Record year-on-year Terrific results of tourists season supported by statistics for 7 months of 2015
Milivoj Peruzović I would like the engineers to come to Croatia, not to leave it
The Hendal Survey What Croatian entrepreneurs think after two years in European Union
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PAGES 6-9
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SUPPORTED BY THE CROATIAN CHAMBER OF ECONOMY
www.privredni.hr
PVinternational C R O A T I A N
B U S I N E S S
&
F I N A N C E
M O N T H L Y
September 2015, Year VIII, No 250
EUROPEAN COMMISSION FINANCIAL REPORT
CROATIAN SURPLUS OF €49.6 MILLION
B
ased on the Financial Report of the European Commission, Croatia withdrew €173.6 million more than it paid into the EU budget in 2014. Last year, Croatia drew a total of €584.3 million from the EU budget, compared with €290 million in 2013. The majority of the funds were withdrawn under the process of economic, social and territorial cohesion (€313.9 million). Compared with payments to the EU budget, Croatia had a surplus of €49.6 million in 2013 also. Based on the withdrawal of funds from the EU budget, Croatia is similar to Malta that withdrew €179.4 million more than it paid in last year. Furthermore, Croatia withdrew more
funds than Ireland (€38.8 million), Luxembourg (€80.1 million) and Cyprus (€114.8 million). Of the 28 EU member states, there were ten nett contributors last year. The largest negative balance was seen by Germany (€15.5 billion). The highest positive difference of payments to the EU budget was by Poland (€13.75 billion) last year. The planned EU budget for 2014 was €142 billion, some 1.05% of EU gross national income. Furthermore, last year the Union invested 90% of total obligations directly to member states through funding thousands of projects, regions, cities, entrepreneurs, scientific researchers and students. (I.G.)
€584.3 million
Croatia withdrew from the EU budget last year
TOURIST SEASON 2015
2 | PVinternational | September 2015 | No 250
CROATIAN BUSINESS & FINANCE MONTHLY
RECORD YEAR-ON-YEAR According to statistical data, the first seven months of 2015 saw better results in relation to the same period for 2014. Commenting on this data, Darko Lorencin, Minister of Tourism, stated that extraordinary results in July imply that the peak season has been prepared in an excellent way through co-operation between public and the private sectors Sanja Plješa pljesa@privredni.hr
T
ourism officials and operators are increasingly pointing out the fact that this year’s tourist season has yet again been one of the best on record, and is approaching the best year on record (2008). According to official data provided by Tourist Board offices in the Adriatic region and in Zagreb, Croatia saw 3.4 million tourists in July, 11% up compared with the same period last year. There were 22.8 million overnight stays, an increase of 9%. Concerning tourist home countries, foreign tourists recorded 3.15 million arrivals, an 11% increase and 20.8 million overnight stays (9% up on July 2014). Domestic tourists showed an 8% increase and a 6% increase in the number of overnight stays compared with July 2014.
CAMPING BECOMING INCREASINGLY POPULAR According to statistics, the first seven months of 2015 showed better results in relation to the same period in 2014. Hence, a total of 7.59 million tourists visited Croatia during that period, recording 40 million overnight stays. Moreover, arrivals were 9% up and overnight stays increased by 7% over the same period last year. The highest number of arrivals was recorded in the Istria region – 1.97 million or 9% up, whilst the number of overnight stays rose to 12 million, a 6% increase over the same period last year. Istria was followed by tourist resorts in Split-Dalmatia who recorded 1.35 million arrivals or 10%
up and 7.21 million overnight stays or a 10% increase.
JULY GAP REDUCED Commenting on this data, Darko Lorencin, Minister of Tourism, stated that extraordinary results in July imply that the peak season has been prepared in an excellent way through cooperation between public and the private sectors. “Good results during the pre-season, as well as satisfactory prospects for the post-season imply that the programme Croatia 365 will yield the desired results, and that Croatia will certainly manage to extend its tourism season. A large number of investment projects and the implementation of the Tourism Development Strategy, primarily concerning product development and increasing tourism consumption, are the right path towards the achievement of our ultimate objective which is for Croatia to become one of the top 20 most competitive tourist destinations globally, by 2020”, stressed Lorencin. Privredni vjesnik decided to find out whether this season has actually yielded such excellent results and spoke with several tourism operators. Aleksandra Petković, owner of the Golden Lion Hotel (Zlatni lav) on the island of Cres, stated that her hotel has had an exceptional season. During the first seven months of 2015, her hotel recorded a 7.2% increase in overnight stays compared with the same period in 2014. Moreover, the hotel revenues were up 13.4% and restaurant revenue saw an increase of 15% in relation to 2014. Concerning the structure of tourists, the hotel accommodated the highest number of Italian tourists (27%), followed by Germans (23%) and Austrians (16%). Accor-
3.4 4 million tourists in July in Croatia
11% up compared with the same period last year
No 250 | September 2015 | PVinternational | 3
TOURIST SEASON 2015
Adriano Palman, Croatian Camping Association “It is still too early for general assessment of the season”
million overnight stays or9 or 9% re reco cord rded rd ed by fo fore reig re ign ig n tour to uris ur ists is ts in Ju July ly
Boris Žgomba, Association of Croatian Travel Agencies “We are excepting a financially successful 2015”.
