SURVEY OF CROATIAN BUSINESS EXPECTATIONS 2012 VIEWS AND COMMENTARY FROM LEADING EXECUTIVES 2008 2009 2010 2011
Croatian Business & Finance Weekly Established in 1953 Monday / 9th January / 2012 Year V / No 0181 www.privredni.hr
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FOREWARD FROM THE EDITOR-IN-CHIEF
Where are we? Where are we heading? Instant decisions imperative According to the survey conducted by Privredni vjesnik, businessmen expect fast, focused effective movement he economy will be faced with an almost unprecedented level of uncertainty regarding both local issues and external decisions in 2012. Croatia will witness uncertainty regarding the situation throughout the world, Europe and the Eurozone and feel the impact of recession on its economy. The current situation in European banking, primarily regarding the announcements of recapitalisation of Austrian and Italian banks
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Inactivity seriously harming the economy and set against a back-drop of indications that the European economy is preparing for a more aggressive policy regarding Eurozone exports as well as towards Croatia and other parts of Europe outside the EU, together with the Eurozone issues, are obvious warnings and indicate the immediate need for decisions at a local level. Nevertheless, current circumstances and economic environment do not leave us much room for manoeuvre and inactivity has been adversely affecting the economy.
We are deeply aware of the need for difficult and painful decisions. In addition, the issue of the settlement of liabilities, currently standing at over â‚Ź5.4 billion, may well seriously jeopardise economic functioning, with over 33,000 companies having blocked accounts, an increasing number of companies facing pre-filing for bankruptcy or bankruptcy issues, the awareness that some fields of work will witness stagnation, which in turn will lead to decreasing revenue and increasing lay-offs. We need to be aware that current circumstances are a permanent feature to which we need to amend our habits, business activity and behaviour. We alone can make the right decisions within such an adverse economic environment. Entrepreneurs, parliament and government should all pose questions such as: Where are we currently? Where are we heading? We will certainly face an uncertain year. Croatia is going into 2012 with a new parliament, a new government, which implies new expectations but with long-existing problems. Consequently, the new government needs to address the critical issues instantly. Businessmen are expecting substan-
tial, fast, focused and effective movements. The macroeconomic environment is of paramount importance for entrepreneurs. Businessmen have succeeded in showing their ability to maintain equilibrium, having made decisions on what is unprofitable in their businesses and having concentrated on adding value. Entrepreneurs have done virtually all they were able to in their search for solutions and new approaches to addressing problems on their own and are currently in need of assistance. According to them, entrepreneurs are left to their own innovativeness and abilities to penetrate foreign markets and this has exhausted them entirely. Nevertheless, businessmen
have clearly ranked the priorities needed to exit from the crisis. They have been stating them for a long time, yet the authorities do not appear to have been listening. The question on decisions (according to priorities) to be made in 2012 in order to exit from the crisis was answered by most companies unanimously, stating that a package of measures needs to be implemented. Nevertheless, reduced taxation and workforce contributions appeared to be the crucial priority, followed by an improvement in illiquidity, the attraction of foreign investment and the encouragement of investment, a significant reduction in state administration, a decision on determining the duration of legal proceedings in bankruptcy and cheaper lending to entrepreneurs. If the rest of the world succeeds in exiting the crisis, it does not imply Croatia will also succeed. Croatia needs to enter the EU, yet we are fully responsible for what we make of EU membership. Croatia needs to rely on its own potential. In addition, economic policy needs to face reality and finally become aware of the fact that merely taking is not sustainable; a sustainable economy is imperative.
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Privredni vjesnik Year V No 0181
LEO ANDREIS, PRESIDENT, CROATIAN BAR ASSOCIATION
LJERKA PULJIĆ, SENIOR EXECUTIVE VICE-PRESIDENT, AGROKOR
Enhance the legal capacity Post-election optimism – oppo of public administration 2011 was extremely arduous since the global economy has been undergoing the crisis and Croatia was not left out. The current financial circumstances of attorneys are directly correlated with the current economic situation. Attorneys and many companies have seen a plethora of unsettled receivables. Different crisis amplitudes have been adversely affecting a considerable proportion of attorneys and law companies.
Businessmen, general public and attorneys will share the same fate Next year may prove to be even more arduous. It is difficult to speculate on the ways attorneys will tackle the crisis. I do not believe we will witness a higher proportion of groupings of individual attorneys and law companies, as grouping implies an increase in expenditure, which is undesirable under current circumstances. The Croatian Bar Association has faced unofficial announcements of the closure of several law companies. In addition, law companies will certainly reduce employee numbers. Businessmen, the general public and public administration will share the same fate. The current situation will compel the selection of those most resilient and able to survive in the market. We believe we are the most satisfactorily prepared segment of the judiciary. The Croatian Bar Association became a member of the International Bar Association five days prior to international recognition of the Republic of Croatia. As a result, we do not expect significant changes folIMPRESSUM: Privredni vjesnik Kačićeva 9 10000 Zagreb +385 1 5600020 uprava@privredni.hr www.privredni-vjesnik.hr/ subscription
lowing EU accession. There is a possibility that some foreign companies or banks in Croatia will engage attorneys with whom they co-operate in their own countries. Nevertheless, Croatia will traditionally remain a country of individual attorney offices and law offices dealing with issues of little interest for attorneys within large European multinational law companies. The purchasing power of the general public will highly impact on the sustainability of this traditional profession. Currently, there are 4,200 attorneys and they will face a difficult situation in the market. We believe more jobs need to be created in the public administration, since there are many important issues to be addressed, requiring professional know-how. Such jobs have been neglected, they lack attractiveness and are underpaid. The state needs to intervene and assist in the employment of professional assets. Subsequently, it will accelerate legal procedures, such as, for example, the issuing of construction permits, which would be highly appreciated by investors. The primary Croatian problem is public administration and the issue would be addressed in the most appropriate way by adapting regulations and employment of professionals, thus accelerating procedures of mutual interest.
