L OA" SSq - Yc
E IY R E S T R I T ELA-3
riit wr i RESTRICTED
Report No. LA-3
This report yy as prepared for use within the Bank and its affiliated oracinizations.
They do not accept responsibility for its accuracy or completeness. The report may
not be published nor may it be auoted as representina their views.
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
IN T1ERNA T IONAL FiNANCE CORPORA T iON
TkTIfnXT A rT-\T AT 'IrnTIOAT t-N\AT:XT T A CCO(IT A"T-4 .T
iLl J I J. .'I.tI .1 L%.'v~.LL V .....'11ILL J I
APPRAISAL OF
YUGOSLT A V INDUSTRLAL PROJECTS
YUGOSLAVIA
July 2L6, 1968
IFG - Departmrent of Itrvestrmnets
Latin America, Europe and Australasia
CURRENCY EQUIVALENTS
Currency Unit: New Dinar (N. D. )
US$1 = N.D. 12.50
N.D. 1 = US$0. 08
Other Units
All measurements are in metric system.
APPRAISAL OF YTJGOSLAV INDUSTRIAL PROJECTS
Table of Contents
Page
SUJMMARY AND CONCLUSIONS i - ii
I. INTRODITCTION
II. THE ENTERPRISES 3
III. THE ENT'ERPRISES' PROJECTS AND EXPECTED RESULTS 6
IV. FINAElUCNG 14
V. GENERAL CONCLUSIONS 16
M4AP
APPENDICES
1. Fabrika Mviotora Dvadesetprvi Maj (nAB)
(Equ]ipment for mnnufaeture of automotive engines)
2. Valjaonica Bakra Slobodan Penezic Krcun (Sevojno)
(REmnimnn+. fIr rnnppr rolling Tnili.c
3. Mariborska Tekstilna Tovarna (MTT)
(Eqii4 r%ynnt fn"+or + aetl nrnohintj n and fi ni Qhinn)
4. Elektronska Industrija Nis (E.I. Nis)
(Equpr,en+for" m. _nnu_actu~re of electayo.mic ccTrinfneP.T1+s)
5. Rudarsko Metalursko Hemiski Kombinat Trepca (Trepca)
6. Tovarna Sportnega Orodja (Elan)
(Equipment for rnanufacturc of kLs'j
7. Brodogradiliste Viktor Lenac (Viktor Lenac)
8. Novoles Lesni Kombinat (Novoles)
krEquLpment- toUr saw nuil� pLywUu yrouwctio;; .dL
manufacture)
9. Lesnoindustrijski Kombinat Brest (Brest)
(Equipment for furniture factory)
10. Industrija Pohistva Stol (Stol)
(Equipment for chair and seat factory)
11. Tne Yugoslav Woodworking industry
12. Yugoslav Investment Bank
Overall responsibility for the report was with Mr. Perram. Messrs.
Bandy, Dehejia, El Darwish, Jaffe and Simmons (IBRD) contributed to
it. The report was reviewed by Messrs. Paterson, Fuchs and Franco.
ADnDATCAT OF VTTPXC9TAT TkTDTVT(rr MTAT DpDEr) C
SUIMARY AND CONCLUSIONS
i. Following last year's $10.5 million loan for industrial moderniza-
tion the Bank was asked to consider making a further loan for the same purpose.
Ten projects recommended by the Yugoslav Investment Bank (YI]3) were selected
by the Bank for appraisal in the field. Tne projects include plants producing
automotive engines, semi-finished copper and brass, textiles, electronic com-
ponents, lead, ship repair facilities and woodworking (furniture and skis).
ii. The appraisal carried out by a mission from late January to early
March 1968 showed. the projects to be of economic priority, technically sound
and financially viable. The enterprises are competently managed and capable
of carrying out the projects successfully.
iii. The projects represent a wide spectrum of Yugoslav industry, both
geographically and as to product. The projects are ready for implementation.
The ten enterprises are not necessarily representative of Yugoslav industry
as a whole. They appear to have been successful. However, economic forces
such as increased costs, import competition and tight credit which have
influenced Yugoslav industry in general did affect several of the enterprises
adversely and the changes resulting from the Economic Reform of 1965 have
been instrumental in making the enterprises increasingly cost conscious. All
of the enterprises have been in operation for many years and are in sound
financial condition.
iv. The projects are well conceived and studied. Their major purpose
is to rationalize production with increased output in some cases resulting
from additional capacity being introduced with the modernization of existing
fnanli ties. The prnjects are expected to resullt in cost recictions and
improvements in the quality of products. Exports are expected to increase
siihstantially in several caseso. Imnorted enuinment would be purchased after
comparison of proposals from at least three foreign suppliers except when
techninnl reasons make it impractical- i=e.. when onl2v one or two manufacturers
of the required equipment exist, The amount of foreign exchange required for
amipofted equipm.ent is estimnated at $16 millon. It is nrnnnoprd that the Bank
provide these funds. Funds to cover local expenditures will be assured from
-V- ^S'l a b arb -P d fror . t he er.teMs 'o.T aeo"e
V,h 1-- 4- QtI 414 - 15 ^ .1A R h +0 +hek VTR nnAl -wnvlll hin cnr3n+tP_5A
v. The Boa;. of $16 millin wouldbetotheI and 1w[ d be. gua_ -r -n -_ted_
by the Yugoslav Government. It is proposed that the Bank provide this amount
on VA.= saiie basis as lastI year' loan, IOe. . L40r4 year .-f- 2-1/2 /-rear
grace. YIB would conclude Subsidiary Loan Agreements with each of the ten
enterpveises. The Da-K wouidV nvro 'r-ct contractu M .lat;ionI.Si .---
the enterprises, but the Subsidiary Loan Agreements would be subject to its
approval. The repayment period of the Subsidiary Loans -woul be the ame
as that of the Bank's loan to YIB and the YIB is expected to charge an
interest rate not less than 1/2% above tne interest rate on the Bank- loan.
- ii -
vn. Thhe cos.t nf +.h Rnke fuindso t +.he ent4 rises wrild be the snmIe
in all ten projects with no bank guarantees being required. Dinar loans,
whiere necessary, wold be made -av 1 l-- +'Ky VTt .dA ^%+. Viioh r . u T-nl
on repayment terms similar to the Bank loan and at an interest rate of not
Vmo~ vh&n 8%41, Euelsgal 11C1&Ai1LUJ*ll A S cs tmesVs1C7VU areL fis.11 wL+uhappora+
contingencies where necessary, no overall contingency provision was considered
necessa-Jy. vrrB Iv^l --- rta-4 to- proid 4-- caus tob,3odadditLonal
funds to the enterprises if required to complete the projects and cover working
capital needs.
-Vllo rFinancial forecasts based on reasonable saLes arLd cost estJimate-S
show that all of the enterprises should be able to meet their obligations,
carry out the projects and remain financially sound, Capitaiization of
interest during constnrction does not appear necessary for any of the enter-
prises.
viii. The normal financial covenants relating to debt and workming capital
are not practical within the Yugoslav system. The Subsidi.ary Loan Agreements
would include a provision requiring YIB's approval for any obligation which
would endanger the carrying out of the project or the servicing of the loans.
ix. The ten projects provide a suitable basis for a Bank loan of $16
million equivalent to the Yugoslav Investment Bank for a term of 14 years
including a 2-1/2 years grace poriod.
Thr/r.AV.A
July 26, 1968
US$1 N.D. 12.50 July 26, 1968
APPRAISAL OF
YUGOSLAV DWDUSTRIALJ PROJECTS
I. INTRODUCTION
1. Foll]owing the approval in July 1967 of the loan to the Yugoslav
Investment Bank (YIB)!I/ for industrial modernization by the IBRD, the Bank
indicated that it would be ready to consider a second loan for that same
purpose. It was then agreed that the projects to be financed should be of
moderate size.. that their niimihr Qhoul td hbe irm-Ht-ed anrL tht. the s of'
the loan should be of the order of tJS$15 million.
2. In October YIB submitted preliminary information on twenty-fouir
pronet *-.hose f4 'w.4 ia rea,urm.er. ir. fo.w-ei.~ exhrg r-ii.o,+cLe to about
�**--~~__' an___ equ .im m-*J - -S 5 .�'.-5 . t.aa.st.
U$25 million., YIB indicated that all the projects were of economic pri.ority
anvd w.ere re-a*!, t+o be m-.p.Lemented3. T.e i r- U'o r-., a-io4 4rentdwslmc
and intended only to give the basis for deciding whether the projects could
3. .Ten o t;^e 24project+s waere closer,, 4-n it acurtth-
size and geographical distribution; that they could be examined expedi-
tiously ald tula thieir foreign exchange requir-ments in total were of 'tie
order of magnitude previously agreed upon with YIB. The projects represented
a variety uf :Lndustries ana were in industrial sectors having economic
priority. On the basis of the information available, it was not possibl e
to determine the relative merits of the projects as compared with the ot;ners
presented by *bhe YIB.
4. More detailed information, which was received eubsequently, showed
that investigation of tne ten projects would be warranted and a mission was
in Yugoslavia from late January to early March 1968 for that purpose! r[he
mission consisted of three investment officers and three engineers who
reviewed technical, market and financial studies made by the enterprises
and their regular bankers with the assistance of the YIB. It also had
general discussions with industry and trade associations, export and
import houses, local banks and the YIB. The information including finaicial
projections was completed by the enterprises after discussions with the
mission. In those cases where the forecasts seemed optimlistic, appropriate
revisions were made or qualifications stated. Revisions were also effected,
where needed, to reflect such changes as interest during construction,
reduction in reserve appropriations or ualler increases in surplus working
capital.
1/ The YIB is described in Appendix 12.
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5. The mfLssion found that the ten proJects chosen would be suitable
for a Bank loan of about US$16 million. The enterprises carrying out the
projects and the proposed allocation of the loan funds to each one of them
would be as follows:
Proposed Allocation
from IBRD Loan
Name of Enterprise Purpose of Pro ect _(S 1l1lions)
DI{B Automotive engines 4.10
SEVOJNO Rolled copper and brass
semi-finished products 3.�0
MTT Textiles 1.98
E.I. NIS Semi-conductors. resistors.
capacitors 1.76
TREPCA Refined lead and bv-products 1.70
ELANi Skis .70
VTKTOR LEPI-AC Shin rennir facilitien . 0
NOVOLES Furniture and woodworking .86
RSTi i .68
STOL i t t .32
16.00
6. netai:Led appra4isaLs of th>e projec+ s are cont-ained in .4Aenie
1 through 10 attached to this report. Their locations are sho-wn in the map
dLI UiA" USLIU J.I. L,1"IbL _U�JIJU�L-. L. P .ra 1iLUa I LJ 1LLU Lii o iid J VLI L J41cl ~J.C"L " UiJ~L i-M&4'.'
in the Appendices should be interpreted taking into account the peculiarities
of the "Self-Manawgem,ent+ System"! which affects financial concepts and pract;ices
and the Yugoslav reporting procedures which differ from those of most IBRI)
member countrie,S. Tnese differenCes are discussed in some detai 'in the
report "Appraisal of Yugoslav Industrial Projects" (LA-2a), dated June 29,.
1967, prepared in connection with last year' s loan to the YIB for industrial
modernization. Particular reference is made to Appendix 3 of that report.,
entitled "Financial and Operating Characteristuics of the 1ugoslav Entepri.sJ"
and to the description of the "Self-Management System" at the end of Chapter (II
of the report.
7. It is well to recall here that in Yugoslavia the assets oI an enter-
prise are social property and that their management and control are vested in
its employees w]ho act through their elected management. Both the Yugoslavr
Constitution and the Basic Law on Enterprises of April 1965 established the
autonomy of the enterprise as the basis of the social and economic system,
This autonomy is limited to some extent by administrative controls, parti--
cularly regardaig prices, but the enterprises are free to make decisions
regarding new inivestments, plant location, product lines, d[ebt financing,
marketing and purchasing and other contractual relationships, hiring of
employees and wagepolicies This includes the determination of the portion
of net income which will be distributed to the employees as personal income0
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8. The accoulnts of the enternp ses are maintained on a mixed cash
and accrual basis and current transactions are controlled by the Federal
G-overnment's CScial A4cco1nting e,rvice, Yugoslav entArnrises must submit
their financial reports to that Accounting Service which also makes periodic
a.udia. A , te -- l --, the 1nnfinni- statements contained in
this report were prepared by the enterprises with the assistance of the
YIBL from. the ov1.em+nts vr A +o +hg Accounting Service, These were
recast to the extent possible in forms used by the Bank.
9. The presentation, therefore, should not be accepte(d and the normal
tests of financial soundess, debt ser-eice coverage ad profitabilityr ,i1r1
not be applied without due regard to the differences between the two systems,
These inclUde, among otvhers, tI absence o'f Share capital and the rmore exten-
sive use of debt which affects the concepts of a debt/equity ratio; the use
of segregated bank accounts and deposits wrsose use may be 'l mited and wh;i.c
may, therefore, show a liquid position that is not as favorable as it appears
but which, on the other hand, forces retention of earnings and s likely to
result in a conservative current posiW4on; the use of contra-accounts, part:L-
cularly for invoiced but unpaid sales= resuiting in an apparent dimuinised
current ratio; the use of retained earnings for community facilities which
may give the appearance of overcapitalization and low productivity; the
revaluations of assets effected in 1965 and 1966; and the practice of making
supplementary wage distributions (shown in the accompanying statements as
part of costs) which are in the form of a profit sharing bonus and which
may be considered as part of the returns on capital when considering profit--
ability.
II. THE ENTERPRISES
General
10. All the enterprises are going concerns. The newest one (Sevojno)
was formed in 195C). They are located in various regions of Yugoslavia and
include a wide range of industry including lead and zinc, copper rolling,
electronics, automotive engines, textiles, ship repairs and woodworking
(furniture and sporting equipment). They employ a total of 38,700 workers
ranging from 550 to 13,000. The table on the following page shows the
principal indicators of the enterprises' past performance and expected
operating results such as annual rate of sales increase,, capital structure
and profitability.
Present Financial Position
11. The enterprises' combined assets at December 31, 1967 totalled
N.D. 4,4no Tnillion (US$352 million). Their combined sales in 1967 reached
N.D. 2,360 million (US$189 million). The enterprises' financial maturity
is shown by the average relationship between their long-term debt and their
"own funds" (retained earnings, including revaluations of assets, which are
1/ For income st-anet purposes sales arm recorded on a cash basis
referred to as paid sales.
M'Iajor Indicator s of Ten Endus trial Enterprises in Yugoslavia
VI K;TOR TOfl.L
I T E M S DATE UNIT TREPCA I14B SEVOJNO EI NIS M.T.T. LENAC ELAN STOL BREST NOVOLES (OR AVERAGE)
Total Assets Iec. 31,1967 ND) Mil. 1,618 241 776 967 330 203 82 58 78 4'5 4,398
Paid Sales 1967 1475 158 646 621 210 67 34 46 67 365 2,360
1966 543 155 636 508 230 74 24 39 6 1 31 2,301
Average Annual Rate of 1965-1967
Sales Increase Inclusgive % 23 16 31 12 ,/ 29 26 1'J 22 23 (18)
Earnings from Operations
as % of Sales 1967 % 7 2 2 5 1 15 7 11 8 6 (5)
1 966 % 11 6 8 10 7 19 9 9 8 15 (9)
as % of Own Funds 1967 % 6 3 4 13 1 17 13 1t6 14 10 (7)
1966 11 8 15 31 10 26 15 1I 112 9 (15)
Long-Term Debt/Own. Funds Dec. 31,1967 Ratio 49,/51 38/62 26/74 53/47 16/84 64/36 38/62 20/80 24/76 28/72 (42/58)
Number of Workers Early 1968 Number 1 0,000 2,300 2,700 13,000 5,700 5980 550 1,160 1,385 912 38,687
Project
(a) Estimated T'otal Cost - N]D Nil, 78 158 77 53 153 22 22 8 20 21 612
(b) IBRD Financing 21 51 .44 22 24 5 9 4 9 11 200
(c) IBRD Financing aLs
% of Total Cost % 27 32 57 41 16 23 40 50 145 5:2 (33)
Ratio of Loan Financing to
Financing from Cash Construction
Generation Periods Ratio .7:1 2.2:1 .3:1 1.8s1 .3:1 .5:1 1.9:1 .3:1 .8:1 2.4:1 -
Increase in Sales Value! 1968-1972 ND Mil. 297 110 232 181 168 28 20 111 42 27 1,116
Increase in Export
Sales Value 1968-1972 if 54 NA 138 82 53 7 15 23 2 20 394
Long-Term Debt Service
Coverage 1971 Time s 2.1 1.6 4.h 2.3 3.7 1.9 2.1 7.8 4.1 2.1 -
Earnings from Operations
as % of Sales 1972 % 15 8 9 14 7 16 9 12' 10 13 (12)
Exports: Clearing/Convertible
Currency Area, 1 9'2 R'atio 34/66 NA 44/56 35/65 35/65 78/'2? 8/92 0/1 00 9,/91 0/100 34/66
i/ Less thanT%.
2/ Excluding interest durirng construction,
IFC-IAEA
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comparable to e3quity) since in Yugoslavia new companies are initially
financed entirely by debt. At the end of 1967 in only two cases, E.I. Nis
and Viktor Lenac, was long-term debt in excess of own fundcs due, primari:Ly,
to recent relatively large investments to finance expansion.
Prices
12. Most domestic prices for the enterprises' products, using the
present exchange rate, are not substantialLy different from prices in
Western Europe. This is due to the nature of the products and, in three
cases (electronics, textiles and automobiles) to the pressure exerted by
actual or potential competition from imports without significant tariff
protection. In the case of lead, zinc and copper prices are based on
world markets. In the woodworking industries the dependence on readily
available domestic raw material and relatively low wages indicate that
costs are not pressing prices upward. In the case of the ship repair
yard the main reasons for low prices are the relatively low cost and higha
productivity of Yugoslav labor and competition with foreign shipyards.
Thus the relaxation of pricet eontrols which is contiuing s-hould have no
significant impact on the ten enterprises and, inversely, the existence
of price controls torda-v does not see. to hnve an imypotnt effec-t in th
price structure of the enterprises.
Costs
13. Imported raw materials bear relatively small duties and those
locally -rodaced are in. l e wth, -ost-s prevail lng a',--,' Although 4tota'
.V1l i'. 4i 4 . r,.,4- ~eAn l C& LAl -V-r vo+n
wages have increased, they are still comparatively low an(d are linked to
prdct1J an a...s. I appears vhat ve er,exprises! show-d.g a
deterioration in operating results have been able to keep in check workers'
%de..ar.ds fLor ir.creased wages. FirMancing cost"s duo no'u appecar to be out of
line with those prevailing in Western Europe. Depreciation rates are
reasonable and are no longer fixed uy law (a�unough minimlm rates of 7%
for equipment and 1.5% for buildings still prevail) and depreciation
I M"s v becom,e ar. ncreas .Lpo .tLI so-ur-ce ofC .CinUnce. � iorUora'tU e
taxes continue at the reduced levels brought about by the Economic Reform.
Profitability
14. Profitability has varied among the enterprises. In 1967 their
earn1xngs, withn exception of those of the woodworking indulstries, declined
fairly substantially. This was due to import liberalizat:ion, higher costs
and tight credit. Viktor Lenac (ship repair) was affected adversely, in
particular, by a slowdown in ship traffic brought about by the Iiddle East
crisis last year and Trepca (lead and zinc) by technical interruptions in
production. Earnings as a percentage of own funds in 19665 ranged between
8% and 31%. In 1967 they ranged between 1% and 17%. As indicated in the
projections attached to the individual project appraisals, it is expected
that the enterprises' earnings will start to recover in 1968.
-6-
Exports
15. All of the enterprises export part of their products, some of
them in fairly substantial amounts. In 1967 exports as a percentage of
total sales ranged from 3% in the case of DMB (automotive engines), whose
output is practically sold in its entirety to Zastava. to 58%in the case
of Sevojno (copper and brass semi-finished products).
Nanagement
16. The enterprises' managements are, in general, able and well prepared
to administer their respective operations. They are technically competent
and, in most cases, have had long experience in their respective fields.
The managers of each enterprise have developed appropriete te:-ams who have
demonstrated ability to overcome problems and carry out generally well-
conceived plans. Tt seems that in no case have significant differences
existed between mTanagement and the Workers' Councils (which resemble a
eompny' Bord n.dulti.-atelly represe-nt. the ente-rprise-s' weor ers).
Foreign Technica-. Assistance an.d Market Cab-o' r1-aion
17. Sever . of the enterpri ses have technical or commrucial relation=
ships with foreign firms. 1]4B, through Zastava, obtains technical know-how
fror,~~~ar FitofI .yc, E. 'L. Nis has lic ens"Ing arnd othLer agreara,ents -with4 Datch
German, Czech ancd Japanese firms. Gherzi of Switzerland studied the expansion
of a.d alesigned- t4he new pJlar.t foMrLMTa TTior WIU V��SVAU LnaL s uock w-as desisgred
by a Dutch company. The furniture manufacturers have well-established relation-
ships -with buer. abroad, particularly in t,he U.S. and, thLrough Slovenjiales,
arrangements have been worked out for the assembly of their furniture in the
uJ.. Sevojno has itus own agents in the u.K. and in Germany. There are no
foreign investors in the enterprises. Trepea was originally established by
Selection Trust of the U.K. and has recently obtained a fairly substantial
bank loan in London.
Association with Other Enterprises
18. In several of the enterprises there are definite moves to associate
with other firms for rationalization. This trend towards larger production
runs and specialization should become an important contribution to the con-
tinuing move towards competitiveness. This is particularly noticeable in
the shipyard and in the textiles, electronics and furniture companies.
III. Ti4E ENTERPRISES' PROJECTS AND EXPECTED RESULTS
General
19. The proposed projects are aimed at increasing capacities and at
reduc5ng CO.v5 9' v Ad.A.ion of new p .d.t1s, bUy the replacerdenu of existinig
machinery in existing plants by more modern and efficient machinery and by
rationallz4Tg p-oduction. Since some of the enterprises are carrying out
investments other than those that will be assisted by the proposed loan, it is
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difficult to asses separately the effect of the project to be financed by
the Bank. It may be noted, however, that the value of the enterprises'
combined sales :in 1972 is expected to reach N.D. 3,910 million, represent:ing
an increase of iW.D. l,550 (-u$124 million) or o6% over 1967.
Future Profits
20. In the majority of cases profitability in 1972 is expected to
show a substantial improvement over 1966 and 1967. Profits of the enter-
prises as measured by return on sales are shown in the table on page 4.
Personal incomes are expected to increase indicating both the expected
growth in productivity and the larger earnings part of which are to be
passed on to the workers.
Future Exports
21. With the exception of DYIB, wihich does not directly export its
engines, all of the enterprises expect to increase exports. Exports, as
a percentage of sales projected for 1972. range from 19% to 67% and the
absolute increase over 1968's projections total N.D. 393 million (US$31
million). Of this increase US$20 million is oroiected to come from exports
to convertible currency countries and is about 10 times larger than the
annual debt service on the proposed IBRD loan.
Debt Service
22. Rv 1971 when the invest_m-ennt prngranms are to 'h nomnIleted and when
repayment on the Bank loan would start, the debt service coverage of the
enternri.es is pete+d to be satisfactory. Tnall but two cases (DIIBR and
Viktor Lenac) cash generation is projected to cover the principal and interest
requinrements at least twice. (.4s is the Yugoslav custo, becaus the year's
earnings are not considered available until the following year, cash generation
is taken to he t-he prior year' s earr.,gs plus +h crr. Aanrs dercito
and the current year's interest which adds a measure of conservativeness,)
The relativrely lo debt service coverage before 1971 of TMB, Elann and Trepca
appears acceptable in view of the enterprises' ability to incur additional
short-term debt and their strong banking suport.
Project Costs
N.D. 612 million (US$49 million) including lN.D. 177 million (US$14 million)
for working capital requem-,ents related to the proJects. This figure
excludes interest during construction which is not expected to be signifi-
cant due to the anticipad phasng of di, sbursem5Ients. The BanK iS Axpected
to provide US$16 million or 33% of the total cost.
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2h. Project costs are based on detailed engineering studies and tenta-
tive offers received fromr. U.L4 ."AU spe bot Udr4".
and include specific contingencies in some cases. The estimates have been
..4 AT_e -1 X A v ~~~~~~. nl - Vr n w_VT, - 2 -1 'I _ 3__
, .i -ee.elwu aLn rieU sed �6Aj: -oVt tiU'.Lv UULI. � L1 .L X' W�.LL jJ.L [DV.LUB CIIIy
additional funds that may be required, including any foreign exchange, to
comrplete the proJecvts ar,d for working capitLal. No furtlher pro-visionr for
contingencies seems to be necessary.
25. The principal findings with respect to each of the enterprises
anu vheir projects are summarized below.
UMB
26. OMB is Yugoslavia's only producer of passenger car engines. It
produces the requirements of Crvena Zastava which manufactures cars under
Fiat license. Zastava's 750, 1300 and 1900 cc models (which are the equiva-
lent of Fiatis models) make up 90% of Yugoslav production. Liberalization
of imports in 1966-1967 led to about as many cars being imported into Yugos-
lavia as were produced locally; However, future prospects for Zastava's
cars are good as long as imports are somewhat controlled, as is expected
and credit for local vehicle sales is eased. Fiat is taking an active role
in the marketing outside Yugoslavia of cars made by Zastava and has invested
in a joint venture with Zastava, Yugoslavia's first such foreign investment.
27. DMB has balanced up and supplemented its origirnal now outmoded
facilities to progressively increase production to about 42,000 engines
last year without any major investment in assets. Now 2I4B is compelled
to build a new shop for the main manufacturing lines and equip it with
modern machinery to produce 80,000 engines - and 130,000 at a later stage -
to keep up with Zastava's exmansion programs. The nroiect, which is esti-
mated to cost NoDe 158 millon (US$12.6 million) is engineered by I1B's
technical staff with assistance from Fiat.
28. The factory is small by international standards. and IlAB is earning
a relatively low return on sales and on its own funds. At present the lack
of mechanization is not adequatelv comnAnqAted by the rp ativPely low rcost
of Yugoslav labor. Until IlMIB increases production runs, it can expect a
continuing mall margin between costs and co.petitive se:Lling prces which
it must use in light of liberalized imports. Although the project is rot
meant to bring output, mech-nnn.i o n and a tomatnion up to the levels attainred
by internaticonal producers, it is designed to improve efficiency by further
mechanization nnd s-houlrd contr 4te to increase prf�tabiley.
29~. Gar manufracture ;n .4- i n transition frcr a
small-scale protected industry0 As a result of its close relationship with
7.n^Q+.n-trn R;P 4 -1 n..;-- - 4--- - -^_ --_ : - -4S - v. -_n A -._ T4I - _1 es
V s - -Q Fse e CZAL LJ1,vvW. vCUsWU al-v V vLIL; Ul"CL V;VbJllit;Rs1av X vb C:i1.;:
agreement ancI other operating arrangements with Zastava are functioning
m. h CJl.U an.d %,..1 U.&PB. c. -t Zast a .vaUs fuil juppVrto
- 9 -
SEVOiJN0
30. Yugoslavia has the largest known copper deposits in Europe
(excluding the USSR) and accounts for nearly 40% of the region's mine
production. Sevojno which produces serai-finished copper and brass sheets,
strips,bars and tubes largely from domestic copper and zinc is the largest
plant of its kind in Yugoslavia. It represents about 60% of total Yugos-
lav production of semi-finished copper and brass products. Vlore than
half of its production is exported.
31. While Sevojno has adequate capacity to meet the foreseeable dem-and
for its extruded and drawn products, its ability to produce rolled products
is limited by the capacity of the existing slab rolling mill and it is unabie
to produce sheets wider than 800 mm.
32. The project for which the Bank's assistance is beingi sougP;t plans
to remecy this situation by replacing the existing slab rolling miL'. and by
installing a new cold finishing mill. These investments which are estimated
to cost about N.D. 77 million (US$6.16 million) will also increase rolling
capacity by about 12,000 tons to 54,000 tons per year.
33. The pricing policies for copper in Yugoslavia to which reference
is made in Appendix 2 can accentuate the variations in the erLterprise's
earnines and cause periods such as 1967, when liquidity can become a probleim.
With the outlook for more stable copper prices the future for Sevojno may
also be exnected to be more stable. Bv law Yugoslav copper can be exported
only in finished and semi-finished form and, with Sevojno' s proven ability
to mrnufaefttre and iamarket. emuAlitv semi-finished goods. the project should
be successful.
MTT
-a..f Mr.. MTT is i1 *3j on of vo aa's ng %+on tetIrern f- - r r --nking
about sixth or seventh in size and accounting for some 2.5% cof Yugoslavia's
text-ile T+. pocmo.r+.o mnI+.tirsmos of its+. r+.tn rnqi rmerit. It is handLi-
capped by being composed of eight small, old plants which uncderwent little
reewal an.d are now merged in.to one en+erri e- (onsequentW. its work force;
although experienced and basically trained, is operating less efficiently
th.Uthse- I. m- 3s Erpear., TT.S and -ar Eat. tt lns
LUdR14A WiLL1J .-Li~ AIkIJV.D.LLi.*.L AiL U. ..&LC4 S p V.
35. TX>.e erte-rpr seT Inozsteh .;as-lw labor pouci
a very diversified program, unscientific management practices and sales
~ ...a.~ L....L. 4.1. -_ T4- I-s.. .4-_ ..-n-A +n i,n1r,g 4+a~
orga.L.zatLion - u�ndwer -W,L'LCh tis 0pVerat4.g. IL ha started to sol its
administrative handicaps. It plans to reduce the labor force by about one-
Li - - - L - - .0 - .L... - -- __.I 4...- _ - P .P.-.4 - -..N -. A -'iA
fourth, reduce then number of. paUeUi s dU U.z o prodiuced. ar.
specialize in finishing for other Yugoslav textile firms. AS a result the
'I I 4.1 ~~~~~~~~V.,.r .1.w .nA t ,
project will notu materially add to the voluIme of total ' wvugosLaV p.-oActior
or exports.
- 10 -
36. The project,for which IBRD assistance is requested and which
follows recommendations of Gherzi, 5witzerland, an internationally known
textile consultant firm, is a satisfactory first step of a long-range plan
of modernization, consolidation and rationalization of the eight old plants.
The project which is estimated to cost about N.D. 153 million (US$12.2L
million) aims at centralizing MTT's finishing department, adding modern
finishingr ecuinnent and renewinp Some qni-nning anri weaving facilitie9. It
will enable the enterprise to nearly double the value of sales by improvinig
aualitv of nrodnrct anid utilization of Pmvinrnnt.t Anti to remnin 'ompntitive
in world markets.
E. IT. NT
37. E.IT. NTs is V-u,s1-r4ats ..ost44 diversi f4 &. er of ectoA
equipment. The two most important products are television sets and radio
v.aa,rran .k nl, AQ .nav`n l, CO *I.n ..4 PAn LCLV r,-..%,W....n,n A An..1 ,nW~-- *lACnrA Vk.",n.-
reeier whch over she past fv years, haeac.e 'r...t^ he
fourths of total sales and which in 1967 reached about N.D. 580 million (U3$47
4 o;;. Ohe prodcts nclud eq-p,entfor b,s' n., tleco,.unicatione
and electro-medical applications. The enterprise is now ready to manufacture
business equipment such as teleprinters aLd desk calculaborEs.
38. Over the past sever-l years, E.I. Nis has -plemrented projects to
produce many of the components (such as semi-conductors, capacitors, resistors,
.1 - - _ - 1 I N - __ 1 , . __ I . . - , . s _
electruon tubes) ana toolng requirea for its own use. Tne enterprise s long-
term development plan includes a large number of different sub-projects some
of which (such as the manufacture of loudspeakers, ferrite cores, ceramic
capacitors) are already being implemented.
39. During its rapid growth the enterprise has not always developed
optimal plant layouts which is noticeable in its component parts and tele7isior.
assembly lines, In several cases buildings designed for other purposes have
had to be adapted. The management seems to be generally aware of this problem
and is taking Some action to alleviate it, at least in part, by the construc-
tion of a new, specially designed factory at Zemun on the outskirts of Belgrade.
Also, the management has shown a tendendy to undertake the production of tools
and machinery going in some cases beyond the normal bound of an electronics
producer. All in all,however, the enterprise has demonstrated its ability to
manufacture quality electronic components and products and successfully market
them. It has established close working relationships with local research and
development institutions and has shown willingness to import foreign know-how
wherever necessary.
40. The Mk:is being asked to participate in two projects for the expansion
of capacitor anad resistor production and diversification and increase in the
manufacture of semi-conductors. In terms of investments in fixed assets:, these
two projects represent about 10% of the approximately N.D. 545 million o.'> to-bal
new investments envisaged. Their implementation will form the basis for the
enterprises's subsequent expansion and further diversification,
41. Capacitors, resistors and semi-conductors are the fundamental
components of any electronic !i cuUi. WiTh the gradual sh ift in emphasis
from consumer to business electronic equipment, increasirng quantities of
components such as these will be required. Own manufactuLre should give
the enterprise required flexibility and control over quality. The enter-
prise has already successfully acquired the technology and expertise to
manufacture conventional semi-conductor devices. idtli the implementatilon
of the proposed semi-conductor deversification program, B. I, Nis will be
in a position to quickly move into integrated circuit marnufacture when
circumstances so require.
TREPCA
42. TrepCa Mining and Metallurgical Combine (Trepea) which began
operations in 1929 is one of Yugoslavia's largest enterprises with assets
of N.D. 1,60C) million (Us$128 million) and a work force of 10,000. The
enterprise is the largest lead producer in Europe and one of the five
largest in the world. In addition to refined lead, Trepca also produces
electrolytic zinc, several lead/zinc by-products (silver, bismuth and gold),
sulphuric acid, simple superphosphate and lead batteries-
43, Trepca is currently implementing a series of projects designed
to fully exploit its ore Droauction. In 1967 sales reflected a small part
of this expansion with the cornmencement of electrolytic zinc production,
increased sulpharic acid and .upermhormhate nroduction and the introduction
of a new line of batteries.
44. Trepea is requesting US$1.7 million from the Eank to meet the
estimated foreign exchnnge costs of its US$6.3 million lead refinerv modern-
ization project. The project is the last stage in the enterprise's inte-
grated progrPam.s to increase +the annr.ual ?Nfiro +4o f leA f'rnA. nbonut P()-000
tons to 162,000 tons.
45. The refinery project is to be assisted by loans from two local
banks tn+.llirng N.D, 55 mill^on (U$h.h J millior). Other loa.ns for the
completion of the other projects and the continuing expansion of mining
operations areiMl Aul'.ed . .he fOr.ci *fes . t.he &. O t of
N.D. 225 million (US$18 million). The value added to the lead in the
ret w? r -r f prcss a t.Al 4+ncfre- -A -p-Ar,o 4 uto. ok-p.-n4-4cs 4irdicna
* ~..~*'~ J.J Ft. ~ &%A. L W L IK-, . J.JUU. L0.VJ%J&L tJA. LIJ y-JJ. 'JAUUt%, J.AAVt.tX
that an attractive return should be obtained on the new investment.
46. In recent months Trepca has had some start-up difficulties in its
leadsr.lte an zin reiney ad th- Ihas -derseAy affected -2--ent&or-les
at a time when large principal payments are falling due on medium-term debt.
J.pca, ho-wever, appears tio Lhave overcoi-rie these probUlems i and its sUccess.U-L
past expansions indicate that the refinery project will be well executed.
- 12 -
ELAN
47. Elan is an important international producer of skis, exporting
60% of its output mainly to Western Europe and North America, The enter-
prise has successfully competed with U.S., Japanese and West European
producers. International ski makers who have maintained high quality
standards are doing well while others are finding it progressively more
difficult to stay in business - especially against low price competition.
Therefore, Elan's project, which is estimated to cost about N.D. 22 million
(Us 1.8 million) is intended to modernize equipment and techlnology to stay
competitive and retain the enterprise's position in the international market.
48. Elan's present facilities are not highly mechanized and operations
are expensive becau-se considrailp labor time is reauired to produce a good
quality product and because consumption of materials, especially glue, is
high due to manual application. The enterprise has begun to change the bulk
of its output from basic wood skis - which are losing popularity and must be
priced low 'to be competitive - +o metal and plastic (fibergllass) reinforced
wood skis. While rationalization and further quality improvement are the
�IUa,JJ vIor .s. ot vhepro Ject . it w. als0Vo-. a.ow.. ighel- -k Proaui - re l-ti-ng
in a sales revenue increased from N.D. 36 to N.D. 56 million per year.
49. In the last three years, Elan has been hampered by short winter
sh-i seasonLs inU Erope arl by ha-%ng .o gr.nt extended credi+ +e.-MS 4 connec-
tion with its exports. As a consequence, both inventories and accounts
receivable increased aiu a t-M -when exparn-ion was reSu-1in.g in higbr d-ebt
service requirements. The emphasis on quality skis with greater earning
potential is a rational approach to impro-ve Elan's position. Tfith an esta-
blished market and successful efforts to create an effective distribution
network in the U.S. and Europe, the project will back up markceting with
modern, high quality products.
VIKTOR LENAC
50. In 1960 the ship repair yard Viktor Lenac in Rijeka drew up plans
for a second completely new yard in the Bay of Martinscica, a natural harbor
three miles east of the main yard. Due to financial limitations the plan
was divided into stages. The first stage was completed in 1967 and included
a 220 meter breakwater, a 495 meter wharf and the installation of a 24,000
ton floating dock complete with two 15 ton cranes.
51. The project which the Bank is requested to assist is the next stage
in the development of the new yard and includes a new wharf, two new workshDps
and imported equipment. The total cost of the project is estimated at US$1.76
million and the Bank is requested to finance the cost of the imported equip-
ment which is expected to be US$400,000.
- 13 -
52. The eKpansion of Viktor Lenac facilities is based on the growing
ship trafffic in P-ijeka which has made it impossible for th.e yard to accept
all requests for repairs. The growth of the Yugoslav fleet, new port
facilities in the Rijeka area and the fuel oil pipeline to Menich from
Trieste are the major factors which are expected to increase traffic.
Except for the temporary slowdown caused by the Middle East, crisis, traffic
growvth has been fairly steady in recent vears. With the lcw labor costs
and productive skilled workers Viktor Lenac has demonstrated its competit:Lve-
ness with the other domestie and foreiL7n renair varirs in the Adriatic and
Mediterranean.
53. Viktor Lenac's long-term debt is high as related to its own funds
as a result of loans obtained in recent years to finance exoansion. HEowever.
a large portion of the long-term debt (the N.D. 35 mdllion loan from the
Riieka Ran1a) has an unmsimil1v longr repavme_nt periodt This. tnoe.ther with
the stable earnings and the possibility of phasing of renewals and replace-
mPnts.. if ni-'y, i ndicat t.hn+. t.he enterp is cap annlen ofn namnina
and servicing the proposed additional long-term debt..
ITMAAnT�1T.Tn1VDTa.T%T ATn T M7f T T1r fTMV TY '\ W
5TiAMth enab.,Ant dom,,estic A 4 vp-l- of g-- qA t-e4r- 4 a4r,- c,A
ratively low labor costs, Yugoslavia's woodworking and furniture industries
haeV remained compet ye in the expo-t m-ket
L55. T L4.LO v t S.Lv Li BIRIE.ST a.jud iV.vvv1.- coIimu.enced operatior
primarily as saw mills and gradually changed over to the manufacture of
firshed4 -r sta--rshdwopd-c. A'I' 4hr-ee- -4.--4-_;-s, located -
-LLJLQA1WU.L c.�LU. 0M1JL-.L..L"DL�1tjU WUUU PIUUtt0 K�LL VIj~LCUU �~..L~ iA0.CUtUU
close to the border with Austria and Italy, are export oriented and have
ueeri. engaged� i.n -orteli.Ign. traue for several yjears. These enl;terprises are
among the top ten in the industry.
56. STOL is basically a manufacturer of chairs and seats of various
types and ha - *c-nt- y started man-ufacture of office furniture. The proposed
Bank loan will be used for importing equipment to remove p:roduction bottle-
necks, mainly in the finis-hig lines anu in internal transort-ation and
material handli.ng. STOL has long standing connections with U.S, and West
Euxvrpuean furndture importers and nas estaDbUsned a good reputaTion for it>S
products in those markets. Owing to competition, particularly from Poland,
in the traUitioQnal bentwood chlair market, STOL is cnanging over to the manu-
facture of more sophisticated models.
57. BREST ts main product is veneered household furniture. It also
man-ufLactures particle board cnairs and miscellaneous wood products. The
project to be I'inanced with IBRD funds is for replacement of some obsolet.e
items of equiprment and for securing general improvements in operation.
These investments will help BREST to improve quality at lawer costs.
Almost half of B7MST!s sales are to foreign markcets, primarily the United
States. Improvements resulting from the proposed investment will serve
to further consolidate the enterprise's position in those markets.
58. NOVOLES is primari-y a prouucer of sawn lumaber, plyw'od anu
"Colonial" chairs. These accounted for roughly two-thirds of the total
invoiced sale. in recent years. Bank financing is required for moderni-
zation of the saw mills, expansion of the plywood plant and for removing
imba-uance in t;he existing production capacity of the chair factory. Yugos-
lavia's large reserves of beechwood gives NOVOLES and other Yugoslav plywood
manufacturers an inherent advantage over competitors in the export mark:et.
59. wnhile all three enterprises have facilities to manufacture chairs,
they have worlced out an arrangement through the Slovenian Woodworking Asso-
ciation to avoid duplication of production.
IV. FINANCING
Bank FinancinN and Procurement
60. The proposed Bank loan of US$16 million is based on the estimated
foreign exchange requirements of the enterprises' projects. The proceeds
of the loan will be used to purchase goods that, in all likelihood, cannot
be procured locally for reasons of quality, price or delivery time. The
enterprises do not expect any major changes in project ccosts or in the
relationship betwoen domestic and foreign currency requirements.
61. It is proposed that the Bank loan to the YIB beW for a term of 14
years, including a grace period1 of 2-1/2 years. It woulcd carry interest at
the rate prevailing for Bank loans at the time t.he loan i.s approvede These
terms should not overstrain the debt servicing capacity of any of the ten
enterprises, It is prnposed that interest dulring construction shoul-ld not
be capitalized. Few, if any, funds would be disbursed in 1968. In 1969
perhaps only half of t.he fultnds woul-d be out Stan.4n _nd t;he balance woll'ld
be paid out in 1970.
62. The proceeds of the loan would be relent to the enterprises in
the same currencies and on the same repayment terms. as those for the loan
from the Bank to YIB. It is proposed that the interest rate on the loans
from YIB to the enterprises sIgOuId be no less than 1/2% JLn excess of the
rate on the Bank loan to YIB. If YIB decides to charge a higher rate which
is not out of 1>ne ;i+V prevza'lng rates in Yugoslavia,- e Bank ho uld.
not object.
63. The 1967 loan provided that items costing under $100,000 would
be procured by the enterprises on uhe basis of co-irparing at least three
offers, without requiring the Bank's prior approval. For items above this
a.ount, constiQutiLg about h'af of last yea.r's loan, procurement is on the
basis of international competitive bidding as set forth in the Bank's Guide-
lines. Ex.-eience, ga�ted with the 1967 loan and in appraising the projects
for the proposed loan, has shown that Yugoslav enterprises procure imported
goods and services on an international basis. However, it has become
increasingly clear that strict adherence to full international competitive
bidding is i mractical. Generally speakig, wide c" i4 t
by the special nature of the equipment involved, which usually does not
r.eeA to b-e m,anufactu.--- accorU=-In to --- u9ulrspcfctin,c
%~A uj J 1id�L~ L, L-U dUcLU4%J.LLUjjj UU tSaU CULUUUIR~V - .L�LL�LL ,
be procured from among existing lines of production, and is offered by a
relatilvely smal Ln-iumber 01 suppliers. This is particuLarly tihe Case when
the technical process or license determines the choice of equipment. Addi-
tiona-l limitations To a wide selection of suppliers are imiposed by the
enterprises' preference to buy from the same manufacturers that have supplied
their existing piant to reduce difficulties of maintenance, to avoid dupli-
cation of stocks of spare parts and improve suppliers' service. F`urthermore,
the procedures for wide international competitive bidding - apart from putting
disproportionately heavy demands on the enterprises, the CIB and the Bank
Group because of the large number of sub-loans and procurement contracts
involved - are slow and therefore run counter to the objective of the enter-
prises and the Bank to proceed quickly with the needed modlernization.
64. It is therefore proposed that the Bank pennit the enterprises
general international shopping, that is to say the compar-ison of at least
three offers from suppliers in Bank member countries and Switzerland, and
entrust the YIB with the responsibility of supervising adequate adherence
to this procedhre. This would be similar to the procedure which is followed
in loans to development finance companies. The Bank has reserved the right
to review with, the YIB adequate adherence to these procedulres from time to
time.
Domestic Financing
65. Of the total prolect costs (excludine interest during ccstrieticn)
of N.D. 612 million, some 26% (N.D( 163 million) is to be provided by local
loans. It is likelv that. as is the Yugohv rnmactince interest durina con-
struction on these loans will be capitalized. The YIB will assist several
of the enterprisce8 utimlly in combinationj wit+h thojvi In,-cl hnks The
terms of the local loans would not be generally more onerous than those
of the loan from the YTB to the entrnprises.
66, The balAp,rc of t.,hoe f%Pnds are t-o be provided from - he enterpres'
own resources, i.e. earnings plus depreciation. The following table sum-
mnrizes the poposed fiancing:
- 16 -
(In millions of dollars)
Bank Yugoslav Own
Enterprise Loan Bank Loans Funds Total
DMB 4.1 4.8 3.7 12.6
Sevojno 3.5 - 2.7 6.2
MTT 2.0 .8 9.5 12.3
E.I. Nis 1.7 - 2.5 4.2
Trepca 1.7 4.5 - 6.2
Elan .7 .7 .4 1.8
Viktor Lenac .4 1.4 - 1.8
Novoles .9 .6 .2 1.7
Brest .7 .4 .5 1.6
Stol .3 - .3 .6
16.0 13.2 19.8 49.0
V. GENERAL CONCLUSIONS
67- The. nrimipct.s sLhmittPed for +,he. c-onsideration of t'he B%k hanve beepn-
found to be of economic priority, technically feasible and financially viable.
From the available inform.ation, it is reasonable to a r.ti I)te that, as a
result of growing demands for their products and of additional capacity, the
e.n+terprisnsl sale -1l 7%.1r.ue to increase ..s,.s w n1 inca
and represent Ea fairly substantial proportion of total salesJ, The enter-
prises' proJ9ectiLsO are UVDL,1U Lnot VIry UU increase UO.uL (.IU qUa.Lity UUtJ,
by rationalizing production, to reduce costs. The profitability of the
enterprises is likely to imLpro-ve cand their ability to servLce the proposed
debt seems to be well assured.
IFC/LAE.A
July 26, 1968
ri
11.0
APPENDIX 1
P age IL
mTT 'r VE I3lT7Tr,TRVI 81AJ (^ds ofi May
�ri __ _JV . _JJD01rnV. lM - % 0.1 via')j
MOTOR FACTORY
Tie norrower
Tne prospective borrower is the DvadestprviMaj (21st of May) iKotor
Factory (DMB), a producer of benzine engines which it selLs exclusively to
Zavodi Crvena Zastava, Yugoslavia's only integrated passenger car maker.
The enterprise also makes gears and other components for the market and
has a comprehensive engine overhauling department. The plant is locatecL
in Rakovica, an industrial suburb of Belgrade and some 120 miles from
Kraguevac where Zastava is located. The DMB factory began operation in
1949 and was initially a producer of aero engines. It began producing
automobile engines in 1954 and is now the largest automobile engine factory
in Yugoslavia. The enterprise employs 2,300 workers.
The plant is at present capable of producing with two full shifts,
and some departments working part of a third shift, 46,500 engines (32,000
750 ccs, used in the most popular car in Yugoslavia, the Zastava 750; 9,500
1,300 ccs used in the 1300 passenger car and in its light commercial vehicle
version; and 5,000 1,900 ccs used in the Zastava jeeD, small delivery trucks
and vans). The enterprise also has the capacity to produce about 5,000 gear
boxes for medium-s;ze trucks ar,d h,OO000 medium to large gears. DiNB has an
engine overhauling department sapable of reconditioning 7,500 of its engines
per year,
In 1L967 DMB had total Sale revemri of N=D). 158 million; or about
$12.6 million, Of this amount, approximately N.D. 110 million or 70%, came
from the sale of engines eithier to Zastavaor nin the spare parts m2rket for
Zastavra cars. Although the factory was basically designed for a capacity of
32;000 engines per year, monst ir.ves~tr.ent* ~ + i~m-?e+n . ad-tonal e a-'t
1966 and 1967, and increasing working hours (a partial third shift ir some
departments) has made it poszih-Jl for the enterprisP to produce h2,0nn0
engines in 19657 and it is hoping to increase output in 1968 to over 50,(000
units- fmrnan,i for the a'rprngines j enirly netei ined by +1h
production targets of Zastava, their principal client. Zastava's production
hsq increased rApidlyr in +the ls+ 3 or. -- 'p in nr,n -_ +^ _ -__+
I,--J - -_ __Q v _.- L4 J ; 0 v . _JW V _J U LC L^V.l J vL VU CvI
45,000 last yesar and they are planning to increase this to 120-150,000 *vehicles
T.wi.thin the nrext 8-10 years. Th.e4r im-m4ediate plan is to increase4 -" to
about 80,000 vehicles within the next three years. EMB cannot attain an out-
put o+ f a-_- 4-m -ar qu,iID -v engr.e exep -y a_ cosdea ePpno
-V ' V.3. UL Uy WJ.L vllrA.llvo L4y dL uUL�6.LUktVd.L-t" reA4JWULbi.LUL1 04.
their existing facilities.
Existing facilities consist of a large building, on 15,000 square
m,eters, which houses the er.gine prodluctionL, gear production and engine re-
conditioning, and smaller buildings for subsidiary and auxiliary departments,
Prepared by A. Bandy, A.R. Perram and A.S. El Darwish.
APPENDIX 1
Page 2
also, a new building of about 4,000 square meters into which the engine
reconditioning is to be moved. The enterprise possesses 330 machine tools,
of which 35 are older than 15 years and are to be scrapped. Of the re-
maining 295, two-thiirds are over 10 years old and the other third were
purchased after 1958.
For the expansion. a new engine production building of about
16,000 square meters will be constructed on the other side of the road
from the existing plant, together with office space, auinliarv departmenits
and services. The present building will then be occupied by gear pro-
duction, automatics. pine-making and welding and some auxiliarv depart-
ments. One hundred fifteen (115) new machines will be added to the 295
which will be retained, all of which are for the nroduction of engine
parts.
A new engine of about 1,000 ccs is being developed, but wiLl
not he readyr for productinon for several ye arWs h ;en it gos into prociu. -
tion, part of the capacity foreseen for the existing engines could also
be utilized for the new engi.ne. Investment in the necessary productive
facilities for the new engine will consequently be reduced. D.M .B., Fiat
and Zastava, in desiping this engine, are t.ng into crSiderati cn that
as many as possible of existing, or newly acquired machines, should be
nA~+vzl'~n A 4- S4 ,n.,,,C.onl-.4e,isn
.JaLJtowl t^ j .4. I *UQm.Okc -eJ.
Af`Lter tvhe exparion, the com|parLy wi''.] increase notoly er,*n
production, but also their output of gears, gear boxes and engine spare
par-t,s _-oweVer, th1,ey-Jr inte rid t-o c u t-u dow.. the r,.nufacture ofL partlus cand com=-,
ponents for cither factories in Yugoslavia. As a result (f the proposed
expansion sales reven,ue is epec,,ed 'uo increase 'too N.D. :'295Om LL.llon bUy
1972, compa;-ed to N.D. 158 million in 1967. The fixed asset cost of the
in-vestment Is estima'ed at N .D. "2.7` * ' (a-- f O1 pprox. $:0.2 _1Ti-UlJ
which does not include an estimated working capital requirement of N.D. 30
m,>l'or adA excues A .tres during-4 the1- peio o c &_uctio-. rOf
this amount, U.S. if,089,00o will be needed in foreign exchange to be
pro-vided by ';he IBID creudit aild engineerLLng and desUtigne6.i xpenses of$250,000
to be provided from DMB's oun resources. The company expects, in ccn-
Junction with Zastava, to continue in its extension of facilities in the
coming years so that by the mid-1970's they could be producing between
120,000 and il50,000 engines a year.