Aleksandra Petković, Golden Lion Hotel, Cres “We have fully closed the notorious “July gap””.
ding to Aleksandra Petković, the percentage of domestic tourists in total visitor arrivals to Golden Lion Hotel was 13.5%, with student and pupil groups on field trips accounting for most domestic overnight stays. “We can express our utmost delight with the results for the Golden Lion Hotel thus far, as well as with tourist season indicators. The excellent results were certainly also due to favourable weather in July and we have managed to completely overcome the “July gap”. Accommodation has been sold out at previously agreed prices rather than through portals among which there are those requiring 50% discounts”, emphasised Aleksandra Petković.
THE MOST POPULAR DALMATIAN CAMPSITES Camping is becoming increasingly popular and more developed in Croatia, yet its succe-
4 | PVinternational | September 2015 | No 250
Sandra Gobin, Uniline “The key to success is in tourist arrivals throughout the year”.
ss depends greatly on weather conditions. It has to be said that against the backdrop of this year’s favourable weather, the camping sector has also achieved good results. “The pre-season and the first part of the peak season yielded satisfactory results and it has
LAST MINUTE SALES IMPRESSIVE THROUGHOUT THIS SEASON been estimated that from the beginning of the camping season to the end of July, the number of overnight stays has risen by around 6% in relation to the same period last year”, sta-
CROATIAN BUSINESS & FINANCE MONTHLY ted Adriano Palman, Director of the Croatian Camping Association. Regionally, the greatest increase (9%) was recorded by Dalmatian campsites, followed by the Kvarner region with 6% and Istria (5% up). Palman highlighted the fact that it is currently too early for a general assessment of the season, as accurate data on the entire national camping sector are still not available. Nevertheless, he is convinced 2015 will see satisfactory results. This is also due to the fact that Italian campers have returned to Croatia this year, whilst during the last several years they opted to stay in their own country. In addition, the other markets for the camping sector are currently seeing a slight increase.
IMPRESSIVE LAST MINUTE SALES Boris Žgomba, President of the Association of Croatian Travel Agencies, advised us on the operation of Croatian travel agencies. According to him, during the first six months it was already obvious that growth trends would continue and that this year would outperform 2014. The most important factor is quality and timely preparation of the season both in the private and public sectors. Hence, it is primarily due to this excellent preparation that air and maritime transport has increased considerably along the Croatian coast. Most facilities have also been full and have recorded excellent results. It has to be highlighted that this year we have had favourable weather, as opposed to last year when adverse weather caused a “July gap” and this year’s high temperatures and beautiful weather have certainly contributed to the success achieved. “The peak tourist season is currently still under way and, according to the bookings, the facilities will remain full until October, which implies that 2015 will be highly successful”, noted Žgomba.
Who will receive most of tourism revenues Good tourism results are a prerequisite for final tourism revenue. This segment of the economy accounts for 14.7% of gross domestic product (GDP), as opposed to Spain where the share of tourism in GDP is 5.1% and Italy at 4.4%. Tourism Minister Lorencin noted that this year’s tourism revenue could exceed €8 billion. Irrespective of the fact that we are not talking about absolute profit, the question arises as to who
will receive most of the tourism proceeds. Throughout the tourist season it has been evident that shopping centres were the most frequently visited.
Tourists from Slovenia, Poland and Germany visit Croatian Zagorje region
A LARGE INCREASE IN TOURISTS TAIWAN AND THAILAND “This year Uniline has recorded an increase in most markets and throughout its operating segments. Through top quality negotiation and contracting with its partners, the company has achieved significant growth in group arrivals from European markets, primarily from the German market, whilst Far Eastern countries, whose market is still developing, a great increase has been recorded in tourist inflow from Taiwan and Thailand”, stressed Sandra Gobin, member of the Management Board of Uniline. Excellent results are being also being seen in the car rental segment and in private accommodation that is provided by the company throughout Croatia. Good prospects for the post-season have been noted by partners co-operating with Uniline on sporting events organisation and corporate travel, as well as the organisation of important conferences and conventions. Sandra Gobin pointed out the fact that every season is specific and that this season has seen impressive last minute sales. It was very dominant during the peak season, primarily on the Italian and Eastern European markets. Irrespective of the fact that August is considered as the peak season, Uniline also has a large volume of work in post-season and the entire calendar year is regarded as a tourism year. Uniline is already making bookings for autumn and winter, as well as first bookings of ski holidays.
