Elektroprivreda B&H (JPESR)

In 2007, Elektroprivreda B&H posted BAM 721 mn net sales what
is nan increase by 12,5% yoy. EBITDA and net profit amount to
BAM 115 mn and BAM 11,5 mn respectively. One of the major
issues was the electricity price at the domestic market. According
to the Board of directors, price on domestic market would not
change, due to increase of export price of power electricity up to
30%. Around 1000 GWh excess electric energy from 2007 is left
for sale and in this year projected excess of 2100 GWh is expected
to gain revenues of BAM 350-400 mn from export of the energy. In
2008, it is expected total income amount to BAM 824 mn, net sales
BAM 800 mn, operating costs BAM 676 mn and expected profit
BAM 6 mn.

In the plan for 2008, it is stressed out that the
company needs to force investments in construction of new power
plants, reconstruction of existing ones and sanitation of the power
grid. Regarding aforementioned plan, BAM 300 mn is considered
to be invested, where BAM 130 mn will be provided from EBRD,
EBI and other financial institutions.

Elektroprivreda HZ HB (JPEMR)

2007 was an unsuccessful year for Elektroprivreda HZ HB, where
the company published their preliminary financial results posting
loss of BAM 59 million. On the top line Elektroprivreda HZ HB
managed to close the year with record figures of BAM 354 million
or 25% increase in sales yoy. The company controls five hydro
power plants with total capacity of 792 MW and annual output of
1885 GWh in 2006. It employs 1.558 people with a very good
qualification structure who are responsible for regular and quality
supply of almost 186.663 consumers. More than 2/3 of the energy
is imported, or 2000 GWh, in order to supply all the energy
demand at the companys’ supplying area. In order to size down its
dependency on the energy import, 62 MW hydro power plant ‘’HE
Mostrarsko blato’’ is in construction process which is expected to
produce first megawatts in 2008. The plant expected production is
170 MWh which is 10% of the current total production. On the
other side, the feasibility study of RTE Kongora (thermo power
plant) in the its final stage, considering 2x275 MWh plants and
three wind power plants of 137 MW to be constructed by the 2014.
If constructed all the utilities Elektroprivreda HZHB will turn out to
be 2000 GWh power exporter instead of importing of 2000 GWh as
it currently do. Aluminij d.d. Mostar (aluminium production) is the largest
consumer and also a qualified customer, allowing the company to
purchase energy independently on the market (domestic and
foreign), as well as, through Elektroprivreda HZ HB as a tariff
buyer. Aside of this, unqualified customers purchase the energy on
the tariff basis, allowing them to buy the electric power at very low
prices, even one of the lowest in Europe. FERK, independent
regulatory agency, selected some of large consumers as tariff
once, even if they got a authorization to be qualified customers.

This regulation directly affects Elektroprivreda HZ HB profitability,
regarding its need to import energy at market price (around 85
€/MWh) and sell it at tariff prices. Till the time of lifting up the
production capacity or changing the regulation at the local energy
market profitability of Elektroprivreda HZ HB will stay at levels of
previous years.

Bosnalijek (BSNLR)

Bosnalijek (BSNLR) is the biggest industrial producer of medicines
in B&H with a rich production programme that includes more than
200 generic medicines for usage in human medicine and
disinfectants. The shares of Bosnalijek were traded on SASE since
establishment of the Stock Exchange in B&H. The shares of
BSNLR are among the most liquid shares on SASE, with the
second largest turnover of more than 80 million BAM. The price of
BSNLR gained 27,34% yoy in 2007. BSNLR has been introduced
on the Official Quotation since 2006, where its share price can not
oscillate more than -/+10% since the last trading.

According to the preliminary results for 2007 BSNLR registered
moderate growth of sales by 4% yoy, and amounted to 88 million
BAM. The net profit therefore declined by 3,4% yoy, ended at 7,7
million BAM. This slight sales growth was mostly the result of
decelerated growth of a domestic pharmaceutical market by 3%
yoy, where BSNLR still makes 75% of its revenues, and holds 23%
share of the market. In respect to exports the main markets of
BSNLR in 2007 were: Croatia, Slovenia, Albania, Kosovo,
Moldova, Montenegro, Russia and Saudi an Arabia. In 2007 they
entered also Africa and Georgia. Regarding the sales results
BSNLR has a good results in terms of P/S=2,2 ratio comparing
to the similar companies in the regions (Lek from Slovenia,
Hemofarm from Serbia and Pliva from Croatia: 3, 6; 3, 0 and
2,7 respectively). Although the current P/E ratio for 2007 was
quite high 29,7 compared to the same peer group BSNLR looks
currently more attractive (Pliva: -85, Hemofarm: 27,9 and Alkaloid:
43,4).
For 2008, BSNLR plans remarkable increase of sales by 18% yoy
to 104 million BAM, and profit of app. 9,5 million BAM. These
results should be fuelled by planned expansion of exports by 72%
yoy, after what its share in total sales revenues should amount to
35%. BSNLR plans entering new markets in Azerbaijan and
Algeria and especially strengthening its position in Libya the third
major shareholder (9% share in Bosnalijek). Bosnalijek plans also
expanding of its production programme by 16 new medicines and
50 new projects in its laboratories.