Short listorr of the Borrower
The D.M.B. Fiotor Factory began operations in 19h9, producing
both the reaction and normal multicylinder IC engines fcor small traineir
aircraft. In cooperation with Crvenri Za8tava, the enterprise began the
production of automobile engines in 1954 under a license agreement with
Fiat. By i959, the enterprise had dropped entirely, the production of
Pagea 3
aero engines* The factorv's canacity for the pnrnucitin of automo-
bile engines has increased steadily over the years and by 1964h it was
producing 32vf00 umnits, As early as 1960, Dn, in Cooperation th Zst
had applied to Fiat for help in engineering an expansion up to 80,000
eng nes per year. DMR has no direct relat inship wlth IN at, but receives
the license and know-how of the Fiat engines through Zastava. In the mean-
time, Dim had been *ncreas" output fom 32,000 engines in L964 to
42,000 in 1967 by gradual and modest additions to equipment and by par-
tia'"Jr working ar. extra shift. 7* Managemenv estsl�aes that by contuinu�in,g
in this manner, it till be possible to increase output to 50,000 en-
gines without substantial additional investment. In J.6., Fiat under-
took a supplementary study to increase output to 130,000 engines. DMB
engi-eers have- geared these two projects so that in increasing output
to 80,000 engines, it will be relatively simple after that to increase
outwput in anotLher stage to 130,000 units.
Altfhough D1iB and Zastava have always operated as entirely
separate enterprises, in 1966 they signed a ten-year contract by which .
they agreed to completely syncalronize the production of DMqB engines and
Zastava vehicles0 This long-term agreement is supplemented by annual con-
tracts, which determine such matters as production goals for that year.
Both enterprises, however, are individually responsible for such matters
as mobilizing the necessary resources for mutually-agreed expansion pro-
grams.
The company has no foundry or forge and has only small press-
shop facilities for engine parts. Like most engine factories, it buys a
number of its components such as carburetors, pistons, valves, electrical
equipment, etc. Purchased materials make up about 60% oi' the costs of
the factory. Of these, two-thirds, or 40' of the total c:osts, are pur-
chased finished parts. The other materials, or 20% of the total costs, ae
raw and semi-finished materials which are converted into finished parts
n. the factory itself. The factory imports very littleof its raw materials
and it does not need to import any important semi-finished or finished com-
ponents.
Management
The enterprise is managed by a competent team. The General Manager,
Mr. George Br:kic, is an economist and has about 20 years oI- experience Lin
management of industrial enterprises. He has come up from the ranks in DMB,
both in the Financial and Sales department, to his present post. The Director
in charge of engineering the present project, Mr. Dragomir Milojevic, the
Chief of the Technical Section, is a mechanical engineer with 15 years of
experience, of which 10 were in DMB. He and his staff appear capable and
have a good awareness of standards of other similar enterprises overseas.
The financial supervisor, Mr. Gavrilovic, is an economist with 20 years of
experience, of which 16 have been in D4B. The satisfactory general condition
APPENIDIX 1
'n---_ I.
of the plant (denotes the competence of the Production Manager and the operating
team in the factory, the facilities are well maintained and order in the mill
is of high standard. The factory has a fairly comprehensive staff worki.ng in
planning, teclhological development, product development, research, and test-
ing and have made a considerable number of modifications both to the product
and to the maniufacturing technology. This suggests that they are capable of
engineering their expansion project with little or no help from Fiat.
Recent Finiaricial and Earnings Record
Ba'Lance Sheets for the past four years (1964-7) are shown in
Annex 1, page 1. A suDmary of the Balance Sheet as at December 31, 1967? is
given below (:in millions of N.D.'s):
Assets Liabilities
Cash & Eauivalent. 17^4 Short-temm Bank Debt. -
Trade Receivables 19.3 Trade Payab:Les 20.1,
Tnventori s 65=3 Other G Li al ities 330
Other Current Assets 30.7 Total Current Liabilities ~ 3o5v
Tnt-Al Chrirint Assets 11927 Tr_ng-term Debt. 70-i3
Net Fixed Assets 108.7 Bus. Fund & Reserves 117.1
9 i1 1O 9) 1.Xj
The enterprise's investments in productive assets over the past
four years have been mainry used to -re- the ---duc 4 ofe
20,000 to approximately 42,000 in 1967. Of N.D. 35 million, used for
ir.ve-sment purposes between 1�,63 ar, 1967 ab-out- 80/' was used to icraetWA
production of engines and most of the remainder to increase the produc-
tion ov f ersi3M?'hift+. andr aser.ra+tA nn" Al,.vsi+ 44-e=t.L -4d o h1,is n-nimoi was
- -_ - k,-,W-.~~~~ J~ fl _UJ.d t'tLMi 'J4L. 'A iJ. -U4*L CW*J t-.4 Vt.-
financed from internal cash generation, and two -thirds by long-term borrow-
Uw.) �s.X *LC.'.4 ., s Lu CLI.L~ UAOB 'J. .LJ� IJtp'v :;.lI U UI..J' I.,.� �S X tI 1,C:l ed..LJ i
as they have steadily expanded their engine production, although percentage-
AI~ ~44 IVUL1 S.L 4.VArLS v1C;L1I UVLUL J.LI LU'.LC.Lj.LUL~IA .)U I4VL� J.��LU ~ U414
ished slightly. Of present long-term debt outstanding, about half was used
for- fincinn; -f ed-sse ine.0t rdteo-e a -:,rwr~XgcP'
S.'J W .L .L 4L1c1A...4, L.L Ud.0%-LQUL .LIIVU0U1[AIV I. lIU old1t; W 1ALUV l41a. .LVL WuurSJ11 uC%J.'1 bCL.L.
purposes. Debt-service coverage, as a result, has been relatively slim,
rising from,. 1.4 i 19674 oL I7 in 1967. On the oUtlr haLd, short-term
debt is non-existent at present, and the Current Ratio in 1967 was a healthy
a2.5L-L t . T.e lavorabla current ratio can be eXpected to continue au pro-
duction is so closely synchronized with Zastavats that inventories of
APPINDIX 1
Page 5
engines are only held a matter of days and the agreement with Zastava
requires payment+ within 30 days of' deliveryTr As production increases, the
company also Expects to turn over inventories of raw materials and semi-
f; in;i_hed prs"odt 4ct mucoh faster
Tv41.cl. r.a^y n,n -n.ne+nterprise . Thl n ,ot,+ nas yr
transferred its sizeable collective consumption assets oult of company
accounts. Tt is t4h - 4intentin in 4-- future, however +o fance+
~I~JU~L m~S .1.U LO WL.. AUi.~J L.~ WU, .0 'AU VU~ .9 JILI00~ ~ :
additions to collective consumption assets predominantly out of bank
b0orrmiWinY-s, 1butL onr'y if such loans car, lbe J ^ on a pJ..L.L VAL C7 j.JL.g1 bais
and constitute no cash drain on the onterprises's business activities.
Earnings' statements for the past 5 years are shown in
Annex 1. Production of -thte IMajOr groupS of products, sales and ea�rrHng
from operatiorns in those years are summarized below:
1963O 196hK l96) 1966 1967
PRODuCT Thousands of Units
ENGINES 750cc 140l 23e0 29.2 29.6 30.6
1300cc 3.3 506 607 7.7 7.4
1900cc 3.9 3.8 407 46 4h.4
Engine Overhauling - - - 2.0 2.3
Millions of Dinars
agineT 3 and overhaul 48.0 71.0 103.0 111.3 114 3
Gears & :3oxes 0.3 1.1 2.9 9,0 10.0
Spares, components for
other producers, etc. 51.7 34.9 3901 34.-7 33.7
Total Pa:Ld Sales 100.0 10700 145.o 155.0 158.0
Net EarniLngs from
Operations 5.0 h.0 7e0 600 2.0
During this period, Materials and Overhead. costs actuallir
dropped as a percentage of Total Paid Sales from 77% in 1963 to 69% in
1967.
The drop-off in net income from operations In 1964 was
mainly attributable to increases in costs from interruptions to produc-
tion resulting from the reconstruction of production facilities to increase
the output of engines to 32,000 units. The sizeable increase in total paid
sales in 1965 was partially due to increased output but also, in that year,
the pricing authority allowed an increase in the price of the Zastava car
which resulted in higher prices received by DD4lB for its engines.
APPENDIX 1
Page 6
It will be noted that net earnings from operations were
reduced from N.D. 6 million in 1966 to N.D. 2 million last year, althougyh
total paid sales increased from N.D. 155 million to N.D. 158 million.
The two main reasons for thijs vre the incMease in depreciation rates on
equipment from 7$ on the average to 0-12%, and the increiase in interest
expense due to the relatively large increase in debt fronm 1965 on.
i'iarket Prices and Competition
DMB has undertaken, according to a long-term cooperation
contract signed with Zastava in 1966, to provide for 10 years all the
engines for Zastava vehicles. Only if DAB is incapable of providing all
the engines that Zastava recuires is Zastava permitted to purchase enginaes
temporarily elsewhere. According to this contract, DMIB is to receive a
fixed 171 of the total nar price in nayment for the enginer Tn addition.
to the long-term agreement which defines the general relationship between
the two enterprises siipplemental annual contracts are also negotiated to
deal with such matters as production targets for that year. Evidently,
therefore; the futupre nrinces And market for DnTISs engines; are a direct
derivative of the prices and future market of Zastava automobiles.
Consumption of Passenger Cars
The following table indicates cars registered, ownership
per 1,000 people, rate of incf'ease of registration, pnr capita 'incnn.- at
current rates and price of a representative local car in the period 1959
to 1QA7.
1962 1963 1964 L965 1966 1967
P.egited (rinn) gR - -- 113 0 1AR - Wl 75E 74 ITi
Ownership (cars/1000 in-
___ r-~~~~~~~~~~',n r)' '71. o A I VI7
haiUiLants) )2 e9 71 7 2 1
Per capita income
/4 TTCI.....:. _ 07r) .... wn .an) 0s (n
�Ln U o UL V d iJ . g0 Va 620 >
Rate of increase of Registration 29% 15.s 266f 32,-i 26>, 41h
Cjar Prices. Zastava 74
(US p) 100 1500 1500 1000 1000 2000
Zastava (from a very complete and intricate market
study based cn incomes, distribution of spending, comparisons with Europe,
zcrappage, second-ha--d car purchase, etc.), ��;o has .ia owershp in 1 .L97
will have increased to abcut 31e5 cars per 1,000 inhabitarts The 1967
APPENDIX 1
Page 7
forenast of numprqhin acnording tn the 7Actt.Qvq studry (msde mid-1967 based
on 1966 statistics) was exceeded because of particularly high imports that
year hbit it is reasonable to assum.e tht this will beco;rrected in the
near future. The projected ownership of about 31.5 cars per thousand in-
habitants by 1971 appears to be reasonable, assung that the relation-
ship between ownership and per capita income continues to follow the
trend of the past sevnceas hlsn as shows tMt -' -- 44-
is:
a) Still low in relation to per capita income compared with
other Euopean c ou,tories;
VUI 4L U A 1t. �L-U LU 11 U J. O U4L1.L r,Li I. L.L.L1; 6 1U W UL4Iy9 C. d, L t=< U 1U .L J..
1971;
c) Following a common pattern of increase.
Furthermore, long waiting times for delivery and very stiff
payment ter4 s -- 65% downE: 3 over <2 years at 7% interest a' a person<>
loan to employed persons have prevailed in Yugoslavia in past years. In-
creases in car- producti O capacity will now make iT possible for waiti Lng
times to be radically reduced. Zastava is optimistic that easing of pay-
merit terms for passenger cars will be authorized later this year (h5% down,
55% deferred). This, together with the end of supply limitations shoulci,
under normal conditions, ailow car ownership to grow at tne rates pro-
jected by Zastava.
Prices & CoMetition
The price to consumers of the Zastava 750, which presentLy
accounts for over 70r of all passenger cars produced in Yugoslavia, is
about US $ 1,000 at the present rate of exchange, before registration
and taxes. The same car made by Seat in Spain was sold in 1967, before
the November devaluation, at US $ 1,050 before taxes. Both these prices
are virtually the same as Fiat's price in Italy (about US $9O)9.-
These 3 prices must leave different margins of earnings
to the makers as the same car is produced in different quantities in the
three countries. Fiat has made as many as 200,000 of this model yearly
but now are making only 80,000 during the period of phasing the 600/750
model out, as the 850 replaces it as a best seller. Seat, Spain, makes
60,000 per year and Zastava is expecting to make 35,000 in 1968, but in-
crease gradually to 50,000 in 5 years. However, wages appear to be much
cheaper in Yugoslavia (DMB pay average is N.D. 14,000, or, U3$1,100
per year, including all cantributions) than they are in S)pain (Femsa paid
in 1967 average 140,000 Pesetas, or US $2,300), while Italian wages are
considerably higher still. As against that, raw, semi-finished and
finished components purchased by car makers are slightly cheaper in Italy
APPENDIX 1
D.,
I. %
than in Spain. They may well be more expensive in Yugoslavia than both
Italy and SpaLn, because of scale of production, except in the cases
where they are related to car prices (as the DMB engines). Sales costs
and promotionr are higher in Italy than Spain and Yugoslavia, but they
are shared over a larger volume of sales. One can conclude that it is
feasible that Fia (Italya), Seat (Spain) and Zastava (Yugoslavia' can sell
the 750 car at virtually the same price if higher cost produacers sell at
a loler margi.n.
Passenger cars imported into Yugoslavia pa.y a 50% import
duty. This rate has been constant throughout the last few years except
for an experimental year (Miarch 1966 to 1967) when it was reduced to 36/a.
Imported cars are subsequently higher in price by about 40 to 5%0 than com-
parable local cars, but they offer the advantages of variety, immediate
delivery and sometimes better credit terms.
W4ith car ownership reaching 31.5 per 1,000 in 1971, there
should be about 600,000 cars registered in Yugoslavia, that is, about
265,000 more than 1967.
The supply pattern of passenger cars in the past 7 years
has been as follows:
--000 Cars-------------------
Import
Year Loc!lxPooduction New IJsed Export
1961 15 1.2 7.9 0.2
1962 13 0O5 20h 0.9
1963 21 0.9 0.1 0.2
1964 28 4.8 Oc1 0.9
1965 36 13.1 6.2
1966 37 I/ 20.2 3.6
1967 46 1/ 5�03 15 5.4
1/ Including assembly with relatively small quantities of local
parts of NSU cars and Fiat 850 and 1100.
This year will apparently bring important changes which
will affect supply patterns such as:
1. Reducing imports for which the foreign currency is
licensed by the exchange control, whether the importation is part of a
barter-type deal or not;
2. Restricting imports paid for by Yugoslav citizens out
of overseas earnings. These accounted for over 50;i' of 1967 i mnports;
APPENDIX 1
Page 9
3. Prohibiting preferential treatment to customers who
buy cars from Zastava with payment in hard currency;
h. Easing of payment terms (reducing dawn-payment) as out-
lined above,
Bearing these in mind, and adding to the 265,000 new regis-
trations between end 1967 and end 1971 about 55,000 cars to replace cars
scrapped in the ccming four years, supply could be expected to be as
follows:
�------ -- ---- 000---------------�
Year Total SUDDlV Local Production ImDort Exiort
1968 70 50 28 8
1969 75 55 30 10
1970 80 60 32 12
1971 95 75 35 15
A drop in importc in l968R n-a a resl+ of' measures listed
above, the dif:ficulties in spare. and service foreign cars will start
givi ng, and t-he reduction of' the foreign car attraction, is anesnta
assumption of these projections.
The only local producers other than Zastava. are Pretis, whio
~~~~~! V IJ ~L .LIIL %'CLA. 03 j I.X k.L L~ 'J�L- L11 WVV.Luv" U I.ALI PJ.AJiv jJJ= UO WuLJ . A!~' VU 11 U
Germany, Thomos who assemble Citroen 2 and 3 CV and recently DMIV who assemble
the- Austi 110. .9- r^.rket !- srdbDee.W asflos
A - ACTY-T~~
I'asta-va Freti--'s,/,J vio 11ifOS 'i59
196 32',000 (91I) about 1,500 1,00
1966 3.3,000 (91%) 2,500 800 _
1967 I .-I I (90) n3,80 600 to ,
-LI f 4 -i 4x -- tYO ) . ,u owU OLuuu
As Zastava expects to retain a 90% share of local supply, its
potential sales JI the coming our years wouald be as folilws:
1968 45,000 passenger cars
1969 50,000 passenger cars
1970 54,000 passenger cars
1971 68,000 passenger cars
APPENDIX 1
Page 10
DiM supplies engines for all Zastava cars except the Fiat
850 and 1100, which have imported engines. Production of these cars
reached 12% of Zastava's output in 1967 because the c^npany was allowed
to take payment for them in hard currency. In future, they are not
likely to account for more than 5% of output. Furthermore, DlB now makes
about 6,000 enzines for Zastava liaht commercial vehicles and about
2 to 3'0 new engines for replacement and various applications. Bearing
in mind an increase in commercial vehicle and ieen engine Droduction to
about 10,000 engines DIBts sales potential would be as shown in the fol-
lowing table. whichl comnares it with the projePted producthion program
of the company:
-------Production Program----.
Year Cars Sales P tnWi ti al ''- C--- rI Total
1969 55 50 5 55
1970 60 if 7.ff 62Ae
1971 75 62 11 73
r .n ---4---.r - 4 4- I _ _: - - - A. '_:_J.
VXLL.) jtJ :,J i l.0; , L iJ.11 it.' j U VU VU WlUIl�dJi gtiUU U [.'Lig bJlLLb
period, assuimng that purchase;3 of materials, semi-finished and finished
par-tus w-w"l_ -a-'l.;o-i be at Pp. prices0 Zat5l-a d.lU L�.L Ut JsupLp'Lrs
are linked by a federation which would regulate changes in prices between
its mem,bers, anld, when necessary, negotiate an increase i.n car prices,
which are fixed by the authorities0
DiIB does not export any engines except those which are
built into exported Zastava cars, DIS' exported directly gears and tools
of the value of $400h000 in 1967, but only $20 - 30,000 of this was to
convertible cLs-etcy aseato Zasta-Ua has, b-uilt up its exports to about
5 to 6,000 cars per year and hopes to increase this quantity to about 1()
or 12,000 in the next five years. Presently, most of these exports are
in clearing areas, with little over 10% going to free currency areaso
However, local sales in hard currency were about 59,00 cars last year
raising Zastava's free currency revenue to about US $9 million -- but
many of these may have been Fiat 850 and U00 models assembled in Zasta'a
and having an imported engine, DI'B have apparently not received any
sizeable sums of hard currency allocation for participating with their-
engines in Zastava exports, but they are entitled, should they require
it, to 17% of the foreign currency Zastava obtainso
Description of the Project
The project aims at allowing DIB to increase engine capacity
to about 80,C000 units per year and to modernize its techlology of manu-
facture by purchase of modern machines and scrapping out-dated ones, mostly
APPRTMTY 1
Page 11
over 20 oid. Tb t.E,e project -1i11 ar- p-y.. t filther e nxp-sion in
future to 120,000 units with relatively less investment, DMB has been
.L.* 'rea.Jn outp._t' ' h by eli. .unLJat L'~ U.3 bovlOt. , 84 L_g addit US.%lonal..L. achline,A's .
when needed, working extra hours in various sections, until output can
IJA o, 4E;OJ LJ .L 00 0% UictI SEL LCAJ |L.LJ UvykU UJ 0UVUV111 UF c; LLUw aiLvi
for more up-to-date machining lines and group manufacture of engine
componen-tse
Ifn planning and enginseering this project, DMBs has struck
a compromise between increasing automation and retaining flexibility
through the use of less specialized macninese Only one-third of the new
investment will be for single purpose applications and a good part of
that will allow variations in dimensions. Tne enterprise) has demonstrated
that its plans are well conceived.
The schedule of execution of this expansion has been modi-
fieg, together with DMB, to make it more in line with prevailing circum-
stances0 It is now expected that some of the effects of expansion will
be felt by 1970 and engine production is projected as over 60,000 units
that year making sales revenue about 15% higher than in 1L969. This assunes
an orderly trans:3r of equipment to the new buildings during 1969 and
1970. In 1971, the e.-pansion should be complete and sales revenuc. should
be about 45h0 hig}her than in 19is9.
As a result of modernization DMB expects to be able to in-
crease its over-all productivity thus making more engines per worker. Since
they will retain the same degree of integration as the present, and as Fiat
recommended in their suggestions for DMB's expansion in L960 to 80,0oo
units, it is possible to compare the plant labor output present and future
as shown in the following table:
DMD3 Productivity (Engines/Hian)
Before 1EXpansion After &cpansion
1961' 1971
66.5 77.5
DMB's reduction in direct machining times for eniines will
be between 22 and 40% for different engines as a result of modernization.
Cost of the Project.
The cost of the project to increase the production of auto-
mobile engines to 80.000 is estimated at I.D. 127.7 million ($l0.2 mil:Lion)
excluding working capital requirements of M.D. 30 million and interest
A-t 'EN'DIX 1
Page 12
during construction. Foreign exchange expenditure is estimated at
$4,339,000 of which IoB.R.D. is asked to provide `;4,089,000. The
remaining .`S250,000 needed for engineering know-how and design will
be provided by the enterprise.
A brief summary of the project cost is as follows:
US$000 OOONDin
Foreign Local Total
Land 8,460 8,460
Levelling, Fencing & Access Roads - 3,107 3,107
Buildings --
Factory (basically 16,000 m2 @NDin 1350 plus -
cheaper subsidiary buildings services, etc, 25,158 25,158
Office, etc. (3,800 m2 @lhoo) 5 5,628 53623
Contingewnrv for bhuildings 1,5o0 1,503
Machinery and Equipment -
TmnportedC onvertible (FOR) 3,689 - 46,113
Imported from Clearing & Local - 6,144 6,14h
Ins-tirnce, Freight, Customs ..&, Erection - :19,h38 19,438
Contingency on Machinery 400 3,500 8,500
In gin ne e_ r i " - 7YNrow>.ow,inc1 Dgesn 25O 502 3.627
Preliminary &. Startup Icpenses charge to operations
Total Fixed Assets excluding Capi-
zed TIterest dUr4ny Construction 4 9 73,437 127,675
av5'n rw-Pi4-., C 4lniibt enl/i se o-n
Rotating Assets 3 times per year - :30,000 30,0c0
I-ost of the foreign equip.ent is likely to come from Western Europe
ancl the IJ1S. Import duties are estimated at about 35%. Contingey a.low-
a for iu-ldJngs and - - been nmclcuated on the basis of
ances for lul �uiug- and ____4___~1V -
current prices rather than on prices when the estimates were made and some
aiw.nce is rnade for variations.
1/ Before deduction of supplier credits., additional short-term bank
borrowing, use oI cash generated by operations, etc.
APPENDIX 1
Pae 13
DMB had originally expected to manage with only an additional
N.D. 15 million of working capital. They concede, that this is not possible
with their present methods of procurement, stocking, selling, and borrowing
on inventory. The enterprise is expected! however, to markedly improve their
purchasing of raw materials and parts, resulting in a more rapid turnover in
inventory. Even if this materializes, it is felt that they will require an
amount closer to N.D. 30 million.
The expansion eventually planned from 80,000 to 120,000 engines
(including some of l;OOQ cc cnac.ity') is expected to recquire an addition-al
investment of N.D. 70 million in fixed assets. Relatively speaking, this is
at consider1rabvl lower s-ost than the N.D. 127.7 mirlion. req i.red for evx avnsion
from 42,000 to 80,000 engines. The main reason for this is that the second
e-xparl~ Cm bii n' h-ss'l~,ms +h.Fs,,, +l.. . ,s 1~~
exp Jsin wn:ll reapn considerable cost saving tvhroug-teus fsq mn
and facilities acquired as necessary for the first, but also capable o:f use
on the second.
Pro ,ect F In-anci,e
A s, J,rj of. j's es .atedu fnarci" reqirements ar,iU sources
of funds during the period of construction (1968-1970) is given below (in
N. D. oillion6):
Uses Sources
Project (fixed assets) 127.7 Net earnings 19.2
RelaVed woruking capaital 17.0 Depreciation 40.2
Renewals and replacements 5.3 Long-term debt 126S.3
Debt repayment 27.3 Short-term debt 3.0
Reserves & other allocations 9.5
Additional working capital 1.9
188.7 188.7
Detailed earnings and cash flow projections for the construc-
tion period and the following two years together with the major assumptions
and further iexplanations are given in Annex 2. Forecasts in Annex 2 assume
that orders would be placed in 1969, that equipment would be arriving Rnd be
installed in 1970 and completely operational from the beginning of 1971.
The total cost of this project as originally submitted was
N.D. 118.1 million. This amount has been increased to N.D. 157.7 million,
after consultation with the enterprise. This increase of N.D. 39.5 million
in the total cost of the investment is explained by an increase in conver-
tible currency costs of N.D. 11.3 million due to out-dated quotations, revised
dinar fixed investment costs of N.D. 13.2 million and estimated additional
working capital required of N.D. 15 million. As a resu].t, short-term debt
of N.D. 27 million is estimated as necessary in 1971 ancd 1972. Prior to now
APPENDIX 1
Page 14
the enterprise was clear of short-term debt and had not projected any for
the next several years. As the major part of the short-term debt is cal-
culated not to be necessary before 1971, and, at that time earnings should
be fully -eelec+4-- + -'Os ox +the exp. +an or. at the HinP ti.me as other
obligations are falling off, it should not prove unduly onerouis.
Of the total project cost of N.D. 157.7 million. IBRD would provide
N 4.DJu. L42.94ELr 7 IJ-o ar,i vhe Beogradska Ud.uzen.a B.-ka ba a- ed to leand 1he
enterprise N.D. 60.2 million. The remaining NoD. 514,5 million required will
be covered by vh-tbe entr,er--`Lsels ow-wn resources ar,d by shorst-fe , oroin
Earnings ad Debt Service Coverage
Earnings forecasts (Annex 2) are based on the assu.zption that sales
would equal prc.uo3t.1orn As already stated, ear-rings in ,.96i wre iate:La'Lly
reduced due to an Jencrease i.n interest costs and depmrciation rates. It is
estimated that the ftll effect on production of the new investment will not
be realized until 1971. As a result, there is only a mocdest gain in total
sales in 1968 and 1969 to be achieved through a more intensive use of exist-
ing facilities. In 1969 a smiall part of the new equipment will be assisting
in the elimination of bottle-i>-,.cks ard modest improvement in earnlng., wi'L be
realized. The major leap in production, however, takes place in 1971 and
earnings almost double that year. By 1972 sales will have increased by nearly
80 wuhile net earnings are ez:pected to be eight times as high as they wore
in 1967.
Due to the considerable legacy of long-term debt in existence before
the new debt-'load resulting from this project and the somewhat lengthy :lead-
time before the investment results in substantially higher sales and earnings,
long-term debt service coverage fluctuates in the narrow range of between 1.4
in 1968 and 2.1 in 1972. After 1972 it improves rapidly. For thi's reason
any further new investment that would involve new long-term debt should be
deferred until at least 1972.
Conclusions
Zastava is the largest producer of automobiles in Yugoslavia and
denends exclusively on DMB for the engines to be installed in its vehicles.
From an immediate point of view an increase in the production of motor vehicles,
particula-'yv passenger cars. at a time when the Yugoslavian consumer is becom-
ing increasingly more car conscious will cut down substantially the demand fcr
impported automobiles, As Zastava plans to exnort approxLmately $20 million of
vehicles by 1970, DMB will also, indirectly, be an important earner of foreign
exchange- TIts own e-)perLmentti on riwth automchile engines and the construction
of several original prototypes derionstrates that DMB has the managerial and
techn.ical e-pa'blitly1 to contri-ate towards the grnowth of a truily, endemic auto-
mcbile ind:u-t,ry.
IFC/11L1LEA
Juiy 26, 1968
AlI\EX 1
Page 1
THIM ID-VADSTPHRVI i4AJi iiOTOR FACTORY
Comparative Balance Sheet
(In millions of New Dinars)
1963 1964 1965 1966 1967
ASSETS
Current,Assets
Cash, Banks & Near Cash 8.3 6.5 12,7 17.1 17.h
Trade Receivables 1.6 2.8 19.9 18.3 19.3
Inventories
Raw i*Iaterials & Supplies 26.4 31.2 42.4 44,2 45.6
Semi-finished Products 8.9 10.4 11.4 11.6 12.8
Finished Products 2.2 1.8 5,2 6.8 6.9
Total Inventories 37.5 43.4 59.01/ 62.6 65.3
Other Current Assets ?/ 19-7 2)40 23 0 27-6 30-7
Total Current Assets 67.1 76.7 104.6 125.6 132.7
Gross Fixed Assets
-Land -- -
Buildings 16.0 16.7 16.9 29.0 4/30.9
:.achinery & Equipriient 51.4 5. 6.1 )3.L _/U).5
Fixed Assets under Construction 2.5 2o2 .1 lol 5
Collective Consumption Ao:;cts 6/ 16.3 1704 18.3 42 3 uo.9
Other Fixed Assets 7/ 1.5 1A8 2.0 2,7 2.3
Total Gross Fixed Assets 87.7 93.2 98.4 158,5 165.6
T..Rq P_nr riqfion RI (98A') ,-_ ,; (37.8) (),9h) (56.9)
_ _ J _ t , c o 0 _)__ _
Net Fixed Assets 59.L 60.6 60.6 109e1 108.7
MfTAT A^Qr11T -I 1V7 '5 165t' Kr O'5I. '7 I.1I 1o.
.L.IJ.�2.j 1 UJ. J.L.L:J) 1.)1 -Lj;) O.L r G.1L4.@ I L L4LQ .
T TADTT TMTV7C'
Current Liabilities
Short-term Debt to Banks -- -- 4.9 6.1 --
Trade Payables 11.7 12.3 7.2 9.5 20.5
Other Current Liabilities 9/ 77.8 3h.9 25.0 38.3 33.0
Total Current Liabilities 39.5 47.2 37.1 53.9 53.5
Lon-term Debt 10/ 36.2 36.7 54.9 68.5 70.8
Funds of the .TnterDrise
Business FLmd 32.9 3U.2 51.]1 70.7 72.3
Reserve Funds 2.2 2.9 2M8 3.6 7.8
rln1tAtivA Gonns- Prnrlq lc7 Ilh3 - 9.O 38.0 3?70
50.8 53.4 73.2 112.3 117.1
TOTAL LIABILITIES 126.5 137.3 165.2 234.7 241.4
CURRENT ASSET,S/iCuS-RENIT LIABIL. 1.69:1 1.63:1 2o82:1 2e33:1 248i:1
LONG-TERM DEBT/ONlE FUNDS 42:58 41:59 43:57 39:61 38:62
ANN'EX I
Pagea 2
THE "DVADESTPRVI 'fAJ" IMOTOR FACTORY
Notes to Comparative Balance Sheet
1/ Reflects revaluation of inventories in 1965.
2/ Includes Cost of Goods Sold for sales invoiced but not paid,
prepaid expenses and other current assets.
3/ The approximate 16 hectares of land owned by the enterprise is
valued at N.D. 28,000o
b/ In 1966 'buildings were revalued by approxirately- N.D. 12 million
or about 75d.
5/ In 1966'Equipment was revalued by approximately N.D., 15 million,
or about 25%.
6/ Workers IHousina and Resort Hostels, etc.
7/ Preliminary Expenses. patents, licenses and intangibles.
8/ Depreciation on Buildings is at 1.3%. on ecuioment it was on
the average, through 1966 7%, in 1967, it was increased to 10 -
12%.
9/ Includes sales value of zoods invoiced but not naid, and other
transitory items and accrued charges.
10/ Includes Current ';aturities, Permaznent., Working Capi-tal Loans, and
Long-term Loans for Social Aseets.
IFC-LAEA
NIny 22, 1968
ANNEX 1
Page 3
THE "IDVADESTPRVI IHAJ" MOTOR FACTORY
EARNINGS STATEMENT
(In millions of New Dinars)
1963 196L 196�' 1966 15c67
SALES 1/ 1000 107eO 1h5.0 155cO 158.0
ODerating Costs
laterials & Overhead 77.0 77.0 1O20O 107.0 110.0
Net Wnopp-s 7.0 1O.rO 15,o 20eO 21,10
Related Social Payments 4h0 .5,C) 7-o 7.0 6.0 2/
T,q and Gonrl ibutions 2^O hL.O _.O 7.0 _ 7.0
Total Operating Costs 90,0 96,0 129.0 141.0 l44.0
Depreciation 30 5,,O 7.0 5.0 8.0
Interest 2.0 2.0 2.0 3.0 4h0
Net Earmn-s from Operations F-$ r-, -7�0 -, 2 *0
Nkjonoperat:in. ng-Ior3/ l lo() A0 - r) O
Nonoperating Expenses (2.0) (2e0) (1.0) (1.0) lo.0)
Net Earnings 4h0 300 El8O 9eO 3nO
1/ Cn the basis of paid sales.
2/ Social Payments were reduced by 14 percent in 1967.
3/ Includes rebates, penalties received on deliveries, etc.
TtV TA2,1A
1-lay 22, 1.96'8
ANNEX 2
Page 1
THE "DVADESTPRVI MAJ" MOTOR FACTORY
FINAIICIAL FORECASTS
(In Millions New Dinars)
1968 1969 1970 1971 1972
I. Earnings Statemient
Sales Revenue 1/ 180.0 195.0 230.0 280.0 290.0
O&.erating Costs
Materials & Overhead 121.5 131.3 153.0 185.4 1'72.5
Net Wages 22.h 23.4 25.0 26.3 26,3
Related Social Payments 6.7 7.0 7.9 7.9 7.9
Taxes & Contributions 7.6 8.0 8.8 9.1 9 .4
Total Operating Cost 158.2 169.7 19L.7 228.7 236.1
Deoreciation 11.6 12.0 16.6 180.1 18U.
Interest 3.8 3.9 7.8 13.9 11.6
Net Earnings from Operations 6.4 9.4 10.9 19.3 24,2
II. Sourcesand Awplications of Funds
Sources
Net Earnings (.'revious Year) 2/ 3.0 6.4 9.4 10.9 19.3
Interest 3.8 3.9 7.8 13.9 11-8
Depreciation 11.6 12.0 16.6 18.1 1.1
Increase in Lonig-Term Debt:
BllRD ($d4,089,000) (N.D. 51.1 million) 10.0 41.1
B.U.B. and Dthers 27.9 17.3
Short-term Bebt Requirements 1.0 2.0 __22.0 5.0
Total Sources I UU.Y __
Applica tion
New Investment:
Fixed Assets (foreign) -- 10.0 11.1 -- --
Fixed Assets (local) -- 27.9 47.7 i.0 __
Norkin,; Capital 6.o 9.2 14.8 --
Total Investrment 3.0 43.9 98.0 15.8 --
Renewals & Replacements -- 1.0 14.3 20.1 214.1
Other Fixed Assets -- -- -- -- --
Interest:
Existing Long-term Debt 3.7 3.3 2.7 2.3 1.8
IBRD 3/ -L 1.8 3.14 3.2
B.'3.B. and others 24/ -- -- 2.3 6.7 6.
Short-term Interest .1 .2 __ 1.5 .3
Total Interest 3.8 3.9 6.8 13.9 11.8
Principal Repayments:
Existina 1ong-term Debt 9.3 9.1 7.7 7.1 5.7
IBRD -- -- -- 3.1 3.3
!3.U.. and others -- _ 0.9 2.4 2.6
Total Repayments 9.3 9.4 8.6 12.6 1:.6
Allocation to Reserve 1.0 1.5 1.0 -- C.5
Allocationq fnr n11irt1AvA nn-nLmnftinn C/ 2.0 2- 95 2 hl5
Net Additions to WTArking Capital 33 _.7
Total Applications 10 6 . 12.2 At 0 C, .9
Long-term Debt Servie Cover 1.4 1.6 2.0 1.6 2.0
1/ Based on the assuription that sales equal production in each year.
2/ Earned funds are released tor use only in the following year.
3/ Interest at 73,, 2� year grace period, repayable in 24 equal semi-annual installments.
4/ Estimated at 8-9% and other terms, duration, etc. similar to IBRD.
5/ For investment in collective consumption assets.
IFC -LAEA
Hay 22. 1968
ANNEX 2
Page 2
TFIE "DVAD3STPRVI MAJ" MOTOR FACTORY
Sa-Les - 1963 to 1967 Actual & Forecast Until 1972
�___, -------------------A C T U A. L-------FOR--------- -E C-A S T----------------------
L963 __ 1964 1965 L/ 1966 1967 _ 1968 L969 _ _ 1970 1971 1972
'Units M)in
Engines 750 cc 14.1 26.0 23.0 43.0 29.2 60 29.6 61.0 30.6 64.,o 35 72.5 37.5 77.6 h2 87.0 45.5 94.o 45h5 94.b
1300 cc 3.3 9.0 5.6 15.0 6.7 21 7.7 2Ls.0 7.4 23,0 12 37.5 13 40.8 15 47.0 18.2 57.0 18.2 57.0
1900 cc 3.9 13.0 3.8 13.0 4.7 22 4.6 22.0 4.4 21.,0 4.4 21.0 4.6 22.0 5.5 26.2 9.1 144.0 9.1 44.1
Engine Overhaulirng - - - - - 2.0 4.3 2.3 6,3 3.0 10.0 3.4 11.2 5.CI 114.8 6.0 17 6.2 17.9
Gears & G-boxes - (.3 1.1 2.9 9.0 10,0 19.0 22.0 32.0 o40 47.0
Spares, Componerru s
for Other Produ-
cers, etc. - 5L.7 34.9 39.1 34.7 33.7 20.0 20.0 23.0 28 30.0
TOTAL SALES N.D. 100.0 107.0 1415 155 158 180 195 230 280 290
REVENUE
I/ Engine pri ces increased as compared to 1963 and 1L9614.
I FC-LAEA
May 22, 1968
APPENDIX 2
SEVOJNiO
The Borrower
The prospective borrower VALJAONICA BAKRA SLOBODAN P'ENEZIC-KRCU1
is the largest Ylugoslav processor of copper (and alloying materials such
as zinc and lead) inauo semi-finishs-c, products - M.Ainlr sheets, strips,
bars and tubes. The plant is 'ocated in Serbia at Savojno, six km.
from Titovo Uzice which is 320 km. from the principal raw material source -
the copper mines at Bor. Sevojno is connected at present with Bor by a
broad 7auge railway from Bor to Cacalc and a narrow gauge lirne from Cacalk to
Sevoino. Zinc, the other principal raw material is obtained from Zorka,
Sabac and lead and zinc from Trepea, Zvecan. Sevojno has satisfactory high-
w7ay and railroad connections which will be substantially improved after the
completion of the Belgrade-Bar railway.
Sevojno produces about 60% of the total Yugoslav production of
semi-finished copper and brass. In 1967 production was about 42,000 tons
22,000 tons of rolled products and 20,000 tons of extruded and drawn
products. Total sales in that vear amounted to N.D. 6h6 million ($51.7
million) of which N.D. 376.2 million ($30 million), or 58%, represented
export sales. Approximately 60% of exoorts went to convertible cur-
rency areas. The principal export markets are U.S.A., Italy, W. Germany
and France.
The mnin pnrodiution facmilitiesq consi-st of a rolling mill deartment
which produces sheets, trips and other rolled products, and the extrusion
nnd drawing department which produces bars, tubes and othAr sect.ions.
These departments are served by common auxiliary facilities including a meLt-
ing nd casting shop w.hich suipplies the necessa Ih slabs and hillets. Thm
plant has a total covered area of approximately 45,000 sq. meters. Sevojno's
to+tl assets at TIecember 31, 19A7 were N.D. 775.8 million ($69 million)
and the enterprise employs 2,700 persons.
While Sevojno has adequate capacity to meet the foreseeable demand
for extruded and dra.n. products, it needs to modern.ize nsd expand its
rolling mill capacity to meet the requirements of the market. Output of
W^1 I eA IS.+;_1: +_ Z1 - +1n^n :|* + h YSo> oh n ;n ;,p'VW, C*- ' #V . 1J- V ^+W 0W~ VA ^& "C v4 ' ' '^rD
which is currently being used both for primary hot reduction of slabs and
also for cold ro-ling of plates. On the fii sing side, the existing
equipment limits sheet width to about 800 mm.
The enterprise proposes to install a new hot slab rolling mill
an a new co'ld f.1hn 1r"l .L ch w:'4-l eZAICleJL production.L ofwidrset
and increase the rolled products' manufacturing capacity by about 12,000
t-Pons per arLrWi-aU Tlhe proJJect'J is est., L 1- I, -a .Ue d 4Co cosJt. LIT .D.J. I ( Li iiLLLion
($6.16 million). The foreign exchange cost of the project is estinted at
$3.5 ael�l�ri W huua �nrin as been virequested [ou i11Mc8.
Prepared by A. Bandy and 1i.V. Deheijia.
&:Dpendix 2
Page 2
Historv of the Borrower
The enterprise was founded by a Federal Government decree in
June 1950 under the name VALJAONICA BAKRA SEVOJNO. The name was changed
to VALJAONICA BAKRA SLOBODAN PENEZIC-KRCUN in 196h. The project was
engineered by a consortioum of W. German firms ccnsisting of M*�essrs. G.H.1.
and Enhlnemann of' Ths1 rinrf - hloemann sunplied most of the eQuioment.
a considerable part of which was reconditioned and was made available to
thA YViosnl1vsu undpr the wnr rpnnrnatim nrogrnm The contract. with the
German consortium. provided for training of Yugoslav technicians in Germany
nndri the epunii+an oA f G(rpmnn epng_ers to 7vsifnnl fors start-lop nnd initial
operation of the plant.
The plant was designed for an initial capacity of about 14,000 tons
per nrvw.im of rolled 1 t.,A - n.d 7 QnnW +sons per -nvi1m. of ex+m1trded and dranwn
products. However, the design of buildings and layout of equipment was such
as to fal t sub1-seue-nt expar.sion of capacity .
P-oduction coA ene nDcember Ie a.dE dur g h isty^ f'
I &~ A~zJ UC L%.. A.34 L 'J .. LI %, UId S ~ ~ r
operations the enterprise produced approximately 8,000 tons of rolled
prducts- -a,, 40 o ons of extruded adda. rdcs uEt^rae
steadily thereafter and by 1959 the plant was operating at design capacity.
Duing 1956-1_67 tOtia output in tons increased at an, a-verage rate of' 10.5I .
per annum; rolled products averaging a growth rate of 9.4% per annum and
extruded and drawn products 12.2% per annum.
The increase in output was made possible primarily by the enlarge-
ment of production capacities. During 1961-19614 the capacity of the
extruded and drawn products department was expanded b'y the i-n-stallation of
additional draw benches,annealing furnaces and pickling facilities. In
1965 a new 2500 ton extrusion press was added. This department now has in
operation four extrusion presses, three continuous tube drawing machines,
a battery of eighteen draw benches for bars and other profiles, fifteen
wire drawing machines and necessary annealing and pickling equipment.
At current production levels, approximately 66.5% of the extr-usion capacity
is utilized on a 2 shift basis. The enterprise does not foretsee the need
for any increase of capacity in this department. New investments will be
directed towards plant renewal and replacement.
In the ro:lling mill department new investments in recent years
have been primari:Ly for cold rolling and finishing equipment. There has
been no addition to the primary hot rolling capacity since Setvojno was
established. In 1964 a new 4-high reversing cold strip mill was insta led
together with a continuous annealing and pickling line and a Torrington
plate milling machine. In 1966 a new mill was acquired to augment the
finishing capacity of the plant. The existing facilities in this departmenlt
now comprise principally one 2-high primary hot slab rolling mill, six
4-high reversing cold rolling mills for sheet, strip and foil production,
one 2-high skin pass mill and necessary slab reheating furnaces, inter-
mediate and final annealing furnaces, pickling, shearing and slitting lines.
The production capacity of this department, although dependent on the final
product mix, is governed largely by the capacity of the primary slab rolling
mill which is currently working at full load on a 3-shift basis.
Page 3
The capa^iJy of '4 he .e-It-i.g and cast-.ng shop has also) leer. expanded
to meet the increasing demand for billets and slabs. In 1964 a semi-
a unit for continuous casting of high conductivity oxygen free copper billets.
This foundry now has a capacityr of about 8u, w0 uu inS per annum of slabs
and billets whereas the current requirements amount to about 67,000 tons per
~~ UAU
14Mnag,ement
Thle ierirL '.Manager, Mr. 'v'lajko Brkovic, nas been witn tne enter-
prise since its inception and was closely associated with the initial project
engLneel-ng work iand its implementation. He was elected General Mr8ager
eight years ago prior to which he was manager of the extruded and drawn
products departiment. ivir. BrKovic is a metallurgical engineer and has under-
gone specialised training in this field in Czechoslovakia and W. Gemany.
nis 4-year term as General Manager expired in March 1968 and he has
been re-elected by the Workers' Council for another four years. He is a
Deputy in the Economic Chamber of the Yugoslav Federal Assembly and is
currently the President of the Yugoslav Business Association of Copper
Producers and Processors.
Mr. Brkovic is assisted by an able team of technical and financial
men, the majority of whom have been with the enterprise for C, to 7 years.
Only the Technical M4anager, Mr. Petar Milosevic, and the Development M4anager,
Mr. Aleksander Hristic, have been with the enterprise since its inception.
The key man on the production side is M4r. Relja Sutic, Production
Manager. He is a metallurgical engineer and has received some practical
training in W. Germany. He has been with the enterprise for seven years
and is responsible for the modernization and expansion program now under
review.
The Commercial Manager is Mr. Desimir Petrovic who has been with
the enterprise for five years. He has organized an efficient, sales depart-
ment and has been successful in developing close contacts with forei-n
buyers.
Mr. Bozidor Rmandic is the Financial Manager. He t,oo has been with
the enterprise for five years and is a graduate economist of some seven
years' experience.
In all, the supervisory staff consists of over 110 nrofessionally
qualified persons of whom 57 are graduate engineers. The plant appears
to be managed efficiently.
Appendix 2
Page 4
The Yugoslav Copper Industry
Yuzoslavria has the lar,est known copper ore deposits in Europe
(excluding USSR) and accounts for over 40%f of this reg;ion's mine production
in terms of coppoer content of ores anid concentrates produced. Although
copper has been mined in Eastern Serbia since Roman times, systematic
exploration and exnloitation of ore reserves began in the early 1900's.
The mining and refining of copper in Yugoslavia is now the exclusive
resnonRibilitr of the enterprise RUMARSKO TOPIOiNICARSKI BAZENT BORJ.
is currently mined at Bor and Majdanpek wthich have proved reserves of about;
440 million tons of Copper behnring ore with an- estimated corner content of
about 3.2 million tons. In addition, probable and possible reserves axe
cr'rently estim.ated at 350 ImIlion tons. Ovner te last. 5 vpar. the rate
of ore extraction has averaged 5.8 million tons per anmwn; this is expectel
to increase to about 13.5 million tons per annm by 1971/72 when t.he seconnd
phase of the current expansion program is completed. Production of electro-
lytic copper averaged 57, 000 t41ons per annm ov the 5 years rectjhin
66,000 tons in 1967. Refining capacity is planned to be increased to about;
(11,00 tons per annwm Iy l9'7l/72.
YugosLavia does not export any blister or refined copper made
from local ores. (Enterprise Bor however does export small quantities of
refined copper made 'f-ori-i JUr;1ported scrap anld secondalry matericals; in 16
this amounted to about 1,400 tons.) Bor's output is processed into finished
and seiU-finished products by severn Yugoslav enterprises. The totlC
copper and copper alloy processing capacity of these enterprises currently
anounts to about 72,400 tons per annum, of which 42,000 tons or 58% is
accounted for by the Sevojno plant. The other six enterprises are:
Approximate
Enterprise Location Product Capacity
1. Mariborska Livarna Slovenia Castings 4,800 t.
2. Kombinat Prokuplje Serbia Rolled Products 7,200 t.
3. Diuro Salaj IVis Serbia Drawn Products 3,700 t.
4. EIka Zagreb Croatia Wire 3,500 t.
5. Fabrika Kablova Svetozarevo'/ Serbia Wire 9,200 t.
6. Novkabel Novi Sad Serbia Wire 2,000 t.
Total 30,400 t.
Except for a setback in 1965 (the year of the Economic Reform)
production of copper and copper alloy products over the last few years
increased at average annual rate of about 8.4%o as shown below. During the
same period Sevojno's production averaged about 66.8o of the total Yugoslav
output.
1960 1961 1962 1963 1964 19y65 1966 1967
Total Production ('000 tons) 34.1 35.0 38.2 44.9 52.1 49.0 55.9 59.8
Sevojno 22.2 22.7 24.0 29.2 34.3 35.1 38.5 42.0
R/ Dnu iInanceci Bor ($329Y,UUU) under Loan 51 YU and' Fabrika Kablova
Svetozarevo ($2.7 million) under Loan 73 YU.
APPENDIK 2
Enterprise "Mining and Smelting Basin Bor" and the seven processing
enter,prises are imemabers of 4the TTA_znJ T~iv>aaIPeaJvaaBka
Beograd (Business Association of Copper Producers and Processors). Until
authority, but af'terwards, this function was passed over to the Associatiorn.
As a result th1eLrt! aLs st'�.L ULon prELe n11 YugosLavLia Wichi. Uw1I1estiL% processoL
pay for domestic copper. Every year "Bor" signs a contract with the seven
copper processors parcelling out its expecQt ed toDl pQucL wIoLL1 UlmU'te
roughly in proportion to their position in the industry. The price at which
this copper wili be sold to the processors is discounted i5-:20% from the
average price prevailing on the London Metal Exchange during the previous
April/October or October! April. In substance, therefore, although the
Yugoslav price has never exceeded the LME prices, in periods of rising
world copper prices the comparative advantage of the Yugoslav copper pro-
cessors is greater, as they are still purchasing on the basis of an index
when prices were lower, and in periods when the world price is falling
their comparative advantage is diminishing in the same manner. As a result
of this formula in recent years the following relationship has existed
between Bor prices and the prevailing London price.
Yugoslv Domestic Copper Prices
as a % of IME Current Average Price
1964 78%o
1965 70%
1966 60%o
1967 91%
1968 71% (for January)
To the extent, therefore, that the Yugoslavian copper processors
can depend on domestic suDplies of copper at lower prices than the prevail-
ing world price they enjoy some initial advantage in world markets for their
semi-finished nroducts. Unfortunately, the mines at Bor wil:L not be capable
of meeting all dcmestic needs until the mid-1970's. In 1966 and 1967 approxi-
mately one-third of the copper utilized by Sevoino was purchased from external
sources. This partial dependence on imported copper will steadily diminish
until in 1972 it will renresent only 10-15% of total needs (cmd by 1975 will
have been eliminated completely).
sAlps and Market
The level of Sevo jno'ns sales have in the nast bheen determined
largely by the availability of copper and the capacity of Sevojno's production
facilities rath1ner thn. the demand for its products in the dornestic or export
markets.
The following table shows the development of domestic and export
sales (in. tons) in the do-estic and eort markets dring the paAst five yrearsn
Appendix 2
Page 6
SA LES
(in metric tons)
Domestic Market Export >Iarket Total Sales
1963 14.676 14,680 29,356
1964 15,540 18,371 33,911
1965 141550 20,016 34,566
1966 13,795 24,578 38,373
1967 14.285 27,157 41,442
Domestic Sales
Domestic sales, which in recent years have accoun-ted for about
35% to 40% of total sales volume, are primarily to the elec-brical, metal
working and shipbuilding industries. The following table shows the extent
of Sevojno's share of the domestic market for copper and brass semi-finished
products in recent years:
(in 000 rmetric tons)
1963 1964 1965 1966
Domestic Production 44.9 52.1 49.0 55.9
Imports o.6 2.6 2.2 4.9
Exports 17.8 20.2 22.5 31.9
Apparent Domestic Consumption 27.7 34.5 28.7 28.9
Sevojno's Share 14.7 15.5 i4.6 1L3.8
%jO (53.1) (44.9) (50.9) (147.8)
Domestic selling prices for copper and brass pro(duicts are
controlled and are established every six months by the SAVEZNI ZAVOD ZA CENE,
Beograd, a Government agency. Since the Economic Reform of 1965, domestic
selling prices have been, on an average, o to 1u0 Lower tnan prices obtain-
able in the export market. Because of the more lucrative export business,
enterprises like Sevojno have tended to neglect the domestic market with
the result that a considerable backlog of domestic orders has built up.
By early February 1968 Sevojno had booked firm orders for delivery in
December 1968, whereas export orders are normally quoted a delivery of 25
to 35 days.
Sevojno has very little competition in the domestic market. The
only other enterprise capable of p-ocducing rolled products is Kombinat
Prokuplje but its range of products is limited. For extruded and drawn
products, the tube and wire drawing units at Nis and Novi Sad are the only
possible competitors but their plants have very small capacities.
Appendix 2
Page 7
Competition from imports is unlikely to be of any conseauence in
the next few years because of the level of tariff protectionl for imports
into Yugoslavia (t5/o for drawn products and 60/o for rolled) and the
favorablc price at wrhich domzstic processors receive t'heir raw copper
from Bor.
Export Sales
Export sales have increased steadily from 1959, thke year in which
the enterprise first exported its products. In 1963 export sales accounted
for about 50,% of the total sales; the proportion increased to 5d,5 by 1967.