FOR PUBLISHER Nikola Baučić +385 1 4846661 uprava@privredni.hr
IMC MANAGER Dea Olup +385 1 5600028 olup@privredni.hr
EDITOR IN CHIEF Darko Buković +385 1 5600003 bukovic@privredni.hr
TRANSLATION Lučana Banek lucanab@gmail.com Mirjana Cibulka mirjana.cibulka@gmail.com
EXECUTIVE EDITORS Andrea Marić maric@privredni.hr Vesna Antonić antonic@privredni.hr
INTERNATIONAL OPERATIONS Ray Fletcher fletcher@privredni.hr
2011 was an extremely successful year for Agrokor, irrespective of a plethora of challenges in the economic environment in Croatia and throughout the region. For 2012 Agrokor consolidated sales revenue will see a growth rate around 10% over the previous year, which is a highly successful result considering the current conditions of deep recession and a rather meagre growth of GDP in regional markets, primarily as it implies exclusively organic growth and has not been a result of acquisitions, following three years of relative stagnation. More importantly, nearly all Agrokor companies (irrespective of their field of activity) have shown satisfactory resilience in providing market solutions during the crisis, whilst simultaneously maintaining or even increasing internal effectiveness, achieving growth and profitability. All Agrokor portfolio activities, irrespective of minor differences, have witnessed growth, indicating that, in addition to
being a result of investment during the previous period, it is primarily a result of deep insight into the market and use of our deep experience and professional know-how in all sectors of Agrokor activity, as well as the appropriate choices and successful strategic adaptation to market changes, particularly regarding consumer behaviour changes.
In 2012 Agrokor anticipates growth and continuation of satisfactory trends from 2011 Positive trends in business activity through 2011 have enhanced our courage and positive approach regarding 2012 in our forecasts of average moves in the global market. We believe Agrokor companies have succeeded in identifying how to react to the current moves and fulfil expectations through-
JADRANKO HUSARIĆ, GENERAL DIRECTOR, HRVATSKE VODE
We should first organise ourse
This has been was a very complex business year in Croatia. The economy has operated under difficult conditions; investment has come to a halt, generating unemployment, decreasing public spending and living standards. Such a situation has led state and non-profit institutions into an unfavourable position, decreasing their income and infrastructural investment, which could enable the economy to make an overall profit and contribute to the state budget.
In terms of business, we proceeded very rationally; controlling non-productive expenditure and improving business transparency. We did not employ new workers unless required and in accordance with government decisions. I think that social and economic circumstances will be even more complex in 2012. We must face reality – not spending more than we have. We should invest in real projects according to EU rules, rationalise systems, regionalise water supply systems, complete projects for reducing losses in compliance with EU standards, complete the construction of anti-flood systems and consequently help agriculture to avoid suffering damage, which means we must link projects that offer multiple benefits and generate employment. These goals cannot be met in one year. I believe 2012
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3 ZORAN KOŠĆEC, BOARD PRESIDENT, VARTEKS
ortunities for change
out regional markets, and have made important and relatively ambitious growth plans, aware of extremely complex economic relationships in the region and the Eurozone, whose consequences we have not been able to perceive thus far. Postelection optimism will certainly enhance change and an improvement of economic circumstances in Croatia, which is our principal market and, providing that the
new government succeeds in instantly making use of the most propitious moment for change, we can expect faster economic recovery in the long term. Agrokor, as the largest regional company, will feel the impact of movements in other regional markets with anticipated growth rates higher than Croatia. Consequently, and particularly within our current situation, we believe that in 2012 Agrokor companies will see growth and a continuation of the satisfactory trends originated in 2011.
elves will be very important in terms of selecting strategic rules in all fields – from politics and economy to finance. This will mean that the implementation of those
We must face reality – not spending more than we have projects that will help us recover from the negative circumstances which are not present only in Croatia. A consensus must be reached regarding projects of state interest, which will be prepared according to EU standards and to enable EU funding. We must first organise ourselves and harmonise production chains in all areas. If we produce something,
then we have to sell it; we must promote at least similar criteria to production and trade and encourage entrepreneurship to grab the perspective. It is also important to rationalise state apparatus. As with all other state non-profit organisations, Hrvatske vode has its own temporary financial plan for the period between January and March 2012, which totals €50.25 million. Business expenditure equals the same amount. This funding also covers insurance of the institution’s so called cold-regime, such as salaries for 790 workers, loan repayments, essential operations of regular activities and projects with the World Bank, as well as drafting projects and technical documentation for EU funds in the field of water supply, drainage and protection against hazardous water damage.
Economic crisis a serious threat to exporters Varteks made significant positive moves in its operations, primarily regarding total revenue increase and exports during the first nine months, irrespective of the on-going deep economic crisis, general illiquidity and the negative trends in both local and regional markets. An increase in sales revenue and exports, as well as more satisfactory business results indicate Varteks has succeeded in mitigating the negative impact of the crisis on its operations through its own
activities. Nevertheless, crisis management in the real sector has witnessed a significant slowdown and is not keeping abreast of the necessary dynamics of economic recovery, consequently slowing the planned effects of business restructuring. In addition, reduced personal expenditure and general illiquidity still persist, particularly evident in business operations in the local market, adversely affecting overall company results, which are currently still negative, irrespective of positive moves. Unfortunately, the crisis has been continuing for too long and, within the general situation, its end is yet uncertain. Due to stagnating economic growth in Europe, forecasts regarding any expected economic growth in the local market are not optimistic. There are indications of a new crisis, certainly resulting in a slowdown in export growth, a slump in industrial production and reduced employment, which will eventually result in a low-
ering of personal consumption. The textile industry would be severely affected within such circumstances, as during any crisis consumers significantly reduce their expenditure on clothing. The persisting crisis in the Eurozone implies a fall-off in foreign direct investment, as well as a decline in exports to EU member countries. Consequently, export oriented companies would be adversely affected to a high degree, since trade with EU member countries is a paramount promoter of exports and total economic growth throughout the region. An increase in energy prices, which unfortunately is expected in the event
Reduced personal spending and higher illiquidity levels still persisting of a deepening of the crisis, would be an additional blow to Croatian industry. The state needs to urgently adopt clear measures in fiscal and monetary policy, consolidate public finances and consumption and resort to a more significant level of local production. In addition, proactivity is imperative for the enhancement of local production, at least for local market needs. Production sectors also need supportive measures regarding exports and employment preservation and growth. Our plans embrace the stabilisation of business operations and the completion of restructuring, as well as development projects in accordance with the Integral Business and Financial Restructuring Plan.
