Business News

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In this week's Economics Report, the failing Fischer travel empire looks for salvation, the government is to try again to persuade the EU to allow a bailout for Trinecke Zelezarny, and the Labour Minister wants to retain the so-called "13th and 14th salaries" despite plans to cut the public spending deficit.

Fischer travel empire looking for way out of crisis

Vaclav Fischer, photo: CTK
The big news here in the Czech Republic is the financial crisis in the Fischer group, once one of the country's most successful enterprises. Two of the group's divisions - the charter airline Fischer Air and a clothes retailer Fischer Limited - went into administration last week after amounting debts of almost half a billion crowns.

Fischer Air and Fischer Limited owe a total of 470 million crowns to three creditors: Czech Airlines, the Czech Airport Authority, and Komercni Banka. Bailiffs moved in to seize Fischer assets - including a private villa belonging to the group's founder, former senator Vaclav Fischer. Salvation appears to be on the horizon in the form of the brokerage firm Atlantik Financial Markets - Komercni Banka agreed to sell Fischer's debt to Atlantik on Wednesday, meaning the seizure of Fischer's assets will stop.

The Fischer travel agency itself has not been hit by the problems and remains profitable. But Vaclav Fischer says if his travel empire is allowed to fall, there will be dire consequences for the entire Czech travel business, and possible repercussions across Central Europe.

Some say the group's bleak financial outlook is the result of his overestimating his capabilities and expanding the empire too fast. Mr Fischer himself says the problems were caused by banks insisting on reducing borrowing.

Czech Airlines bucks world trend in passenger traffic

Meanwhile the national carrier Czech Airlines said this week its passenger traffic grew by 6.6 percent to 1.53 million in the first half of the year, outpacing stagnant growth in the airline industry as a whole. The state-owned company has weathered the worldwide slowdown in air travel better than many of the world's major airlines as falling ticket prices and a strong local currency encouraged more Czechs to travel abroad for their holidays.

But growth in passenger numbers still slowed from over eight percent in the first six months of last year. The company is facing stiff competition from low-cost airlines which have recently begun flying to its base at Prague Ruzyne airport. The government plans to sell CSA in the near future but has no precise plans for the moment.

Govt to try again for EU permission to bail out Trinecke Zelezarny

The Czech Republic is to prepare new documents to persuade the European Union competition watchdog to allow financial support to an indebted steel products exporter. The Trade and Industry Ministry said the cabinet should continue its efforts to inject two billion crowns into the privately owned Trinecke Zelezarny steelworks to lower the company's seven billion crown debt and avoid layoffs in a region hit by high unemployment.

The Czech Republic - which joins the EU next May - has met with strong resistance in Brussels to the plan, which was not mentioned in its EU accession negotiations. After unsuccessful meetings with the EU in May and June, the ministry said it will again seek to add Trinecke Zelezarny to the list of approved state-supported projects.

Trinecke Zelezarny exports two million tonnes of products a year, mainly to Germany, but has been hit by the strength of the Czech currency. It said it would have to lay off staff without the aid. The Czech Republic has promised to restructure its indebted steel sector and slash capacity by 1.9 million tonnes to around six million by 2006 and cut its workforce 30 percent to 8,500 by 2010.

Skromach wants to retain "13th ,14th salaries", Sobotka against

Labour and Social Affairs Minister Zdenek Skromach has proposed the government keep paying regular annual bonuses to public sector workers from next year, setting up a clash with the finance minister who is seeking to rein in the public spending deficit. Mr Skromach's spokeswoman Katerina Prejdova said the two extra payments - the so-called "13th and 14th salaries" - that some 800,000 employees in the public sector receive every year would cost the cash-strapped government about six billion crowns a year.

The idea has annoyed Finance Minister Bohuslav Sobotka, who has pledged to keep a lid on employment and wage growth in the public sector as part of his fiscal reforms aimed at cutting the public sector deficit by nearly a third by 2006. The Czech Republic is struggling to contain high fiscal gaps to prepare for EU membership and for eventual adoption of the Euro.

