May 19, 1999. 

BY MOVING PRODUCTION TO CITLUK WE ARE RESCUING THE MARKET IN B-H

Badel 1862 has been a very frequent motive for newspaper articles in the past months. President of the Association of Small Share-holders, Ante Perkovic, has on a number of occasions warned that the privatisation of that company is heading in the wrong direction, believing this could lead to tycoons taking over the company. The sale of Badel’s wine-cellars - which came across strong reactions - was designated as a "sell-out of the company’s property." These issues were the focus points of our discussion with the General Director of Badel 1862, Zelimir Golubic.

HOW DO YOU ASSES THE COMPANY’S ACTIVITIES DURING THE PAST YEAR?

I would first of all like to mention that last year we had to deal with extremely complex circumstances. To start with, there was a fall in the general living standard and consumption, then there were the complicated market conditions as well as certain economic policies which were not favourable for business people, particularly exporters. Apart from that, we are in an especially unfavourable position because we are a tax collector for the state - more than 50 percent of revenue from the sale of alcoholic beverages goes towards taxes which we have to pay within 30 days, even though it takes 60, 90, or even more days to collect outstanding debts. Due to the situation in Croatia, we also had to write-off certain large outstanding debts, from Diona for example. The past year has also been extremely difficult due to strong competition and a fall in consumption. Namely, the consumption of alcoholic beverages is drastically falling - a trend which is world wide - and in Croatia the drop is in excess of 10 percent every year. During 1998 the total consumption in Croatia was only 14 million litres, in comparison to 19 million litres in 1994, or between 33 and 35 litres towards the end of the eighties. We have done relatively well against our competition, raising our market-share from 51 to 58 percent during last year. However, all this is not sufficient according to our needs, installed capacities and development plans. We however still asses 1998 as a successful year.

WHAT TYPE OF STATUS DO BADEL PRODUCTS HAVE ON THE FOREIGN MARKET?

Honestly, our export sales literally saved us, because our export is 57 percent of the total export of alcoholic beverages from Croatia. Export results from last year were a bit less than we had planned, but they are still however positive because we have succeeded in maintaining our image and the market position of our products. After all, taking into consideration the current situation in Croatia, every positive result can be considered a large financial success.

Owing to our export strategy which we adopted five years ago, our export today represents as much as 30 percent of our entire revenue, which is approximately DEM 30 million annually. We currently export products to 26 countries, with Bosnia-Herzegovina, Poland, Macedonia, Germany and Slovenia being our largest markets. Apart from that, we managed to open three new markets during last year: Yugoslavia, Sweden and Japan, something we are very proud of.

DURING THE PAST YEARS A LOT HAS BEEN WRITTEN ABOUT THE PRIVATISATION OF BADEL 1862. HOW DO YOU COMMENT ON THE DISPUTE WITH THE PRIVATISATION FUND AND THE DISSATISFACTION OF THE ASSOCIATION OF SMALL SHARE-HOLDERS WITH THE COURSE OF PRIVATISATION?

The privatisation of Badel 1862 began six years ago when small share-holders registered 51 percent ownership. That situation existed until the end of 1996, when the Fund officially and publicly invited tenders for the sale of 23 percent of shares from its billfold, which was bought by the ‘Frane Matulic and Associates’ managers group. Stories concerning problems in Badel 1862 began circulating when Ante Perkovic became unsatisfied with his status in the Associates and company. Previously, as a member of the board, he ran and controlled the acquisitions and financing process. However, since he was expropriated, he began gathering a group of people who were unsatisfied with their status. That is when disagreements between the Associates began to surface and a part of them surrendered their shares to the Badel Bobita company from Citluk. It is currently the largest share-holder with about 37 percent.

I feel that relations between the Associates is their own business and that it should not be a topic of public debate. Several claims concerning the discharge of employees found their way into the newspapers, however, I can confirm that these claims were false and that nobody has been given an illegal discharge. The fact is that the Associates abided by the agreement and fulfilled their financial obligations. The Fund recognised this, but still reached a decision to sever the agreement. A legal battle at the commercial court is the result of all this. As the General Director of Badel 1862, I view this exclusively as a dispute between two share-holders, which means that the court’s decision will be final on the matter.

A LOT HAS BEEN WRITTEN ABOUT THE SALE OF BADEL’S WINE-CELLARS. DOES THEIR SALE MEAN THAT YOU ARE WITHDRAWING FROM WINE PRODUCTION AND WHAT IS YOUR COMMENT ON THE NEGATIVE REPERCUSSIONS OF THE SALE?