Sevojn.D's exports account for a substantial portion of total
Yugoslav exports of copper and brass semi-finished products as shown in the
table below:
1963 1964 1965 1966
Total Yugoslav Exports (c00 t) 17.8 20.2 22.5 31.9
Sevojno's Exports (000 t) 14.7 18.4 20.0 24.6
Irl (82.6) (9:L. 1) (88.9) (77.1)
In the earlier years roughly half of Sevojno's exports (by
volw,me) were t-o clearing curnyaes. This ratio has be-e --radually1
VLLL_ / WL 1 .L L-JXd.� .LLLr, kL4.L � L%, CU . �IiL. 7A.I 1LD I J 1 ,�CLU.u iLLI) kz.Jlb-z "LLW-.AJ
diminishing and is currently around 33%. Sales to clearing currency
areas are generally by long-term contracts. evojno curently has
contracts running through 1972 for about 5,000 tons of copper strip to the
USSR , 1,200 tons of tubes and sheets to Czecloslovakia and 2,000 tons of
miscellaneous items to Poland, Hungary and Bulgaria. Unit sales prices
for export to these areas are on an average 20 to 257 ligher than prices
for exports to convertible currency areas. For example, rolled copper
sheets were exported to the USA at an average price of 1dmin 16,400 per
ton whence similar sheets were exported to the USSR at NDin 19,700 per
ton. However, Sevojno prefers to export to convertible c-urrency areas
because of the foreign exchange retention quota (currently Eat 14%) and
the export premiun (6%) facilities available for such exports.
Sevojno exports to over 25 countries in the convertible currency
area. The major importers being the USA, Italy and West Germany. In
each of these countries Sevojno has its own agent in addition to a
representative on the London Metal Exchange. Export orders are contracted
on an FOB Rijeka basis and on the prevailing L.If.. wire bars 3 months'
price. Delivery periods quoted vary from 25 to 35 days. Because
Sevojno can buy electrolytic copper at lower than world market prices, it
has no difficulty in competing in the export market.
Anpendix 2
Page 8
Sales Proiections
The. fnoilln-wing table stnm=arizes Sevojninno1s pirpotionn for rm,-icztA
and export sales for the next five years:
Sales Projections (in tons)
1968 1969 1970 1971 1972
Domestic 13,777 13,777 14,429 16,911 18,633
VI-or 4-- Clearing 10,22) 1,22 12,896 12on
- Convertible 17,536 17,536 18,384 20, 731 21,996
Total 41,538 41,538 441,038 50:533 53,538
Projections of domestic sales and exports to clear:ing currency
areas are based on current contracts with 'buyers of long stanlding. Projec-
tions of exports to convertible currency areas are based on individual
country projections made Dy Sevojno's agents stationed in hnese respective
regions. The projections foresee an annual rate of growth in these markets
of about 4L. 7` per year which is reasonable.
Recent Financial and Earnings Record
Balance Sheets for the last 5 years (1963-1967) are shown in Annex 1.
The Balance Sheet as of December 31, 1967 is summarized below (in N.D. millions):
Assets Liabilities
Cash and equivalent 81.5 Short-term bank debt 189.2
Receivables 116.3 Accounts payable 15.,0
Inventory 173.7 Other current liabilities 131.3
Other current assets 129.0 Total current liabilities 335.5
Total current assets 50o0T Long-term debt 90.$5
Net fixed assets 275.3 Business fund and reserves 319.3
Total Asse-bs 775.8 Total Liabilities 775.X3
Since 19362 Sevojno has increased its total production from 24,026
tons of rolled, extruded and drawn products to 42,000 tons. The necessary
investment to accomplish this increase in output was undertaken in two phases
at a total cost of approximately 102 million NDin. Of this amount 70% was
covered by additional long-term debt and 30% was mobilized from the Comnanvzrs
own funds. Also (during this period (1966) assets were revalued by approxi-
mratplv N-D 1', m'illion nnd about N.D. lJbf million of oniiinmp-nt was .rrittep
off.
Anpencdx 2
Page 9
Since :L963 the level of long-tenm debt in relation to Sevojno's
own funds has diminished from 43% of the total to 26% in 1967. In some
measure this has been due to the difficulty of the Company to obtain long-
term loans for working capital purposes and it has been forced to turn
increasingly to short-term funding. This dependence on short-term borrow-
ing has grown in the last two years as the need for funds has increased
due to higher copper and zinc prices, a new regulation requiring that pay-
ment be made one month in advance for copper purchases, and slower collection
of receivables particularly by export customers. Although long-term debt
service coverage has been adequate the current ratio of the Company, for
the last five years, has not exceeded 1.5 on the average. A sizeable
diminution of short-term debt is expected in 1968 due to better copper
prices, better payment terms from overseas customers and the elimination
of the regulation requiring prepayment for copper.
Earnings Statements for the past five years are shown in
Annex 1, page 2. Production of the major groups of products, sales
and earnings are suarzed below:
Production (in metric tons) 1-96 1964 19_5 1 Q66 1967
iolled Products
Strip 6,541 8,426 8,683 8,631 7,872
Sheet 5,281 6,136 6,796 7,485 9,624
Others 3,307 3,138 2,163 2,205 2,287
Sub-Total 15,129 17,700 17,642 18,321 19,783
Extruded and Drawn Products
Bar and Rod 7,174 8,744 10,610 10,898 9,825
Tube 3,695 4,062 4,268 4,652 5,369
Wire 2,292 1,788 1,865 4,21 5,650
Other 946 1,975 757 433 8:L5
Sub-Total 14,107 16,569 17,500 20,201 21,659
Total Productiona 29,236 34,269 35,142 38,522 41,442
Total Paid Sales 252.0 337.0 417.8 635.5 645.9
Net Earnings from Operations 15.3 41.1 4:L.5 58.3 7.6
The very considerable disparity between growth in real output
(42% between 1963 and 1967) and the increase in Total Paid Sales over the
same period (156%) was substantially due to an increase all]owed in the
domestic price of copper in 1965 of 63% which was irmediately reflected
Appendix 2
1
Page 10
in selling prices and the devaluation of the dinar in the same year from
7.50 to the dollar to 12.50, which enhance the dinar value of export
sales. The samLe two factors influenced materials and overhead principally
through the higher prices that had to be paid for domestic and imported
copper and zinc.
Although the number of employees have only increased from 2,000
to 2,700 between 1963 and 1967 (35%), INet Wages have increased from
IDin 8.7 million to ITDin 33.4 million (284%.). This is due to substantial
wage increases given in 1965 and 1966 at the same time as the maJor price
increases were reflected in sales. As a result of these increases,
which in some measure can be considered a windfall, the ave:rage net wage
at Sevojno (NDin 1,050 a month) is above the national average.
It is for this reason that prolections of net wazes for the next five
years show no change (except for the addition of 24 men to the work force).
lanagement confidently expects that nresent rates ean bh maintainedC
Desnite the fact that real output increased between 1966 and
1967 by about 3,000 tons and total paid sales increased by TDin 10 million
to NDin 645.9 mi llion net earnings from oneratios decreased' from NDin 58-.3
million to 1JDin 7.6 million. 1967 proved to be a bad year
djue to the congrue-ce of several infavorable factors wlhich arc not
expected to be repeated. First, in 1967 both the price of copper and of
sem-finished erpper products were declining from the highs of 1966. As
a consequence Sevojno found that at the same time that its selling prices
were weak.ening it was paying, relatively, considerably more for its
domestic copper supplies. As explained previously Sevojno has,
in the last several years, received its domestic copper supplies at
considerable ascounts from the prevailing London M!letal Exchange price.
In 1964, 1965 and 1966 they paid 78'o, 70 and 60p respectively of the
prevailing average L.M.E. price for copper for their domestic supplies.
n 197 they paid 90. is narrow differential in i967 arose because
of the formula used by Bor to determine the selling price to its domestic
customers. Tlius inr 1967, a period wfhen current prices were dropping
substantially, Sevojno was paying Bor on the basis of higher prices
that were prevailing sixm,.onths previously. In 1968 the situation is
expected to be reversed to the advantage of Sevojno.
Average Price of Electrolytic Copper
'in US$ per metric ton)
Domestic Price
a:s % of L.M.E.
Domestic Price L.MI.E. Price Price
1964 761 968 78%
1965 882 1,246 70'
1966 920 1,528 60%
1967 1,018 1,123 90/
1968 (Jan) 1,000 1,409 77%
Appendix 2
Page 1I
In addition to paying more for domestic copper in 1967 Sevojno
also paid higher prices for its domestic zinc supplies. T;he main reason
for this was inadequate zinc processing facilities at Trepca necessitating
the transportation of zinc concentrate to Celje in Slovenia for processing.
These additional transportation and processing costs were passed on to
Sevojno. As Trepca now has adequate processing facilities this situatior.
is not likely tc) arise again.
Interest expense was also considerably higher in .1967 due
to a substantial. increase in short-term dcbt from 113 to 189 million
N.D. anld an-. increase in interest rates from 7-9r. As explained above,
the level of short-term debt is e;pected to bo considerably decreased
in 1966 and Tith it, interest expense.
As these three major increases in costs are not expected to
recur next year, net earnings from operations are expected to revert to
previous higher levels.
Description of Eroject
The aim of the project under review is to modernize and ex-pand
Sevoino's rolling mill facilities. No additions are contemplated to the
foundry or the extrusion and drawing departnment where existing capacities
are considered adeauate.
As stated earlier, Sevolno has at present only one rolling mill
rhich is used for both primary hot reduction of slabs as we:Ll as for
intermediate cold rolling of plates. For technical reasons it is
undesirable to use the same mill for hot and cold rolling operations.
NToreover- the eapacitv of the existino mill is fullyv utilized. The
enterprise proposes to install a new hot rolling mill and recondition
the existing hcot mill for rold rolling operationsn The new hot mill
will not only have a higher capacity than the existing one but will also
permit rolling of wider plates. IT is proposed to purchase a Ir80n mm
x 900 mm 0 2-high reversing mill with a nominal capacity of 25 tons/hour.
For the level of production foreseen during the next few years lt is
estimated that the new mill will be utilized 64% on 2 shift--basis.
The enternrise also DroDoses to install a new 1.600 mm x 1,100/
430 mm 0 4-high reversing cold roiling mill primarily for wide sheet and
strin nroduction. With the nresent eauinment, the enterprise can produce
sheets with a maximum width of 800 mm while the demand for wider sheets is
inrireasingi The new mill will have a nominal canacity of 7.5 tons/hour
and for the production levels foreseen in the next few years it is estimated
thnt this will be utilized 66.5A on 3-shift unorki_nLg.
Thoe �nstallat-ion of thpco tw.%To mills w.ifll enablpe thp entenrnriqe
to increase prodLction by about 12,000 tons per annum, i.e. a total of
approximately 3 1,000 +ons of rolled prodcts per year. Of these, sheets
will account for about 12,800 tons, strip 15,000 tons and other rolled
pr- U4.QUc.s 6L,200. tr.s.
Appendix 2
Page. 12
It is eistimated that about 24 new employees will be needed to marL
the new mil-h.. Wnweoverh beacause of +he modern.n equipm.ent proposed to be
installed, labor productivity for the whole enterprise, measured as total
effective man-hours per ton of outrpt, is e to% i s
as shown below:
A C f TT A T P R TO J E C T
zi W J (I .L J J 'LI. 'J U L~J ~ S. U
1963- 196L 9 1969 1966 196 9 Ti970 1971 1972
Output (000 tons) 29.2 34.3 35.1 38.5 4ln4 41.5 41.5 l..0 50.5 53-5
NoV. ofL er-p0,Yl-fC-ees L7V C38 217 241i2c 27X 4 271 4 271 271e-t 4 273 2738o 273 j3v -
Effective man-hours 4211 5626 4776 5033 5070 5051 5051 cO96 5096 50965
{ mn L __ 1/_ \
\ vuv .._-;,/ y aJ
hIan hour per ton 144 135 136 131 122 122 122 116 101 9'
Electrolytic copper anrd zinc are the basic raw materials requiredi
by Sevojno. The enterprise also needs small quantities of other alloying
matea-lls such as lead and tin. Tne relative physical magnitudes of the
various prime and scrap materials needed are illustrated by the following
table which shows average material inputs (including recirculating scrap)
during 1963-1966, as a percentage of finished goods output:
Prime Copper 71.9
Zinc 20.5
Lead, Tin, etc. 0.6
Copper Scrap 32.6
Brass Scrap 35.8
Total Material Input 161.4
Finished Goods Outnut l00e0
Yield 62%
Over the last few years anproximately ) 0% of the finished goods
were copper and 60C brass. With the proposed installation of the new cold
rolling mill it :is expected that prnductinn off copper sheet And sr-4p -will
increase relative to other products and the copper/brass ratio will tend
to increase. For this reason the enterrnise exvects t+ha the need for-
zinc will be lower and for copper higher as a percentage of finished output
than in the past. The table hbelir shows the enterse's projecons of
electrolytic copper and zinc requirements for the next five years.
Appendix 2
Page 13
(in 000 Metric Tons)
1968 1969 1970 1971 1972
Copper 31.4 31.4 33.2 41.1 42.9
Zinc 8.9 8.9 9.4 9.2 9.7
n0inci tn a shortnge of smenlting and refining nanac-[tv at Bor.
Sevojno has been unable to obtain all the electrolytic copper it needs
frnm dometicA sources and has had to supplemen-t local supplifes by imnnrts.
In 1967 Sevojno imported about 12,000 tons of electrolytic copper. With
the expansion of the Bor plant, inmports wl. decrease progre3sively and
are expected to be about 5,000 to 6,000 tons in 1972.
Zinc and lead are procured entirely from local sources. Zinc
is iin boughltt frm ZokaSba (an -P4---A.^s fX. -e Tyar1e'4r BP
loan) and "Cinkarna', Celje. The commissioning of the new zinc elec-
+ro'-^ti 1-4 plar. If tr--ft Z_7car in 1967 prov4des &^. ~addit- o.'suce
'- "-~J-" 'w.~ .L . J~ L ZLii ,~' . �LJL J..7%J IJA.J VJ."V C.LLi CLLL%L LV JJ.LACZ4. ;;WU
of zinc supplies. Sevojno consumes small quantities of tin (approximately
vvl"A_ J _ _y SbAL / A _J.. a �JLULJWJ.L LIU",
imported copper, and, as pointed out in the report on Trepca, domestic
prices of zinc and lead are geni lne WnneL-witwh -world prices.
COi, 0� rr .ij ec i
ire project is estimated to cost wiin 77.0 miiiion (uS$l6.i6
million) excluding interest during construction. Foreign exchange ex-
penditures are estimated at US$35) million which IORD has been requested
to provide. A summary of the project cost estimate is given below:
Total
NDin Million US$ Million NDin Million
Foundations and civil works 1.16 1.2
Piant and equipment - 3.L,7 43.4
Freight 1.00 1.0
Import duty (@22-) 9.74 - 9.7
Erection 0.38 0.03 0.8
liscellaneous 1.62 - 1.6
Working capital 19.33 - 19.3
Total 33.23 3.50 77.0
Appendix 2
Page !
The project has been engineered by Sevojnos' own staff. Equip-
tive suppliers. Costs of foundations and civil works and erection
exwpen^ses are based on. the en.terprise's ee'~"er.ce i. ns^tn s-m11T'
equipment in 1964 and 1966. No provision is made in cost projections for
vr-ne-dvit-1-i v n corr.ectior w i4t44, 44,e 44 4- - -P 4lu-or g, of- h tn o
mill, and relocation of the slab reheating furnaces as these are included
| s UA M u@=LV -L u -aG1z 0 cU-LLv;LGu% vuAv - U-L J Z71vo
mhe. p - supp er1O."U..ts hia.ve U .LLI. caedL div-y peIo of
about 14 months from the date of order. Assuming orders can be placed by
JanUary 1969U, iie enteprise expects ilo nave Lane new equipmnt.u+ in oper-atlon
by August 1970. Projections of production and sales have been based on
Project FnllanCing
A summary of Sevojno's estimated financial requirements and
sources of funds during project construction (1969-1970) is given below:
(in million NDin)
Uses Sources
Project 63.3 Net earnings 78.1
Replacement investment 40.0 Depreciation 53.9
Debt repayment 11.6
Reserves & other allocations 28.5 Long-term debt 44.0
lNet additions to working
capital 32.6
176.0 176r0
Detai:Led earnings and cash flow projections for the construction
period and the ensuing three years together with the major assumptions and
further explanations are given in Annex 2, page 1. Forecasts in Annex 2
assume that orders will be placed in early 1969, arrivals and erection wial1
mainly take place in 1970 and that the plant will be in full operation at the
beginning of 1971.
Out of a total project cost of-77 million ND's, long-term debt
will cover q7% or NDfs bIJ million. Tong-term debt incurredl is eclnsivels v
for foreign exchange purchases and no domestic long-term debt is required
to cover domestic costs.
Page 15
Earnings and Debt Service Forecasts
Earnirngs forecasts (Annex 2) are based on the ass)umption that
sales would equal production.
As already stated, net earnings were abnormaIlly low in 1967 due
to several factors which are not expected to recur in 1968. Consequently,
although real production in 1963 will not differ materially from 1967
(41,538 tons as opposed to 41.,442 tons in 1967) because of more favorable
coDper and zinc prices and lower interest charges, profits are expected
to climb substantially from ND's 14.6 million to ND's 38.9 million.
Earnings projections for the period 1968-1972 are based on the
assumption that 'evoino will be able to continue to enjoy a substantial
favorable differential in price for its domestic copper from prevailing
world prices. WQhether this materializes or not depends on future movements
in world copper prices. Should these prices drop, or rise, substantially
the earnings of Sevoino will be effected accordingly, resulting either in
the kind of windfall profits the Company enjoyed in 1966 or the considerable
diminnution of earnings that hampened in 1967 (although not to the same
extent).
It is ior this reason that earnings estimates for Sevojnc in
the period 1968'-]972 shomld hp anprnached onlv as aggregates that take as
their assumption steadier prices for raw copper than are actually likely
to result. Cn th-Is basis long-term debt service coveraze seems to be
ample. Should earrnings be irregular (due to volatile world prices)
or,, +qrd-- .11"r dinn.rnshed ( to~ a ~seclnTr tiiing, in world conner
prices) there appears to still be adequate coverage for the Company to
me . .4 . 1 . a A14L *
;.cp 1 1w CX.L, vu 'gUlv
Conclusions
The aim of this project is to modernize and expand Sevojno's
rollul mill. facliie - the nsalto fanw o oln il
11L.L.L.J. . dLUJLLj. Li.Lt~ t W.J. 141tll U11 Lb VjL~."L~ L.LULI U.L t L W new L,�UL.L1 i1L�L
the reconditionirg of the existing hot rolling mill for cold rolling opera-
tions and the insitallation of a new cold rolling mill designed for -wider
sheet and strip production. Sevojno will not only be able to increase
its production of' rolled products by some 12,000 tons Dut also increase
its competitive position in foreign markets by reduced costs and capacity
to produce a wider variety of rolled copper products.
Sevojno has been a valuable earner of foreign exchange in the
past exporting as much as 65% of total production. This new expansion
besides substantially increasing the potential export sales of the enter-
prise should also enable Sevojno to provide more processed copper to a
growing domestic market.
IFC/LAEA
V U.ly 26,- 196
Annex 1
Page 1
COPPER RCOLLJTNG kfTTT "SLORODAN PENEZIC-ERCUN"
Comparative Balance Sheet
(in millions of N.Ds.)
As at December 31 1963 1964h 1965 1966 lob
AS SETS
Current Assets
Clash, Ba-nks and near "ash 31.8 51 3 32=7 Le5= 3 81.5
Trade Receivables 37.6 59.7 132.2 137.6 116.3
Inventories
Raw Materials and Supplies 31.2 34.0 52.o-- 64.5 0.U
Semi-finished Prodiicts 20.8 15.5 24.9 42.0 4 .9
Finished Products 6.2 8.8 20. 25.9.
58.2 58.3 97.4 132.L 173.7
Other Current Assets 3/ 33.0 36.0 73.2 110.2 129.0
Total Current Assets 6 25;- 3 35.5 35 500.5
GROSS FIXED ASSETS
Land 0.2 0.2 0.2 0.2 0.2
Buiildings 53.6 53.9 58.5 94.9 4/ 97.8
Miachinery & Equipment 131.9 19.1. 9 270.8 5u 276.1
Fixed Assets under construction 18.8 16.8 34.6 2.8 4.2
Collective Consumption Assets 26.7 30.4 35.8 9.3 5.9
Other Fixed Assets 6/ - .1 1.0 0.9 0.6
Total Pross Fixed Assets 231.2 251.3 29h.0 378.9 38[.7
Less Dereciation 7/ 37-3 [' 3 8 - 6.1 87.3 109.4
Net Fixed Assets 193.9 205.5 237.9 291.6 275.3
TOTAL AS;,ETIS 35L51 --e 41"0.8 5 7 3.4 717.1 7 775. 8
LIABILUTIES
Current Liahilities
Short-term dabt. to Banks lh.2 9.9 85.7 113.2 189.2
Trade Payables 2.5 12.4 13.7 9.8 15.0
Other Curent liabilities 8/ A74( 07.0 13541 149.0 121 i
Total Current. Liabilities 103.7 119.6 234.B 272.0 335 5
Long-term Debt 9,' 108.2 122.6 115.2 100.8 90.5
Funds of the Enterprise
Business Fund 116.0 138.3 183.5 322.L 322.9
Reserve Fwids 5.5 6.3 6.8 8.9 13.1
Collective Consumption Funds 12.1 24.0 33.1 13.0 13.8
Total 0wri Ftrds 142.6 168W. 223.4 34T-3
TOTAL LIBr'LI'TIma 35.La5 eLO-8n 573.) 717.1 775.8
Current Assets/Current Liabilities 1.5) 1.72 1.3 1.56 1.119
Long-term Debt/Ow^ni F'unds [3:57 42:58 34:66 29:71 26:74
1/ Revaluation due to devaluation mid-1965 and increase of domestic prices of copper by 63%.
2/ Rev:alued due to increase in price of copper - April 1967. Some slow-do.n in deliveries
3/ Includes cost of goods invoiced but not paid, prepaid expenses and other current assets.
0/ Revaluation increment 34.4 million.
5/ Revaluation increment 70.9 million.
Z/ Preliminary expenses, patents and licenses.
7/ Although depreciation on buildings has not changed (between 1.h-1.8%) depreciation on
equipment increased from 6.5% on the average in 1966 to 8.5% in 1967.
8/ Includes sales value of goods invoiced but not paid, accruals and other current liabilities.
0/ .Inelueq -nrrnnt. mnturitjes,
IFC-LAEA
May 22, 1968
Annex 1
Page 2
Earnings Statement
(in milions N.D.)
1963 1964 1965 1966 1967
Sales Revenue 1/ 252.0 337.0 417.8 635.5 645e9
Operating Costs
Materials & overhead 156.2 200.6 296.4 486.1 538.2
Net wages 8.7 12.8 18.6 33.5 33.1
Related social payments 3.2 4l5 5.8 10.3 8.3
Taxes & contributions 53.8 61.7 39.8 234i 23._
TOTAL OPERATD4G COSTS 221.9 279.6 _6o.6 553^3 603 4
Depreciation 6.2 9l 9=1 21.;2
Interest 8.6 72 6.3 8.6 13.i7
NET EARNINGS FROM OPERATIONS 15.3 41.1 1.5 783
Other earnings 2/ (0.8) - 0.8 (6.9) 7.,0
NET EARNINGS 14.5 41.1 42.3 51T4 14 T_
-LI 'Ji WILgV UCDL VJ. L
2/ Mainly attributable to scrap retained after processing and re-used
luJuUl ro.oL accounjUedu for--t 'unt1 year-mndU.
ii&y 22, 1968
Annex 2
Page 1
COPPER ROLLING MILL - SEVOJNO
Financial Statements
(in millon N.Ds.)
Period of
Construction
Year ending Decernber 31 I I 1�,6 I O'?f 1071 1972_
I . EARNINGS STATEMENT
Sales Revenue 1/ 654.2 654.2 699.2 828.L 886.1
Operating Costs
Materials and Overhead 515.7 515.7 550.1 648.7 691.8
Net Wages 33.3 33.3 33.6 2/ 33.6 33.6
Related Social Payments 9.3 9.3 9.4 9.4 9.4
Taxes and Contributions 30.2 30.4 32.0 34.3 35.9
Total OPetrating Costs 5 8 8 . 625.1 726.0 770.7
Depreciation 24.5 24.5 29.4 29.4 29.L
Interest 7.8 7.9 9.3 9.8 10.5
,,armninas from Operations 3379 33.3 i o 35
Other Income 3i 5.5 5
Total Net Income 38- .g9
II. SOJRCES &, APPLICATION OF FUNDS
Sources
lNet Earnings (previous year) 4/ 14.6 38.9 38.8 hO.9 68.7
Interest 7.8 7.9 3 98 10.5
Depreciation 24.5 25.5 29.4 29A4 29.h
Increase in Long-term Debt:
I B R D 10.0 3L.C
TOTAL SOU'RCES 46.9 61.3 111._ 80.1 108.6
Appli cations
Fixed Assets - foreign 10.0 34.o
It I I - domestic 2.0 11.0
Working CapLtal 3.0 3.3 12.2 1.5
Total Investment (project) 15.0 T8T 12.2 .
Replacement Investment 8.0 10.0 30.0 30.0 30.0
Interest
Existing Debt L/T. 2.7 2.L 2.2 1.9 1.6
2.0 2.8 2.8
YIP and Others
Short-term D)ebt 6/ 5.1 5.1 5.1 5.1 5.1
Repayment of Principal
Existing Long-term Debt 6.o 5.7 5.9 5.2 5.0
I B R D 3.0 3.0
Total Repayments 6.0 5.7 >W87y
BOR Investment 5/ 10.0 - -
Allocations for Collective Consumption 10.0 10.0 10.0 10.0 10.0
Allocations to Reserve Funds 4.o 4.2 4.3 4.4 4.4
Net Additions to Working Capital 6/ 1.1 28.5 3.7 5.5 45.2
TOTAL APPLICATIONS 46.9 81.3 111.5 80.1 io8.6
Long-term Debt Service Coverage 3.4 5.2 5.1 4.4 5.8
1/ Rased on the assumotion that sales eaqal oroduction.
2/ Due to the addition of 24 extra employees.
3/ Revenue from interest payments on loan to BOR, time deposits and other funds loaned.
r, Earned funds are released f-" use o_l- in the following ear.
v/ Second installment of 40 m. N.D. loan to BOR Copper Mines (30 m. ND. advanced in 1967).
T/ In 1968 current assets and short-term debt are expected to be reduced to 1966 levels.
T'C/TLA-A
May 22, 1968
Anne, 2
FPage 2
SALES PRO.JECTIONS
(Qty. in Metric Tons, Value in Million N.]D.)
1 9 68 1 969 1 9 70 197 1 -19 72
Qty. Value Qty. Value Qty. Value Qty. Value Qty . Value
Rolled Products
Strip 11145 205.52 LL145 205.52 12482 230.49 14200 263.20 14688 273.01
Sheet 8579 121.94 8579 L21094 9507 137.77 11643 175.05 12820 193.29
Othter 1965 31,z21 1965 31e21 2200 35e46 4846 94.69 6181 124.'2
Sub--total 921&9 3587 2T 9 35n.7 40t3) 3 9 332 ;.9 3-39 590 .62
Extruded & Drawn Products
Bar & Rtod 1079#6 1284,07 10796 128.07 10796 128.07 10796 128.06 10796 128.,07
Tube 6059 141.52 6059 114.52 6159 114.52 6059 114.52 6059 114-.52
Wire 23132 414.07 2382 41.07 2382 41.07 2382 41207 2382 4L1-07
Other 612 114,84 612 11.84 612 8184 612 u1184 612 11.84
Sub -total PRO-199 295.3O i81<79 295 .3 198W5 290 19T9 -2 .75-30 9 9�295
Total Sales 41538 654,,17 41538 6554.17 44038 699.22 50538 828e.44 53538 886.,12
Export Sales:
- ConrertLble 175,36 237.33 17536 ,237.33 18384 251.15 20731 296.21 21996 320,08
- Clearing 10225 192,.88 10255 192.i88 11225 211.93 12896 246.12 12909 248,31
Total Export Sales 277615 430,.21 27761 ,430.21 29609 463.0o 336C27 542.33 3495 568,.39
Donest.ic Sales 13777 223.96 13777 223.96 14429 236.14 169'11 286.11 186,33 317,.73
TOTAL SALMS 41538 65,.17 41538 654.17 44038 699.22 i508 828.44 535.W 886,.12
IFC'-LAIA
Mayr 22,, 1968
PPENDIX 3
Pag 1
MTT
The Borrower
The nrosnective borrower. Mariborska Tekstilna Tovarna Maribor,
Textile Factory (MTT) is principally an integrated cotton textile plant
rnnosed of' e4ght faetories fonintied in 1926 tn 193h. five of' which are in
the same location, two others - a fancy yarn dyed cotton specialist and a
wool nnd blended fiber siting m fnufaotirp - are fulrther away but still
in Maribor and the last is a weaving shed in Ljutomer, about 40 miles out
of MaV-ihr.^. Mar4h.- r (Stlvet_nia) is aouhit 10n -miileq nnrthwost1 nf Zapgreb.
close to the Yugoslav-Austrian border, and is the home of a number of light,
mneijnm ^.d heanru industries. Sloveria is re+oat +tr ho +.ho loaing tPrti e1P-
producing republic in Yugoslavia. The eight factories which make up MTT
h1-Lavlme .merged provgress4-e'.y r,u 1946 olAg- 196 3o; +theny h1.ra +-ha cama maamspnt.
but are only now starting large scale integration in facitlities, as far
as 1c44- A N _ A_1- 44T - A6m _ _ l zL|oA_7t - S_ __ + II1A-+ ^A s1la b
.0 .L'V CLU.L.L1 , .L111.J U0* V . I lCU D _Lf JUUU -VUI f UAA =JLUAAJ. V' P--V -VL
in Yugoslavia and accounts for 2.5% of turnover by value of all textile
produuu-4s.
The plants have at present a total arnnual capaciy at tuhree shifts
of about 42 million square meters of grey fabrics (includingt 1.5 million
wool and wool-type), 38 million square meters of finishing, 8,000 vons 0I
yarn, 400 tons of sewing thread and cut and sew equipment to make 200,000
square meters into ready-made sheets, ladies, dresses and blouses.
Since 1963 the enterprise has been operating at fIii capacity in
finishing. The value of total production of all articles (at sales prices)
has been steadily increasing from N.D. 185 million in 1963 to N.D. 23U0 maii 'on
in 1966, with sales following the same pattern. In late 1966 liberalization
of imports slowed down sales and increased inventories at year end. In 1967
production was reduced in quantity both due to the enterprise carrying high
inventories (partly of fabrics which could not compete with imports) and
because of start of work on the modernization project. Furthermore, prices
in 1967 were cut down by about 15% on the average, with some fabrics reduced
40% so that the enterprise could dispose of stocks carried from 1966. EUT's
sales of fabrics in value over the last four years are given in Annex 1.
The following table summarizes these and compares them with production,
receipt from sales and indicates the quantities exported (in million N.D.):
Prodiuction, Sales and Exports (at Sales Price)
1964 1965 1966 1967
Production 205 225 270 200
Invoiced sales 208 228 23h 221
Paid sales 208 223 230 210
Exports - Convertible currencies 12 20 26 39
C,learing currencies 7 17 10 8
Prpnared by A= F. Perrnm nnri A.q 71 TlnvnTsh.
APPENDIX 3
Page 2
MTT believes the difficulties of 1967 sales are the result of a
special situation which is already over and is not likely to recur. Its
effect has been to reduce earnings in 1967 to N.D. 1.9 million on N.D. 21CI
million of sales, i.e. less than 1%. Earnings in 1965 and 1966 were N.D. 183
million on N.D. 223 mi-Ilion (7%) and N.D. 16.2 miLLion on N.D. 234 millior
(8.2%) respectively.
MTT plans to modernize, without increasing capacity, spinning and
weaving equipment of their different units and scrap outdated machinery in
many cases without replacing it. This will result in reducing capacity of
woven grey fabrics from 38 million square meters to about 31 million square
meters. They will then centralize and diversify finishing facilities so
that high quality and versatile finishing of fabrics is possible. Capacity
of finishing wi:Ll increase to about 61 million square meters; fabric for
half of this wiLl come from MTT's own weaving and half will be purchased
from local weavers. NTT wiLl also add facilities to produce synthetic sewzing
thread and incre-ase polyester blending with cotton as blended fabrics are
gaining popularity in Yugoslavia following the general European and world
trend. This plan appears to be a reasonable step towards rationalizing the
merger of eight plants without making a large investment in new buildings
and equipment. Gherzi. Zurich have eneineered the basic modernization after
a study made in 1965/1966.
MTT employs 5,700 people on its payroll and has the folloing
principal facilities in its Melie (nottonn) Tbhnr (vyrn rvrri fancry) Lintomnr
(cotton weaving) and Merinke (wool) mills:
(a) Buildings - about 120,000 square meters over about 45
(b) Equipment - 65,000 -inA1a A nd p ipme+
3,000 mule spindles and preparation
1,000 doubler anA '3,000v +,Aster sp.-Ides
10 knitting machines
1 7 E~ 1 m m -1 - n .AA+1-% I 4r 1I 7C~
1,750 lom *iaL.ry au+o -dthfj.U. 15 +o 1. I
meters and weaving preparation
equip..er.nnn
%_ - VW~LS 0~-.L15 UILAICV,CU U%'JUUJ..LL1I6, UWJ.OLIL~JLIG, � LLiIJL, LLU
winding equipment (capacity - 400 tons);
(d) Complete range of finishing equipment for ctreing yarn and
faI.FC, scrteen atu oVLeUJ. pLJJjI.�LLIg !LIcLUUonI a�L vypes
of cloth finish;
(e) Cut and sew equipment for 200,000 square meters of sheets,
uresses, and blouses.
In tne modernization the following machinery wiLL be discarded
and only part cf it will be replaced:
ILPPENDIX 3
Page 3
(a) 5,000 spindles and certain ancillaries;
(b) 2,000 mule spindles and certain ancillaries;
(c) 300 looms and certain ancillaries;
(d) About half of the cotton thread equipment;
(e) Various items of finishing including 20 jiggers,
3 ingedrg mahns l stUUenter, L.' d-ers, 2
calenders, 1 mercerizer, 2 boilers of 'Ll ton/'
hIlour cappaci -.L,-Y
MI- I-1 1- -P ~~~~~4..--
.L1. bUlkL1 o.L t"LI LInW L.LVeUS[ILe, Uj ..11 isPr.Uplag WA1 ,)VU U30sadeUUd
looms, half locally produced and half imported, the old finishing machines
t- _4-U Pe exr_ 1Ss _ - _,, l - *- I *- - _I __ I
XWiwt a ew exra addiulons) aaaing a complete synthetic sewing thread
production department, renewing the boilers, back pressure turbines and
other seou -v dudes u reconstruction and modification oI buildings.
Auter the modernization and expansion of finishing faciiities, FITT
will increase the added value of its output (sales minus rawi materials and
services) from about N.D . 107 million in 1966 to about N.D. 187 million in
1971. The fixed assets costs excluding capitalized interest during constrac-
tion will be N.D. 70 million, of which about 40% (kUS$2,262,(000) is needed
in foreign exchange. This is over and above N.D. 80 million which the enter-
prise expects to need as working capital contribution and N.D. 8 million has
already been invested in the purchase of boilers, turbines and other service
equipment and about US5o500,000, also from MTT's own funds, in purchase of
finishing equipment. If market prospects, earnings and cash generation live
up to expectations, the enterprise will continue its rationalization, modern-
ization and expansion possibly integrating backwards to make all the cloth
it can finish.
Short Historv of the Borrower
As outlined above, MTT is a fim ade up of eig^-= fach+ t oies foun.,^d
from 1924 to 19314. They merged in the years 1946, 1947, 19149, 1962 and 19653.
A nhmber of the + mnller and older plan+s have been. liq udted. Co.-orate
management has been centralized and the finr has one workers' council. The
meraingp of facili+ieg ha beer X3 --iI't -e-ies c-,re:cla.
similar departments have gradually been centralized for the mills which arts
Innfstq_ nons. .^-M sn.+ _ ; n f-b __o,&c-4- A_ -:--:_.___A _J._.S
locAted near one anothr in ee. Te pduci n i fcil s w oUZ 1 X W E B: we re not mer Iged U-
but to an extent specialized in types and qualities of yarn and fabrics. 'n
reoIV r4ioU oUL mdore extuens-i rat.LUI za.L. nUj c,U. boII merger, ;an
modernization of certain sections, NTT engaged the services of Gherzi, Zurich
(textile consultants) to st9udy this, probably with certain limitations on the
additional investment which can be made in purchasing new assets.
Gherzi made a comprehensive study in 1965-1966 ancl it has been t'he
basis for the project. Gherzi is now engaged in a joint study with MTT on
organization and management and has started a new study of marketing procedures
and product mix selection.
APPENDIX 3
Page 4
Management
The enterprise is managed by a competent team. The General Manager,
Mr. Miro Pinter, is an engineer iith over 25 years of exper-lence. He= has
come up from the ranks in textile manufacture and is now also serving on
strategic textile planning and marketing boards in `ugoslav:La. Ihe Prouuction
Manager, Eng. Skerbinjek, is a chemist with 10 years' experLence; he is widely
read and keeps in touch with developments in the industry. Tne plants show
satisfactory maintenance, order and discipline (in spite of their age and
planning). Eng. Branko Slavinec, the finmis Financial Manager, has over 25
years of service and Mr. Skerbic, its Economic Department Mamager, has 13
years of experience. They, together with Mr. Fattur, who is the project
engineer, are capable, particularly due to the depth of their analysis and
scrutiny of different aspects of the project.
Recent Financial and Earnings Record
Balance sheet and earnings statements for the past four years (1964-
1967) are shown in Annex 1. A sumnary of the balance sheet as at December 31,
1967 is given below (in million N.D.):
Assets Liablrit:Le s
Cash and equivalent 25 Short-term bank loans 22
Receivables Lo Trade payables 29
Inventories 106 Other current liabilities 80
Other current assets 83 Total current liabilities 131
Total current assets 253
Long-term debt 32
Net fixed assets 76 Business fund and reserves 167
330 330
Fixed assets were increased some N.D. 15 million in 1965 when the
bleaching and mercerizing departments were completed, the pump-house on the
Drava River was built and the new weaving mill was erected. In 1966, as a
consequence of the economic reform measures, MTT revalued its fixed assets
from N.D. 194 million to N.D. 235 million gross. ITet fixed assets were
reduced from :I.D,, 81 million to M1.D. 77 million net as a result of increased
depreciation on outmoded buildings and equipment. In 1967 gross fixed assets
increased only sLightly to N.D. 238 million as a consequence of minor replace-
ments and the coTmmencement of the construction of new facilities under the
modernization program. In addition a small increase in collective consumption
assets, mainlyv housing for the workers occurred in 1967. Wth the exception
of suppliers' credits for looms in 1964, the new investments in recent years
have been financeid by the enterprise's ourfl funds without an increase in long-
term debt outstanding. The weighted average of MTT's debt and its average
life was aR follows:
APPENDIX 3
Page 5
Builctings 2% 15 yrs.
Machinery 3% 4-3/4 yrs.
Working capital 6.5s 16 yrs.
The l.argest amount of debt was for working capital purposes obtained
from the Kreditna Banka of Maribor which totalled almost N.,D. 20 million at
the end of 1967.
In 1967 MTT's cash position declined as a consequence of the drop
in sales and earnings. However, liquid assets exceeded the 1965 balance and
both MTT and its bankers are confident that additional funds can be obtained
if needed for the project based on the strength of current assets and the
almost 2:1 current ratio.
I4TT's financial management has been conservative and well controlled.
The relatively high current ratio and low lon--term debt nlanee the enterori.e
in a good posi-tion for future growth despite a disappointing year in 1967.
iITT's sales and earnings for the past four years are summarized
below:
(In million N.D.)
1964 1965 1966 1967
Cot.t.nn
Yarn (tons) 13.3 (850) 11.4 (480) 10.7 (67h) 11.3 (626)
Thread (tons) 15.0 (31-) 1.8 (299) 1L.8 (308) 12.3 ("61)
Fabrics (millions
of M2) 14 .5 (38.4) 155.8 (34.1) 158.8 (29.7) ,, (32,6)
Services 7.8 14.3 17.1 17.7
Totl 1 77 1 9 0^7 201. I I na
Yarn (tons) 1.5 ( 50) 1.5 ( 42) - (1) .2 ( 12)
V- V- - - (4. - s N I. Q (,i nr-r-'\ n 1 0 /r%, r-'k ^ r ('Ov \ I N-
Fac (tns 2.. L.'~kL~/C4.8 (1k-,05) 24.8 (97l.) C27.5 -')%894) C23.3 (1332)
Wadding (tons) 3.7 (180) 4.5 (201) 2.7 (105) 3.7 (:L61)
Total 307.6 22.1 30. 207.9
Apparel (000 pieces)~~~~~~~') - _?U 24 C- 1 C.2 1
Appare~~~m In n j_. Z Zmn A' AA
.Lua.L Oo'd e_u . eeo.i 234.o zz.
VI whichnnxports l..) 3.9 .8 4o.0
aid Soales 207. 222.7 230.0 209.5
Earnings 10.0 18.3 16.2 1.9
APPE;NDIX 3
Page 6
MTTts profitability as a percentage of sales reached a level of
7,% in 17v;65 and 15OU UUL decli�ned w' less thaIn 1 in 1964.7 as ia resallu o
(a) a flood of imports, especially from Czechoslovakia and lumania, (b)
credil restrictions in Yugoslavia and (c)j a general slackening in consumer
demand for textiles of the style and quality produced by MTT in 1966. The
enterprise has determined that sales were higher than norma'l growth indicated
in 1965 and 1966 in anticipation of price increases following the economic
reform. Credit availability built up retail stocks which couild not be run
down in 1967 in the face of cheap imports plus unusually fast style changes.
Having reduced unseasonal stocks and arrived at a smaller inventory, MTI
expects to make a satisfactory recovery in 1968. Volume sales in 1967
exceeded 1966. Discounts of N.D. 29 million in 1967, while offset by wage
reductions of some N.D. 13 million, was the primary cause of the N.D. 14
million decline in profits. Imports to Yugoslavia in 1968 are expected to
be lower as a result of the reduction of foreign exchange availability and
also imports should be at higher prices following recognition that 1967's
imports, particularly under bilateral agreements, were below prices in the
exporting countries.
Indicative of MTT's competitive position in the world market was
its increased exports in 1967 which accounted for 21% of its sales, compared
with 11% in 1966 and 9% in 1964. More than 75% of these exports were made
in cotton fabrics. Approximately one-third of MTT's cotton fabric sales of
32.6 million square meters were exported in 1967, N.D. 39 million was sold
to convertible currency countries and N.D. 7.6 million to clearing currency
countries.
Market, Prices and Competition
Consumption of textiles per capita in Yugoslavia W.S only 7.8 kgs
in 1966. even though it has more than doubled since 1957 (when it was 3.8 kzs).
There has been a noticeable change in the apparel used in the! cities, with
greater use of finer less utilitariann; moreG comfortable and pleasant lookinLg
fabrics, but ones which need to be replaced more rapidly. There is still
great scope for further development of textile conqumDtion fcr apparel and
household, both in the cities and rural areas. Per capita cconsumption in
Yu-oslavia now is still abnut hnlf of Western Europelq ner canita consumDtion
ten years ago. Yugoslav production, imports, exports and the resulting
estim.ate of con.srmption of the prn.cipal textiles iS given in the following
table (in million square meters- :
Textile Trade and Consumption
Local Factory
VY ales gExorts imports Consumption
1957 240 30 10 220
1961 290 45 35 280
1966 e%4 1.3r0 t0A 370
J-LJU L4J5 J.,VAj_?I
APPENDIX 3
Page 7
This shows a positive upward trend in both exports and consumption,
even though consumption has been higher in 1964 and 1965 than in 1966.
Cotton piece goods and garments account for abou-t 75% of all textiles
but the rate of the increase in their consumption averages under 5% per year
while synthetic: cotton blends, which started virtually from scratch in 1961,
are now increasing at the rate of 70 to 80% per year. The following table
demonstrates this trend:
Breakdown of Consumption of Certain Textiles in Yugoslavia
(I-n m�Llion square meters)
1957 % 1961 % :L966 %
Cotton 189 87.7 223.0 78.7 245.0 7213
vynthetip 1 r)i 214 _8 20l5 6,1
Wool type 4 1.8 15.2 5-. 17.0 5el
CGel111i1 qo e Sta!-
ple & filament 22 10.1 42..7 15.1 53.8 16.C
216 l00O0 283.3 l00e0 336.3 100.0
MT I. , v_w~ \ _ _J" L . 1..YCL -
.TT, who has about 6to 7% by vol-me (though only about 4. by
value) of the textile market, has been reducing its output of cotton goodss,
of which it hacl a 12% share in the early l96Ot
Competition
Yugodlavia has a large number of textile firms. The principal ones
ar-e �LsteU in tLI foLUlo uw�ilg table which indicates their lirnes of specialty
and their approximate overall market share.
Large Textile Producers in Yugoslavia
Market,
Firm Mlain Products Share
Tekstilindus - Kranj - cotton, synthetic, artificial yarn
- cotton poplins, creton, cambric,
velvet piece goods 7%
- sheets, handkerchiefs, bed linen
Tekstilna Industrija -
DLugaresa - twills, flannel for underwear, satin
lining 7%
- cotton primnts for dresses
APPENDIX 3
Page R
M'arke u
Firm Main Products Share
Makedonka - Stip - cotton, synthetic, artificial yarn
- grey, bleached dyed printed, cotton,
rayon and synthetic piece goods 6 to 8%
- children and ladies! white garments
and towels
Beogradski pamucni
Kombinat - Belgrade - cotton yarn
- wool types cotton piece goods 3 to 4%
Tekstilni Kombinat -
Zagreb - cotton piece goods and flannel
for underwear 3%
- synthetic piece goods
MTT Maribor - cotton and synthetic yarns
- rayon and cotton piece goods
- sewing thread 2.5%
- synthetic cloth
- wool and wool blend suitting
Other firms not mentioned above cannot be considered as directly
competitive with MTT because of differences in product mix, size or quality.
All local firms were subjected to particularly great competition
from irnorts in :1966-1967 when liberalization allowed imports naving 20 to
22% duty into Yugoslavia. Superior finish, variety and possibly the novelty
of imnorts 91CThed dOw.3n sales o� lnnl ipiece goods and forrec! mqkerq to cut
down prices by average 15% (in certain cases up to 50%) duri.ng the first
half o� *967 so .as to get rid of high inven+ories. These nrice rcut took
the form of discounts which have apparently been discontinuEtd since June
1967_
TeY+ile factories in Yugolavi he reorgcnized SO as to meP-t this
competition by modernization of facilities, more specialization and better
fabric fJn- hes.
prise is not planning any increase, rather a cutdown, in production of fab-cic.
I+s _mp_dv .<4^r.ied centlie 4-14- dv-4 AiedP-, f A-4-4idpatmn
should be a good step in enhancing its market performance. Since MTT has
qappany e vLakebnm the~ ai itn eouls"ru- one of twV orv Ull-th= rcplfr>;r
for the whole coumtry, it can reasonably hope to be finishing fabrics in
sizab.le qanUL.Les f'or ot'J h6r Liakers w-ro h-vOe ssm.lJ. sj.Ce arud. pvuu fir"us-r,
facilities. ThoLgh this is feasible, it is debatable whether the enterprise
wNIll be able to oVbtai a large markup from f-inishing of purchased grey fabric
as the profit mayr be limited by weavers giving MTT finishing work and paying
the enterprise oni a per yard basis,
APPENDIX 3
Page 9
Yugoslavia has trebled its exports of textiles by value since 1961.
Foremost in value are garments, which accounted for about 55a of total exports
in 1967. Of these, 40% went to the USSR, 23% to West GermaAy and 11% to
Sweden. Tne grey cottons are the second largest export, accounting for
about 25% of the total in 1967, with half of them going to Western Europe
and the U.S. and the other half scattered among various countries. Fne rest
is made up of cotton whites, mainly to Western Europe, clyed and printed
cottons mainly tc, Africa and the Near East, and small quantities of rayons,
synthetics and wool fabrics. The Yugoslavs have established export markets
in Europe throughl a basic barter philosophy, while they have set up more of
a one-way export traffic to Africa and the Near East.
Prices
The prices of MTT exports have been checked for a number of fabrics
and found to be in line with world prices. Current examples are given in
the following table which also gives the local price.
Price ND/lin. m.
Trade Name Construction Finish Export Local.
Nitja Nm 34 x 34 - Grey 1.75 (US 140) 2.89
24 x 23 per cm y cm
Kozana Im 50 x 40 x 1-40cm Dyed 4.59 (US 370) 7.46
28 x 37 per cm Mercerized
Barbette Ii 60 x 60 Yarn dved 3.55 (US 28�) 6.o0r
33 x 28 per cm x o(cm
Tripolis INm 314 x 3 X 90cm Print 3.44 (US 270) 5.6<
TLis shows that domestic prices are between 60 to 70% higher than
exnorts. which explains the vulnerabilitv of Yugoslav textilie finrm.S to cnmpe-
tition from abroad when imports are liberalized and the duty is 20% to 22%.
Eynnrt.i n firmc have t hpnefit+. nf:
(a) 7Y free retention quo+a increasincg to 14% Ith vollume
and dyed stuffs). This is N.D. 4 per ton of cotton (less
+h.-.. I -- 1 (Wn)N .C Ls - __--4-- -1 4 -1-.I .. - . U
t^ 1 per 1,000), 54/ A onL1 sLL.t.het0c, sLALg-vLy IlorL on oJher
fibers, 8 to 12% on cdyes and chemicals.
APPENDIX 3
Page 10
The exporting textile manufacturers get priority in their licenses
fLor i,mporta-ttion cif raw ma-tieril 's.
Prices of MTT have ternded 'o increase n past years by an average
of under 10% per year from 1963 to 1965. Certain articles rose sharply with
devaluation in 1965 while others continued vi.-tlJy unch.Aged. Little or
no change has occurred since then in the basic prices, but increases in
domestic discounts averaged i>% of' sales in 1967 as mentioned previously.
Discounts have since then returned to normal.
Market Prospects
Forecasts are very difficult at this juncture. Consump-tion wll'
continue its increase and emphasis of buyers will follow the evident shift
to better goods and synthetic blends. Unless the authorities control the
liberalized import licensing and duty, competition from imports will be
critical for the smaller fixms who have not got the means of making large
investments in rationalization and modernization. MTT's project is a com-
promise between the modernization and revamping required in an enterprise
made up of eight old, one time independent plants and a reasonable size
of investment in proportion to scale of operation and cash generation. The
enterprise has recognized in 1965 the need to modernize so as to survive,
otherwise its prospects in future years would be no better than in 1967,
when MTT broke even with N.D. 210 million of sales, after reducing wages
and related social payments by N.D. 13 million. Once the mo(ernization
plans are implemented, MTT can look forward to considerably iimproved earnings.
i)escription oI the Project
Tne project aims at rationalizing and moCdernizLng the fac;lities
of MTT as far as this is possible with limited investment in new assets.
Tne equipment to be retained, scrapped and added have been described above.
MTT has engineered the new department for synthetic thread manufacture fron
their own experience and investigations together with consultations wit+h
machine markers. Plans to diversify, complete, modernize and centralize
finishing facilities have been studied in conjurction with Gherzi, Zurich
and appear to be sound in principle. The finishing department will be
increased in capacity, and it will then finish purchased grey cloth arnd
possibly sell finishing services. MTT has not planned, at this stage, to
produce the additional fabric to bring its output of grey cloth up to whe
capacity of the finishing department. As long as the market situation per-
mits, the plans for the finishing department, which are worked out together
with the textile producers' federation as part of a national specialization
plan, should be successful. Further rationalization and expansion along
appropriate lines, once the project is completed, would be possible and
compatible with the current program.
APPENDIX 3
Pag 11
The schedule of execution of this expansion has been modified
to make it more in iine with prevailing circumstances. It :iS now eected.
that full implementation will not take place until 1971. Improvement in
qulA-ity of finJbhing is likely to start+ byt the erd of 1�68 as
of equipment purchased with the enterprise's own resources. Synthetic
thread production could attain hal1f its capacity - 1970 h'le finshng
of purchased grey cloth would start in 1969 with 5 to 6 milli on square
meters Wi o aJbou 5: J.L 970 f i 'U. .InaJlt, reac.Ling-%)J r,illi
squre meters in 1971 - over and above finishing 30 million square meters
I o f 4. - vT ovmi L f.cu.. J. Sa*les are Co.recasted to reachI N1.DU. 422 r U.L.LVJU
approximately. The enterprise has projected 1968 production to increase
to earl'ier levels. However the mission found the 196Z projections opto-
mistic and the financial forecasts have been noted accordingly. The mission,
however, finds the project should not be delayed by less than anticipated
production in 15968. By 1969 the forecasts appear obtainable.