Irrespective of the fact that tourism results for the season are primarily concerned with the coastal resorts and islands, this year has shown a noticeable increase in tourist arrivals in the continental part of Croatia. During the first seven months, Krapina-Zagorje County recorded 48,641 tourist arrivals, 14% up over the same period in 2014 and this county is now one of the leading continental counties according to official tourism results. 106,692 overnight stays were recorded, an increase of 12%, with domestic tourists recording 29,894
arrivals, 12% up and foreign tourists 18,477 or 19% up compared with last year. Ksenija Tomić, expert associate for promotion and public relations at the Tourist Board of Krapina-Zagorje County, emphasised that Slovenian tourists are the most numerous, having recorded 4,000 arrivals to Zagorje region tourist resorts. They saw overnight stays soar by 50% compared with last year. Slovenian tourists were followed by a 64% rise in overnight stays by Polish tourists who in turn were followed by German tourists.
No 250 | September 2015 | PVinternational | 5
INTERVIEW MILIVOJ PERUZOVIĆ, co-owner and Board President, Adria Winc
I would like if we could show generosity; for example, the Mayor of Split could accept 10 families of engineer refugees from the Middle East. In that case, we could hire some of them in Adria Winch, says Milivoj Peruzović
6 | PVinternational | September 2015 | No 250
ch, Split
CROATIAN BUSINESS & FINANCE MONTHLY
I WOULD LIKE THE ENGINEERS TO COME TO CROATIA, NOT TO LEAVE IT Adria Winch specialises in the production of deck machinery, and is one of the top companies globally in the production of winches and the related software, as well as equipment. They also produce winches of the largest sizes, weighing up to 200 tonnes. All these products are innovative and the company has regular clients. The company earns 80% of its income from Russia and Norway Jozo Vrdoljak vrdoljak@privredni.hr
P
rivredni vjesnik talked with Milivoj Peruzović, co-owner and Board President of Adria Winch from Split, about the business activities of this export-oriented company. Peruzović spoke about the position of exporters in Croatia, the market situation in the countries to which they export and about plans for his company. Adria Winch specialises in the production of deck machinery, and it is one of the top companies globally in the production of winches and related software as well as equipment. They also produce winches of the largest sizes, weighing up to 200 tonnes. All these products are innovative and they have regular clients. The company earns 80% of its income abroad, mainly in Russia and Norway. What were business results like for Adria Winch last year? Last year, we achieved a turnover of around €11.4 million and profit of €0.9 million. As the base company of the group, Adria Winch employs 43 people, of whom 25 are engineers. Our subsidiary company, Dalstroj, employs 78 people. In Russia, Adria Winch has five employees and a joint
company with our partner ZNT Group. ZNT Group owns a shipyard, and deal in marine engineering as well as other activities. In Norway, we have a company with one employee who perform excellent work for us. How did Adria Winch develop? Adria Winch developed at a normal pace, achieving growth every year. 1995 marked the start of serious production. We leased a facility from Dal-
WE SIGNED FOUR TO FIVE CONTRACTS IN TWO TURKISH SHIPYARDS
around million
11.4 4
€
last year’s turnover
0.9 9 million
€
profit in 2014
stroj that went bankrupt. We arranged with creditors and took over the company. We achieved growth every year. We entered the Russian and Norwegian markets from whom we achieve around 80% of income. The Croatian market has a 2-5% share. The remaNo 250 | September 2015 | PVinternational | 7
INTERVIEW ining share is held by other markets, but we wish to change this with further growth.
