o. o. process steel in their production programmes for flat and long steel products. Noži Ravne, d. o. o. is renowned for top-quality industrial knives, while Elektrode Jesenice manufactures filler materials for various welding procedures for steel and other metals. Other core companies of SIJ Slovenian Steel Group are also the sheltered workshops SUZ, d. o. o. and ZIP Center, d. o. o. Other core companies are the Odpad, d. o. o. company, which is engaged in the collection of waste metals in the countries of former Yugoslavia, and Serpa, d. o. o., a subsidiary of Metal Ravne, which is primarily engaged in service activities. The Slovenian Steel Group’s foreign trade network includes the companies Acroni Italy and Acroni Deutschland, Iuenna Stahl in Austria and Kopo International in the United States.
A Boutique Steelworks The Group boasts a rich tradition and many years of experience. In addition, it has been able to make good use of its relatively small size – on the global scale it is a very small steelworks – seeking out opportunities in niche products with high added value while at the same time distinguishing itself by its high level of adaptability and rapid responsiveness. SIJ - Slovenian Steel Group is a successful business system utilising the tradition of Slovenian steelworkers, excellence, new knowledge and environmental orientation, thereby helping in important ways to shape the modern European steel industry.
New Forging Shop for heavy forgings at Metal Ravne.
24
Research and development, as well as investment in new technology for specialist products with great added value.
Acroni steelworks, in harmony with nature.
ECONOMY ECONOMY
Slovenska industrija jekla, d.d., GerbiËeva 98, 1000 Ljubljana
Slovenian steel for the best things in the world.
Acroni Metal Ravne Noži Ravne Elektrode Jesenice SUZ ZIP center Odpad
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ECONOMY ECONOMY Multinationals from Slovenia
Fuelling the Growth As multinational corporations go, you would probably expect them to play in the league of behemoths that have no scruples about axing the jobs at home, relocating the production abroad and preaching about the need to dismantle regulatory barriers to their business in the meantime. Slovenian multinationals are of a more docile type, however.
Slovenian pharma sells most of its production abroad
Take JUB, the most transnational of Slovenian multinationals according to the Centre for International Relations (CIR), a think tank affiliated with the Faculty for Social Sciences (FDV) in Ljubljana. This paints and coatings maker employs 417 people, almost half of them in its ten subsidiaries abroad. The presence in foreign markets, predominantly through sales and marketing offices, is essential to the company that has long since outgrown the confines of Slovenian market. JUB exports 77 percent of its production.
In search of markets Although the firm has set up a production facility in Serbia to take advantage of the lower labour costs, the latter are not the primary motive for Slovenian companies to venture abroad. Research shows that only 30 percent of multinationals from Slovenia consider lower labour costs a fairly important factor when deciding whether to invest 26
in other countries. Around 80 percent of them, however, indicate that it is the need for marketing presence in foreign markets that drives their foreign direct investment (FDI) abroad. Being present on foreign markets allows the companies to better recognize the needs of their customers and monitor the activities of competitors more effectively. This Only 30 percent of multinationals is especially important from Slovenia consider lower for exporters. Although labour costs a fairly important companieswithsubsidiaries abroad account for only factor when deciding whether to 2.5 percent of all Slovenian invest in other countries. firms, their share in the nation’s exports is 40 percent, while 30 percent of employees in Slovenia work for one of their multinationals. The success of these companies on international markets thus disproportionally affects Slovenian export performance. With exports being the primary driver of economic
ECONOMY ECONOMY
growth, the well-being of the economy depends on how multinationals do business abroad. Exports contributed 8.8 percentage points to the last year’s record economic growth of 6.8 percent. This important fact often gets lost in the statistics, because net contribution of trade to Slovenian growth has been negative in recent years, as import growth exceeded the growth of exports.
Which FDI, exactly? Given that outward FDIs play such a crucial role for the country’s main exporters, attitudes to investment by foreign companies in Slovenia and investment by domestic companies abroad differ substantially. Slovenia has never been known as a particularly FDI-friendly country. Each time the government had attempted to sell a significant stake in one of Slovenia’s blue chips to a foreign company, a heated debate about advantages and disadvantages of foreign ownership ensued. In the case of outward FDIs, however, everybody seems Most Slovenian FDIs go to the to agree that they benefit markets of the Western Balkans. the companies and the economy at large – as long as there are no significant relocations of production. The 2008 ranking of Slovenian multinational companies, published by CIR, shows that FDI outflows from Slovenia have surpassed FDI inflows in three of the past four years. Compared to 2004, foreign assets and employment in subsidiaries abroad more than doubled in 2006, while foreign sales, including exports, grew by 60 percent. Most Slovenian FDIs go to the markets of the Western Balkans. According to the Slovenian Chamber of Commerce (GZS), Slovenian investment in the region totalled around EUR 3bn in 2007 or 60 percent of all outward FDI by Slovenian companies. In comparison, the stock of foreign investments in Slovenia stood at EUR 6775 m in 2006, with flows in 2007 reaching EUR 860 m.
Top of the tops In 2006, according to CIR survey, Slovenia’s Top 25 multinational enterprises (MNEs), valued by foreign assets, had nearly US$ 4bn in assets abroad, US$ 4bn in foreign
Mercator, Slovenia’s biggest retailer, is an important regional player
House appliances, Slovenia’s second most important export
Pharmaceuticals production is R&D intensive and has a high valueadded
sales (including exports) and employed 23,616 persons abroad. The list of top 25 MNEs by foreign assets reads like a who’s who of Slovenian business and is a testimony to the internationalization of the economy. The biggest firms from the retail, manufacturing and pharmaceuticals sectors, Mercator, Gorenje and Krka respectively, have invested the most abroad. Slovenian MNEs are primarily regionally-focused market-seekers, with trade and production affiliates, mostly in Western Balkan countries. Mercator, which tops the MNEs list, is a case in point. The company has more or less reached the limits of growth on Slovenian On the Western Balkans retail market where where Slovenian products and competitors are slowly trademarks enjoy good reputations chipping at its market share. Its management has, therefore, decided to expand into foreign markets, focusing on the Western Balkans where Slovenian products and trademarks enjoy good reputations. It is the shopping malls all around Croatia, Bosnia- Herzegovina and Serbia that make Mercator the biggest Slovenian MNE by assets abroad. Krka, in contrast, has not ventured abroad in order to build outlets for its products, but to jump possible regulatory barriers that govern the trade in pharmaceuticals in the company’s most important markets and to take advantage of lower labour costs. It is not a coincidence that the pharma giant has production facilities in Poland, Russia and Croatia; it sells only 13 percent of its products in Slovenia and twothirds in the markets of Central and Eastern Europe. These two examples show that leading Slovenian firms have different motives for investing abroad. Being established in a small, open economy, however, they have no choice but to embrace internationalization, in one form or another. 27
ECONOMY ECONOMY
Istrabenz
In Pursuit of Yield
Igor BavÄ?ar is one of the most respected managers in Slovenia, a career he chose after spending a number of years at the top of Slovenian politics. He has proved his managerial skills by transforming Istrabenz from a sleepy provincial company into an important player in a number of rapidly-developing sectors in Slovenia and abroad. Istrabenz is a holding company with interests in different sectors of the economy. What do you focus on? Our goal is to increase shareholder value. By analysing potential investment opportunities, efficiently managing our existing investments and being present on equity and money markets, we try to increase the wealth of our shareholders. The holding invests money in five investment sectors: energy, tourism, food industry, information technology and other areas. We employ nearly 5,000 people in 73 subsidiaries enabling us to track and analyse the broader developments in each of the abovementioned sectors. Of course, we take care not to overlook the needs of the local community where we do not just invest in infrastructure but also support cultural and other activities as sponsors. In this way, we hope to succeed in becoming one of the most important and respected investors in the markets of Central and South-Eastern Europe. Istrabenz is a big player in the regional food processing industry. Droga Kolinska Group, which is a part of our holding, owns many strong and recognizable brands, such as Smoki, Cockta and Argeta. This is an important asset when it comes to building presence and increasing market share in the region. By focusing on its sweet and salt programme; non-alcoholic beverages; coffee and spreads, the company aims to cement its position as a regional industry leader. What are your plans in the energy sector? Our investment in the energy sector focuses primarily on natural gas, liquefied natural gas and other technical gases. We are also very active on the electricity market where we are engaged in generation, supply and distribution of electricity. This market is developing very rapidly, offering ample investment opportunities to discerning investors. Of course, these opportunities can be fully exploited only by investors who feel a sense of responsibility towards the local community in which they operate. You recently entered the information technology business. That is correct. As far as IT is concerned, we are focusing on new products destined for new markets. We want to 28
develop the Actual Group which we own into a regional IT centre, offering IT solutions to small and mediumsized enterprises in the EU and South-Eastern Europe. We expect strong growth in this particular market, as EU legislation and customer needs will increase the demand for the services we offer. Some of the activities will be outsourced. How are your investments in tourism performing? Tourism is one of the five core businesses of the Istrabenz Group. Currently we are developing our tourist services by consolidating the management of our investments in tourism in order to streamline the business and make it work more efficiently. We are confident that there are considerable synergies to be reaped from the consolidation of existing tourist facilities. The tourism market offers a lot of investment opportunities; especially as far as the upgrading of existing and the development of new tourist facilities are concerned. Our flagship tourist project at the moment is certainly the opening of the Kempinski Palace Hotel, the first and only luxury hotel in Slovenia. The renovation of the old Palace Hotel, once one of the most prominent venues on the Adriatic coast, to its former glory certainly took a lot of time as well as planning and financial effort. But now we have a hotel that puts PortoroĹž on the world tourist map.
COMPANY NOTES ISTRABENZ, Holding Company, plc Cesta Zore Perello - Godina 2 6000 Koper Tel.: +386 (0)5 662 15 00 Fax: +386 (0)5 662 15 15 info@istrabenz.si www.istrabenz.si
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ECONOMY ECONOMY
ECONOMY ECONOMY FDI Promotion
Why Invest in Slovenia? Despite Slovenia’s population of two million, its economy often punches above its weight on the international business play field. Better known as a tourist destination, Slovenia has attracted a few brownfield and greenfield investment projects, but nothing like other CEE countries. Over the past few years, however, Slovenian outward investments have made the presence of home-grown companies felt on the international scale. Slovenia’s business makeover has not been the bumpy ride experienced by other economies in transition at the beginning of the 1990s. Slovenian companies were a target for foreign interest as early as in the late 1970s thanks to Slovenia’s manufacturers of household appliances, cars and commercial vehicles, furniture and garments. Conveniently nestled between Austria and Italy, Slovenia traditionally served as a gateway for exports to the discerning markets of Western Europe even in former Yugoslavia. Much has been done to boost the country’s attractiveness as a place to do business since Slovenia’s independence. The call for political action was backed within the framework of the effort to become an EU Member State and the awareness that the Slovenian internal market was not fully integrated, which in turn meant a lack of competition in some sectors and increased operating costs for foreign investors. Following the political consensus, liberalisation of the internal market has been built continuously since 2000 as the Slovenian economy become fully integrated with the EU economies, joined the EU in 2004, qualified for Eurozone and adopted the euro on 1 January 2007, and entered the Schengen area in December 2007.
Further reform goals already set Despite the country’s good economic performance, the government is committed to continuing efforts to improve micro-economic conditions to enhance GDP growth. This includes measures to increase competition by liberalising previously sheltered industries such as electricity, energy, telecommunications, and dismantling administrative hurdles. In response to the critics citing Slovenia’s excessive red tape and the shortage of land for industrial use, the Slovenian authorities got down to the business of making the country’s business landscape attractive to Tax allowances are in place for foreign investors. Since investment in research, technology 2000, registering a and development. company in Slovenia has been greatly facilitated in many ways including electronic access to practically all public administration services, and the number of locations for property development and redevelopment to technological parks and economic zones has increased significantly. When foreign investors consider locations to relocate or expand operations, the attractive tax regime of this eastern Alpine country bordering the Adriatic Sea is a reason to shortlist it. The present government deserves much of the credit for Slovenia’s tax reforms: a gradual corporate tax rate reduction aimed at promoting a pro-growth economy, phasing out of pay-roll tax, a relief on personal income tax. Tax allowances are in place for investment in research, technology and development, while greenfield foreign investment projects in manufacturing and sectors with high value added are eligible for financial incentives when they create new jobs. With tax revenue accounting for some 40 per cent of GDP in 2005, Slovenia’s tax rates are lower than in many other European countries and converge with the EU27 average.
What 2008 has in store
One of the last remaining takeover targets: Port operator Luka Koper ...
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As the world economy seems torn between optimistic and gloomy scenarios for 2008, the renewed Lisbon Strategy for Growth and Jobs promises stable economic growth in the European Union by maintaining the 2007 impetus and boosting reform efforts based on sustainable productivity and employment growth. By improving labour markets and strengthening human resources on the one hand and by
FDI Flows to Slovenia in EUR m 1000
ECONOMY ECONOMY
encouraging innovation, competition and business-friendly regulations on the other by cutting back administrative burdens, the EU in general and Slovenia in particular should become more attractive to foreign investors. After strong economic performance in 2007 with GDP growth firmly in the six-per-cent bracket, Slovenia’s inflation expectations rather than its actual inflation could threaten the country’s other macroeconomic indicators that remain strong and continue to guarantee long-term returns on investment. Nevertheless, the government reforms have helped Slovenia’s economy increase its competitive edge and appeal to foreign investors. There are tax allowances for investment in research, technology and development, incentives related to the creation of new jobs, and financial incentives for greenfield foreign investment projects in manufacturing and sectors with high value added. The Resolution on National Development Projects for the Period 2007-2023 lists several national projects worth some 24 billion euro of which some 15 million euro are in private equity through public-private partnerships. Conceived and implemented in a cost-effective and flexible manner, Slovenia’s economic activities are fine-tuned to Europe’s concern for the environment, for its citizens and their higher living standard, and efforts towards a more innovative and creative Europe. The preliminary figures for 2007 show that services accounted for 64.4 per cent of the country’s GDP followed by 33.5 per cent generated by industry. The single market continues to be the driving force for improving EU competitiveness in the global economy and further progress should be achieved through measures targeted at areas where their effect will be the best: network activities, services and innovations, which will also support business. While taxes traditionally have been one of the key reasons for locating and investing away from home, a transparent and stable political, legislative and administrative environment, the ease of getting about (good transport to airports, good rail links) the availability of schools and good quality accommodation, as well as the quality of life in general, should tip the scale in favour of Slovenia. The government’s ambition is to make Slovenia the leading European choice of international companies for locating international/European headquarters, an R&D centre, or a centre for administration and/or accounting functions. The government reforms have helped Slovenia’s economy increase its competitive edge and appeal to foreign investors without overheating the economy. Thanks to the widespread use of the first common financial reporting standard - IFRS - investors can compare statements produced in one country with those produced in another and exploit the advantages of mobile technology and broadband penetration where Slovenians themselves are early adopters, both for business and
... and fuel retailer Petrol
private purposes. Today investors can also benefit from lower transaction costs arising from the single currency and the implementation of the Single Euro Payments Area (SEPA) where the current differentiation between national and crossborder payments no longer exists. This means that customers within the SEPA are able to make payments throughout the whole euro area as efficiently and safely, and above all at the same price, as in the national context today.