At full capacity of N.D. 422 million of sales, MTT will need
to import 407% or' about us$6.5 milMlion of raw materials annually - us$h4.6
million for U.S. cotton, fibers, wool, dyes, chemicals and spares coming
from convertible currency areas and US$1.9 million for Egyptian cotton,
other fibers, scme wool and chemical from clearing areas. The local raw
materials, 60% c,f the total requirement, is mainly locally purchased grey
cotton and rayorL bloth, for which fiber is mainly imported by MTT's suppli.ers.
The truly local supply of material is a small quantity of lower staple
cotton, rayon staple and filament, all the purchased grey rayon fabrics,
and a part of the cotton and all the added value in locally purchased grey
cotton cloth. T'his adds up to about N.D. 70 to 75 million (35%') truly local
material, while N.D. 140 million (65%) are imported raw materials, imported
by MTT or their local grey cloth suppliers.
As against this MTT hopes to export about N.D. 100 million of
fabrics, about two-thirds of which go to convertible currency areas and orne-
third to clearing areas. This covers MTT's own requirements (N.D. 82 million)
and leaves some surplus. However, this evidently does not cover the overall
foreign exchange! requirement of MTT and its suppliers.
As a result of the modernization. MTT exDects to be able to
reduce its labor force from 5,700 to 4,700 in spite of an increase in value
added over 70%. This improvement is not unreasonable when one realizes
that the equipment to be scrapped is over 25 years old.
The productivity is expected to improve as shown by the following
table:
APPENDIX 3
Pae,, 1 9
Actual Forecast
1965 1900 1967 1971
Spinning (yarn average metric is
38 = Ne 22.4)
Machine (grm/sp/hr) 15.40 15.30 15.110 16.20
Labor (kg/manhr) 2.35 2.40 2.25 2.50
Weaving (adjusted to 1 m width -
2,600 picks/mr)
Machine (meters/loom/hr) 2.85 2.95 2.85 3.60
Labor (meters/manhr) 5.85 6.10 5.70 9.20
The productivity in spinning is improved little because relatively
snall additional investment is made in this department. Weaving productivity
shows considerable improvement, both in machine and labor utilization. MTT
intends to reduce labor gradually by not replacing dropouts.
The productivity after investment is compared with other countries
(based on an interpolation to the yarn count and fabric mentioned above) in
the following table:
Machine Labor
Spinning Weaving Spinning Weaving
gm/sp/hr m/loom/hr Kg/manhr m/manhr
MTT - Yugoslavia 16.2 3.6 2.5 9.2
Coltejer - Colombia (1965) 18.0 L.3 5.5 2.L0
U.S.A. (1965) NA NA 9.8 54.0
La Internacional - Ecuador (1967) 14l 3. 30 9.5
This suLggests that MTT will still be behind international producetrsr
even in machine utilization, since most of its remaining machinery is still
old and outdated.
Labor wage rates in MTT are hasic abumt TtS$600 per year for a
spinner or weaver; the overall average annual basic wage was US$700 in 1966
and US$600 in 1967, when Twages were hi+at bh o-f' 1eT.Jr r.nirns. RBelated
social benefits were about 55Z additional. rTages in Colombia are somew^>hat
higphe�r thnn this bascic- -rate -x th 1nc-fi, LI nnj"e b 80,; nAddijonall
and. they are 6 t,o 10 times as much in the United States.
Cost of the Project
T.he e-st+nateS Of t-he c-ost of the- -4-4ec are set4 .14 Oli elow. os4t
**~'-~' L ~ .I~' ~"~ LI*~ ~ '..' LL~kJ Jj~. . Wj %,V .L 1 1 LI ~Il U U L4AJWo 11U jL,
of the equipment is likely to come from Western Europe and the U.S. Import,
duties are about I33. Contingency alown-ces for buuIldigs and equipment have
been calculated, based on price increases since estimates weire made and making
soIIme Callowan e for vardiatiOnb-,
APPENDIX 3
,Page 13
MTT can manage to operate with N.D. 83 million of fresh funds for
working capital if they do not have to let inventories reachl the late 1966,
earlv 1967 levels. when thev carried almost three months in process and three
months finished goods. Since half of MTT's turnover in 197L will be goods
made from pnurchaed grrev cloth. the time needed for turning over working
assets may well be much shorter than it is now.
MTT has not considered the cost or schedules of further expansion
for the timpe being
MTT ainGot
TTA000 N. D. Million
Foreign Local Total
Land
T' 1>-0 = 28.
Boiler Room/Power Plant (heating and
1-_-_4 44- I/ 'P-..P- -4-4s me 4 L) l
elVect rictJ-.L L' I , T eao, water t = U 6.4
Contingency on buildings and services 1.2 1.2
Machinery and equipment
._ L I " 'ITT' J e4 -1 '7
.mPorted kC rloc'l spinrnLIg aUdUions 56.1 ]J.I (.
weaving 543.8 5.5 12.3
�1i.Lsr.g v.g U rig
equlpment fr modern-
ization ou. 6 . .2
synthetic thread
production 5L0.8 2.4 9.
wool and poly/wool
weaving and finishing_/184.4 .5 2.9
1.962.1
Insurance, freight, customs and erection - 11.8 11.8
Contingency of machinery 300.0 3.5 7.2
Subtotal 2_262.1 27)_1 _73
Total ]Fixed Assets (excluding
capitalized interest during
construction) 2,262.1 41.9 70.1
Working Capital Requirements - 83.0 83.0
1/ Other than Phase 1 boiler/generator (N.D. 7.5 million) and Tabor water
treatment N.]). 0.19 million already arrived.
2/ Other than US$h67,OOO of equipment already purchased from MTT's own
resources.
3/ Other than US$22,500 of wool finishing equipment already purchased from
MTT's own resources.
APPENDIX 3
Financing
A summary of MTT's estimated financial requirements and sources
during project construction is given below (in N.D. millions):
Uses Sources
Project (including working Funds available - 1967 9
capital) 126 Net earnings (1967-15970) 53
Renewals and replacements 5 Depreciation 66
Debt repayment 24 Long-term debt
Reserves and other allocations 20 IBRD (US$1,'962,150) 25
YIB and others 22
175 175
Detailed earnings and cash flow projections for 15'68-1972 together
with the major assumptions are given in Annex 2.
Estimated project cost includes working capital increases of N.D,, 52
million during the construction period. Investments in renewals and replace-
ments are minor as this is covered by the project which is essentially a
modernization program. The project investment in fixed assets will add about
39% to gross fixed assets at the end of 1967. Of the N.D. 170 million required
during the construction period, N.D. 128 million is to be provided from the
enterprise's own resources. with its local bankers reacdy to provide additional
working capital financing if necessary. MTT has excellent banking relationi-
ships in Maribor and Liubl-iana as well as with the YI13.
The proiented net earnings available for the nroiect are conserva-
tively stated by using prior years' earnings as is the custom in Yugoslavia.
v'Fnrngs forecasts have been reNi sed to allow reasonable timp for nroject
implementation.
MTT's low long-term debt to own funds ratio of 1:5 will still be
conservative after the ITBD loa n iS included; at which tim-e it would be about
1:3, a further indication of the enterprise's conservative financial management
An.d Mhi14+-X7forn 4'ut+11- groswtth.
TP-prl-e- ar.d Debt; Ser-Irce Co=^ern"ft
Ea..?&ings forecasts %0"4. (LArn. 2) are based on the production. program
and the market forecasts established by MTT and reviewed by the mission. In
1968 tu .L707 UrWILLL96 e,.g are eC UUed tUo recoiver towards previous levels c"eir
1967's abnormal results. Forecasts for 1970-1972 are based on the increased
prULU% Ui.L.1J retIuLU L11r,5 L.Viii the begi xiing ofi 0t.hwe provjteciti -wL chIII gLes LIhe ente.;r-
prise sufficient time for ordering and installing the equipment after financing
.3 Z~~-- ~ - rl It rLo
is obtained. At capacity iuTT-s sales are projecLed to increase 6510 over 1'2uu,
Debt service is lowest in 1968 at a comfortable 2.8:1 and increases satisfac-
torily to 5.6:1 in 1972.
APPENDIX 3
Conclusions
MTT is an example of an enterprise which has found it necessary
and advisable to modernize in the face of the Economic Reform. Tne effects
of liberalization on the textile industry - reduction in oulnoded stocks
and modernization of production - was foreseen by I4-TTis management in 1965
when it contracted with the Swiss firm Gherzi for a stucdr of the enterprise's
requirements. By supporting MTT the IBRD would assist rationalization which
prompted the Reform. The benefits in earnings and per capit-a productivity
indicate the soundness of MTT's plans. The project is viable and should
increase the potential foreign exchange earnings of MTT withiout adding to
the volume of Yugoslav exports.
IFC/LAEA
July 26, 1968
ANNEX 1
Mage I
MTT
Comparative Balance Sheets
(In million New Dinars)
As at December 31 1964 1965 1966 1967
ASSETS
Current Assets
Cash, banks and near cash 18.3 18.9 33.9 25.2
Trade receivables 18.7 24.2 28.2 39.5
Inventories
Raw materials and supplies 24.4 34.0 Y 37.0 27.5
Semi-finished products 26.8 40.6 Y 33.9 51,2
Finished nroducts 16.7 18.6 48.2 27.4
Total inventories 2/ 67.9 93.2 :119.1 106.1
Other surrent asts 2/ 29.9 L2.1 54.5 83.2
Total Current Assets 134.8 178.4 , 3 25.4
Gross Fixed Assets
T.nnti =1 .5 .5 .5
Buildings 44.2 49.1 80.5 80.3
Machiner'y n' and nn Imn-nt 14 108.7 -L15.3 1h0.2
Fixed assets under constructio, 4.1 5.4 .8 6.3
Collective consjm.ption assets _/ 260Lh 31.2 7-6 10.9
Total Gross Fixed Assets 179.3 194.9 234.7 238.2
Tess depreciation 107.3 1 A.8 157.5 ]i61=6
Net Fixed Assets 72.0 81.1 77.3 76.6
Total Assets 206.8 259.5 312.9 330.6
LIABILITIES
Current Liabilities
Short-term debt to banks 9.6 12.9 20.0 22.0
Trade payables 4.9 6.4 20.3 28.:3
(n 9 i II 7'1 % n. '
uiner current liaublitLL es' 'P'- 2L� I L .u UV.I
Total Current Liabilities 67.7 70.8 111.3 131.t)
Long-term debt 32.9 36.3 33.4 32.3
Funds of the Enterprise
Business fund 82.1 ioi.2 J1)_.L4
Reserve funds 5/ 6.3 7.6 9.0 6.2
Collective consumption funds _/ 20.8 26.6 7.8 7.2
Total Own Funds 109.2 152.4 168.2 167.3
Total Liabilities 206.8 259.5 319.9 330.6
Current Assets/Current Liabilities 2.1:1 2.5:1 Z.1:1 l.9 J.
Long-term Debt/Own Funids 23/77 19/81 17/83 16/814
IFI-/LAEA
i-ay 22, 1968
AN1\EX 1
MTT
NvUotesj to %JU1Co at B '^rL.ce. VZ LiAZU LO Zt
J Raw materials and semi-finished products revalued in 1965 following the
Economic Reform measures and devaluation of the Dinar. Revaluation
totalled N.D. 14.4 million.
2/ Includes sales invoiced but not paid, prepaid expenses, inventory adjust-
ments and other current assets.
3/ Increase in fixed assets in 1966 was due to revaluation as a consequence
of the Economic Reform.
4/ Includes sales invoiced but not paid, accrued expenses and other current
liabilities.
i/ On a basis of 2% of average working capital for five years up to a tota;l
of 10%.
6/ Major portion of collective consumption assets (mainly workers' housing)
transferred to separate enterprises in 1966.
IFC/LAEA
May 22, 1968
ANNEX 1
P-age 'e
~ivi1 I
Earnings Statements
(in million New Dinars)
1964 1965 1966 1967
Sales 1/ 207.7 222.7 230.0 209.5
Operating Costs
Materials apd overhead 106.4 115.6 131.3 137.3
Net wages�.' 25.0 32.7 40.6 32.4
Related social pa;ments 19.0 22.5 22.0 17,0
Taxes and contributions 34.7 22.6 4.9 6,,2
Total Operating Costs 185.1 193. 192, 9
Depreciation 3/ 9.6 8.7' 12.8 13.8
Interest 3.0 2.6 2.5 2.6
Net Earnings from Operations 10.0 18.0 15.9 ,.2
4,
Non-operating earningfs 4 .4 4.2' 1.1 14.0
Non-operating expenses 54 39 * 8 _23
Net Earningps 10.0 18.3 16.2 1.~9
i/ nn hbis of' np-i sales= Deerease in sales in 1967 due to abnormal discounts.
�2/ WTages reduced somTe N.Dn 13 million below xpner-tea level in 1967 as a conse-
quence of reducecd earnings.
3/ Lbpreciatio rates are/- n p.a. on biilcrings, 8% on -sninn:inp machinery
and equipment, 10% on weaving and finishing equipment and 20% on automobiles.
! Non-operatin earnings~ intuiide- interPet earnedi on bank deposits, discounts
received and other income.
.,. --p-r/ing - enses include som.e r;iscmints grantPej adiuitm-nnt- and other
x:, 11o -o*..i.. tfJe S O ��pez.--, --u- �
expenses.
IFC/LAEA
May 22, 1968
ANNEX 2
Page 1
MNT
Financinl Forecasts
(In Millions New Dinars)
IO^c 19O6O 1970 1971 1972
Earnings Statement
Sales Revenue j 254.0 260.0 333.0 422.0 422.0
Oroerating Costs
MateriEIls & Overhead 150.0 151.0 210.0 279.0 279.0
Net Wages 42.0 44.0 48.o 53.0 53.0
Related Social Payments 23.0 24.o 26.0 29.0 29.0
Taxes ^- Contribiitions 6.0 7.0 7.0 9.o 9.0.
Total Onerating Cost 221.0 226.0 291.0 370-0 370.0
Degreciation 15.0 16.o 17.0 18.0 18.O
Interest (Exclurding Capitalized Interest) 3.0 3.0 4.0 5.0 4.0
Het Earn.ings fYom Operations 150 o 15.0 21.0 29.0 30.0
Sources and Applications of Funds
Souices
Funds Aval.iabe 2.v - - - -
Net Earnings (,Previous Year) g/ 2.0 15.0 15.0 21.0 2u.0
Interest Charged During Year 3.0 3.0 4.0 5.0 4.0
Depreciation 15.0 16.0 17.0 18.� 10.o
Increase in Long-Term Debt:
1BPD (41,962,150) (N.D. 24.5 million) - 20.0 5.0
YIB and others - 16.0 4&o - -
Total Sources 20 72.0 45.0 44.0 51.0
Application
Wew Investment:
Fixed Assets (Foreign) - 20.0 5.0 - -
Piyxd Assets (Tocral) 1.0 27.0 3.0 9. 5.0
;working Capital (Including Contingencies) 9u 10.0 23.0 19.0 22.0
Total Investment 10.0 57.0 31.0 BP o 27.0
Benewals Y Reolacements 5.0 - - - -
Oher ,'ixed Assets
Interest:
Existing; Lcng-term Debt 2.0 1.0 1.0 1.C 1.0
IBRD 00 - 1.G 2.G 2.0 1.0
YI3 and othlers i/ - - - 1.0 1.0
Short-tern. Interest 1.0 1.0 1.0 l.0 1.0
Total Interest 3.0 3.o b.0 5.0 4.0
Frincipal Repa:yments:
Existing Long-term Debt 6.0 5.0 4.0 4.0 3.0
IBRD - - - 1.0 1.0
YIO and Othelcs _ - 2.0 2.0 2.0
Total Reparments 6.o 5.0 6.o 7.0 6.0
Allocation to Reserve and Skopse Fund 4.o 4.o 4.o 4.0 3.0
A.Vi tional Worldkng Canital and Contingeincies 1.0 3.0 - - 11.0
Total Appl'cations 29.0 72.0 .0 4.W 51.
L-ng-ter- Debt Service Covern-e (Times) 2 8 L o 3.6 X .
1/ Based on the assumption that sales equal production in each year. 1FC estimates 1968 sales
may be only N.D. 230 million and earnings N.D. 7 million. The reduction in earnings could
be ofse by a reducton i th -oL cpt Lra p,-j0ected for 1968 which appears
to be increasing.
2/ Earned funds are released for use only in the following year.
3/ Interest at 7%, 2-1/2% year grace period, repayable in 24 sesi.-annual insLallnai.n.s.
E/ Bank loan estimiated at terms, duration, etc. similar to IBRD. 9Sppliers credits of 7-8% with
20% down at signing of contract and balance in 4 to 5 years.
IFC/LAEA
I...- -0 , AA
ANNEX 2
MTT
ProdUction and Sales
15967 Actual and ForecaEsst UntiL 1972
7Tn millions of New DILnars)
1'767 1968- 1969 1970 1971/1972
Qty. N,.D. Qt- N_ Q- Oty, M.D. Q. N.D. y. i.D.
Cotton and rayon yarn (cmbed & cardled) tonts 498.o0 !5.2 1, 195.0 13,2 1L,195.0 13.2
Synthetic yarn " 128.0 6.1 186.0 7.8 186$.0 7.8 200.0 8.9 200.0 8.9
Cotton sewing thuread " 261.0 12.3 2147.0 11,,7 230.0 10.9 100.0 4.7 100.0C 4.7
Synthetic sewing thread - 26.0 4,.5 50.0 8.0 200.0 25.0 200.0 25.0
Cotton fabri.cs million M'4 24h8 102.7 :L8.1 86.9 18.0 88.L4 17.0 86.7 16.6 87.8
Rayon fabrics (spun & fiLLament) 6.7 3 3.8 6.5 42,0 6.5 38.2 6.6 32.1 7.0C 32.7
Synthetic fabric:s 1.1 12.7 1.9 26,.7 2.0 23.8 4.5 53.6 6.7 62.6
Wool., wirsted fabric:s " 0.7 17.1 0.5 16,,2 0.5 16.2 0.5 16.2 0.3 6.7
Poly/wool fabrics N 0.1 6.1 0.3 10,,0 0.3 10.0 0.3 10.0 0.5C 12.3
Finishecl fabricsi frcm plurchLsed grqy
cotton ancl rayon n _ * :LO.9 24,.7 1:2.6 33.1 17.1 85.5 30.55 170.0
Dresses, blouses, sheetis, made tup 3.2 5.8 5.8 5.8 8.9
Other: Wool ancd waste yarn
Matting servrices, etc. 21.6 4h.4.9 4.8 2.0
Total 220)8 254, 260.a h33. 421.6
Export sales
- Convertible Currencies 39.0 44.8 44l.B 50.0CI 615.0
- Clearing Currencies ;,8 15.0 35.4
46i. 7 48,,6 48. 6 65.0 loo.4
1/ See footrnote 1/, Amnex 2, page 1.
May 22, 1968
APPENDIX 4
Pago
E.I. Nis
The Borrower
The prospective borrower, Elektronska Industrija Nis (E.I. Nis),
manufactures a wide range of electronic components and finished products,
and is the largest producer of such items in Yugoslavia. The main prodiction
facilities are located in plants near Nis and Belgrade. Nis is situated in
Serbia approxLmately 230 hn southeast of Belgrade on the Belgrade-Sofia
highway.
Bv value of sales, the two most important products are televi.sion
sets and radio receivers which, over the past five years, have accountedi
for approximately 60 and r 7% of tntnl ino.c-nd les respectivelV
During this period the sales of "professional" equipment such as tele-
printers, deck clcallators and n-logule wndi A-1-,+ 1 co-W.1t-, Aer4ces hae
become increasingly important and in 1967 these items accounted for 7.7%
of total invJocied oales. E.I. [ i, is the largest and, in some instnce,
the only Yugoslav producer of electronic components such as radio tubes,
tran.sist-ors,P 940V. WLLA -ides, capacdtors and rees4st-r s .mierdhaan"-Ee SQ-"les ofL Whe ;De
components have accounted for approximately 3.6% of' total invoiced sales
ovrer the last five years -wit-h the largest part of component producL ion going
into the enterprise's own products.
Total invoiced sales in 1967 amounted to some N.D. 583 million
(T 6.64 Lmi-1on) of - whjCl T ND. 48j5 mllion "U3.5O miii.iono were export
sales; 60% of export sales went to convertible currency areas, primarilTr to
4. r4
vu ermany.
The enterprise employs about 13,000 persons and manufacturing faci-
lities are located in over 20 plants with a total coveredL area of approrima-
tely 116,000 sq. m.
Tne enterprise:s long-tenm development plan consists of 24 separate
projects requ:Lring a total investment of about N.D. 545 million (US$43.5
mi lon), (including approximately US$114 milUion in foreign exchange) for
new fixed assets and working capital (N.D. 111 million). Some of these
projects have already been implemented and some others are under implementa-
tion. IBRD has been requested to help finance two of these projects - the
expansion of the semi-conductor manufacturing plant at Nis, and the exp;msion
of the resistor and capacitor plant at Avala near Belgrade. The total invest-
ment required for these two projects is estimated at N.D. 53 million (US$4.2
million) including US$1.76 million in foreign exchange which IBRD has been
requested to provide.
Prepared by A. R. Perram and M. V. Dehejia.
APPENDIX 4
Page 2
History of Borrower
E.I. Wis was formed in 1962 by the merger of tEo existing enter-
prises, Zavodi R.R. of Nis, founued in 1947, and Belind aCI Belgrade whlch
was established in 1959.
Zavodi R.R. and Belind -were earlier formed by the merger of smaller
units such as hikila Tesla, Pupin, Pionir and Avala whichi were more in the
nature of development laboratories rather than commercial. manufacturing units.
Zavodi R.R. was established primarily for the assembly of radio receive:rs
and production of x-ray equipment. Manufacture of TV sets commenced in 1958.
Belind concentrated primarily on the production of components for electronic
apparatus and also manufactured telephones, railway signaling equipment and
electronic instruments.
The enterprise has in several instances purchaset ei' 6iJ. know-how
from leading electronic equipment manufacturers in EuIpe aud Japan. For
example, the manufacture of electron tubes was established in 1960 with the
technical know-how of Philips of Holland. This departmernt currently manufac-
tures about 8 million tubes per annum and it is planned to expand its capacity
to about 15 million in the next few years. E.I. lHis is the only producer of
electron tubes in the country.
Maniufacture of electrocardiograms was initiatecd in 1963 with know-
how from Hellige of West Germanyx E.I. Nis has purchasecl mow-how from
Siemens of West Germany for the manufacture of a number of products inc:luding
x-ray apparatus, railway signaling eauipment and h:igh freauency carrier commu-
nication equipment. Tape recorders assembly was started with the help of
Czechoslovak know-how.
In 1967 the enternrise entered into tpchnncAl xiarPtmTnt. with Mlant-I.
of Japan for the manufacture of high frequency ceramic capacitors and with
Philios of Holland for the manufartaire Of noft fe'r-rite Crer'p Th.es prOcects
are now under construction.
Early in 1968 the enterprise was reported to have finalized plans
to take over the Rudi CaGaven plnnt at Banna Lka, Rd;i Cajavec manuf<actures
TV sets and some electronic components and snall electrical equipment su.ch
a-, horneq relmnv - r.r mw+ipw .c c>+i * f, n -ii tvnKjle
Management
The General Manager, Mr. Vladimir Jasic is a graduate electrical
e eh b w w the enterprise since 1956. By delegating authority
to the department heads, Mr. Jasic has been able to manage the complicated
orgnization a-UILWL-ough rapid growth has brought with it problems such as poor
plant layout in such areas as television assembly and component manufacture.
APPENDIX 4
Mr. Jasic is assisted by a top management team of three - Mr. Sehusch Sascevic,
Commercial manager, Mr. Parkajic, Chief of Production andl Mr. Anostolovic.
Development Manager - which is responsible for the day to day operation of
the enterprise. Mr. Jasic has two technical advisers; MY- Acnimovic nd
Mr. Cerovac, who are electronic engineers and who advise the enterprise
mainly on new products and process HPvel.nnpment and design2. Mr. Aclm..oiTc
is the Head of the Electronic Faculty at Nis University.
The Accounts Department, headed by Mr. Zivic and the Sales Departnernt
headed bDy Mr. Antic, report to the Commercial Manager.
Mr. Djorjevic is in charge of new investment programs under the
overall supervision of the Development Manager. The Development Manager at
present also supervises the work of various research sections attached to
the operating departments. The enterprise currently spends about N.D. 15
million annually on research programs and has a staff of about 300 engineers
and 600 technicians. It is proposed to centralize all research activity in
one department.
Recent Financial and Earnings Record
Balance sheets for 1964-1967 are shown in Annes 1. E.I. Nis'
balance sheet as at December 31, 1967 is summarized below (in million N.D.):
Assets Liabilities
Cash and equivalent 72 Short-term debt 110
Trade receivables 210 Trade payables 160
Inventories 312 Other current liabilities 234
Other current assets 166 Total curren+ 1iabi_+-es !(3
Total current assets 7605
Long-te.n. debt 21h7
Net fixed assets 207 Own funds 2:l6
967 90Ej
The c'ntM fi.nnnnvim hj ^;st of r he en.terprise shows it contiuous
growth and its reliance on debt financing. The merger of factories in the
earlier years has' givren wy tio capacities and diversifi-
cation of pro(ucts. In addition to the varied line of electronic goods, E.I.
also A-Ir- 4w1 antI- *r. 1 967 v.e Ar I r , --l ___
ratio of 1.5:1. and its long-term debt relative to own funds of more than
50/5O indicates both its ability to borrow and its need for longer term
financing. The recent expansion program has resulted in the enterprise and
its - I 0 , pr..ariY -L B bL L1g hard pressed ifin the necessary
foreign exchange to complete the two plants requesting IBRD loan funds.
APPENDIX 4
Page 4
The major investments to date under the expansion program totalled
N.D. 156 millIon over the past four years (excluding N.D. 34 million in
revaluation cf assets in 1966). These investments were financed in large
part by the increase of N.D. 133 million in long-term debt. However, a large
part of this debt was for working capital which freed earnings for the expan-
sion programs.
Under the programs, US$14.1 million in foreign currency credits
has been approved in principle by the Y.I.B. Of this, fumds have been pro-
cured in the amount of US$5 million with suppliers' credits (US$2.6 mi2licr)
and a Y.I.B. loan from its own resources (US$2.4 million) at 5.5%-6% fcr
5-7 years. Ihe balance of the expansion program is to be financed with the
proposed IBRD loan (US$1.76 million) and credits for the cathode ray tubes
(US$7.4 million) when the tube process is decided. In addition to its foreign
currency credits, the enterprise utilizes long-term credits from several
Yugoslav banks for fixed assets with repayment terms of from 5-10 years and
for working capital from 10-25 years.
At the beginning of 1968 credits for over three vears (consiciered
medium term) were composed of the following:
N.D. 000's
Dirnar cred itS for fi-ri Q xd aset - 9 year
average term 67. 4
Foreign currency credits for fnd asets -
6 year average 15.7
Wrkieng capitol + r- -nA4+ 12 yrn a-5rage 850 7
168.8
The average interest rate for fixed asset loans was 7.2%, ranging
from 3 to- Randn+he average interest rate for workng loans was
7-1/4h,., ranging from 6- to 7-3/4h5-.
E.I. Nis' current position has been tight in recent years basically
as a. rs t .ofa W gro-wng need �t0 fLiLndce {. WhoeS..sLe c��eI1S Whli i iLirii
have granted credit for retail sales, particularly of television sets. Grow-
ing volVum with increasing inventories of raw materials ana producTilon nave
also contributed to the relatively low current ratio. In 1967 the enterprise
vwas success'l in ma-intaining its current liabilities at the 1966 levei and
the prospects of an improving current ratio appear good with increased cash
flow in1 tLhe coming years. witn a reduction in snort-term debt in i967 the
enterprise is in a good position to mobilize credit for retail sales which
it has alreacJy done in 1968 in conjunction with the broadcasting industry.
Earmings statements for 1964-1967 are shown in Annex 1. Pro(uction
of major products, sales and net earnings are summarized below:
APPENDIX 4
Page 5
Past Production, Sales and Earnings
1964 1965 1966 1967
Physical Prodkction
Finished Goods
TV sets - 000 units 214 195 214 192
Radio sets - 423 409 286 172
Tape recorders - 3 1 2 3
Telephone sets - 37 23 29 32
Misc. electronic
equipment - tons 105 109 176 1L89
X-ray sets - 000 units 219 230 205 1L80
Electro-me dical
equipment - tons 55 61 63 74
Components (for merchandise sales)
Electronic tubes - 000 units 5,118 6,883 7,322 7,320
Transistors - " 680 834 970 1,250
Diodes - 2,612 3,340 2,240 2,320
Condensers - 13,260 15,23h 14,994 15,1388
Resistors - 2,722 2,476 1,584 4,168
Production and Sales Value (In million, N.D.)
Value of production 566.74 527.4S' 634.40 617.69
Invoiced -je; e72=65 h18.71. 360o8 58.3.o5
Paid sales 456.61 387.66 508.41L 580.o8
Exports and Domestic Sales
Exports - Convertible Currency 13.03 41.09 28.98 33.36
= Clear-ng Currency 3 .L3 73. )L1 . 1 1 10
Total expyort sales 16.46 74.82 70.23 4)3 55
Domestic sales 440.15 312.84 438.18 571.94
Total 456.61 387.66 508.41 6210.49
Net Earnings 47.2 18.4 53.5 28.3
1-.eunevn paternof prdcinin de eicent, in 196V4 and 1J-9655
is reported to have been due to hesitant market demand in the face of devalua-
tion and IC O&Luic Refo-L. Despite the advent of liberal,zed imports au lower
prices, 1967 showed higher invoiced sales which, thanks to hire - purchase
credI and lower prices have reportedly increased in 1968. In looking at
invoiced sales a steacdr pattern of growthi with the exception of 1965 is notice-
abie. Production on the other hand nas shown a tendency to fluctuate inoica-
ting the difficulty in forecasting market demands :in such a rapidly developing
industry with new technology and competition from import's requiring constant
attention to product development and longer production rmns.
APPENDIX 4
Page 6
Earnings which are based on paid sales show large fluctuations
whinch are acco-unted for by t of opera'ing eenses to rnaiaich tnie
decline in sales in 1965 while they rose more than the increase in sales
in lQ67. ThiS together with increasing aupreCLation and interest costs
has created an uneven pattern which the enterprise expects to overcome
wi th i+s increased sales, the improvements brought about by the expansion
programs and its ability to manufCacture more of its component parts. Irn
1967 the drop in earr'ings of N.D. 25 million despite the increase in sales
of N.D. 112 million was attributable to increased wages, taxes, depreciation
and interest hviich all increased more than the approximately 25% growth in
sales and material costs.
Yugoslav Electronic industry and Market
Ihe electronics industry developed in Yugoslavia after World War II,
In the early years there were several small factories which essentially carried
out assembly-type operation of simple products such as radio receivers, tele-
phones, and telephone switching equipment. Today there are four manufacturing
units:
(1) E.I. Nis - Nis, Bosnia
(2) Iskra - Kranj, Slovenia
(3) Rudi Cajavec - Banja Luka, Bosnia-Herzegovina
(it) Radio Industry (RIZ) - Zagreg, Croatia
As stated earlier, the Rudi Cajavec plant is being merged with
E.I. Nis. It has also been reported that RIZ has reeentl;V meraed with 3:skra.
Thus, there wiJ.1 be only two competitors of electronic equipment in Yugoslavia.
RIZ is primarily a manufacturer of connumer electronic enqupment such as raM o
and TV sets, tape recorders and phonographs. In 1967 it produced about 27,000
TV sets, 2,000 radio sets, 21,000 nhonopraphs and ,00 tape recorders. Iskra
is primarily a manufacturer of commercial and industrial equipment such as
telephones ancd electronic measuring instru-ments. It also makes radio Sets
(approximately 60,000 units in 1967) and components such as semi-conductors
(1.5 million pieces) and capacitors and resistors (13 million peces).
By value of sales, the major products of the Yugoslav Electrorcs
Industry and E.I. Nis were consumer goods like TV and radio sets. The follow-
ing table shouis the total proOuction and apparent consu.mption of these ,item
in the country during the past five years. For comparison, the production
of E.I Nis is also showr.:
APPENDIX 4
P~" 7
Domestic Apparent- Production
Production ImpOrts ExporLP S Consumptio E.InNis
TV Sets
1963 117,052 11,973 9,870 119,155 91,106
1964 2.o)49 6:5)R8 29X650 2i18Jl h 213,783
1965 253,516 8,194 62,426 199,2'48 195,166
I966 2ORA r'71 1'o vI8R )IR 29)l A7 21-A538
1967 252,400 12,650 22,455 249,595' 191,589
Radio Sets
1963 377,254 U,)450 10,820 377,88)4 288,850
1964 527,611 2,151 46,876 482,886 423,138
1965 504,439 14,686 92,366 )426,759 409,307
1966 369,069 53,157 36,416 :385,810 286,015
1967 239,862 141,396 37,455 343,803 171,733
(Source: Zavod za statistiku SFRJ)
The table shows that over the past five years, E.I. Nis has account-
ed for. on an average. approximatelv 77% of the country' s TV production and
78% of radio production.
The table also brings out the adverse effect of the Economic .Reform
on the TV a;nd radio app2ratus `-indutrv. The phenomenal rise in radio inports
in 1967 represents the large iJr.ports of portable transistor radios mainly
fnm Japnn. Also h ecause of the crnr-t squeeze in 1967. demand for consumer
goods such as TV and radio dropped noticeably and manufacturers built up
substan.tial invento+ries. Tn MNmemmlr 1967- radio nnd TV hroadicasting stations,
E.I. Nis, its bankers and its dealer network set up a special fund to provide
credit to purchasers PO n1 sl+v ha,,re Iee very ,1ov r nc r nand in the first
two months, E.I. Nis was able to sell 100,000 TV sets. The system enables
a customer to buy a TV set by putting 5O Ao-, - &nd T +the balanrce over 20
monthly installments. Credit sales for radio sets are expected -o be iriiti-
ated inA---;I98
iu-u.-x 2- shows E.I. AMiss s-azles projections for t! -, tfie eas
TV and radio sets and tape recorders are expected to aczoix;. for over 70% of
uotlal Su-les. fLle enterprise hat-s bUas-ed tle~se p,-UJect-ions on tho atst co:nslm.p
tion pattern, and ta'King into account the effect of the new credit sales
sy-stem introduced in No-vem-lber 1967. The n- LUmber of sets -Lnr use in the county
at present is estimated at about 1.1 million TV sets and 3.7 million radio
sets which on a per capita basis is conside rably below tue levels preraling
in the neighboring West European countries. The prevailing.duty on imports of
radio and TV sets averages 26%. Provided there is no large scaJ.e import of
cheap foreign products the enterprise should be able to achieve its projected
sales.
APPENDIX 4
Page u
E.I. Nis' chief exports are TV and radio sets and electron
tubes. Tne export incentive premium is 12%. In addition to exporting
through agents such as Invest-Import, Jugoelectro and Electrotehna, E.I.
Nis also exports directly items such as components to Philips in Hollanc
The largest importer of TV and radio sets and electron tubes has been
West Germany. Czechoslovakia has also imported significant amounts of
radios and tubes have been exported to Rumania, East Germany and the
United States as well as to Holland.
Description of Project
The IBRD has been requested to finance two projects which form
part of the enterprise's overall development plan. These projects are
the expansion of the semi-conductor manufacturing facilities at Nis and
the expansion of the capacitor and resistor manufacturing plant near
Belgrade.
Semi-conductor Project
Semi-conductor production commenced in 1961 with a total capa-
city of 600.000 german_-um transistors and 1,330,000 silicon diodes on a
two-shift basis. The department occupied approximately 1,500 sq. m. of
factorv space and empiloyed a labor force of 300 persons. Producction
capacity has been gradually expanded and currently the department has a
nominal capacity capable of producing approximately ),.3 million elements,
1.3 million transistors and 3.0 million diodes per annum.
The enterprise has under implementation an exparnsion program
to set up a development -Laboral, Ao.-a nd t9o -icrease produc4io to 9 r41-ion
semi-conductor elements. The laboratory which will be use-d for experi-
mental- pro.dUct;ion, of it,s suhas sAl-1-r plar Yia99t %g plnar
diodes, integrated circuits, will be equipped mainly with British and
.American equipre,t which -will include new li.es for manufact-a g low
frequency and drift transistors, new continuous furnaces, and automatic
equai,uenr,t for inakrin.g tglass-ine-ale seuals, hlas bueer, purc-hased fror.i Toshibua,
Japan, and is expected to be installed and put into operation by June 1,
1968. After expansion, tie semi-conductor departenti ww'l occupy approxi-
mately 2,550 sq. m. and employ about 350 persons on two shifts. The
mon..n-vesw-,,eut; oor tohi -phase is estWd al, approximal;ely N.D. 9
mill;ion.
APPEDLX4TY,
Page 9
The project now under consideration is for the manufacture of
silicon planar diodes and transistors. Silicon transistors are gracdally
replacing gerrmanium tran.siistors ini mniy fields because of their superior
technical characteristics. Germanium transistors wfill, however, still lbe
required for a number of secia applications as for instanvce in the UHF
tuner. Japan which is the world's leading producer of silicon transistors
registered an increase in gernw-;awm smicond.ucltor pro(dwIction. It has been
estimated that germanium elements will be used side by side with silicon
plana-r elemXents for -another ten years or so bDefore being corimpletely rep"lacedu
except for special application. As the enterprise does riot have sufficient
tec hn.ical expertise in the manufacture of silicon trransistors, it proposes
to obtain a license from one of the leading companies in the world. So far,
E.I. Nis has had offers of collaboration from Toshiba and Sanyo of Japan,
Siemens of West Germany and SGS of Italy. Negotiations hiave been held with
ToshIba and a draft tchlnical collawboration agreement initialed. The agree-
ment provides that Toshiba will furnish complete document.ation on the require-
rients of a plant, equipment and facilities, will train E.I. Nis personnel
at Toshiba's works and will second Toshiba experts to Nis for start-up and
initiai operation. Tne agreement which will be for 10 years provides for
the payment c,f an initial lump-sum know-how fee of US$250,000 and a royalty
of 5% on sales.
The project prepared on the basis of preliminary information fur-
nished by Toshiba, calls for the construction of a new bli1ding of about
2,500 sq. m, in which will be installed the diffusion lines for silicon, ingot
and wafer production, equipment for wafer evaporation, and the planar tran-
sistor and power transistor production lines. This section of the department
will employ about 200 workers in two shifts.
With the commissioning of this project, sermi-conductor production
capacity will increase from about 9 million elements per year to about 28
million elements per year - 15 million transistors and 13 million diodes.
Almost 80, of the increased production will be for internal consumption
and the balance 6 million elements will be sold to other consumers.
Capacitors and Resistors Project
The enterprise's plant at Avala, a suburb of Belgrade, manufactures
passive components, i.e. capacitors and resistors, required for its own
consumption and for merchandise sales to other users. Ihe main products
are electrolytic polyester, polystyrene and paper caDacitors and metal film
resistors. The enterprise has initiated trial production of graphite com-
position resistors to prove a process developed bFy one c,f its development
laboratories. Results have been encouraging.
To meet the increased need for these passive components both within
the enterprise and in the Yugoslav market, the enterprise proposes to exCpand
production as shown below:
PT-i'\TTYIX ),
Page 10
Proposed
P.roCJuction IUroUdu. c UUion AU.p.rox.-JLm. athe
1967 1972 Unit Value
(million units) (N.D.)
Electrolytic capacitors 3.9 7 .*5 3.0
Polyester capacitors 6.8 29.7 0.5
Polystyrene capacitors 5.0 12.5 0.3
Paper capacitors 0.2 0.5 10.0
YMetal film resistors 3.2 5.0 1.0
Composition resistors 1.0 120.0 0.25
20.1 175.2
Total Estimated Value
(in million N.D.) 22.1 81G1
Apart from investment in a new line for the production of composi-
tion resistors to be esa+blished at Zemin near Belgrade, the prniected
increase in production is proposed to be achieved by relatively minor addi-
tin ofmahir.ery~nn ar.d e.air.t in the ev sti ng p:lv,t Th.e more e,eonsivTe
pieces of equipment to be installed are a silicon power rectifier for the
etching o f al -,ml n ,,n,Ca f1ow l fwo,r t-he elect+.oytic, capacitor s,+ n. spec ialO equ.wn ,, en m tn+
for metalizing polyester foil for polyester capacitors, a vacuum impregnation
M,ac1hd4ne 1for papper capacitors. No- r,wi,-- ,,en is col'mlae in--4 the__1L_ - -
~ .LJ.L ~ ~~Jd.~LL,'JJ. b.IYV L1FZV .L1t-O1VL1V~bI~I L0 LA.Ji1_AV1IiJJ.Ld.UUU -"I UALLU
metal film resistor section,
The enterprise is sufficiently experienced in the technology of
production of capacitors and resistwrs and it does not need to seek ary
foreign know-how for implementing this project.
Cost OI _roject
Fixed assets for the semi-conductor and capacitor resistor projects
are estimated. to cost N.D. 41.21 million (US$3.30 million) excluding interest
during construction, but including foreign exchange requIrements of U-S$1.76
million which IBRD has been requested to finance. WMorking capital during
the period of construction is estimated to be N.D. 12 mijLlion. A summary of
the project cost estimate is given below:
Currency Breakdown
$ Total ND
Million Million Million
ThildisV,- - and civil -ks 5. -5.
Plant and equipment - imported - 1.51 18.9
= doestic 812) = 8.1
Import duties 4.62 _ 4.6
Freigh.t. , inou.ran.ce and 4t1MU -ing 0.3, - I.3
Erection 0.34 - 0.3
LteU1Cal li1cense fee - 0 IC_
Working capital 12.00 - 12.0
Total 31.33 1. 76 53.2
APPENDIX 4
age 1
Cost estimates for equipmient for the semi-condu1ctor project are
based on quot,ations furnished by Toshiba. Cost of equipmnent for the capacitor
and resistor project is based on recent quotations from prospective European
and U.S. suppliers.
The cost of the project is divided between the two factories as
follows (in million N.D.):
C,apacitor and
Semi-conductor Resistor
Fix:ed assets 26.25 14.95
Working capital 6.50 5.50
Project Finarncing
A summary of E.I. Nis' estimated financial requirements and sources
of funds during project construction (1968-1969) is giveni below (in million
N.D.):
Uses Sources
Project 53 Net earnings (1967-1968) 77
0ther investm.ent.s in fixed Depreciation 46
assets and related working Long-term debt
capi tal 200 IBRD 22
Debt repayment 64 Other 158
313 31�3
Det,ailed cash flow projections for the 198-19'72 nperis are given
in Annex 2. The long-term debt requirements of N.D. 198 million is corposed
of i'T .l AP ,, lin in .ar credits for f4N-e - sts, T 1N AO 6millwin in
foreign credits and N.D. 70 million in dinar credits for working capital.
Ilhe t:=',ming ofL theI- b -UU off threse c-reditsLV deper-.ds.A -n V-F,-e --ors f h ahd
ray tube fact,ory estimated to require N.D. 156 million which may be delayed
for sortie m.ont,hs. Thle balar,ce o.-L tI-1e fCund s havL,,e `been arrr?Lged,A for coA.klet4Ion
of the projects underway and near completion and include working cap-tal
req--"--r-emenus. Thelarei,ree _ i Wutr"1r,g %cLLapia -Ls scfled to_ beU
used to the-extent possible for further consumer credit following the pattern
o0 financing receivables for wholestlers -who ir, tuL.u rlt credit Lto rtaiL.
customers.
ArkIIDIX 4
Page 12_
Earnings and Debt Service Forecasts
&terprise-wide earnings forecasts for 1968-1972 are shown in
Annex 2. Overall sales are projected to grow at a slower rate than in 1967
based on the outlook for reduced consumer demand in the immediate future,
reflecting the Yugoslav econonyr, and other related factors such as lower'
prices. The forecasts show sales reaching capacity in 1971 after completion
of the current programs. These sales projections have been reviewed in
detail by the mission and appear obtainable. The N.D. 49 nillion net earnings
projected for 1968 although much-higher than 1967's poor performance are less
than 1966's earnings of N.D. 53.5 million as a consequence of high operating
costs (860/o of sales) compared to 1966 (830/0). Materia:Ls which equalled
600/o of sales revenue in 1966 are projected to be 57.50/o-in 1968 while wages
and social benefits of 23.50/o in 1968 compare to onJly 18,,50/o in 1966. Also
affecting the lower earnings projected for 1968 is the absolute increase in
depreciation and interest which totalled N.D. 24 million -in 1966 compared to
the forecasted N.D. 46 million in 1968.
Looldng at 1969 and 1970, before the full capacities are reached,
the net earnings are projected to more than double 1968's N.D. h9-million.
This is due to an increase of sales by almost N.D. 100 mi:LLion (150/o) and
an increase in operating costs of N.D. 37 million (6.30/o). T,ncresed earninas
after 1969 are relatively modest reflecting increasing production and a stable
ratio of operating costs to sales revenue (about 80�/o).
Lone-term debt service Coverage in 1968 na 106)Q is projected to be
over 1.5 to 1 and from 1970 to 1972 reaches 2.3 to 1. Although the debt
service requirements Jn 168 And 1969 appear to+ be high compnared to cash genoratior.
the margin of safety contained in the build-up of additional working capital and re-
serves should assuare no problem in mentn nr the ma tu, ng obli gations. E I. T-Tis
excellent relationships with Y.I.B. and other local banks indicate that ary
shortfall in finAds n"eraed fro.. opeatior.. car be - h- -e-
borrowings.
Conclusions
The growth of electronic technology in Yugoslavia has enabled the
population to obtain telephones, radios and television receivers without a
large drain on foreign exchange reserves. E.I. Nis has also developed ani
export program adding N.D. 4s8 million to the balance of DaLVments income in
1967. The wide range of E.I. Nis' production which includces railway signalling
equipment, X-ray and other medical machinery as well as the component parts
to be produced by the loan requested from the IBRD will acdd to YugoslaviaL's
ability to provide industry and consumers with modern electronic technology.
IFC/LAEA
July 26, 1968
A UT .V 1.
Page 1
EI NIS
Comparative Balance Sheets
(In million New Dinars)
As at December 31, 1964 1965 1966 15967
ASSETS
Current Assets
(flsh. hanks qnci npar. rnsh 10.3 23.7 64.9 71.9
Trade receivable's 47.1 94.9 130.5 210.1
Tnv n+.ntri P
Raw materials and supplies 102.1 121.9 120.3 128.8
Sem.i-fiv.shed pro^ctsC 50.2 68.i 91.7 9r,.o
Finished products 16.3 39.6 83.1 87.9
Total hevrurnt +setr T4R.6 229.6 29.1 11 .7
Other current assetL2/ _67.7 121.9 173.2 166.3
Total urrent Assets o2937 701 66a.7 -O0
(h'ross Fvixed Assets
Land - 0.1 0.1 -.1
rh 1 nii ns 47 J6.7 90.8 101.3
Machinery and equipment 44.6 61.7 111.1 14C).O
F:Led assets nder constrution41 8.9 1(.7
Collective consumnption assets 7.3 10.9 8.9 8..0
Other fixed 2.4 5.9 61 2.1
Total Gross Fixed Assets 95.8 13702 226.2 2/ -262.2
T e- 4. v 0 9), Q qR7
Net Fixed Assets 73.9 112.3 1 3T 20!7T
Total Assets 367.6 582.4 8),7.1 967 .5
LIABILITIES
Current Liabilities
%^.o=+e debA*'t1 173IJ 6 - 11(!
Trade payables 42.4 59.3 100.0W 159.8
Ot.her current l;hi;+.iaq / 104.9 1fl1.3 2296f 23h.3
Total Ciu-rent Liabilities no. 247 53. 0.
Long-term debt 118.0 142.2 169.2 246.8
Funds of the Enterprise
Business fund 83.2 96.8 162.5 185.0
Reserve funds 3.6 5.8 9.2 119.8
Collective consum=tion funds 5.0 12.9 3.0 11.5
Total Oim Funds 91.8 TT3. 174.7 21).3
Total Liabilities 367.6 582.4 847.1 967.5
rqirrpnf Assets../(nrrP-n-t TiAbqilitAps 1. 9:1 1.4:1 1.3:1 1.5 1
Long-term Debt/Owm Funds 56:44 55:45 49:51 53::47
IFC/taly22 9A
Hlsay 22, 1968
ANNEX 1
Page la
Notes to Comparative Balance Sheet
1/ Reflects increasing length of credit terms and introduction of installment
credit extended through retailers (N.D. 73 million at end of 1967).
v Includes goods invoiced but not paid, prepaid expenses and inventory
valuationsc
3/ Includes approximately N.D. 34 million (N.D. 21.7 miLlion for buildi.ngs
and N.D. 11.6 million for machinery and equipment) in revaluation of' fixed
assets in 1966.
4/ Increased accounts payable result from devaluation of the dinar and longer
payment terms granted by suppliers.
5/ Includes goods invoiced but not paid, accrued expenses and inventony
adjustments (contra account to other current 14akilities!)-
IFC/LAEA
Mlay 22, 1968
ANDI1X 1L
Page 2
EI-NIS
Earnings Stateldent
(Tn Thillin NPW n nars)
1964 1965 1966 19267
Sales Revenue 1456.6 357.6 5o8.4 620$.5
Operating Costs
Mate ral - nvdA e 248. A8 2.3 3 5.7 376.0
Net wagesv 46.5 51.4 71.7 94h8
Related social payn-4-ts 16 .3 i7.5 22.1 25 *9
Taxes and contributions3/ 83.6 53.8 28.2 45,.2
.LoUt.'. W)peratin CostsJ vF_r 3 427.I * 9
n.. _ _ 4/Vz n 11 In A
v<P :tavu - ).U L4. f 7; ;.
Interest 6.3 9.4 15.0 21t7
�i.eb t ndvwilgS .LVuUL Opera .orns 51.5 �0.) 56.4LJ.
Nion-operating 1s 3.3 5.7 8.7 2.0
Non-operating expensest- 7.6 5.8 11.6 1'.0
Net Earnmigs 47.2 18.4 53.5 2f
1/ On basis of paid sal.es.
2/ Wage increases reflect increased number of workers, more highly paid ski l ed
workers and engineers and per capita wage increases based on productivity
and generallyr higher basic wage levels.
3/ Taxes and other contributions decreased until 1967 as a result of the
Economic Refoim measures; 1967 taxes increased due to higher contyributions
and a growing tax base, i.e. the Business Fund.
1/ Depreciation increased in 1967 as a consequence of the large increase in
fixed assets at the end of 1966 and increased depreciation rates permitted
by law in 1967.
5/ Non-operating earnings include interest on bank accounts and installment
loans plus other income.
#/ Non-operating expenses include discounts granted and other expenses.
IFC/LAEA
I4Iny 22 196R5
EI Nis
U.Lrsncia r orecasts
(In Million New Dinars)
Year Ending December 31, Construction Years
19vo 959' 197() 1971 197'2
Earnings Statement
Sales Revenue -/ 679 772 812 860 8610
Operating Costs
Materials Apd Overhead 390 405 42() 432 432
Net Wages J' 110 122 131 142 142
Related Social Payments 31 34 37 40 40
Taxes and Contributions 53 60 cc 72 74
Total Operating Cost T 621 65 I
Depreciation 22 24 28 30 30
Interest 24 22 20 19 18
Net Earnings 49 105 110 125 124
Sources and App:Lication of Funds
Sources
Net Earnings (Previous Year) 28 49 105 110 125
Interest 24 22 2C0 19 18
Depreciation 22 24 28 30 30
Increase in Long-Term Debt
IBP - 22 = - =
YIB and Other Banks 114 84 85 39 -
Total Sources 188 201 238 198 173
Applications
15ole t Fi e ASS tS A -- 4 01Z AA_A>AA'
* L J vv. XZ|AVI A DiJL :i v - * V, ; 'I A - CC _ _-6
-Local - 19 - -
Working Capital - 12 - -
Total Pro,iect - - _ ..
Renewals and Replace ents 2 3 3 3 3
Other Fixed Asseits 3/ 74 54 65 30
Tn+ar-a+_
RIBaD - 1 2 2 I
YIB and Other- Banks 5/ 17 17 15 14 14,
Short-Term Debt 6 4 3 3 3
Total Interest 23 22 20 19 11
Principa/, Repayments
.BRDw - - - - 1:
YIB and Other Banks 28 6 48 51 b
Total Repayments - b5 42
Allocations to Reserve Funds 7 7 7 8 8
Allocations for Collective Consumption 6 6 6 6 6
Sufb-total 140 161 149 llo 93i
Net additions to Working Capital 48 20 89 Bo 80
Total Applications 188 201 238 198
Long-Term Debt Service Coverage (Times) 1.5 1.7 2.3 2.3 2.3
May 22, 1968
AITtEX 2
EI Nis
1auM- ; ur b UV Xrercas"Cs
/ As projected in Annex 3,
2/ On the balsis of present wage scales.