In 2008 Bosnalijek plans capital increase and strengthening as
well. In BSNLR they’ve planned recapitalization through the
issue of new shares to the existing shareholders and
employees as well. More specific details about dates and
amount of the planned recapitalization are still not known.

BH Telecom (BHTSR)

Total revenues of BH Telecom reached 612 million BAM, what is
an increase by 34,8 million BAM or 6 percentages in comparison to
2006. On the other hand, gross earnings totaled to 163,4 million
BAM what is an increase by 3,4 million BAM or 2,1 percentage in
comparison to previous year. Telecommunication capacity of BH
Line reached 568.341 connections to the fixed line, representing a
rise of 14.063 connections or 3 percentages in comparison to the
end of 2006. Connection in package network/internet had 70.000
users, out of which 22.299 users of ADSL service. Total number of
users of BH Mobile network (both prepaid and post paid) reached
1.202.542 , out of which 142.000 new users or 15 percentage
more in comparison to 2006.

In 2008, BH Telecom plans to increase income by 8%, net profit by
4% and cost to grow at lower rate than income.
The company planed till 2011 to increase number of fixed line
users by 3%, mobile network users by 15%. According to that plan,
by the end of 2011 BH Telecom expects to have 1,6 million mobile
network users.

Energoinvest (ENISR)

Energoinvest (ENISR) is one of the biggest companies in B&H and
one of the most successful and well-respected engineering
company with dominant export orientation in the region. Its main
activities are electro power engineering, long term power line
manufacturing, construction and maintenance, water power
engineering, heat power engineering and communication. Shares
of Energoinvest were with second largest gain in 2007 of 78,4%
and total turnover of more than 53 million BAM. It can be seen as a
“pulse” of the market, while its share registered the highest price
increase in period of bull market, among all liquid shares on SASE.
According to the preliminary results, ENISR generated total value
of 319,5 million BAM sales revenues what is a slight increase by
2% yoy. As a result of a fail in sales dynamics in 2007, total earned
net profit declined compared to 2006 by 41% yoy to only 1,6 million
BAM.

Out of total sales at the domestic markets were
accomplished 147 million BAM or 46%, and other 53% or 172,5
million BAM on export markets. A deterioration of sales results in
2007 was driven primarily through a bad compilation for the agreed
works especially in countries of Northern Africa, where are the
major exports markets of ENISR. However, P/S ratio for ENISR in
the past few years was on very representative levels showing a
clear upside potential of the Company. The only problem is a low
profitability of ENISR compared to the standards; with P/E of 208 in
2007, resulted form huge financial losses.

Energoinvest‘s crucial exports markets has been: Turkey,
Malaysia, Iran, Egypt, Libya, Croatia and Slovenia. In 2007
Energoinvest signed also new contracts with Libya, Algeria and
Saudi an Arabia what should bring additional sales revenues in
total value of 180 million EUR during 2008 and 2009. Therefore,
according to the plans ENISR has a bright year ahead. The sales
revenues are expected to grow by 20% yoy to 384 million BAM.

The similar dynamics of revenues from exports and domestic
market of 20% are expected. On the domestic market the main
activities of 2008 should be: as in previous period ENISR will be
the main importer and wholesale distributor of gas for B&H (50% of
total revenues). Beside this, ENISR will be part of the three main
projects in production of electricity and oil in FB&H: building of
hydro-plants on river Drina project Power IV with Elektroprivreda
B&H, pilot project of wind power plants in Herzegovina, and oil
extraction research in areas of Herzegovina and East Bosnia in
total value of 100 million EUR.

Fabrika Duhana Sarajevo (FDSSR)

The Sarajevo tobacco factory is one of the oldest factories in B&H,
and currenlty one of the most sucessful. During the last year the
company made a net profit of BAM 17.7 million with sales of about
BAM 100 million. According to the last price of BAM 232 per share,
P/E is 16.8 which is in line with the regional and world peers while
P/S of 3.04 and P/B of 1.42 seem to be lower than in the peer
group. Furthermore, the company is trying to diversify itself by
trying to enter other business branches such as tourism. Finally, it
is worth to say that at the moment foreign producers have the
same treatment as domestic ones, and FDS could increase its
market share if it would be strong enough to lobby for a change in
the current legislation.