Why Invest in Slovenia? • A strategic location as a bridge between western Europe and the Balkan states, boasting strong levels of efficiency and productivity. • A well developed transport infrastructure both on land and through the sea port at Koper to serve some of Europe’s major transit routes. • A proficient and skilled labour force boasting a high degree of IT and technological prowess, from electronics to financial services. • All attributes to become a location of choice of international companies for international or European headquarters, an R&D centre, or a centre for administrative/accounting functions. FDI Stock in Slovenia in EUR m 8000
800 6000
600
4000
400
2000
200 0
2003
Source: JAPTI
2004
2005
2006
2007
0
2003
2004
Source: JAPTI and UNCTAD
2005
2006
2007
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ECONOMY ECONOMY
JAPTI
“Becoming Europe’s Logistics and Transport Hub” Peter Ješovnik, M.Sc., director of the Slovenian FDI promotion agency (JAPTI - Public Agency of the Republic of Slovenia for Entrepreneurship and Foreign Investments), knows what Slovenia has to offer foreign investors. He managed European Affairs issues for the Slovenian Chamber of Commerce when the country was negotiating its entry into the European Union, thus helping Slovenian businesses adapt to the European environment. What are the comparative advantages and disadvantages of Slovenia that investors should consider? As a location for direct inward foreign investment, Slovenia boasts a number of competitive advantages: an interesting geographical position, good infrastructure connections with important markets in the European Union and Balkans, an educated and internationally savvy labour force, as well as a stable political and macro-economic framework and high quality of life. In the last few years, we have tripled the number of students in higher education, and we are working on restructuring our higher education system, since higher education and business should become closer and work in partnership. Our transport connections are very good in all directions, and the Port of Koper plays a significant role in providing the shortest maritime transit route between the countries of Central Europe and the crucial markets of the Middle and Far East. It should be mentioned that we are focusing on the nine business logistics zones in which countries such as India, China, South Korea, Brazil and Japan, together with North American and Arab states can enter this part of Europe and establish production facilities in such zones. We have every possibility of becoming Europe’s logistics and transport hub. Nevertheless, competition around us is great, so we need to specialise. Which industries/sectors in your country do you find most promising in terms of growth and sustainability and therefore interesting for investors? Slovenia has a small domestic market of some two million inhabitants. Because of that and because of the specific position of Slovenia among the countries in transition, the most promising sectors in terms of growth and sustainability are services. Greater prospects lie in sectors with higher added-value products. Prospective sectors worth outlining for future foreign investments would be the automotive and pharmaceutical industry, tourism, energy and power supply, information technology and communications. 32
Which types of foreign investments do you think are the most suitable for your country? It has to be said that our country was not a magnet for massive investment in the past, primarily because of its small size, land accessibility, relatively expensive labour force and strict environmental standards. EU membership, and in particular the adoption of the common currency, offer opportunities for an increase in foreign investment, as business risks are reduced and new investment opportunities present themselves. The best investments in Slovenia have proven to be small or medium size investments, involving two to 12 million euros, employing 50, 100 or 500 people. We have an instrument to attract foreign investors, namely the Public Tender for FDI Cost-Sharing Grant Scheme. Foreign companies making direct investments in Slovenia may apply for financial grants. We are especially satisfied that these companies very often come back to apply for further tenders with new products and higher investment, so we are welcoming all kinds of investors who are willing to invest and develop the environment in which they are operating. Our readers are investors and business people who are investing or who are yet to invest in the region. What piece of advice would you give them? Almost two decades ago, we were perceived as a small market with only two million consumers, but after joining the European Union the potential is opening up. This makes Slovenia central to foreign investment aimed at serving the emerging markets in the Balkans at reasonable overall business costs. We often say that we are an investment location that delivers quality at a reasonable price. Strong commercial contacts across Eastern and South-Eastern Europe, excellent infrastructure, a major Adriatic port, and a highlyeducated workforce have attracted many foreign companies to enter Slovenia, for example Bosch Siemens, Danfoss, IBM, Microsoft, the Sandoz Group (Novartis), Oracle, Renault – to mention but a few.
ECONOMY ECONOMY photo SŽ / BOBO
There’s more than meets the eye
BLED
photo Janez Skok
The place where global economy and your economy cross paths is between the Alps and the Adriatic Sea. Slovenia’s proximity to the fast-marching emerging markets in the region offers opportunities you don’t want to miss. Waste no time and ride the wave of favourable economic forecast in the first new Member State in the Euroland. Relocate to Slovenia and you can have a thriving business and enjoy the country’s sights on every step.
PIRAN
JAPTI - Public Agency for Entrepreneurship and Foreign Investments - FDI Division Dunajska 156, SI-1000 Ljubljana, Slovenia, tel: +386 (0) 1 5891 870, e-mail: fdi@japti.si www.InvestSlovenia.org
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ECONOMY ECONOMY Automotive Industry
Export Champions The automotive industry in Slovenia has a long history. Once there was TAM, a major truck maker from Maribor, which went into bankruptcy after demand from ex-Yugoslav markets evaporated. Nevertheless, the industry has risen from the ashes and now forms the backbone of Slovenian exportled economy.
Revoz is a Novo Mesto-based car manufacturer and the only such company left in Slovenia. Owned by Renault, which has had the majority stake in the company (54 percent) from 1991 onwards, the company has an eight percent market share in Europe and employs approximately 3,000 people. It ranks among the leading Slovenian companies. Revoz is completely Revoz is the only factory in integrated into Renault’s Europe that makes two very manufacturing system successful Renault models – the that links the carmaker’s factories Twingo and Clio the II. European manufacturing personal and light commercial vehicles. Renault gradually increased its stake in Revoz, eventually buying off the remaining stocks in December 2003 to become its sole owner. Revoz is the only factory in Europe that makes two very successful Renault models – the Twingo and Clio the II. These are predominantly intended for export to European markets, since four percent of the annual production satisfies all domestic demand.
How it all began The predecessor of Revoz was founded in the mid 1950s as an agricultural mechanics repair company that later went on to assemble light commercial vehicles for German and British carmakers. In the beginning of 1973, the company began manufacturing the Renault 4 on the basis of a contract of cooperation with another carmaker from Western Europe, Renault of France. The last Renault 4 was 34
made in December 1992, while the Renault 5 concluded its relatively long 25-year run in July 1996. Revoz, as such, was founded in June 1988 on the basis of a joint investment of Renault and its Slovenian counterpart, IMV. In April 1993, Revoz began making the popular Clio car model, which was replaced by the Clio II in 2001. In 2005, Renault gave the exclusive right for the production of the new Twingo model to Revoz and the serial production of Twingos for the entire European market began in the spring of 2006.
Not resting on its laurels Last year, the company’s profits increased over 2006 due to a quick start of the production of the new model, relatively low restitution costs and the overall increase of the production. In 2007, Revoz manufactured 200,162 vehicles, 75,000 of which were the new Twingos, thereby substantially increasing its production as well as crossing over a symbolic threshold of the automotive industry. Production of Twingos for the The 2007 production entire European market began in represents a 31 percent the spring of 2006. increase over 2006, which can be attributed to excellent sales of the Twingo on European markets and the still successful run of the Clio II. Yet all this success has not left Revoz resting on its laurels. The company’s plans for 2008 include raising the bar even higher and setting a new production record for the second
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year in a row. Since the 2008 sales prospects for the Twingo and Clio II are still very favourable, Revoz plans to increase its production capabilities and make anywhere between 210,000 and 220,000 vehicles this year, thus utilising its production capabilities to the fullest and surpassing last year’s record by at least 10,000 vehicles. The new production record will be achieved by increasing the daily production of Twingo by 50 percent and moving part of the Clio II production to France. To ensure better business results, Revoz developed a system of quality insurance, which is now regularly confirmed within the framework of ISO 9002. Revoz also acquired the ISO 14001 certificate proving that Revoz has an adequate policy of protecting the environment and sustainable development, which ranks it as one of the most efficient factories within the Renault Group. The factory has always aspired to continually make improvements on the overall production process and everyone working at Revoz has always done their best to make the company one of the most efficient factories within the Renault Group.
Planning a vacation? The second pillar of the Slovenian automotive industry is also based in Novo Mesto, making the town the car capital of the country. Adria Mobil is best known for its caravans and motor homes under the ADRIA and ADRIATIK brands, making 99 percent of its sales on the demanding western European markets, where it holds a six percent market share. That puts the company among the biggest European manufacturers of caravans and motor homes. Adria Mobil’s motor homes range from prestigious models with marvellous exteriors intended for the most demanding of users in search of prestige to models that are a bit more practical and offer quality, reliability and comfort; there are also a few others that are much more compact, economic and intended to reach even the remotest places. Adria Mobil’s caravans are for everyone; the interiors are cosy and airy, the exteriors dynamic and the caravans noted for their astounding reliability and safety. The company also manufactures vans, which have become extremely popular in recent times with travellers, explorers of nature and everyone in search of active vacations. Adria Mobil’s recent additions to its portfolio are mobile residential units that can be placed within camp and hotel areas, or anywhere else for that matter. These residential units are equipped with wheels and can be towed and moved at will, while at the same time offering all the comforts of one’s home.
A good year Last year was very successful for Adria Mobil. The company manufactured and sold more than 13,000 vehicles, thus fortifying its position The company among the biggest among the leading European manufacturers of industry producers. Apart caravans and motor homes. from launching new products to the market – including Coral Compact, which quickly became a sales hit among semi-integrated motor homes – the company also expanded its business horizons and entered the fastgrowing Australian market where its products were very well received. Altogether, the 2007 turnover reached EUR 261 million, representing a 16 percent increase over the previous year. A very successful season was likewise not denied the
Adria Mobil caravans are a frequent sight on roads leading to the coast
proverbial frosting on the cake – Adria Mobil successfully carried out the takeover of a Spanish company, Sun Roller, whose main production programmes are mobile homes and caravans, thus strengthening the company’s position on European markets.
Future plans Adria Mobil’s new generation of motor homes, which was introduced last year and featured a new Fiat Ducato chassis, was favourably accepted on all the main markets. Products for the 2008 season have all been improved or developed anew, which keeps Adria Mobil’s competitive edge by reacting to market demands, needs and general expectations. Among the innovations of the 2008 season is also Coral Compact, which was voted Motor Home of the Year in the Netherlands by the Dutch Motor Home Club for its outstanding features such as compactness, completeness, a very good price-to-quality ratio and attractive appearance. Adria Mobil’s vision for the future is to become one of the leading European manufacturers of the products for leisure. The main business goals for the future include a five percent growth of sales, increasing market shares on primary and secondary markets, strengthening the company’s position to remain one of the top players in the industry and continually finding new ways of increasing the company’s business and brand recognition. 35
ECONOMY ECONOMY
Porsche Slovenija
“In Car Industry, Every Day is a New Opportunity.” Danilo Ferjančič is what you would call a car expert. He returned to Slovenia from Munich, where he had graduated in automotive technology. After a brief stint working for BMW in Slovenia, he moved to Porsche Slovenija. He currently heads this well-respected automotive company which is the official agent of Porsche, Volkswagen, Audi, Seat and Škoda vehicles in this country. How do you assess the 2007 business results of your company in Slovenia? Did you achieve your goals?” We are pleased with the business results for 2007. We managed to increase the market share already achieved by the brands we represent, which meant that at the end of the year we had a more than 20 percent market share in the sales of private vehicles. Financial results were good and in line with expectations, but even more than that, we were pleased with the fact that a large majority of our authorised partners also had good financial results. The organisation thus enjoyed further consolidation in the sales and service departments in 2007 and is in great professional and financial shape. However, the year 2007 is now behind us and the company is eager to continue its success story in 2008. We are consistently increasing the market share of each of our brands as the first seven months of 2008 have already shown, proving that we are number one in the Slovenian automotive industry by a large margin. Everyone employed in our company and all our authorised partners invest a lot of effort into not only preserving our current status but also into improving on it. Audi ranks as the top-selling luxury car in Slovenia. Why is it so popular? Audi is a very successful brand on other markets also, but it is true that it enjoys a rather privileged position in Slovenia. Nowhere else in the world does Audi have such a high market share among the so-called “premium brands” as it has in Slovenia. I can recognize three important factors of its success: firstly, a remarkable range of vehicles that are technically impeccable and perfectly designed; secondly, a highly motivated sales and service organisation that lives and breathes this brand, and thirdly, the Audi Group that governs import by maintaining an extremely high level of professionalism in managing the organisation and securing the brand’s overall recognition in Slovenia. The right kind of hard-working people behind a given product guarantee success. In your mind, how will the economic downturn affect the sales of luxury vehicles? It is our experience that economic downturn first has a short-term impact in the medium- and low-price range 36
sectors of the vehicle market, which is understandable given that fluctuations prove less marked, the further up the price scale we move. Moreover, the luxury car market sector in Slovenia has been extremely stable over the years. On the other hand, commercial vehicles are extremely vulnerable to fluctuationsin economic trends. We are in a favourable situation since our brands offer a wide spectrum of vehicles, from the compact Volkswagen Fox to the prestigious Audi A8 and the Volkswagen Crafter heavy delivery van. Are there any new models on offer in the 2008 range? 2008 certainly has a lot to offer in terms of new additions. We have seen the successful launch of the new Škoda Superb, Seat Ibiza, Audi A3 Cabriolet, Volkswagen Tiguan and Passat CC in the private vehicle sector, while the Caddy Maxi has been added to the commercial vehicle range. Our plans for the second half of the year include the comeback of the legendary Volkswagen Scirocco and the introduction of the long-awaited Audi Q5. At the end of the year we also expect the sixth-generation Volkswagen Golf. We will certainly not be short of top-sellers. Does the organisation have any goals on the global market? The Volkswagen Group is currently treading a very successful path with excellent sales and business results across all its brands. It is already a global leader in innovation, design and quality with ambitious yet realistic goals – in ten years the Volkswagen Group wants to become the leader in the fields of customer and workplace satisfaction, appeal to business partners, quality, economic viability and environmental awareness.
COMPANY NOTES Porsche Slovenija, d.o.o. Bravničarjeva 5, 1000 Ljubljana Tel.: +386 (0)1 582 51 00 Fax: +386 (0)1 582 51 04 info@porsche-slovenija.com, www.porsche-slovenija.com
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Corporate Brands
“Higher the Reputation, More Valuable the Corporate Brand”
Professor Miro Kline’s research focuses on how companies can leverage their reputation and corporate brands to get ahead of their competitors. He recently led a team of researchers that compiled a list of the most valuable Slovenian corporate brands. Corporate branding is becoming an increasingly important field of activity for many companies. What are the factors that influence the reputation of a particular corporate brand and contribute to the reputation of a company? A company earns its respect and reputation via the interaction with its target audiences or publics. To measure the reputation of a corporate brand, one needs to know how these target publics, and we are talking here about the business community and the general public, view and evaluate a particular company. The reputation of a corporate brand is dependent upon the quality of goods and services a company has to offer, its attitude towards the employees and the society at large as well as on its business results. All these have to be communicated to target audiences to increase the visibility of the company. Even the best companies cannot capitalize on their potentially high reputation, if they do not become visible and recognizable. How do companies exploit their corporate brands? A company with respected corporate brand can leverage its high reputation to access capital more cheaply, pick and choose well-qualified employees and to communicate its message to consumers more credibly than competitors. That allows for more efficient marketing. These comparative advantages usually result in higher sales and profits.The higher the reputation of a company, the more valuable its corporate brand. The value of a corporate brand adds to intangible capital of the company. In the case of leading companies, intangible capital increasingly exceeds tangible capital. Are Slovenian companies good at developing their corporate brands?