3/ Largest .increase in fixed assets for television tube production may be
postpone(i pending decision on process to be used.
4/ Assumed 7o per annum beginning in mid-1969.
5/ As projected by enterprise based on loan outstanding and arranged.
6/ Assumed 24 semi-annual installments beginning in second half of 1911.
7/ To be used for installment credit and other current asset requirements.
IFC/LALA
May 22, 1968
ANNEX 3
EI Nis
Sales Projections
(In miLlion New Dina`rs)
1968 1969 1970 1971 1972
F�nlshe; C-2ood Qty. VEtlUe 9!By. VEoue Xt Value Qtay. Value Qty. Valuie
TV sets - 000 units 280 420.00 320 480.00 330 495.00 330 495.00 3C00 450.00
Radio sets - 300 75.oo 300 75.00 300 75.00 300 75.00 300 75.00
Tape recorders -10 9.0o 20 18.00 30 27.00 140 36.o00 50 45.00
Radio telephones - units 200 1.60 200 1.60 :300 2,,40 500 4.oo 5CK0 4.00
Telephone sets - 000 units 30 3.05 40 5.40 4o 5.40 50 6.75 30 6.75
Misc. electronic equipnent- tons 217 50.40 250 56. 50 300 68,,oo 340 73.75 340 73-75
Measuring instrumentEI - UnLits 600 4.80 800 6.40 800 6540 800 6.4o 1,0oc 8.(O
X-ra;y sets - I 200 3.00 200 3.0 200 3. 00 200 3.00 2C0 3.00
Electro--medical equipment - tcons 70 15.40 70 15.40 80 17.60 90 19.80 100 22.00
32.25 *.30 9 719.70
Components
Electric tubes - CK0 units 2,000 12.00 3,000 18.00 3,(00 18.00 4,o0o 24.o00 6,0o0 36.00
Taansistors - 2,000 8.00 4,000 16.00 4,000 16,.00 5,00O 20.00 6,0o0 24.00
Diocies H 2,000 4.00 4,000 8.00 4,oog 8.00 6,000 12.00 7,0C00 14.00
Condensers 4,000 4.00 5,000 5.00 6,ooo 6.00 7,000 7.00 8,0o0 8.oo
Resistors 3,000 0.90 10,000 3.00 10,000 3.00 15,000 4.50 :30,0cO 9.(o
Ferrite cores - tons - - - - 20 1.60 30 2.40 5o 4.00
Ceramic capacitors - 06Q units - - - - 5,000 2,,00 10,000 4.00 20,000 8.00
-2 T. 9o0 70.S 73.TO 103.t00
Miscellnmeous nsaes and t 4rices 8 ";.7� > o u 6640 69.5
Total 679. 7722.00 812.00 860.00 860.oo
Expport sales
Convertible 54.68 71.50 89.00 98.25 107.72
Clearing 29.44 38I.50 47.92 52.90 58.00
Total export, sales 4.12 110.00 17.92 l 5 165.72
Dom,estic: sales 594.88 662!.00 675.08 708.85 694.28
Total 679.00 772.00 812.00 860.00 860.00
TWOr J/ ALr A
APPENDIX 5
Page 1
TREPCA
The Borrower
Thle prospectiuve borroweur is the Tepca iIinilg and Netallurgic&L
Combine which has its head office and the majority of its processing fac-ili-
ties atu Kosovska ALitrovica in the Republic of Serbia, between Belgrade and
Skopje. The operations carried out under the name of Trepca comprise the
extraction of lead and zinc ores, flotation, smelting of the concentrates
and refining to produce refined lead and zinc, recovery of bismuth, copper,
silver and gold, the production of sulphuric acid and simple superphosphate
fertilizer and the manufacture of lead acid batteries. When the recently
constructed blast furnaces are commissioned, Trepca will have a smelting
capacity of 17(,000 tons of pig 'Lead per annum whichi the enterprise expects
will confirm i1; as the largest producer in Europe and one of the five largest
in the world.
Trepca is in the process of implementing a series of expansion
projects designed to increase output, reduce costs and enable it to convert
its entire pro(uction of lead and zinc ores into refined metal and to ut.Llize
the by-products resulting from the manufacturing processes. ILthin the past
twelve months, apart from mine reconstruction schemes, new flotation plants,
a new sinter plant and smelter for the treatment of lead concentrates, an
electrolytic zinc plant with a capacity of 40,000 tons per annum, a battery
plant with a capacity of 6,000 tons per annum and additional sulphuric acid
manufacturing capacity have been put on stream and the granulating capacity
of the fertilizer plant expanded. In addition to the proposed modernization
and expansion of the lead refinery, for which IBRD funds have been reaue.;ted,
the enterprise intends to construct a fuming plant for the recovery of lead
and zinc from the lead blast furnace slag.
The enterprise sells itq production of lead under the brand nane
of Trepea and its batteries too are marketed under its own name. Trepeal"s
products appear to be fully competitive, in respect to quality with those
produced in the developed countries.
Trepca's total assets at December 31, 1967 were N.D. 1,600 million
and it is, therefore; one of the most m-portant industrial enterprises i1l
the country. Total sales revenue in 1967 amounted to N.D. 475 million. The
enternrise employs some 10.000 workers nd is by far the T yr of
labor in the region.
Trepca as such has not received an IBRD loan in the past, but .in
1953 the Lece mLine receivired US$135, 000 under ThRD Loan l--Y TT +f -In-c- i)ar+
of the foreign exchange cost of equipping the mine and mill. At the time
the loan was made, arrangemfent+S al r -.xsted for -elti-ng the leada ocon=
centrate in Trepca's smelter and more recently Lece has merged with and
become fully integrated in t.he enterprise's operations.
Prepared by A. R. Perram fnd J. 1?. Jaffe.
APPENDIX 5
Page 2
The purpose of the proposed project for the modernization and
expansion of the lead refinery is to balance its capacity with that of the
lead smielter ar,d to improve the separation of secondary metals such as silver,
bismuth, gold, antimony, copper and zinc. Some of these metals cannot at
present be separated from the slag at all and there is scope for improvenent
in the recovery of others. The design capacity of the refinery will be
approximately 1.62,000 tons of refined lead. The total cost of the project,
excluding interest during construction but including additional working
capital requirements, is estimated at N.D. 78.4 million ($65.27 million) of
which $1.7 million is required in foreign exchange. IBRD has been requested
to provide this amount.
History of the Borrower
Commercial exploitation of the mineral ores in the Kosovska Mitrovica
region began in 1929 when "Trepca Mines Limited" was founded in London with
a capital of L200,000. Ore production, which was 500 tons per day initially,
increased rapi(ly to 2,000 tons per day at which level it remained until the
outbreak of the Second World War. During the pre-war period the greater part
of theenterprise's production was exported in the form of concentrates.
The present Trepca Mining and Metallurgical Combine was formed in
1946 by the nationalization of Trepca Mines Limited and mergers with other
lead and zinc mines in the Republic of Serbia, as a result of which Trepca
became the largest lead and zinc nroducer. not only in Yiioslavia hut alco
in Europe. In the process of integrating its operations the enterprise has
taken uD the production of bv-nroduct mlnphunrle acid,_ simnle unnprnhcspnhanf
fertilizer, cryolite and lead-acid batteries and maintains its own resear;ch
establishment lith a staff of 230 for pure nnd applied research in +he field
of extractive rmetallurgy. As part of the expansion of the enterprise's
activities, a niunbhtr of knrrwhrT-t-� hnirn1 nasistanrce agreements with est.a-
blished equipment suppliers have been concluded and the recently commissioned
production facilities give everv indication of being of up-to-date design
and competently operated.
Manageprment
Thle (erneraol Manager of the enterprise is MrV. Cas,lawv Zi"4'V-ic and
his Deputy is Mr. Manojkovic. Five Assistant General Managers report to
operations, metallurgical and chemical operations and the research estab:Lish-
ment re-4-b e*ly ` - are zlso -s , aty, by - gro-up
of nine advisors the basis of whose selection is to complement the experience
of she L.i.ne mai^ger.
APPEiJDIX 5
Page 3
The senior mara-ement of thle enterprise appears technically oriented
and its record in implementing the recent series of modernization; exnansLon
and balancing schemes is impressive. The production units which the mission
visited were efficiently run and their mangers annparp-p well inform,ed an1
enthusiastic.
Recent Finannial and Earnina- Record
^Rl nnce s for+h th p+ 4tif-r years (1_QI=1O67) are o-sho- in
Annex 1. Trepca's balance sheet as at December 31, 1967 is summarized below
(in,, ;Tn , I o T TD.)
a sts, T 4 Lall; I i
W4LaA. UL.L. U.ie
rt~~~~- Ah1-, A4- -I o^ 0 A - _ 4 tQ__ - &_ 1- 4 7
vv*S '2h 'u X v v.LV v L LU .1_.) U vvLU� v' I v L )
Receivables 65 Accounts payable 69
Tnventories 261j Ote cr-r, iaiiie 8
Other current assets 205 Total current liabilities 427
M~j~-I- -****-**44* - zz T _ .- r'o.-.~11
Tot<'" curr EiUt asset '9 Log-'esam dlebt 58lj
Net fixed assets 949 Business fund and reserves 611
:1,618 3 1
Additions to Trepca's fixed assets during 1964-15-67 amounted to
about N.D. 480 million (excluding some N.D. 445 million of revaluation of
fixed assets in 1966 resulting from the Economic Reform). Thus Trepcals
gross fixed assets increased from N.D.361 million to N.D. 1,289 million on
the balance sheet during the period. Net fixed assets increased from N.D. 220
million to the figure of N.D. 949 million shown above. As described earlier,
the major increases in fixed assets were the electrolytic zinc plant, the
lead battery plant and the expansion of the lead smelter. These fixed assets
were financed by long-term loans which increased about N.D. 500 million
during the period.
Trencpas long-term debt outstanrding of TnD- <0 mfll-n, i at tn+h.
end of 1967 consisted of N.D. 410 million in local currency loans from the
Investment Bank of Pristinaj YTB, t.hae Vugosnav Bank for Foreign Trade, the
Economic Bank of Belgrade and several local commercial banks financing sorme
of the mines And planta in-r varinus parts of YugoslavIa. These loans were
granted at various interest rates with an average of about 5%. The largest
loAnn otArr; nn+. I re' J1'X h%_ + s A P ot1h- l_ans also valed and rangcd
up to 25 years. The average of loans outstanding at the end of 1967 was
ohniit 13 years
Foreig5n, curren.cy loans - n -ug-- at the end of 1967 totalled
N.D. 110 million. The loans were for the zinc plant - N.D. 36.6 million
at 6.5% for fvet years from the lugoslav Bank for Foreign Trade - commerc al
credits from a group of British banks headed by the Bank of London and South
APPENDIX 5
Paze Li
America (BOLSA), N.D. 32.4 million-Vat 8-1/2p for 4-1/2 years - the battery
plant, N.D. 19.5 million at 6-1/24 for 5 Vears from (iermnn suppliers -
N.D. 2.2 million for mining from Belgium, U.K. and Swiss suppliers at 6%
for 3-1/2 ypears average nnd for tha lonead" 9r AiJn a on1 of m.D 20
million at 6-1/2% for 5 years from the Yugoslav Bank for Foreign Trade
and qwic- s cp7rpliers.
T'he ba~nlnn^ance of r. deb+ +^ t? U g N.D. A t8 1A 4L14Jorn -for"
working capital was received from the Investment Bank of Pristina, the Com-
mercial B-1- of Kosovsk-a MltrovilcaV, Y.I.B. ar, sv,. loa _I,=src br
I'~d A dS?. *t~t - - t ALl.. U. ,L.. A,L. A.e ar* dlU soAIIe Jlocal cL.'JAIIZI,Ierc.L6..L. uLulq..X
financing mines and a battery plant in the north of Yugoslavia. These loans
r-tged from 1. 4to '7_12o I ndC er grarlte a_ -,el of up- to ' 25 --S -3 add
4 ~~ . '-" 4 u I .L. C./a CUAu W~IZ.'V 91.uWluuaU i� :13[i V.L UP) UVJ Zw" JV;L_j A11 tUU.L-
tion Trepea had obtained N.D. 21 million for financing its social assets
as mmeeting :alls,- huing, etc. UTL,l -1967 �repca had -Ae litleUS
of short term debt and in 1967 it was also gmall in relation to current
asse'bl.
Trepca's earnings statements for the years l964 tC) 1967 are showa
in Annex 1. Sales volume of major items and net earnings for the past four
years are summarized below. A part of the earnings derives from services
rendered by Trepca to companies with which it has co-operative arrangements.
2/
Sales volume in metric tons-
1964 1965 1966 1967
Refined lead 8l,!470 80,697 75,399 68,522
Electrolytic zinc - - - 2,033
Zinc concentrates 64,941 68,650 64,047 63,254
Fine silver 106 116 107 97
Bisnuth 82 89 105 104
Gold (kg) 320 434 310 304
Lead acid batteries 1,657 2,015 2,161 670
Sulphuric acid 21,732 37,048 5,2,067 51,773
Simple superphosphate 122,887 1009012 195,876 199,4h2
Cryolite - 2 43 84
Aluminum sulphate - 496 742 674
Pyrite concentrates 74,085 19,247 69,668 47,280
Sales and earnings in N.D. millions
Net paid sales 283.3 413.8 5h3.4 475.4
N+. inromp 30 A 67 616 3 36
1/ The total credit granted by the British banks in October 1967 was L 2. 5
million. In addition to BOLSA the British banks included Lloyds, Midland,
Kleinwort-Benson. Chartered Bank and the Bank of London and Montrepl-
v,' Except gold.
APPENDI5
Page 5
Sales revenue in 1967 shows a decrease of N.D. 68 million compared
A-_l 4-. n: 4-1h _ A P 1 -3-- _ -4 - ^- +tn Yye_" ,1
V L J .LA.' J",; V W L.L &UMU to 4A%A V; -A -_
market (sales of refined lead and zinc concentrate
acco-untr,teU fUErLUUU UWV-sWoLL-vJh oJ.I thIAe e
sales revenue in 1966),
(ii) a reduction in output of refined lead owing to inter-
J.erence with the production ol pig leaud resulting from
the reconstruction of the smelter.
Net earnings in 1967 amounted to N.D. 33.6 million compared with
the previous yearts figure of N.D. 61.6. This reduction is due partly to
the fact that operating costs in 1967 did not decrease in the same proportion
as sales revenue and partly to increased interest charges and increased non-
operating expenses in relation to non-operating earnings.
Yugoslav Industry and Domestic and Export Market
A. Lead
Yugoslavia's entire production of lead concentrate is processed
in the smelters and refineries of the Trepca and Mexica combines. The
dominant position of Trepca, as well as the domestic consumption of refined
lead in the years 1964 to 1966 is shown in the following table:
Total Domestic Trepca's
Plroduction Trepca's Prodaction Consumption EXports
''000 tons '000 tons % '000 tons '000 tons
196L 101.1 80.2 79.5 L1.1 54.7
1965 101.1 81.6 80.5 42.h 55.6
1966 97.5 74.8 76.5 43.2 44.2
A conm)arison of domestic ceiling prices, average London Metal
Exchange (LME) spot prices and Engineering & Mining Journal (E&MJ) prices
for comion gral rdelivered New York- from the second half of 1965, that i;
to say after the Yugoslav Economic Reform, to i967 is given below:
Domestic Price LME Price E&MJ Price
T\Tf/m-t- TT&/1- T~/1 ton, TTvS^/1h ITSF/lb.
-W D,/T - h - 7 t TL h- rs
1965/II 3,2)h0 11.76 115.13 14.39 16,000
1966 3,240 11.76 95.18 11.90 15.115
1 047 4 ol.n I1 7l Al AO - 1 n ).R i), nnn)
/- -# y --4 -0 1- -_EJ 0 v_ __* w+ -40 -
APPENDIX 5
Page 6
B. Zinc
Zinc is produced in Yugoslavia in the plants at Sabac-(electrolytic)
and Celje (refined)and, since the end of last year, in Trepcals neiw electro-
lytic plant. Existing refining capacity is estimated to bes 86,000 tons per
annum of which Trepca's contribution is 40,000 tons per annzum.
A corLparison of domestic ceiling prices, average LME spot prices
and E&MJ prices for Prime Western grade, f.o.b. East St. Louis, from the
second half of 1965 to 1967 is as follows:
Domestic Price LIE Price E&MJ Price
ND/m-t- US,�th h. ;/I a ton US6/lb- USd/lb.e
1965/II 3,600 13.07 112.97 14.12 14 500
1966 3,600 13.07 102.01 12.75 14.500
1967 3,600 13.07 100.55 12.57 13.8)3
It is reported that credits have recently been extended for the
erection of a new lead and zinc smelter complex at Titov Veles in Macedonia
with an annual production capacity of 35,000 tons of zinc and 30.;00 tons
of lead.
MarketinL7
The e!nterprise has in the past sold its production of refined lead
to consumers in Yugoslavia, Western Europe, Eastern Europe and the Unitecl
Sta:te.o. ITs. exort+ agent; is Jugometnal w.hicrh has nffiiate +Q ar ""n 's7wow'
importing countries. Domestic prices are set by the Association of Lead and
7Zinc Pro nr"A and a s +1,o The P L -4E pi pl 3 Sa:le- to WTe-te--n
- '. 0 - - - - a -a'. a ' Joa . 1' V&A~, ~- Jt I JJULL _J/U0 * .Lt1
Europe are based on the LME price, with individual arrangements concerning
freight an,d imp---ort -^ty. 01es con4tracts to Eastern Europe are based on a
price which is calculated on the basis of 75% IUIE + 25% E&4J. Sales to
t.he nit.aA cSt.at.es wAhi;h are fr-e cnsumers' plant are basaed on the UT S.
domestic price and subject to discounts and variable premiLums for high grade
meta-l. The enterpriise ---,,A of it log-t�W ng co-tin with -4 e!i
consumers which have been buying an average of 28,500 tons of lead for many
J ws~a o:
Vwhen proper allowance is made for freight cost,s and import duty
which Trepca has to bear, it is apparent that domestic sales are on somewhat
better term-as thal export sa-les. It is not possible, however, to generalize
about export prices as the extent to which freight and import duty are included
depends on Uhe state of the market at the time the contracts are concluded.
No incentive premium is payable on the export of lead and zinc metal.
Both Trepca and Jugometal are confident that the enterprise will
have no difficulty in sell ing its proposed increased production of refined
lead and the output from the recently completed electrolytic zinc smelter.
1/ Financed by IBRD loan No. 51-YU in the amount of $2,480,000. OriginaLly
this project was to be located at Trepca but was moved to Sabac where
sulDhuric acid was already beina produced.
APPENiDIX 5
Page 7
The enterprisets financial forecasts for the years 1968 to 1972
are based on tL; le follo1wing f.o.b. LZvAecaL prices f Lor s i-es to IVesueeLIi juarope
and the United States, with appropriate differentials for domestic sales
aul Sa"es to Iastern Europe:
Refined lead Price
European price 9.260 per lb.
U.S. price - 1968 11.25 5
U.S. price - 1969 to 1972 10.71 "
Electrolytic zinc 10.89
Fine silver $ 1.70 per oz.
Bismuth $ 3.81 per :Lb.
Cadmium $ 1.81 "
Gold, refined antimony, zinc and pyrite concentrates and chemical
products will be sold entirely within Yugoslavia and projected prices are
generally in line with current domestic prices for these commodities.
The price assumptions for refined lead and electrolytic zinc,
from which the bulk of the enterprise's income derives, have been reviewed
and are considered to be reasonably conservative.
Reserve Position
The enterprise claims that from 1955 through 1966 approximately
40 million tons of lead and zinc ores were developed. This quantity is 3-1/2
times greater than the amount of ore extracted during the same period and
is indicative of the efforts the enterprise has made to assure its reserve
position. The present rate of extraction from the enterprise's mines is
1,300,000 tons of ore per annum, analyzing 5% lead, 4% zinc and 65 grams of
silver per ton, but this rate will double when the current phase of mine
reconstruction has been completed, The enterprise also purchases ore con-
centrates under long-term contracts with a number of independent mines.
Even at the increased rate of extraction,reserve life of the enter-
prise's mines will be ever 15 years and there are good indfLcations that
reserve development can keep pace with ore extraction for many years to come.
Description of the Project
The proposed project is for the modernization &nd, expansion of the
existing lead refinery to permit the refining of the entire output of pig
lead of the recenttly reconstruCted smer and Mhe eoS of the
accompanying metals, such as silver, bismuth, gold, antimoriy, copper and zinc.
APPENDIX '
Page 8
Based on an input of 168,814 tons of pig lead andl 2,000 tons of
scrap lead the capacita y of w ref4-e--y 4, '----- o-f 4-1 g-r -d --an 4".-
of metals to be produced is expected to be
Grade Quantity
Refined lead 99.99% 162,112.0 MT
Refined silver 99.995% 203.4 MT
Bismuth 99.98% 121.9 MT
Refined antimony 98.50% 309.8 M
Gold (kg) 99.99% 645 Kg
Accumulator lead 97 Pb 1,800 iIT
3 Sb
The specified grades are those in which the respective metals are
commonly traded.
The project has been engineered by Masinoprojekt, consulting engi-
neers, of Belgrade which has had considerable experience in the metallurgical
industry in Yugoslavia. On the process side discussions have been held with
representatives of three leading plant suppliers in the field of lead refining
and budget quotations have been received. These quotations reflect the views
and practices of the respective manufacturing enterprises vwhose knowhow anld
performance guarantees form the basis of the plant suppliers' choice of equip-
ment and, consequently, are not strictly comparable.
The most comprehensive offer was submitted by Mechim of Belgium,
and is backed up by the experience of Metallurgie Hoboken, also of Belgium.
At the time of the mission Trepca favored Machim's offer over those of the
other two equipment suppliers and was arranging to visit the Hoboken plant
with a view to settling outstanding auestions. The cost of the equipment
in the capital cost estimate given below is based on Mechim's quotation.
Both Mechim and Hoboken are established companies with a worlci-wtide renutation
in the field of non-ferrous metallurgy and can be relied upon successfully
to implement their part of the project.
The purpose of the eauinment included in MechimlsE offer is as
follows:
(a) Extraction of dust from the fumes of the copper matte
furnace,
(h) Twn Wn Harris machines for refining decopprized lead anrd
the treatment of sodium salts for the production of
!ti+fl m.ofr ^+ Cf nof arse.0ni ar.d ,reovr of the
So dium,
(c) I:mprovement of the zinc recovery from the argentiferous
.;lag
APPENDIX 5
Page 9
(d) Vacuum dezinclng of the desilverized lead,
(e) Continuous debismuthizing of the lead and the
"drUL ct-ion ofJ bI-,u- metal,-
(f)Casing ofL Lthe rfndlead' intoi -u-,gots.
To accommodate the new equipment the existing refinery building
w'ill ha-ve to be extrended, new roads and sewers consIructed and additional
mechanical and electrical services installed. This part of the project has
been designed and its cost estimated by Masinoprojekt.
Cost of the ProJect
The cost of the project, including additional working capital
requirements but excludlng interest during construction, is estimated at
N.D. 78,410,560 ($6.27 million). While Trepca and M4asinoprojekt are con--
fident, on the basis of the design work already completed and their recent
experience of expansion projects undertaken by the enterprise, that this
figure represents a close approximation of the ultimate project cost, an
exact allocation of the cost of imported and domestic equipment cannot beb
made at this stage. The cost of imported equipment of $1.70 million for
which an IBRD loan is sought, therefore, represents the upper limit of the
cost of possible equipment imports and may ultimately be reduced with a
corresponding increase in the cost of domestic equipment. The estimate
contains no specific contingency provision, but according to Masinoprojekt
a suitable allowance for possible overruns has been included under each
heading. A sunmary of the project cost is as follows:
Foreign Exchange Local Currency Total Expressed
(us$ ooo) (N.D. 000) (N.D. 000)
Civil engineeri.ng and
building 22,031.6 22,031.6
Equipment 1,360.0 8,656.h 25,656.4
Customs duties - 5,270.0 5,270.0
License fees 340.0 h 4,250.0
Engineering, insurance
and other - 2,002.6 2,002.6
Working capital. 19,200.0 19200.0
Total 1,700.0 57,160.6 78,1410.6
APPENDIX 5
Project Execution Schedule Page 10
The enterprise' s financial forecasts shown in An.nex 2 assume that
the reconstructed refinery wi�� De on stream at the beginning of 1971. Mechim
has offered to despatch the equipment which it may be asked to supply within
18 months of receipt of order and the delivery of equipment of domestic origin
will have to be arranged to suit this schedule. A further nine months should
be sufficient f'or erection and start-up.
On th.is basis orders for the equipment should be placed by the end
of September 15968 which appears a realistic target date.
Proect Financing
A surmary of Trepcals estimated financial requirements and sources
of funds during project construction (1968-1970) is given below (in million
N.D.):
Uses Sources
Project 78 Net earnings (1967-1969) 187
Other investments in Depreciation 224
fixed assets 300 Long-term debt
Debt repayment 296 IBRD 21
Reserves and other allocations 33 Other/ 280
Additional working capital _
712 712
Detailed earnings and cash flow proiections for the period 1968-1972
are given in Annex 2. Of the other investments shown above, the bulk of the
funds are allocated for mining for which finnncing has been arranged from
Trepca's banks mentioned earlier.
Earnings and Debt Service Forecasts
Trepeats financial forecasts for 1968 to 1972 are shown in Annex 2.
The 1968 forecasts may be optii.stic in -vew of tle delays which have been
experienced in starting up the new smelter and the consequent loss of produc-
tion in the etLstinrg refine-ryo However, the source oI funds in 1968 exceed
the requirements by N.D. 24 million and no delays in project implementat.ion
are ex-ected even if income is less than forecasted. Trepca's credit is also
an important factor during this critical period and no serious financial
dlliculty in raising funas is anticipated. Tne sales volume of refined lead
which accounts for about h5% of sales revenue in 1969 appears reasonable as
does the growth of production and sales (assumed to be the same) through 1972.
Earnings from operations in 1968 are projected to increase 50% as a consE3-
quence of an increase in sales revenue of 55% while operating costs increase
53%. Non-operating expenses (basically price adjustments after shipment at
preliminary prJces) are expected to disappear thus adding an additional 50%
to earnings in 1968. This is consistent with prior years.in which non-
operating earnings exceeded non-operating expenses.
I/ Includes N.I). 55 million in local bank loans for the project.
A flTr1'TlnV 5~
Page 11
The accuracy of 1968 is forecasts as mentioned above depend orn tUe
success of the on-going modernization program and the figures presented to
the mission in mid-March 1968 reflect the best estimates of Trepca:s rnan-g;'-
ment and have, therefore, been accepted by the mission after discussions with
the enterprise. Although they appear optimistic in comparison to 1967, thley
seem reasonable compared to the more normal year of 1966 when sales were
N.D. 543 million and operating profits N.D. 64 million comlFared to the l59G8
sales forecast of N.D. 735 million with the same operating profits of N.D. 64
million. In both years the wage figure is virtually the same with the primary
cause of reduced profit margin being due to high material costs, particularly
purchased ore. In the long run the improvement in profitability will be
based on the increased output of lead cre from Trepa s own facilities which
will reduce the material costs.
Due to the buildup of production capacities in various other plants
during the construction period it is not possible to meaningfully relate
profits to the project. It is clear, however, that the increased capacity
of the refinerY will permit Trepeato market a more valuable product, refined
lead, instead of the crude lead coming from the smelter. The value added to
the lead, incluling the bv-Droducts obtained in the refining process, sholuld
provide an attractive return on the relatively small investment in fixed
assets and working canital.
TDhbt ervi c'p rnovPrage would be lowest in 1969 at 1.1 times require-
ments for principal and interest on long-term debt. This would increase to
2=..1 by 1971 anA Trepca shoul d have no drifficnlty in exporting sufficient
production to convertible currency countries to meet the foreign exchange
r alrm.nts fo ri- Adehbt ev-r neeods
Conclusions
Trepca is an enterprise with a record of successful growth. It,
is one of the largest firms in Yugonaint and an jmprnv-nnt earnerof forpign
exchange for the economy. It is exploiting natural resour-es and has a
Trepcals ahilIt-y to rise-1 mo9t of it req-ired filnes in Y-go-lamat4
V ~~-- - ,.t3 -- -1.I* -- a-..- �
and abroad indicates its financial soundness. IERD supporb at this time when
foreign. 1ong=ne-n, borrow.ng on reasonaable - 4--- -has nolt beer. f--1.d w,ould con=
tribute to the balancing of Trepca's wide spread modernizaltion and expansion
progra.
irC/LAEA
July 26, 1968
ANNEC 1
A =1
rage 'L
TREPCA
Comparative Balance Sheets
kILn mil-lion Ilgew Da
its at� w cetr1nber 31, Ly _)-L IYL4 �YU9f'1
A -^".fMs-
A D.K .
Current Assets
Cash, banks and near cash 85.6 123.7 :249.9 138.0 _
Trade receivables 8.3 15.1 32.0 65U5
Inventories
Raw materials aLnd supplies 36.7 40.o 88.8 171.2
Semi-finished products 14.6 16.8 27.4 56.7
Finished products 6 lo.4 193 5 236J 2/
Total inventories 6.19 77.2 :135.7 -261. -
Other current assets -/ 77-4 61.7 295.5 204.7
Total Current Assets 228.2 275.7 713.1 6m7
Gross Fixed Assets
Land 1.2 .9 1.2 1.2
Buildings 106.7 111.1 230.0 301.8
Machinery and equipment 137.2 151.8 275.6 414.5
Fixed assets under constructiqn, 30.0 68.8 309.8 263.2
Collective consumption assets L' 68.7 78.0 96.7 112.8
Other fixed assets 55.2 58.8 133.2 195.6
Total Gross Fixed Assets 399.0 469.4 1i,i6-.5 1,289.1
Less depreciation 160.1 182.1 :292.1 340.1
Net Fixecl Assets 238.9 287.3 _7 9490
Total Assets 467.1 563.0 1 167.5 1,618.7
LIABILITIES
Current Liabilities
Short-term debt t;o banks .8 - 15.7 73.2
Trade payables 4.3 5.0 74.3 69.3
Other current liabilities 3/ 102.9 97.9 1,60.5 285.2
Total Current Liabilities 108.0 102.9 550.5 __7_7
Long-term debt 55.6 92.3 361.2 580.2
Funds of the Enterprise
%.TinP..q finri 243.8 297.7 J1()q9)
Reserve funds 4.5 3.6 6.6 37.1
Gollective connmptinn f'inrs 5. 2 66.5 _81.1 10l.3
Total Own Funds 303.5 367.8 _ 6 10.
Total Liabilities 467.1 563.0 l)L67_5 1,618.7
~'AArrent A,t/(r Liabilities 2.1:1 2.7 :1.31 1
Long-term Debt/Own Funds 16:84 20:80 34:56 49:51
. .,C,AEA
iijay 22, 1968
ANNEX 1
Page 2
JAEIPCA
Earnings SLatement
(In million New Dinars)
1964 1965 L966 1967
Sales Revenue 283.3 413.8 543.4 475h-4/
Operating Costs
Materials an.d overhead 145.0 201.8 248.4 220.2
Net wages 4o.3 62.5 103.5 9h.3
Related social payments l1.4 20.5 23.6 18.4
Taxes and contributions 35.9 4o.h 48.h4 47.4c
Total. Operating Costs 235.6 325.2 423.9 380.3-'
Depreciation 21.6 22.8 47.8 38.3
Interest 1.9 2.2 8.0 14.0
Net Earnings from
Op,erations 24.2 63.6 63.7 42.8
Non-operating earnings 12.8 13.3 13.0 10o ti
Non-operating expenses 6.L 9,9 -L!1 1QQ9/
Net Earninzs 3o-6 67-n A - A
Notes to Comparative Balance Sheet and Earning Statement
1/ Cash at the end of 1967 was reduced to earlier levels as a consequence
of lower earnings, the investment program and increased inventories.
2/ Total inventories increased in 1967 due primarily to interruptions to
production during reconstruction of the smelter.
31 Other current assets and current liabilities include contra accounts
relating to invoiced butunpaid sales (receivables) and exclude :intra-
company accounts.
4/ Collective consumption assets include workers' housing, public frilit,ies
and recreation centers. Earlier assets such as the iiocrle in Zvecan are
now separate enterprises.
5/ The droD in sales revenue and onerating eoqtq ArR rP 1ntA1 tn tbh.- 1 o.T'r
volume of sales in 1967. Wages and material costs relatIng to i:wverA.;ries
are not shown on the earninas qtAt.mTennt.
6/ Nsn-onprating ea.rngs and expenses reflect price changes betTeen shi.pping
and final (lelivery which in 1966 and 1967 were declining.
IFC/LAEA
IMay 22, 1968
ANNEX 2
Page 1
TREPCA
(In million New Dinars)
Year erding December 31 1968 1969 17EO 17 9 i2
Earning s Statement
Sailes Revenue (including services) 735.2 779.3 869.4 970.7 1,031.5
nprti4ng C' ...t
Materials and overhead 397.8-' 374.5 442.1 L26.2 483.4
Net wages 103.5 110.9 1-1.5 128.1 128.1
Related social payments 20.1 22.3 22.8 27.4 27.h
Taxes and contributions 62.2 7 81.5 8*'.2
Total Operating Costs 53 7.6 657.9 665. 723.1
____3ciOtlon 21 6M7 71.7 85,1 129.7 129.7
InutereEt (excluding initerest charged to
operations) 21.8 2.0 0.2.
Net Earnings f rom Operations 63.1 .� 95-55
Non-operating earnings 5.0 6.0 6.0 6.0 7.0
Non-operating expenses 4.0 5.� 5.o .. 5.0 6.o
Net Earnings 64.1 89.0 96.5 146.8 156.8
Net e&-nings as S of sa-las 9S 11% 11% 15S 15%
Sources and Applications of Funds
Sources
Net earnings (pruvious year) 36 .1 89.0 96-5 1 46
Interest 21.9 33.7 33.2 37.6 30.8
Depreciation 66.7 71.7 85.1 129.7 129.7
Increaae in long-term debt
IBRD 3.7 15.0 2.5 - -
YIB and other banks 95.7 123.4 - - -
Other sDurces (liquid assets) 50.5 2/ 10.8 o5 0,5 0.5
Total Sources 272.1 318.7 210.3 ZkL%2 307.8
Project
Fixed aEgets 19.2 35.0 5.0 - -
Foreign 3.7 15.0 2.5 - -
Local 15.5 20.0 2.5 - -
Working capital - - 19.2 - -
To' ' In.-eOtwent ~~~~~~~~~19. - 7_5.0 2
Renewals and replacements 20.0 20.0 20.8 29.0 26.0
Other fixed assets 4/ 109.3 124.2 5.4 - -
Interest
Existing long-tenm debt 20.1 30.4 29.J4 28.1 21.7
TBRD 0.1 0.8 1.3 1.4 1.3
YIB and other banks (new investment) - - 0.9 1.0 6.8 6.6
Siort-term debt 1.7 1.6 5 1 1.2
Total Interest 21.9 33.7 33.2 37.6 30.8
Principal repayments
Existing long-team debt 66.7 120.7 108.5 86.1 48.4
IlRD - - - 1.3 1.4
TIB and other banks (new investment) - - - 3.5 3.8
'rotal Repayments 67 12 0.7 -5.6
Allocations to roess.- funds 5.0 5.0 5.0 6.o 6.o
Allocations for collective consumption 6.o 6.o 6.o 6.0 6.0
Subtotal 6/ 344 6 203.1
Net additions to working capital 24.0 (25.9) 7.2 94e.8 185.4
T'otal Applications 272.1 318.7 210.3 264.3 307.8
Debt Serv-ice Coverage * , .. -
1/ Material costs in 1968 include ore to be purchased from other mines pending completion
of mining investments.
2/ The major dapreciation rates are 16-1/2% p.a. for mining equipment, 12% for flotation
and ,% for smelter and refinery.
3/ In 15968 the Company intends to use or borrow against its liquid assets to the extent
neceesary. Its cash position and inventory level should make this possible, particularly
-wher the sr,elter capacity is corpletcd an.d raw nate-rials car, be converted intu saiable
production.
4/ Other fixed assets include mining improvements, a fuming plant and additional sulfuric
acid manufacturing caDacity.
5/ Interest during construction is to be capitalized on loans for new investment.
c/ The decrease in working capital projected in 1969 plus the low debt service coverage
msy require medium-term borrowing which could be covered by the net addition to
workIng capital projected in 1971 and 1972. The Economic Bank of Belgrade is aware of
these possibilities and is prepared to make the necessary funds available.
IFC/LdRA
May 22, 1968
ANNEX 2
Page 2
TREFCA
flinancial Forecasts -_ Assipticns ard Explanations
S,ales Volime and. Sales Revenue (excludig serrvices)
(In million New Dinars )
Actual 1967 1568 1569 15970 1,971 1972
Nuantity Value ntit Value Quantitn- Value QuaLntit r Value Qntitr Value Qu4ntitE Value
;It -, s7 mson )r
Products
Refined lead 68,522 2C)8.1 108,000 320.3 115;,000 332.1 12(0,000 3)46.7 135,000 387.7 14J5,000 415.5
Electrolytic zinc 2,033 6.7 32,000 100.6 40,000 125.6 )40,000 1 5.6 4(0,000 125.6 40,000 125.6
Fine silveir 97 61.5 135 10C.3 140 10(5.0 145 108.7 160 120.0 180 1:35.0
Bismuth 104 11.0 113 11.6 115 11.8 115 11.8 115 11.8 115 11.8
Cadmium - - 88 4.6 112 5.8 112 5.8 112 5.8 112 5.8
Gold (kg) 304 4.3 350 4.9 350 4.9 350 4.9 450 6.3 550 7.7
Refirned arLtimorny - - - - - - - - 240 2.3 280 2.7
Lead acid batteries 670 IL.2 61, 41.0 7,000 46.0 7,500 I49.5 8,000 5r3.0 8,500 65.5
Sulph,uric acid 51,773 13.9 lci, 000 22.0 108,000 23.8 12(0,000 26.4 1310,000 28.6 14o,000 30.8
Superphosphate - powder 1036,473 36.6 125,000 37.5 12,000 317.5 40,000 12.0 4o,o000 :12.0 4o,000 12,0
Superphosphate - granulated 92,969 39.2 0,o'000 34.0 10C),000 34.0 10(0000 34.0 100,000 :34.0 100,000 34.0
NPK - granulated - - - 15(,000 8,4.0 15(0000 84.0 150,000 8)4eO
Cryolite 84 0.2 1,000 2.0 1,000 2.0 2,300 4.6 2,300 4.6 2,300 4.6
Aluminumn sulphate 674 0.6 2,500 2.5 2,500 2.5 2,500 2.5 2,500 2.5 2,500 2.5
Zinc concentrate 63,254 ;1.1 12,000 9.6 - - - - 40,000 32.0 45,ooo 36.0
Pyrite 47,280 2.5 86,000 _4.3 86,000 _4.3 4,300 4.3 150,000 _735 200,000 -10.0
Total 4 9.9 552 . 820.8
Refined Lead Eyports.
Convertible currencies 30,085 43,000 125.0 47,000 132.0 4r7,000 132.0 55,000 152,0 60,000 lf4,0
Clearing currencies 11-4- 25 ,00 1.0 2j Jl1.0 f2t1.00 80.0 30 000 136.0 30*000 86.0
lotal 1,0.0 68 196.0 72000 213.0 7C 000 212.0 800 238.0 o0 250o0
IFC/,AEA
May 22, 1968
APPENDIX 6
Page 1
T'LAIJ
The Borrowe
na Gorenjsken (factory of sporting articles "Elan"), a producer of skiing
--u_,,4,t __ln;[>-3 apparatu ___nd boats64 r,,ade4- oflstct.tril e en-ter-
eq%.Ii_LJ.1Lt:L , &YAIUUb11 idLj.LUifI jd Ld L.'U cUlU LJUdtLL AILc%.Ut4 %-J-LJL C L,�.&. 11LCd -.L' .L 4d.L. .Li 1 LIt
prise was founded in 1945 and is located 55 kilometers northwest of the SLove-
ni-an Republics capital, LJublJana. LjublJw-la is on the main raLlroad to the
east and to Western Europe and has convenient highway connections to the norch
and easiu as weL'.L as to the Aarliatic cuast.
The factory nas an annuai capacity of about; 170,0L0 pairs of sks,
100,000 pairs of ski sticks and 400 boats, working two shifts in most depart-
ments. In addition the factory also produces a variety of gymnastic equipme-nt,
hockey sticks and other sporting products made of wood.
The current share of exports amounts to 60% of total production. The
goods are exported to the convertible currency areas, primarily Switzerland,
USA, Scandanavia, Canada, Italy and France as well as the east European coun-
tries which takes less than 15% of the factory's export sales. Elan's products
have a reputation for quality and are among the leaders in ski equipment.
The new investment sought from the IBRD is to finance Elan's project
for completing the modernization of the factory, putting an end to bottlenlecks
and increasing the quantity and quality of skis with new machinery. The basic
purpose of the modernization program is to enable a large proportion of olutput
to be used for manufacture of reinforced wood skis known as metal, fibergLass
and plastic skis, because these materials are employed in them. These are in
increasing demand in Western Europe and North America. Upon completion of the
project the factory's capacity will be raised to some 200,000 pairs of skis.
The entire increase will be in the fiberglass and metal reinforced skis, which
will be increased from a capacity of about 40,000 pairs to about 70,000 pairs.
In addition the factory would be able to produce a large number of hockey sticks
and other sporting equipment. In total, sales revenue is expected to increase
from about N.D. 40 million at present to N.D. 56 million in 1972. The total
cost of fixed assets is estimated at N.D. 18.9 million (US$1.5 million) exclud-
ing interest during construction, of which US$700,000 is required in foreign
exchange which the IBRD is being asked to lend. Elan estirmate their working
capital requirements to be another N.D. 3.5 million of which US$120,000 is
required in foreign exchange.
The enterprise employs about 550 persons on its payroll and has the
following principal facilities at present:
(a) Two principal ski manufacturing, painting; finiqhing
buildings with general woodworking and special ski-making
r r P- Pprrent A
Prepared by A p, Perram and A.S. El Darwish.
APPENDIX 6
Paae 2
(b) IWood ageing and sctorage buildiings aincd sheds, temperature
:;>e Lk 4regna'-on bu:' dng and equipment;
(c) General woodwork ig department; gymnasuim equipment
manufacturing department;
(d) lWorkshop for production of metal parts and for main-
tISenance and repair.
The general and gymnasium equipment departments are in old, low,
wooden buildings which are unsuited to the operation, but can be used for
storage. Tne workshop building appears to have outlived safe and sanitary
usefulness for virtually any purpose. The wood, metal and plastic ski produc-
tion are squeezed into one building making layout and flow of material poor.
Various techniques and operations can clearly be improved with some
investments in new equipment as is planned in the present project. Manua:L
administration of glue is expensive and apparently le.ds to cornunption of
considerably more materials. Replacement of saw cutting, mnilliig and g^rind-
ing (one cut at a time for one operation at a time) by multi-head stage
milling cutt(Drs w7hich finish four cuts in one operct>ion are in line with
Elan's scale of production,
History of Borrower
The p:lant was founded after World lar II as a specialized facto:y
for the product:ion of sporting articles with firemen's equipment as a secondary
line. The factory was located in the Alpine foothills of 'Slovenia where tradi-
tional woodworking industries are predominant. During its first 10 years of
operation, the factory had virtually no exports and had reached the employment
level of 155 persons. Exports were begun in 1955 at a modest level of under
$10,000 per year out of a total production of N.D. 2.2 million. In 1967 the
factory procucecd ;:.D. 39 million w`wrth of goods anA expnrted crer 7.D. 23
million (almost US$2 miilion).
The ski making, which originally was primarily a manual operation,
has been mechanized by the enterprise itself based on its research in ski.-
making technology. The next stage in the factoryts develop)ment is to mec.hianize
many of the operations further with modern equipment, In recent years the
world demand for .ikis has become increasinglv soDhisticatecl and the introduc-
tion of aluminun and fiberglass reinforcing plus the growing desire for plastic
coating has made the change from a hand-working industry to a machine-oriented
industry not only possible but essential for reducing costs and maintaining
competitive qunln t.y
The basic gluped wood ski is manufactured by Elan with a variety of
arrangements of layers of ash wood. The wood is obtained from local forests
and is agedj dried, treated, cut and glued in the various arrangement, of
layers at the factory. Recently, the wood skis have been reinforced with
.Arrnd'LJ.A U
Page 3
aluminum sheet produced in Yugoslavia and fiberglass, which is imported. In
order to meet the demand for several types of skis, the factory is in the
process of reorganizing its production line on a rational basis to allow
flexibilitv in meeting chanzing market demands for the combination of wood,
metal and fiberglass (known commonly as plastic) reinforced skis.
ManaL7ement
The factorvtn management is led by the General Manager, Joze Oster-
man, who has held this position for over 10 years. The other members of
management include Juirij Hocevar, t'he ProsnuctJion Manager and Chief of the
Development Institute who holds an engineering degree, Viliko Vogataj, Sales
Man.ager and for Chief of the por Depatment and Joz Linnik. Chief of
the Finance Section. All of these men have worked in Elan for several years.
Talks wri+h them indica+e their personal teci-;cal tapaci-v The second
level of management is composed of production experts manyr of whom have
been waith the enterprise since the n ndhv had oe-hnJi-n1 trainirnpg
The management is familiar with the latest manufacturing techniques and
the s;t-n demandS o-L 4[he m,arket. LIL.is has been dmn1rtdh h
recent improvements in the production process which have been carried out
successf-N-1ly and _'n 4hes>- done-U for_ .0- preer, po-c;-+
Recent Financial and Earnings Record
Balance sheets for the past four years (1964-1967) are shown on
Annex 1 A summary of the balance sheet as of December 31, 1967 (in N.D,,
miLlLion) is gilven below:
Assets Liabilities
Cash and eauivalent 4.9 Short-term bank debt 19.9
Receivables 16.7 Trade payables 7.8
Inventories 20.5 Other current liabilities 27.3
Other current assets 30.3 Total current liabilities 5$. 0
Total current assets 72.l
Long-term debt 10.2
Net fixed assets 9.2 Business fund and reserves 16.4
81.6 8L.6
Since the end of 1963 Elan has increased its fixed assets by building
a hn1 for its ski makiner installed an automatic kiln for drying and treatinJ
the ash wood, amd by purchasing and installing a few machines for formingt and
conAit.innin the s The total increase in fixed assets. excluding revralua-
tion of assets at the end of 1966,equalled some N.D. 5 million. The major
APPENDIX 6
Page 4
portion of this earlier program was completed by the end of 1965. Of the
total assets carried at a revalued cost of N.D. 13.4 million, almost 30% has
been depreciated, primarily the original buildings and outdated machine shop
equipment which is to be replaced. In 1964 and 1965 Elan increased its long-
team debt for fixed assets some M.D. 3 million by borrowing from the Splo,na
Gospodarska Bank of Liubliana and the Y.I.B. These loans in addition to
earlier loans for fixed assets and a supplier's credit in 1967 for the kiln
bring Elan's total long-term debt for fixed assets outstanding at the end of
1967 to N.D. 3.3 million with an average interest rate of about 6% and an
average term of about 1- years excluding a N.D.30L.000 loan of 20 years at
2% granted in 1959 for mortgage type financing. For the other loans the
maximum term is five years and the rates range from 2 % to 7%. Long-ternm
working capital loans outstanding from local banks totalled N.D. 6.7 million
at the end of 1967 nnd averagerd Qz4 nnrl 10 vears.
Due tc relativelylight snow and a short skiing season
for the nast three years plus credrt tightness. Elan has increased its inven-
tory from N.D. 5 million at the end of 1963 to N.D. 20 million at the end of
1967 wh-ile salezE were growing from N.n. 15 milli on to N.D 3L million. Most
of this increase in inventories has been financed out of the enterprise's own
flTnds while the growth of receivables has been firnr.ed h exnort credits
from the Yugoslav Bank for Foreign Trade and the Kranj Credit Bank.
Elan's current ratio has weakened in recent years to less than 1.5
to 1 but he continued assistance of local banks wihich support h+e project
submitted to the IBRD and the improvement expected from long-term financing
ofueproject should ease thLe ent-erprisets liqdL| -+,yi hef,u.Db
service coverage in 1966 en.d 1967 has been tiglit anC this iTll
continue until 1971 when earLings sho ud increase as a consequence of the
project, and debt repayments begin to decrease as a result of the medium-
termi-, loans being repaid.
Elan's income statements for the past fo-ur years are summarized in
Annex 1, page 2. Production volume, sales and earnings for these years are
,suo-wn be-low:
Production Vlw, v1964 1765 1966 196j 7
wood skis (pair) 133X176 �L4 ))U L1L4,) UV 131,6L2
Metal skis " 9,830 12,310 19,84() 30,580
Plastic skis " 288 480 631. 5, 315
Ski sticks " 42,067 49,673 48,720 51,616
Gym equipment (000/hv) 2,210 2,349 L,58L4 lh40O
Boats (number) - 135 366 867
Other products (000/ND) 2,012 3,777 4h356 3,763
Sales a-d a (-in mJ114,w TM)
Net sales, paid 19.1 24.2 24.1. 34.2
Earnings from operations 1.2 2.1 2.1 2.4
APPENDIX 6
Page 5
Wood ski production oubpaced sales in 1965 and was cut back in
1966 to approxirnately the sales level. In 1967 procduction again exceeded
sales indicating the changing demand to metal and plastic. Wlith more expensive
skis,the raw material costs as a percentage of sales have increased which
taken with higher wages, taxes, interest and depreciation have produced profits
at practically the same level as 1966 and 1965 when sales were considerab:Ly
less in dinars.
In 1967 production was at capacity, slightly more than double the
196h production due to increased value of the reinforced skis and to the
introduction of plastic boats. The value of gymnasium apparatus produced has
decreased and tlhe value of wood ckiq had increased due to higher prices for
better quality, especially the plastic veneer coating and steel tips and
riunners, The in reed seales bhetween 1965 and 1967 are also due to the h:igher
quality and average price. Invoiced sales have shown an in7creasing trend
since 1963 although paid sales (sho-n on the ineome statements) have fluctu-
ated due to changes in financing exports which until 1966 were financed by
an export agency and are now froanced by the ente r+rier- uiSing c-rediitsq from
local banks,
MA rkeA + J .etiJin a-nd Prices-
M,o,me IT , r 4
Y[-ugosLav annual cons-umption of skis is estmated to be about 300,000
pairs of wood slcis, 20,000 pairs of metal skis and less than 1,000 of plastic
skis. Tne totaL value is about N.D. 32 ml on, -with wood skis accounting
for 75% by valuue. Elan is the only metal and plastic ski producer and has
about 60% share of the wood ski sales as well. The other makers DrP and J,7Ah
in Delnice are still small manual production shops as was the ski plant in
Rijeka which closed down in 1967. Tnese cannot be considered as com-petitors
to Elan, which :is going to specialize in the more expensive reinforced sk:is,
which eventually should increase its share of the Yugoslav market as they hare
done elsewhere :in the world.
Domestic sales of Elan have not increased in the last three years
due to unfavorable weather for skiing as is shown by the following table:
Domestic Sales by Value
(N.D. millions)
1963 1964 1965 1966 1967
5.1 6.4 12.7 11.8 12.1
As more expensive skis are being purchased at present, the quantity
has gone down ovrer the last two years.
APPENDIX 6
Page 6
Export. Market and Oom-etition
The following table indicates the estimated world consumption and
production of skis in 1966 together with a rough estimate of rate of growth
in demand in the principal consumer countries excluding the USSR for which
Elan had no information:
(in 000's pairs)
Annual Growth
Consumption of Consumntion Makers
United States 900 about 12 to 15% Head 120
Hart 60
Northlandj 40
Others 80
Japan 900 about 10% Toyo )
Kasanco ) 1,000
Others )
Austria 600 8 to 10% Fischer 360
Ausl. V60,w
Kneise!l 80
Others 140
West Germany 600 5 to 6% Erbacher 100
Vastra. 100
Others 290
France 200 4% Rossignol 80
Others 70
Italy, Czechoslovakia,
Yugoslavia 200 3 to 6% Elan Yugo 135
Persenico It. 70
Others (in all 3)480
Switzerland 200 6% Attenhofer 50
Others 90
East Germany, Poland
Others 200 - 600
3,800 ,065
APPENDIX 6
Page 7
Elan is one of the top five in capacity, thou-h it is second in
number of' pairs only to Fischer because of the reltive1v TLarge number of
the cheaper wood skis that it makes. The enterprise has an established
network of dealers, an orgnnized sal es ntinr nd n n 1wn- nhed name as
a good quality international producer. The enterprise should have no
difficulty in continuing to comnete aS it does with other mrakers, especially
as its expansion will not increase its capacity much (from 170,000 to 200,000
nairs) bhut will makeP Fl:n rnnm%1 gzf A' rnr vrp"n+A1n r%Aiut+_ i
Elan gets a 12% tax refund on exports and a special exchange reten-
tion quota of 14% since they export more than half their turnover (below a
certain limit the retention quota is 7%). These benefits and the priorit;Y
they get in licenses to import raw materials because they extport a large
proportion of output, encourage them to promote exports. Elan's requirements
of imported raw material now is about 50% of the materials they use (i.e.