workers of whom 25 are engineers employed by Adria Winch
78 8 employees in subsidiary company Dalstroj
How and why do you wish to change? The Russian and Norwegian markets are specific, each in their own way. The Russian market is burdened with the local situation, mainly the Ruble. Although we contract work in euros, the problematic Ruble reflects on the entire Russian economy. The Norwegian market depends on the price of oil, and we have recently seen the scope of this problem. We hold our position on these markets due to our partners and reputation. However, we compensate for the consequences of instabilities in various ways. In addition to off-shore in Norway, we found another niche, related to the production of equipment for fishing boats. The Norwegians decided to build much larger fishing boats, intended for their sea, but also for the open sea. This is a new niche in which we are currently trying to establish ourselves. We need to know that fishing ranks second in Norway, after oil, and we will provide the equipment for these types of boats, especially boats for transporting live fish. This type of work requires special equipment for holding the cages on the boats. You said that in addition to these two markets, you also opened others. Which ones? We opened the markets in Turkey and Poland. We signed four or five contracts in two shipyards. The shipbuilding industry is growing there, so we are very satisfied. In Poland, we signed five new contracts. What about Croatia? We have news about Croatia also. We signed contracts with the Board President of Brodosplit and will provide equipment for their new construction projects. We are also trying to enter the Uljanik Group. Furthermore, we are still holding our long-established positions, for
WE HAVE ALWAYS HAD SUPPORT IN CROATIA, STARTING FROM CBRD, EACH GOVERNMENT AND THE CCE example, equipment for excursion boats for ship owners from Krilo-Jesenice. We started a more serious project with them, and they are our regular and special partners. I think they are one of the brighter examples in the Croatian economy. 8 | PVinternational | September 2015 | No 250
We signed contracts with the Board President of Brodosplit and will provide equipment for their new construction projects, says co-owner of Adria Winch
In addition to new work, what else do these contracts bring you? They certainly contribute to reducing our business risks. For example, it is estimated that off shore orders will reduce 20% on the Norwegian market, which we will compensate for with the supply of fishing boats. Furthermore, we have big plans for the Russian market. We even signed new contracts. The only question is when, how and at how quickly they will materialise, considering their general situation. From the current 40% of the Russian and 40% of the Norwegian market as well as 20% on other markets, we want to maintain the positions on these key markets, but we want to reach a share of 40% on other markets. To put it simply, this means our aim is to achieve considerable growth during the forthcoming years. Can you say something more about the projects regarding the construction of the fishing fleet in Russia? The potential of fishing in Russia is almost the same as the potential of their oil industry. They
CROATIAN BUSINESS & FINANCE MONTHLY This project is worth as much as our annual production. It would also bring new contracts for various companies in Croatia. How would you finance these projects? These types of projects are financed in various ways. This includes high advance payments and secured financial backup of the work provided by the contractor. Therefore, there are no problems here. The bigger problem is the organisation of work. With our 25 designers and our resources, we are able to respond to this challenge. Moreover, we have long-term partners in Croatia who could take over a share of the work. What are the burdens to you as an exporter? Do have support in Croatia? I can only say we have always had support in Croatia, starting from CBRD that monitored all our programmes and provided us with backup. We were also supported by every government, concerning subsidies. In the beginning, and when we entered foreign markets, we were supported by the Croatian Chamber of Economy, which enabled us to participate at fairs. We are burdened and slowed by the currency policy. This has been mentioned so many times that we stopped paying attention to it. I can only mourn when I see how the Norwegian currency policy goes in favour of their exporters.
have been planning for many years now to build fishing boats, and this should soon become a reality. These projects are supported by the state, and we have programmes for supplying the equipment for these boats. This is a very concrete project that was elaborated by the Krilov Institute. If the projects starts at the pace we would like, our turnover would double.
5 employees in Russia
va aluable employ oyee in Norway oy
What else would you want the state to do? I would like if we could show generosity. For example, I would like to see the Mayor of Split accept 10 families of engineer refugees from the Middle East. In that case, Adria Winch could hire some of them, and I am sure other companies in Split would do the same. I would like engineers to come to Croatia, not to leave it. Their education was extremely expensive for their parents and the state.
Tested in polar conditions, produced in Split Is it true that you are developing a special project for manufacturing a new innovative winch in the shipyard in Split? This is true and we have great plans for this project. We first started to develop the project with Finnish designers specialising in the planning of products for working in polar conditions. It is interesting to know they are the designers of a Finnish shipyard whose owner is one
of our partners from Russia. We cannot produce such large winches in our facilities, but we can produce them in Brodosplit. Therefore, we made an arrangement with Mr Debeljak, that is, our mutual interest is to produce this winch in one part of Brodosplit known as Dizelmotorna. According to our plans, this project will start in October. Brodosplit has ideal conditions for these kinds of projects. No 250 | September 2015 | PVinternational | 9
THE HENDAL SURVEY FOR PRIVREDNI VJESNIK
THE STATE IS EXPENSIVE AND NO ONE ASKS ENTREPRENEURS WHETHER THEY ARE ABLE TO CARRY THIS LOAD The survey conducted on 400 entrepreneurs in July divided companies into five types of activities: production, construction, tourism, trade, transport & services. The companies were divided according to size into three groups Igor Vukić vukic@privredni.hr
10 | PVinternational | September 2015 | No 250
CROATIAN BUSINESS & FINANCE MONTHLY
I
nvestment conditions are bad; the export climate is not stimulating and high taxes and contributions present a grave burden for the real sector. This is the opinion of the majority of the 400 entrepreneurs who participated in the survey carried out by the Hendal Agency exclusively for Privredni vjesnik. An expensive and inefficient state aggravates entrepreneurs even more. The situation is not bad - it is catastrophic, says owner of company Beton Lučko Božo Jelenić. Regulations are enacted in a manner that the state is always the first
BUSINESS AND INVESTING CONDITIONS WERE EVALUATED AS VERY BAD BY 20%, AND ANOTHER 53.8% FIND THEM BAD to settle, and it requires a lot of time since it is very expensive. Furthermore, the relationship between the retired and employed is also unfavourable, and this also has to be paid. No one asks entrepreneurs whether they are able to carry this load, Jelenić says. He also adds that the state should provide better collection of entrepreneurial claims. The laws which prescribe the deadlines never really functioned, so entrepreneurs experience many problems with charging for completed work. Entrepreneurs put illiquidity in fourth place of the obstacles to successful business. We have to pay for materials, people and tax in advance of payment. No one asks us what will be left for us. When we are in a crisis, the media blame us for not wanting to pay salaries, as if it is a whim of ours, Jelenić says angrily.
