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CAPITAL MARKET REPORT

Slovnaft,VSŽ hot shares on relatively quiet market

The Bratislava Stock Exchange (BCPB) experienced a predominantly quiet two weeks, with VSŽ and Slovnaft seeing its shares traded the heaviest. VSŽ firmed moderately to 647 SK and Slovnaft jumped 19% to 832 Sk. Conversely, Považské Strojárne saw its price decline 16% to 266 Sk.
This decline was caused mainly by negative publicity concerning personnel changes in the company and following the decision by ING Baring Securities in Slovakia not to proceed with a planned 600m Sk bond issue.
Investors now prefer to deposit their money directly in Slovak banks, which currently pay short-term interest of up to 20%. The risk of the Slovak crown's devaluation is quite low because of a strong inflow of foreign currency which is pushing the crown into the upper part of the 7% fluctuation band and due to the NBS's policy of maintaining a stable exchange rate. We believe that this trend will be maintained during the next few weeks.

The Bratislava Stock Exchange (BCPB) experienced a predominantly quiet two weeks, with VSŽ and Slovnaft seeing its shares traded the heaviest. VSŽ firmed moderately to 647 SK and Slovnaft jumped 19% to 832 Sk. Conversely, Považské Strojárne saw its price decline 16% to 266 Sk.

This decline was caused mainly by negative publicity concerning personnel changes in the company and following the decision by ING Baring Securities in Slovakia not to proceed with a planned 600m Sk bond issue.

Investors now prefer to deposit their money directly in Slovak banks, which currently pay short-term interest of up to 20%. The risk of the Slovak crown's devaluation is quite low because of a strong inflow of foreign currency which is pushing the crown into the upper part of the 7% fluctuation band and due to the NBS's policy of maintaining a stable exchange rate. We believe that this trend will be maintained during the next few weeks.

In company news, Slovnaft published preliminary information about their 1996 results:

The oil and gas refinery made a gross profit of slightly more than 2bn Sk ($62m) last year. The result, which is below the forecast of 2.4bn Sk ($75m) was mainly affected by last year's unfavorable oil price development.

The company's performance was also negatively affected by a planned 50 day maintenance shutdown of 70% of its production facilities. Slovnaft processed 5.2m tons of crude oil last year, a slight increase over 1995. Its total revenues were 39.6bn Sk ($1.2bn), 10% more than in 1995. It exported more than 50% of its output, of which 40% went to the Czech Republic.

This year, Slovnaft is forecasting results similar to its 1995 level, i.e., processing more than 5m tons of oil and a gross profit of 3.3bn Sk ($103m). The company plans to invest this year an unbelievable 11bn Sk ($344m) in the EFPA project.


Slovakofarma reported sales of approximately Sk4.7bn and a net profit of Sk678m for 1996. The net profit is 29% higher than 1995¦s net profit. Slovakofarma increased its domestic sales by 26% in 1996 but it exports to the Czech Republic (over 50% of total sales) remained flat due to problems with the registration of new products with the Czech State Agency for Drug Control. The company will pay a dividend of SK200 per share. In order to strengthen its position on the market, Slovakofarma also made three new acquisitions (distributors) in Slovakia and plans to open a production facility in Ukraine soon. Slovakofarma also intends to focus on the generic drug market. It also plans to penetrate new markets in North and South America, Eastern Europe, North Africa and Middle East.

Váhostav, the construction company, produced revenues of Sk5bn ($156m) last year, of which 70% were derived from its own construction projects. It made a gross profit of Sk190m ($6m), based on preliminary results. Its main projects were dams in _ilina, ťu˙eovo, and TurŹek. Given the strong fundamentals and good prospects for 1997 due to government intentions to spend about Sk14bn ($437m) on highway construction we anticipate an increase in the company's profit this year.

The clothing manufacturer Ozeta reported sales of Sk1.96bn ($60.7m) in 1996, Sk117m ($3.6m) more than in 1995. Its exports also increased to k1.73bn ($53.6m), which is 88% of its output. Ozeta's gross income rose from 1995's Sk5.6m ($174,000) to last year's estimated Sk10m ($310,000). This result corresponds to our 1996 forecast of Sk5m in net profit. Despite improved 1996 results, we do not expect any significant increase in the company's profit in the next few years because of the loss of Eastern European markets and strong competition in domestic and Western markets, a decline in output prices with increasing costs. The company also suffers from a lack of operating funds. Moreover, 58% of the company's production is subcontracted to Western manufacturers, which is quite a disadvantage for the company, as it is paid only operating costs.

Aluminum producer ZSNP (a holding of 10 companies), expects a gross profit of Sk200m ($6.4m) on revenues of Sk10.5bn ($328m) for last year (consolidated data). This result is far below the expected pre-tax profit of Sk707m ($22.1m) for 1996. According to data consolidated for 8 ZSNP companies, the holding made Sk106.6m ($35m) gross profit on Sk7.3bn ($242m) production in 1995.

Tatra banka will be principal manager of a syndicated loan worth $13.5m for the Slovak-Kazakhstan joint venture JS-C ANACO. The syndicate is comprised of Austrian banks. JS-C ANACO, whose majority owner is Nafta Gbely, is involved in the production of equipment for crude oil drilling in Kazakhstan. In the meantime, the Leader of the Social Democrats, Deputy Jaroslav Volf accused the owners of the 45.9% stake in Nafta of holding secret negotiations to sell their stake in the company to a foreign investor. Allegedly, the purchaser is a German company, probably Ruhrgas which has shown strong interest in the company (especially its 1.8bcm gas storage facilities) in the past. FNM President _tefan Gavorník said that if the owners were to sell the company, the FNM could not interfere, since, after paying for the company in February, the company is theirs. Nafta spokesman Jozef Lacko denied that Nafta's management has held any negotiations with any company regarding the sale of Nafta shares. However, the sale of Nafta to Ruhrgas is also a political problem since Russian company Gazprom could be interested in Nafta's storage facilities. Gazprom so far, has not succeed in establishing any joint venture in Slovakia but it has JVs in neighboring Poland and Hungary.

Minority shareholders of confectionery producer Jacobs Suchard Figaro (a confectionery producer), called a shareholders' meeting. The shareholders, represented by Prague Capital Partners, have accused the company of providing insufficient information and of transferring profits abroad. It will be very interesting to watch whether minority shareholders of Figaro will be able to put their claims through at the meeting and how they will act if they fail.

Prepared by ING Bank N.V., Bratislava branch in cooperation with ING Baring Securities (Slovakia), o.c.p.,a.s.

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