30% of total costs). It is exDected to be about the same in the future
because their change to more sophisticated skis requiring more imported
materials will be balanced by development of the local material sunnliers
in Yugoslavia. These imports of materials should always be less than haLf
receipts from exiorts.
Prices
The prices of Elan's skis on the home market and exports are shown
in the folloiens' table (in N-L.D):
Export
Home (FOB Border)
1963 1966 1963 1966
Wood skis *- Jet 98 138 100 111
-- Ski Master -lh 171 156 1'A
-- Attache 194 224 194 196
Meotal s;kis - __J_ 35,9n 11 141 1,7r' I
- Super VSL 386 520 500 638
T1, I O' em,a --41
Plastics.w s -S.dS.fl,L,Jt.a = 620663 66
In 1967 p ri.ce re.mair.ed the- Sle as 166 but- trade nd cas-h pa-.1ent
discounts were increased by up to 5 to 8% on certain types of cheaper skis
to reduce inventories of goods whose s were a e Apparently,
the export prices quoted above are competitive; retail prices and the usua4
-r5 gesW. ofAL.�J rLAkO suggest tha 1t :Yae aboUUt 1�-ihIJ. It .is e-V�dUUII1. vh11at ZIC.
makes use of the 20% import duty into Yugoslavia in the cheaper types which
they sell mor-e expensiely on the local larket. They do, however, seil the
more expensive skis cheaper locally, apparently because of -their desire not
to deprivre local skiers (incluoing champions and C'lUDS) Of use of quality
goods, especially as very few people in Yugoslavia are prepared to pay more
thal uouobe for the reinforced SKi.
APPENDIX 6
Page 7
Elan is meeting with stiffr price competition in Europe, especially
in EEC and EFTA countries. The EEC countries imoose a 30% duty on Yugoslav
ski imports compared to 15% (half) on skis imported from wiLthin the group.
EFTA duties are three times as much on Yugoslav skis than i-nDorts from other
EFTA countries. Austria has a 50% import duty on skis to protect its industry.
Only the U.S. has no high nrotection barrier on imnorts. T'hey are Elan's
second largest export market and the enterprise hopes to increase yearly
sales there from Us$368,000 or 26% of total exnorts now. to US$800;00Q or
30% of total exports after their project, when they can deliver more rein-
for.ed skis S.ri t.zerland, another country where inmport riiit are relativeyV
low, is presently Elan's largest export market, taking 27% of their overseas
sales (about US$37 per year). They are expected to drop to second ple
behind the U.S. after implementation of Elan's project, but sales will be
still much hIngher than at present = US$600,000 ma<king "p 22% of
Elan has no serious price pro'lems inr the reil sks, in ShSch
growth of demand has been somewhat slow (probably because of the weather)
Jn Euope over IVth e '-st Iwo ,years. In ceprsk 'S, Jap -is r-oiia
price setter, selling certain skis as cheap as US$5 to US$6 per pair. Elan
has on occasion.s lnked up quantities they supply of cheaper wood skis, which
are priced in export virtually at cost, to a number of reinforced skis which
their overseas agent m-ust take simultaneously. Elan's plans to concentrate
on reinforced skis will ease its overall average price to cost situation.
Description of the Project
Elan's proiect. aims at-.
(1) Separating the production lines of wood and reinforced
skis so that material flow is improved;
(2) Moving general woodworking and gymnasium equipment
production into suitable buildings;
(3) Extending the facilities that are overcrowded at
present;
(4) Replacing outdated and manual machines by more modern,
automated and specialized ones which are more in line
with the scale of operation of Elan.
The project has been engineered by the enterprise's own production
technicians and those of its specialized development institute. They have
visited various factories to get an idea of the modern technology in use.
The machine expositions and makers, which they visited, have also contrilluted
to the engineering of the project, much of which is based on modernized end
automated woodworking technology.
The criginal schedule of execution of the project has been moidfied
to correspond with prevailing circumstances; production and performance pro-
jections have been based on the modified schedule.
APPENDIX 6
Page 9
Cost of the Prcject
The estimates of the cost of the project are set out below. Most
of the eauipment is likelv to come from Western Europe and the U.S. Import
duties are about 35%. Contingency allowances for buildings and equipment
hnve heen cal=culated. based on price increases since estimates were made,
and making some allowance for variations.
Elan expects to manage with N.D. 3.5 million of :Eresh funds for
working capital. This woilt not he nossihle if working ca)ital after this
project had to retain the same proportion to turnover as at present. Elan
hopes that turning over of working assets 11 he m-ore rapid in future.
They claim that the present situation is a temporary and uwfortunate one
caused byT "m -ilrT p snow in Europe and Yny o,VI q a over the 2-3 vears
and by unfortunate marketing errors in orders by their leading agent (in
the~~~~~~~~~~~~~~L&L U.S. who.z has. bee ch.nged
Elan Capit-al 1Cvsts
TJ$000 _ N.D.000
Foreign Local Total
Land - 27,300 square meters 164 164
DUL.LUiLngs - IL,5^ square meters
@ N.D. 880/sq. m.
- ..7.v square me'iers
@ N.D. 620/sq. m.
Other buildings, fencing and
sewers, etc. - 3,,134 3,134
Contingency on buildings (most prices firm) - 60 60
Machinery and equipment (to Yugoslav border) 624 2,800 10,600
Insurance, freight, customs and erection 16 3,300 3,500
Contingency on machinery 60 400 1,150
Studies, design and similar expenses - _o _ 2B2
Total Fixed Assets excluding
Capitalized Interest during
Constrution 700 0, -L40 i8o,u8U
Working capital contribution 1/ 120 2,000 3,500
1/ As estimated by Elan on the assumption that stocks will not need to be
as high as 1966 and 1967. Foreign exchange costs to be financed from
dinar resources.
APPENDIX 6
P-p -in
Project Financing
A summary of Elan's estimated financial requirements and sources
of funds duriing the project's construction period (1968 and 1969) is given
below (in million N.D.):
Uses Sources
Project 18.9 Liquid assets 2.0
Debt repayment 4.2 Net earnings (1967-1968) 4.9
Reserves and other allocations 1.9 Depreciation 1.9
Additions to working capital 0.1 Long-term debt - IBRD 8.8
- Other 7_5
Total 25.1 Total
Detailed earnings and cash flow projections for -She construction
period and ensiing three years together with the maior assixntions are shown
in Annex 2.
Project costs of N.D. 18.9 million exclude workidng capital require-
ments of N.D , mnillinn which troilri 'h neededi in 1970 andi wiii bh finanGdri
by Elan's local bankers. At the end of 1967 Elan had reserved about N.D.2
million of liquiid assets, pmarily cash an.d receivables to cover the project
costs. If necessary, credit for the financing of receivables can be obtained
from + r orth ,n c re1 hee, nt.. , .,,a an 4 e r n 4; +; atnn rn oth f'r. r, v ion+ nor
The long-term loans from domestic banks for not less than N.D. 7.5 millicn
hlave b-een arranied,
Eariu�i1gt and Debtuu Orvie roureuas,s
Earnings forecast (Annex 2j is based on product.ion and sales
estimates prepared by Elan. Sales forecast exceeds production estimates
-which ha-ve beeni proJected taking into account the high 1967 ,year-end inventory1.
The sales forecast appears reasonable considering past growth of invoiced
sales. Saales i'rom 1964 to 1967 and projections for 1968 ,to 1972 corrpare
with production and finished goods inventory levels as follows (in million
N.D.):
Actual Forecast
Vi64 1D965 196006 1967 1968 1969 i970 i1971 -7t
Inventory
January 1 :L.3 2.3 4.5 6.2 10.3
Produced 19R.2 26.7 31.4 39.1 33.0 35.0 45.0 49.0 56.(
Invoiced 17.9 24.9 30.5 35.6 39.0 39.0 45.0 50.0 55.(
Paid 1'3.1 23.8 23.8 34.2 36.0 38.0 45.0 50.0 56.0
Earnings 1L.2 2.1 2.1 2.4 2.5 2.5 3.1 3.8 4.6
APPENDIX 6
Page 11
In 1966 production may drop as irdicated if inventories at the
end of 1967 have not been worked off by mid-1968. HIowever, the uncertainties
of the market which depend on the late winter snow, the West European
economic recover-y and a more sophisticated ski market make projections
difficult. The timning of the IBRD loan will also determine the 1968
production plans in preparation for the modernizatiorn program. If new
equipment is installed in early 1969, 1968 production may be increased for
inventory purpoSes so that sales are not lost if production has to be
reduced during the installation period.
Sales prices are projected at current prices with higher quality
raw material osts incnrPaser 2S well an wages and denreciation. The assunp-
tions used by ELan were reviewed by the missicn and found to be realistic and
acceptableO
At rcanait;v nnAr'tion in 1972. inrome is prolected to increase
N.D. 2 million over the 1969 level of N.D. 2.6 million. As a percentage of
sales; earnings grow slightly from 70/o in 1Q6Q io 80/o in 1Q72. However.
wages, which increase almost N.D. 3 million during the same period, indicate
that the real inacrease in profitability s in fact higher than the earnings
figure above indicates.
Debt service is adequate and ranges from 1.3 in 1.968 to 3.5
-i 1I72.
Conclusions
Yugoslavia's important woodworkine factories. of which Elan is a
leading member, has a growing reputation for quality products. The project
for increasing the value of production of this enterpri se :iLs justified from
several viewpoints. First, Elan is a factory using domestic raw materials,
particularly timber and anlluminum. Sec-ond, the technology developed in the
last 20 years rould be more efficiently used with greater mechanization
making the already well trainred workforce more nroucti-ve End comne.ttiive=.
Third, the increased foreign exchange earnings would benefit the balance
of paymentcz Foniirthj the pro rv'contr.ibution to higher earnings and
increased wages indicates it is economically sound and viable.
TFVtTr.JF 4
July 26, 1968
ANNEX 1
ELAN
Compar,itive P2lance Sheets
As at Decembe 31 I 14(, 1 967
ASSETS
Current Assets
C_ash, bUankrls arid near cash i' 6'. 4g1
Trade receivables 1.6 3.8 13.5 16.7 2/
Raw materials and supplies 3.2 4.-5 7.0 5.7
Semi-finished products 1.8 3.6 3.9 14.5
Finished prodckits 2.4 4.5 6.2 10.3 31
Total inventories 7.3 17.1 20,-
Other current assets 4/ 3.6 3.9 19.2 30j
Total Current Assets 4. 22.9 5.u 72
Gross Fi,d Assets
Land ".'
Buildings 2.9 4.8 6.2 6.2
lachinery and equipment 3.0 4.14 5.9 6..
Fixed assets under construction 1.9 .2 - .3
Preliminary expenses, patents, etc. .3 .5 .5 -
Collective consumption assets .2 .2 -
Other fixed assets - - 1 2
Total Gross Fixed Assets 10.1 12.7 13.1
Less depreciation 1.8 2. :3 3_ L4_1
Net Fixed Assets 7 8.9 9.2
Total Assets 21.4 30.7 6a-.5 81.6
LIABILITIES
Current Liabilities
Short-term debt 2.6 4.9 17.6 19.9
Trade payables . , .9 1.9 1.3 7.8
Other current liabilities4/ 5.0 6.1 21.2 27.3
Total Current Liabilities 8.5 12.9 ITO.1 7.O
Long-term debt 6.6 7.'7 11.1 10.2
Funds of the Enterorise
Business fund 5.2 8.8 11.4 13,1
Reserve funds .8 .9 1.1 2.0
Collective consumption funds .3 .4 .8 1.,3
Tot_l Dwn Funds 6.3 10.1 13.3 16
Totanl Tj n hi i tie2 30, 7 6b.5 81.6
(Current Assets/Current Liabilities i.8:1 1.8:1 1.14:1 1.3:1
Long-term Debt/Own Funds 52:48 43:57 46:54 38:62
TFC/LAFA
AN\NEX 1
Page 2
ETAN
Earninp7 Statements
(In million New Dinars)
1964 1965 1966 1967
Sales Revenues 19.1 24.2 24.1 34.2
Operating Costs
Materials and overhead 11.4 14.2 14.1 21,,1
Net wages 2.8 3.1I 3.5 4
Related social payments 1.0 1.2 1i '.
Taxes and contributions 1,7 2.0 " 9
Total Operating Costs 16.920.8 To-. 3 j')
Depreciation .3 .5 .6 .
Interest __7_ .8 - l )
Net Earnings Ic. 2,L 1:9.
Debt Service Coverage 2.0 1.' 1.5
Notes to Comnarative Balance .c.hee-:
1/ Cash was reduced in 1967 as a consequence of the need to increase other
current assets without further increasing the already high debt position.
2/ Trnad receivable. Thich increasnedr marketdlyv in 1906 and 1967 are now financed
by Elan instead of by its previous export agent.
3/ Finished goods inventory at the end of 1967 was extraordinarily high as a
skis, and a build-up of inventory in anticipation of the rnodernization program
w.hicrh mayTT interit+ pre\1roducton i n 1968.
,/ Oh-er cue,n assets anA current ni,ab,ilia ties include - -otra accounts for.
unpaid sales (receivables).
5/ The cost of land as is usual in Yugoslavia is only nomina:L and too small to
UV reflec'_ted UU, Uzie baLan.WUte LiIj L111 rhe 'I'lL-Lons of dnidrs.
6/ Unl"ke most otlher enterprlses Elan does not fLnalce housing and ot,her faci-
lities for its workers. This is a consequence of the rural location of the
plant and the relatively small size oI the workforce.
IFC/LAEA
May 22, 1968
A.I'JEX 2
Peg 1
ELAN
Financial Forecasts
(In million Niew Dinars)
Construction Years
Year end-i4ng December 31 q 1969 1970 1971 19'72
Earn.ings State,ment-
Sa-les IluvUenutl-1 36.o 38. 4.0 50. 56.
Operating Costs
Materials and overhead 21.7 22.5 26.9 28.6 31.6
Net wages 5.0 U (. 600 U7 .)
Related social payments 1.8 1,9 2.0 2.2 2.6
Taxes and contributions 1.1 3.4 3 4,2 -7
Total Operating Costs 317 33.2 34.7 TF2.2
Depreciation 0.9 1.0 1.6 2.0 2,1
Interest 1.0 1.2 1,6 20 _
Net Earnings 2.5 2.6 3.1 343
Sources and Application of Funds
Sources
4at earnings (during the past year) 2.4 2.5 2.6 301 3.8
Liquid funds available 2.0 - - - -
Interest 1.0 1.2 146 2.0 2.1
Depreciation 0.9 1.0 1.6 2.0 2.1
Increase in long-term debt
IBRD 3/ 3.0 5.8 - - -
Banks suppl. fixed assetsL/ 4.5 3.0 - - -
Banks suppl. working capital - - 3.5 - -
Total Sources 13.8 9.3 7.1 8.0o
1/ Sales based on production program less adjustments for inventory and rece:ivables.
2/ The enterprise expects to reduce receivables and inventories sufficiently in
1968 to obtain necessary cash to meet requirements.
3/ The IBRD loan includes N.D. 0.8 million in 1969 to cover contingencies on the
machinery sugge.sted by the IFC mission in the amount of US$60,000.
4/ Local bank loans expected to be for terms similar to IBRD with interest from
7, to 8%.
TFC/LAEA
May 22, 1968
ANNEX 2
Page 2
Sh'nanrr.jl T?nrcnr,c.
(In milli i Ne-w Dinars)
ConS1ruC14 on vears
1968 1969 1970 1971 1972
Applications
New investment
Fixed assets
Foreign ./3.0 538.
Dome stic 6.6 3.5 - -
.Working capital - - -_5
Total Investment 9.o 9.3 3.5
Maintenance and replacements - - 0.5 1o0 i.0
Other fixed assets - - - - 1,,5
*.ntere st
Existing long-tern debt o.6 0.5 0.3 0.2 0.1
IBRD 0.1 0.3 -o.6 0.5 0.4
Short-term credits 0.3 0o. 0.4 o.6 0.9
Domestic banks (new investment) - - 0,3 0.7 0.7
Total Interest 1.0 1e2 l,7 2.0 2.1
Principal repayments
Existing long-term debt 2.2 2.0 1.7 1.h 0.2
IBRD - - - 0.3 o.6
Domestic banks (new investment) _ - _0,4 0.8 1.0
Total Repayments 2.2 2.0 2 26 1.7
Allocationsto reserve funds o.6 0.7 o.8 0.9 1.0
Allocations to the fund for collective
consumption 0.3 o.3 0.3 0.5 0O7
Total Allocations 0.9 1.0 1.1 1.4 1.7
Net additions to working capital 0.1 - 0.5 0.1 -
Total Applications 13.8 13.5 9.3 7.7 8.0
Long-term Debt Service Coverage (times) 1.3 1.5 1.5 2.1 3,5
1/ Due to the nature of the equipment, it may be possible to expedite the approval
of orders and th.e acceptance of contracts in 1968.
IF C/LAEA
May 22, 1968
ANN:EX 2
ELAN
Financial Forecasts - AsmLinptionrs and Explanations
Production Volume and Sales Re!venue
- n millions of New Di.nars)
Sale s Production
,;;9-67---tjFcTuaL!') r9-Z;7-7Ac-tui1 19g6EF ' 196 _ _1970 1971 1972
ot.v N- Otyv. N-D Ot-v N. D. Qtv. N. D. QtYv. N. D. Qtv. N. D. Qt.y. N. D.,
Wood sLis (000 pairs) 114 12.2 132 114.8 1114 13.c6 1114 1:3.6 130 15.0 135 15.3 135 15.3
Y etal skis 29 11.14 31 12.6 25; 9.0 26 9.14 32 11.5 35 12.6 l.O 14.7
Plastic: skis In 5 1.8 5 2.1 31 1.0 1 1.3 1 5.4 20 7.6 '29 11.0
Ski sticks n140 1.1 52 1.9 40 1.c6 40 'L.6 45 1.8 55 2.2 65 2.5
Gymnastic apparatus - 1.5 - 1.4 - 2.>' - 2.9 - 3.8 - 4.3 -- 4.3
Boats 800 2.3 500 2.4 4o0 1.3 600 :L.9 60PD 1.9 800 2.1 1,000 2.2
Other prochicts 5.1 3.8 - 14.0 - 14.3 _ 4.6 - 14.9 * 5.0
Production 39.1 33.0 35.0 44.0 49.0 55.0
Invoiced sales 35.6, 38.0 39 .0 45.0 50.0 55.0
Paid sales 34.2 36.0 38.0 45.0 '0.0 56.o
Of which Ecports N.A.
Wood skis (000 pair) 90) 9. 8 90 9.8 95 10.4 100 10.6 m)o 10.6
lMetal SkiS ( n ) 22 7. 8 23 13.2 28 10.0 31 11.3 ,35 12.8
Plastic skis ( n ) 2.6 .1 3.6 1.2 12 3.9 15 5.7 2,3.4 9.3
'Ski sticks ( n ) 20 .9 20 .9 20 .9 22 1.0 22 1.0
CrynnaLs ti c apparatus .3 .*4 .8 1.1 1.:L
Boata; 400 1.j3 600 :1.9 600 1.9 400 1.3 400 1.3
Hockey sticks (000D) 14 *1 5 .1 9 .2 15 .2 20 3
Total exports 23-5 21.1 22.5 28.1 :31. 2 36. 4
Export sales
Convertible Cu:rrencies 21.5 19.,3 20.7 26.1 28.7 33.2
Clearing Currencies 2. 0l 1.8 1.8 2.0 2.5 3.2
IFC/LAEA
May 22, 1968
APPHTDix 7
Page~: 1
VlKTOR LENAC
The Borrower
The prospective borrower is the ship repair yard "Viktor Lenac"
in Rijeka, in the Republic of Croatia. The enterprise was established 7C
years ago and has operated since 1948 under its present name. Its main
activity is ship repair, both of foreign and Yugoslav vessels, although the
yard also has f'acilities for the reconstruction and conversion of vessels.
The shipyard is licensed by the Government of Yugoslavia to carry
out repairs ancd overhauls in connection with annual and special surveys of
vessels, all kinds of damage and wear and tear to the hull and repairs to
main and auxiliary engines, electrical gear, rigging, woodwork and cabin
furnishings.
Viltctr Lenac's total assets on December 31, 1967 were N.D. 203
million (US$16 million) and its sales revenue in 1967 amounted to N.D. 67
million. The enterprise employs a labor force of 980, but the use of sub-
contractors may increase the number of workers employed in the yard to as
many as 1,200.
The proposed project represents the second stage of the enterprise's
development plan for the bav of Martinseica; where the major part of the repair
work will be carried out in the future. It comprises the construction of 28Cm
of wharf and of' tw^uo prefahricated steel workshops, anrd the installation of new
machines and equipment intended partly to meet existing deficiencies in metal-
workingl f crir ann d party Ito rneplae ohbslete euiiiinment.- The canacitv of
the compressed air system will be doubled and a boiler plant installed. The
total cost of the project, excluin.g i -nte A n rg nncnructi on nri n -
tional working capital, is estimated at N.D. 22 million (us$1.76 million) of
which some US$0.h) million is required in forPign exchange. n TRTD has been
requested to provide this amount.
Histony Cof -theBorroweftesaorrfRJk vhnpr fAsti-Hna
~J~L~L~.JJ.*y '.d4. L.�1 �-J. .L V
was begun by the Hungarian government in 1846. All major repair work was
4-il189 carrie - out- -4y I 4 avy 4re ' D in .a. Tn 4that --a Mr. Josep
U.AII.L.L. J.U.7J "L.d..L�.Lt-U JUL.U Ly UAI1 Iud.Vy auous" L _LnZ AU.J1* LI Z U1CL J~~ -1 -C-
Lazarus was granted a license to set up a ship repair yard in Rijeka. The
yard was located at Ihe beg iLrLL1g UJ. ithe mIa"li braCLWGLat, Iwhere iL stJll iL
today. In 1923 as a result of the partition of the town uader the Rome Treaty,
a part of the yard fe'� uduur uiu lua.Lui JuritdcLution auU only wi part in
Yugoslav territory continued to carry out regular ship repair work. The yard
suffered severe damage during Wworld 'war II.
Prepared by A. R. Perran and J. UT. P. Jaffe.
APPENDIX 7
' '*
I-age 'L
The main occupation during the immediate aftermath of the war was
to clear the harbor of sunken ships and mines and to reconstruct the damaged
steel structures in the town. On January 1, 1948 the shipyard began normal
work again under the name of "Viktor Lenac."
With the steady increase of cargo traffic through Rijeka, greater
use was made of the enterprise' s yard. A floating dock was added to the
basic equipment and subsequently lengthened to provide a lLfting capacity
of 5,500 tons. However, as bigger ships began to enter the harbor, it became
apparent that the capacity of the dock was inadequate and this forced the
enterprise to reject a considerable number of requests for repairs.
In 1960 plans for a fundamental yard reconstruction scheme were
drawn up. Since space limitations prevented the widening of the yard in
Rijeka harbor, the enterprise chose the nearby Bay of Martinscica as the
site of a completely new yard. This bay which forms a natural harbor is
three miles east of the present Yard and lies between the port of Rijeka
and the new iron ore and oil terminal at Bakar. Because of' financial limi-
tations the plan was divided into several stages. The first stage, which
included the construction of a 220m long breakwater and a 495m long east. wharf
and the installation of a new floating dock with a lifting capacitv of 2L,000
tons complete with two 15-ton cranes and two luffing cranes on the east wharf
was completed in 1967- The second stave constitutes the nroiect for which
an IBRD loan is requested.
The enterprise is one of six members of "Jadranbrod", together
with qhinvnrr-q at Ri ipkan Piiln - nt-nl. Kral 'ec and Tro-gir Trhi eh formn1vy
associated in February 1968 with the object of improving employment, reducing
cost and enabling further moderpn +4r,, and reconsruction to b carried out.
Viktor Lenac affirms that the new agreement will not affect its present expan-
sion pla ,r in-r. w, as tI ese w. Pf'ly re-.-te4 -. 4 accepted prior to the
n in - ...y~. wa , D VMe llulj. J IK- VLIVALL CUU CCEJU "F .L.' IU'V.
formation of the coordinating association.
Management
The General Manager of the enterprise is Iflr. Sergio Lukes, Dy
profession a naval architect, with 11 years of experience in the industry.
The Technical I)epartnent is headed by Mr. Josip Tolja, a naval architect
with 18 years of experience and the Commercial Department by Mr. Tito
Kresic. Mr. Pavle Mavrinac, an economist with 22 years of experience is
responsible for financial management.
The management team appears to be well informed and providing
the right kind of leadership in an industry where labor management is of
great importance.
APPENDIX _
Pa ge -
Recent Financial, and Earnings Record
Balance sheets for the past four years (1964-1967,)are shown ir
Annex lo Viktor Lenacts balance sheet as at Decemlber 31, 1967 is summarized
below (in million N.D.):
Cash and equivalent 19 Short-term bank debt 7
Trade receivables 12 Trade payables 4
Inventories 16 Other current liabilities 28
Other current assets 16 Total current liabilities 39
Total current assets 63
Long-term debt 104
Net fixed assets 140 Business fund and reserves 60
203 203
Since the end of 1964 the enterprise's gross fixed assets have
increased from N.D. 50 million to N.D. 166 million of which some N.D. 10
million was the consequence of the revaluation of assets in 1966. The
balance of N.D. 11l million is due to the completion of the new drv dock,
quays, bridge, breakwater, building adaptations, worlcshops, compressors
and preparatorv work for the nroiect to be financed- The increase in fixed
assets was financed by a N.D. 35 million, 30-year, 7% loan from the Rijek.Ca
Banka. N.D= 29-6 million from. the Yiwoslav BRnk for Foreigrn Trade for 8 years
at 6.7% interest and an 8.5 million Dutch guilders (IN.D. 2Q.2 million)
.mnpnliPrs credit from VerolnIe Vereenpi cr Rnhininncr.rven N00r-, Rotteredam for
7 years at 6% interest. The balance of the fixed assets were financed from
internally generated fulnds.
Th-e grow+vh of current assets has bee-n mo-dest ar.d reflects the
growth of business in recent years. Spare parts inventory has been somew:hat
of a problem for the yard as the parts are not obtainable in Yugoslavina and
relatively large quantities must be kept in stock. The growth in current
asset ss is so at+t r ib+Ded to- i4n i .+ .n ofnvenr rec+ ent ye a r s and +h e po.li -y ot
keeping larger balances in bank accounts. The current ratio of 1.6:1 at
the -A* --P 1047 bhSWr_ aas '_cJLIortab and Uh1 wCl gc...L_l",;_ --P h. Ln .
million considered adequate.
The long-term debt/own funds ratio which was 1:1 at the end of 1966
has~ -.crasedU -L(.-L: at the end 01 17 as a c onsqluene 0f toile UtIU L1.Lc-
ing mentioned above. The further incurring of debt will aggrevate this ratio
bUt the 30-year 'LAVUL 4l oLf ithe L.. 35 Ifil,LLII LUani from t,he iIJeka Banka, the
stable earnings pattern and the possibility of a combination of short-term
debt and phasing of renewals and replacements, if necessary, indicate the
enterprise is capable of assuming the proposed additional :Long-term debt.
APPENDIX *
Viktor Lenac's earnings statement for the years 1963 to 1967 is
sho-WrI LI t Ux J.. -A UbrMdo-w Of thUhe pro0u-viVe effUort, JU teLIUS of uours
worked and paid sales and net earnings for the years 1963 to 1967 is surrima-
r-ize d loU.w
Productive Effort in Thousand Hours worked
1963 1904 )YOv iyoo iyo
Repair of Yugoslav vessels 714 714 695 384
Repair of foreign vessels 106 116 255 522
liew construction 21 18 - -
Non-ship repair work 55 85 39 20
Work for enterprise 441 470 539 632
Total 1,337 1,403 1,528 1,558 N.A.
Sales and Earnings
(N.D. millions)
Net paid sales 27.9 36.0 55.8 73.6 6703
Net earnings 1.2 7.8 13.4 14.2 10.0
The hours listed above are only those worked by the enterprise's
own employees and not by sub-contractors' men. New construction refers to
river barges and sailing boats, a number of which were built by the enterprise
in 1963 and 1961X. Since 1965 all the productive effort has been concentrated
on ship repair. Work performed for the enterprise refers to the hours spent
on the expansion program.
Net paid sales in 1967 amounted to N.D. 67.3 million. a decrease
of N.D. 6.3 million compared with 1966, while net earnings dleclined by N.D.h.2
million to N.D. 10.0 million. The reduction in sales, following four years
of growth, is almost entirely due to the crisis in the Middle East and the
resulting closure of the Suez Canal. the immediate effect of which was to
bring about a temporary decrease in shipping traffic in the Mediterranean
and conseauentlv in the number of shins neeriing renairsq The enternrise
claims, however, that there are sure signs that shipping traffic is adjusting
to the situation and thAt the dAmAnd for its qhin rpnAir serviee will be in
line with the forecasts. Despite the drop in sales of N.D. 6.3 million,
earnings. from onprationsc (hbfnre int.erPQt., dp_nrcriatinn nndi taRp- R!)
only N.D. 1 million in 1967. Interest and depreciation increased N.D. 1.5
muniin Anhi~tl i~n +.hp~ pnn-r m~ r'nno 0n1,n,,I' nf' +.ho ov-r3 noArm yv'nrvnf7m3
millon erh i the year as a consequer.ce of the exnninp-tgra...
The reven.ue forecasts for the years 1968 to 1971, sh.o, .. in J .nex 2
take into consideration the fact that the Suez Canal may continue to remain
closed fo~r a cons-iderabile time- --a4..d tha -w.1. it 4. s- - -eprd - h -ag v<-Iker
and cargo vessels which ha ILV recUU IntLy Wen pLu intJ seUrviceU oLILr Large c aJ1rrUrl
and cargo vessels which have recently been put into service or are current'ly
APPENDIX 7
Page 5
under construction will, in view of their size, continue to sail around the
Cape of Good Hope on their way to and from the Persian GLf and Far East.
Despite these negative influences, the enterprise estimates that the yard
*" 11be oera ing z capci4-. Tn --he absence ofO urnorseeri Jeve-lopmaent s
affecting the traffic pattern into Rijeka harbor this forec:ast appears
-ea sonalb e .
Rijeka Harbor
Rijeka, which includes the ports of Rijeka, Susak and Bakar, is
the Largest and busiest port in Yugoslavia in terms both of the tonnage o.f
ships arriving and of the goods traffic passing through the port. The port
facilities cons:ist of ,300 m quays, 3 breakwaters, 54 cranes, several tug-
boats and numerous large warehouses. The port has aLl public services as
weil as branch offices of the more important registers of shipping. A section
of the harbor slpace is used by the neighboring landlocked countries of Austria,
Czechoslovakia and Hungary and there are good railroad connections linking
Rijeka to these countries. The volume of traffic in Rijeka, in the years 1961
to 1966 is shown by the following statistics;
Ships Arriving Goods Traffic (000's tons)_
Year (in COO's NRT) Coastwise Export Import Transit Total
1961 4,38L4 350 525 1,886 1,298 4,05!9
1962 4,547 295 567 2,315 1,L68 4,645
1963 4,9!59 48L 625 2,614 2,220 5,941
1964 4,771 479 618 2,560 2,183 5,840
1965 5,235 645 603 2,579 2,376 6,203
1966 1,092 1,145 3,811 2,339 8,387'
The new port of Bakar, which is presently being developed, is
planned to become Rijeka's bulk and liquid cargo basin. It has iron ore
handling facilities with a present capacity of two million tons per annum
and an ultimate capacity of three million tons per annum. It is the termina2.
of an oil pipe line supplying the refineries at Sisak, Pancevo and Hungary,
now in course of construction, with an initial capacitv of 10 million tons
per annum and an. ultimate capacity of 15 million tons per annum. Bakar is
also the site of an oil refinerv with a present caoacitv of two m.illion tDns
and an ultimate capacity of three million tons per annum.
Market and ComDetition
In the .5hip repair industry the cost of labor is most
important element of the total operating cost. The experience of Viktor Lenac
shows that the c.ost of materials lies betueen 20% aand 27%, depending on the
number of ship conversions being performed at the time. Thuts the cost of
labor is the key to t-he ente-ri-se's com.petitive position in relation to
foreign yards.
APPENDIX 7
D.,-- A
The enterprisets assessment of its prospects is based on the
fLLUWl-wLg con,s'1Lrat�i1 5
(a) Lne Yugoslav fleet has been growing fast in recent
years and now totals 346 ships of 1,079,400 gross
tons.
ob) Tne increase in narbor trafflc in hijeka. Tnere is
a direct correlation between harbor traffic and the
demand for ship repair and reclassification work.
(c) The increasing bulk cargo and tanker traffic which
is expected to use the port of Bakar.
(d) The new fuel oil pipeline from Trieste to Ingolstadt
near Munich which has a planned capacity of 52,000,000
tons per annum and is bringing more tankers into the
North Adriatic.
(e) The fact that improved facilities would enable the
enterprise to carry out repair work more quickly
and thus obviate its having to reject requests for
repair jobs.
(f) The enterprise's established relations with ship
owners of thirty nations which are expected to
serve as a solid base on which to develop further
trade.
The enterprise' s main competitors are Adriatic and M1editerraneaan
yards, the closest ones being the Italian vards at Trieste. Venice and Taranto.
the Greek yards at Piraeus and Skaramanga and the iMIaltese yard at La Valetta.
All these vards are located on well freqnented merrhnnt navy trade- roiuteC anri
are equipped with good repair facilities. In addition negotiations are
currently understood to be going on between the Hellenic shinvard in Greece
and Ishikawajina-Harima Heavy Industries of Japan with the view to enlarg:Lng
the docks to takce 160.000 ton ships=
Cotmneti.tinn in the ohn pairing indist,ry depends larg,ely on
the trend in freight rates. In periods of heavy chartering short ship repair
tmnes tend to be more important,in reow of he high demurrage on large modern
ships, than the actual cost of the repair work. In such periods arrangements
are made as far as possible to start the wk whil the vUessel is still ds
charging its cargo and Viktor Lenac is well placed to take advantage of this
sit +.tion. On t.he other ha.nd, -w-hen --4-4- .g- of ships is light,
the price quoted by the shipyard is decisive. For both sets of circumstances
modem.n fac--;- ;t;,,Af^7 +.-4- h-P- -.mAn-............ . ....................... +.h -e s.. - - . A 4+1 -1....4 -, 4-+ -4.^ - -4.- ....^i
APPENDIX 7
Pa-e 7
The enterprise has carried out a survey of prices charged and
rates quoted in a nmiber of European yards in the period 1965 through 1967,
the results of which are summarized below:
Average Prices per Working Hour in US$
Year Italy Netherlands Britain Viktor Lenac
1965 3.3 _ _ 2.6
1966 4.0 - - 2.8
1967 4.5 h.8 h48 3.h
Representative rates for some of the more common items of repair
work currently being quoted by Italian and Greek yards and Viktor Lenac are
as follows:
Average Price in US$
Italy Greece Viktor Lenac
Bottom rust scaling (sg. m) 1.60 1.65 1.45
Bottom cleaning and coating with
3 coasts of paint (sq. m) 0.h4 0.50 0.44
Bottom valves overhaul (item) 44:00 58.00 hO.OO
Renewal of fair plates (kg) 1.00 0.89 0.72
Renewal of keel plates (kg) 1.00 0.94 o.84
The inference to be drawn from these selected statistics is that
Viktor Lenac enjoys a strong competitive position vis-a-vis neighboring forei&n
yards.
Competition from other Yugoslav yards is regarcded as slight. At
present 50% of t-hsoRlavia as renair canacitv is located in lijeka, 25% in
Trogir near Split and 25% in other snall yards. However, mrost of the other
yards carry olt shin repair alongside and subordinated to shipbuilding. The
"Jozo Lozovina I4osor" yard at Trogir is a party to the recently completed
association whinh should result in a degree of rationalization and specializa-
tion of the two yards.
The proportion of export earnings in relation to the enterprise's
total income is showin in Annex 3' It iill be seen that. after a r pid increase
in the years 1962 through 1966, aided by the Economic Refoim of 1965, the
e ie pect export earnLings to stabilize at about 51i. of total in
with convertible currency earnings constituting 22% of export earnings or 12%
of total eamr,ninso
The reason for the high proportion of clearing currency ear-LLngs
to total export earnings is twofold. First, the accounts cf a certain number
of Greek, Spanish and Israeli ship owners are settled in clearing currency.
APPENDIX 7
Page 8
Second, ships under the flags of Eastern European countries tend to plan
their inspection s-urveys and overhauls farther aheadc th-n ships of W,iestern
European countries which request dock facilities as and when they have free
periods. Since the enterprise had only one floating dock up to September
1967, the repair facilities were often booked well in advance by Eastern
European vessels. Consequently, rejections of requests for dock SPace
mostly were to Western European ships. The enterprise expects that the
effect of the second floating dock will be to halve the number of rejecti.ons
and increase thle ratio of convertible to clearing currency earnings.
Description of the Project
The proposed project is for the expansion and -improvement of thle
enterprise's ship reapir facilities in the Bay of Martinscica. It is designsd
to reduce costs by shortening present repair time and occupancy of the float-
ing dock and thlereby permit the enterprise to accept, an increased number of
vessels for repair.
The main elements of the project are -
(1) A new wharf connecting the western and northern shores
of the Bay. This will enable power lines from the main sub-station
to supply the west wharf and shore and do away with the existing
duplication of equipment. It will also eliminate the expense and
inconvenience of maintaining a boat specifically to service the
west shore;
(2) Two new prefabricated steel workshops of 4,000 and 1,000 i2
plan area respectively, complete with overhead travelling cranes,
ventilaticin and mechanical and electrical services. These will
house the new mechanics and engineers workshop and pl,aters workshop;
(3) A combination plate roller capable of bending or
fairing plates up to 35 mm thiclness and a number of ancillary
jigs and tools;
(4) A series of larger and more modern lathes than the
existing;
(5) A cathodic protection system designed to prevent elec-
trolytic corrosion of the structure of the enterprise's two
flonati ncg r;nr-k.Q
(6) A4 doubling of the capacity of +.he ompr ssed air
system and the installation of a boiler plant for steaming out
shps -1e ^41 +-ks;
(7 Di 4re -fighti equJment to ex-ting1sh. fires in the
engine rocms of ships.
APPENDIX 7
age 91
Future development plans include the completion of the west quay,
the construction of a second breakwater, the installation of rubber fenders,
pull lifts and additional metal working machines. The enterprise may ulti-
rnauely construct a graving dock.
Cost of the Project
The cost of the project, excluding additional working capital and
interest during construction, is estimated at N.D. 22 million (US$1.76
million). The cost of the civil work is based on the estimate prepared at
the time the design was prepared, and equipment prices are based partly on
quotations and partly on the enterprise's experience. The cost of import:ed
equipment of US$400,000 for which an IBRD loan is sought represents the
upper limit of possible equipment imports and may be reduced with a corres-
ponding increase in the cost of domestic equipment. The estimate contains
no contingency provision as such, but the enterprise has made appropriate
allowiances under each heading. A summary of the project cost is as follows:
Foreign Exchange Local Currency Total Expressed
US$000o S N.D.000's N.D.000's
Civil engineering and
building work 8,h70 8,L70
Steel structure and
equipment 0oo 6,000 11,000
Customs duties 1,250 1,250
Transport and insurance - 250 250
Engineering and other - 1,030 19030
Total 400 17,000 22,000
Project Execution SchprhiTl
The enternrisels financial forecasts showm in ArLnnp 2 assqme that
the project will be complete during the second half of 1969. In view of the
fact that the enternrise has alreaqr prepared its designs and specificat.ions
and that construction is projected to take only 12 months, this appears to
be a realistic target.
Project Financing
A sunmary of estimated financial requirements arid sources of funds
du_ring the period of construction for this pro,ject is gvn below (in million
N.D.):
APPEINDIX 7
Page 10
Uses Sources
Project (fixed assets) 22 Net earnings 27
Other assets including Depreciation 13
renewals and replacements 6 Long-term debt 22
Debt repayment 20
Reserves and other allocations 9
Additional working capital 5 _
Detailed earnings and cash flow projections for the period 1968-
1972 are contained in Annex 2. The original financial plan submitted to the
Y.I.B. requested US$1 million from the IBRD loan. During the appraisal it
became apparent that only a maximum of US$4oo,o0o would be eligible for Bank
financing as the balance would be procured locally or from non-IBRD member
countries. Thus, a financial gap remained to be filled. As a result of
discussions among the enterprise, the Rijeka Bank and Y.I1B.,a new financial
plan was devised which included N.D.3.5 million from the Y.I.B. which was
not originally requested to provide more than the IBRD funds, N.D. 13.5
million from the Rijeka Bank which earlier had agreed to lend N.D. 9.5
million and N.D. 5 million ($400,000) from IBRD funds. Thus the gap of
N.D. 7.5 million was filled between Rijeka Bank (53%) and Y.I.B. (h7%).
Of the total funds required durLng the constrUuctLon period, 6L I
is to come from the enterprise's cash generation and the bLlance from loan
funds. As mentioned earlier, the heavy reliance on debtc fJLanic'ng is ease
by the termns granted by the Rijeka Bank (30 years) on the N.D. 35 millon
loan. Thus, the debt repayment during the next few years is lower thanwu
be otherwise the case with a 64:36 long-term debt/own funds ratio which
existed at the end of 1967. As the amount of new debt is only slighuly more
than that which will be retired during the construction period, the ratio
will not worsen and in fact should improve as the enterprisets own funds
will increase during the period.
The additional working capital requirements are not related directly
to the project as the overall expansion program, of whicn the project is onLy
one phase, cannot be separated in regard to working capita-L. The primary
additios to working capital, as in the past, are expected to be raw materials
and spares.
Earnings and Debt Service Coverage
Earnings projections (Annex 2) are based on forecasted growth of
ship arrivals and the increased capacity to handle repairs as a result of
the expansion program. Wage rates are expected to increase from an average
APETmrnTY L7
Page 11
of US$93 per worker per month to US$128 per month by 1971. At the same time
the work force is expected to grow from an average of 950 to 1,230. Material
and overhead figures include maintenance expenses, rents, insurance and pay-
ments to cooperating enterprises for material and labor. Increases in depre-
ciation and interest reflect the larger fixed assets and the high debt
incurred for their financing.
The maximum debt service reauirements during the loeriod 1968-1972
falls in 1971 when the new loan begins repayment. The debt service coverage
ranges from le3:l to 2:1 and is lowest in 1968. Future debt service coverage
improves in 1969 to 2:1 and stays at this level primarily due to the stabl.e
net earnings which are not ePxpnected to match the growth in revenue as a con-
sequence of the increased wages. As in other Yugoslav enterprises, wages
arn related on Iroht+vt+yaT -nd +tn cach Qavnilnale Tf nPnPqarv. funds which
are projected for increased wages will have to be used to meet the enterprisels
obligations.
Conclusions
The expansion of needed ship repair facilities in Rijeka with :its
experienced labor force and competitive cost structure is based on Yugos-
lavia's natural economic advantages - geographical location and labor costs.
Port development is of high economic priority in Yugoslavia and Rijeka's
volume of business should not be undulv affected by other Adriatic nort
developments. As the natural outlet for Austria, Czechoslovakia and Hungary
as well as Croatia. the long-term. effAet of the expected growth of other
ports such as Bar (as a consequence of the IBRD financed 13elgrade-Bar Ra:il-
road) nnd Ploce (also finnnced by the Bhnn) sh.ould onnly relieve the congestion
and overcrowding in Rijeka. Competition from other Mediterranian and Adriatic
ports may affect Rijeka in the long r but the established relations with
its clients and its productive labor should enable Viktor Lenac to maintain
itqs utilization of capacnity anei to rake marnimurnm uis of i +.conor.ic a8vrn'ape
IFC/LAEA
July 26, 1968
ANNE 1
Page 1
VTKTnR TRNAC.
Comparative Ba-1 on.-P .qh-1et
(In millions of New Dinars)
1964 1965 1966 196'7
ASSETS
Current Assets
Cash, banks and near cas- 10.0 24d
Trade receivables 5.6 9.2 11.6 12.0
Invent,ories
Raw materials and supplies 5.9 9.4 12.1 12.0)
Work in proce:s 1.6 2-4 1.4 ).I
Total inventories 7.5 11.8 13.5 16z'
Other current assets 9.7 12. lC.U4.1
Total Current Assets 43.0 _9__
Gross Fixed Assets
Land 2, - - -
Buildings (quays, wharfs) 4.3 4.3 30.1 38.0
Machinery and equipment 26.9 27.5 33.O 80. L
Fixed assets under construction 13.9 24.4 28.3 40.1;
Collective consumption assets 14.14 7.0 7 _._t
Total Gross Fixed Assets- 49.5 63.2 95.7
Less depreciation 19.4 20.2 24.9 2699
Net Fixecl Assets 143.0 70.8 139.'
Total Assets 55.9 86.0 L30.4 202.
LIABILITIES
Current Liabilities
Short-term debt to banks - 1.5 7.5
Trade Payables 1.0 1.9 2.1 3.6
Other current liabilities 4Y 17.6 20.3 23.3 27.5
Total Current Liabilities I7 22.2 2C� . 38.
Long-term debt 19.0 27.4 49.8 104.3
Funds of the Enterprise
Business fund 14.5 30.5 49.9 55.6
Reserve funds .7 .7 .9 1.4
Collective consumption funds 3.1 5.2 2.9 2.9
18.3 53.7 59.9
Total Liabilities 55.9 86.0 230.14 202.8
Current Assets/Current Liabilii1ies 1.u4:i �.9: 2.2 1 i.6:;.
Long-term Debt/Own Funds 51:49 43:57 48:52 6L:36
IFC/LAEA
ji<ay 22, 1968
ANNIXE 1
Page la
VI'T'OR LR1.'AC
Notes to Comnarative Balance 9heet
1/ Tncludes wages, + 1terinls, etc., relat+i JngE, to i A ut npaid ale;
prepaid expenses and other current liabilities.
2 Land was vaLued on the balance sheet at N.D. 108,000 at the end of 1967,
3/ Increase in fixed assets reflects the expansion program described in the
app ai report. LT -4.&le revalu.at, on -WaStae.n196
4/ TTS1UdeScont ra accountsZ UE for Uras _LncUluCRed an1 cULIren:b _liabU_ U-ies r-e]aJ
to unpaid sales, accrued expenses and obligations incurred in connect-ion
w�4 ws u'U15' vLuuB�flg.
IFC/LAEA
May 22, 1960
AUMIEX 1
Page 2
VIT-OR LEi;AC
Earnings Statement
(In millions New Dinars)
1964 1965 1966 1967
Sales Revenue-/ 36.0 55.8 73.6 67.3
Operating Costs
Materials and overheadsL/ 15.5 2!).3 35.6 30.9
Net wages 5.9 8.9 12.5 12.2
Related social payments 2.4 3.1 3.7 3.'6
Taxes and contributions 3.6 4.4 5.0 5.6
Total Operating Costs 27.4 41W7 56.8 52.3
Depreciation 0.7 0.7 0.9 2.3
Interest 0.3 0.3 1.6 3.2
Net Earnings from Operations 7.6 13.1 9.I)
Non-operating earnings 0.3 o).h 0.5 O.l3
Non-operating expenses 0.1 0.1 o.6 0.:3
Net Earnings 7.8 13.4 14.2 10.(
1/ On basis of paid sales.
2/ Includes all maintenance expenses, rents, insurance premiums and payments
to cooperating enterprises for materials and labor.
IFC/LAEA
1Iay 22, 1968
ANNEX 2
VIKTOR L13UNC
(In million New Dinars)
,oA$R ,oI,� iO7v 7 17
Earnings Statement
Sales Revenue1/ 94 105 115 119 122
Operating Costs
MatArja1.q A, nfvrhAqti hO l.R hC 146 14?
Net Wages 13 16 21 24 25
Related Social Payments 4 5 .7w 7 7
Taxes & Contributions 8 9 10 10 10
Total Operating Costs 74 73 -7
Depreciation 6 7 7 7 7
Interest 6 6 6 _7 6
Net Earnings from Operations 17 19 19 18 20
So,-ceps & Application of Funds
Sources
Net Earnings (previous year) 10 17 19 19 18
Interest 6 6 6 7 5
Depreciation 6 7 7 7 7
Increase in Long-term Debt
IBRD - 5 - - -
Y.I.B. and Rijeka Bank 6 11 - - -
Total Sources - 46 -: 30
New Investment
Fixed Assets (foreign) - 5 - - -
Fixed Assets (domestic) 6 11 - - -
Total Project 16 - - -
Renewa-1s & RP^p}^c-et BV - 3
Other Fixed Assets - 2 1 2 1
Interestt
Existing Long-term Debt 6 6 5 5 4
IBRD -
OtLwr bd=^ - - 1 ~ ~ ~ ~~~~ 2 2
Total Interest Z6 7 _ Z
Principal Repayments:
Other banks 11 9 9 10 10
IBRD - - _ __
Total Repayment 11 9 9 10 10
Allocated to Reserve Fund 1 3 3 2 2
Collective Consumption Fund 6/ 2 3 3 3 3
Sub-total. 3 _ ___
Net Increase in Working Capital!, 2 4 1 3 3
Lot&! Application o - 46 jz 30 30
Long-term Dabt Service Goveragey 1 2 2 2 1.9 1.9
* Less than ND 1 million.
IFC/LAEA
May 22; 1968
Ai1I"X 2
Page 2
V-'KTOP. LEINAC
Notes to Financial Forecast
1/ On basis of manhours.
2/ On basis of ner canita monthlv wapen of N-D. 1.166 in 1968. N.D. 1.270
in 1969, N.D. 1,500 in 1970 and N.D. 1,600 in 1971.
3/ Old and deteriorating equipment will be replaced as earnings penmit.
4/ Completion of facilities (second breakwater and civil works) at the Bky
of Mart,insc,ca.
5,' .Allocation *to reserve fu. designed +o poiA~ an n1 7o+ 50 hihe
n^ n +-; nri + r% s'.,n .L ', l- csILfllJrU '. iU **a i.5*t
than average monthly gross wages.
6/ Collective consumption fund to be used to continue contracting apartments
fPor labor -force.
!{twr'Lnrg ca-pita to It,Xrv crdtfcltefrlne!rpirs.L
..LI '~L UG)LUU.L UU U[IIJJLUVVt; ~tUS�"U �d LtJL.L�U�Lt:.LU.i .U LVjJU11r I -
Ui / AloLm-veI, agLr1eLJs -was s�gried on No-vembe1r 4 r, 197 -with Sipn Co
Jugoslavenska Linizski Plovidba, Rijeka, according to which Viktor Lenac
can buy US$560,000 each year to cover foreign exchange requirements.
IFC/LAEA
-M nn2, 1968
.Via7y e-I, �YUU
ANNEX 3
VIKIOR LENAC
ForeignSurrency Reverme in Relation to Total RAvenue
Foreign Currency Convertible Currency Clearing Currency
Year Total Revenue BeRenu.e EiveSnUo Reverme
(ND millions) (ND milLions) (% of Total) (ND millions) (S of F.C.) (N) millions) (% of F.C.)
Actual
1,963 27.9 3.6 12.9 1.5 41.7' 2.1 58.3
19614 36.0 5.2 14.4 1.1 21.2 4.1 78.8B
1965 55.8 20.0 35.8 1.7 8.5' 18.3 91.5
1,966 73.6 49.7 67.5 8.7 17.'5 l1.0 82.5
1,967 67.3 42.9 63.7 4.3 lO.C) 38.6 90.03
Projected
1,968 94.o 56.4 60.0 8.5 15.1 1.47.9 84.9
1969 104.7 59. 7 57.0 11.3 18.9l 48.4 81.1
1970 115.4 62.4 54.1 13.7 22.C) 48.7 78.0
1971 118.9 62.9 52.9 13.8 22.C) 149.1 78.0
IFC/LAEA
May 22, 1968
Appendix 8
NOVOLES - LESNI KOMBIIIAT, NOVO MESTO
The Borrower
The prospective borrower NOVOLES LESNI KOMBINAT is an enter-
prise which operates-' two saw .lls, a plywood "ad veneer rn. 4actuing
-plant, and manufactures chairs and other wooden products such as veneer
packin.g cases and parquet flooring. Except for one saw raill at Soteska,
the main production facilities are located at Straza near Novo Mesto
approximately 75 krn from Ljubljana Just off the Ljubljana - Zagreb high-
way. Soteska is approximately 6 km from Straza. The main plant has a
railway siding connecting it to the Ljubiljana-Karlovac main railway line.
Raw materials, primarily beechwood logs, are available in abundance from
the surrounrding forests; the average hauling distance to the saw mills
being about 30 km.
