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Group Generated Almost HRK 20bn in Revenues and HRK 1.7bn in EBITDA

Agrokor Monthly Report - November 2018

Agrokor - advisor fees

The Extraordinary Administration has published its 20th monthly report covering the operations of 16 companies from Agrokor's three business segments – Retail & Wholesale, Food and Agriculture.

The report relates to the period from 11 November to 10 December 2018, over the course of which the companies have generated almost HRK 20bn in revenues, with EBITDA for the period amounting to HRK 1,708m, in line with the planned values. The greatest contribution to the operating result comes from the Food sector, with EBITDA exceeding the budget by almost HRK 70m, as well as Retail and Wholesale, with EBITDA outperforming budgeted values by HRK 28.7m or 7.2 per cent.

The driver of operating profits in Retail is Konzum, having exceeded plans both in revenues and EBITDA. Konzum has thus in the period I-X/18 outperformed planned sales revenues by 1.2%, while sales revenues in retail operations exceeded the budget by 4.4% on annual level. Konzum was able to exceed the budgeted EBITDA by as much as HRK 143.7m.

In the Food segment the high growth of operating profits was accounted for by all the companies covered by the report. Particularly worth being singled out are Ledo d.d. and Ledo Čitluk, having exceeded plan both in revenues and EBITDA, as well as Frikom, with HRK 31m better EBITDA than planned.

The drop of total revenues on Agrokor Group level was mostly affected by the Agriculture sector, as the declining trend in pork prices on the European exchange as well as in the prices of semi-hard cheese has continued. The forthcoming period is expected to see a slight increase in prices of piglets and pork, though.

Along with the regular activities, 350 people are already intensively working on the Settlement Plan implementation. By year-end all plans will be defined, with the implementation expected to commence early next year. The Settlement Plan implementation project should be fully completed in the first half of 2019.

The report also provides an overview of operating costs of Agrokor d.d. for the period from 10 April 2017 to 31 October 2018, over the 18 months of the Extraordinary Administration Procedure, amounting to a total of HRK 1.3bn. The scope of this amount comprises Agrokor's cost of HRK 726m for advisory and law firms that have been engaged as legal, financial and restructuring advisors in the Extraordinary Administration Procedure. The amount also includes success fees, the conditions for their payment having been met once the Settlement Plan became final and unappealable by decision of the High Commercial Court.

Out of the HRK 726m of Agrokor's costs for advisors, advisors' fees account for 88 per cent or EUR 85.3m, while almost 11 per cent of the total amount or EUR 10.4m is state budget revenue, based on VAT as an unrecognized expense for Agrokor.

The restructuring of Agrokor was one of the most complex processes of its kind last year worldwide. Advisors' fees in similar processes typically range from 1 to 5 per cent of the total debt. Total fees paid to all advisors involved in Agrokor's restructuring amount to 1.1 per cent of the company's total debt and are hence at the low end of the range of comparable international fees.    

At the same time, in spite of the extraordinary situation and saving a company whose total debt had reached EUR 7.7bn, advisors' fees do not significantly differ from the advisory costs paid by Agrokor in previous years, during the time of the former Management Board. For example, in 2014, when Agrokor acquired Mercator, advisors received around HRK 334m, or about 20 per cent less than the HRK 424m paid to the Extraordinary Administration's advisors on an annualized basis.

In addition, there were two advisory working groups involved in the Extraordinary Administration Procedure, engaged in different periods over the course of the procedure. Group A advisors were mostly active during the entire Extraordinary Administration Procedure, working on the financial and operative restructuring and Settlement Plan preparation and managing numerous legal procedures, while a smaller number of advisors are working on the Settlement Plan implementation. By October 2018 this group received a total of EUR 69.4m in fees, including success fees and payments for the work that advisors have done on the Settlement Plan implementation so far.

Upon request of the Interim Creditors' Council, Group B advisors were mostly engaged in the period from May to July 2018, to double-check all calculations and the Settlement Plan wording and to provide support to the creditors in the Settlement Plan negotiations. Total fees for this advisory group, including success fees, amount to around EUR 15.9m.

Over the course of the procedure, the Extraordinary Administration dealt with the question of the Act on Extraordinary Administration Proceedings in Companies of Systemic Importance to the Republic of Croatia and the Settlement Plan being recognized in key states of the world.

The Extraordinary Administration Procedure was thus recognized as insolvency procedure in England and Wales in November 2017, in Switzerland in February 2018 and in the US according to Chapter 15 in November 2018. By directive of the European Parliament and the European Council the Extraordinary Administration Procedure was included on the list of laws recognized as insolvency proceedings on the entire EU territory in July 2018.

In line with that, legal advisors’ fees account for 35 per cent of the total amount of advisors’ fees.

With the expertise and experience of the advisors the restructuring of Agrokor has been conducted efficiently and within very short time. The entire restructuring cost at Agrokor has been borne by the creditors, ie. its new owners, without any cost for the taxpayers of the Republic of Croatia whatsoever.