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| Official Newsletter of the 5th FMCG, Retail & Agribusiness Arena 2014 | November 2014 | No. 03 |

Interview with Miljan Ždrale, Regional Head, EBRD agro sector for South Eastern Europe

Our plan is to continue to further invest and develop new projects

M

iljan Ždrale, Regional Head, EBRD agro sector for South East Europe, commented on the position of the food sector, agricultural products in the region and the possibility of new applications and products.

The solution lies in some form of connectivity, or in a co-operative association. You have very successful and powerful examples of such associations in France and Italy. The EBRD financed some co-operative association projects in France to Romania. It can be a sure impulse for a stronger association of small producers into co-operatives in the region. I think this is a “must”, otherwise smaller companies cannot compete.

What is the level of funding via EBRD in the agro sector this year in the region this year?

Over the first eleven months of the year, the EBRD financed the regional agro sector to the extent of €106 million.

Which projects would you single out?

We participated in the takeover of Mercator by Agrokor; we financed the transfer of the production of Atlantic Group from Germany to Nova Gradiška; in Romania, we financed investment in the production of edible oils, funded through a Montenegrin company, Montenegro Gorjanović who has all certification required for participation into the European market, and sales to the Middle East. We have also financed a production company Vitaminka from Macedonia. We are particularly proud to have financed the investment of Atlantic group in Nova Gradiška, as the workforce is primarily of young people in a very underdeveloped area. This we financed with €10 million.

What is preventing the increased financing of companies in this sector in the region? What about smaller companies?

EBRD is also focusing to support diretly SMES in Agribusiness sector and we

How can large companies from the region connect?

Most certainly, they can work together on certain projects, but each of these companies has its own specifics. It is possible to connect through mutual appearance in some distant markets.

have done it over years including this (Goranovic MNE, Vitaminka in FYROM etc.) but due to limited capacity given the set up of EBRD as development investment focused bank, we are trying to reach out to more SMEs by providing specific credit lines to commercial banks in region.

What is the solution for these less productive firms, and also small family farms?

What is your opinion on the lack of large companies in the region?

I think they do not have the depth required for independent decision-making.

There is still resistance to granting freedom in management decisions and this dominates the old management style.

There are some exceptions, and I would single out Atlantic group as a company very similar to the most efficient within Europe.

How will you maintain the regional agro operations of the EBRD? I can say that the index return on our investments in the agro sector of the region is higher than our average. (continued on next page)

<p.02> INTERVIEW

<p.03> INTERVIEW

<p.04> THIRD PANEL

Marija Desivojević Cvetkovic, Vice President, Delta Holding

Ilija Studen, Studen & Co. Vienna

Investment is successful when a national player becomes regional

Business Journal • page 02

Marija Desivojević Cvetkovic, Vice President, Delta Holding, responsible for Strategy and Development

Planning for growth is imperative M

arija Desivojević Cvetkovic Delta Holding responsible for strategy and development of the company, explained why restructuring is important for the company in times of crisis, and is helping her to grow.

Was it wrong to have uncontrolled growth prior to the crisis?

By the beginning of the crisis we had all grown, some faster, some slower. After the crisis, and once it was planned for, growth became spontaneous. Companies that had capable management and who quickly adapted to new circumstances, have survived. No-one has made a mistake in growing, but no-one could foresee the crisis. Those who grew on the basis of plans and programmes have managed.

Where the market grows, we grow faster than others, and when it falls, we fall more slowly. It is vital to success and survival. We worked seriously at restructuring in our organisation, and a great deal of our energy went into increasing efficiency.

How vulnerable are leading companies in the region?

Many like to say that they are only significant in the region or outside it. It is not our fault this region is not large. Will

is a major challenge for companies in this region.

What about the Turkish market?

The fact is that Turkey is growing, as are the needs of its population; but is in fact increasing its production. Delta Holding is more focused on performance in the Middle East since these countries have a great need for food.

To what extent is the EU an interesting market?

We achieve a significant share of sales in the European Union. Our problem is that the Serbian Government has no plans to raise the level of competitiveness of agricultural products in the European market. Without support for producers, farmers will not be competitive.

For this reason, we are forced to export products with low added value.

we have to join together in order to survive; it is hard to say, but the fact is that we have to adapt. One may find a new and fast growing market for them has adapted. That is why it makes sense to talk about joining – not a connection in the physical sense, but jointly within a fast-growing market. For instance, Moscow has a higher population than Croatia and Serbia together. To sell goods on this and other such fast-growing markets

What are your views on the Russian embargo?