The enterprise was established in 1954 by the merger of three
wood working enterprises, one of which, a saw mill, has been in operation
since 1870.
In 1967, Novoles produced about 21,800 cubic meters of sawn
timber, 6,400 sq. meters of plywood and blockboard, 1650 cubic meter
of veneer, 106,000 chairs, 89,000 sq. meters of parquet flooring and
other miscellaneous wooden products. Total sales amounted to N.D. 36.0
million ($2.88 million) of which N.D. 21.3 million or 592' was export
sales primarily to convertible currency areas. Of local sales, plywood
and veneer amounted for about 29.5%, sawn timber about 21t% and chairs
about 22.6%. Novoles has 912 employees.
The project under consideration has three principal aims:
(a) modernization of saw milling operation closing down the old saw
mills at Soteska and Straza and installing new facilities at Straza in
the vicinity of the main plant; (b) doubling of the plywood plant capacity:
(c) rationalization of the chair manufacturing capacity by addition of
balancing plant and equipment. The project also envisages expansion
of the boiler house and power station to meet the increased demand of
process steam and power.
Total project costs are estimated at N.D. 20.9 million ($1.67
million) excluding interest during construction. IBRD has been requested
to finance the foreign exchange component of this cost whLich is estimated
at $ 852,000.
History of the Borrower
Novoles was const-ituted in its present form. in i9oh by the
merger of three enterprises, a saw mill at Soteska, a saw mill at Straza,
and a small wood working enterprise at Novo Mesto.
Prepared hy A. Randy -and M. V. Deheji2a.
Appendix 8
Page 2
X 5
The Soteska saw mill was established by Italian interests in
10 I to pl U o the forest reserves olf'J U s uroun ding'r Ue L. d-JL � re,ons ThLe
mill produced annually about 3,000 cubic meters of sawn lunber prima-
U e 4- -.v_1 ^v_ A _-& Z _ 5 ; __ - - _ . -. -A -.. _ _ _ - J . _ _LI - _ _ _ __
r] for W J J.L U AIIcXU.tU VY~-1LUL11 WtUCL' JU.W ,ueA u UUX.I%Lns, UkL1U ie-i U war.
Subsequently, the mill was taken over and operated by the State Forest
AU,U.Lsbr,CLULi o ufr ) yeards duu-J.ing WIc.LCL Ti.me trie b-ui ding,s were recon-
structed. From 1949 till the merger with Novoles in 1954, the mill
operated unuder tue nraes LIP STRAZA and LIP NOVO MESTO. Current saw
mill capacity is about 16,500 m3 of lumber per annum. In 1958 Novoles
installed veneer production facilities at the miLL; it currently pro-
duces about 1,000 m3 of veneer.
The Straza saw mill was established in 1923 and has a current
capacity of about 10,000 cubic meters of sawn lumber per annum. Produc-
tion of parquet flooring and veneer boxes was started at this mill in
1935 with an initial capacity of about 3,600 m3 per annum. After the
merger with Novoles in 1954, the parquet and box production facilities
were transferred to new premises nearby and the capacities considerably
expanded. Currently the enterprise produces about 89,000 m3 parquet
flooring and about 530,000 m) of boxes per annum.
The third unit which merged into Novoles was a manufacturer
of toys, clothes hangers and sundry small wooden articles. It was es-
tablished in 1947 and operated in a disused textile mill building in
Novo Mesto.e
At the time of its formation, Novoles was primarily a producer
of sawn lumber. During the first few years, the production facilities
were reorganized and production of parquet flooring and veneer boxes was
considerably expanded by installation of new equipment. Production of
light furniture was also commenced on a small scale. In 1959 Novoles con-
structed a new wood panel manufacturing plant at Straza with an initial
capacitv of 4.800 m3/vear of plywood. Bv 1966 the installed annual caDa-
city was increased to 5,200 m3 plywood, 2,200 m3 veneer and 600 m3 of
blockboard.
In ].964 Novoles commenced construction of a new plant for the
production of solid wood furniture such as rocking chatrs, colonial chairs
and coffee tables. The nlant located adiacent to the wood nanels nlant
commenced production in 1966.
The enterprise is continuing its program of modernizing and
expansion of i tn prdiucti-on faci1itie 1 Gq_-1rrnently it is qctret. ng a
new log storage yard with modern material handling facilities in the
vincinity of the plywood and fu"rniture planrts and close to twhe location
of the proposed new saw mill.
The enterprise is a member of POSLOVNO ZDRUZENJE LES, Ljubljarta,
a business Ofsci nn "SloveAnn.-4 woovdw,ork.n-rg "n. d stri,en n-. Nles sokrl-
in close cooperation with STOL, Kamnik, particularly in regard to pro-
Ad,,ct, on4' O- .-. 4- -
Appendix 8
Page 3
Management
Mr. Joze Knez, the present General Manager, has over 26 years of
experience in the timber business and has been General Kanager of the enter-
prise since its inception except for a brief period when he was a full-time
President of the Business Association Les. He continues to be President of
the Association. Mr. Knez is assisted by an able team of technical, ccmmer-
cial and financial managers. The Chief Engineer is Mr. Mirko Pecar whco has
about 20 years of experience in his field and has been with Novoles for about
nine years. The Sales Manager, Mr. Michael Sustar, has been in the enter-
prise since 1946 while the Finance Manager, Mr. Stane Sulm, joined Novcles
in 1963.
Market and Sales
By value of sales, sawn timber, plywood and chairs are Novoles'
important products accounting for roughly 62% and 67% of total invoiced
sales in 1966 and 1967, respectively. During the coming years, direct
sales of sawn. timber are expected to diminish as increasLng quantities
will be required for the enterorise's own operations. Detailed sales
projections of the main product groups are shown in Annex II. The im-
portant products in the future will be plywood and chairs which together
are expected to account for approximately 60% of total invoiced sales
from 1970.
Market for Plywood and Veneer (See also Appendixl.,page 3)
The major end-uses for plywood are in the building and furniture
industry, while veneer is almost exclusively consumed by the furniture
industry. A small percentage of veneer is used in the Light packaging in-
dustry to make such products as matchboxes, fruit boxes, cheese boxes
and baskets.
The following table gives an analysis of domestic end-users
for plvwood in 1965 and a projection for 1970 made by the Economic Chamber
for the Forestry and Woodworking Industry, Belgrade.
Consumption of Plywood by Yugoslav Industries
1965 1970
Furniture (irLcluding doors & panelling) 59,030 97,900
Constructi nnt'uIldi ng 7,000 61,000
Handicrafts 7,520 12,840
Acricultire ];30 7?1O
Shipbuilding 4,340 6,250
Railway WJagons Ain _1;8_0
Tontl Domestic Consumption 80,00n lQ0j00n
Page 4
Hs regards veneer, 'Lile Econ,omic Cha,mbe r h'as estX,311-ated, bas6-ed
on the growtl of demand for plywood, that the demand for veneers will
in"crease tU appJuximately hOO,0w0O cu. meters by 1970 of which l105 or
40,000 cu. meters will be for decorative veneers.
In order to meet the increased demand of about 80,000 cu.
meters of plywood and 200,000 cu.meters of veneer (of which, approxi-
mately 12,000 cu.meters will be decorative veneer) several companies
including Novo-Les have planned for expansion of capacity. As far as is
known at the moment, there are firm plans for installing an additional
59,000 cu.meters of plywood capacity and 10,900 cu.meters of decorative
veneer capacity.
In addition to local demand, there is expected to be an in-
creased demand in the export market particularly in Europe and the
Mediterranean countries. According to a report published in January 196'i
by the GATT International Trade Center, European consumption of both ply--
wood and veneer is expected to more than double between 1960 and 1975,
to reach 6.1 million cu.meters for plywood and 2.6 million cu.meters for
veneer. Thoughl increasing sharply, European production has not been able
to meet the growing demand and Europe as a whole is a net importer of
plywood and veneer.
Although in recent years plywood has had to face severe competiL-
tion from other wood based panels such as fiber board and particle board
and from plastic substitutes. it is forecast that only the thicker types
of plywood (especially blockboard and thick multiply plywood of thick-
nesses over 2 cm.) will suffer from this comnetition, while thinner ply-
woods such as those manufactured by Novoles will retain their major out-
lets.
While veneer usedd in the nnnkacing indiustry faces competition
from paper and plastic substitutes, there is no reaL threat to the decora-
The maior imnorters of Ym7oq1,av nlvwood and ueneer are:
tT.A.R= 33AI1 (nf tot2l Yugoslav expnnrt)
Greece 19.7%
IT+-ly 16,.h%
Swizerland 12.4%
lH.gar- 7.2,, -
U.K. 5-1$
Mn.rr1no a +a, h 1,, n,nna a,nac, 1 ~ ,a 1^nr,, n 1 c
than about 5% of the total plywood and veneer production in Yugoslavia.
'Because ofP ts; s h"J&- qua-l":tEy product- and ece'A"ent- rreputat.on inthe
market, the Company should have no difficulty in marketing its total
production eiu.UI 5AL e[ n W1ted UUdIorLW.LU Uor texpLort ,I1LIvket s.
Appendix 8
Page5
In 1967, Novoles exported approximately 2000 cu. meters of ply-
wood, 75 cu. meters of blockboard and 1600 cu. meters of veneer mainly
to Italy and small quantities to Tunisia, Egypt and Libya. Exports to
Italy are competitive because of the enterprise's proximr.ity to the Italian
border.
Chairs
Novoles produces rocking chairs and colonial type chairs mainly
for the exnort markets. Approximately 68% of exports irn 1967 were to
the U.S. Other importers are West Germany, the U.K., Italy, Switzerlan-cd
and Holland.
The enterprise's main buyer in the U.S.A. is Carlson Furniture Inc.
in Los Angeles, who in 1967, imported approximately 36C7000 chairs worth
approximately t266,000 from Novoles. For 1968, Carlscn have increased
the order to approximately 60,000 chairs worth $450,000. Negotiations are
currently in progress with four new U.S. buyers and the enterprise expect,s
to secure imnortant contracts from these comnanies in addition to repeat
orders from Carlson and other existing customers.
The enterprise has been receiving inauiries from North Africa,
the Near Fast and Austral... hut has not serinusly invPF:tAP.tert those
marketing possibilities because of its inability to meet, the demand
fProTm IU S and European customers.
Sawn Timbher
Europeisn ;-C! nrd. 1w1 il n+;rinua +on be a rn+ inpo rtear of timb
Novoles, with the double advantage of proximity to the importing
countries and4 also lo large 'ores' ---res expct tocninet
supply a part of the European demand. In 1967 Yovoles exported ap-
proiLmately 9 6n"JSo cu. meters of sa-w.VI 'U-1-erU mUai nly to ]tl..C Sr 0._a
quantities were exported to Libya, Egypt, the U.K. and West Germany.
Pecent Financial and Earnings Record
Balance sheets for 1963-67 are shown in Annex 1, page 1. Novoles'
bcanue shieet as at Deeember .31, 196 iis suimmarized b2e1ow: (iin milioUn .JX.J.)
AssePt,9 LiahilIi1I-.ies
Cash & equivalent 4.0 Banks 3.6
Trade Receivables 5.5 Trade Payables 2.2
Inventories 11.3 Other Current Liabilities 11.
Other Current Assets 10.2 Total Current Liabilities 17.2
Total Current Assets 31.0 Long-term debt 7.7
Net Fixed Assets 14.0 Own funds 20.1
Total Assets 45.0 Total Liabilities 45.0
Page 6
Slnce 19';9 'nle investmnent prograr of the enternrise has nad two
prime objectives; the construction of the plywood nlant and the recon-
struction Of thne srnall furniture plant. Tnese two projects have cost ap-
proximately M.Ds 14 million. F.Ds 8.5 million of this amournt was covered
by long-term debt and Nh.Ds 5.5 million w^ras derived from the enter-orise's
internal resources.
Forty percent of Fovoles' outstanding debt has been used for fixed
assets and the remainder for permanent working capital. Lon,-term debt
service coverage was relatively low (only 15 times) in 1963 and 1964., but
has been adequate since (2 times and over).
Novoles'current ratio has steadily weakened since 1963 (dropping
from 2.4 to 1.8). The company has found it necessary to increase its
short-term debt substantially in recent years to cover higher receivables
and inventories.. In the case of receivables, there has been a noticeable
slowing down in payments in Yugoslavia recently because of the tight credit
situation. Inventories are particularly high in the case of Novoles due
to its large saw-mill onerations and the necessity to keep raw timber on
hand for at least three months to allow air drvingr.
Earnings statements for the nast 5 years are shown in Annex 1.
page 2. Production by major grours of products. sales and earnings in
those years are summarized below.
"NOVOLES" - Past Productionn Sales annd 7.Arninqs
Phvsical Production 1i0)4 I,,rJc Q65 1Q66 1967
Sawn Timber m3 179252 18,140 15 239 �083 nP '1 75'_
Plywood " 3,758 4,541 5,231 5,074 5,250
R10Ck bErd ? It 867 6C5 6o6 1,145
Veneer " 1,197 1,159 1,463 1,644 1;653
Parquet floorin- 000 m2 106 76 79 82 89
Veneer s 211 249 338 44 532
Chairs 000 nos. _ _ - 72 106
Other Articles - = 96 67
Sales
Invoiced Sal es , illion M.D. l n.O M..... 22-.882876 3708
Paid Sales " 17.28 21.39 26.93 31.00 36.00
Breakdown of Invoiced Sales
Domestic million N.D. 9.3 11.9 14.4 16.4 16.8
Exports 9.8 11.0 14.4 17 .4 21 . 9
Total: 10.1 22.0 28.8 33.8 33.7
Note: Exports to clearing currency areas negligible amounting to about
5% of t,otua' exports.
Met Earnings million N.D. 0.69 1.86 1.98 1.48 1.97
Appendix 8
Page 7
Total sales of !,Tovoles increased steadily between :L963 and 1967 from
N.Ds 17.3 million to M.Ds 36 million. - Fxports to convertible cur-
rency areas also doubled ove-r the same period from N.D 19 million to N.E.
39 million. The manufacture of chairs primarily for export began in 1966
and is expected to increase whereas the production of solid-wood parquet
flooring will be phased out. This will increase Fovoles already strong
position in the export market.
Description of Project
The pro,ject comprises the modernization or expansion of sawn timter,
wood panel and. chair production facilities.
Saw Mill
The Soteska saw mill which is almost 100 years old has outlived its
useful eeonomie life. The existing Straza mi1l has been in operation fr
about 46 years. Both mills are high cost units and are located at sites
which are inot suitable for ex-ansion. The enternrise proposes to shut '!own
the old mills and install modern facilities at a new level site at Straza.
close to the r-ai-lway- sidzing, and other facili+ies. The new mil rhic v
have 3 band saws and a circular saw,with a total capacity of about 4o,ooo
cu. mete.rs pe rear, will result in 1h1igher labor proAduCtivi+y and imSlroLe
on the current average yield of about 69% sawn timber from logs. About
87 persons are currently employued at Soteska and about 55 at Straza. The
mill will require only about 30 persons -or an equivalent outnut. The
enterprise pLcins ujo abusorb thuie suar-pLus labor firom th I'le Suraza mill in ll,the
furniture factor,y. The future of the 87 persons at Soteska has not yet
been resolvede the enterprise is considering shifting some of the parQUEt
or veneer box manufacturing facilities to Soteska.
With the implementation of the project, all sawing facilities will
be located at the main Straza plant.
t'_ _anel TPlant
The existing plant has an annual capacity on a two-shift basis o0
about 59200 Cu1. meters plywood, 600 cu. meters block board and 2,200 cu.
meters veneer.
In order to meet the increasing demand for wood panels the enterl)ri3e
proposes to double capacity by replacing some of the existing equipment by
higher capaci-ty machines and installing a few additional machines. Two new
veneer lathes and auxiliary equi:ment will be installed, one of the two
existing lathes will be moved to Soteska. The veneer drying equipment which
has a drying capacity of 0.8 cu. meter/hour will be replaced by a faster
modern equipment with a capacity of about 4.0 cu. rmeters/'hour. An addi-tional
hydraulic press similar to the existing one will be installed thereby doubL-
ing the press shop capacity. In addition, various ancillary items such as
rmaterial handling, cutting, trimning, glueing and sanding eauinment will be
installed. Civil engineerin- work required will comprise construction of
An-endix 8
Page 8
three additional steam Dits and extension of the plant building to cover
an additional area of about 500 sq. meters. After expansion, plant ca-
pnacitv will be about 10000 cu. meters Per vear of plvwocd and 2.000 cu..
meters of block board.
Small Furniture Plant
The plant was designed in 1962/65 on the assumption that the product
mnix wouild be. ochnirez 50%, andr othepr ampll woodein 90d]cs5C% However.
because of the market demand the plant is now almost exclusively producing
chairs. The change in the product mix has created imbalance e rta, i 'r!
sections o:f the plant- the capacities of the drying kilns, the cutting
section) san'd:Lng and lacc 1Crn lie limi -h opraio of the rest -
the plant to :L shift operation.
The enterprise proposes to remove these bottlenecks by installing
additional equiipment to balance the cap)acities in various sections of the
plant.
Boiler House & Power Plant
The enterprise's main beiler house at Straza has 3 waste wood fired
boilers with a total steam raising capacity of approximately 54,000 tons
of steam per annum. In addition, the saw mill at Soteska has a small,
packaged steam generator to meet the heating and process steam requiremerts
of that plant. The enterprise also generates annually about 0.5 million
kwh of electri.cal energy at Straza - the balance of 2.5 million kwh is
purchased. from the grid.
Wqo expansion of the Soteska boiler house is planned. At Straza,
two of the existing three boil.ers are old uneconomic units and are
to be replaced. by a modern high pressure boiler with a rated capacity of
10 tons/hour cf steam at 42 atm, 480�C. The third boiler will be recon-
structed tco increase its capacity from about 4.5 tons/hour to 7 tons/hour.
It is also prcposed to install a 1,280 kw steam turbo generator at Straza
which together with the existing generator will be able to supply all the
power required. by the enterprise- any excess power generated, particularly
in stumer when the heating load is lower, will be fed to the grid. Calcu-
lations made by the enterprise's engineers show that generated power will
cost approximately 0.105 N.D./kwh against NJ.D. 0.25/kwh for purchased poower.
Cost of Project
The project is estimated to cost N.D. 20.9 million (US$1.67 million)
excluding interest during construction. Foreign exchange expenditures are
estimated at US$852,000 which IBRD has been requested to finance. A summary
of the project cost estimate is given below:
ApDendix 8
Page 9
Total
N.D. Million US$ iMillion N.D. Million
Buildings & Civil Work 2.939 -!. 2.939
Plant & Equipment 1.161 2/ 0 630 3/ 11.536
Import Duties (25-34%) 2.947 2.947
Freight, Insurance & Handling 0.539 - 0.539
Erection 0.184 0.022 4/ 0o460
Additional Working Capital 2.470 _-__ 2.470
10.240 0.352 20.891
1/ Includes Architects Fees (3. 5f)
2/ Delivered at site
3/ Free Yugoslav border
4/ Payments to foreign erectors for saw mills and turbo generator
Capital costs have been conservatively estimated on the basis of re-
cent quotaticns from prospective suppliers. Novoles plan to complete the
major building and civil works during 1968 and expect to place orders for
equipment to be financed by TRRP by January 1969. Delivery periods indi-
cated vary from 2 to 9 months from the date of order. The sales forecasts
are based. on the assumption that the new equipment comes into oneration
towards the end of 1969.
Project Financing
A summary of Novoles' estimated financial requirements and sources
of funds during project construction (1968-69) is given below (in millions
N . .)
Uses Sources
Project 18.6 Net earnings 4.1
Maintenance &. Replacement 1.5
Debt Repayment 3.8 Depreciation 3.8
Reserves 0.4
Met Aadition to working
capital 2.2 Long-term debt 18.6
26.5 26.5
Detailed earnings and cash flow projections for the construction
period and the follow:ing three years together with the major assumptions
and further explanations are given in Annex 2. Forecasts in Annex 2
assume that the project would be comnletely operational from the begin--
ning of 1971.
stpnendix
Page 10
Approximately 305' of the finarncing requirements during the two
years 1969-70 would be covered by the enterprise's oarn fnids and the
remaining 70% by long-term borrowing. Of the required N.D. 18.6 million
in long-term debt resulting from the prolect it is proposed that IBRD
assume Nl.D. 10.6 million (*0.852 million), the 'Kreditna Banka in
Hranilnice', Ljubliana NT.Ds 5.5 million and the remainder will be
covered by the Dolen.lska Banka in Novo Mesto.
Earnings and Debt Service Forecasts
Earnings forecasts (Annex 2) are based on the assmnDtion that sales
would eq.,ual --nrodu-ction.
Total paid sales are not expected to increase substantially in
1968 and 1969 and during the same years net earnings are expected to
around. 4the r A ) .,4 2 1 4 mr1k. r-le .A 4i1l m is
4. '.flUO. �4 0. G. V'A44 . 4J4t fl . L . .. LL � .�.L 4L�4L IL tI� 4 ' VlfJOLa. 'i UtS __4~ V1-lN11 V I. CI LhI4 V i V ' .1
not reflected. in total sales until 1970 when sales increase from 7.D.
- ') 7 ..,4114- 4-.- --\- -T- - - x 7 al 17 4 -.. 4b,*
36.7 I rLLLion to ',T. D 03 m iJ.L�.LUio, t.L �inIcreae UI 39. P I ains by tha
year will have trebled over the 1968/9 level. By 1972 total sales are
4- ~.l... .~i ~CL - 'A, T... - II - _ -44
expec'tedu tUo exceedu a yearl tevet-L 0L ovle L)r 'UJU -L-L.L6ilIl WP.L prLofits
stabilized,at that level of production around N.D. 8 milLion.
Due tc, the levelling off of sales and thus earnings in 1968 and
1969 and the heavy impact of the new debt load in 1970, (debt service
coverage during those years is 1.8, 1.9 and 1.7 respectively. By 1971.,
ho-ever., the steady growth in earnings and declining debi, obligations
result in adequate coverage.
Conclusions
The! projects of Novoles, Brest and Stol have suibstantially the
same basis. All three are medium size, woodworking enterprises situated
in a triangle around Ljubljana, depending on surrounding timber, drawing
upon a labor force with traditional woodworking skills and geared for at
least half of their production to export markets.
The demonstrable success of all three enterprises in export markets
for many years, their capacity to expand steadily both their export and
domestic business and the expressed satisfaction of their foreign clien.ts
(in the U.S. for example) indicate that this is an industry in which Yugos-
lavia has certain natural advantages.
All. three enterprises are sound financially, have adequate resources
to cover their debt and show a good return as a result of these investm.ents.
July 26, A E A
Jul.y 26, 1968
Annex 1
Page 1
NOVOLES
Comparative Balance Sheet
(in millions of N.Ds.)
As at December 31 1963 1964 1965 1966 1967
ASSETS
Clrrent Assets
Cash, Banks and near Cash 3.6 2.7 2.9 3.6 4.o
iTrade Reei nf vdabl'63 1 1 8 10U _U0
Inventories
Raw materials and supplies 1.3 1.8 3.2 3.8 4.1
Semi-finished products 1.2 1.6 1.3 2.3 2.1
Finished goods 1.0 1.2 2.8 4.-3 5.1
Total Inventories 3.5 LL.6 7.3 10.2 11.3
Other Current Assets 1/ 2.8 2.8 3.4 5.7 10.2
Total Current Assets 11.7 11.6 15.4 7 22T5 31.0
GROSS FIXED ASSETS
Land .1 .1 .1 .1 .2 2/
Buildings 5.3 7.0 7.2 5.9 I/ 9.6
Machinery & Equipment 5.8 7.7 8.2 12.1 12.2
Fixed Assets under construction 1.3 .2 - .1 1.1
Collective Consumption Assets .4 1.0 1.1 .6 .6
OthAr FixAd A.sAtsq C,/ 1.3 .2 .1 1.1
Total Gross Fixed Assets 17.2 ITX - h -E-.9
Less depreciation 6/ 5.5 4.8 45 7.9 9.8
Net Fixed Assets-Bt . --=l '. 4 Lll -Wr.V 4.u
TCTAL ASSETS 20.4 23.0 26.5 a.5 4~50
LIABILITIES
Current Liabilities
Trade Payables .5 .8 0.9 1.7 2.2
Other Current Liabilities 7/ 4.0 4 6 .19 6 9 1.4
Total Current Liabilities 4.b 5.1 6.7 11.7 17.2
Long-term Debt 7.3 8.o 7.2 7.7 7.7
Funds of the Enterprise
Bus-_ness Fund -7.1 8.1. A, .0 12 1%7
Reserve Funds .6 1.0 1.0 1.0 1.5
Collective Consumption Funds .6 A 5 0.6 A A ?
Total Own Funds 6,3 9.9 12.6 17,1 4U.1
TOTAL LIABILITIES 20.4 23.0 26.5 _6
Current Assets/Current Liabilities 2.4 2.3 2.3 1.9 1.8
Lonig-term Debt/OuIw-L runoda 47.z'3 45.55 3c4 .Oc1O 28.7Y
1/ Includes cost of goods sold for sales invoiced, but not paid, prepaid expenses and other current assets.
2/ In 1967, 2 additional hectares of land were purchased.
7 L-.crease iiA. -3ueo b;l''dln-S 19-66 over 19671 J's due6 to re-VOLua-tion.
Includes N.Ds. 2.6 million revaluation increment.
Patents, licenses and preliminary expenses.
6/ Depreciation on equipm(nt was, on the average 5-6% in 1966, increased to 13% in 1967 and will go back
to 6.5% in 1970.
7/ Sales value of goods invoiced but not paid, customer prepavments. accrued nharges and other eurArnt liahilities.
IFC-LAEA
May 22, 1968
Annex 1
Page 2'
1'J u V U.Li.C.
~aanings otat.&ients
(kin millions NoDs.�)'
1963 1261 1965 1966 1967
Sales2/ 17.3 21.4 2609 31.0 36C,
Operating costs
Materials & overhead 100 12,0 15.0 17.5 20.0
Net wages 2.6 3.8 4.5 5.8 7.0
Related social payments 0.9 1.3 1.6 1l8 2.0
Taxes & cont.ributions 1.8 2.1 2.6 2.6 2.8
TOTAL OPERAT'ING COSTS 1503 19.2 2387 27.7 31.8
Depreciation 0.7 o.4 0.9 1L4 1.8
Interest 0.4 o.4 0�5 0,3 o.5
NET EARNINGS MCOM OPERATIONS 0.9 1.4 1.8 1e6 211
Other earnings?/ (0.2) o.4 0.2 (0.1) 0.1
NET EARNINGS 0M7 108 2.0 1iT 2Th
1/ On the basis of paid sales.
Z/ Discounts, premiums9 penalties, etc.
IFC - LAEA
2.c,y 2L , 1978u
Annex 2
Page 1
NOVTOEST
Financial Forecasts
(in-million3 of N.Ds.)
Period of
Year ending December 31 1968 1969 1970 1971 1972
I. EARNINGS STATEMENT
Sales Revecnue 1/ 36.1 36.7 50.3 55.5 63.2
Operating Costs
Materials and Overhead 19.2 19.3 25.1 27.0 31.0
Wages and Salaries 7.5 7.6 9.1 10.1 11.5
Ralated Social Payments 2.1 2.1 2.6 2.9 3.3
Taxes aind Contributions 3.0 3.3 4.8 5 6.0
Total Operating Costs 31.8 32.3 4d.6 45.3 51.o
Depreciation 1.8 1.8 2.0 2.0 2.0
Interest .5 .7 0.9 1.6 1.2
Earnings from Operations 2.0 1.9 T 5. 62
Othher Earinings -
Net Income 2.0 1.9 5.8 6.6 8.2
II. SOURCES & APP'LICATION OF FUNDS
Sources
Net Earnings (previous year) 2/ 2.0 2.0 1.9 51. 626
interest . .7 09 .
Depreciation 1.8 1.8 2.0 2.0 2.0
Increase In Long-term Debt:
I B R D 5,3 5=3
Domestic Banks 3-5 4-.5 -
TOTAL SOURCES 1 'R 1.i.6 9Q , L 98
Applications
Project - Fixed AsaeOs (foreign) 5.3 5.3
(local) 4.
Total investment 7u-
Mainbenance and Replacement 1.2 0.8 0.7 2.2 2.2
Interest
Existing Long-term Debt .5 .5 .4 .4 .1
I B R D .2 .5 .7 .7
Domestic Banks J/ __ __ 14
.5. .9 1.6 1.2
Principal Repayments
Existing Long-term Debt 1.9 1.8 1.2 .8 .6
I B R D .6 .6
Domestic Banks 3/ .8 .9 1.0
Total Repayments 1.9 l.o 2.0 2.3 2.2
Allocaticns to Reserve Fund 4/ .3 .2 .2 .4 .5
Allocaticn. for Colleotive Consumption i/ .3 1.2 1.6
Net Additions to Working Capital .1 1.0 1.0 1.7 2.1
TOTAL APF'LICATIONS 4.3 13.3 14.6 9.4 9.8
Long-term Debt Service Coverage 1.8 1.8 1.6 2.4 2.9
1/ Based on assumption that sales equal production.
7/ Enrne fhneii air released for use only in the following year.
3/ Terms not expected to be significantly different than those offered by IBRD.
1/ Required cash retention unavailable for any other use.
'/ For investm-t -in collectiv-e onnsmmption assentse
IFC-LAEA
May 22, 1968
Anrlex 2
Page 2
"NOVOLES" : Sales Projections
(in million N.Ds.)
1 9 6, 8 1 9 6 9 1 9 7 0 19 7 1L 9 2
Quantity Value Quantity Value Quantity Value Quan tty Value QuELntit Value
3
Sawn Timber m 17,800 8.62 17,500 8.39 ILO,3C 6.91 l4,300 6.91 II,30() 6.91
Plywood I! 5,200 8.97 5,500 9.49 8,000 13.80 8,000) 13.,80 9,00() 15.!52
Block board 920 1.23 1,000 1.3h 1, 000 1.40 2,000 2.00 2,00() 2.80
Veneer .2,610 1.36 1,700 1.49 1,200 0.98 1,8( )0 1.48 2,40o 1.'97
Parquet flooring 000 m2 100 2.71 100 2.50 1CO 2.50 100 2.,50 10() 2.5'0
Veneer boxes " 520 3.16 650 3.95 700 4.27 9C0 5.49 1,200 7.32
Chairs 000 nos. 87 6.99 90 6.78 187 16.59 211 18.,57 247 22.20
Other Articles " 123 2.68 150 2.3. 90 3.38 50 3.38 90 3.38
Othler Sales - �.40 - 0-40 - 0.50 -, .5 - 0.60
Total Sales 36.12 36.65 50.33 55.,48 63.20
Domestic Sales 1h.510 14.,50 16.50 18.60 21.50
Export Sales 1/ 21.6:2 22.15 33.83 36.88 4l. 70
36.12 36.65 50. 55.48 63.20
L/ Rrports to clearing clarrency areas arie negligible; for projection purposes the figureIs given
indicate exports to conrvertlble currency areas.
IFC-LAEA
Mar 22, 196$8
ADDendix 9
Page 1
BREST
The Borrower
The prespective borrower Lesnoindustriiski Kombinat fBrest" is
primarily a manufacturer of veneered and solid wood household furniture.
The PntArnrise aqlso n I?eirA+ saw mi11 nd anr+tcle bhtoardi lrnt. The
main production facilities are located at Cerknica approximately 56 kms.
�hJ-.,west of Just off --- t- U5 1aj. The
main railway line passes through Rakek, 5 kms. from Cerknica. Cerknica
is close to the svrc of pr4~,ar ,ra ,rer,4 ' ar~,dA is fel=corect
with the ports of Rijeka and Koper. The enterprise was established in
l�417 endA----- -I--,'+ ,-l-ys Iu 1,385 peso,s -e 4oa covre -z.-ea--
.-"41 J. '-J.MIU.J 4ILJJ.V.JJ COLI~JVUI .1. -J OV.L JLJ. J..imLL V ICJI.L . L%.J V 'UL U..
of the plant is about 120,000 mi.
In 1967 the enterprise produced about 266,000 chairs of various
4- - - -- fie f%r%n _-1 - .__1_ _ . _1- 4:1.!:_s
JvYFvO c&uA. 7.,VVU P.Ltaud UJ. Vull1m-vU �u -IJ_LU.- ciuui cl; ILL-A..L L s-U.sULO.
credenzas, bookcases and dining tables. Total invoiced sELles in that
year muntdU to o -wich 3 0n o wre
�~1~iJ0y~ I11LLLOf J WfllCIfl 'olU.4oU 113J.JJlQf 01' J4(or t
export sales 85% bf the exports are to convertible currency areas, the
major mpor-tui.g country being she u.S.A.
The enterprise proposes to modernize same of' the manufacturing
facilities with particular emphasis on quality improvements and mechaniza-
tLon of some operations wnich are currently performea manUaally0 The proj-
ect is estimated to cost N.Dl.9,9 million (US$1.59 million) excJolding in-
teresti during constructjion. IBRD has been requesTed to finance thne foreign
exchange cost of the project estimated at $0.68 million.
History of Borrower
The Government of the Slovenian Republic founded the enterprise
in 1947 by merging four small sawmills operating at Oerk=Lca and at two
neighboring villages Martinjak and Marof, 3 km. and 20 km,, respectively
from Cerknica. During the early years of its operation the enterprise
carried on thei existing saw milling operations and in add-ition undertook
manufacture of prefabricated wDsdon houses. By the early 501s it became
apparent to the management that the future of wooden prefabricated home
business was rLot promising and it decided to diversify into other wooden
products.
By 19'3 the old saw mill at Martinjak was closed dlown and facil-
ities were installed for production of small wooden articLes which by 1956
grew into the manufacture of chairs and other items og solid wood furniture.
The plant, which has a covered area of about 15,000 m', currently employs
357 persons arLd produces about 20 models of chairs in 8 basic types. The
plant works twro shifts with some equiprirnt on 3-shift operation.
The Mbrof plant was extended in 1954 to process sawn timber into
packing cases and grooved clapboards and now has a total covered area of
48,ooo m3 and employs 120 persons. The plant has 3 old saw mills with a
total capacity of about 30.000 m3 per year on 2-shift wor]king. Packing
Prepared by A. Bandy and Mr. M. V. Dehejia.
Appendix 9
Page 2
case manufacture is mainly manual with the help of some sma.ll machines.
The c1aqboard unit has 5 pre-war machines which can turn out approximately
4,000 m per year on 2 shifts.
Manufacture of veneered furniture was started at Cerknica in 1956
with the production of items such as school and office furniture, radio
cabinets, bookCEases and wardrobes. Currently the plant turns out 22 models
of products in about 8 to 10 basic lines. A modern particle board plant
with a capacity of 9,000 mJ per year on 3 shifts was instaLled at Cerknica
in 1962 and a new 12,000 m3 per year saw mill was added in 1963. The total
covered area at Cerknica is about 5,700 m) and the plant employs about 915
persons.
The prime raw material, broad leaved and coniferous logs, come
mainly from the forests of Javernik and Sneznic, which are wfithin a radius
of about 10 kms,, of the enterprisets saw mills. A small pi,oportion of logs
are brought from Bosnia and Croatia by rail or truck. Brest is the only
large enterprise in the Cerknica region. Its work force cones primarily
from Cerknica and the surrounding villages. There is no shortage of labor
in the area.
Brest is a member of Poslovno Zdruzenie Les, Liubliana, a business
association of 'Slovenian wood-working industries and works in close coopera-
tion with the other members of the association particmlarly Stol-Kamnik,
Melob-Nova Garica and Marles-Maribor.
Management
The enterprise is managed by a competent team heacded bv Mr. Joze
Lesar, General Manager. Mr. Lesar, who is about 55, has over 30 years of
experience in the woodworking industry and has been General. Manager of
Brest for the last 18 years and primarily responsible for building the
enterprise into a well organized furniture plant min on moctern lines.
Mr. Lesar is assisted by Mr. Joze Hren; Deputy General Manrager,
who has been with Brest for about 13 years in various capacities. Mr. Ivo
Jurkovic, Technical Manager, who is about 35 is a universit;y trained engineer
and has been with Brest for about four years. He has been responsible for
the introduction of modern assembly-lrne methods ir.n the furniture plants at
Cernica and Martinjak. The Finance Manager, Mr. Danilo Ilinar, 33, has
about 8 years of experience and has been with Brest for about Live years.
The Sales Manager, Mr. Dusan Trotvsek, is a contemporary of Mr. Lesar and
has been with Brest since 1950.
Recent Financial and Earnings Record
Balance sheets for 1963-67 are shown in Annex 1, page 1. Brest's
balance sheet as at December 31. 1967 is mimarized below (in N.D. millions):
Ap-)c i,--, 9
Page 3
Assets Liabilities
Cash & equivalent 10,2 Banks 3,7
Trade receivables 9.3 Trade payables 3.8
Inventories 18.1 Other current liabilities 18dLi
Other current assets 17.7 Total current liabilities 25.91
Total current assets 55.3 Long-term debt 12.9
Net fixed assets 23,1 Own funds 39.6
Total assets 78.4 Total liabilities 78.4
The enterprise's investments in fixed assets since 1960 have mainily
been used in the construction of a particle board factory. a new drying
house, saw mill and misceIlaneous equipment, Of N,Do 19.; -illioi- ,iir s-tCc'
N.D. 15.6 million came from the comDanvts own resources and N.Do 403
million was mobilized through new long-term debt, Brest has not tz1nirmrrz nr ?
long.,tor!_dcbt 2or fixedLaseos siyn 19(b aria oIl ho initinl 'T. L I' rUlion
more than half has been paid off, Long-term debt for working capital pur.-
poses constitutes the remainder of outstanding long-term odligatinns
Brest's current nrsitinni snnre 1963 has fluc+btjated! in the range of
1.8/1 to 2/L0 The increase in inventories has been approximately pro-
nortinnatte to the increnas in sanleq nal+houh +.hn leval of rrnh1. hutq
increased by considerably more. Payments by customers, particularly domestic,
have heen notineAhlv slorwAer dAri-ng the last year or so prirarily due to +the
tight credit situation in Yugoslavia.
Earnirgs statements for the past four years are shown in Annex 1,
page . Prdlctin sv r.Jor grvWps of FAWov -.9^s ae r. sfo
operations during the past five years are summarized below: (in million
of NoDe)
Page 4
HBREST": Past Production, Sales & Earnings
Physical produc:tion 1964 1965 1966 1967
Veneered furniture 000 nos 85.8 85,9 85.9 95.1
Chairs " 207.1 264.1 261.1 266e1
Sawn timber m3 18380 13880 16h45 9h48
Particle board " 5877 5742 6501 8600
Other products - million NWD. 5.68 6,25 6X64 5.74
Vnalue of raoC'iCtO : - million N.D. 43.12 55.22 57.97 6Gl.o
-aLes
Invoiced sales 41037 53.22 61.26 69,52
Paid sales I1l0l 49O45 61.26 66.80
Breakdown of in1voiced sales
Exports:
- Convertible currency areas l9o0 19,6 2h44 27.7
- Clearing currency areas 2.1 L.3 3 5el
Total exnorts 211 23, 28R7 32-8
Domestic sales 20.3 29-3 32.6 36-7
Total invoiced sales 414l 61.3 69.5
Earnings 4.2 5.6 4.6 ho4
Since 193 h +.HM. *1 n tLnhe ,-iwtduc-. m4v o-f Brest .nM m.rdA a.%a
somewhat from saw mill operations and much more into semi--finished and fin-
ished w.yood products. rN,.e production of sa,Wm m ti.,br A,,abA s,,, red-,cdb ,4.
50% whereas the production of chairs has increased by 56%, veneered furniture
Tottnl pnai -^1es heeLmot "-ds;c 16 - ("^m '^0. NoD T) 7 -mt il
Asj _ut&i 1"~-' ~ '- W~ &~- -6'_-*'0-'-' t. *fl * -,*J," I tiLL
lion to N.D. 66.0 million) and net earnings have trebled (luring the same
peri -od The gr-A-U4- ir. 4- e^-v 1-4e -,-- -Face w4hte i,-.crease 4- -tota-l
sales particularly because of the increasing emphasis on finished wood prod-
._ I. 4 . 0 ... I
Market & Sales (See also Appendiix ll
Ananaly-sis ofL 'nIvoiced sca"8s dur-ingth --atf-.L ". r hGst
veneered furniture is the most important product line for the company aocount-
ing for over ',0% Of the o i oiced sales i- 1967. Ssles o_ ven-
furniture as a percentage of total invoiced sales grew from approximately
34 in i963 to about 52% in 1967. In value, sales oI veneered IurnitureI nave
tripled duringr the five years 1963 through 1967, from N.D. 12.09 million to
N.Do 36ol mi:i rio0n,
Ajqpendi x 9
Page .l
Th.e next most important product group is the chair division whose
share of the total invoiced sales has been relatiiely constant at about
20% during the past five-year period.
Tne balance was shared roughly in equal proportions by sales of
sawn timber, particle board and miscellaneous products averaging 10% for
each group in 19670 Sales of sawm timber have shown a decreasing trend
as a percentage of total sales (although in terms of value they have re-
mained relatively stable at an average of around N.D, 6.5 million per
year) as the eniterprise expands and diversifies into other more sophisti-
cated product lines,
Details of sales projections for the next five years are shown in
Annex II. Theyr are based on the assumption that increased production and
sales of veneered furniture and chairs as a result of the implementation
of the project under review, will be effective from January 1970. Sales
of sawn timber, particle board and miscellaneous products are conservatively
assumed to remain at or slightly below 1967 levels.
ParticLe board and miscellaneous products such as clapboards and
packing cases are sold exclusively in the domestic market, Approximately
half the quantity of sawn timber sold is exported. The chief export itens
are veneered Durniture and chairs, roughly 80% of their sales being to the
export market.
As reviewed elsewhere. sales to the domestic market are unlikely
to present any difficulties in the coming years owing to the large un-
satisfied demand in Yugoslavia. Also, the current level of imnort dutie3
(18% on furniture) is unlikely to make imports at competitive prices pos.-
sible. The current imnort duty on narticle board is 5% but is expected
to be raised to 10% sometime during 1968.
Sales to export markets are more difficult to forecast especially
for furniturre. Brest, who 1-ve been evn,,orting scir-e 1'OK, have based theBi-r
forecasts primarily on indications roceived from establishled importers and
Brestts main axonrt agent., Slovenijales. Brest exports primarily to the
United States market which has acctunted for about 80% of Brestts total ex-
ports- the main st+.nwur being E. W Mr-se of New York. For 1068, Brest
have already booked export orders worth N.D. 31.8 million (US$2.55 million)
aiY'in-qt the tota1 pro ,Jected eX-orts of NoD 35.6C n m411 . 4r,4 -Tr 4 r
Based ^,r the enterpr+se Is 0ast -Pr a=%- +e sales pro-fctiofr3
appear reasonable and can be attained.
Description of Project
The project consists of several relatively minor Lndividual invest-
.r.s :- -varicus depar"tmeints ofL the enw terprse 'too replace vobso i tXua
of equipment and to secure general improvements in operations.
Just over half the investment in new fixed assets is intended for
the veneered furniture department at Cerknica. About 46 new items of equip-
ment are proposed to be installed in this department including a multicolor
A:Tocndte 9
Page &
veeer- prrinting rmachinve arnd a hih temwerat uwe Pg eT
line. The new equipment will help to improve the surface quality of com-
porier -ts andnU flLJ 1 sh e p r0AuA-1 Icts 04,nd red Auce r 3.1l o AJj--
me investme-nt vinthe -paerticle board plaant at CerL;ica is primarily
for new equipment to improve the surface finish of the boards. With the
installation of the double deck contact sandur, tolernces of4 +.1 -m. wil"
be attainable. Such accuracy is required for successful operation of the
veneer printing machine.
A new steam-bending section for chair components will be added tc,
the chair manuiacturing department at Martinjak. In addition, the program
calls for the installation of about 25 items of machinery and equipment for
mechanizing certain operations in order to ensure consistenat quality and
interchangeability of components.
A new saw mill, 10.8 m3/hour, will be installed at Marof to replace
two of the three existing pre-war mills.
Cost of Project
The project is estimated to cost N.D. 19-93 million (US$1.59 million)
excluding interest during construction. Foreign exchange expenditures are
estimated at U'S$677,000 which IBRD has been requested to finance, A sunmiary
of the project cost estimate is given below:
N.D, $ Total
Million Million N.D. Milli.on
Buildines & civil works LL6 -.
Plant & equipment 00251 0.6772/
Tnmport dutics *(133%) 2-63 _
Freight, insurance & handling 0o43 - X
P.rreoti-en O�- - e-
Total fixod assAts 5.28 0.677 13.5
Additional working capital 6.40 6 a
Total
1168 0 677 l)o)
-I I T)Iv y,edA at + o
Free Yugoslav border.
Costs have been est^m+ +onh the of recent quot-Itions from
prospective suppliers. Building work is planned to be completed during
1968 Best hopetob able +o plc ordersfo 4-.prVede tb
January 1969; delivery periods indicated range from 4 to 8 months from
date of or-uer. diLes projections are based on the asW.ptiion that the
new equipment comes into operation towards the end of 1969>.
AppendLx 9
Page 7
Project Financing
A summary of Brest s estimated firaircial requiremlens and sources
of funds during project construction 1969/70 is given below (in millions
of NDs.J):
uses Sourcesi
Project 19.9 Net earnings 11.5
Other investment in fixed
assets and related
working capital 2.0 Depreciation 5.4
Replacement investment 2.4
Debt repayment 3.7
Reserves & other allocations 2.6 Long-term debt 13.7
30.6 30,6
Detailed earnings and cash flow projections for the construction
period and the following two years together with the major assumptions andl
further explanations are given in Annex 2. The forecasts in Annex 2 are
based on the assumption that the new equipment mainly comes into operatiaa
towards the end of 1969 but the project will not be totally complete bsfo.re
1970.
Of the total project cost of NoDs, 19.9 million NoI)so 13.7 million
or 69% will be covered by long-term debt and the remainder from the com-
panvis own resources. Anart from the N.Ds. 8.5 million to cover foreign
exchange costs the enterprise will be given a loan of N.Ds, 5.2 million by
+he Kreditnn Bankla LiTihliann
Earnings and Debt Service Coverage
Earnings forecast (Annex 2) are based on the asstmption that sales
would equal production. Sales and earnings for the years 1.968 and 1969
although increasing modestly should not differ substantially from the levels
achieved in 1967. In 1970 the new investment begins to have a sizeable
influence on total production and sales and further improvements are
predicted for 1971 and 1972. By the latter year sales are expected to
reach N.D. 115 million, an increase of 72%, and earnings about N.D. 11.5
million, which is over double the 1967/1968 level.
Long-term debt service coverage is adequate.
irC C/LAEA
July 26, 1968
Aninex1
Page 1
'BREST' Cerknica
Comparative Balance Sheet
(Jn milli-n of N-T)s.)
As at December 31 1963 1964 1965 1966 1967
ASSETS
Current Assets
Cash, Banks and near cash 2.7 3.2 3.5 8.3 10.2
Trade Receivables 2.5 2.9 6.7 6.6 9.3
Inventories
Raw materials and supplies 4.8 4.7 6.3 6.6 7.0
Semi-finished products 3.3 4.1 5.4 5.6 6.9
Finished products 2.4 3.5 5.4 4.4 4.2
TOTAL INVENTORIES 10.5 12.3 17.1 16W T _1
Other Currenit Assets 1/ 4.9 5.8 LO.6 11.2 17.7
TOTAL COSEINT ASSETS 20.6 24.2 37.9 12.7 55.3
Gross Fixed Assets
L-an .1 .1 .1 .1 .1
Buildings 6.6 6.3 7.1 11.5 2/ 11.6
Machinery & Equipment 10.6 10.9 11.7 15.6 3/ 17.4
Fixed Assets -w-.der construction 1.1 .9 . .L
Collective Consumption Assets 4/ 2.1 2.5 2.8 3.0 3.6
Other fixed assets 5/ .2 .2 .2 . .7
TOTAL GRUOSS FIXED AS.;SS 20.7 20.9 22.3 3.5i J.U
Less deprelciation (4-19) ( 6 _(9.1) 6/ (10.7)
NET FIXED ASSETS 16.6 16.0 12.3 22.14 23.1
TOTAL ASSETS 37.2 40.2 r,h.2 65.1 78.4
LIABILITIES
Current Liabilities
Short term debt to banks 3.2 2.1 3.4 2.5 3.7
Trade Payables 1.4 1.9 1.6 2.2 3.8
Other Current Liabilities 7/ 6.6 7.0 12.8 12.2 18.4
TOTAL CURREiT LIABILITIES 11.2 11.0 i-*7 7- 16.9 25.9
Long-term Debt 11.2 10.6 9.9 11.1 12.9
Funds of the enterprise
Business Fund 12.6 1L.7 20.3 29.7 33.3
Reserve Funds .8 1.0 1.2 1.6 2.0
Collective Consumption Funds 4/ 1.4 2.9 5.0 5.8 4-3
TOTAL OWN FUNDS -A7 11 T9 7
TOTAI LIABILITI]ES 37.2 40.2 54.2 65.1 78.14
Current Assets : Current Liabilities 1.83:1 2.2:1 2.12:1 2.53:1 2.13:1
Long-term Debt : OwI Funds 43:57 36:64 27:73 23:77 24:76
1/ Includes cost of goods sold for sales invoiced but not paid, prepaid expenses and other current asse-;s.
2/ Includes revalueation increment of approximately 3.8 mLllion N.Ds.
3/ Includes revaluaetion increment of approximately 2.9 4llion.
H/ Nostels, residential hotels, etc.
�/ Patents, licenses and preliminary expenses.
6/ Reflects revalueation of assets.
7/ Includes customer prepayments, sales value of goods invoiced but not paid, accraed charges
and other current liabilities.
I FC-LAEA
May 22, 1968
Annex 1
.Page 2
D - -- >r J
',znXpC1 1,dlE0lI
Eanings Stuatement
(in millions of N*Ds.)
1963 1964 1965 1966 1967
Sales- 35�7 41.0 49.4 61.3 66.0
Operating costs
Materials and overhead 23.0 23.4 28.1 36.2 38.9
Net wages 4.8 6.1 8.0 10.8 11.7
Related social payments 2.0 2.4 3.0 3.6 3.1
Taxes & contributions 2.6 3.2 3.7 _ 4.1 5.0
Total operatin.g costs 32.4 35.1 42.8 54.7 58.7
Depreciation .8 1.1 1.1 1.6 2.1
Interest .9 .7 .5 .7 .7
Net earnings from operations 1.6 4.1 5.0 4.2 5.1
Other income '/ .1 .1 .6 ._4 .3
Net earnings 1.7 4.2 1 4.6 5-b
I/ On the basis of Daid sales.
2/ Derived from penalties, premiums, discounts, etc.
IFC-LAEA
1x.22, 2.962
Annex .
Page 1
'BREST' Cerknica
Finar,c~ial Forecasts
(in mnillions of N.Ds.)
Year ending December 31 1968 1969 1970 1971 1972
I. EARNI4GS STATEKENT
Sales Revenue 1/ 73.0 77.4 95.4; 109.6 11l.7
Operai,ngo.sts
Materials and Overhead L2.0 44.3 53.5 60.5 63.8
Net Wages 13.1 13.9 16.1 18.9 19.8
Related social payments 3.9 4.2 4.8 5.6 5.9
Taxes and Contributions 6.0 6.L 7.6 8.8 9.2
Total Operating Costs 6s.0 cl2. 93.8 98.7
Depreciation 2.2 2.3 3.1 3.2 :3.4
interes .8 .9 1.7 1.7 1.5
Net Earnings 'rom Operations 5.0 T. 6T 10.9 11.1
O ;her Earnings .4 .h .4 .h .1
NE3T EARNINGS 5.4 7.0 y.u 11.3,
IT. SOURCES & APPL :CATION OF FUJLTNDS,
Sources
Net ESarnings (previous ~year) 2,/ 5.J 5.b 5.8 9.0 11.3
Interest .8 .9 1.7 1.7 1.5
Depreciation 2.2 2.3 3.1 3.2 3.l-
Increase in Long-term eDht
IBRD- 8.5
Kreditna Banka 5.2
Total increase in debt 13.7
TOTAL SOUR:t'-S 22.3 10.6 15 r6.
Applicati on:s
Projiect - fix. aset frI -- 8.5
Project - fixed assets domestic 5.2
Addi-tional Vorking Capital 5.6 .6
TOTlAL ItJXVb&?4b' T '.Ni r. s . o
Renewals arid Ftesplacements 2.2 2.4 3.2 3.1
Other Fixed Assets 2.0 2.2 3.0
Interest
Eci3ting long--term d ebt. .6 .4 .9 .8 .6
I B R D .3 .6 .6 .6
^,thn .2 _ 2 .2 .1O
Total Interest; .9 1.71.7 T7
Princi pal Repayments
Excisting -Long--term debt 2.2 1.7 1.5 0.9 0.5
I B R D .l4 .5
DOmestic BankEi .5 .6
TOTAL REPAYMENTS 2.2 1.7 2.0 1.8
Allocation to Reserve F'uinds -4 1 7 .8 .9
Allocations for Collective Consumption .7 1.2 2.8 2.7
Net Additions to Working Capital 2.1 - - 1.1 3.1
TOTAL APFLICAI'IONSV 2.U .) 9 13.1 .C
Long-term debt, service coverage 2.8 3.3 2.9 4.0 5.2
1/ Based on the assumption that sales equal production.