The survey conducted on 400 entrepreneurs in July included companies divided into five types of activities: production, construction, tourism, trade, transport & services. The companies were divided into three groups (< 50 employees, 50-500 employees and > 500 employees).
WHERE ARE THESE POSITIVE CHANGES? CEO of L.N. graditeljstvo Luka Zdrilić says his sector is still not feeling the positive changes signalled by certain macroeconomic indicators. Construction was the first sector hit by the crisis, and its recovery is the slowest. Zdrilić says there is no public investment growth, which is unusual since we are living in a pre-election period. Not even European funds have helped to boost investment so far. It will not be good until salaries in the public sector are higher than the salaries in construction, hospitality and other activities of the private sector. Many entrepreneurs I talk to resent this relationship, especially now when the situation on the market is aggravated, Zdrilić says. He is trying to overcome difficulties through diversification of activities and investment in tourism through his family company. The situation is a little bit better here; there is some foreign capital, therefore, some construction works can be expected. Zdrilić thinks part of the problem lies in the past, when construction companies relied too much on state infrastructural activities. It is quite another thing to find work abroad. Therefore, 60% of entrepreneurs pointed out in the survey that the export climate is not stimulating enough.
The state should provide a better education policy. Despite the high unemployment rate, the real sector lacks workers skilled in production. Božo Jelenić from Beton Lučko
30,8%
15,0%
good
How would you evaluate investment and business conditions in 2015? Conditions are… 20,0%
very bad 53,5%
bad
Luka Zdrilić, CEO of L.N. graditeljstvo
PROBLEMATIC QUOTAS
How would you evaluate the general economic situation in Croatia? The situation is… very bad
“
It will not be good until salaries in the public sector are higher than salaries in construction, hospitality and other activities of the private sector. Many entrepreneurs I talk to resent this relationship.
53,8%
bad 24,3%
good
very good
0,3%
very good
excellent
0,5%
excellent
1,8% 0,3%
No 250 | September 2015 | PVinternational | 11
THE HENDAL SURVEY FOR PRIVREDNI VJESNIK
In your opinion, what are the main obstacles to successful business? 3,28
taxes and contributions inefficient public administration
3,45
attitude of politics towards the economy
3,60
illiquidity
3,84
laws
4,16
financing and investing conditions
4,77
judicial system
4,90
7
6
5
4
3
2
“
We have to pay for materials, people and tax in advance. No one ask us what will be left for us. When we are in a crisis, the media blame us for not wanting to pay salaries, as if it is a whim of ours. Božo Jelenić, owner of Beton Lučko
1
most important
least important
explains the state does not allow higher quotas for importing workers with scarce skills, for example, carpenters, masons, electricians and similar. Other countries are more sympathetic to the problems of entrepreneurs and try to help before a pre-bankruptcy scenario. Canada will definitely try to avoid their entrepreneurs moving to the USA since they offer better business conditions, Jelenić highlights. He also considers finding better production conditions, especially since Croatia joined the EU. Only 15% of the survey participants evaluate general economic conditions as good. Business and investment conditions were evaluated as very bad by 20%, and another 53.8% find them bad. Only 24.3% evaluate investing conditions as good, and 1.8% find them very good.
HELP YOURSELF In addition to high taxes and contributions, highlighted as the biggest obstacles for more successful business, other obstacles are financing and investment conditions. Co-owner of Opreme Špoljar, specialising in the manufacture of different types of sun-shades, Robert Špoljar faced both these obstacles. The profit tax rate itself is not too high, but contributions for those employed are very high, Špoljar describes. When you want to obtain a loan, every company is on its own, and the banks will follow you based on your business results. Help yourself and the banks will help you is a phrase with which Špoljar agrees. Besides an insufficiently satisfactory attitude of politics towards the economy and laws that are not adjusted to market conditions, entrepreneurs also face problems with a slow
12 | PVinternational | September 2015 | No 250
How would you evaluate the export climate? The climate is… 19,3%
Not stimulating Insufficiently stimulating
60,0%
Stimulating Very stimulating
20,0% 0,8%
judicial system, especially the process of claim settlements. The fact that gross domestic product managed to rise slightly above zero does not give them cause for optimism since there are still no signs of market recovery.