We have no special exemptions as we exported to Russia before the embargo, and at about a similar level.

How many were hit by the devaluation of the ruble?

We make business in foreign currencies, so that a devaluation of the ruble does not affect us. 

Our plan is to continue to further invest and develop new projects (continued from previous page) Why in this region are there not more, more active venture capital funds?

They are not present as this market is not developed enough for this type of service. However, it has recently changed.

They are active in Greece because, notwithstanding the crisis, it has a higher GDP than all the countries in the region. It is estimated that the market has

a growth perspective and that in some way is not fragmented.

What is the solution for this market region and its leading companies?

It is necessary to create a single market, and that this market will become a ‘little Poland’. After the disintegration of the former state, no one fledgling state or country in the neighbourhood filled the resulting empty space economically.

Nobody imposed on another.

What are the plans for EBRD in the region in terms of the agro sector?

Our plan is to continue to further invest and develop new projects. We will support an interesting and healthy investment company in further expansion.

There are considerable funds and projects; we will support increasing competitiveness through a combination of financial instruments, technical assistance, and focusing on projects and innovation. 

Business Journal • page 03

Ilija Studen, Studen & Co. Vienna

Leading companies in the region should find a model for co-operation W ith Ilija Studen, the CEO of Studen & Co Vienna, we discussed the state and prospects of food producers in the region, the problem of converting food into energy, and on the operations of his company.

is necessary to invest a certain amount of money. In particular, the public sector must play the largest rôle, which should help such companies. It is understood that any company must have high quality management.

How does the Studen & Co Group operate?

Studen & Co Group owns 30 operating companies with operations in 10 countries. It employs 650 workers and has an annual turnover of about €700 million.

The Group has production facilities in Brcko, where it produces oil, sugar and flour. In Gradačac, we have a coffee manufacturing plant.

What is the reason that there are so few known products from this region in the global market?

For the sale and acquisition of recognised products, work must be systematic together with investment, and I am sure that results will be rapidly seen.

Why did you choose Brcko?

I am satisfied as in Brcko there are many manufacturing facilities with easy access and excellent infrastructure. The transport is via the Sava River and partly by railway. In this area, we have a certain amount of quality raw materials.

What is the advantage of this region compared with others regarding the export of food products? Is it just cereals or are there other products?

My opinion is that the countries in this region have a great opportunity for the production and marketing of high quality food. Also, there is a place for grain exports if they are cost-competitive, but the real opportunity is in high-quality food. For example, if you are exporting mandarins then they must be specific and very high quality - and they are - but they also have cheap transportation and an affordable price.

How would you comment on the fact that very few products in this area are given protection originality or some other mark of recognition?

Natural conditions for the production of high quality food are there, but for the promotion and marketing of products, it

Do you think that countries in the region, considering they all have economic problems; have the strength or resources to do so?

Firstly, huge resources are not an absolute requirement. To achieve the objectives it is necessary for effort, for good organisation and quality co-operation between the public and private sectors. It must be a valid idea and a good concept, but I do not see that it must be some kind of extreme funding - if you have all these factors in place.

Can you identify in Croatia such products?

We conducted research and tested Podravka products, products from the Atlantic Group, as well as products from Slovenia, Bosnia, Serbia, and Macedonia. We saw that they have a range of products that could be sold globally.

What do you think about GMO products? Can such products solve the problem of hunger?

These are new products that are not yet fully proven to be harmful, but the fact that some products can slightly lower the price of food in the world, and thereby alleviate poverty, that is, famine in some areas. However, there is a significant proportion of the global population who have a need for organic and high quality food. It is not a market niche, but it is now an appropriate and large market.

What is your opinion on the use of agricultural products for energy purposes?

I myself am a great opponent of this.

There are a number of possible sources of energy so it is a great pity to waste food for this purpose. When you consider population levels, standards, and the increase in the need for food, then this is a completely wrong decision. Food is necessary for the needs of people, not energy.

How do you see leading companies from this region? Do they have the power to break into larger markets?

In this region companies have the problem that they are significant regionally but outside it there are virtually unknown.

All the leading providers in the region need to find a common way to co-operate in order to survive. Otherwise, they will be taken over by large international companies. 

