The year 2000 was the last year of the five-year agreement which the Corporation Ericsson signed

with the Government of the Republic of Croatia on the privatization of the enterprise Nikola Tesla. What was Ericsson Nikola Tesla's strategy during those five years and what was achieved over that period? During the past five years our efforts were directed at the creation of a company prepared to be a driver in the New Telecoms World but also to be a regional telecom centre within Central and Eastern Europe. I would say that we succeeded in that task, which can be proved by the achieved results.

It should be pointed out that, owing to the increasingly tough competition on the global telecom market, the tenacious Ericsson strategy implies an aggressive development of only those areas, i.e. technologies, which enjoy the greatest interest on

the market, and that is the combination of the mobile telephony and the state-of-the art communications solutions oriented towards the Internet. On the one hand, this strategy requires that the employees acquire new competencies, and on the other hand, it imposes upon the telecom industry the need to abandon the traditional jobs in the area of fixed telephony. It was because of these reasons that Ericsson Nikola Tesla during the last five years was focused on finding solutions for the production units which were becoming obsolete. In that process we designated outsourcing of these units as our main strategy so that they could continue to operate as new companies or as units within other companies, thus enabling people to keep their jobs.

We also introduced redundancy programmes.

Along with this process during the past five years we have dramatically changed the employees' competencies, mainly through recruitment of new experts, but also through intensive internal training of our employees, as well as their training in co-operation with several high educational institutions.

The company has also been fully computerized, so that today we have more computers than employees and we have introduced new information systems in order to follow up our business and to improve our efficiency in administration.

In business we have focused on building a strong relationship with the Ericsson Corporation and we have been very successful in positioning ETK as a regional and, in some areas, even a global player within the Ericsson Group. We have also worked hard to achieve good results on our export markets. We continued our activities in the countries in which we have been present for decades but we also entered the markets on which previously there were no Ericsson products or services. Today within the Ericsson Group we are responsible for the area of multiservice networks and the enterprise systems in more than 20 countries.

The year 2000 was quite a successful year in our constant transition towards the New Telecoms World. We intensified research and development activities and extended our services and solutions portfolio, i.e., so called brainware production.

Looking back, we can conclude that we have succeeded in achieving good results and that the Company is now ready for the New Telecoms World. The level of our internal efficiency, competence and the responsibilities within the Ericsson Group, which we managed to reach last year provides a good basis for further development of Ericsson Nikola Tesla.

There were four business areas in the focus of our attention during the year 2000. First, in our financial activities we concentrated on the cash flow, customer financing and optimization of costs. Then, following the Company guidelines our employees were focused on a competence shift towards the New Telecoms World and the process of human resources restructuring was realized, mainly through recruitment of new highly qualified experts. Performance management, but also culture issues and mind set change were driven by the introduction of a new compensation system based on the result-related pay and individual performance plans for each employee. In addition, enhanced training to improve leadership skills and management planning process were reinforced by establishing the Assessment centre in Ericsson Nikola Tesla.

Our third important area of work was related to the activities on our markets. As for the home market, a revitalized presence of our company in Croatia is urgent. Strong emphasis was placed on our export markets and in agreement with Stockholm we succeeded in penetrating a number of new markets thus increasing the number of countries in which we are present. Following the needs of our customers and market requirements in the year 2000 we introduced a new organizational structure with managers responsible for specific customers, i.e. markets. We expect that this new organization will enhance our business. And last, but not least, is the company's image. A very strong focus on marketing activities and continuous presence in different media have yielded great results. We participated in a number of expert discussions and exhibitions important for the Croatian society on the whole, together with taking part in several Government initiatives.

Business results in 2000

Net sales went up from HRK 944 million in 1999 to HRK 1038 million in 2000 and the main reason was increased export to Russia. Compared to the previous year, orders booked increased by 28% and that growth was also the result of successful export activities. Cash flow was positive as we re-negotiated a number of old export contracts.

However, income before taxes decreased from HRK 107 million in 1999 to HRK 62 million in 2000, mainly owing to large restructuring costs (redundancy programmes, new recruitment, investments in education, office space and IS/IT equipment) as well as the costs incurred by the build up of our export infrastructure (marketing and sales costs on certain markets). But, income before taxes was positively affected by the sale of shares of Zagrebačka banka that were owned by our company.