Sarajevo Osiguranje (SOSOR)

Sarajevo Osiguranje is the largest insurance company in B&H with
premiums in 2006 that were around BAM 50.9 million, while we
expect those premiums to be around BAM 52.6 million in 2007. On
the other hand the net profit was BAM 1.4 million in 2006 with prewar
(before april 1992) claims amounting BAM 3.4 million; it is
interesting to note that between 1996 and 2006 the company paid
BAM 25.8 million as a result of pre-war claims. We believe the
financial result in 2007 should not differ significantly from the the
one realised in the previous years. Furthermore, in order to repay
the remaining pre-war claims equalling BAM 18 million and to
increase liquidity the company increased its capital by BAM 24
million (960.000 shares for the price of BAM 25) during 2007.

Once the pre-war claims are solved (probably during 2008) we can
expect the profitability to surge to approximately BAM 5 million,
while we expect premium to increase by 10-15% percent which is
in line with the market expansion. In 2007 the premiums in Bosnia
were around BAM 400 million; BAM 297 million in FB&H and
approximately BAM 100 million in he RS. If we compare this figure
with GDP we obtain a ratio of 1.9% which is quite low compared to
the developed EU countries where this ratio is abour 9% and in
Great Britain 14%.

At the current price of BAM 35 per share Mcap is BAM 162 million
which gives a P/E of 32.44 for 2008, with a MCap/premium of 2.66
which is higher than than the median in the region (1.53), as well
as higher than the conducted takeovers in the region (where this
ratio was about 1.5 and 2). As a result we can expect the price to
fall in the following months, at least before the company
consolidation.

Energopetrol (ENPSR)

One of the largest oil retailers in B&H has been recently privatised
through an increase in capital of euro 36.8 million by the
consortium formed of INA and MOL. The two companies have also
agreed investing euro 75 million in order to restructure the
company. The strategic aim of this takeover by the consortium is to
restructure the 65 stations owned by Energopetrol and to increase
its market share by more than a 100% in the following three years
to more than 25%.

As confirmed by the CEO Dragan Pavic, the first results can be
expected in the first half of 2008, as it is impossible to see
extraordinary changes overnight. However, the most important
results will be probably visible in a few years.
Energopetrol owns 65 stations and during 2006 operated with total
sales of BAM 120 millions and net loss of more than BAM 3 million.

Hidrogradnja (HDGSR)

In its more than 60 years long business history Hidrogradnja has
been the strongest construction company for build up of the hydro
and thermo-plants in the region. It has build all hydro-plants in B&H
(HEDR, HETR, HELV, Hydro-plant in Jajce and Jablanica), but
also some plants in Croatia and Macedonia. Beside specialization
for electro sector, it is one of the strongest companies in the region
for construction of high-ways and other public infrastructure,
resident buildings and in production of the construction material.

Although shares of Hidrogradnja were introduced in blue chip
index SASX-10 in 2006, turnover and liquidity of HDGSR was
increased significantly in 2007 and its shares were among top 10
on the market. HDGSR gained 43,9% yoy and remarkable turnover
of 42,4 million BAM. The increase of turnover was driven mostly by
announcements and expectations for privatization of 67% state
share in 2007 that failed at the end determined by low share price
than expected. However, the model of privatization of HDGSR is
not confirmed yet. In the Company it is expected at least 49% of
the state share to be privatized and with 18% share, State should
remain HDGSR’s strategic partner after what all state projects
should be implemented by the Company. Therefore, all strategic
State projects: build up of new hydro-plants on river Neretva,
Corridor V-c and other infrastructure projects should be
implemented by HDGSR. Therefore, all plans regarding revenues
from the domestic market depend on speed of the State projects.

However in the pre-war time and currently as well, HDGSR collects
70-80% of all sales revenues at their exports market: Libya,
Croatia and Germany. In 2007 HDGSR started big projects in
Libya as a part of the biggest project for water supply called “Great
River” in total amount of more than 90 million BAM. For 2008
Hidrogradnja planes to establish the joint venture in Libya with their
strategic partner, where HDGSR will have 65% of ownership. This
would enable the Company in negotiation for new projects in total
amount of 150 million EUR in Libya. As result of great deals in
Libya, HDGRS registered sales expansion by 174% yoy, from 16,
6 million to 45, 5 million BAM in 2007.