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Privredni vjesnik Year V No 0181
DAMIR ZORIĆ, BOARD PRESIDENT, EUROHERC INSURANCE
MARIO ŠIMIĆ, DIRECTOR, GRAD-EXPORT VINKOVCI
Urgent need for economic Exports as a recipe for changes success
2011 saw the crisis mature. We are currently aware of its dimensions and its destructive potential, slowly pervading all areas of economic life. Comprehensive changes in the economy, society, education and public services are imperatives. Decisive changes, meaningful politics based on increasing work output as well as savings, slashed spending and fewer loans, more focus on selfsacrifice and solidarity, avoiding luxury and greed; more national consensus on priorities and opportunities without further loss of social cohesion are all of paramount importance in tackling the consequences of the crisis and its destructive potential which we will face in the forthcoming future. Euroherc has retained its business position, according to market share, creating profit and increasing asset
We expect positive market movements with differing growth rates value. We succeeded in implementing our business plans in 2011. Nevertheless, during the same period last year we were not optimistic about growth and our stance that 2011 would be a satisfactory year if economic results keep abreast of those from the previous year was revealed as true. We were not expecting growth, yet we used all our efforts not to face a slump. We succeeded, irrespective of hardships. Our expectations are always high, yet the future is uncertain. 2012 will certainly not be easy. Nevertheless, we expect positive market changes at different growth rates. I believe the race will be difficult to survive for certain market play-
ers. Consequently, co-operation between our professional association and the Croatian Insurance Bureau is crucial, as well as the drafting and adoption of a more satisfactory legislative framework regarding the comprehensive insurance sector in Croatia. Croatia is about to face significant challenges of EU accession, which in the insurance sector implies market expansion and primarily new competitive challenges in the local market. We plan to continue the preparation of insurance companies for the new European supervisory framework (Solvency II), as well as the search for more effective instruments for the protection of local portfolio which in foreign-owned companies increasingly gravitates towards parent companies, due to fronting. Consequently, we are expecting regulators and legislative authorities to provide higher quality instruments in that area. In 2012 we plan to use our corporate potential more effectively, improve the quality of services and retain business stability. We are planning to retain and strengthen market share and retain the local market leader position of our insurance company exclusively with o u r
own local capital. In addition, we are marking our 20th anniversary of successful business activity in Croatia in 2012 and it consequently needs to be more successful than previous years.
Our company saw the end of 2011 as the largest PVC, ALU and HPL decorative panel producer in Eastern Europe following nearly 20 years of business activity. We employ 86 staff, mostly based in our production headquarters in Vinkovci. Irrespective of satisfactory results, business activity in 2011 faced numerous challenges. Our products are inextricably linked with the construction sector and hence we witnessed the full impact of the crisis in the local market. Nevertheless, we have never been late in our settlement of liabilities towards employees or the state during 20 years of operation. Consequently, we, as producers, are entitled to be provided with state assistance, primarily in the form of reduced taxes and other burdens hindering our development. We do not believe we will have to tackle new obstacles following Croatian EU accession, since our products have been present in E U markets for a long period. In addition, we import the necessary materials from the EU and export our final products as
shown in our satisfactory results, as two thirds of our turnover is from exports.
Grad-export exports its products to 16 countries in Eastern and Western Europe. Currently our largest exports market is Slovenia and, in addition, our products transit through her towards Austria and Germany. The Slovakian and Czech markets are also of extreme importance for us. We have been witnessing a continuous increase in sales in foreign markets resulting in an increase in production.
State assistance for producers unavoidable Subsequently, in 2011 we penetrated the Norwegian and Swedish markets. Nevertheless, our advancement there is slow, due to long distances. Our production capacity implies a growth potential of up to 50%. We are currently planning market expansion to Russia and the Benelux countries. Our vision is to retain the position of the largest decorative panel producer with production output exceeding 50,000 panels and a sales ratio between the local and foreign markets standing at 25:75 by 2014. Our primary goal in 2012 is to penetrate the German market, since we believe in its potential being particularly favourable for our production. In 2012 we are planning additional investment in production and machinery, as the forthcoming production programmes require state-of-the-art equipment in order to meet the market needs. In addition, we are anticipating investment in research and development regarding new materials which could be a substitute for aluminium in case of a sudden increase in prices in the world market. Decorative panels, as our basic product, certainly require cutting edge technology.
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HANS CHRISTIAN VALLANT, BOARD PRESIDENT, RAIFFEISEN BUILDING SOCIETY
Administration need not be a controversial issue Raiffeisen Building Society has not seen the anticipated growth during the fiscal year 2011, mainly due to the arduous situation in the country, which has not succeeded in exiting the economic crisis thus far and is currently facing stagnation. Nevertheless, Raiffeisen Building Society has retained its
Austerity measures and economic consolidation at state level in 2012 leading position and its capital position is currently the largest in Croatia, with its capital adequacy standing at 19.58%. We succeeded in making a breakthrough in 2011 and restoring credit trends to the level of 2008, irrespective of the deci-
sion of the Ministry of Finance from 2010 according to which building societies are to return government support for interim financing model over the last five years. Consequently, the credit trend has been restored during the first six months of 2011 and that is the significant issue of building society system sustainability. Raiffeisen Building Society subsequently recorded a remarkable 224.09% growth regarding the number of loans compared with the same period of 2010. A similar trend persisted in the second half of the year, which is encouraging and enhancing our hopes for a more successful 2012. Austerity measures and economic consolidation at state level are realistic expectations for 2012. Decreased demand in EU member country markets and particularly budget cuts in Italy, our
most important trading partner, might adversely affect Croatian export growth in 2012. The optimum solution for Croatia would be the inflow of capital investment triggered by optimism regarding EU accession, as well as direct investment and financing from European funds. I believe we will not witness a significant decrease in unemployment, particularly due to the expected fiscal cuts and public sector restructuring. A reduction of the tax burden and radical administrative changes are imperative. The role of administration is essential for both local and foreign investors, yet currently it is a controversial issue. A deeper understanding of, and identification of the concept of building societies as a separate system with specific features, which needs to be used at least as a part of a comprehensive
solution for exiting the crisis and to invigorate the ailing real estate market is imperative amongst both regulators and the Ministry of Finance. Government support provided for housing savings via governments in Western Europe considerably exceeds the support provided in Croatia, which indicates the ignorance of authorised individuals regarding the measures which would enhance general public consumption, subsequently benefiting society as a whole.
