Since 2001 the company has been raising credits from different banks, which reached the level of 36 million Euros until the institution of the Compulsory Settlement Procedure. The reason for the business crisis, which the company found itself in, lies in its response to the changing global business environment, since the company increased its physical sales, but not the added value.

The management is of the opinion that the essential reasons for the current situation lie in:
• fall in meter prices on the market and increase in prices of strategic raw materials;
• development of the Automatic Meters Reading (AMR) systems, which Iskraemeco builds its business strategy on, proved as technically very efficient, however more demanding and complex in terms of liquidity than the company first planned. Until 2004 the market was not mature yet, as only in that year the amended legislation opened up market opportunities in Scandinavia.

The current company’s management, which took up its management functions in the first half of 2005, made the analysis of the situation and immediately adopted the measures, focused on restoring the profit-making operations. Although at first sight the company’s business results seemed worse in 2005, the measures proved to be correctly focused, as they led to:
• EBITDA (without restructuring costs – indemnities) again reveals positive results;
• operational cash flow from Iskraemeco’s business activities again shows a positive trend;
• average number of employees is reduced to 1620;
• after four year of rapid growth, the working capital has decreased again;
• absolute increase in overhead costs has been stopped.

At the beginning of this year the company was no longer capable of repaying its due liabilities and at the same time providing for smooth business operations and the restructuring. As the company’s management did not succeed to reach an adequate agreement with the company’s largest creditors, a proposal was sent, in mid-February, to the District Court in Kranj, for the institution of the Compulsory Settlement Procedure which is currently under way. The sale of shares held by the Gorenjska banka, as a reserve investment for covering the restructuring costs, also did not turn out as successful.

The proposal for the Compulsory Settlement Procedure was instituted because the company’s management firmly believes in the company’s future. The business operations will be restructured and the company expects to reach and also to implement open and transparent agreements with all its creditors as far as accrued liabilities are concerned.

An analysis was made which revealed that the company needs at least 10 million Euros for the realization of this restructuring programme and for ensuring current business operations.

The evaluation of fresh capital needed comprises the costs of reducing the number of employees as well as the costs of closing down unnecessary or non-profitable activities and restoring short-term liquidity. However, it does not comprise all the required finance for potential growth when building up the measuring systems and improving the offer of services. To the public invitation for raising added capital at the level of 2.5 billion SIT, Iskraemeco received until the closing date, 13 (5 domestic and 8 foreign) non-binding offers from potential financial and strategic investors. The professional commission has examined the offers and invited all the interested parties to sign the relevant documents, on the basis of which they will be able to perform a careful review of Iskraemeco, which is expected to take place between 10 and 21 April.

The bidders are expected to present their binding offers latest by 28 April 2006. On 31 March 2007 Iskraemeco published in the Official Gazette its offer to the creditors, for settling statutory and other debts in the following two ways:
– according to the first offer, the company should pay 50 percent of its debts within eight years, with a two-year moratorium and at 2.5-percent annual interest rate;
– according to the second offer, the creditors should convert their entire receivables into priority shares of Iskraemeco, with a priority yield of 2.5 percent. Upon the company winding-up or bankruptcy the shareholders would be preferentially disbursed up to the share price level.

The company’s management is convinced that, through planned restructuring, Iskraemeco will again become a profitable company. After the discussions led with its creditors and owners, Iskraemeco got the impression they were all favourably inclined to a successful rehabilitation. Consequently, the company’s management legitimately believes that those involved in the decision-making will respect the company’s business interests.

Objectives and measures of Iskraemeco’s business restructuring:
• keep the current scope of sales and increase it by 50 percent, on medium-term basis,
• increase the sales of electronic products and system solutions,
• reduce material cost by making purchases from lower-cost countries, and reduce labour cost by higher productivity and provisional reduction of salaries,
• increase profitability,
• rationalize the sales networks abroad,
• eliminate spare parts production and some parallel activities,
• adjust the employment rate in production and in administration, depending on the scope of profitable businesses,
• simplify company organization and management.