Croatia Consumer Electronics Report Q4 2012

BMI View: BMI expects the Croatian CE market will report flat growth,, which is a downwards revisiondue largely to macroeconomic factors. In 2012 we forecast that the government's introduction of a fiscalausterity budget will weaken consumer demand for durables, and we also highlight the increase in VATto 25% from 23%. In June 2012, the Croatian consumer confidence index reached an all-time low of34.41. Despite these exogenous factors, we expect demand for consumer lifestyle products such assmartphones, computers and LED-backlit TV sets to provide growth areas. Consumer electronics retailsales drivers include growing affordability of digital products, retail channel expansion, digital TVconversion and 3G mobile network rollouts.

Headline Expenditure Projections

Computer sales: US$527mn in 2011 to US$517mn in 2012, -2% in US dollar terms. Forecast in USdollar terms downwardly revised due to macroeconomic factors, but tablets are expected to provide agrowth area in 2012, with potential sales of 65,000 units.

AV sales: US$265mn in 2011 to US$262mn in 2012, -1% in US dollar terms. Forecast in US dollar termsdownwardly revised, with the UEFA Euro-2012 tournament and the London Olympics providing a boostto demand for flat-screen TV sets.

Handset sales: US$213mn in 2011 to US$228mn in 2012, +19% in US dollar terms. Forecast in USdollar terms downwardly revised but with stronger growth in smartphone sales.

Risk/Reward Rating: Croatia’s score was 38.6 out of 100.0. Croatia took 7th place in our latest CE RRRtable, ranking behind established EU markets such as the Czech Republic and Hungary but ahead ofSerbia.

Key Trends & Developments

A number of factors should support momentum in the Croatian computer market, including agovernment plan to provide 800,000 tablet computers to Grade 1 schoolchildren. Consumerdemand will still continue to be the main IT market growth driver, owing to economic growthand rising income levels. Amid fierce competition, aggressive promotions and new products arelikely to be unveiled by retailers, resulting in pressure on margins.

Digital TV availability and programming should continue to expand in Croatia and shouldremain a driver of TV set upgrades. While around 98% of Croatia’s 1.7mn households have TVsets, there is a trend for multiple sets. Sales of LCD and plasma sets have increased as priceshave fallen over the last few years. In 2011, sales of LED and LED-backlit TV sets trendedupwards owing to growing affordability after their appeal was initially limited mainly to highendconsumers. 3D sets and ‘smart’ TV sets are growth areas.

The Croatian smartphone penetration rate is considerably below the level found in WesternEuropean markets, leaving plenty of room for growth. However, in early 2012, the rate wasestimated to have increased to around 15.5%, slightly ahead of the 13.3% estimated in Serbia.Smartphones already constitute one-third of the handsets offered by Hrvatski Telecom and theoperator has reported continued quarter-on-quarter (q-o-q) growth in sales of the devices.