There are only 15 to 20 Slovenian companies that take the development of their brands seriously enough. Others are still focused, to overemphasize a bit, on calculating how much the land on which their factories stand is worth and how much money could be made by selling it to real estate developers. They are stuck in the phase of early capitalism. Which are the most respected Slovenian corporate brands? To find out which corporate brands are the most respected, we have focused our research on two broad audiences, the business and the general public, surveying their attitudes towards different brands. We concluded that their opinions on which brands they trust and value overlap in 70 percent of the cases. The best rated brands in 2008 are Krka (pharmaceuticals producer), Gorenje (home-appliances maker), Lek (pharmaceuticals producer), Mobitel (mobile operator), Petrol (fuel retailer, Mercator (grocer), Fructal (soft drinks producer), Terme Čatež (spa operator), Revoz (a subsidiary of French car maker Renault) and Laško brewery. Your research has also showed that companies from the tourist industry, especially spa operators, rank surprisingly high. Business community and the general public have both put the tourism industry in the second place among business sectors enjoying the highest reputation. Within the industry, spa operators rank as the most respected companies. We think that this is because they are in the middle of an investment cycle, opening hotels and other facilities, thereby increasing their visibility. 37
ECONOMY ECONOMY Logistics
A Magnet for Investment Logistics is one of the key branches of the Slovenian economy where substantial opportunities exist for companies to strengthen their market position through increased investment. The port of Koper (Luka Koper), which recently upgraded its fruit-handling terminal, is rapidly becoming one of most important European logistics hubs, being the most convenient shipping connection between Central Europe and most foreign ports, especially Mediterranean ones.
Fruitful cargo Over the last few years, an increasing amount of fruit and vegetables originating from eastern Mediterranean countries has passed through Koper, the only Slovenian port, on its way to European markets. The total throughput of perishable goods, which in recent years averaged about 100,000 tonnes per annum, is expected to increase considerably this year. In the first two months of 2008 alone, the port handled almost 25,000 tonnes of bananas, which is the same as last year’s annual total. In addition to the Slovenian market, bananas from the port of Koper are supplied to Croatia, Serbia, Hungary, Italy and Romania. Therefore, one of the main objectives of Luka Koper’s business strategy is for its fruit terminal to become a leading logistics and distribution centre for perishable goods coming from the Eastern Mediterranean and destined for
European markets. This goal is supported by the company’s development policy, which, of late, has caused significant investment in the expansion and modernization of the fruit terminal’s facilities. The largest investment was completed in March and included upgrading the banana-ripening facility, the handling capability of which has increased from An increasing amount of fruit 1,500 to 1,800 tonnes per and vegetables originating from month, as well renovating eastern Mediterranean countries two warehouses. The two has passed through Koper, the only renovated warehouses Slovenian port are now universal fruit facilities with temperature and humidity regulation and are equipped with bay racks for paletted produce, a feature that allows better use of space and easier handling. The value of all the aforementioned investments, which were completed within just ninety days, amounted to a total of EUR 2.8 million. However, these facilities account for only a minor portion of the massive investment programme on which the port of Koper has embarked, including the extension of the two existing piers and the construction of a new one.
Connections with Egypt
Luka Koper plans to increase the capacity of the port
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Observers say that at the large Egyptian port of Alexandria, on the other side of the Mediterranean, the port of Koper has an excellent reputation for its handling Slovenian port entered into talks of fruit and vegetables, of with Egyptian authorities on the which Egypt is a major exporter. It is therefore construction and operation of a only natural that the multi-purpose terminal in the port Slovenian port entered of Alexandria. into talks with Egyptian authorities on the construction and operation of a multipurpose terminal in the port of Alexandria. There has been a long-standing tradition of cooperation between the port of Koper and Egypt; an Egyptian shipping company has been operating between the ports of Koper and Alexandria for 10 years. The two ports signed an agreement on cooperation in 2001 that, in the view of Slovenian
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officials, also forms a good basis for better cooperation with Egypt in general. Nevertheless, Egypt will need a wellplanned and soundly constructed transport network in the next five years if it wants to seize the opportunities offered by rapid economic growth.
Foreign investors are also looking for opportunities to enter into the railway business.
Moving up the value chain But Luka Koper is not only eyeing port infrastructure in far-away countries such as Egypt, but aims to expand its business just over the border, in the Italian port of Trieste. A subsidiary of Luka Koper, in conjunction with two Italian firms, has established a new company GTC (General Cargo Terminal) in which Luka Koper holds a 48 per cent stake. The company was set up in order to tender for the concession to operate the general cargo terminal in the port of Trieste. GTC would focus its activities mainly on timber handling. This represents an opportunity for Luka Koper, which would, if it won the tender, move its low-profit timber traffic to Trieste and gain additional space for more lucrative cargo like containers and cars.
Too much of a good thing? While cargo ships are lining up in front of the port of Koper and the port managers are busy expanding its capacity, logistics experts worry about a problem that could thwart the port’s ambition to become the gateway to Central Europe: the missing railway lines. Linking Koper with its hinterland is only one railway track that winds from the town of Divača, 435 meters above sea level, to the seaside. Because Slovenian railways could not service all the cargo the port of Koper wanted to move from its vast warehouses, the port decided to buy its own railway carriages. However, the question of how to move these carriages fast enough between Koper and Divača when juggling inbound and outbound trains on the same railway track remains unanswered. Plans for the construction of the second Koper-Divača railroad track have a long history. When the plans were made public more than 10 years ago, the Italian government was not too enthusiastic about them, because the second Koper-Divača track would be a significant competitive advantage for the port of Koper over the port of Trieste. However, after Slovenia entered the EU in 2004, Slovenian and Italian governments agreed that an additional railroad track linking Trieste with Divača would also be built. The opposition to the Koper-Divača link was thus dropped, Opening the gates maritime cargo throughput, ‘ 000 tonnes 16 15 14 13 12 11 10 9 8
N
2000 2001
Source: SURS
2002 2003 2004 2005 2006 2007
Logistics companies profit from Slovenia’s location at the heart of Europe
the EU funding secured and the plans for the construction could proceed. The construction of the two tracks is a part of a wider project which aims to open up a transport corridor between the two ports and the Slovenian-Hungarian border in the northeast.This includes the modernisation of the existing rail lines between Italy, Slovenia and Hungary. The government estimates that the whole project will cost around EUR 9 billion and will be completed in 2023.
Lucrative cargo That does not bode well for the other half of Koper’s logistics hub, the logistic company Intereuropa. The firm has embarked on the construction of the ChechowMoscow logistics hub and plans to manage the storage and shipping of 160,000 cars destined for the fast-growing Russian market. The next stage of the project, which is vital for its success, is the construction of the three railway tracks and loading ramps for automobiles and another for general cargo. In March, Intereuropa announced plans for a railway connection that will transport 75,000 cars from the port of Koper to Moscow this year. With railways being such an important factor in the plans of Slovenian logistics companies, it is not surprising that foreign investors are also looking for opportunities to enter into the railway business. Last year, rumours abounded about a possible sale of Slovenske železnice, the state-owned rail firm, to German logistics giant Deutsche Bahn. However, these plans, if any indeed existed, came to nothing. In contrast, OeBB, the Austrian rail firm, is already operating trains on Slovenian railroads, making them the first foreign railway company to enter Slovenia. The combination of an appealing geographical location at the crossroads of the major trans-European transport corridors and massive investment into railroads and highways make Slovenia one of the most important logistics hubs in this part of Europe. Slovenian logistics companies have already recognized these opportunities and are growing briskly, but the industry is still waiting for a big foreign investor to catapult it to an even higher growth path. 39
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Luka Koper
The Gateway to Europe
A lawyer by education, Robert Časar, the CEO of Luka Koper plc, has spent most of his career running logistics companies. After his 10 year stint at Fersped, one of the leading Slovenian transport companies, he now employs his vast experience in the sector to the benefit of Slovenia’s one and only port operator. The Port of Koper is the most important port in the northern Adriatic. What are your advantages over rival ports such as Rijeka and Trieste? To ensure that the port remains competitive, two things are needed: reliability and prompt service. The Port of Koper operates 24 hours a day and 365 days a year. There has never been an instance of a ship having to wait due to subjective reasons, something which is extremely important for ship owners and shipping agents. The Port of Koper was among the first European ports to comply with international quality standards. Ensuring quality is a vital part of our business strategy, while our long-term goal is to become the premier port in the Mediterranean. Our clients are offered full logistics support which ensures that all deadlines are met. Are you satisfied with the business results for 2007? Every year we see an increase in transhipment income and profit. Transhipments in 2007 grew by 9 percent and exceeded 15 million tons. The overall income of the Luka Koper reached more than EUR 122 million. Business profit rose by 20 per cent in comparison with last year.
This year we have spent EUR 144 million on strategic investments. But our most demanding investment – the building of the third pier with a container terminal for one million annual TEU transhipments – will necessitate a special financial plan. We estimate that around EUR 500 million will be invested into infrastructure over the next five years. Do you see any possibility of cooperation with other ports, e.g. Trieste? Together with our colleagues in Trieste and Rijeka we are well aware that all the northern Adriatic ports combined are not comparable to any of the large ports of northern Europe. But since demand is on the increase, there is plenty of work for everyone. With appropriate forms of cooperation we might achieve synergy effects that may prove beneficial to all.
You have now focused on more lucrative freight such as cars. It is precisely the shift in transhipment structure towards more lucrative freight that brought about the previously mentioned excellent business results. We transported 31 per cent more cars than in 2006, general freight grew by 36 percent and we also had a 40 per cent increase in transhipments of containers. Similar positive changes in the transhipment structure are on-going in the current year as well.
You have been forging closer links with overseas economies such as Egypt and Brazil. The Port of Koper has been cooperating with the Egyptian economy for some time now and there is a regular shipping route between Koper and Alexandria. Lately, we have had more container trade between Koper and Egypt, mostly the transport of Egyptian fruits and vegetables to European markets. The booming Brazilian economy is seeking new business opportunities to enter the markets of the new EU Member States and it sees Slovenia as an appropriate location for its distribution centre of energy products, fruits, coffee and other merchandise.
What are your investment plans? Our vision at Luka Koper plc is to become the leading port and logistics services provider for Central European countries as part of our development strategy for the period through to 2015. The enlargement of the first pier, the completion of the vehicle warehouse and expansion of a network of land terminals in Slovenia will improve our capacity to service importers and exporters from all over the world.
The economic downturn has had a negative effect on international commerce. How will the Port of Koper react to this? Sea freight, especially where containers are involved, is on the increase despite recession. We believe that this is not going to change in the future. Our key markets are those of the new EU Member States, which are on the up, therefore we believe that global fluctuations will not affect us materially.
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ECONOMY ECONOMY Financial Market
Stocks of Slovenian Companies: It’s High Time to Buy Low Slovenian equities took battering this year as foreign investors rethought their exposure to emerging markets and the optimism of domestic shareholders gave way to fear about the sustainability of the stock market boom. The spill over from the US financial crisis to Europe is also taking toll on a wider financial market, with banks in Slovenia tightening credit standards and mutual fund managers fleeing the once popular Balkan stock markets.
In June, Ljubljana Stock Exchange (LJSE) was acquired by Wiener Boerse, the leading provider of stock exchange services in Central European region
Bold investors
The colour of money
Although the Ljubljana Stock Exchange (LJSE) followed the Balkan bourses into negative territory, overall, 2007 was a good year for investors. In August last year, the main market SBI20 index breached the 12,000 points benchmark for the first time in its history. Since then, however, it has shed most of the gains. In September 2008 the index stood below the 7000 points mark, down around 40 percent year-on-year.
Many investors had thrown caution to the wind and gone long on Serbian and Macedonian equities only weeks before the stock markets in the region recorded their biggest drops in years. In Slovenia, investors, among them many managers involved in management buy-outs, had financed their purchases of stocks with bank loans, counting on a continuous rise of indices. After sizeable corrections
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Paint it red Stock market participants explain that Slovenian equities have been buoyed by expectations of takeovers and privatization of state-owned firms. The latter has not always worked out as planned. While the sale of the state’s stake in NKBM in November 2007 went smoothly, the privatization of the national telecommunications group Telekom Slovenije was halted in May after the two remaining buyers’ offers were judged insufficient Stock market participants explain by the government. Both that Slovenian equities have Skipti and Bain Capital been buoyed by expectations of valued the telco group at takeovers and privatization of EUR 400 a share – a fair state-owned firms. price, analysts indicated, especially because Telekom Slovenije has potential liabilities arising from a number of lawsuits against it. After the government decided not to proceed with the sale of its stake in the group, the latter’s share price plummeted, Still holding SBI20 Index, points 12000 10125 8250
6375
N
4500
4. 9. 06
Source: LJSE
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on the LJSE this year, it is not only the investors, but also the banks that are looking harder at their exposure to the stock market and re-evaluating the appropriateness of stocks as collateral for their loans. Falling share prices and, consequently, the value of the collateral triggered margin calls from banks, prompting leveraged investors to either top up their accounts with additional capital or repay their loans earlier. Record economic growth of 6.8 percent in 2007 failed to stop the downward trend of LJSE indices that started in August after it became clear that the subprime mortgage crisis would not only depress growth in the US, but would also spread to Europe and emerging markets around the world. Over the summer, when the leading Slovenian companies were publishing their half-yearly results, investors were not inspired, although profits had reached record highs. Pharmaceuticals producer Krka, for example, said it generated a profit of EUR 108.2m in the first six months of 2008, up 30 percent from the same period of the previous year. The group’s revenues stood at EUR 469.3m, a 20percent rise over 2007. When such news not only fail to impress the investors, but also do not put a floor under a company’s share price, then it is clear this has more to do with panic than with the valuation of companies’ prospects. In September, the share price of Slovenia’s only independent pharma company and one of its most successful exporters was down almost 30 percent year-on-year.
pulling the SBI20 index down with it. Telekom’s share price in September was down 28 percent from its high of EUR 306 at the beginning of March. While some observers deplored the fact that the government decided to sell what they say is an inefficiently run company and forego a significant takeover premium, others are more sanguine. Andrej Vizjak, a partner at AT Kearney, a consultancy, recently said that the telco operator, being technologically on a par with major European telecoms, can easily survive on its own.