MATKO BOLANÄŒA, BOARD PRESIDENT, PLIVA
Abolishment of all impediments hindering development an imperative
GDP growth in 2011 was significantly lower than planned and overall economic indicators were also inferior than expected (industrial production slump, external debt, illiquidity, declining proportion of working population), also due to the missed implementation of significant economic measures. In addition, a significant increase in new investment was also missing, irrespective of expectations and announcements. The value of foreign direct investment in Croatia has been significantly decreasing since 2008, reaching a seven year low during the first half year in
2011. Halting this trend is an absolute imperative. The Croatian Employers’ Association has been strongly promoting the need for structural reforms and the abolition of administrative and legislative impediments on the economy and the need for significant investment. In addition, the Economic and Social Council (GSV) has been indicating the urgent need for the implementation of amendments deeply aware of the desperate need for the implementation of such measures, irrespective of their being difficult and unpopular. A significant boost to the competitiveness of the Croatian economy is of utmost importance in the wake of imminent EU accession. Consequently, the implementation of measures to abolish those brakes on economic development and investment in stable companies in order to promote business activity development and the creation of new
jobs are imperative. The new government needs to enhance economic recovery, the development of entrepreneurship and an inflow of investment, as well as gradually ensuring a more significant growth in gross domestic product, whilst simultane-
High technology and knowledge-based production crucial in creating added value and strengthening social security ously lowering unemployment. In addition, it needs to adopt programmes with clearly measurable goals and time frames for implementation, particularly regarding the illiquidity issue and the boost of production. High technology and knowledge-
based production are fundamental in creating added value and strengthening social security. Currently, Pliva is the largest pharmaceutical company in Croatia, with ambitious business plans, operating with remarkable success, investing in new production facilities, with annual export rate growth of 30% and continuously increasing profitability. The value of Pliva investment in Savski Marof is over $100 million and it is the largest Croatian greenfield investment in production in 2011. In addition, it created new jobs. In 2012 we are expecting further significant investment in production facilities and research and development, whilst simultaneously implementing the planned and initiated investment projects. We anticipate a significant increase in human assets of around 10%, mostly high quality professionals, in accordance with our plans.
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Privredni vjesnik Year V No 0181
DOMAGOJ BRAČIĆ, DIRECTOR, PIP
MATO VIOLIĆ-MATUŠKO, OWNER-DIRECTOR, MATUŠKO WINES
Address the issue of bogus Wine producers have been local honey branded, now it is the turn of government
2011 did not see the expected economic recovery, which resulted in a stagnation of demand for our products. In addition, the last quarter witnessed an increase in illiquidity. One of the adverse effects on PIP was certainly bogus local honey and the inactivity of
We do not expect much support from the state and consequently every move positively impacting on entrepreneurship will be a pleasant surprise authorised state institutions in addressing this issue, consequently adversely affecting the honey market. Nevertheless, PIP managed to retain its market position and 2011 will see approximately similar results to 2010, with a slight increase in sales volume. The first half of 2012 will certainly be challenging and hence PIP will approach market conditions with increased caution. We are
hoping for a slight recovery in the second half, resulting in increased optimism. We do not expect much support from the state and consequently every move positively impacting on entrepreneurs will be a pleasant surprise. In case the state engaged more seriously in regulating the market for honey products regarding consumer protection and apiarian raw materials market regarding the grey economy, long term benefits would certainly be felt by all the participants. The issue of bogus local honey is vital for the bee product market. Addressing this issue is the primary priority that state institutions could do for us during 2012. No other measure would have such a positive impact.
The wine sector has seen an arduous year and has been severely affected by the consequences of the crisis. Nevertheless, in our company we are pleased with results. I expect the government to participate in the creation of a Croatian wine production development strategy, as well as in the process of promoting Croatia as a wine country. A wine producer will always engage in wine production, irrespective of obstacles and difficulties and that is the crucial difference between a wine maker and a trader. A trader is merely interested in the margin and any other
Trade lobby support is to be avoided encouragement is pointless. Wine producers’ primary objective needs to be advancement and not government support as has recently been revealed. Nevertheless, the current approach of grouping wine
producers, irrespective of size, has been ineffective. Grouping is appropriate regarding profit and it has been successful in the case of traders and chain stores. Wine producers need to group together to improve the collection of receivables, to prevent the occurrence of situations where one wine producer stops wine delivery to a distributor or a buyer and another producer takes his place who will, in turn, be deceived by the same buyer. The state could provide assistance and protection in such situations. Currently, there is no regulation and anyone can continue investing without having settled their liabilities.
DAMIR BULIĆ, BOARD PRESIDENT, KRAŠ
Exports exceeding 50% of total revenue our main goal 2011 saw a significant impact of the economic crisis and recession. The confectionery industry has been severely affected and that is significant as the industry is an active exporter, with exports considerably exceeding imports. Consequently, Croatian the industry saw a production decrease of 6.7% during the first nine months. In addition, local sales were 5.6% down, whilst export quantities plummeted 14% and saw a 6% decrease in value. Simultaneously, the value of imports of confectionery products, already accounting for two thirds of the market, was up 7.3%. Subsequently, the current business results, liquidity and the stability of business operations have been seriously jeopardised. In addition, they were adversely affected by an increase in the price of the main
raw materials last year. Against such adverse circumstances, we focused Kraš business activities on maintaining production and sales continuity, particularly with respect to financial stability and current liquidity. Ample product portfolio has been particularly
We are hoping for balanced monetary and fiscal policy amendments realigned to market trends and consumer needs through the development of our own brands and top quality. Nevertheless, the absence of real support for exporters and a ‘negatively motivating currency policy’ has hindered export growth and a more substantial use of local industry capacity.
Employers in this industry, who directly and indirectly employ over 10,000 staff, believe they are entitled to expect positive changes regarding export support and incentives, as well as an improvement in economic policy in 2012 and subsequent years. Following Croatian EU accession, the local confectionery industry will be subject to customs duties on exports to CEFTA member countries, as well as the complete abolition of tariff rates on imports
from EU countries. This will additionally increase imports and reduce the room for manoeuvring of local confectionery products. We are expecting the new government to adopt a new economic policy with particular focus on increasing the export of goods and services. Nevertheless, we do not expect exceptional amendments and improvements in business conditions. We are hoping for balanced monetary and fiscal policy changes, with direct support for the processing industry and final exporters. In addition, tax unburdening of salaries and a reduction of the substantial parafiscal burden will boost the competitiveness of local products which will create a real framework for faster export growth. Our main goal is exports to exceed 50% of total revenue.
