The overriding objective of increasing the value for its shareholders has been firmly established at Ericsson Nikola Tesla. Our intent is to be recognized as one of the best regional companies, constantly adapting our approach to a changing business environment, while making our actions motivating for our shareholders, customers, employees and community we are working in. We devote ourselves to infuse a spirit of teamwork throughout the organization, so that we can cut across all boundries to meet a wide range of our customer needs. Mobile Internet expands the array of choices for our customers and we are ready to meet all their demands with determination and competence. Following the goal of becoming the leading company in Croatia, we will execute all new challenging tasks by risk management, strong operating leverage and disciplined capital management.

Restructuring

During 2000 we finalised the restructuring process which started in our Company in 1996. Activities done in 2000 are outsourcing of the Energy Business to Emerson (done in co-operation with Ericsson Corporation), closing down of all traditional hardware manufacturing units and reconstruction of the Company premises.

We have made great efforts to become a software--developing and service-oriented company that will be fully focused on the New Telecoms World. For that purpose, we signed a contract with the Internet developer company Epsilon d.o.o., as a first step in building e-Village-oriented society, jointly aiming at becoming the driving technological force of the Croatian economy.

Growth objectives

Ericsson Nikola Tesla's main objective is to grow within the limits of the regional financial capability.

The long-term objectives are in accordance with the Ericsson Group annual growth rate of 20%.

During the last year, due to bigger responsibilities given from the Corporate level, we tried very hard to increase our presence with new products, concerning both our traditional customers and our new export markets.

Regarding orders signed on export markets, we have reached the very tough targets forecasted. They have increased by more than 200% and amounted to approx. MHRK 600, out of which 50% refers to the Russian market where we have managed to make a strong comeback. Montenegro and Belarus have also been very successful markets since we have signed contracts on both fixed and, even more importantly, GSM technology. In December we signed our first contract in Romania, opening in such a way an additional new market. Our sales increased by 60% because many orders were signed in the last quarter but this indicates that we will have strong sales in prospect, in the first half of 2001.

On the Ericsson market the growth continued and was more than 20% due to good performance, which means greater responsibility delegated to our Company.

The main concern was our drop on the domestic market where our sales decreased by approximately 25%. The main reason was decreased investment volume by our biggest customer.

Cash flow

Our objective is to generate our own cash flow in order to have the freedom of making our own decisions. We have been extremely successfull in this area.

Financial transactions included, among other things, selling of our Zagrebačka banka shares which were not considered as a long-term investment but a cash tool to meet our growth plans and restructuring needs.

Our liquidity position increased by more than 170% from the beginning of the year.

Such a strong liquidity position is needed to enable the continuation of our growth, especially in a period when Telecom operators need huge investments to initiate migration into the 3G phase of networks. In addition, we need cash to be present on even more markets as well as for investment in our premises in order to provide our people with a state-of-the-art working environment.

Capital turnover

The main driver to achieve positive cash flow is, of course, profitability. However, we in Ericsson Nikola Tesla also focus hard on utilising our assets as efficiently as possible.

The focus is foreseen to be on the following areas and targets:

	Inventory turnover shall be at the level of 30 days. The target was achieved during the year and we intend to keep it at this level.
	Turnover of account receivables shall be at 90 days including all potential own financing schemes. We did not reach this target and ended up at 142 days.
	Our payment terms and demands on suppliers have been tightened up and we continue to insist on getting payment terms up to 45 days on average. So far, the target has been realized at the level of 30 days + on average.

Our strong liquidity was also utilised to offer shorter payment terms to suppliers who are willing to give us discounts.

Financial results

Our financial results have not fully reached our forecast level but they give us enough satisfaction and confidence that we can make them even better.

Here are some financial highlights we have achieved:

	Orders booked increase of 28%
	Net Sales increase of 10%
	Cash flow positive MHRK 220
	Operating expenses down from 24.6% of Net Sales in 1999 to 19% in 2000 (as a result of cost control focus). Target is a further decrease to under 15%.
	Financial gains on selling Zagrebačka banka shares MHRK 47.

Reasons for the reduced result compared to 1999 are the following:

	Lower currency gains MHRK 64
	Big restructuring costs connected to severance payment programme MHRK 25.5
	Market-related costs on new markets MHRK 20.