Crunch time With the uncertainty about the government’s privatization strategy scaring away potential investors, the stock market looks to the industry bosses to inject some much-needed action into the market place. While Boško Stricter lending standards Šrot, the CEO of Laško and higher borrowing costs for brewery, is manoeuvring to take over Mercator, companies and households are Slovenia’s biggest grocer, likely to rein in credit growth. Igor Bavčar, the boss of Istrabenz, is consolidating the ownership structure of the leading tourism services and energy holding company. Both takeover attempts are likely to be unmasked as management buyouts. Nevertheless, as the volatility caused by the US financial meltdown spreads to Europe’s financial markets, the LJSE will arguably see less takeover activity. The latter needs sizeable financing that in Slovenia only banks are able to provide. With international interbank markets periodically seizing up, lending between banks is becoming more costly. Big European banks with exposure to the fragile US and EU real-estate markets hoard cash to have a capital cushion ready in the case of unexpected writedowns. This means that they charge Slovenian banks more for the privilege of providing them with the money needed to finance their lending activity. Consequently, stricter lending standards and higher borrowing costs for companies and households are likely to rein in credit growth. Banka Slovenije, Slovenia’s central bank, expects year-onyear growth in lending to companies to fall from the current level of 30 percent to below 20 percent in the next two years. Economists agree that the fallout from the US financial crisis is unlikely to directly influence the movements on LJSE, but with tighter credit, domestic as well as foreign investors will find it much more difficult to raise the money to engage in the bidding wars that are so dear to an investor’s heart. When the tide 1. 9. 08 turns, however, those who bought cheap will be able to sell high. 43
ECONOMY ECONOMY
Ilirika Group
At the Service of Investors
Ilirika Group is one of Slovenia’s most respected financial firms. As the company performs a substantial part of its business on the fast-growing markets of South-Eastern Europe, it can offer valuable insights and expertise for investors interested in the region. We talked to Jožko Peterlin, the head of Ilirika Group’s fund management arm. Today, Ilirika is a very well-known company in Slovenia, but the foundations of its success were laid back in the 90s. That is correct. The company was established in 1994 when Igor Štemberger, Ilirika’s owner, took the opportunity to take part in the privatisation of Slovenia’s economy. The country’s transition from centrally planned to market economy naturally included large transfers of government property to shareholders as the ultimate owners of formerly state-owned companies. Ilirika started by offering brokerage services to investors. In 2000, the company expanded into mutual fund management, offering investors a full range of services not just in Slovenia, but also in SE Europe. Of course, we also offer wealth management services and advice on mergers and acquisitions. How do you maintain the reputation of your corporate brand? We try to observe our motto, »The trust that enriches«, in everything we do. We offer our clients services suited to their individual needs and strive to forge long-term relationships with them. We are a socially-responsible company that cares about what happens around us. The leading Slovenian stock market index, the SBI 20, has been faltering since August 2007 after growing vigorously for a couple of years. What are the reasons for that? Essentially, there are two main reasons. The external one is that global interest rates were extremely low in 2004 in 2005. Many people took out loans and invested that money in stocks which yielded far more than deposits would have. However, while in pursuit of yield, investors often overlooked the risks. As interest rates started to rise in 2006, stocks tumbled and people were faced with margin calls they could not meet. This put a lot of investors under pressure to sell. The other reason is domestic in nature. Governments of all colours have always professed their belief in the beneficial workings of the market and promised the sale of government-owned companies. Those who thought that 44
these companies might be snapped up by foreign investors, bought shares in them, expecting to profit from higher share prices once the companies were put on sale. Unfortunately, this has not happened, prompting investors to sell. What is your approach to SE European markets? We have established our own sales network in these markets, an important comparative advantage that makes us a first point of call for investors interested in doing business in the region. Our fund management companies already run funds in Serbia, Macedonia, Croatia and Bosnia-Herzegovina. We are also in the process of entering Romanian and Kosovo markets. You were among the first Slovenian financial firms to recognize the possibilities of doing business online. We always try to make it easier for our clients to do business with us. They can invest in mutual funds in Slovenia, Croatia and Serbia without ever leaving their computers. In addition, simple, safe and quick online stock trading is available to our clients, not just on the Ljubljana Stock Exchange, but also on the Zagreb Stock Exchange in Croatia. We are thus the first financial firm in the region that has established regional online trading systems for stocks and mutual funds. This testifies to the innovative spirit that drives our company.
COMPANY NOTES ILIRIKA borzno posredniška hiša, d.d., Ljubljana Slovenska cesta 54a 1000 Ljubljana Tel.: +386 (0)1 300 22 50 Fax: +386 (0)1 234 33 57 info@ilirika.si www.ilirika.si
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Trust that enriches
ECONOMY ECONOMY Banking
Bold Moves, Record Profits When Banka Slovenije, the Slovenian central bank, announced at the beginning of 2008 that banks doing business in Slovenia had increased their profits by nearly a third over the previous year hardly anyone was surprised. Financial deepening and the process of catching-up with more developed financial markets hold a promise of continuing growth in the volume of operations and profitability of Slovenian banking industry. The credit growth in the past two years has been impressive. While it hovered around 20 percent year-onyear in 2005, it crossed the 25-percent mark in 2006, and reached a whopping 35 percent last year. Strong demand for credit by households and companies outside the financial services sector has been a boon to bankers, eager The housing market is slowly to expand their balance cooling down in Slovenia. sheets in times of record economic growth. Although turbulence stemming from the crisis on the US financial market is increasingly being felt in the country, the banking industry has not yet opted for a radical curtailing of credit to Slovenian businesses. The latter have borrowed primarily to expand their production capacities and thus keep up with strong demand for their products at home and abroad.
Too optimistic? Because nominal interest rates have not kept up with inflation, households have been enjoying lower and lower real interest rates. This has allowed them to take out mortgages in volumes not seen before. If the share of mortgages in loans taken out by the households was around a quarter in the beginning of 2005, this share now stands at around 40 percent. The share of Lombard asset-backed loans has also been growing at unprecedented rates. With the booming stock market, many an investor has been tempted to take out a loan and put up shares as collateral. The share of such loans jumped from 2.7 percent at the end of 2006 to 9 percent one year later. As the mood on the stock market has soured in the wake of the financial crisis spreading from the US, investors are being faced with margin calls. On the housing market, there are some signs that the prices, after years of solid growth in the region of 15 percent, are beginning to relent somewhat. Does that mean that Slovenian banks will face similar problems to those experienced by their foreign competitors in the EU and the US?
Crunch time NLB, Slovenia’s biggest bank, raised EUR 300m in a rights issue in June
46
Although Slovenian banks have been financing management buyouts, takeovers and house purchases, they
ECONOMY ECONOMY
have not engaged in securitization of loans and mortgages into financial instruments such as mortgage- or loanbacked securities. The latter have proved to be at the heart of the current turbulence on financial markets around the world. The relative underdevelopment of the financial system combined with the conservative investment strategies of Slovenian banks has largely insulated the banking sector from the direct consequences of the US financial crisis. However, as Slovenian banks increasingly finance their lending by borrowing the funds on international financial markets in general and on interbank markets in particular, they have been hit by higher interbank rates. Interbank markets have been periodically seizing up because of the uncertainty with regard to exposure of banks to low-quality mortgages and hard-to-value financial derivatives. Slovenian banks have The government has welcomed thus been forced to tighten foreign investors in the banking lending standards. The sector. fallout from the financial crisis has also brought to the attention of policymakers the fact that subsidiaries of large foreign banks in Slovenia can access funds more easily than banks owned by domestic shareholders. This has given new impetus to debates about the advantages and disadvantages of foreign ownership of banks, which in the past often resulted in the opposition to any kind of privatization of state-owned banks.
Getting the state back in The government, however, has welcomed foreign investors in the banking sector. Last year, in its boldest move to date, the government sold 49 percent of Slovenia’s second largest bank, NKBM, to small investors and foreign investment funds. The Belgian banking and insurance group KBC has had a 34 percent share in the biggest Slovenian bank, NLB, for more than five years. Although the Belgians are currently selling their shares, the buyer will probably come from abroad. In June, the government as the majority owner of the bank raised EUR 300 m of additional capital to rejuvenate NLB’s balance sheet. Slovenia’s leading insurer, the recently listed Zavarovalnica Triglav, was supposed to play an important role in this process. Although the plans have not yet been spelt out in any detail, observers strongly suspect that the government wants to merge A real bargain interest rates, in %
9
Consumer credit Mortgages Inflation
8
The government sold a 49-percent stake in Slovenia’s second biggest bank, NKBM
the two companies, thereby creating the leading banking and insurance group in the region. Leading managers from both financial institutions already said that there are synergies to be reaped from the merger. If so, there is no doubt that Slovenian financial services industry will become an important and competitive player in the Western Balkans region. Big players banks’ market shares on 31.12. 2006, in %
Other
NLB
7 6 5 4 3
SKB Societe Generale
2 1 0
NKBM 31. 1. 06
Source: Banka Slovenije
30. 7. 08
Abanka
UniCredit
Source: Banking Association of Slovenia (ZBS)
47
ECONOMY ECONOMY Kranjska Investicijska Družba
More than Just Real Estate – Changing the Face of the City
Jože Anderlič, the CEO of Carniolian Investment Company (KID), is an experienced manager with intimate knowledge of the Slovenian business landscape. Before moving into real estate development, Mr Anderlič ran a subsidiary of the first foreign bank in the country. This gave him a unique overview of investors’ finance needs, certainly an asset in the competitive real estate sector. Kranjska investicijska družba, KID (Carniolian Investment Company Ltd) is a successor to the renowned Carniolian Industrial Company, the primary force of development in the Carniola crown land throughout the 19th century. The latter extended across the central part of what is today Slovenia. It laid the foundations for the iron, mining, hydroelectric and timber industries. In the 21st century, particularly since 1993, its successor in name has been creating modern urban landscapes according to its needs and the needs of its clients through investing in and developing real estate projects. Using a combination of traditional and contemporary influences, and blending them with a bold vision of the future, Carniolian Investment Company Ltd. has been able to use its creativity to conceive something very special – more than just real estate. “Firmitas, Utilitas, Venustas - solidity, utility and beauty, are the three pillars upon which Vitruvius, the Roman architect, based his work. Here at KID, we follow these principles in the creation of each project, and use our knowledge and experience to find innovative solutions that maximize the economic efficiency of our investments,” to quote Mr Anderlič. 48
Guiding principles at KID are quality at all levels of the company’s operations and corporate responsibility. We use our development solutions to create better quality of life, both professional and social, and at the same time set new standards for the future with our architecture. As a selection of our flagship projects shows, KID has a wide range of experience in real estate development, making it one of the most important players in residential, commercial and retail real estate in Slovenia.
COMPANY NOTES Kranjska Investicijska Družba d.o.o. Zaloška cesta 1 1000 Ljubljana Tel.: +386 (0)1 600 40 00 Fax: +386 (0)1 600 40 09 office@kranjska-id.com www.kranjska-id.com
KRANJSKA INVESTICIJSKA DRUŽBA d.o.o. Krainische Investitionsgesellschaft m.b.H. Carniolan Investment Company Ltd
ECONOMY ECONOMY Kolizej – The Art of Building, the Building of Art In 2007, KID presented the general public with the concept for the new 1800-seat Kolizej Concert and Opera Hall which is to be located in the centre of the capital. Its majestic size and original design place the Concert and Opera Hall among the best buildings of its kind in the world. With this symbolic project – a generator of creative cultural events and activities – Ljubljana is set to achieve international recognition and as a result become more attractive and competitive when compared to other European capitals.
Kapitelj – Rooms with a View in the Heart of the Capital A multipurpose complex with underground car park with 260 parking spaces, a 2,000 m² shopping gallery, 6,000 m² of office space and 42 luxury flats in the heart of the city by the Ljubljanica River.
Enclosed Parking –The Key to Effective Car Park Solutions With more than 2,000 parking spaces over three locations, being equipped with the most advanced technology and open 24 hours a day, the car parks significantly contribute to a more pleasant experience of the city. 49
ECONOMY ECONOMY Aldi/Hofer Shops – Catering to the Cost-Conscious We are to build 80 shops in select locations across Slovenia and a warehousing and logistics centre for an internationallyrecognised client. The local branches of the Aldi/Hofer Group discount supermarket chain consist of more than 3,000 units in 16 countries. KID counts its relationship with Aldi/Hofer among its best references.
Hotel Mons – On the Crossroads A hotel complex with 114 rooms, two restaurants and a multipurpose conference centre with space for 600 guests. It is located halfway between the Alps and the sea alongside the western stretch of the Ljubljana ring road. Made for those who appreciate doing business in the midst of green hills surrounding Ljubljana, but want to stay within an easy reach of the city centre. If you are looking for a state-of-the-art conference service or culinary experience, to be cherished long after your meal is over, then look no further. Hotel Mons, with its innovative architecture, that allows daylight to penetrate its most remote corners, has it all. Hurrying to a wedding, but forgotten your trouser belt? Looking for a quiet romantic retreat, or just a fancy restaurant to impress your clients? You can be sure that the hotel’s 24-hour concierge service, with concierge Marino Šantek, will have the right solution for you.
Pule Estate – A Place to Wind Down An estate offering 9 luxury apartments, a restaurant complete with an excellent culinary selection and wine cellar, recreational activities such as horseback riding and wellness centre as well as the possibility of hosting conferences and cultural programmes. A business trip to Ljubljana, or to any other place for that matter, can be a stressful experience. Pule Estate, Slovenia’s most luxurious country estate, offers businessmen and businesswomen the opportunity to take a break from the hectic world of deal-making and to relax in the peaceful countryside of the Dolenjska region. A part of Slovenia’s cultural heritage, the estate has been renovated in a way that respects the architectural solutions of original architects, while offering visitors all the amenities they have come to expect in a luxury hotel. 50
ECONOMY ECONOMY Pharmaceutical Industry
A Tale of Two Companies The Slovenian pharmaceutical industry has always been one of the most successful, flexible and advanced branches of the Slovenian economy. Leaders in research and human resource development, the pharmaceutical companies Krka and Lek remain star players in the economy.
Slovenian generics producers are the most R&D-intensive companies in the country
The Slovenian pharmaceutical industry represents one of the healthiest elements of the economy that has successfully manoeuvred its way through all of the disruptions in history. Pharmaceutical companies generate over a quarter of the entire profit in the Pharmaceutical companies generate manufacturing sector, over a quarter of the entire profit in around a tenth of the the manufacturing sector, around a value-added and are tenth of the value-added. responsible for over a third of all research and development (R&D) expenses. They are also strongly reliant on highly skilled employees who, together with high capital intensity of production, enable them to have high levels of productivity in comparison with other companies in the manufacturing sector. While smaller companies focus on over-the counter medicines, the two majors – domestically owned Krka and Swiss-owned Lek – are successful global players on the highly competitive market of generic pharmaceuticals.
Lek in Ljubljana The Ljubljana-based company Lek employs around 3,100 people and is owned by the Swiss pharmaceutical giant Novartis, whose takeover of Lek was the largest foreign direct investment since Slovenia’s independence. 52
The company generates most of its revenue with sales of pharmaceutical products (prescription medicines) followed by the rapidly growing segment of over-the-counter or non-prescription medicines (where it is the market-leader in Slovenia) active pharmaceutical ingredients and other programs of the company. Lek was officially established in 1946. It grew rapidly at home and abroad in the following decades, intensively seeking partnerships with innovative pharmaceutical companies in the West on the basis of license agreements. In the second half of the 1970s, Lek decided to focus on the development of its own active ingredients. The company also made its first appearance on the markets of the United States and Western Europe. In the 1990s, Lek intensively spread throughout Central and Eastern Europe and former Yugoslavia, and was the first pharmaceutical company from this region to market a final dosage product in the USA. The enterprise entered the new millennium with more than 20 companies all over the world. The year 2002 was a turning point in Lek’s history since it became part of the Novartis corporate group in a takeover worth just shy of USD 1 billion. In May 2003, some of the national trademarks in the company Novartis Generics created a global trademark Sandoz, which now incorporates Lek. Hence, the company is now part of the second largest generic pharmaceutical company in the world that occupies one of the three leading places on key global markets As a member of the Sandoz Group, Lek has become one of its pillars. Its role is that of a global development centre for products and technologies, a global The merger with Sandoz brought production centre for with it a rise in the sales of Lek active ingredients and products to new markets medicines, a centre of excellence for the development of vertically integrated products and a centre of excellence for the development and production of biopharmaceuticals (also known as generic version biosimilars). Due to the rapid progress in genomics and biotechnology in recent years, this last role is especially exciting. The first biopharmaceuticals were developed 20 years ago, meaning that patent protection for them is running out. These pharmaceuticals are already enabling more effective and individual-based treatments of diseases like HIV/AIDS, cancer and cardiovascular diseases as well as holding great potential in the treatment of diseases like diabetes and
Krka in Dolenjska The company Krka, which owes its name and the colour of its logo to the emerald river that winds its way through
ECONOMY ECONOMY
neurological disorders like Alzheimer’s and Parkinson’s. However, due to the extremely high R&D costs involved in the development of these medicines, they are very expensive. The development and production of biosimilar medicines will thus render these treatments more affordable and Lek’s present and future role within Sandoz in this area is of great importance. The company has already invested almost EUR 40 million into the development and production of biosimilar medicines, which now provide employment to 100 experts in the fields of microbiology, biology, biochemistry, chemistry, pharmacology and other sciences. The merger with Sandoz brought with it a rise in the sales of Lek products to new markets within the Sandoz global sales network framework. Since 2002, Lek has increased sales by an impressive 146 percent. In 2007, the company sold EUR 836 million of products. It sells most of its products in Central and Eastern Europe, followed by Western Europe, the USA and overseas countries, while Slovenia alone today accounts for about a tenth of its sales. Lek’s products are present in over 100 countries, while its leading individual markets in 2007 were Russia, Poland, Slovenia and the US. Lek’s volume of investments in R&D activities is growing and reached EUR 69,5 million in 2007, which represents 8.3% of its turnover. Lek also invested 69.5 million EUR in 2007. In addition to investments in the enlargement and modernisation of production capabilities, Lek has opened a biopharmaceutical development centre in October next to the production plant for recombinant technologies already inaugurated in 2004. This EUR seven million facility is one of the seven such development centres within Novartis and pools all development functions in one place. Moreover, it has recently opened a 5.6 million EUR quality centre in Ljubljana that will ensure capacities for laboratory testing and for the release of products that are manufactured in Sandoz production units outside the European Union on the EU markets (as well as for Lek products destined for the whole world).