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ZLATKO ROGOŽAR, BOARD PRESIDENT, CROATIAN RAILWAYS (HŽ) HOLDING
Investment in railways as one of the priorities We invested maximum effort in sustainable operation of Croatian Railways Holding companies during 2011. We implemented several important projects, putting into operation two new trains, purchased 100 new freight cars and modernised the existing train fleet. In addition, we intensified the revitalisation of industrial rail tracks and construction of logistics centres in Slavonski Brod and Ploče. Many strategic agreements were signed, guaranteeing us long-term co-operation with key rail users and a further increase in the quantity of goods. Track overhauls are underway in many railway sections and also the reconstruction of the railway bridge Sava-Jakuševac has been completed, reducing freight car traffic in the centre of Zagreb. In
addition, the capital overhaul on the section Križevci-Koprivnica is ahead of the planned deadline. Investment in 2011 stood at around €0.14 billion. We anticipate witnessing a turning-point in economic policy, a real upswing in investment and the implementation of all planned projects. Investment in infrastructure will be the priority for the railway sector in 2012. We plan the launch of projects worth around €0.27 billion in train fleet modernisa-
ARMANO ZEKAN, DIRECTOR, BAV-ADRIA YACHTING
Licensing charter companies The 2011 nautical charter season was for the most part similar to 2010 and we have succeeded in continuing the upward trends of the past several years. We adopted a well regarded business model and succeeded in retaining our regular visitors who make up
Insufficient marina berths and highly expensive daily mooring fees some 75% of our visitors, whilst simultaneously attracting a proportion of new visitors. Nevertheless, we have been burdened by intermediary (agency) commission. This is about 20%, often higher, whilst in other countries it stands at 10% at the most. This issue will be addressed following EU accession. The state needs to introduce licensing of charter companies in order to strengthen legislation, enabling normal companies to plan their business and prevent undermining from the grey economy. Licences can be issued in the similar way as for fish-
ing boats, taxis or as in the wellknown case of scampi fishermen. Concessions need to be marked with a sufficient number of buoys. These are an environmentally friendly mooring method, happily accepted by visitors, as they enable safety and privacy. These issues need to be addressed by the local community, whilst the state needs to regulate a unified pricing system to the benefit of the community, state and local community, as well as serious charter companies. A monitoring system would enable satisfactory functioning. In addition, charter companies are faced with the problem of insufficient marina berths and expensive daily mooring fees for vessels in transit, particularly in the islands.
tion and infrastructure during the forthcoming two years. We expect investment in railways will be one of the priorities for the state. In addition, we plan to obtain considerable financial resources from EU funds for the renovation and construction of railways. We possess deep experience and have engaged many professionals for quality preparation of the planned projects. Implementation of many projects will enhance employment and have a positive impact on local industry. Consequently, we anticipate more satisfactory financial results. The state needs to give priority to investment in industry, railways, agriculture and tourism and other sectors achieving added value and promoting job creation. A liquidity increase is imperative
throughout the Croatian economy, as well as unburdening the economy and protecting natural resources. In 2012 we expect to implement the restructuring plan for all Croatian Railways Holding companies, enhancing more effective
Liquidity increase of vital importance for Croatian economy operation and use of resources. Investment and more successful business activities are prerequisites for the preparation for the liberalisation of railway markets in 2013. We are planning a 4% revenue increase from passenger and freight transport as our final result in 2012.
VLADO KRAUTHAKER, OWNER, KRAUTHAKER VINEYARDS AND WINERY
Crisis to bottom-out in 2012 2011 revealed the forecasts that local markets would become too ‘tight’ for local wine producers have become reality. The local market is saturated with different wines creating problems particularly for top quality wines, as the market share of affordable and simple wines in restaurants has soared. Nevertheless, the commitment of wine producers and the Croatian Chamber of Economy encourages optimism for foreign market penetration, as well as the beginning of branding of Croatia as a wine country. We are lagging behind, yet I believe there is currently still ample room for Croatia in the Far East, the former Soviet Union and Scandinavia. We expect the state to assist us in achieving our goal of branding Croatia as a wine country as has been agreed. Croatian top quality wines need to pave the way for medium quality wines. There is ample potential worldwide, yet committed work is imperative in order to use it effectively. I believe we will see the crisis bottoming-
The commitment of wine producers and Croatian Chamber of Economy encourages optimism for foreign market penetration out in 2012 and that we cannot expect significant moves forward. Nevertheless, I am more optimistic about 2013, when I expect considerable advancement. In my company, we are planning to continue with planting new vineyards for at least two more years, to increase the quality of our products, whilst simultaneously launching several new products.
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Privredni vjesnik Year V No 0181
MIRKO ĆAVARA, CEO, BOROVO, VUKOVAR
DRAGICA KRPAN, DIRECTOR, PODZEMNO SKLADIŠTE PLINA
Decrease trade – increase State companies can production operate successfully The recession took its toll on Borovo. 2010 was worse than the previous year. A recovery in 2011 slowed since it depended on the number of employees, the purchasing power of our consumers, increase in average salary and other components. Since
We expect state measures that will boost and simplify investment in production social circumstances are aggravating, it is quite normal to expect changes in economic policy during the forthcoming 2012. In other words, there are too many stores that do not generate value, but rather spend it. Therefore, it would be normal to expect turning towards production in order to create a base for trade. In this sense, we anticipate state measures that will boost and simplify investment in production. Until now, subsidies were the same for trade and production, which was not well-considered. Otherwise, we could all become traders, sell products and lead comfortable lives. Therefore, prosperity is impossible without creating, that is, without production. This does mean not any type of production, but rather a more sophisticated one – a computer rather than a chimney. We cannot export ‘trade’ to the EU, but we can export our products. Opportunities are greater, but so is competition. When we join, we expect obstacles to be removed and anticipate higher foreign investment which would gradually increase employment and purchasing power. Exports will intensify when new
production yields results and the EU achieves financial stability, but this will not happen soon and it will not be easy. The rich spent more than they created, and this cannot change in a short period of time. Concerning Croatia and its eventual measures, we must first clear our debts and resolve the illiquidity problem in the economy. Spending must not exceed our means and this burden should be equally distributed between labour and capital, without putting off potential investors. The limit of social justice is not a moral one, but rather economic, that is, how may investors can be attracted and how much can be done. The neighbouring Mediterranean countries were also hit by the crisis as they spent more than they produced. Social circumstances can put off investors for a short period of time, but we lag behind in the long term. Despite war and economic problems, today Borovo is a respectable footwear company that produces and sells leather and rubber products as well as belts and various rubber-pressed goods. We do not plan any significant investment in production in 2012. During the past several years we had invested considerably in the production of leather footwear and v-belts. During the forthcoming period we intend to invest in outlets and possibly open new ones in Croatia and Slovenia.