Drought means Czech wheat harvest will fall by one third in 2003

The Czech wheat harvest will fall by nearly one third this year because drought in the past weeks hurt winter-battered crops and cut grain yields. The Czech Statistics Office cut its wheat harvest prediction by five percent from June. It predicts Czech farmers would likely harvest 2.7 million tonnes of winter and spring wheat, down from 3.9 million in 2002.

Czech crops have been damaged by a severe winter, which forced farmers to plough in thousands of hectares of winter grains in the spring. A severe dry spell in Europe in the past weeks made a further dent in yields. The Statistics Office said wheat crops would yield 4.12 tonne a hectare, down by nearly 10 percent from last year.

Wheat is the main market commodity in the Czech Republic, a largely industrialised country where less than 200,000 of 10.2 million people work in agriculture. The poor harvest is expected to meet domestic consumption but leave no surplus for exports.

Czech T-Mobile posts H1 profit drop, but revenues up

The Czech unit of the German mobile phone operator T-Mobile has said its first-half net profit dropped due to changed accounting for foreign exchange derivatives despite healthy revenue growth. The company said in a filing with the Prague Stock Exchange that net profit according to Czech accounting standards fell 29 percent year-on-year to 1.83 billion crowns. It said it took a foreign exchange loss from the repayment of a large euro-denominated loan in June.

The loss hit the bottom line after the firm changed its accounting on the recommendation of auditors and took the loss into its profit and loss account, unlike in previous years when it was directly covered by its equity. Earnings before interest, tax, depreciation and amortisation dipped 3.3 percent to 5.3 billion crowns, while revenue rose 15 percent to 11.5 billion.

T-Mobile is the Czech Republic's second-largest mobile phone operator and the main rival to Cesky Telecom's Eurotel network. Measured by number of clients, the Czech firm is T-Mobile's third biggest unit after Germany and Britain. New figures released this week showed there were almost nine million mobile phone customers in the Czech Republic - in a country with a population of ten million.

Czech construction output jumps ahead of market expectations

Czech construction output jumped ahead of market expectations in June, rising a real 12 percent year-on-year thanks to delayed billing for new projects and last year's low base for comparison. According to data released by the Czech Statistics Office on Wednesday, construction output recovered from a 0.9 percent drop in May to post its fastest growth pace since February 2002.

Analysts said the market had expected a 3.5 percent gain in June. Building permits rose 7.2 percent year-on-year in June, after a 3.5 percent drop in May. Record low interest rates have fuelled a mortgage boom in the Czech Republic, prompting many Czechs to run up debt to buy a new house or apartment.

CEZ sharply increases profit forecast

The Czech power producer CEZ has sharply increased its 2003 profit forecast as both domestic and foreign sales exceed plans. The company told the Prague Stock Exchange it had raised its forecast for unconsolidated net profit to Czech accounting standards, excluding one-off income from the sale of a stake in the national power grid CEPS, to four billion crowns ($139.8 million) from a previous outlook of one billion. CEZ said the stake sale would help boost its overall profit this year to 12 billion crowns from 6.7 billion last year.

CEZ, which claims to be Europe's second largest electricity exporter mainly to western Europe, posted first-half net profit of 12.3 billion last week. The company said the main reason for the revision was better sales both at home and abroad.

Holiday prices seen fuelling Czech July inflation

A seasonal increase in holiday prices is expected to have fuelled Czech consumer inflation in July, but overall price growth remained well under control, a Reuters poll showed on Monday. The poll of 12 analysts predicted consumer prices would grow an average 0.2 percent month-on-month Analysts said the expected falls in food and transport prices probably failed to offset higher holiday costs.

That monthly rise would cause the year-on-year inflation rate to remain unchanged, after June's 0.3 percent increase, the first growth after five months of declines, the poll showed. Analysts said the slowdown in year-on-year price growth would come as a result of a higher statistical base for comparison from last year when the Czech government allowed regulated housing rents to rise.