When we decided to sell our wine-cellars, we did not target a profit from the sale of properties, as it was portrayed. Rather, we targeted the advancement and restructuring of the wine-cellars. Namely, there are no examples in the world where wines are placed on the market with the same name as spirits. Apart from that, we were led by the idea to operate the wine-cellars in regions where the wine is produced rather than in Zagreb, because the image of Badel’s ‘concrete’ wines has seriously put back wine production during the past years. After all, we were not the owners of the land, nor could we become the owners. Therefore, our aim was for the wine-cellars to become completely privatised. However, because the plan was for wine-cellars to remain in a tight business-technical co-operation with Badel, we sold them to the people that were already running them because we wanted for the people who work there to become the landowners and make a living from their work. Everything from a business perspective will be done in Badel, whilst everything in relation to the production of grapes and wine will be carried out in the wine-cellars. We are convinced that this concept is good, but due to the negative public pressure, which is mainly untrue, some people have unfortunately entered the business shaken in the belief that they are doing something good. The difficult economic situation burdens quick results, but a positive effect is already felt. By reducing expenses and improving the quality of wine, due to the simple fact that the wine-experts are at the production sites, not in Zagreb.

WHAT IS YOUR COMMENT ON THE STATEMENT THAT THE NESPES WINE-CELLAR, WHICH WAS BOUGHT BY FRANE MATULIC, WAS SOLD FOR A PRICE LOWER THAN THE TRUE VALUE?

That is not correct. I can, with liability, state that it was not sold lower than its value, because two years ago that wine-cellar was virtually falling apart. I know that since he has taken over the wine-cellar, Matulic has invested a large amount of money in modernising the production and wine-preserving process. Jealousy and envy in this case is once again dominating the facts. I can claim that all the people who have entered the privatisation of these wine-cellars basically bought problems and concern. They might in five or 10 years make a profit from their purchase, but in the next year all that they will have is a headache.

WHAT CONSEQUENCES WILL BADEL 1862 SUFFER FROM THE SEVERING OF THE TRADE AGREEMENT BETWEEN CROATIA AND BOSNIA-HERZEGOVINA?

We will suffer large consequences from all aspects. Bosnia-Herzegovina is traditionally one of our largest markets. In general, our entire economy is built on the central and eastern European market, whilst countries from the former Yugoslavia are an especially important market. The severing of the agreement means that the price of our products will increase between 70 to 110 percent, which will reduce our export to Bosnia-Herzegovina by more than 50 percent. Our only realistic step to preserve our position on the market and to not reduce profits in the meantime, is to transfer part of our production for the Bosnia-Herzegovina market to Citluk. That project is currently being realised. Rumours say that people will be discharged because of the project, but the truth is the exact opposite. If we do not take this step and if we lose or considerably reduce our export business of DEM 17 million, only then would a considerable number of employees be endangered of losing their jobs.

We have already made this mistake in Hungary. Towards the end of the eighties we used to sell 600,000 litres of Cezar annually, in comparison with only about 50,000 litres today. If we had taken advantage of the right moment for investing and transferring the production, which would have been under our control and licence in Hungary, that product would have developed further. Now, there is no way we will regain the scope of sales as we had ten years ago.

HOW ARE RELATIONS BETWEEN THE MANAGEMENT AND TRADE UNIONS?

In my opinion very good. The collective agreement we signed with the trade unions is one which employees in many other Croatian company would like to have. About 2,140 families make a living from Badel 1862, whilst salaries are considerably above the average in Croatia. At times, naturally, certain disagreements do arise due to trade union requests which we cannot fulfil because they are not suitable to the times we live in or are not in the domain of trade unions. I have to mention that a part of the trade unions have sided with Ante Perkovic, in relation to his dissatisfaction with the new structure of ownership.

WHAT IS THE FUTURE AND PROSPECTS OF BADEL 1862, TAKING INTO CONSIDERATION THE CURRENT ECONOMIC SITUATION IN CROATIA?

Everything, naturally, depends on further developments. When we made the transition from some type of a responsible economy to a market economy back in 1990, nobody could anticipate how difficult that transition would be.

Apart from that, I feel that the trend of a fall in the consumption of alcoholic beverages will continue, not only in Croatia but in the world. Promoting a healthy life style and stronger driving controls are trends which we cannot control, but essentially influence the entire industry. However, Badel 1862 has a recognisable product and an export market comprised of 26 countries, which are - in my opinion - results which give a realistic prospect.

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