The economy faced important challenges in 2011 as a consequence of the global economic crisis that is threatening a new recession. In such complex conditions, the company Podzemno skladište plina (Underground Gas Storage) achieved excellent business results that will exceed those of 2010. In 2011, we proved that state-owned companies can operate successfully, achieve profit and be liquid.
A series of thorough structural changes must be made It is true that the economic recovery requires a series of systematic structural changes that should simplify business in Croatia and attract additional investment. New investors will create more jobs and boost the economy. The mission of the Croatian government, as well as regional and local ad-
ministrations is to adopt laws and regulations that will enable such investment to be implemented with as few administrative and bureaucratic obstacles as possible. Whether EU accession will help the Croatian economy to recover and to what extent, mainly depends on us as well as the stabilisation of economic affairs in the Union. According to our development plans, next year we will enter another phase of upgrading of storage facilities at Okoli, which will additional increase storage capacity and safety of the gas storage system. The construction will be one of the most important projects in the field of Croatian energy.
VLADIMIR HALIĆ, BOARD PRESIDENT, ZRINSKI
Crisis or recovery - depends on the government economy by excluding VAT on all investment, promote employment by relieving tax obligations on salaries of newly employed workers (for at least two years). Our plan for 2012 is in accordance with an anticipated recovery. We are planning an investment of This business year is no different from 2009 and 2010. There is a feeling of a slight demand for services from foreign markets, but the local market is experiencing stagnation. For now, I do not see any hints of these measures, not even in pre-election promises. I believe tax reform might increase employment and exports if investment is promoted. I am convinced that 30% of graphic companies will close. In order to exit the crisis, the government must immediately adopt measures that would enable greater investment into the
We will reduce business expenditure and expect the state to do similarly €1.1 million intended for modernising the capacity in the press and supply of a more modern and better machine. We expect further funding from the Ministry of Economy intended for production development and foreign market processing. We will participate at foreign fairs and find new customers, as well as cut business expenditure.
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IVANA VUKELIĆ, DIRECTOR, HANGAR 7
The closing of the economic Pandora’s box
A difficult year is behind us when our sad local economic policy imploded with the global economic crisis. Luckily, we are a small-sized company with a quality computer system so were able to react rapidly to the market situation, which is considered today to be a measure of success. To be honest, we do not have great expectations for the forthcoming year. We need to hit rock bottom in order to resurface this is what we are constantly repeating. However, it must be clear we need to organise the public financing system and
turn towards production if we want to stabilise the market and reduce debts. The ‘dictatorship of trade’ must be put to an end. We will see in time exactly what measures the state can apply. Tax policy should be in accordance with the standard, since what is the purpose of taxes if no one can pay them, and as a result the state is cheated whenever possible. The EU is positive. However, if we do not organise the state ourselves, our position will be marginalised, to say the least. Concerning the state and its decisions, I think everything is clear. The new government must be brave enough to rely on production, decrease public spending and make unpopular, but necessary decisions, independently of potential strikes and possible defeat in future elections. To put it succinctly - the state must cease to be the biggest employer and become a good entrepreneur.
ZORAN URANJEK, BOARD MEMBER, HARBURGFREUDENBERGER
Rapid growth Since we are a company that is completely oriented towards exports, it is obvious that the events and turbulence on the Croatian market did not overly affect us. Moreover, the market we operate in (machines for producing car tyres) experienced a boom that we had known about since 2010 and for which we had been well prepared. This is why our company income shot up 80% this year, together with other indicators. The number of delivered products (presses for tyre vulcanisation) will be 80% higher; the number of employees will be 50% higher and work in progress will be almost 100% higher. HF Belišće is the global leader in the production of presses for the vulcanisation of car tyres. Our rapid growth during 2011 will continue in 2012. We will also continue to employ more workers and our investment has been at its highest
KRISTIAN ŠUSTAR, PRESIDENT, ASSOCIATION OF EMPLOYERS IN CROATIAN HOSPITALITY
Reduce VAT to raise level of tourism competitiveness We achieved excellent results in 2011 despite the onerous circumstances. However, one successful year will not solve the fact we are not sufficiently competitive and that we lack investment. Regarding 2012, it will be a success if we manage to achieve the results of 2011 considering the circumstances. In relation to the same period of 2010, we did not register any increase in booking. All in all, we will have a clearer idea in January. However, I believe 2012 will exceed 2009 and 2010, but it will be difficult to reach the level of the tourism season this year. We have been warning for a long time that Croatian tourism is stagnating. Hotels are operating under extremely difficult conditions since economic and legal frameworks are vague. We must remind everyone that the share of hotels in Croatia is only 12.5%, and warn about the disadvantages of national tourism and the fact there is no new investment in the tourism sector. Our tourism requires internationalisation and foreign investment since the present entrepreneurial
Tourism requires internationalisation and foreign investment
level since 1998. In 2012 it will be around €6.75 million. Naturally, this means exports will increase. We are more worried about the situation in the Eurozone that might lead to another crisis. Harburg-Freudenberger Belišće is well-prepared for EU accession. Since we export most of our products to EU countries, we expect easier transport of goods between Croatia and the EU. T Moreover, we are currently implementing projects for the production of other types of machines that precede presses in the production process.
capacity has mostly been spent. In the future the focus should be turned towards the development of additional recreational infrastructure and services of health tourism as well as attracting the elderly European population to visit Croatia. Negative consequences of fragmented tourism management should be removed, and the relationship between the rich Adriatic and the poorer continent should be balanced with clusters and regionalisation. In addition to reducing VAT, the
strategy and implementation of measures that will arise must be the next crucial moves. Compared with other Mediterranean countries, Croatia has the highest VAT rate in tourism. In relation to the EU, of 28 countries, Croatia ranks 20 in terms of the accommodation rate and 25 in terms of the hospitality rate. There is no need to mention we are followed mostly by countries that are underdeveloped in terms of tourism. Croatian EU accession will present new opportunities and challenges with which we will have to learn how to cope. Sector competitiveness is of paramount importance in this context, and VAT is the first step we should take. Mediterranean countries, particularly those whose economy depends on tourism (we are one of the leaders in this group) have recognised this and reacted accordingly. We are left only with the hope we are mature, serious and pre-
pared enough to learn from the experience of others, especially if those lessons are positive. Experiences and examples of decreasing VAT resulted in increased spending, employment and investment as well as a decreased grey economy. The model is simple, and it depends on us how we will use it.
