Message from the President of the Group
May 14, 2014
Dear Ladies and Gentlemen,
The year behind us was yet another in a row of challenging years, particularly with regards to the macroeconomic and business environment not only on the domestic market, but also in other countries of the region where Agrokor operates.
Under such circumstances Agrokor's result generated in 2013 can be viewed as exceptionally successful and the outcome of dedication and hard work from all of our 40,000 employees.
The Group's sales grew at a rate of 1.3% against 2012, but much more importantly, EBITDA was 12.0% higher compared to the previous year.
I would like to point out that both of our business groups, Retail and Food, have recorded growth of both revenues and profitability. Furthermore, it is important to note that this is as result of organic growth and has been generated from all markets in the region. We have thereby proved that in spite of all market challenges we have the know-how, skills and commitment enabling us to run the company, even under exceptionally challenging circumstances, in such a way as to adjust it to the market and generate results that secure the sustainability and profitability important to its owners, investors and employees.
In particular, after having set up our plans in line with the initially forecasted economic growth at the beginning of 2013, once we realized that the economic trends and developments were still in the negative sphere, we made the necessary decisions to adjust our strategy to the new market circumstances. This means that in agreement with the management teams we have set profitability as the Company's first and foremost goal. The growth of sales revenues, under the circumstances of declining demand, was solely aimed at keeping the companies' market shares in their core markets.
Viewing Agrokor's results in the light of the above, I am at liberty to say that we as the Management Board are very happy with our growth which, although slight, was faster than the overall market growth, proving once again that Agrokor's strategy, as well as its understanding of and adjustment to market conditions, were successful, securing the sustainability of our business model in the long term.
The increase in profitability, on the other hand, resulted from raising efficiency in all segments of our business, where we have focused on enhancing the business processes and utilizing all available resources. A positive circumstance was that during the years of intensive growth preceding the crisis, having put growth into its focus, Agrokor has at the same time left relatively ample room for optimizing and increasing its operating efficiency.
In strategic terms, Agrokor has met its goals, keeping the leadership position in all of its major businesses on all markets of the region. By constantly investing in new technologies, innovation and the knowledge of its people, Agrokor has proven that even a regional company can succeed, provided it has the people able to adopt the world's best practise and implement it in such way as to fully adjust it to the local market circumstances. Therefore investing in people and know-how remains in the focus of our Management and we can proudly say that we have a Company which lives the world's best practice on a daily basis.
I would like to use this opportunity to thank my immediate team, all associates as well as all Agrokor employees for their exceptional efforts and the hard work that they have invested in generating this remarkable result.
Strategically, the year 2013 was also marked by the ongoing process to potentially acquire the majority share package of the retail company Mercator, whose merging with Agrokor would create the region's largest retail chain, with the Group's total revenues amounting to approximately EUR 7bn. The afore mentioned transaction in retail would not only enable Agrokor to become one of the leading companies in the whole of Central and Eastern Europe (“CEE”), but also secure growth in the long term. Internal analysis, supported by a third party consultant report, makes us comfortable that we can achieve over EUR 100 million of EBITDA synergies per annum, net of costs, that would be split roughly equally between Agrokor and Mercator, following the potential realization of the transaction.
Furthermore, the consolidation of retail would strategically support all regional economies and create the strength required to enhance the development of a number of small and medium production enterprises.
The creation of the region's largest company together with Mercator would be yet another step towards Agrokor's long-term strategy, still aimed at growing and conquering leading positions on the regional market in its core businesses. At Agrokor we are aware that apart from the know-how, skills and state-of-the-art technologies, the key to success lies in understanding our customers, knowing their preferences and creating long-term strategic bonds with our partners. In achieving that, again our people, their skills and commitment to building a corporate culture which understands and acknowledges the opinions and needs of its environment, are of essential importance.
Flash Q1 2014 estimates indicate a slight drop in sales and EBITDA, compared to the corresponding period in the prior year, by approximately 2.1% and 2.7%, respectively. Compared to Q1 2013, the FMCG division experienced a decline of approximately 6.6% in sales and approximately 3.2% in EBITDA, however last year's trend in increasing profitabilitycontinued, as shown in EBITDA margin increase by 52bps. The Retailing and wholesale division posted a decline of approximately 3.8% in sales and approximately 10.8% in EBITDA, compared to Q1 2013, with EBITDA margin declining by 40bps.
The overall Q1 figures, and notably those in retail, were affected by the fact that Easter this year occurred in Q2. Easter accounts for roughly 1.5 –2.0% of annual sales.
Ivica Todorić President of the Agrokor Group