Consequently, P/S calculated on price from March 12th, 2008
totals to P/S= 1,96 showing a good potential of the Company.
Although sales expansion was registered, profitability of HDGSR is
still very low amounting to 81 thousands BAM in 2007.

ABS bank (ABSBRK2)

ABS bank belongs to the group of small size banks at B&H market
with the total assets in range from 100-500 million BAM. In 2007
ABS experienced significant changes, while in March 2007
Steiermarkischer Bank (SB) became the majority shareholder with
51% share, reaching currently 67,7% with plans to increase further.
Caused by the takeover by (SB) done through SASE shares of
ABSBRK2 were third most traded in 2007 with total turnover of
75,1 million BAM and gain of 50,8% yoy. Therefore, ABSBRK2
registered significant expansion in all segments of business by
60% on average.

In particular, assets amounted to 334,8 million BAM (62,8% yoy),
total loans 211 million BAM (61,6% yoy) and at the end total
deposits increased amounted to 240 million BAM (63% yoy). I ABS
bank held 2% of the market in FB&H in 2007. Total bank capital
totaled to 42,3 million BAM, where P/B improved to 3,2. Currently,
the Bank has a good infrastructure with 40 branches all over B&H,
with a plan for expansion by 3 branches per year. However, for
2008 ABS bank planes establishment of a new information system
in total value of 12 million BAM. Therefore, we do not expect
significant results in terms of profitability.

Telekom Srpske (TLKM)

According to unofficial estimates, Telekom Srpske acquired around
100 thousand numbers during the campaign in 2007 out of which
20 thousand were in the Federation B&H, and by the end of 2007
the company has registered 950.000 mobile phone users, 350.000
fixed line users and 45.000 broadband service users. On August
the 1st 2007, ended the obligation of Telekom Srpske to pay 5 per
cent of total income to Post of Srpska based on the Contract on
separated balance sheet signed in 1997. In 2007, Telekom Srpske
paid BAM 17.6 mn on behalf that Contract. At the same time, the
company started operational reconstruction program which
includes employee cut-off plan. The company made BAM 11,8 mn
total lay-off payment for 194 employees who willingly left their job.
At the end of 2007, Telekom had 2.709 employees. It is expected
that employee number decrease in this year as well.

In 2007, Total revenues of Telekom Srpske reached BAM 391 mn,
what is an increase by 35 million BAM or 9,8 yoy. On the other
hand, net profit totaled to BAM 79,1 mn what is an increase by 1,4
million BAM or 2,5% in comparison to previous year.

Nova banka (NOVB)

In the period from January 1, 2007 to September 30, 2007
banking sector of Republika Srpska continued to register positive
trends in all operational segments. In the period RS banking
sector’s balance sheet amount increased by 56% in comparison to
the year 2006. Deposits increased by 61%, and they represented
85% of funds sources. Such a growth of deposits resulted from
increase of the state’s deposits due to privatization of the stateowned
capital. All banks recorded increase of citizens’ deposits,
that increased by KM 184 million or 23% in comparison to the
amount on December 31, 2006. Also, all banks were in compliance
with liquidity maintenance requirements. As of September 30, 2007
seven banks in Republika Srpska generated current profit in an
amount of KM 27.9 million, while three banks (out of which two
newly founded) had a current loss in a total amount of KM 4.9
million.

Nova banka performed expected results in terms of assets and
capital growth in 2007. Assets growth was 109% yoy, or amounted
to BAM 906,7 million in 2007. The bank registered significant
capital increase, based on recapitalization amounted to 9,8 million
BAM after what total capital amounts was 60,8 million BAM or an
increase by 23% yoy. Net profit increased by 11,17% yoy, or BAM
5,3 million.

Birač Zvornik (BIRA)

Birac is the largest producer of Alumina in the region, accounting
for more than 1% in total Worlds production. After a good results in
2006, the Company experienced several problems during 2007
where the biggest was related to Alumina prices falling drastically
during the year. However we expect 2008 to be much better than
the previous years as the prices of aluminium and consequently of
alumina expected to rise on the worlds markets.

In addition, there are some speculations that the current owner is
going to sell the company, which has been confirmed by a recent
transaction with 7% of the company's shares: Ukio Bank sold
7.06% of the company (for the price of BAM 0.31 per share while
the current price is below 0.15) to Balkanika that is 100%
ownership of Corp System ltd from Thailand.