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Privredni vjesnik Year V No 0181
TRPIMIR RENIĆ, BOARD PRESIDENT, CEMEX-A CROATIA
ZLATKO KOZINA, DIRECTOR, TEKSTIL LIO
I do not anticipate any drastic changes
2012 – a year of stagnation
This had been the fourth crisis year of decreasing production activity. This especially refers to the construction sector that is suffering the most severe consequences since the beginning of the crisis. The cement industry in Croatia decreased exports by almost 75% during the past several years, whereas imports almost doubled over the same period. According to data provided by Croatia Cement, local consumption fell by over 40%. Unfortunately, there are still no signs of the recovery in the sector. The economy can be boosted only by new investment which is why serious investors need to be retained and new ones attracted.
Employment can rise only if economic activity intensifies I do not anticipate any drastic changes during the forthcoming years since it takes time for any reform to show its first results. It is imperative to enable investment in infrastructural development and construction in the energy sector since such types of projects support development in all economic sectors. Employment can increase only when economic activity intensifies and when the present resources are used; and we know there are a large number of companies that underuse their hu-
man resources. The state needs to create the conditions for promoting its industry and enable it to be competitive. This should not be done by special subsidies or market regulation, but with a quality legal framework and shortening of the procedures required for industries to adjust to the market. Unfortunately, the economic outlook is increasingly negative for some of our biggest trading partners, such as Italy and Hungary as well as EU countries in general and consequently for Croatia. When we study the statistics of issued construction licenses, we notice that the situation in the sector is still going through a negative trend. Consequently, our plans for 2012 will not be ambitious, but they will be balanced with the movements of the local and global economy. Regardless of the fact there are still no signs of an end to the crisis end, we plan to invest in the facilities for alternative fuels which we believe are the key to our sustainability. Not only will the price of fuel be lower, but this will also reduce our factory emissions, raising the quality of life in the local community. The second important investment concerns connecting the present drainage systems in our factories to the Eko-Kaštel Bay system. This project is worth over €0.5 million. CEMEX is a global company that is present in over 50 countries around the world and is one of the leaders in the production of construction material. In addition to investment in our product line and quality, we will continue to invest in human resources and the modernisation of production capacities in order to increase competitiveness.
The Croatian textile sector, as an extremely low-accumulative activity, has had little particular success during the past 20 years. Similar can be said for 2011. For the past year or two we have been labelled as a certain kind of ‘phoenix’ of the textile industry in Osijek and Slavonia since we constantly invested in our technology. However, we needed to take a break this year. The previous business year was mostly a year of trying to survive. It was a year that will be remembered for fighting to survive in a market with an increas-
I anticipate weakening production to halt through reducing labour costs ing number of uncollected debts, a decrease in public spending and general investment projects. It seems that 2012 will be a year of stagnation. This will be especially felt during the first six months. At the same time we anticipate this will be a period when the problems that have been accumulating for years will finally change for the better. To be honest, I expect the weakening production will halt through decreasing reduced labour costs, especially in the textile industry that cannot be taxed in the same way as IT or other activities. Furthermore, I expect the state to finally implement stricter measures on the import of low-quality textile products that have literally flooded the Croatian market during the past several years. Lastly, I anticipate what we have been experiencing for the past couple of years – absolute transparency
in public procurement. More precisely, I expect Tekstil LIO to sell its products (pillows, duvets and linen) to Croatian hospitals and nursing homes. Furthermore, I would like us to be able to participate equally, in terms of quality and price, in the construction of roads, forest paths or canals with our technical textiles, such as geotextile LIO filter plastica. Moreover, with the goal of raising product quality as well as total business, Tekstil LIO certified its management quality system in compliance with the ISO 9001:2008 standard, and we are also the owners of the Croatian Quality label. If obstacles are to be removed and if public procurement becomes more transparent, then investment activity and employment would pick up, not only in LIO Tekstil, but in the entire Croatian economy. However, we will continue with our exporting activities. At the beginning of 2012, we will exhibit our products at the international fair Heimtextil in Frankfurt as we have been doing every year in co-operation with the CCE. This fair as well as other international fairs will help us maintain and gradually increase the level of present exports that amounts to 35% of total production.
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ANDRE-MARC PRUDENT, BOARD PRESIDENT, SOCIETE GENERALE SPLITSKA BANKA
State credit rating may become questionable The trends in 2011 are best described as disappointing since we all hoped for a more rapid recovery in the Eurozone. Furthermore, even though I have been in Croatia for only a few months, I have noticed the Croatian economy is recovering too slowly and insufficiently. The situation could deteriorate even further in the second half
I expect the government to face the fact activity will continue to slow of the year if we observe global financial markets. These disturbances represent a huge obstacle for future economic recovery of both the Eurozone and Croatia, and another recession is a probability. Moreover, the activities of the global banking sector during 2011 suggest the start of a new and completely different period for the banking sector. Regarding Croatia, I expect the economy the face the fact activity will continue to slow in
2012. Whether GDP grows or not, depends on the outcome of the situation in the Eurozone. Financial markets and investors have lost trust in European countries and this will force Croatia to implement reforms and budget cuts in a short period of time, otherwise the credit rating might become questionable. The new government is faced with the difficult task of securing economic stability in high-risk conditions. If we look at the banking sector, being a banker myself, I can say we are approaching a difficult period. This year’s growth of nett interest income and profit might be temporary. In addition to the growing expense of foreign financing sources for
banks, the cost of local deposits will also rise and cause higher interest rates. Under current conditions banks will not be able to shift the burden of their ex-
pendi t u r e to clients, which is why next year the focus will turn to cutting expenses and increasing efficiency. Considering it is still possible to anticipate a low demand for lending, competitive pressure in the Croatian
banking sector will intensify. This will bring consolidation, especially with small-sized banks. In addition to higher business expenses, bank profitability will continue to be undermined by growing reserves due to the deteriorating quality of the credit portfolio and collateral value. The strategic goal of Societe Generale will be to achieve long-term strategic development through our universal banking model. In line with the market trends, the SG Group has already implemented a series of adjustments in order to protect itself from any new disturbances. Risk assets have been decreased, capitalisation increased and the Group’s financing structure improved. SG Splitska banka will follow a similar path next year.