2/ Earned funds arc released for oise only in the following year.
IFC-LAHA
May 22, 1968
Annex ,2
Page 2
'BREST' Sa.les Projections
4,,l. M.. ;114,,, N Ts ')
1 9? 6 8 1 9 9 1 9 7' 0 1 9 7 9 7
Quantity Value Quantity Value, Quantity Value Quantity Va:lue Quantity Value
Veeneered Furniture 000 nos 101.8 40o.60 103e8 l .42 119.0 52.9O 144.9 65.00 157.9 6940
Chairs " 316.3 14h.OO 322,5 l4h56 288 .9 24h00 301.8 26.00 320.9 27-00
Sawn Timber 9340 4 60 9,l0 h.60 9340 h.60 9340 4.60 930 4.60
Particle Board " 8758 7.30 8758 7.3( 8758 7.30 8758 7.30 8758 7.30
Other Products & Services - 6.50 - 6.5o - 6.60 - 6.70 - 6.40
TOTAL SALES 73.00 77.38 95@40 109.60 114.70
Export Sales
- Convertible Currency 35.6 38,2 43.6 5o.9 55.8
Clearing Currency 4.0 4h3 4.8 5.7 6.2
Total Export Sales 359.6 1h2.5 48.4 56.6 62.0
Domestic Sasles 33 e4 34 9 47 x 53 52-7
TOTAL SALES 73e.0 77.4 95-4 109.6 11J4.7
IFC-LAEA
Yay 22, 1568
APPENDIX 10
Page 1
STOL-INDUSTRTJA POHISTVA, KAMIIM
The Borrower
The Drospective borrower is INDUSTRIJA POHISTVA STOL, a manu--
facturer of chairs, seats and office furniture established in 190h.
The plant. is located at Kamnik, Slovenia approximately 21 km from Ljubl-
jana. Kamnik has good highway connections and is close to the supply of
raw materias-1: - lumber; nlywood and veneer. The plant has a total co-
vered area of about 30,200 sq. meters and employs 1,160 persons.
STOL's share of the Yugoslav market amounts to roughly 8% of
total chair sales, about 17% for office fl'rnitulre and annroximately
36% of seats and furniture for hotels and theaters. In 1967 the enter--
prise produced approximately 5Q-,00 i ch-rs and seats of various types
and about 19,h00 desks, cabinets and other pieces of office furniture.
Tot>al sales -Ln -hat- year amounte to N.D. 9 milli0on ($. A7 million)
of which N.D. 18.9 million ($1l5 million) or 41.2% were export sales,
primarily- 'lo con,vert-ible currency areas.
The project under considerationams to rat-1onalize production
by removing bottlenecks particularly in the finishing lines in the chairs
and seat department and in the mertal products department. The project
which. has been engineered by the enterprise's own staff, is estimated t.o
cost N.D. 8.13 million ($0.675 million) approximately. The foreign ex==
changes component of the project cost is estimated at $0.315 million
which IBRD has been requested to finance.
Histcry of the Borrower
The enterprise commenced operations in 1904 as a small scale
business under the name IVAN AIBAOVEEC employing about 100 persoris andu pro-
ducing mainly bentwood chairs and parquet flooring. From the early days
the enterprise established a reputation for the quality of its product;,
even in the export markets and was awarded medals at in'.ernational fairs.
Annual production in the early years amounted to approximately l5,0U0
chairs, 60,000 bonded chair seats and 8,000 sq. meters of parquet floor-
ing and sawn timber. The enterprise steadily increased its scale of
operations over the years and by 1940/41, it was employing about 400
persons and producing annually about 120,000 chairs, 225,000 seats, and
20,000 sq. meters of parquet flooring.
The plant was destroyed by a fire in 1941. During the war
years a part of the plant was reconstructed but operations were at a low
level, with an average of only about 45 employees on the rolls during
Prepared by A. Bandy and M.V. Dehejia.
APPENDIX D
Page 2
this period. Large scale reconstruction and re-organization was under-
taken after 194L6 wnen cnairs ana seat, production was re-e.stablished ana
the manufacture of school and office furniture was undertaken for the
first time. During this period the enterprise introduceci modern pro-
duction methods by installing universal woodworking machines.
In the late 1950's the enterprise gradually phased out pro-
duction of parquet flooring and sundry wooden articles and decided to
concentrate on the production of chairs and seats of various ty.es and
office furniture. Production and auxiliary facilities have been ex-
pandecl and modernized over the past few years. In 1967 lacquering
equiprient and a new boiler were installed, in addition to various small
items of machinery. Total employment increased from 845 persons in 1956
to 1,:!60 persons in 1967.
The enterprise today has a total covered plant area of about
30,200 sq. meters of which over 20% is accounted for by the chair pro-
duction department and about 16% by the office furniture department.
The eniterprise operates its own saw mills and necessary drying kilns and
has a small veneer department for producing laminations for bonded seat
production. The process steam required is generated by boilers fixed
with wastewood and the enterprise also generates its own power. Raw
materials. mainlv beechwood logs. are purnhased from the forests sur-
rounding Kamnik, Slovenia; a s-,.all proportion of logs are also obtained
from Croatia. The enterprise la q it-c wrTn rl.in and sales department.
The design of office furniture has been standardized to one coordinated
group! Owni no fo market requnirem.ents h+. e anterprnse has tio produce ap-
proxiiately 1.50 models of chairs, however by standardization of compo-
nants the nl'Tnber of bas des of chairs has been reduced to 5,
For onAe half a cent-Uy, STOL) products h4ave been wel" k-.o.n 4-n
foreign markets. STOL first penetrated the American market in 1938 and
now sells hnuiit 370X of if ts eavnnorts in n the U.S. Other main fV ri^ anr-
kets are England (28%), France (9%), Holland, Italy and W. Germany (about
6%_ peah).
q--+ - rpr se- is a.P rn,Ter,nT o7'nT3PV7 L T rt ' Tt'cI T 4-1.1 A-a
~ . '~. k,l. LQ- LO CZ IIIUIIILJu� V4. UV./JA.LJ VI)VdJ �LIU aLt J.J LM J,i .Lj U. LAJ 0L0
a business association of Slovenian woodworking industries, and works
in cosecooeraionW_LLth WI= furnsitur-e mnbaufacu-rer-s pic-vic arly
BREST and NOVOLES in order to avoid duplication of production programs.
Although for historical reasons the overall layout of the
pl-+ is not m,ode.rn, v.he m.anagem,ent 'as beer. successful -.gA-1 1iy
streamlining the production facilities within the departments ensuring
~~~~~4 s_ I -P _-- _ 1 4. _ _ A>%______.|
ax morEsw: evenvo anu-l raVVlona sL.ow V materials ainu corripoUn1et5s 'UbDLL1L1A
in higher labor productivity. While the total labor force has remained.
APPENDIX ID
Page 3
relatively constant over the last five years, total value of production
has r1nibled f'rnm abolt Nfnl 2)i million in 1963 to N.D. 50 million in
1967. During this period overall productivity, measured as value added
in new dinars Me a.Wvn-hour ng at. about3 23% per an-nnm from 5.72
N.D./hour in 1963 to 12.59 N.D./hour in 1967.
Managemnent
Mr. Rudi Kremesec, General Manager, has been with the enterprise
for over ll years. ne is a9sisted uj Mr0 Petar asek, Technical Man-ager,
Mr. Franc Vogrinec, Financial Manager, and Mr. Anton Koritvik, Sales Manager5,
all weLl qualified and experienced persons in their respective fields of
activity. Mr. Kresemec's term as General Manager expires this year but it
is expected that he will be re-elected for another 4 year term,.
Recent Financial nd Earngs Record
Balance sheets for h+e past five yrears (963-67) r shown in
Annex 1. A summary of the balance sheet as at December 31, 1967, is
.~LVt"i UULJVVV \.L�1 AII.L~L J. W i1 I'd ai
Assets Liabilities
Cash and Equivalent 5.9 Short-term Bank Debt 2.5
Receivrables u.7 Trade Payables 1.8
Inventories 13.4 Other Current Liabilities 16.3
Other Current Assets 13.7 Total Current Liabilities; 20-.
Total Current Assets 12.7 Long-term Debt 7.5
Net Fi xed Assets 16.h Business Fund & Reserves 30.0
Total Assets 58.1 58.1
in the period 1961-67, STOL put N.Ds. Y.9Y IILL ILLUl J-.tU UI
expansion of its fixed assets. Apart from the financing of a multiple
blade saw which cost N.Ds. 100,000, no long-term debt was inUc-red.
N.Ds. 7.2 million was derived from the company's own funds and the re-
mainmder was covered by short-term debt, most OI which has been paid off.
Expan3ion during this period consisted of the construction of three new
buildings for the raw cutting of wood, a veneer department and a new
storage building, the purchase of a boiler and various pieces of wood-
working and finishing equipment.
APPENDIX 10
Page 4
Of present outstanding long-term debt of N.Ds. 7.5 million,
N=D - 1n -h mi'l I in repesn Iog m lnn-. for" worl4 A-Me fa% >pil ni"_
poses. The enterprise has relied predominantly in the past on cover-
inc newuT inir ,:!.mpy%+ 1hr 1-- -_4_ -1-CltIs,. C-Xhq 15A -e;t1- - 1; m;_
t - e - . - A, V VJ 'V U- W-A.�S V4 - L Vs - JXA.J..J _ SIj4
nated through the internal generation of funds. Long-term debt service
^oveagei0s, therefore, ,more I--than adequatue.
nrv,?nrn,,a 4 6 4lsnnn 4tate.,.nt fr te pasfi4v yr Jn Anne
1, page 2. 'Production by major groups of products, sales, and earnings
are aur-,arized below (iLn miLL1IUl Ao N.D.
1963 1964 1965 1966 1967
Ph cal Production
kin ouu units)
Bentwood Chairs 122.3 79.1 70.7 69.6 57.L
Other Chairs 476.7 513.0 481.4 417.3 449.8
Office Furniture (pieces) 3.2 9.1 11.7 12.9 19.4
Sales, (in million N.Ds.)
Invroiced Sales 23.58 29.06 32.40 4033 49.45
Pai-d Sales 22.61 29.27 2751 38.93 h5.85
Breakdown of Invoiced Sales
(in millions of N.Ds.)
Domestic Sales 9.8 12.7 15.0 22.9 30.6
Exports (Convertible) 13.8 16.4 17.4 17.4 18.9
Note: No exports to clearing areas.
Net Etarnings
(in millions of N.Ds.)
Net Earnings from Operations 1.61 3.08 1.70 3.01 4.66
Other Earnings .07 .11 .27 .32 .21h
Total 1.68 3.19 1.97 3.33 4.9)
in the period 1963 to 1967, total paid sales of STOL have
doubled and net earnings have trebled. Exports to convertible currency
areas have increased from N.Ds 13.8 million to N.Ds 18.9 million whereas
domestic sales have trebled during the same period. The enterprise turris
away some export orders every year if they are from a n,ew source that
is not likely to repeat the order. The reason for this is that at nre-
sent production levels, the enterprise has only the capacity to fill
AVD'OLMTnTV 1'i
ris . L L M LFsLA
Page 5
orders from regular foreign and domestic customers. Filling a 'one-
shLot IC, ex'-ortl - orCdUer would thlUrefore iVOlVU LU. IsppOUdjV v " �egCu' Udo-
mestic client which they do not consider to be in their long-term in-
4terest. Ir-,so. r,as- e neve-r-,le- ih domsti mare is a resi-
U. .LLI ;DIILt:; IILUt35I'U.t:; IIUVH_IUIIULetJi5 UiL1U U(OIf1U5SlLC IViarKeiL L1i a .r(3s�-
dual one insofar as export orders from regular clients are given top
prior ity.
Market & Sales
The enterprise's two main product lines are chairs and seats
of vERrious types, and office furniture. The foll owing table shows the
relative importance of the two product lines during the past five years:
Invoiced Sales
(Qty. in thousand; Value in Million NDin)
1963 1964 1965 1966 1967
Qty. Value Qty. Value Qty. Value Qty. Value Qty. Value
Chai:rs & Seats 593 20-15 600 24.00 563 26.63 487 32.36 501 38.64
Office Furniture 3 o.89 9 2.28 11 3.07 1.3 4.09 19 6.88
Other - 2$54 - 2.78 - 2.70 - 3.88 - 3-93
23.58- 29.06 32.40 40-33 h9k4S
In the past, sales have been limited by product-ion capacity rath.er
t-han m.arket der.andA. A s stae in th not on 4- he V.g'a W.. -- 44-, T- As. >
there :Ls a large unsatisfied demand for furniture in the diomestic market.
Office fu.nit;re sales have gronn roticeably during t-he period ad it is
expected that this line wi1l continue to grow in the future. Sales are
rmz09+ exclu..v7el to th dLi-, st ,,,srkuet
4.r __les, IwXW haeaveae'47 ftII noce ie
�AEOJUork. bc WllLUII LAELVU UVV~rd9gtC .)LJ.V7o -U~L UIA.. JIV~U-L--U UZUU0~
over the past five years, are made up predominantly of chairs, the major
Iaporters being the u.K. and The U.S.A. wnicn together account for rougrdy
65% of Stol's exports. The types of chairs sold in the export and domestic
markets are quite daiferent and no meaningful comparison of export and
domestic prices can be made. Moreover, the enterprise also exports a con-
siderable quantity of chair components and chairs in CKD packs.
APPENTnTX -n
Page 6
Approximately 65% of STOL's sales in the domesbic market are
cont-ract[ sales. Flor exarsle OrSTO ha U rcett,se pd eea
Yugoslav cinema houses and restaurants with chairs and seats. The balance
is sold throuLgh about 18 dLfferent sales agtlnts, the m,,aJoJr ones being
Slovenaijales., Lesnina and Exportdrvo who maintain showrooms in major
Yugoslav to-ws.
Exports are channeled mainly through Slovenijales wno maintain
offices in major European and American cities like London, Paris, Munich
and New York.
ST()L has developed a number of important foreign buyers who
have been regular customers for the past several years. The main cus-
tomer in the UK is Bentchairs Ltd. In the U.S., Empire State Chair Co.
of New York, Mason & Parker Manufacturing Co., Winehendon M4ass and David
Lebensfeld New York are some of the important buyers of long standing.
Exports to UK are expected to decline while the share of the
U.S. in STOL's exports is increasing and by 1970 the enterprise expects
that the breakdown of exports by countries is likely to be as under.
Exports to clearing currency areas have been negligible and the situation
is not expected to change materially in the future.
USA 60%
Switzerland 15%
Italy 15 %O
France 10%
100%
In the USA, STOL's exports are charged a reduced import duty
(17% as against 40%) on a most favored nation basis.
The only serious competition STOL faces is from Polish manu-
facturers who have recentlv been exDortinu bentwood chairs at orices
20% below STOL's prices. STOL plans to meet such competition by chang-
ing over to more sophistieated tvvnes of r-hairq.
Sales nroijet.ions for th-e npxt fiv vyears (Annpex 2jp.1) are-
based on the assumption that increased production capacity will be avail-
2ble from 197'0.
APPENDIX10
Page7
Description of the Project
As stated earlier the project under consideration is mainly
tle balancing OI plant capacity by removing existing bottlenecks, re-
placing certain old equipment, and reinforcing internal transportation
and material handling facl ities.
The project which has been engineered by the enterprise's
own staff will involve the extension of the existing chair prodaction
department building to provide an additional area of about 1550 sq.
meters for housing a new chair finishing line. The metal products work-
shop which produces legs and frames for chair and office furniture is
to be extended by about 1900 sq. meters for installing a new painting
and stove enamelling line. The capacity of the bonded seat production
section is also to be extended by the addition of a new hydraulic press
and auxiliari.es. Reference has already been made to installation of a
new boiler in 1967. During this project the enterprise will add a 700 kw.
turbogenerator to its power station.
The enterprise has estimated that implementation of the pro-
ject will result in a overal'L increase of plant capacity by about 35%.
Cost of Project
The project is estimated to cost N.D. 8.43 million ($0.675
million) excluding interest during construction. Foreign exchange ex-
penditures are estimated at $315,000 which IBRD has been requested to
provide. A summarv of the project cost estimate is given below:
N. D. $ Total N. D.
Million Million Million
Buildings & Civil Works 1.65 - 1.65
Plant & Equipment 0.25 0.311 4.14
Import Duties (20 to 36%) 1.21 - 1.21
Freight & Handling 0.14 - 0,14
Erect-ion 0.03 0.004 0.08
Engineering & Misc. 0.06 - 0.06
Additional WDrking Capital 1.15 - 1.15
4.49 2.31', 8.43
APPENDIX io
Page 8
Capitl- costs have been estimated on t+.h bhai Of budget quota*-
tions received from prospective suppliers during the past six months.
Erectic;n costs 44a c ' as t s e+VardgA
to be installed are small and light, with the exception of the turbo-
generator. Inie anree= d WM-celeus ---e rela4- 4-^rly1
architects' fees for designing the building extension.
J. U1- J. _%P UUU 4dU L 4lu II 1A.&UUL1Z:.LV1i wA UI41 UL".U�U�J4 WL-VLJ-L Lu~
completed by the end of 1968. Delivery periods on equipment are short
rang in;, Iro 2T eio 6 moU1LJs. Except for thie TU-UUcgeUedrabU.U, J4instc'l.atLJ-'ion
of equipment can be completed in less than 2 months. Assaming that orders
for iirmorted equipment can be placed by January 1969, it is estimL1ated
that tJhe project can be completed by the last quarter of 1969. Sales pro-
jectio32s are based on the assumption that the new equipment comes into
operation by the end of 1969.
Project Financing
A summary of STOL's estimated financial requirements and sources
of funds durirng project construction is given below: (in million N.D.)
U9eQ Sources
Projec; 7.2 Net Earnings 10.5
Other :nvestment in Fixed Assets 1.3
Depreciation 3.1
Renewa:Ls & Replacements 3.1
Debt Repayment 2.4 Long-term Debt
(IBRD) 3.9
Reserves & Oth,er Allocations 2.5
Additional Working Capital 1.0
17.5 17.5
Detailed earnings and cash flow projections for the con-
struction period (1968-9) and the following 3 years together with the
major assumptions and further explanations are given in Annex 2.
It will be noted that apart from a long-term loan of N.Ds 3.9
million to cover the ourchase of equipment from foreign sources, the
company does not intend to take on additional long-term debt from domes-
tiG qoiirres= Tnf-.Pnql generation of fiinds is more than adequate to cover
all projected needs.
APPENDIX 10
Page 9
Earnings and Debt Service Forecasts
Earnings forecasts (Annex 2) are based on the assumption
that sales would enual Droduction. As a result of this project, sales
are Expected to increase from about NoDs 45 million in 1967 to N.Ds
61l million byr 1972 or hy apnroxdnntely )j3%. Net earning's are exDected
to irnerease steadily over the period from N.Ds 4.9 milli.on in 1967 to
approximately N.Ds 8I3 million in 1972, an inerease of 05% The main
increase in sales will be in the domestic market although export sales
will increase from abou-t N. 19 m,i I r nn 1967 to N, Ds 21 m.niHnn by
1972.. The non-discounted average rate of return from this investment
is approximtely 40O%0
Long-teer-, debt serv-ce coverage is ample.
IFC/LAEA
Tiilv 26e 19 Q8
ANNEX 1
Page 1
"STOL" KAMNIK
Comparative Balance Sheet
(In millions N.Ds)
1963 1964 9 1966 1967
ASSErS
Current Assets
Cash, Banks & Near Cash 2.4 2.7 2.2 4.0 5.9
T:,ade Receivables 2.7 2.9 4.9 6.0 8.7
.LJ,vento-rieU s
Raw Materials & Supplies 1.7 2.6 2.9 3.9 3.1
SAM -finlqhAd ProductA 4.4 4.9 5.0 7.3 7.1
FinLshed Goods 1.0 1.7 2.7 3.3
Total Inventories 7.1 9.2 ll.o 13.9 1T3
Other Current Assets a8 5.0 10.1 11.0 13.8
Tota:L Current Assets . 0 29-0 3 4 4 71-9
Gross Fixed Assets
LAnd 0.1 0.1 0.1 0.1 0.1
Buildings 6.8 6.9 7.5 11.6 2/ 12.6
Maehinery & EauiDment 7.0 7.7 7.6 10.8 3/ 12.0
FiLxed Assets under Construction .7 1.1 .6 .5 1.4
Preliminary Exp. Patents, etc. .2 .2 .2 .2 .2
Collective Consumption Assets 4.2 -3 4-5 1.0 !/ 1.0
TotaL Gross Fixed Assets 19.0 20.3 20. 2 4.2 27.3
Less: Depreciation kf-)LI 7. . \ ''�-4.L%d ( 41
Net ]rixed Assets 11.9 12.5 12.7 13.8 16.1
TOTAL ASS)],S 27.9 32.3 41.7 148.7 58.0
LIAB:LITIES
Currejnt Liabilities
Silort-term Debt to Banks 2.0 3.5 4.2 3.2 2.5
Trade Payables .7 1.1 .7 1.1 1.8
Otlher Current, T4.abi414+4i4 5/ I I c' '1
Tota:L Current Liabilities t.2 10.0 16.2 18.1 0.5
Long-term Debt 5.8 5.2 4.6 6.0 7.5
Funds of the Enterprise
13-s4ness F-i06n33 166 2.8 2.
.~LCJ.AQO L... LJ*J .L .U .LJ C.L Cl4 .-L
Reiserve Funds .7 .9 .7 1.1 1.6
Collective Cons. Funds 2.6 2.9 14.6
Total Own Funds 13.9 17.1 20.9 TJ7j 30.0
TOTAI, LIABILrrIES 27.9 32.3 41.7 48.7 58.o
CURRRINT ASSFl,3/C'URKhNT LIABITIESM 1.95:1 l.98:1 1.79:1 1.:90:1 2.04:1
LONG-TERM DEBr/OWN FUNDS 29:71 23:77 18:82 20:80 20:80
IT'hncludes cost of goods sold, for sales invoiced but not pDad, other transitory
items and prepaid expenses.
2/ Be-valuat:Lon of assets.
Increment - N.Ds 4.5 million.
3/ Re-valuat:Lon of assets.
I..crILi - NW.DsC 2 r,Li.�llion
4/ Iarge majority of Collective Consumption Assets transferred to separate enterprise.
I/ Includes sales value of goods invoiAd hut, not pnid, other transithry items,
and accruied charges.
IFC/LAEA
May 22, 1968
ANNEX 1
Page 2
"STODI KAIINIK
Earings Statemnent
(in milions N.Ds)
1963 1964 1965; 1966 1967
Sales Revenue 22.61 29.27 27.5'L 38.93 45.85
Operating Costs
Ik-teri il S P Overhead 11.82 1h.52 13.36 19.43 21.84
Net Wages 4.01 5.58 5.89 8.53 11.16
Related S,ocal2 Pavments 1-.5 2.31 2.193 2.84 3.13
Taxes & Contributions 2.71 2.74 3.36 3.58 3.84
Total Oer-tisng Costs no-9 2q.1 5 --o 3h.38 39.97
IDe p r eci a -Vion 6 3 e64 *5 1.e05 .89
Inter-est .38 .O A ^9 .33
Net Earnings from Operations 1.61 3708 1.70 3.01 J2;
Other Income .07 .11 .27 .32 .24
Net Earnings 1.68 3.19 1.97 3.33 4.9G
IFC/LAEA
May 22, 1968
ANNEX 2
Page 1
"STOL" KANNIK
Financial Forecast
(In millions N.Ds)
1968 1969 1970 1971 1972
Sales Revenue 52.60 53-99 60.37 62.89 63.77
Operating Costs
Materials & Overhead 26.13 26.78 29.03 29.78 29.98
Net Wages 11.09 11.38 12.42 12.87 13.01
ReAt.Atd SoMial PavmAnt- 3.35 3.4 3.76 1.88 3.93
Taxes & Contributions 4.55 4.67 .08 5.26 5.32
Total Operating Costs 45.12 46.27 50.29 5L.79 52.24
Depreciation 1.50 1.55 1.90 2.30 2.50
Interest .52 *55 .90 .90 .90
Net Earnings from Operations 5.46 5.62 7.28 7.90 8.13
Other Earnings 1 a . �
Total Earnings V.u. ).(j I.L4 u.J2 u.2U
II. Sources , ApDlication of Funds
Sources
Net Sarnings (previous year) 4.9 5.6 5.8 7.4 8.1
Lnterest -5 6 .9 ,9 .9
Depreciation 1.5 1.6 1.9 2.3 2.5
Increase in Long-term Debt
IBRD - 3.9 - - -
Other Banks (Kreditna Banka) - - - - -
To'all Sources .;:; ;;L; -lwr- 'ivz 7
Applicat:Lon
New Investment:
Fixed Assets (foreign) - 3.9 - - -
Fixed Assets (domestic) 1.9 1.4 - _ _
Working CaDital - - 1.2 - -
Total Project 1.9 5.3 1.2 - -
Renewals & Replacements 1.5 1.6 1.o 2.3 2.5
Other Fixed Assets .6 .7 2.5 1.5 2.0
Interest:
Existing Long-term Debt .4 .3 .2 .2 .1
IBRD - .2 .3 .3 .3
Short-term Credits .1 .1 .4 .4 .5
Total Interest 0.5 0.6 0.9 D.9 0.9
Principal Repaymentss
Existing Long-Term Debt 1.2 1.2 1.0 0.6 0.4
IBRD - - - .2 .2
Total Repayment 1.2 1.2 1. 7. O.o
Allocated to Reserve Fund .6 .7 .6 .6 .6
Collective Consumption Fund .6 .6 .6 .6 .7
Sub-total 1.2 1.3 1.2 :.2 1.3
Net Increase in Working Capital - 1.0 - 2
Total Application o.9 1.7 T. l.o 11.5
LonL7-term Debt Sarvine Covaraae 4.2 4.5 55 ,7.8 11.0
IFC/LAEA
May 22, 1968
A2NNEX 2
P age 2
"STOL" : 'Sales Projections
19 6 8 1 6 1 9 7 0 19 7 1 1 9 7 2
_____ Value: ~~~~anti~y~ V__alue___
(C\OO ntU::s) * ' n'ti ty Value Quianti.y VaLue : uantit : Valae Qati Value: Quantity: Value
* . . . ~~~~~~~~~~~~~5 ' . 9401h 4
Bentwc)od Chairs 58.6 3. 506 : 6. 3.58 : 65.1 : 3.9 : 67.0 : 4 @01 67.5 :
Ot;her Chairs 465.O( 35:44 : 470.() 35.82 : 490.0 : 37.35 500.0 38.10 505.0 :38,.48
Office Thnwniture 24.() 8.90 : 26.0 : 9.64 : 36.0 : 13.35 39.5 :J14.65 : 4C.5 :15.02
Miscellaneous Sales: - : 476 : - 4.95 - 5 .78 6 - 6a -
52.60 53.99 60o6.37 : :62.89 6:63. 77
Domestic Sales 33.6 34.6 40O.9 42.0 42O3
E5,pori; Sa.Les I/ : : 19.0 19: : .4 :195 S209 21-1
OTAL: : 52.6: : 5.0: : 60. : : 62.9: :
1/ STOL doe; not, intend to etxport to clAiaring currency areas.
IMC/La1E1
Ma1y 22:, 1'?68
APPENTDITY 1,
Page 1
The Yugoslav Woodworking Industry
Saw i_'illing
With nearly 30% of the country's area covered with forests, saw
milling is one of the oldest established industries in Yugoslavia
According to the latest Dublished statistics, forests cover approxi-
mately 8.8 millicn hectares and in 1965 the cut timber gross stock
was :stimatnd ait 17.5 million Gu. m. The total volume of timber
felled annually and the quantity of sawn timber produced is shown below.
Ths ii ffArpnp. ii. neamintard fnr hvr ntehir ii;oq. qwiih :p nlnnwnonl. fupl-
wood, roundwood, veneer logs, skis, etc.
Timber Felled Sawn Timber
Year 000 cu m. OO cu m
o01.4 1.117 1 00
1963 9473 2721
'IO). 909O 0700
1965 10133 2677
.1oAv ,103288
1967 9605 2904
Yugoslavia is a net exporter of sawn timber.
Furniture Industry
Prior to Wdorld War II, furniture making was mainly a handicraft
busLness -with only a few large scaLe producers. Beginning in ULt earAly
fifties, individual craftsmen and small businesses have been gradually
meroed into industrial enterprises. Today there are some 226 furniture
making enterprises in Yugoslavia employing in all about 40,000 workers.
In 1967 these enterprises produced goods worth approximately NDin i,i(0
million about 30% of which were exported. Seventy-six (76) of these
enterprises are Located in Serbia, 46 in Croatia, 45 in Siovenia and 37
in Eosnia anid Herzegovina. Serbia accounts for roughly 30% of total
Yugcsiav production, while Slovenia and Croatia account for about 25%
each..
Of the 226 enterprises, about 40 are large units (employing more
than 400 workers each) and account for over 60% of total production alnd
70% of export sales. The largest furniture manufacturing enterprise
is at Novo Gorica in Slovenia, established in 1949, employing about
l,lCO workers. Stol, Brest and Novoles, which are requesting IERD
assistance, are among the top ten in the industry.
The Yugoslav furniture industry has beet eicpanding rapidly over
the past few years. In 1952 furniture production represented roughly
3% of the total value of wood products produced in the country. The
percentage increased to 14% by 1956, 20% by 19g9 and Was approximately
30% in 1967.
Prepared by E. V. Dehejia and A. Bandy.
A D,TI "-,L ,
Page 2
A study made in May 1967 by +he Zavod Za Trzisna Tstra Zivanla
indicates a substantial unsatisfied demand for furniture in Yugoslavia
ti l;vie-~ oiarnfi fnM nr^dAii,s+A ,rm ir.cron as sown. bknl-
Growth of Furnittlre Production
(in '000 nos.)
n ^, n^,,e n narln rz n
uOfice iuriUture e,U O250 615) 1255J) 1UUU8
Bentwood Furniture 29 42 133 288 339
Other Furniture 48n 365 3609 553 7311-
Current domestic sales meet only about 64% of the demand for
bedrclom furniture, 5-9 for kitchen furniture, 27% for living room
furniture and 6% of dining room furniture.
Per capita sales of furniture in Yugoslavia are currently at
levels 25 to 50% below those in other European countries. At present,
expenditure on furniture accounts for roughly 1.9% of the Yugoslav
family's total annual expenditures. With the expected rise in per
capita national income in the coming years and the large unsatisfied
local demand for furniture, domestic sales are not likely to present
any problems to the furniture producers. Domestic sales prices were
deconitrolled at the time of the Economic Reform and have reached stable
leve.s. The study considers that no significant changes in these
prices are likely during the next few years.
Yugoslavia has firmly established itself as an exporter of
furniture tc the European and U.S. markets. Exports are handled mainly
by four big export houses - Slovenijales, Ljubljana; Exp?ortdrvo, Zagreb;
Sipad, Sarajevo and Jugodrvo, Belgrade. Slovenijales is the principal
export agent for the three enterprises under review -- B3rest, Novoles
and Stol.
Exports to the United States have doubled in the Last four years,
growing at the rate of about 30% per annum. This rate is expected to
contLnue although the way in which products are exported is expected
to change. For instance, whereas in the past most business was done
writh import houses in the U.S., now sales are mainlv to manufacturers
who Purchase furniture parts from Yugoslavia and assemb'le them in the
U.S. Recently, Sloveniiales established a new companv in New Jersev
for assembling furniture for its smaller U.S. customers. Slovenijales
has also started to 9upnnlv Aomnlete fuirrniture for hotels in the U.S.:
several Sheraton hotels have been so furnished. Exports to Europe have
hAen hpiwn ng at a sadg rk
APPENDIX 11
Page 3
Plywood & Veneer
Manufacture of plywood and veneer was first established immediately
after World War I with factories at Rijeka and Sremska M4itrovica.
Production went up twelvefold in the years following World War II and
in 1967 the country produced about 90,000 cu. m. of plyw�ood and 180,000
cu. Tm. of veneer (both decorative and core veneers). Figures for
production and sales during the past six years are given in Annex I.
By volume of production, Yugoslavia ranks fifth in Europe after
West Germany, Finland, France and Italy (in that order). As an exporter
of plywoods, Yugoslavia ranks seventh after Finland, Rumania, France,
West Germany. Belzium and Italy. For veneer exports. Yugoslavia is the
sixthi largest after WHest Germany, France, Rumania, Denmark and Italy.
Yueoalavia does not imnort anv nlvwood nr v neer.
Over 80% of the YuonRlauv producetio-n iqs ace-onmted for by 17 dif-
ferenit enterprises. The balance is accounted for by small scale operations
with individLual nannnitAti less than 1000 cu.m.Aunar-
Bosanka.konBaa vhl e500 cu
The majo manufacurers _j " ~S"'e/
Rade Supic, Rijeka (8,000 cu.m.)
n-m-1 Kom.mbir, Srens sM"r-ovca (6,0 ciuw ..m.), an
Jadar, Zvornik (6,000 cu.m.)
Ti,opr,Bssk No-v-i (5,80 cu.r%
who together account for approximately 30% of the country's production.
T., 4.,A 4 4-4 ,.,. 4..- -- LI. --
In JAUV ad:tUJUonto.un j.u- . pLywvvu Zul vtuneelr ulwes e r alcdv
make finished goods such as doors and furniture.
The major manufacturers of decorative veneers are:
Dip, Slavonski Brod (4,4O0 cu. m.)
TJopo.l, J' .LL LWmd (3,L790.L .LuU.rL.)
Dip, Sisak (3,000 cu.m.)
Dip, Nova Grauijs'M (2,000 cu.m.)
Lip, Seutjur (2,000 cu.m.)
Up, Savinja (2,000 cu.m.)
wivo accout Lor approamatey jo7o OI tne country s total decorative
veneer manufacturing capacity.
Each enterprise has its own assured supply of timber from forest
enterprises in the surrounding regions. Yugoslavia's forest reserves are
under-utilized at present - the plywood and veneer industry consumes an
estimated 600,000 cu. m. of timber annually compared to the minimum aver-
age annual felling of 22,000,000 cu. m. - and there is considerable scope
for :ruture expansion.
1/ Lignosper is increaed=g its capacity to 10.000 cu. m. with a $360,000
Loan from IBRD Loan 5Q-YU.
A.J L1\TnJJV 1 I
Page 17-
Devp1lonmpnt of the Yugoslav nlvtwood and veneer industrv is coor-
dinated by Savet za Sumarstvo i Drvhu Industriju, Beograd, the Economic
Chambper for Forestrv and Wootdworking Tndustries- Baseipd on an analvsis
of past consumption patterns the Chamber estimates that by 1975 plywood
reqiLriments will reach, 200,000 cu. m. an-d veneer requirme-nts Q Wl be
aboutl 320,000 cu. me
Part-Lcle Board
There are reported to be 18 manufacturers of particle board in Yugos-
l vd,, 103r st -4 4.-X1- -A -A A -A AXIAA 1,TA- o_:_
CLV %v s W- a ,CL UG K ;16 WAG .L.Ll AA A C LL =U '. 41 IV.;JVVC UUJ.JV J i
the second largest. Production and sale of particle board have increased
over theL yters as s1WI be.Low.
Particle Board
Production & Sales
(in 000 cubic meters)
1961 1962 1963 1964 1965 1966 9YO6
Produaction 8.1 35.2 75.2 116.5 154.6 150.0 142.0
Sales 6.1 24.6 70.9 111.2 142.4 130.8 115.4
Lxports:
Convertible - - - - 0,33 1.2 1.l45
Clearing 0 - - - 0.35 0o4 0 . 2 5
Total - - - - 0.68 1.6 1.7e10
As can be observed from the table, particle board is consumed
mainly in the domestic market. The -main uses are for furniture and
cabinet making and as wall panels in housing. Exports are mainly of
special types of asbestos lined particle board. Italy is the largest
importer of Yugoslav particle board.
During. the last five years construction of housing has increasecd
at an annua:L rate of 5%. Approximately 130,000 houses and apartments
were constructed in 1967. Based on the projected growth in construction
and the estimated additional requirements of the furniture industry,
the Economic Chamber for Yugoslav Wloodworking Industries estimates that
approximate:Ly 200,000 cu. m. of particle board will be required by 1970
and about 3(00,000 cu. m. by 1975.
IFC/LAEA
July 26, 1968
Arinex I
TOTAL YUGGSL^'.V PRODUCTIOD. AND) SALE-S
(ir cubic meters)
1961' 1962 1963 196l4 1965 1966 1967
I Plywooci
i. Production 65586 68876 74991 96947 110810 107477 90205
ii. Total Sales (Doriestic 53338 630D99 79360 9h921 95463 86278 79563
r Export)
iii. Exports
a) Soft currency Area 1550 Li61 26 1307 1755 389 509
b) Hard currency Area 6065 10,L918 15670 188-25 22L83 25918 22837
Total Exports: 7615 10955 15696 19772 242.38 26307 233L6
II Veneer
i. Production 74385 108605 961L8 110304 203370 198818 13170L
ii. Total Sales (DoTrestic 38144 92 3 7 83186 98859 190427 177528 156802
& Export)
iii. Exports:
a) Soft cu^rrency .Area 5l 06 8919 815753 5596 83285 6742 5306
b) Hard currency Area 8558 7973 8438 5108 6171 9775 5355
Total Exports: 13964 12B92 12616 1070h1 10995 16517 1.0661
Source: Savet za Simartvno i
Drvhu Industri.ju
Belgrade
TL C-LkFA
ltiay 22, 19668
APPEINDIX 12
Page 1
YUJGOSLAV INVESTMENT BANK
Background
The Yiigozlav Tnvest+mPent Bank (YIB) was p-hwprl in 1956,
replacing the long-term credit department of the National Bank of Yugos-
la v ni c +.he nprincipal ene+imen o f +h, enAn-,1 Goverpme � or_- 4 P ovin
investment funds from domestic resources and foreign loans. In 1964, the
n.vestm.ent Bank was given sOme l easure of autonomv u'-'Vr, ' Ihe tranE'er to
it of part of the Government's General Investment Fund which consisted of
the proceeds of txation used for i-vestment. YIB besides its principl
activity in investment financing, lends for permanent working capital,
proVides L IiLo-t-berLiL foreitgL excariage credits and manages grants provided
by the Federal Government for specific purposes. A large part of the
Bank's xesource,s, which totalled about N.D. 23.9 biilion at the end of 1967',
were funds made available by the Federal Government (67%), followed by
foreigsn loans (16%) and deposits of enterprises and other organizations
(6%). Up to the early 1960's the Bank's lending accounted for about one-
third of all economic investments in Yugoslavia and was primarily for
industry, power, transport and tourism. The breakdowvn of lending since
then is shown in Annex 1.
As the Government's main channel for foreign loans, the Invest-
ment Bank has been the borrower of the eight IBRD loans totalling $270.5
million made to Yugoslavia since 1961. Two of these loans (277-YU and
318-YU of 1961 and 1962) totalling $60 million were for power, two(344-YU
and 485-YU of 1963 and 1967) totalling $45 million for roads, three (361-TU,
395-YU and 531-Yu of 1964 and 1968)totalling $155 million for railways.
The Investment 'Bank, while passing these loans on to other organizations
which carried out the projects, played a substantial role in their prepa-
ration, negotiation and administration. In addition the Investment Bank
was the borrower of the $10.5 million loan (5OL-YU in 1967) which it relent
to seven. industrial enterprises to help finance their modernization progrrns.
Organization
The baanking reform of March 1965, which was part of the compre-
hensive reform measures aiming, inter alia. at decentralizing the economic
system, has changed the organizational and financial structure of the Yugos-
lav Investment 'Bank. Through the reforms, all Yugnoslav in um'tm.ent hanks
became autonomous, were permitted to operate throughout the country and,
sublect to meet:Lng certain financial requirements, were pUt nnto an eqnal
Prepared. by Mr- J. A-. mciTns
APPENDIX 12
Page 2
position regarding borrowing abroad and the possibility to administer
goverrnmental investment resources. The Investment Bank is now largely
autonomous from the Federal Government and has to compete with other
credit, institutions.
The Investment Bank's higher organ is the Assembly, consisting
of repIresentatives of enterorises, other economic organizations and govern-
mental bodies contributing to the Bank's credit fund. Contributions to
the credit fund, which is similar to share capitall -a 'Al!t be vpnd but
are transferable and entitled to payment of interest depending on the
result,s of the Bank' opnerations. Eh 1Q67 N.D. 8.6 million uas pad in
interest on contributions. The Assembly had on January 31, 1968, 54
members wilth totl- subscriptions of N.D. 232.8 rAo of'"'h N.D. 109! 3
million had been paid. The Federal Government's subscription was about
ND. 75 milion, but ts voting powr is lim d te as is that of a.n.y
other member of the Bank's Assembly. The Assembly decides on YIB's policies,
orgy.arzt-;^. ,ndA .4,rStir 4f ree.s I-l S irtres on thle cr-i
gan;lz lo -,% u1uribaiJI .L VVLJ. 1i, .LL�2uUL in , LI o i. 1 re."UUL
fund. The Assembly's decisions are, with considerable degree of delega*-
tion cf powers, carr-ied out by an Executive Board appointed by the Asserbly,
and by a General Manager, appointed by the Federal Assembly as in the case
of all banks in whichn the Federal Government participates. Tne General
Manager implements decisions and policies laid down by the Bank's organ,s
within the f,ramework of the social plans of Yugoslavia. He can appeal
decisions of the Bank's organs finally to the Federal Government.
Financial Position
The banking reform has particularly affected YIB's financial
structure. Wnereas until the reform the Bank administered most of its
funds on an agency basis, they have now become liabilities and assets.
Resources of YIB As at Dec. 31
(In N.D. billions) 196 6_ 967
Federal funds administered by YIB 17.26 0.17 0.01
Foreign loans with federal repayment
obligations 0.33 1.69 1.59
Domestic loans and deposits under
YIB's liability 1.79 18.39 18.80
Foreign 'Loans and deposits under
YIB's liability 1.70 2.11 2.68
Own funds 022 0.66 0.82
21.30 23.02 23.90
Annax 2 shows YIBts comparative balance sheet f'or the years
ending December 31. 1963 to 1967.
APPENDIX 12
Page 3
Two-thirds of the liabilities at the end of 1967 consisted of
a creclit of N.D. 15.94 billion from the Federal Government, which was
created by converting the funds of the former General Investment Fund,
administered by YIB on a revolving basis, into a credit at 2-1/2% repay-
able cver 30 years. with the full risk resting on YTB= Since the average
duration of YIB loans is close to 25 years, the Federal Government credit
leaves small room for revolving of f'1ncds. YB eYT ects that it will continnue
to receive funds from the Government to lend for specific: purposes. YI:B
has ncw to compete for these funds with other bans but has found that iLt
has an advantage because of its experience in investment financing. If
the Governrment makes funds available as loans, terrs are neg&4 "tave betwVeen
it and the banks which relend under their own risk. If the Government wants
to channel funds through banks at s-ubsiLdzed terms or as grantvs, the chosen
bank acts as agency only.
About 16% of YIB's resources come from foreign loans. The
Federal Goverument has undertaken repayment obligations for foreign loans
representing about 40% of the total. In these cases the loan proceeds
were piassed on by YIB as grants for infrastructure projects. YIB no lo:nger
has a privileged position as the channel of foreign loans but it expects
to obtain in the future a substantial share of foreign fuLnds.
in addition to funds from the Federal Government and foreign
lenders, an increasing share of YIB's resources will have to come in the
long run from domestic sources, particularly in the form of deposits,
contributions to the Bank's cr2..dit fund and possibly bond1 issues. From
1963 to 1967 time deposits inc oeased from N.D. 500 to 1,343 million.
The potential importance of domestic bond issues is diffi-cult to forecast
since this form of financing has been seldom used in Yugoslavia since
1945. The internal investment loan shown in the Bank's balance sheet
was originally issued by the Federal Government and subsequently trans-
ferreci to the Investment Bank. Finally. the Bank will have available
retained earnings allocated to the cred-Lit fund. These increased in
recent; years and by the end of 1967 were three times the original subscrip-
tions0
Operations
There will probably be some shift of emphasis in YIB's operations.
WAhereas in the past. as the Government's pm n-CinP1 invpesment institution,
YIB concentrated on investments in basic industries, power and transport,
it expects to extend its activity to All -Sectors wtx+h the exception of
direci; lending for agriculture. Enphasis will be given to financing
industrial modernization. Other activities likely to gaLn m-portance
are financing exports and imports, which are services of interest to
the aInk's major members and depositors.
APPENDIX 12
Page 14
Borrowing Capacity
Any assessnent of YIB's borrowing capacity has to take into
account that until the recent reorganization it was primarily an insti-
tutiorL for channeling Government funds to investment projlects and had
no replayment obligations. With the banking reform, YIB atssumed the
liAbi]ityv for most of these resources, but itq transformation into a
banking institution operating under the usual financial concepts regarding
the relationship of ridht to equity ha barel-v started.
eratio o+Ae-~ f debt4~ +~ '1tn "eflh+.y"t h,in r for YTR if cal1milated on a
conventional basis (and excluding from debt federal resources for invest-
ment r-.an. -7 - .--t ee,'fle+.t +)in 7eAasrlnl (GTr'rnevnmfnl+. obhiga-
tions in respect of foreign loans)wouldbe 26:1 on December 31, 1967.
1111is Ls1- a- Cor,asiderab.le chniange cw-A[.are-d tvo De-c%XLkMbr -3"1, lo(6 .i.e bPf rp.
the banking reform, when the ratio was 81:1. The ratio will probably
graUU.�al4l.y bde1L.a L.L�e , toV prEeVVfLU ds foLUUO .L L operLa.tion
intends to re)tain a higher share of earnings and to attract further
vL-nUen19[Ltts .i or it-s creoil-L Iunr. .l.Ls W.S appaw.IbL1L, .14 .oL11o
cation during the past three years. However, YIB will probably not
attain- nor aLs to attain in the foreseeable future a connventionra' debt'/
equit;y ratio since resources it owes to the Federal Government can be
considered to some extent as subordinated debt and guarantees for iLts
liabilities are more comprehensive than is usual for development banks.
An important consideration for YIB's capacity to incur debt is
that all members of its Assern(JLy, including the Federal Government, have
an obligation to make available to the Bank additional resources to the,
extent required to meet the Bank's obligations. The Fedleral Government
also guarantees all obligations undertaken by YIB before! January 25, 1'366,
i.e. the date when its operations were brought into conform-ity W-Lth the
new tbanking legislation, A further aspect is the excharnge risk u-,dertaken
by Y1B on foreign borrowings, YIB's liabilities in foreign excha-:ge r.
covered in part (presently about 40%) by repayment obligtations un.ert__:n
by thie Federal Government for certain foreign loans. For other fcre4ig
exchaLnge liabilities it is YIB's practice, under the present forc4,-n
exchange system, that enterprises when borrowing in foreign exchar; t have
to undertake to repay in foreign exchange. Furthermore, the right of
YIB to exchange dinars for the currencies required for loan repayments is
provided generally in legislation for all loans made befrore December 31,
1966.
Pros sects
IThe Yugoslav Investment Bank will continue to play a major role
in inveqtment financinrL becau.e of its long experience. volume of resources
and close relations with many enterprises. It is difficult to forecast,
horfeer, how in the long rin YTBRI level of operations will compare to
previous levels and to the future lending of other investment banks, since
APPENDIX 12
Page 5
the banking system is still adjusting itself to the situation created by
the new banking legislation, YIBIs short-temr financial forecasts
envisage an increase in deposits due in inflow of new funds, particularl]y
from the Federal Goverment. This seems justified since the new funds Lre
largely for payments on account of cormitments made previously to projects
financed through YIB. Forecasts beyond 1968 are difficult to make sinCe
due to the baiking reforms, a number of new factors will increasingly
affect YIB. 'In the long run the scale of operations will depend to an
increasing extent on YIB's ability to compete with other banks.
July 26,9l6EA
July 2'6, 196&i
YUGOSLAV INVESTMENT BANK
Long-Term Credits for Fixed Assets 1961-1967
(Million New Dinars)
Domestic Goods Imported Goods
Branch and Services and Services Total
INDUSTRY AND MINING
Coal and coke 5ol 472 973
Petroleum 263 307 570
Ferrous metallurgv 2.18' 1.812 3.997
Non-ferrous metallurgy 1,284 684 1,968
Building matnrials and miscz )2 62 104L
Metal working 165 242 407
Electrical quipm.ent 28 n6 7hj
Chemical s 961 1,122 2,083
Paper )z9 1646 215
Textiles 12 25 37
Food proces,sing 91 22
Other industries 9 16 25
Total Industry and Mining 5,590 4,976 10,566
ELECTRICITY 6,208 1)797 8,005
TRANSPORT 4.,974 826 5,800
TOURISn 516 9 525
DTMLINGS 69 - 69
FORESTRY 31 2 33
OTHERS 23 _54 77
Total 17,aLL 7,664 25 O8i'
IFC/LAEA
JulY 22. 1968
ANNEX 2
'3,03-ISL3Y INVrESTMENT BANK
Balance Sheet,
(In million New Dinars)
As at December 31, 1963 1964 1965 1965 1967 1963 1961 1965 1956 1967
!.SSETc LIABILITIES
Investm nt credits: siources for iavestment credits:
Investment credits to economic Credit from the Federal Govermnent
en-cernri iesl/ 14,295 15.790 15,952 15,237 '1',720 (earlier Genera- Investment Fund) .1.,805 14,995 13,915 15,042 15,953
Irvestment credits to banks fcr granting Foreign investment loans and credits 1.18$ 1,863 3,179 lA-iR 3 79C'
tnveatam.w.t credits Lo ecOijeuwiv enter- Internal investment loan - 6:24 60 587 54t7
pri.sesl 2,079 1 849 3 770 4 323 5 965 Credit fund 8 110 207 459 577
ita' S ,vestrment cre-iits ,374 17,639 1i3,712 19,555 20,Xu'5 Thne deposits of clients 500 662 906 1,173 1,3L3
Credit wits the National Bank 102 39 712 691 225
S1:urt-tesrL credits: Total sources for in3vestment credits 7; T3 ]9,59 21,70 22,525
Credits to economic organizations for
working assets 1 67 8 532 602
Credits to banks for granting short- Sources for short-term credits:
ter-m creclits - 80 _ 8 270 300 Short-term. deposfLts 464 306 424 934 653
Total short-term credits 1 147 7 702 8 02
lnves ,rsent grEnts out of federal resources - 2,230 63 170 4 Federal sources for investimnt grants
and other funds:
ObtivatLons of' the Federal Goverrnment Sources for inve-stment grants - 2,018 18 175 c
in respect of foreign loans - 334 794 1,692 1,587 Sources for granting credits for
special purposes - 250 64 -_
Foreign excharnge credits and current' accoumts: r Total sources for grants - 7,27T =- TE
Derosits with National Bank - - - - 56
Fore ign exchange credits to banks - 28 8 8 1
Forcign exchange credits to economic Sources of funds available for foreign
organizations 63 56 188 224 268 exchange operations:
Current accounts in foreign banks 1L 15 13 24 10 Foreign exchange deposits of economic
Total foreign exchange credits 77 139 209 27 32 organizations 80 99 132 142 199
Foreign exchange credits with the Niational.
Ciro account: Barnk of Yugoslavia - _ 38 45 139
Giro accourit for investmTents 510 358 128 2 20 Credits with foreign baLnks 5 156 63 - 9 145
Giro account for short-term credits 248 182 142 113 33 Total f'oreign exchanige operations funds 7 T147 233 282 48i
Giro account in foreign excharnge 32 46 78 - -
Legal reser ve requirements with the
Social Accounting Service - 113 275 244 R1eserve funds 45 56 87 131 166;
T'otal Giro account 790 5 4 3g9 297
Financial resources of the Bank as the
user of social property 29 28 25 11 6 'Business fund 32 41 4i4 50 53
Reserve funds of the Bank 44 45 46 87 130
Fixed assets 9 9 11 33 41 Sources of collective consumptien sources 20 23 27 19 20
Collective cornsumption fund 12 19 21 16 18
Miscellaneous assets 79 123 222 3 1 Miscellaneous liabilities 169 157 197 58 89
TOTAL ASSE.TS 17,515 21,251_ 2_066: 23,C19 23,896 TOTAL LIABILITIES 1'7,1 21,299 20,653 23,019 23,896
1/ For fixed assets and oermanenit working capital
I FC/LAFAk
July 22, 1968