CROATIAN BUSINESS & FINANCE MONTHLY HIGH GROWTH FROM A LOW BASE FROM LAST YEAR
DIRECT INVESTMENT IN 2015 UP BY €112.4 MILLION During the first quarter of 2015 foreign investment increased by €319 million over the previous quarter. Implemented investment is still substantially below the pre-recession levels
F
oreign direct investment in Croatian during the first quarter stood at €393.4 million, according to preliminary data provided by the Croatian National Bank. Foreign direct investment showed an increase of €112.4 million compared with the same period last year. A substantial double-digit increase of 40% in the value of foreign direct investment was seen against the backdrop of a relatively low base (of €281 million) last year.
MODEST, YET ENCOURAGING During the first quarter of 2015 foreign direct investment rose by €319 million in relation to the previous quarter (when foreign direct investment stood at €74 million), with the exception of round-tripping investments (which increase direct investment both ways) and hence it is possible to make a comparison between the values of investment. The data for the first quarter of 2015 show a continuation of positive trends, yet generated figures are still significantly below pre-recession levels. As pointed out by the Croatian Chamber of Economy, the fact that an increase in investment of a large number of companies has been recorded within modest values of fo-
reign investment during the last several years is highly encouraging. An increase in investment implies investment in tourism, as well as manufacturing activities (metal processing, food processing and the pharmaceutical sector). During the last several years, in addition to the launch of projects such as IKEA, a trend of investment by existing foreign investors into manufacturing expansion has been seen, such as Calzedonia, Saint Jean Industries, as well as the opening of new research and development function by Yazaki Europe and other companies, in Zagreb. Furthermore, investment by Wollsdorf, CWS Bocoa and Press Glass, following an investment by large local companies such as Atlantic Group, Pliva, AD Platisk and JGL has to be highlighted, as emphasised by the Croatian Chamber of Economy sources. According to RBA analysts, the relatively high value of foreign direct investment during the pre-crisis period was primarily the result
A TREND OF FOREIGN INVESTMENT INTO PRODUCTION FACILITY EXPANSION of large-scale privatisation, focusing on the non-tradable goods sector (such as the financial sector and trade), in addition to the simultaneous lack of greenfield investment and investment in the tradable goods sector.
€146 million
during the first quarter originating from Holland
€80 0 million from Austria
€377 million from Italy
PRIMARILY FROM HOLLAND Most private investment during the first quarter originated from Holland (€146 million or 37% of total investment) and Austria (€80 million or 20% of total investment), followed by Italy with €37 million invested and Germany with €24 million. (I.V.)
€24 4 million from Germany
No 250 | September 2015 | PVinternational | 13
CROATIAN EXPORTS FOR THE FIRST SIX MONTHS
EXPORTS CONTINUING DOUBLE-DIGIT GROWTH During the first six months the value of exported goods stood at €5.5 billion, which was 10.4% up compared with the same period last year. Imports also showed growth, yet at a slower pace, at 4.8%, with the value of imported goods totalling €9 billion and vastly exceeding the value of exports
C
roatian exports during the first six months of 2015 reached €5.5 billion, according to the preliminary results provided by the Croatian Bureau of Statistics, up 10.4% in relation to the same period of 2014. The value of exports to other EU member states stood at €3.7 billion (13.6% up), whilst exports to non-EU countries were €1.8 billion (3% up). According to preliminary results, which will be published in September, imports stood at €9 billion, 4.8% up. The percentage of imports from other EU countries stood at 78%.
TRADE DEFICIT DECREASED BY AROUND 5% Imports of goods from the EU saw a considerable increase to €7.01 billion in 2015, up 8.7%. Nevertheless, imports from non-EU countries showed a decrease. Hence, during the first six months of 2014 exports from non-EU countries
Exports of goods of the Republic of Croatia in HRK’000
)
Exports
EU member states Non-EU countries
I.- VI. 2014.
I.- VI. 2015.
37.374.142
41.668.803
24.217.371
28.091.376
13.156.771
13.577.427
64.824.590
68.036.307
EU member states
48.657.742
53.236.946
Non-EU countries
16.166.848
14.799.361
-27.450.449
-26.367.504
57,7%
61,2%
Imports)
Balance of Trade Export/import ratio Source: Croatian Bureau of Statistics
stood at €2.2 billion, whereas during the first half of 2015, exports were €2 billion, 8.1% down. According to data from the Croatian Bureau of Statistics, the trade deficit decreased by around 5% or slightly over €0.13 billion over the first six months. During the same period of 2014, it stood at €3.6 billion. Solid exports trends during the first half of the year improved the export/import ratio, which stood at 57.7% over the first six months of 2014, to reach 61.2% during the same period in 2015. According to estimates by the Croatian
14 | PVinternational | September 2015 | No 250
National Bank, import growth is likely to accelerate, as a result of the expected mild recovery in domestic demand and investment, as well as a particular import dependence of the domestic economy. Nevertheless, due to a drop in crude oil prices, the value of imports of crude oil and derivatives will decrease and consequently positively affect the balance of foreign trade. Thus, 2016 may see an additional acceleration in the growth of exports as a result of the strengthening of foreign demand, according to the Croatian National Bank analysts. (I.V.)