Regarding the structure of last year's total sales according to the product group we should point out Wireline Systems as the best selling group. They accounted for 46% of our total sales for the year 2000, which is to be compared to 75% in 1999 and 86% in 1998. The second best selling group in 2000 was Mobile Systems with 19% share within the total sales.

As in previous years, Croatia was our largest geographical market accounting for 33% of our sales. This should be compared to the result for 1999 when the home market accounted for 52% of total sales. We understand this decrease as a warning signal, since we need to have a sound result on the home market before we can fulfil our export ambitions. HT was our largest single customer and it was followed by VIPNet.

The remaining 67% of total sales were generated on export markets, including the internal Ericsson market on which we realized 20% of total sales. Russia was our largest export market accounting for 20% of total sales and it was followed by Montenegro with a 14% share of the total sales.

Positive trends and events during 2000

A number of positive events occurred during the last year. Our company was awarded the Ericsson Equal Opportunity Award 2000 because we were perceived as a company that did most over the last year to promote the equality of male and female employees on all hierarchical levels of the business environment. It is also worth mentioning that we succeeded in implementing a very complex GSM contract in Montenegro in an extremely short period of time and thus we strengthened our position within Ericsson as a highly qualified competence centre for telecom solutions, services and design.

We organized the Day of Internet in Zagreb with the main telecom players in Croatia and expert speakers from Sweden. The theme of this event was: Internetization of Croatia - "Today's Challenge - Tomorrow's Solution" and it was initiated by our company with the aim to speed up the process of internetization in Croatia. However, for Ericsson Nikola Tesla it was just one of many activities aimed at creating prosperity in Croatia through leadership in the new economy. We also launched and started rea-lizing our concept of The New Telecoms World Village.

As the results of our Customer Satisfaction Survey show, we managed to achieve considerable impro-vement in this area. Namely, rating their satisfaction with our services by marks 4 and 5, our customers confirmed our business excellence and our company's high-quality performance. The Customer Satisfaction Indicator expressed in percentage shows an increase from 63% to 82%.

The number of employees went down from 1541 to round 1317 due to a large redundancy programme which included 383 employees and outsourcing of the organizational unit Energy Systems. That unit was taken over by the American company Emerson which employed all 88 employees previously working in our company.

Over the last year Ericsson Nikola Tesla recruited 247 experts with a university degree, mostly electrical engineers. Our new competence profile shows that 75% of all employees are university graduates. We also implemented an intensive education drive for all our employees and 27% of our experts were trained and certified for the New Telecoms World.

We are recognized as one of the best employers in Croatia because we provide outstanding development and income opportunities for our employees. The average net salary for the year 2000 was HRK 6,300.

In the autumn of 2000 we introduced a major organizational change with the main objective to create capabilities and opportunities for fast and radical business revival. We established small and efficient units with marketing experts responsible for certain markets or customers (KAM/NAM structure). We strongly concentrated on our export markets. We centralized the order office and logistics function as well as marketing support. We established a new unit for business support including finance, procurement and IS/IT function and we also established the unit dedicated to business development.

Challenges for 2001

Our priority for the year 2001 continues to be the competence shift towards the New Telecoms world, but we will also put our comprehensive efforts into positioning our company firmly on the home and export markets. Our objective is to be the preferred supplier of services, solutions and products for the New Telecoms World in Croatia and on the foreign markets on which we are present.

In a nutshell, the challenges for the year 2001 to

	which we shall try to answer are the following:
	we shall do our best to increase our export business by 100%,
	we shall do our best to increase our home market business by 20%,
	we shall develop and implement the winning culture,
	through our professionalism and respect for people we shall perseveringly build the image of Ericsson Nikola Tesla as the best company in Croatia.

Our expertise, competence and enthusiasm teamed up with Ericsson's high-quality technology that have brought us thus far and that have earned us a high position on our markets, make an excellent foundation upon which I lay my trust that we are going to find the right answers to all the challenges of the 21st century.