Krka has seen its share of foreign suitors, but remains independent
the southern region of Dolenjska, is another success story of the Slovenian economy. From its beginnings in 1954 until today, it has developed from a pharmaceutical laboratory employing nine people in Novo Mesto, the administrative capital of Dolenjska, to one of Europe’s leading generic producers - a global company employing just over 7,200 people, 46% of them abroad. By the end of 2008, this number is forecast to rise to 7,700. Krka is also an outstanding model of Slovenia’s policy of decentralised economic development. The company, which is still based in Novo Mesto, is an important part of the strong local economy, which has turned this town into one of the most industrially developed Slovenian local communities. In the five decades of its existence, the company developed through continuing investment into new production and R&D facilities. Soon after its establishment, it registered its first patent and made its first export steps. By the 1990, it had become an elite Slovenian company and Krka has also experienced exporter and by the mid staggering growth of sales, more 90s, it became one of than doubling them in the last the top pharmaceutical five years. companies in Central and Eastern Europe and began asserting its role on Western European markets. With the onset of the new century, Krka internationalised production and in November of last year, it made its first foreign acquisition by taking over the German maker of generic drugs TAD Pharma in an allcash transaction worth EUR 97 million. Krka is a blue chip joint stock company listed on the Ljubljana Stock Exchange with a market capitalisation of around EUR 3.2 billion. The Krka Group includes additional 15 subsidiaries and 20 representative offices in 30 countries worldwide. Pharmaceutical production is located in Slovenia, Russia, Poland, Croatia and Germany. Krka has also experienced staggering growth of sales, more than doubling them in the last five years. In 2007, The Krka parent company generated sales in the vicinity of EUR 687 million, while Krka Group recorded sales of EUR 782 million. In 2008, the company plans to increase the Group’s sales to EUR 950 million, while the company’s strategy for the 2008-2012 period projects average sales growth of 10% a year. First quarter results for this year see Krka’s sales booming by an impressive 20%. The company’s array of products and services includes pharmaceuticals, which account for 81% of sales, overthe-counter products (11%), health, spa & wellness resort and tourist services through the Terme Krka division (4%), animal health products (3%) and cosmetic products (1%). Krka is present on more than 70 markets around the world, although it is predominantly focused on European markets and Russia. In 2007, the largest share of Krka sales 53
ECONOMY ECONOMY
went to Central Europe (28%), followed by Eastern Europe (23%), Western Europe and overseas markets (21%), SouthEast Europe (17%) and Slovenia, which accounts for 13% of Krka’s sales. The highest growth was registered on western and overseas markets, while key individual markets were Russia, Slovenia, Poland, Croatia and the Ukraine. The company’s management constantly emphasizes the importance of R&D for the company. The early focus on the development of home-developed innovative generic products has enabled the company to adapt almost instantly to the changed business environment after the fall of the iron curtain, when large innovative producers progressively Pharmaceuticals based on license dropped the business model of selling their agreements represent only 10% of products in the East Krka’s product range, while the via license agreements rest is the result of its own R&D. with companies in the communist block – Krka and Lek both played an important role in this arrangement – and opted for direct sales or production in the new democracies. Today, pharmaceuticals based on license agreements represent only 10% of Krka’s product range, while the rest is the result of its own R&D. The company employs over 500 researchers and in 2007 it spent 8.5% of its revenues on R&D, amounting to nearly EUR 60 million. The goal of Krka’s R&D activities is the development and rapid market placement of innovative generic medicines, where researchers look for ways to improve on the performance of innovative pharmaceuticals after the patent protection runs out and ensure the new product added value and key market advantages for years after its launch. As the first generic company in the European Union, Krka last year successfully concluded the so-called centralised marketing authorisation procedure, which enabled it to gain marketing authorisation for a product that is valid throughout the EU. Overall, Krka attained 424 marketing authorisations in 2007, an increase of 34 from 2006. Krka also continues its intensive investment cycle. In 2007, the entire group invested EUR 113.0 million, with the lion’s share of EUR 92.8 million being investments
54
within the parent company. Krka has over 30 investment projects in the pipeline. Most of them are in Slovenia, Croatia, Russia and Poland and focus on modernizing and enlarging production facilities and maintaining high standards of quality control. Krka is also planning to build a new facility for the production of intermediates for pharmaceutical active ingredients in the southern Slovenian town of Krško.
Lessons learned Krka and Lek have always been close competitors and their competitive urge has been of great benefit to the Slovenian economy. The two companies today regularly rank as the top two companies in the country according to practically all major business parameters and their joint race to the top of the Slovenian business ladder is a close one. In 2002, when Novartis took over Lek, some economists predicted doom for the company, claiming that the new owners would curb local R&D and condemn Lek to a slow but sure decline. Even today, some believe that foreign ownership is detrimental for Lek. However, business results in the last five years tell a different story. Integration into the Sandoz network has enabled Lek to boost its sales more than Krka Tendency of the national health while increasing the systems to reduce costs are tilting number of employees the balance in favour of generic by less. Within the new producers. multinational business structure, Lek opted to streamline its activities and ventured into the exciting field of biopharmaceuticals, while Krka’s strategy rests on a greater diversification of products and services and on a more aggressive expansion, which is manifested in higher investment numbers. Otherwise, the two companies are evenly matched and the most one could claim is that Lek and Krka were once two excellent home-owned companies and now one is an excellent foreign-owned company while the other an excellent home-owned company. Nevertheless, the ownership divide is not noted in the links both companies nurture with the local environment. Both companies run their R&D activities in close co-operation with local research institutions and their achievements are recognition testament to Slovenian science and expertise. The companies also carrying out many socially responsible activities by sponsoring people, projects and programmes in fields like health, humanitarian activities, culture, education and sports. The demographic challenges and the consequential tendency of the national systems of health insurance to reduce costs are tilting the balance in favour of generic producers over innovators. Consequentially, the growth of the global generics market is outpacing the total global growth of pharmaceuticals by two to one and this trend is forecast to continue into the future. Nevertheless, competition in the pharmaceutical industry in general and between generic producers in particular is ever increasing, especially with the arrival of producers from emerging economies, such as India, Brazil, South Africa and China. The two flagship companies of the Slovenian economy, who have shared between themselves just about every award and recognition for business excellence and employee satisfaction in the country, cannot rest on their laurels. This guarantees that they will continue blazing the trail of Slovenian economic development.
South-eastern Europe Offers Numerous Opportunities Pristop is a leading Slovenian communications and consulting company. In 2005, Pristop linked up with a leading Croatian communications company, Digitel komunikacije, creating a strategic communications group with a range of specialised companies and practices. Since then, over 500 expert consultants have been employed across the group, generating a revenue of over EUR 100 million in 2007. Pristop is the largest communications group in the region between Vienna and Athens with offices in Ljubljana, Brussels, Zagreb, Sarajevo, Belgrade, Podgorica, Priština and Skopje. We discussed its development and future plans with Primož Pusar, the Director of Pristop. Pristop is one of the leading providers of PR and communication services in the region of SE Europe. How did it all begin? The history of Pristop began sometime in 1989, when Franci Zavrl and Dejan Verčič founded the International Press Centre Ljubljana. They also founded the PR Centre, and in 1992 Pristop was created through the merger of several smaller companies. Pristop was at first a specialised agency for public relations; today we are positioned in three key areas - strategic consulting, marketing and communications. What competitive advantages do you have over your competitors in the region? Our main competitive advantage is that by combining and connecting different pools of knowledge bases, we can help our clients create their own competitive edge. In other words - we can connect knowledge in the area of communications in one place, whether it is public relations, advertising or web communication, with strategic and business consulting. That enables us and our clients to develop numerous new services to improve their market position. When did you decide that the future of the company does not just depend on the Slovenian market, but also on the wider regional market? We made this decision on our first foreign venture in 1997, when we founded an agency in Macedonia. In the years that followed, we opened agencies in Bosnia and Herzegovina, Serbia and shortly after that in the capital of the European Union, Brussels. At the beginning of July 2008 we founded a company in Kosovo; and in Croatia we have part ownership of the leading public relations agency Premisa as well as the advertising agency Digitel. In the past two years we have recorded a doubling of annual income in Bosnia and Herzegovina and in Serbia. Croatia is already a relatively mature market, but there is still a lot of potential
in Macedonia. Our best business results this year are being recorded in Kosovo and Montenegro. Are you satisfied with the business results for 2007? Which markets are the most important for the company? We are relatively satisfied with our results in 2007 generally, but the plans for 2008 are far more ambitious. Statistically the most important markets for the Pristop Group are still Croatia and Slovenia; from the point of view of development, another key task is to establish Pristop as one of the leading communications groups in the Serbian market. In the long– term, we wish to occupy a leading position in every market we operate in, which is why - as clichéd as it may sound – all markets are equally important to us. You recently opened an office in Kosovo. What is the potential for growth in this emerging market? Kosovo is developing rapidly in the areas of politics and economy. The communications market follows this development and is already very competitive. Despite that, we have noticed that with the development of the market and with predictions of pending privatisations, there is increasing demand in the industries for strategic communication services. In the next two years, our goal in Kosovo is to become the leading communications agency.
COMPANY NOTES Pristop, d.o.o. Trubarjeva cesta 79 1000 Ljubljana Tel.: +386 (0)1 239 12 00 Fax: +386 (0)1 239 12 10 pristop@pristop.si www.pristop.si
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ECONOMY ECONOMY
Pristop
ECONOMY ECONOMY Telecommunications
Plugging into European Trends Although earlier this year the Slovenian telecommunications sector was shaken by the government’s decision not to proceed with the sale of national telecommunications operator Telekom Slovenije, the industry quickly shrugged off the news of the botched privatization attempt. As far as technological development and the quality of services are concerned, the Slovenian telco market has already caught up with the rest of the EU. Market players were therefore quick to return to their everyday business of luring customers from their competitors.
State-owned incumbent Telekom Slovenije still dominates the market
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While observers did not expect serious repercussion for the industry as the result of the government’s decision, the stock market traders were not so sanguine. When the news about the suspension of the privatization process broke, the stock price of the Telekom Slovenije group plunged from around EUR 320 in the beginning of March to around EUR 220 half a year later. The group is Slovenia’s biggest provider of fixed and mobile telephony services as well as broadband internet access, which makes the disappointment of potential investors (and of those who expected to pocket a sizeable takeover premium) quite understandable. Skipti, a telecommunications services provider from Iceland, and a consortium composed of Bain Capital, Axis Capital and British Telecom both offered EUR 400 a share for the government’s 49 percent stake in the group. That was significantly more than what the stock had been worth on the market where it had been trading at around EUR 320. Why exactly the privatization of Telekom Slovenije was suspended is not entirely clear, but judging by the squabbles that erupted between the leading managers after the sale was called off, not everybody thought that the government’s privatization strategy was in the best interest of Telekom Slovenije. Some analysts went even further, saying that there is no need to privatize the telco group as it can easily survive and prosper on its own. As fixed telephony services are bringing in less and less revenue, the telco operators are The telco operators are forced forced to substitute this to substitute this loss with loss with faster growth in faster growth in the mobile and the mobile and broadband broadband internet segments of the internet segments of the market. Telekom market. Slovenije has proved that it can rise to the challenge. In 2007, its subsidiary Mobitel, the biggest mobile operator in the country with 1.2 million users and a 65.5 percent market share, increased its profit by seven percent to EUR 50.6 m. At the same time, however, the group as a whole reported a profit of EUR 88.3 m, 15 percent less than the year before, with revenues from fixed-telephony services being the hardest hit.
Saturated mobile penetration rate, in % 150 120 90 60 30 0
EU
Slovenia
Italy
Source: European Commission, APEK
Austria
France
Romania
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The results of Mobitel’s main competitor Simobil, a subsidiary of world’s biggest telco firm Vodafone, show that mobile telecommunications will indeed be a source of growth for some years to come. The company managed to increase its market share by almost three percent last year, to 25.8 percent, while its profit rose to EUR 29.7 m, a whopping three times greater than in 2006. The fears of many observers of the industry that the Slovenian telecommunications market is characterized by the absence of competition proved to be unfounded. Despite the unequivocally dominant position of the state-owned incumbent in all segments of the market, alternative mobile operators are chipping at Mobitel’s market share. The latter shrinked by five percent in only a year, meaning that not only Mobitel’s biggest competitors were able to assert themselves, but also smaller operators and resellers. Putting things into a European perspective, one can see that the level of development of the Slovenian telco market and the range of services it offers to the users are comparable to the European Union average. In October last year, mobile penetration rate in the EU was 111.8 percent, meaning that the number of subscribers exceeded the population of the EU by over a tenth. Slovenian telco regulator, Apek, reported that in Slovenia the penetration rate reached 96,4 percent in the last quarter of 2007. While this is significantly lower than the EU average, the Slovenian penetration rate is still higher than it was in the EU less than three years ago. Ample scope for growth thus exists on Slovenian mobile market before it reaches the level of saturation observed in the EU. Although such a view might not be shared by Western Wireless International, an American mobile operator whose Slovenian subsidiary Vega could not get off the ground, new entrants in the market can nevertheless prosper, if they have a viable business model. Tuš mobil, an operator owned by retailing tsar and Slovenia’s richest man Mirko Tuš, has been steadily gaining market share, using supermarket outlets as a distribution channel. Innovative strategies that lower costs matter, especially in highly competitive and well-regulated markets. Price comparisons between Slovenian and other European telecommunications markets dispels a popular myth among more liberal-minded economists that state ownership and dominant market position of the incumbent impede competition and force higher prices on the users of telco services. Taking an OECD-defined medium usage basket as a point of reference, Slovenian mobile operators’ offer prices that are either near or below the EU average
Mobile communications: competitive market, high-quality services
of EUR 22.90 per month. Another important indicator, interconnection charges for call termination on mobile networks, shows that in Slovenia it is relatively cheaper to call from one mobile network to another than in other EU countries. As interconnection charges were significantly above the EU average only a year ago, the fact that Slovenian mobile operators’ charges are now among the lowest in the EU testifies to the effectiveness of the telco regulator. Strict enforcement of competition rules thus allows the users to enjoy the advantages the EU directive on number portability between different networks has brought them - the number of users that decided to change operators has been growing exponentially in recent months. With fixed-telephony services in decline and the nearly saturated mobile telecommunications market, telecoms are increasingly looking at providing access to broadband internet and services it enables as the market where potential for growth is still largely unexploited. In Slovenia, the broadband penetration rate is 17.3 percent, Slovenia comes third in the EU below the EU average when the share of population using of 20 percent. However, VoIP and IPTV is taken into among the countries that account. joined the EU in 2004 or later, only Estonia has a higher broadband penetration rate. Some blame these rather uninspiring numbers on the usual suspect, the Telekom Slovenije group, which is the biggest provider of broadband access with a 49.8 percent market share. However, in Netherlands and Ireland, both staunch defenders of liberal markets, the market share of the incumbent is greater still. T-2, the leading alternative provider of broadband access in Slovenia, managed to increase its market share seven-fold to 14.2 percent over the past two years, while Telekom’s share dwindled by 12 percent in the same period. The redistribution of market shares in mobile and broadband markets between the incumbent and a number of alternative operators and providers proves that the Slovenian telecommunications market is dynamic and competitive. With prices lower than in the rest of the EU, Slovenians can shop around for the latest in telecommunications services such as broadband telephony (VoIP), television (IPTV) and combinations of services such as triple- and quadrupleplay. When it comes to the uptake of information and communication technologies, Slovenian companies trail behind their counterparts in 12 member states. Consumers, on the other hand are less hesitant: Slovenia comes third in the EU when the share of population using VoIP and IPTV is taken into account. 57
ECONOMY ECONOMY
Si.mobil
Finally Emerging Victorious?