Oil Refinery a.d. Bosanski Brod (RNAF)

Oil Refinery in Bosanski Brod (RNAF) was established in 1892 and
production started in 1927. Before the war it has annual production
of 5 million tons in two separated and independent production
lines, and was connected to the Adriatic oil pipe line. After the war
the production was stopped and Government of RS became the
major shareholder. In February 2007 the Government sold 65%
share in RNAF, to the Russian company “Zarubežnjeft” as a part of
the broader privatization package of the oil sector in RS. After that
a year later in February 2008, repair of the first line with capacity of
1,2 million tons started in total value of 40 million EUR.

It is expected that within the period of six months after start of the
repair, production on the first line should be started. Furthermore,
in the period of two years, other line with capacity of 3 million tons
annual production should be started as well.

According to the Privatization Agreement in total value of 122
million EUR between the Government of RS and “Zarubežnjeft”, all
commercial (long and short-term debts) should be paid by the
Government. On the other side, the new owner promised to settle
all debts in total amount of 72,5 million EUR for unpaid salaries,
wage taxes and other debts to the Government and Pension Fund
of RS that were reprogrammed within the period of 9 years. The
total amount of the postponed tax debts at the end of 2007 was
113, 6 million BAM, and total accumulated loss 239, 2 million BAM.

As a result of high indebtness of the Company and constant
increase of losses, in 2007 capital of the Company was decreased
by 67 million BAM, derived from an increase of net loss in 2007 to
64,1 million BAM. Moreover, the net loss was increased by 17, 4%
or by 9,5 million BAM from 54,6 to 64,1 million BAM, as a result of
shutting down production caused by repair works.
The total value of the capital and assets of the Company amounted
in 2007 to 195,5 and 519,5 million BAM, respectively.

Right before the takeover the shares of the RNAF were the most
liquid on Banja Luka Stock Exchange. Therefore within the
Ordinary Turnover shares of RNAF registered the highest turnover
of 61,9 million BAM or 10,7% of total Ordinary Turnover.
Although shares gained at the end 2007 only 9,4% yoy, in period
right before and after the takeover the price reached its top of 2,3
BAM and current price on March 13th 2008, was 0,4 BAM. The
capital share of 79,9% is currently held by Russians.
All further developments of the Company and its price depend from
the further repair works dynamics, solving issues of debts and
export markets.

Motor Oil Refinery a.d. Modriča (RFUM)

Motor Oil Refinery a.d. Modriča was establish before more than 50
years, and was one of the biggest producers of the motor oil
products not just in ex-Yugoslavia but in Western Europe by its
well known brands OPTIMA and MAXIMA.

In February 2007 as a part of the broader Privatization plan of oil
industry in Republic of Srpska, RFUM was sold to the same
Russian company “Zarubežnjeft” which currently holds 75,6% of
the Company.

Before the privatization, the level of the production and financial
result of RFUM were moderate; annual production of 12.000 tons
in 2006 and low profitability of the company showed from P/E ratio
higher than 900.

However in 2007 the results were improved; annual production
grew by 9% to more than 13.000 tons, and net profit was increased
by 775% to 1,2 million BAM. However, improved net profit was not
result of an increase in sales which grew by less than 1% from
42,1 to 42,3 million BAM. The improved net profit was a result of
profit gained from financing. For 2008, RFUM has a plan to
increase the regular production by 20% to more than 16.000 tons
of products and to start up with the production of new products
basic oils and paraffin oil of 34.000 tons. Therefore, they plan to
increase current number of 505 employees in Q2 2008.

ZTC Banja Vrućica (BVRU)

ZTC Banja Vrućica a.d. is principally engaged in the health tourism
industry. It operates as therapy centre specialized in the treatment
and rehabilitation of cardiovascular and rheumatic diseases. Apart
from that, the centre provides hospital and recreation services, as
well as, organizes congresses and seminars. ZTC Banja Vrucica
a.d., engage four hotels (Kardial, Posavina, Hercegovina and
Srbija), rehabilitation and sport facilities. ZTC Banja Vrućica a.d.
managed to close last year with record figures both on the top and
bottom line, even better than expected.

Net sales, EBITDA and net profit increased by 21%, 32% and 70% respectively (totals BAM
7,8 mn, BAM 2,14 mn and BAM 1,2 mn ). The yoy improvement
was based solely from its organic development and growth on
domestic market. Recapitalization of BAM 10 mn, planned to take
place in 2H 2007, is still on hold.

Dun&Bradstreet: BiH zemlja s vrlo visokim rizikom poslovanja

U izdanju Dun & Bradstreetove mjesečne publikacije International Risk and Payment Review za tekući mjesec, najveća bonitetna kuća na svijetu Dun &Bradstreet snizila je rejting Bosne i Hercegovine sa DB5c na DB6a, što ju svrstava u zemlje s vrlo visokim rizikom poslovanja.

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