CROATIAN BUSINESS & FINANCE MONTHLY LAUNCH OF A FORTHCOMING COLLECTION
WELCOME, BERNARDO BERNARDI
T
he factory in Čazma is ready, just as the other Croatian factories of the Era Group. The production of wooden furniture that will carry
the name of the well-known Croatian architect and designer, Bernardo Bernardi, is about to start. The launch of the first collection is scheduled for early October, and it will include some 10 designs carefully selected by the Art Direction of Era Group and Oris – House of Architecture. Inspired by global brands, for example Danish Carl Hansen, whose legendary furniture is designed by Hans J. Wegner and can reach up to €10,000 per item, Era and Oris decided to launch the production of an exclusive line of Croatian furniture. As Era’s Creative Director, Borna Matković, highlighted, the first collection will include chairs, tables, armchairs, two-seater sofas, coffee tables, chests of drawers and other solid furniture. Moreover, the opening of Era Group’s mono brand store will follow soon, after the launch of the products. The products carrying the name of Bernardo Bernardi evoke eternal design, but they will be the children of their era, perfected by contemporary technologies and made of high-quality natural materials. The Croatian wood industry produces what world designers like to call ‘eye candy’, and for which customers are willing to pay substantial amounts. We hope for what we are certain is the new Croatian export product. (S.P.)
WOOD PROCESSING INDUSTRY SHOWS A POSITIVE CONTRIBUTION OF $198 MILLION
END PRODUCTS ACCOUNT FOR 55% OF EXPORTS Exports of wood, wood products and furniture during the first four months of 2015 saw a 14.8% fall compared with the same period last year. Since imports remained unchanged, the balance of payments surplus decreased by $68 million and now stands at $198 million. Irrespective of these inferior figures, this slowdown does not necessarily need to imply a worsening of results
on an annualised level, according to sources in the sector. The percentage of exports of the wood processing industry (as a percentage of overall exports since 2012), increased from 7% in 2014 to reach 9% currently. Exports of wood products in 2013 showed 21% growth, whilst 2014 saw a further 18% growth. Nevertheless, wood and wood products account for around 65%
of exports within the overall export structure, which greatly exceeds furniture that accounts for a mere 17%. On the other hand, final products
account for 55% of exports, whilst the remaining exports comprise products of a lower processing level – sawn lumber, firewood and unprocessed wood. As pointed out, the latter production area has ample growth potential. The wood processing industry can improve its business results primarily in the production of high value added products. (K.S.)
No 250 | September 2015 | PVinternational | 15
BANKING 2014
BANK PROFITABILITY AT ITS LOWEST LEVEL SINCE 1998 The level of provisions for bad loans remains high, as they have not decreased so banks have taken measures to solve this issue. Two banks did not respond well to the changed business conditions Igor Vukić vukic@privredni.hr
W 53.3
€assets of credit institutions billion in 2014
98.1% of which
refer to bank assets
eak economic activity has reflected on last year’s results for Croatian banks. Business activities have been slowing for the third consecutive year. The demand for loans remains suppressed, according to the latest issue of the Banks Bulletin issued by the Croatian National Bank. Profitability indices were at their lowest levels since 1998. The main reason is the ongoing increase in the cost of covering bad loans, as they have not decreased so banks have taken measures to solve this issue. Two banks did not respond well to the changed business conditions. Therefore, the number of the banks continues to decrease for the fifth consecutive year. However, according to the Bulletin assessment, this decrease is moving at a slower pace. These were the reasons why bank assets effectively reduced 1.3% in 2014.
Notwithstanding, savings did not grow as rapidly as previously. In the case of companies, this was mainly due to the high base, that
BANKS CONTINUE TO CLEAR DEBTS Last year the level of savings continued to rise, especially private but also corporate deposits. Since there was no credit growth, the inflow was used for clearing bank debts, at the same time maintaining an appropriate level of liquid reserves. Therefore, banks were returning
SAVINGS CONTINUED TO INCREASE LAST YEAR, ESPECIALLY PRIVATE, BUT ALSO CORPORATE DEPOSITS more money that arrived from the central office abroad than in 2013. Liquidity reserves were preserved through investment in securities, especially state securities. 16 | PVinternational | September 2015 | No 250
Majority of bad loans in trade and industry The quality of the credit portfolio continues to aggravate. The share of partially recoverable and completely irrecoverable loans of the total number of loans (B and C loan group) increased from 15.7% at the end of 2013 to 17.1% at the end of 2014. The percentage of bad loans remained high due to weaker credit activities, but their growth slowed. Corporate loans from groups B and C exceeded 30%. The situation is better regarding private individuals with a level of around 12%. In 2014, trade and processing industries, especially the food industry, had the highest level of bad loans, followed by real-estate activities and agriculture that recorded high interest rates.