Dejan Turk, the CEO of Si.mobil, knows what it takes to attract and keep customers in competitive industries. Before taking the helm at Si.mobil, he led the McDonald’s chains in Slovenia and Croatia. He started cutting his teeth in the telecommunications sector as head of marketing and sales at Si.mobil. Si.mobil was the first alternative mobile operator to challenge the market leader on the Slovenian mobile telephone market. Are you satisfied with the progress the company has made since? I certainly am. Si.mobil has always had a clear business strategy. We have continuously striven to put it into practice and the results are there to see. With a 27 per cent market share and more than half a million users, Si.mobil is now a recognizable brand which is increasingly popular in the mobile services market. We are a part of the leading mobile services group in the region, mobilkom austria, which allows us to draw on its extensive experience and expertise in this dynamic sector. Through our partnership with Vodafone, the world’s biggest mobile operator, we are able to quickly introduce the latest in mobile services to the Slovenian market. We can take pride in our business results. As we increase our profit levels, we can invest more and are better able to satisfy the needs and expectations of our customers. Indicators such as revenue per user and the ratio between subscribers and prepaid system users hold a promise of rapid growth and development in the future. How important has your cooperation with operators such as Vodafone and mobilkom austria been? Setting up a partnership with Vodafone was the break we always needed. It has given us an important competitive advantage as far as marketing and the introduction of new products is concerned. As the exclusive seller and provider of Vodafone products and services such as BlackBerry, Mobile Connect Card and Vodafone Live!, Si.mobil has been able to increase its visibility and market share. Working together with this global mobile group allows us to charge less for international calls, undercut rivals and give our users the best deal possible. Our owner, mobilkom austria, is the leading regional player in mobile services and as such it enjoys unrivalled access to high-quality human resources, the latest technological solutions and extensive marketing experience. 58
By being able to tap into this pool of knowledge, we are better able to achieve our goals. How does the Slovenian telecommunications market measure up to standards set by other European telecommunications markets? There is no doubt that the Slovenian telecommunications market is highly developed. After all, it boasts a considerable number of home-grown ICT experts in the field. Compared to other Europeans, Slovenian users of ICT services are relatively more demanding. You cannot succeed in such a competitive market if you are not fully focused on the quality of your service. As far as regulation is concerned, however, there is much to be done to bring it up to European standards. There is a large imbalance between operator market shares and market power. You have recently decided to redesign your brand, giving it a facelift. Why? The company has reached a point where it can confidently look back on past successes, look inside itself and decide that the time has come for a new and updated brand identity. Market research has shown that our users are indeed satisfied with our services, but that they also miss certain things. By redesigning and freshening our brand we hope to convey the message that we have grown up to be independent and professional, but that we still have the youthful energy and attitude that sets us apart from our competitors.
COMPANY NOTES Si.mobil, d.d.
Šmartinska 134b 1000 Ljubljana Mobile: +386 (0)40 443 000 info@siol.si www.simobil.si
ECONOMY ECONOMY
Aerodrom Ljubljana
Flying High Aerodrom Ljubljana, the operator of the Ljubljana Jože Pučnik Airport, has seen a sharp increase in passenger numbers not just because of Slovenia’s EU Presidency in the first half of 2008, but also because the airport now boasts routes to more destinations than ever before. and landings, 2007 was a record year in every sense. Cargo throughput reached 22, 000 tonnes, 29 percent more than envisaged. According to the management, the airport as yet remains unaffected by the global economic slowdown. Aerodrom Ljubljana is maximising its commercial activities through servicing business passengers, who make up 70 percent of all passengers using the airport. The cost of flying has gone up. Unlike tourists, for whom the cost of air travel is the most important consideration when deciding to fly abroad, businessmen and women will not stop flying just because of increasing airfares. “We expected the strongest growth in the tourist segment, but it seems we will have to revise our projections downwards,” says Zmago Skobir, President of the Management Board of Aerodrom Ljubljana.
Airport City The management of the airport says it can be very proud of last year’s business results. Aerodrom Ljubljana posted a net profit of EUR 16.7m, a whopping 74 percent more than initially forecast. Earnings this year are expected to come in weaker due to greater costs and the investment in new buildings and increased traffic, though revenue growth remains solid.
New infrastructure 2007 was a very busy year for Aerodrom Ljubljana. The first half of the year was marked by Slovenia’s entry into the Schengen area thereby doing away with checks on internal borders between Slovenia and the other 21EU Member States. Here, the construction and opening of a new passenger terminal valued at EUR 18m proved crucial. Not only does the new terminal offer more room and thus additional comfort to passengers, but it also makes the management of passenger flows under Schengen rules much easier. In order to make the operation of the airport more efficient and safer, the runway was extended, allowing 15 to 20 landings or take-offs per hour. Aerodrom Ljubljana plans to open another terminal with a capacity of three million passengers per year in 2011. Along with the DHL cargo terminal that was opened last autumn, the new building will form the core of the so-called Airport City, a project which the management hopes will establish the Ljubljana Jože Pučnik Airport as the leading airport in the region.
Regional hub More than 1.5 million passengers passed through the Ljubljana Airport in 2007. With around 45, 000 take-offs 60
In order to better cope with increased passenger levels and to offer passengers and visitors high-quality services, Aerodrom Ljubljana plans to open Airport City in 2015. This business and logistics centre will offer state-of-the art infrastructure for tourism, warehousing, logistics and other commercial services. Aerodrom Ljubljana will need EUR 100m to cover the costs of the project, with the new passenger terminal alone accounting for half the total costs. Airport City will also feature a business hotel with more than 150 rooms. It will be operated by the Residor Group, a renowned hotel operator. The hotel will open its doors in autumn 2010. Fitness and wellness facilities will be available for guests to relax, before or after attending conferences in the hotel’s congress centre. At the moment, the airport has no railway connection to Ljubljana. But Aerodrom Ljubljana expects that in a few years’ time, passengers will be able to travel by train from the capital directly to the airport. Then Ljubljana Jože Pučnik Airport really will be ready to assume the mantle of the leading airport in the region.
COMPANY NOTES Areodrom Ljubljana, d.d. Zg. Brnik 130a 4210 Brnik Tel.: +386 (0)4 206 10 10 Fax: +386 (0)4 202 12 20 info@lju-airport.si www.lju-airport.si
ECONOMY ECONOMY Retailing and the Food & Drink Industry
Breaking the Confines of a Small Market At the first sight, the size and maturity of Slovenian retail market do not hold a promise of fast growth to grocers and retailers jostling for market shares in a fiercely competitive environment. However, industry leaders have learned how to leverage their knowledge of a wider Western Balkans region to outgrow the confines of their domestic market. Looking at the big picture of the Slovenian retailing sector, the relatively large market share of the three biggest grocers cannot be overlooked. Although market share calculations are notoriously unreliable, the latest research shows that the combined market share of the big three, Mercator, Spar and Tuš, could be approaching 75 percent. While the biggest retailers are clearly in a more dominant position in Slovenia than in other European countries, this does not necessarily mean that competition on the retail market is lacking. The market share of Mercator, the industry leader and Slovenia’s biggest company by revenue, has been steadily eroded by its rivals who have been successfully wooing consumers with aggressive marketing and deeply discounted prices.
Blame inflation on the grocers? It therefore came as a surprise when some observers of the retail sector blamed higher food prices in Slovenia on the lack of competition in Slovenian retail market. Inflation figures, however, are unequivocal. In June, for example, food prices in Slovenia rose by 11.1 percent year-on-year, while
In Slovenia, three biggest grocers hold more than 70 percent of the market
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in the Eurozone food price inflation stood at 6.4 percent. It is true that food price increases in the EU have been caused by the developments on world markets, such as increased demand for food and feed in the developing world, but the fact is that in Slovenia these pressures translate into considerably higher food price inflation than in other Eurozone countries. As the competition watchdog launched investigations into the market practices of the biggest Slovenian grocers, consumers started looking elsewhere for better bargains. Discounters such as Lidl and Hofer, after supermarket chains Spar and Leclerc the most recent foreign entrants into Slovenian market, have been able to position their brands as the best choice for the cost-conscious consumer. As for Mercator, pressure from the regulators was an obvious signal that the company has, after fervent takeover activity in the previous years, definitely reached the limits of its growth on domestic market.
Going (south) east It is therefore not surprising that Mercator, with EUR 640 m of foreign assets, leads the list of Slovenia’s biggest multinationals. Vigorous expansion into the markets of the Western Balkans saw the number of Mercator’s shopping malls in the larger cities of the region soar. The company’s business results for 2007 are witness to the growing importance of the region to Slovenian grocers. While Mercator’s growth on the home market stood at 5.7 percent, sales on foreign markets expanded by as much The combined market share of the as 65.2 percent to EUR big three, Mercator, Spar and Tuš, 732m. Contributing could be approaching 75 percent. significantly to this is the integration of Serbian supermarket chain M-Rodic into the group, which allowed Mercator to build up its market share in Serbia to 8 percent. The growth potential of the region has also been recognized by Tuš, the third biggest retailer on Slovenian market with a 13 percent market share. In 2007, it opened three shopping centres in Bosnia-Herzegovina and started building six malls in Serbia and two in Montenegro.
ECONOMY ECONOMY
Although much smaller than Mercator and other Slovenian companies that cover the region, the company owned by the richest Slovenian, Mirko Tuš, employs the same strategy: shifting the focus from the mature, saturated Slovenian market to take advantage of the opportunities offered by emerging markets in the region.
Suppliers following suit The Slovenian food and drink industry has followed grocers abroad. In 2006, Droga Kolinska, Slovenia’s biggest food and drink firm, acquired Serbian coffee producer Grand Prom and sweets maker Soko Štark, becoming the third largest food and drink company in south-eastern Europe. With margins squeezed Vigorous expansion into the by rising prices of markets of the Western Balkans agricultural commodities hard-bargaining saw the number of Mercator’s and grocers, competition shopping malls in the larger cities between food producers of the region soar. in the region is getting fiercer. Croatian firms Agrokor and Podravka, the leading food and drink companies in the region with revenues of EUR 529 m and EUR 383 m in 2007 respectively, have already focused on their most profitable brands, dropping or selling those that have not brought in sufficient revenue. Now Droga Kolinska is doing the same. Although the announcement that the firm is selling wellestablished Slovenian brands like Maestro spices and Bebe baby food has drawn criticism from some observers of the industry, the management is confident that by slashing the number of production lines the company will be better able to focus on its core brands. With Barcaffe coffee, Cockta soft drinks, Donat mineral water and Argeta pâtés, Droga Kolinska aims to increase its revenue from EUR 268 m in 2007 to EUR 450 m this year. Perutnina Ptuj, the largest poultry producer in Slovenia, is also investing heavily in the Western Balkans region. This year it opened a EUR 20 m factory in Bosnia-Herzegovina. The investment, one of the largest in the country, will create 200 jobs and contribute to more balanced trade. At
Beer producer Laško brewery owns Slovenia’s biggest grocer, Mercator
the moment, Bosnia-Herzegovina imports far more than it exports. Although Perutnina Ptuj will not export much of the factory’s production in the beginning, it plans to supply Balkan and Middle East countries once it secures its position as the leader on the Bosnian market. The company wants to increase its market share in the country from the current 10-15 percent to some 30 percent. Slovenian firms from the retailing and food & drink industries have successfully exploited their knowledge of and experience with south-eastern Europe to build market shares in the emerging markets of the region. As spending on groceries and consumer goods is expected to grow faster there than at home, Slovenian grocers and retailers are well poised to stay on the sustainable growth path in the future.
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ECONOMY ECONOMY IMOS
Specialists in Real Estate IMOS is one of the better known real-estate developers in Slovenia. With a number of high-profile building complexes already under its belt, the company has embarked upon its most ambitious project to date, Tobačna City. We talked to Mitja Majnik, the boss of IMOS. How did your enterprise begin? What is the extent of the services you provide? The most important milestone in the history of our company was the merger of engineering and construction services into IMOS Ltd. This enabled us to organise our work more effectively and to be more successful. Our clients can count on us to provide the highest quality in the execution of their investment projects ranging from technical help and advice, to overall planning and engineering of residential and business constructions. We also perform professional monitoring over the construction process itself and carry out the marketing of finished real estate projects. We also act as investors in our own right.
floors of residential buildings offer staggering views onto the Alps to the north and Ljubljana Castle to the south.
Are you satisfied with the business results for 2007? 2007 was a successful year and not really that different from all previous years. It is true, however, that the business results for 2007 are better than we initially expected, meaning that everyone employed at our company worked very hard during the year.
What are your advantages over your competition? IMOS Ltd. stays true to the vision of the successful implementation of investment ideas. Each project is approached with the goal of successfully seeing it through on time and on budget. Our company is focused on meeting client demands, needs and expectations. We are also one of the bigger companies in the country involved in real estate development and other activities within the field of engineering and construction. We currently employ 70 people.
Which of the already implemented projects would you single out? Mostly the larger residential and commercial projects, such as Bežigrajski dvor, Trubarjev kvart, Mostec, as well as the two neighbourhoods Nove Poljane and BS 1/5. These projects are located in Ljubljana and rank highly on the secondary market. The Tobačna project is one of Ljubljana’s most ambitious projects. What is it about? The Tobačna City project ranks as one of the most ambitious projects in terms of its scope also within IMOS itself. At the site of the old tobacco factory, which is considered one of the most deplorable areas of Ljubljana, we want to create “a city within the city” to cover approximately 65,000 sq metres. This will be a mixed-use residential and business area offering commercial, societal and cultural services as well. It will consist of approximately 600 new apartments and around 55,000 sq metres of business space. The location for this project could not be better since nearly everything you need is just around the corner: in close vicinity lie the old town centre, Tivoli Park and the Rožnik recreational area. The location is also directly connected to the inner city ring road, rail and motorway routes. The top 64
How do you see the state of the Slovenian real estate market? Judging by the real estate projects that we know about, we think that the market will soon satisfy the demand for larger business areas. The real estate market, like all other markets, is constantly developing and there is still some room for growth, we have to take a long-term view. The development of real estate projects is after all a long process. The main focus will remain on the location itself and the quality of construction.
Do you expect loans to be more expensive in the future due to the economic downturn? We believe that the effects of the economic downturn are already reflected in more expensive loans. Future real estate projects will require people to take out more loans. We hope that the market reacts in such a way that it will offer a greater range of financial products, thus lowering the cost of finance and improving our competitive position.