GORAN JURIŠIĆ, BOARD PRESIDENT, JADRANSKO OSIGURANJE
EU accession will bring new challenges We are satisfied with the results and our position on the insurance market (third in the market of non-life insurance). Our stable business indicators confirm this, primarily through wise management and conservative policy. As expected, the year has not been easy. The crisis reached its peak, and we anticipate a positive outcome within realistic terms during the forthcoming year. Illiquidity and a poor economic situation affected the market. However, if we compare insurance with other activities, it is evident the market is in a slow decline. We expect a lot from 2012. Notwithstanding, who knows for sure what will happen? Firstly, we wish to real-
more active role, and their ultimate goal should be to achieve market stability and set transparent rules. Regarding Jadransko osiguranje, our strategy remains completely clear: operating in line with the rules of the profession, ise our business plans. There are many aspects on the market and in the entire economy that must be organised, and maybe this is the time to do it. The insurance sector is already in the process of preparing for EU accession which will certainly bring new challenges for us. This will include new markets and competition in Croatia. We expected the competent legal bodies to play a
We anticipate a positive outcome within realistic terms maximum orientation towards the insured, including high quality level and a well dispersed office network, all in the interest of the insured. The plan of Jadransko osiguranje for 2012 will be
set on the basis of results from 2011, considering the situation, movements of the Croatian economy and insurance market. We believe the situation will take a positive turn. We will use our know-how to develop new products and keep up with the latest trends in both European and global insurance markets. We will continue to expand our quality range according to market needs. We plan to perfect our system of online insurance sales as well as new services, keeping up with the modern trends and life-style. Furthermore, we will try to be more accessible to our clients by opening new offices, and we will also be active in the community within which we operate.
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Privredni vjesnik Year V No 0181
SREĆKO ŠIMUNOVIĆ, CEO, CROATIA AIRLINES
ŽELJKO JURKIN, CEO, EUROVOĆE GROUP
Despite predicted stagnation we anticipate growth
Each kuna must be carefully spent
Changes in business trends were the most important attributes of 2011. We experienced growth in travel and this year the number of passengers will be a record in the history of the company. During the first nine months, our financial results were 64% better over 2010, and we believe the final business result will be at the level of our anticipations. We achieved all this in the face of significant competition and a price rise of 36% for jet fuel. We drastically cut expenditure, increased work productivity by 17% as well as operational performance and accuracy of flying operations. Furthermore, we rationalised the management structure and restructured business functions and processes. One of our most important plans is to continue with our rehabilitation plan, which is a precondition for company restructuring and harmonisation with EU regulations in the field of civil aviation as well as stable business. According to the fiveyear development study of the c o m -
pany, we plan to finish 2012 with a ‘positive zero’ and generate profit in 2013. For that period, we anticipate market potential to grow between 25% and 30% as a result of Croatian EU accession. Despite the outlook from economic experts regarding stagnation, our business expectations for 2012 comply with the estimates of international airline organisations according to which the average growth rate will range between 4.5% and 5.5%.
Owners in the sense of entrepreneurs should be more precisely defined Concerning the value chain of civil aviation, it is more important to precisely define owners in the sense of entrepreneurs. This system, where the major players are Croatia Airlines, airports and flight control, has created considerable profit, contributing to the development of the Croatian economy and Croatia’s image as a desirable tourist destination. However, airline companies are losers in this system, while others generate profit even though they are monopolies. Despite the fact we have the largest share of the increased number of passengers and total income of airports as well as flight control, and in spite of internal measures of business rationalisation, our development potential is jeopardised. Forced to use monopolistic services of the same economic operators, we believe it is necessary to harmonise relationships inside this cluster and create more realistic market conditions. We will continue to develop the model of a network transporter, in conjunction with Star Alliance, the largest global airline association. With our existing fleet of 13 planes, we will continue to strengthen our position as the regional leader in South-East Europe in terms of the number of transported passengers and total income.
The devastation of the fruit and vegetable processing and canning sector, that has lasted for many years, peaked in 2010. In 2011, Eurovoće took over Nova Đakovčanka and Marinada in order to concentrate production modernisation, specialisation and increasing productivity and competition. This resulted in a record high level of production and an increase of total income of 80% over 2010. However, another consequence was liquidity issues, especially in an industry such as ours where the level of turnover is low. It is not realistic to expect the government to make big changes or solve the problems that have been piling up for more than a decade. Our sector must first increase the level of competitiveness; that is, raise production levels in terms of quantity and quality. Pre-accession funds represent the last chance to catch the train
of global competition. If government institutions do not step in, they will perish in the near future. I believe the new government will not have the required strength to make substantial cuts in budget expenditure. Therefore, we should focus on increasing our income. Illiquidity must be solved and investment, which requires fresh money, must be encouraged. However, each kuna must be spent carefully. Consequently, negative inflation would be then replaced with benefits which will attract investment in the development of GDP.
BORIS ŽGOMBA, CEO, UNILINE TOURISM COMPANY
From implementing measures towards a successful season
Generally speaking, the past tourism season was successful. Uniline increased its income by 25% this year. Our gross turnover totalled €26.8 million and we also increased the number of employees by 30% over 2010. However, all indicators are pointing to a new European recession and this will not benefit us. Furthermore, the Eurozone crisis will also affect Germany. If tourism grows by 5% in 2012, this would certainly be to our advantage and
would achieve this year’s results at the least. However, it is best to wait and see how the situation at the geopolitical level will develop in order to have a more concrete outlook. Regarding EU accession, it must be pointed out that we will have certain benefits. It is familiar to all that tourism is one of Croatia’s key sectors and it is vital we implement all measures in order to have a successful season. I expect the new government to recognise the importance of tourism agencies’ and to level VAT with the current rate of accommodation services. This is a vital detail that would boost tourism since we are heading for a difficult season that should be exploited to its maximum. However, this will not be possible if adequate measures are not implemented.