CROATIAN BUSINESS & FINANCE MONTHLY Profit increases €0.18 billion According to the revised data for 2014, banks achieved €0.28 billion in profits. In relation to 2013, this is €0.18 billion more or 197.3% up. After two years of falling, operating profitability increased (before the provision of costs). Income from fees and charges of mainly credit card activities also grew. The banks reduced general business expenditure, and income from selling secondary services increased. In 2014 only 12 banks registered losses (from a total of 28) with a 15.5% share of total banking assets.
Return on average assets (ROAA) and return on average equity (ROAE) of banks (in percentages) 10 8 6 4 2 0 2008.
2009.
2010.
2011.
2012.
2013.
ROAE
Izvor: Banks Bulletin, HNB
2014. ROAA
regulations for consumer credit. The interest level on housing loans issued in Swiss francs was capped. This slowed growth of irrecoverable loans, but bank exposure to credit risk
BAD DEBT PROVISIONS STILL REMAIN A BURDEN ON BUSINESS RESULTS has intensified. The level of bad loans issued in Swiss francs is considerably higher compared with housing loans issued in euro or kuna. is, the growth of such deposits in 2013, due to stricter fiscal discipline measures. For private individuals, the announced taxation of interest on savings, applied since 2015, created an additional strain. The Bulletin reveals that private individuals have been reducing (de-leveraging) their debts for the sixth consecutive year. This particularly concerns housing loans. Nonpurpose cash loans expressed in kuna were the only area to have an increased. Corporate loans decreased substantially, despite the new model for promoting economic loans introduced by HNB at the end of 2013. After plummeting in 2013, bank profit recovered in 2014, mainly due to lower interest expenses and lower provision costs for losses. However, provision costs still remain a heavy burden to their business results. Together with weak economic activity, lower interest rates and weaker credit requirements, all have had a negative influence on interest income and overall results. The state also had a strong influence on profitability by prescribing new
0.28 8billion
€
profit from banking activities
APPROPRIATE CAPITAL ADEQUACY Total assets of credit institutions were €53.3 billion, of which 98.1% related to bank assets. Building societies, with a 1.9% asset share, increased their allocated loans. Asset and loan growth was achieved due to the assignation of state subsidies. Housing loans in building societies increased 7%, at the same time maintaining valid quality. Even after the new regulations for determining capital and capital rates for credit institutions, capital adequacy of the local banks remained very good. This was the result of conservative regulatory pressure during the past years, which managed to secure a high level and quality of capital. By the end of 2014, all capital rates determined by the new regulations were significantly above the prescribed minimum. The rate of regular capital stock as well as the rate of capital stock totalled 20.6% each, and total capital was 21.8%. In relation to the end of 2013, the rate of total capital increased slightly, mainly through weaker bank activities.
12 2 banks (from a total of
28)
showed losses
No 250 | September 2015 | PVinternational | 17
PRIVREDNI VJESNIK
DUBROVNIK PRE-PREMIERE
COCA-COLA APPOINT NEW DIRECTOR Maria Anargyrou-Nikolić is a new director for Coca-Cola HBC Croatia who will also be supervising the operations of the company in Slovenia and Bosnia and Herzegovina. Until recently, she was Director of Commercial Affairs Department in CocaCola HBC Serbia and Montenegro where she achieved gross revenue growth throughout the product range, as stated by company sources. “Croatia is a developed and demanding market, with a broad range of challenges, yet I am convinced we will continue operating successfully as a result of our permanent commitment to sustainable development and growth”, pointed out Maria Anarg yrouNikolić upon her appointment.
FALL IN LOVE WITH BAJADERA AMARUS TASTE IN SEPTEMBER The Croatian confectionery company, Kraš, has recently delivered a pre-premiere presentation of Bajadera Amarus, a new taste of the wellknown Croatian confectionery product, in the atrium of the Dubrovnikbased Duke’s Palace. The
new premium product will be launched in September. The exclusive promotion of this new product with a rich flavour of the most exquisite hazelnuts and sweet and bitter almonds was held following a concert by Ivo Pogorelić.
OPEN AT LEAST ONE HOUR BEFORE TASTING Krauthaker decided to give carefully selected wine enthusiasts a difficult challenge. A well-aged wine that has recently been launched on the market in a very limited run of only 400 available bottles, and can be purchased exclusively in Krauthaker’s own cellar and in two wine stores. According to oenologists, the bouquet is sweet-flavoured and contains chocolate, dried herbs, minerals, ripe and cooked dark red and blue berries and a touch of tree bark, to name a few of the ingredients. The challenge is having to wait for at least an hour from the opening of this unusually large wine bottle (1.5 litres) to the actual wine tasting, in order to properly experience the perfection of its unique taste. Merlot 60% Cabernet Sauvignon 40%
18 | PVinternational | September 2015 | No 250