COMPANY NOTES IMOS, d.d., Ljubljana Fajfarjeva ulica 33 1000 Ljubljana Tel.: +386 (0)1 473 33 00 Fax: +386 (0)1 437 33 78 info@imos.si www.imos.si
ECONOMY ECONOMY
IMOS
Where Audacity Meets Elegance The history of IMOS Ltd goes back to the year of 1964. The company is primarily operating in the field of Design, Engineering, Tehnical consulting and Construction. In the last four decades it has constructed countless images in Ljubljana, Slovenia and abroad. The company is specialised in high buildings, ranging from residential, business, health, educational, commercial, tourist to production facilities. Today IMOS Ltd continues to pursue not only its mission – implementation of investment concepts according to the goals set – but also its vision: achieving excellence in implementing these concepts. As one of the leading investment companies in Slovenia, the company has expand its business to an investment planning, development and management of the investment projects. The company provides its services for bussiness partners and other clients, among others also local community and runs development of its own investment projects. Finding the best top locations in town and transforming them into modern business and residential areas, has become the companys´ constant inspiration and success. Here are some of the latest and the biggest investment project of IMOS Group: • Litostroj Business Park, Ljubljana – 17 hectares of land, north-west part of Ljubljana, intended for various activities: production plants, warehouses, service industries, public administration buildings and premises of general importance. • PodbreznikTechnological Park,Novo Mesto – 22 hectares of land, five commercial buildings, three residential buildings, • Črnuče, Ljubljana – 3 hectares, retirement home and housing units for market • Savudrija, Croatia – 8 hectares, holiday complex One of the biggest and yet the most important projects is a development of an area of the new Tobačna City . It is an ambitious, multi-functional city area, which is due to be completed by 2015. Approximately 65,000 m2 will thus be available for business, residential and commercial purposes, supported by cultural, public administration, sports and tourist programmes. The investor of the project is a joint-venture company IMOS-G d.o.o., an active part in development is taken by IMOS d.d. Tobačna City is situated in the western part of the capital and was used for industrial purposes until 2004. It is currently considered degraded and only appropriate for renovation and restoration into an area that is conceptually an extension of the main city core. Tobačna City will present a combination of new and old architecture, with new modern buildings on the one hand and renovated older buildings under cultural protection on the other. This gives the development added value. The new part will consist of 10 multi-storey residential buildings, 14-20 floors high, rising from two-storey platforms fo a business programm, and a higher luxurious building at the road junction, serving as a land-mark building.
The older part of the area is foreseen for administration and particularly for cultural and social activities. Its location in the western part of the metropolis, adjacent to the Ljubljana inner city ring road and not far from the green areas of Tivoli Park, offers quick access (only 3 km) to the highway ring. Parking will be enabled by providing a total of 4000 parking spaces in four underground garages. Tobačna City is going to become an ambitious multipurpose city area in one of the Europe`s capitals, therefore a great opportunity for an expansion of your business and for enjoying a new culture of life. Join us in Tobačna City!
6d
P + 18
8e
P + 16
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ECONOMY ECONOMY Real Estate
Ljubljana’s Skyscape is Getting a Facelift Although Ljubljana no longer has the feel of a provincial capital, many visitors to the town come away with the impression that apart from the romantic old town by the river and art nouveau architecture, the Slovenian capital does not have much to offer. By 2025, when the real estate projects described below will hopefully have been finished, Ljubljana will rightfully take its place as a cosmopolitan and modern European city.
Ljubljana’s old town with the castle in the background
The New Travel Centre (Emonika) The new travel centre, worth approximately EUR 222 million, will feature a new bus and railway station, an entertainment-shopping complex, a hotel as well as residential and business buildings. In a 100-m high skyscraper there will be a seven-storey four-star hotel with 150 rooms and enough space (21,000 sq m) for 66
business activities; in the 60-m high skyscraper there will be 130 luxurious apartments of various sizes with 2,500 parking spaces under the new bus and railway station. The entertainment-shopping mall covering 55,000 sq m will feature 250 bars, a multi-cinema complex, recreational surfaces and restaurants. On the roof of the centre, there will be a 7,000 sq m park.
Emonika, a modern travel centre which Ljubljana urgently needs
The project will be implemented by a HungarianCanadian company, Trigranit; the centre, popularly called Emonika, will be built by 2010. Interestingly enough, right before the construction kick-off archaeologists discovered rich finds at the place where the future Travel Centre of Ljubljana will be built; the finds mostly consist of ancient graves with numerous additions – 303 antique graves in total, with some more recent caves, ditches and walls. The investor has already confirmed that it will aspire to put the precious finds at Emonika on proper display. The construction works and archaeological excavations will take place simultaneously and will not interfere with one another. The construction works will kick-off in fall; when the centre is completed it will be one of the most successful and attractive centres of its kind in Europe. It will enliven the town centre and draw in new infrastructure plans and indirect investments, as well as providing stateof-the-art 21st-century travelling facilities.
Kolizej A new concert and opera hall will be built at the place of the old Kolizej, now a decaying edifice that in late 19th century that served as a kind of a motel for the officers of Austro-Hungarian army. The new complex, which will be built in the centre of Ljubljana by 2012, will be a three-fold complex featuring a central concert and opera house with a residential and business 18-storey tower, a residential 5-storey villa on the southern side and business offices at the northern side. There will also be six subterranean storeys intended for parking and maintenance. The new concert and opera hall will be shaped like a horseshoe; it will feature a large stage and an orchestral shell that will have room for up to 100 musicians. The hall will consist of the ground floor, boxes and three balconies; 1811 seats in total. The ground floor will seat 900 people, while on each of the three balconies there will be 300 seats. Above the hall will be a glassed winter garden with restaurants and open space for minor events offering marvellous vistas of the city and the two towers – the lower residential, and the higher one used for business. The hall’s shape and size will be comparable to some of the world-famous halls such as the Vienna State Opera, the Royal Opera House Covent Garden and the Teatro alla Scala in Milan. The entire project will cost around EUR 180 million, the hall EUR 70 million alone. Ljubljana will thus receive a new modern icon covering 83,900 sq m, of which more than half will be underground. With minor modifications, the hall will also be used for congresses, fashion shows and other similar events.
The Stožice sports centre will feature a stadium with 16,000 seats and a multi-functional hall with 12,000 seats. Both complexes will have separate access to the commercebusiness part that will be placed between the hall and the stadium. The commerce-business complex will cover 80,000 sq m and offer around 5,000 parking spaces. The hall and the stadium are primarily intended for sports, but one can also expect concerts and other similar events to be held there. The mayor of Ljubljana, Zoran Janković, who is the driving force behind many a new project in the Slovenian capital, maintains that the sports hall will be opened to all sports – basketball, handball and volleyball, even hockey. The delegation committee looked at a number of modern stadiums in Europe to decide which would be the most appropriate for Ljubljana. The hall will resemble a three-part hall in Helsinki. The lower part next to the court will have 6,000 seats, with VIP boxes just above that offering 1,000 seats for sporting enjoyment and there will be additional 5,000 seats above the VIP boxes with a possibility of covering up this part of the hall with curtains in case the hall is relatively empty.
Tobačna Ljubljana The British Imperial Tobacco Group announced in January 2004 that it would suspend operations at Tobačna Ljubljana by the end of May 2004, which followed relatively quickly and caused a major public outcry, linking the discharge of workers to the entry into the EU. The premises thus remained vacant for some time. In 2005, real estate developers purchased the premises and in 2006 the first plans were presented to the public. The first to use the premises anew was part of the Administration Office of Ljubljana that was moved to the new location in March 2007 where the old Tobacco Factory Ljubljana used to be. On more than 4,700 sq. m, the sector for the administration of interior affairs
Kolizej, the building of art
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Stožice Sports Centre
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found its place of operation, and the new administration headquarters featuring 123 offices, many other rooms and 23 administrative counters proved much more user-friendly than the old facilities, while also offering enough parking spaces and access for the disabled. The Faculty of Arts of the University of Ljubljana was also highly interested in the premises, moving some of its departments to the location due to serious pressures for space, while also holding some lectures at this location. The most recent plans now include using the location for building new residential areas that will include 500 new apartments. The renovated buildings of the old tobacco factory will be used for apartments and business facilities as well as cultural and museum activities, with a possibility of also building an underground parking garage.
National and University Library II (NUK II)
The first National and University Library was intended to house no more than 240,000 books and have a tenth of the users it has today. The need for a new and bigger building became apparent already two decades ago. In 1989, the first public tender was issued, The new library building will yet since then everything feature a multifunctional hall, seemed to have worked more lecture rooms and specialised against the new library. classrooms. The construction kick-off has witnessed numerous setbacks in terms of getting the proper licences and coordinating all the required aspects of the construction, with the location for the new library itself resting on remains of the old Roman town of Emona which necessitated decade-long archaeological excavations that will end later this year. If everything goes well the construction will start in the fall.
StoĹžice sports centre: A playground for all tastes
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TobaÄ?na, a harmony of residential and commercial real estate
The new library will be built in separate stages; the first stage, completed by mid-2011, will cost around EUR 50 million taken from the state budget and European funds. The government also included the construction of NUK II among 35 biggest national projects in Slovenia for the period 2007-2023, and said it would preserve the old library (NUK I) in agreement with all involved parties. The new library building will feature a multifunctional hall, more lecture rooms and specialised classrooms; there will also be many more seats and cubicles for anyone wishing to study in silence. The new building will undoubtedly be one of the central Slovenian institutions and the one that will further facilitate the development of knowledge and education. NUK II is thus an extremely important national project that will be a source of many developmental possibilities in various areas in the future such as culture, education, science, research and economy, all of which form the foundation of a knowledge-based society.
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TriGranit
In the Heart of the Capital
One could hardly find a more exclusive location than that in the centre of the Slovenian capital occupied by Ljubljana’s railway station. Standing as it does at the crossroads of major European transport corridors, such a location would be the gem in the portfolio of any real-estate developer. We talked with Csaba Toth, the development director of TriGranit’s Emonika project, which is set to fundamentally reshape Ljubljana’s city centre. Why has TriGranit decided to do business in Slovenia? We have entered the Slovenian real-estate market because we think that the country is in a position to attract foreign capital in various ways. Investors may rely on relatively strong and stable economic growth in addition to the confidence that the country will be well placed to attract foreign capital by showing better macroeconomic results than the other countries of the Central and Eastern European region. Slovenian purchasing power is the highest in this region of Europe, while both inflation and unemployment rates are the lowest. These factors are all of the utmost importance for the building of investor confidence for entering a new market. Furthermore, as far as the real estate is concerned, the market has yet to reach maturity. In the commercial sector, that is as far as supply of quality retail and office spaces is concerned, it is still pretty underdeveloped. Our analysis shows that the real-estate market in the country is demand-driven, which is great news for any developer.
to the existing retail premises in the city, while the supply of available office space will increase by 22,000 square metres. But that is not all. Emonika will set new standards as far as the quality of commercial premises and brands available in them is concerned. And we must not forget that old adage of the real-estate business that the three most important things for an investor to consider are location, location, location. We are therefore confident that we will attract enough companies and buyers for our offices and apartments to make the project profitable. The interest from retailers is huge.
You have won the contract to develop a location right in the centre of the capital. There was very strong competition for the Emonika project. Quite a few renowned and reputable international real-estate developers competed for the contract. That is not surprising. There is no sizeable concentrated area of commercial properties in Ljubljana’s city centre, and the fact that the Emonika complex will be built above a transport hub makes the project a once in a life-time opportunity for any investor. We have experience in the construction of multifunctional complexes, combining residential and commercial real estate. The development of the area around and above the central railway station in Budapest, for example, is one of our more prominent references. It proves that we are highly accomplished in terms of the extensive engineering skills needed for such projects.
Some say that the Emonika project is detached from the local community. Indeed, criticisms have been aired, emphasizing that local stakeholders have not had any part to play in the project. But that is simply not true. We have set up consultations with the local community on various aspects of the project so as to clear up any misunderstandings in advance. We have also engaged Slovenian architects in the Emonika project, in line with our belief that every project must also reflect local preferences.
Do you think there will be enough demand for offices and retail venues that Emonika will bring to the market? It is true that the Emonika project will make a big difference in terms of quantity of office space and other commercial real estate in Ljubljana. 250 shops will be added
How does your company address environmental concerns? We always try to find solutions that reduce the energy consumption levels of our buildings. Energy efficiency was high on our agenda when we were making plans for the Emonika project. I am certain that the project will serve as an example of how to achieve low energy consumption in such complex projects.
COMPANY NOTES TriGranit Development Corporation Váci út 3. 1062 Budapest, Hungary Tel.: +36 1 374 56 00 Fax: +36 1 374 56 01 info@trigranit.com www.trigranit.com
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ECONOMY ECONOMY Emonika
A New City Centre for Ljubljana Emonika City Centre is a multifunctional complex development set to become the leading business and entertainment hub of Ljubljana. The one-of-a-kind Emonika City Centre is designed as a unique combination of business, shopping and entertainment centres, an upscale hotel and a high class residential tower. It is enviably located in the heart of Ljubljana and in the direct vicinity of the new bus and railway stations. Emonika will offer a whole new style of living, become a business network hub, a social meeting point and a shopper’s paradise. It is the place to be dynamic and successful, to be entertained, to be at ease and to be at the centre. It is simply the place to be. With its unbeatable location, multifunctionality and luxurious style, Emonika embraces and personifies Ljubljana’s dynamic character.
27 stories make more then 27.000 m2 gross leasable area available. Its unparalleled comfort, quality and class will generate a professional ambience of success. As the Centre of the centre, Emonika Business Tower gives high-end opportunities to network and connect.
Emonika Business Tower
Emonika’s shopping and entertainment centre offers more than 60,000 m2 gross of leasable area. It will house approximately 200 top location shops, a hypermarket catering to everyday basics, a food court with a variety of
The Emonika Business Tower welcomes you to the 21st century high-end business environment. The building’s
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A shopper’s paradise
The Developer TriGranit has emerged as one of the largest property developers in Central & Eastern Europe. The company has so far completed projects with a total value of Euro 2 billion. TriGranit is currently working on some 30 developments across 11 countries with a total planned investment of Euro 8.5 billion. The company’s architectural solutions have been awarded on the most prominent European real-estate industry gatherings such as MAPIC and ICSC.
Residential Tower Emonika Residential Tower will house approximately 90 apartments. Measuring up to 60 m and 17 floors in height, Emonika Residential Tower will place Ljubljana in the palm of your hand and the surrounding hills right at your fingertips. Find your number one and live in a home with superior services. The apartment sizes will range from 50 to 160 m2 enabling future owners to find the perfect match corresponding to their wishes, needs and style. The residential tower will feature: • 24-hour reception and services for the occupants, • 24/7 security service, • storage areas, • secured and easily accessible underground parking. • access to the health club within the Tower
The City on the Doorstep Emonika City Centre will feature an upscale hotel of a well known international brand, enviably located in the innermost part of the city centre with easy access to the business, shopping and entertainment centre, as well as transportation connections. The proximity of Ljubljana’s captivating attractions and commercial sites will make it ideal for business and leisure travellers.
All Roads Lead to Emonika The new bus and train stations will be an integral part of the Emonika City Center. The public logistic part will make up nearly 14,000 m2 including modern bus station and large, spacious station hall with lots of natural light. Luxurious wide halls and easy accessibility will ensure comfortable arrival or departure. Numerous parking places, most of which will be in a covered parking area, will be located in the direct proximity of the stations. The state of the art transportation hub will provide easy access to Ljubljana’s attractions with Emonika at its core.
