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New Peko Boss Expects Operations to Stabilise by End of Year (interview)

Tržič, 23 July (STA) - The new chairman of cash-strapped footwear maker Peko believes that the company can stabilise its operations despite the failed sale to a strategic investor. Slavko Despotović expects that the company will return to normal operations by the end of 2013 and break even by 2014.

After taking charge a month ago, Despotović drew up a restructuring plan in order to get the once bustling shoe maker from Tržič back on track. The plan includes laying off 50 of the 360-strong workforce, consolidating the group and slowly restoring production to maximum capacity.

But the first priority is securing a EUR 2m bridging loan from banks in order to cover operating expenses, including back pay. Despotović has already reached agreement with suppliers to provide key raw materials which have allowed production to restart.

"We are currently struggling to meet our liabilities and we will have major difficulties if the banks don't help us. We need a bridging loan to allow production to run," he said in an interview with the STA.

Despotović is confident that the state-owned company can survive even without a strategic partner if it can secure the necessary financing.

Appointed to the post after the sale to the Croatian group Osimpex was aborted in May, which brought Peko to the verge of bankruptcy, he believes his plans to stabilise operations can succeed.

"The previous management board focused too much on the sale of the company and made their strategy overly dependent on this solution while failing to draw up a contingency plan. We now have a plan which can be implemented," he said.

But the company must sell at least 100,000 pairs of shoes this year to have any chance of staying afloat and to achieve this its production line must be operational.

In another measures aimed at raising financing, Peko has begun selling off its inventories. Despotović hopes that it can sell up to 120,000 pairs of shoes from its inventory by the end of the year, with which it would raise up to EUR 4m.

Production is meanwhile slowly being restored: having made 55,000 pairs of shoes until late July, the aim is to produce at least 100,000 more by the end of the year.

This is still below the break-even threshold of 200,000 pairs of shoes, which Despotović hopes will be achieved by next year.

While the restructuring plan involves layoffs, the company hopes it can rehire some of the workers in its subsidiaries.

"I'm not inclined to laying off people in production. As soon as somebody leaves the production line, he or she is lost forever given that Slovenia has no shoemaking school and only we can teach new workers," the chairman told STA.

"If we lose this know-how, we will not be able to make shoes. Our workers are our main asset and if their number drops so will production," he added.

He hopes that with measures to stabilise production, the company will be able to make 220,000 pairs of shoes next year, which will then rise to 250,000-280,000 in 2015.

As part of measures to optimise operations and boost sales, the company is striving to improve design. Talks are underway to hire an Italian design company to help in designing future collections, said Despotović.

The company will also lower prices in order to be more competitive. "The production price of our shoes is closing in on that of our competitors in Austria and Germany. Once we reach this level, we will be in a good position."

The company is also planning to sell off real estate and optimise its use of production facilities.

"The fact is that the plant in Tržič has 24,000 sq. metres of area while two floors are empty. We want to move production to one part of the facility so that we can empty the rest...and rent it out," said Despotović.

Another measure mulled by the management is for Peko to sell its stores and lease them back in a bid to raise cash.

Optimisation of the group is also planned, with sales network in Serbia likely to be closed down and corporate management overhauled in order to ensure "that all five subsidiaries work as a group with a single purchasing and price policies".

While Despotović does not think that production facilities in Croatia or Macedonia would have to be sold, he said that this was also a possibility if the situation turned for the worse. "We have quite a few options at our disposal, but the problem with all of them is that they require time to implement."

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