COMPANY NOTES Emonika, d.o.o. Tivolska cesta 50 1000 Ljubljana Tel.: +386 (0)1 620 24 50 Fax: +386 (0)1 620 24 60 info@emonika.si www.emonika.si
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restaurants, cafés and bars, a multiplex cinema, a health club and a night club. The famous saying ‘location, location, location’ rings true in the retail business. Not only the centrality of location, but also the attractiveness of the place and the atmosphere it creates all have to fall into place. And Emonika has it all! An easily accessible neighbourhood in a central spot that will attract shoppers time and again. One-time visitors will soon turn into regular clientele, attracted by the building’s uniqueness and functionality. With so many activities and offers, it is always the right time to be at Emonika.
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Riko
Exploring Russian Horizons
Janez Škrabec, the CEO and owner of RIKO, is no stranger to Russia. He started his career as a sales representative of a Slovenian company in Moscow in 1989 and soon established his own firm. Although the markets of the former Soviet Union remain the main focus of RIKO, the engineering and construction specialist is also building up its presence in the Balkans and the UK. Are you satisfied with last year’s business results? Did they meet your expectations? We have had a very successful year with regard to all aspects of our engineering services. Compared with 2006, our sales and earnings tripled last year. Judging by these results, we hope that such vibrant growth will continue in the future. What is the company’s growth strategy? Do you plan any acquisitions in the next months or have you decided to rely on organic growth of your business instead? We always carefully consider our options. We have never wasted much energy on seeking takeover targets in order to expand our business, but have decided to establish strategic partnerships with companies that can enhance our expertise and engineering prowess. In this way, Riko has grown organically rather than through acquisitions. Of course, that is not to say that we do not buy stakes in other companies. We have recently acquired a 20% stake in Mariborska Livarna Maribor (MLM), a foundry specialising in the production of bathroom fittings, copper alloy forgings and aluminium car parts. The latter are especially important in view of our ambition to reinforce Riko’s position in the global supply chain of the automotive industry. Together with MLM, we have set up a company in Ukraine which will focus on manufacturing and marketing aluminium radiators throughout the wider Eastern European region. Economic growth in Slovenia is slowing. Investment in capital goods is declining, while the construction sector faces difficult times ahead. How will Riko face up to these challenges? The slowdown in Slovenia will not affect the company in any significant way. We do most of our business in the markets of Russia, Ukraine and Belarus where we are present in the engineering, construction and logistics sectors. In Macedonia, we are making our presence felt in the field of energy production and environment services. We expect solid growth in these markets to continue. Your ambitions are focused on countries of the ex-Soviet Union and the Balkans. What is your current position on these emerging markets? We have been doing business with companies from the 72
former Soviet Union for many years. In Belarus, we supply parts for MTZ Minsk, MAZ and BelAZ, the country’s biggest manufacturer of transport equipment. We have also established a close relationship with the engine maker Avtodizel, a subsidiary of Russia’s biggest car maker GAS. Our products allow the company to comply with the Euro 4 engine standards, making its products acceptable for the European market. Apart from the automotive industry, we are also active in the energy sector. We have started to work on a feasibility study for the construction of ten hydroelectric power plants in Chechnya. In Macedonia, we are already involved in a hydroelectric power plant construction project which could prove an important reference point for our future work in the energy sector. Lately, Riko Lakes by Yoo, a high-end housing project, has been making headlines. What is it about, exactly? Lakes by Yoo is a high-end housing project, a 90 minuteride from London, that we designed together with the Yoo Studio, a home to some of the hottest designers in the UK. So as to offer well-off Londoners an escape from the hustle and bustle of city life, Riko designed 160 environmentfriendly wooden houses together with a spacious club house, sporting a swimming pool as well as wellness and fitness facilities. Being a part of this prestigious project testifies to the importance that our company attaches to sustainable and high-quality design. We are certainly not just your classic car parts supplier.
COMPANY NOTES Riko, d.o.o. Bizjanova 2 1000 Ljubljana Tel.: +386 (0)1 581 63 00 Fax: +386 (0)1 581 63 40 riko@riko.si www.rikogroup.com
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ECONOMY ECONOMY Marmor Hotavlje
Forward into the Stone Age Judging by the number of real-estate projects that are exchanging glass and steel for stone, the news about the latter’s demise as a building material have been greatly exaggerated. Together with Gregor Žontar, the boss of Marmor Hotavlje, we tried to set the record straight. How did your business begin? The first stonecutting workshop in the region was established in 1948. It served as the basis for the present Marmor Hotavlje Company and provided expertise in domestic handicrafts and masonry to a wider area. In July 1953 it became an independent company; in 1987 it was among the first companies in the world and the first in Slovenia to test the CNC machine for stone cutting. In 1993 we were again the first in Slovenia to extract stone from subterranean galleries, which meant access to extensive subterranean reserves and greater environmental awareness. During 2002 – 2007 we founded subsidiaries in Serbia, Croatia and Montenegro and Bosnia and Hercegovina. The MH Group employs around 150 workers and is involved in the extraction, cutting and installation of natural stone. With a market share higher than 30 per cent it is the largest Slovenian stonecutting company and ranks among the leading European companies in the field. What are your advantages over the competition? There are various stonecutting companies, most of which specialise only in stone extraction, cutting, installation or sales. We try to apply a project approach to every job. This approach is what sets us apart from other companies and we see it as our advantage on global markets. The development of our own know-how when it comes to more difficult tasks often means that we have to teach our clients about our methods or rather invite them to join a common learning process, leading to the best possible results. What can you offer to the more demanding clients? The company’s modern technology and ceaseless desire to acquire new knowledge comes from our own know-how, which we gained by working on some of the most exacting projects envisioned by our clients. This line of work requires two equal partners since innovative solutions and long-term warranty upon excellent implementation are what is needed. Such clients work as a team with experienced experts and get all the best materials available. Do you also work outside the field of construction? Stone is a material that forms a larger part of our planet and has been widely used throughout the history of 74
civilisation. Modern design knows no limits to creativity and constantly pushes the envelope of standard solutions. Hence our top-quality stone products are not only installed into buildings, but can also be found in interior and exterior design, in parks, new residential areas and renovated historical settlements, sculptures, fountains and artistic manifestations. Just name anything you want and we will find a way to use it in an attractive manner – we live in a modern stone age! Which are some of your better known projects? We are present at all major residential and business projects in Slovenia. Most recently we covered buildings such as Villa Urbana in Ljubljana, the Brdo Congress Centre, the new passenger terminal at the Jože Pučnik Airport, the Paediatric Clinic in Ljubljana, the Terme Ptuj Hotel, IC Dom Kranj and the fountain in Trzin. We have been successfully carrying out works on the Cathedral of Saint Sava in Belgrade and on the Hotel Splendid in Bečići in Montenegro together with our subsidiaries for several years. We are also collaborating in the Kempinski project in Croatia and continue to furnish luxury ships. Are you present in markets outside of Slovenia and if so, where? We are currently vying for demanding projects in the EU, Serbia, Croatia, Montenegro and Bosnia and Herzegovina and are also gradually entering the markets of Russia, the Middle East and China.
COMPANY NOTES Marmor Hotavlje, d.d. Hotavlje 40 4224 Gorenja vas Tel.: +386 (0)4 507 00 00 Fax: +386 (0)4 518 16 40 info@m-h.si www.marmor-hotavlje.si
More than four metres in height, the monolith of stone from Hotavlje is inscribed with the verse “God’s blessing on all nations” in twenty-three European languages, Brussels
Stone facade of the Cathedral of St Sava, Belgrade
Reproduction of Robba’s Fountain in the centre of Ljubljana
Detail from the basin of Robba’s Fountain (stone from the Hotavlje quarry)
ECONOMY ECONOMY Education
Building Human Capital The government’s two main concerns regarding education in Slovenia revolve around two issues: convincing future students to select natural or technical studies over social studies and equalising the funding of private and public schools. With knowledge fast becoming the cornerstone of competitiveness, the provision of high-quality education services is recognized as the best way to propel the economy on a higher growth path. While the need to focus on technical studies enjoys a wider professional and social consensus, not everybody is convinced that the The balance between natural state should finance science students and the students both private and public of social and business sciences has schools equally. The in recent years tipped heavily in balance between natural favour of the latter. science students and the students of social and business sciences has in recent years tipped heavily in favour of the latter. The government first tackled this problem by restricting admission to humanities colleges by approximately 10 percent, saying that these restrictions will bring positive selection, which will see those that did not make the cut enrol in natural sciences and technical programmes as a result. The Ministry for Higher Education, Science and Technology also advises future students to opt for a profession in these latter fields.
How much bang for the buck? Another tough educational nut that the government wants to crack is equalising the funding of private and public schools. At present, public schools are 100 percent state funded, private only 85 percent. The government wants to change this and make private schools also 100 percent state funded. The proposal to this effect caused a general public outcry since many Slovenes felt that this will mark the end of free public schooling in Slovenia. The debate continues on whether equalising the funding of private and public schools is in the best interests of pupils themselves, or whether this would bring unwanted consequences. At present, there is one private primary school in Slovenia, the Waldorf school in Ljubljana, one private Catholic primary school that will open its doors for the first time later this fall and six private secondary schools. In the last three years, 24 higher education institutions and study programmes were accredited, 18 of which were in private domain. However, will private education really make education better, as the government claims? The only such internationally valid research that could shed some light on the matter is the Programme for International Student Assessment (PISA), which is a survey of the knowledge and skills of 15-year-olds to determine whether or not they had acquired the necessary skills that would enable them to become a productive part of society. Although the focus of PISA 2006 was on science, the assessment also included reading and mathematics and collected data on a myriad of social factors that could help explain the differences in the performance of various countries. The results of PISA were favourable for Slovenia, which ranked 12th overall, finishing 44 points behind the firstplace Finland, and only 23 and 15 points behind secondand third-place Hong Kong and Canada, respectively, which shows that the quality of education in Slovenia is above average and even better than in many more developed European countries. The research also indicated the correlation between the number of researchers in a given country and the country’s PISA results.
World-class research Student population in Slovenia is increasing
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In Slovenia, this may have something to do with the JoĹžef Stefan Institute, the leading Slovenian research institute,
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which is named after a famous Slovene physicist. He is the only Slovene that has a scientific phenomenon –Stefan’s law of radiation – named after him. The most important part of the institute is undoubtedly the people working there The lack of knowledge transfer between the academia and the industry is seen by many as the most pressing institutional weakness of the Slovenian educational system. The institute, with the help of Slovenian industry, set up Jožef Stefan International Postgraduate School in 2003; more than 170 researchers who cooperate with the institute teach at Slovenian universities. The Jožef Stefan Institute is thus very actively involved in the encouragement of technological and economic development in Slovenia by educating the next generation of qualified personnel and conducting consumer-oriented research in order to meet the institute’s overall objective of creating, spreading and transferring knowledge in the fields of natural, technical and life sciences in Slovenia. In the past ten years, the institute has seen successful defences of more than 550 PhD and MA theses. One of the more interesting private higher education institutions in Slovenia is GEA College. Focusing on business education that stresses the importance of entrepreneurship and management, the GEA College of Entrepreneurship is a specialized private school with a public concession offering quality practical education at both undergraduate and postgraduate levels by combining theoretical knowledge with practical skills and case studies. GEA College The lack of knowledge transfer offers education to between the academia and the high school students in industry. pursuit of a degree in higher education, outof-work people in pursuit of a formal education or the acquisition of the necessary skills that will make them employable again, or to people who already have a job and would simply like to get a degree in higher education and new skills to land the promotion they had always dreamt about or a brand new job. With its mix of private and public schools and universities, all of them generously funded by the government, Slovenia is trying to put together the optimal educational mix that will allow the students to prosper in the knowledge-based
Investment in education infrastructure bears fruit
economy. International comparisons and the work done at the excellent research institutions show that Slovenia is on the right path. Skills gap number of masters, doctors and specialists of science, completed programmes 1600 1300 1000 700 400
2005 2004 Natural sciences
2006 Social sciences
Source: Eurostat, SURS
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Alkemist Translation Agency
Your Partner on Foreign Markets
After four years of operation, the Alkemist Translation Agency has become one of the leading European translation agencies specialising in the translation of languages spoken in the Balkans. Its service encompasses translation into 84 languages, and in the last two years, it has been successfully offering conference interpreting services and equipment for simultaneous interpreting on the marketplace. The quality of your work is certainly very important. How do you ensure quality at Alkemist? Every translation job the Alkemist Translation Agency undertakes and completes is the result of the work of a group of people. This means that the translator is not the only one included in the process. The text that needs to be translated is first thoroughly reviewed and the field and style of the translation are precisely defined. The text is then assigned to a translator who is the most suitable for the job in question. The translated text is then reviewed and finally sent for proofreading. Our distinguishing feature is that our proofreaders are all native speakers of the foreign language and for the most part also live in the country the translation is intended for. The proof-reader’s corrections are then checked once again by the translator. The final phase includes another review of the text by the project manager, who makes sure that the translation meets the client’s requirements. All of our branch offices, namely those in Ljubljana, Zagreb and Belgrade, operate in line with this translation process. So your translators are located all over the world then? That is correct. They come from 26 countries from around the world, which enables us to ensure cultural appropriacy of translations for our clients. The interpreter companion service is becoming increasingly established. The service entails our translator waiting for you at the airport in your destination country and accompanying you up until your departure. And how are you able to provide the services of a native speaker at home, in Slovenia? For example, an EnglishSpanish native speaker is not born in Slovenia. It often happens that translators – primarily conference interpreters – are »imported«. A month ago, we hosted associates from Spain, Austria, Italy and neighbouring Croatia. These were interpreters with a proven track record 78
and several years of experience in interpreting at the most prestigious economic as well as political events. In addition to knowledge in their field of expertise and people skills, they must be skilled in the use of technical equipment. There are always two interpreters for an individual language combination simultaneously present in the translation booth. In line with translation standards, they take turns in interpreting every 15 to 20 minutes. They interpret from one language to another and vice versa, and therefore have to keep switching between different language channels all the time. The Alkemist Translation Agency has its own simultaneous interpreting equipment. Correct. Our equipment at this moment represents the state-of-the art in the professional technical equipment on the market enabling us to provide interpreting services into as many as 32 languages simultaneously, while the digital sound transmission to the receivers and headphones is unaffected by a light source, which was often a disruptive factor for analogue systems. The European Union has set strict standards and exacting requirements in the field of technical equipment for interpreting, which our booths that are manufactured by Audipack and sound insulated in conformity with the ISO 4043 standard, certainly meet. In the previous year we realised as many as 1300 hours of interpreting at various events, representing 163 working days.
COMPANY NOTES Alkemist, European Translation Agency Obirska ulica 4 1000 Ljubljana Tel.: +386 (0)1 514 16 78 info@alkemist.si www.alkemist.si
Translation services in 80 languages Court interpreters Simultaneous and consecutive interpretation for all types of events. Professional equipment for simultaneous interpretation (booths, headphones, earphones, sound system…)
ALL LANGUAGE SERVICES IN ONE PLACE 250 translators and interpreters
80 language combinations
080 777 777
/ / / Reliable, fast and quality services at competitive prices with a professional attitude towards clients.
Till now, the best translation agency we have ever worked with.
… professionally performed services in the previous periods.
We have discovered again and again that they keep to the agreed upon deadlines and offer good and quality services at a reasonable price.
We contact them for every translation. It’s their professionalism, preciseness, quality and reliability that set them apart from the competition.
...in our opinion, Alkemist has a considerable advantage over the competition.