Business Journal • page 04

PANEL: Consolidation, equity investments, M & A activities and future of FMCG & the retail market

Investment is successful when a national player becomes regional

P

anellists at the roundtable consolidation, equity investments, M & A activities and future of FMCG & retail market, moderated by EBRD Director for Croatia, Verdrana Jelusic Kasic, sought to answer the question of how traditionally unattractive sectors could become attractive to investors, what financing instruments are available, what are the driving forces, and considered exit strategies.

Miljan Ždrale, senior banker, Head of EBRD agribusiness sector for South Eastern Europe, said that over the past ten years, the EBRD had an equity profit of €4.4 billion. “Equity projects take a 15% stake of EBRD investment, but are important to us in that we can invest in Southeast Europe, which admittedly is not as attractive as, for example, Turkey and Russia. We have had many successful investments in food production, telecoms and the media. Since the founding of the EBRD, we have completed 776 equity projects, with €13 billion invested in these. Our projects do not compete with private equity. We halted equity investment in Russia, so it will be more difficult to compensate for these projects. Not only do we invest in companies but also in the funds”, noted Vedrana Jelusic, EBRD Director for Croatia. She pointed out that consolidation is very important in the retail sector and hopes to get retail specific programmes operational.

Mislav Galic, Executive Vice President, noted the fact that the per share of the food and beverages sector of 2.8% of total Croatian GDP is second highest in the European Community. “In all this is good news that the food and beverage sector is strong in Croatia, the bad news is that the remainder of the industrial sector is relatively weak.

This sector in Croatia is overstaffed compared to other European countries”, noted Galic.

Galic has stated that Agrokor Mercator has a great opportunity in the region, although many will say that this is far too big a company for the area. “What is important that the company is barely in the top 100 globally and the top 50 in Europe” he explained.

Olivia Jakupec a member of Podravka, pointed out that Podravka, over the last year and a half, has increased its activity greatly, cleaned its’ balance sheet, and is ready to take over some companies. “Now we are in the active process of searching for targets in the region.

The main goal is to maintain our strong position in the region and possibly, in this way, enter new markets,” opined Jakupec.

Director of Mid Europa Partners, Andrej Babache, pointed out that a key indicator of whether an investment is useful not only in terms of growth and return, but also whether the company achieved the growth of national players in a regional setting.

Neven Vranković, vice president of Atlantic Group, says that it is true that the recent takeover of Foodland, was a ‘download’ of a small company, but the fact that sales of the company’s products were incredibly high. “Even though

you may be a large company, it is not always easy to find such a product that will be very easy to sell outside the region. Foodland products have potential and value. Atlantic Group wants to grow outside the region and will focus in the coming next period. Thus why we bought Foodland”, stressed Vranković.

Ingo Bleier, Head of Investment Banking at Erste Group, Austria, believes that the financial sector is very important for the region and the financial sector is in good shape. “Regional consolidation of companies is also interesting for us”, promoted Bleier.

Diana Gaftea, CFO, DARBY Private Equity, Franklin Templeton Investments from Hungary, described the brands of the leading regional companies as being strong and are a great opportunity in this region. She declared that stronger financial activity in this region is still an imperative, and its lack is a considerable administrative barrier.

Urs Indermuhle, Partner at Transaction Advisory Services, EY (Serbia), pointed out that there are positive signs in the region, and 37% of managers surveyed within leading companies see growth in the food and beverage sector whilst others are moderately optimistic. 

Business Journal • page 05

PANEL: Growth in efficiency, internal & external, vertical & horizontal

Organic growth must be controlled

I

s there potential for organic growth in the region, despite the perception that there will be no radical change for the better, is a key issue for the panel convened at the roundtable on “Growth in efficiency, internal & external, vertical & horizontal”, moderated by Luka Oreskovic, co-chair of Emerging Europe Business and Government, Harvard University.

Vice President of Delta Holding in Serbia, responsible for Strategy and Development, Marija Desivojević Cvetkovic, revealed that: “In recent years and after intensive restructuring the company, he is thinking about organic growth both within the region and also contemplating growth outside the region. Restructuring is an ongoing process and is guided by the company constantly in carrying it out,” notes Desivojević Cvetkovic.

Member of the Board of Grain, Slovenia, Peter Rajačić, believes that companies in the region have changed much faster since 2008, because up until then the majority of the leading companies were strong only in their own countries.

Another option was exporting to other regions.

Sasa Trivić, director, Krajina Class of Bosnia and Herzegovina, says that the specificity of small businesses is organic growth and that his company was prepared for the crisis. “This cri-

sis is perhaps the best period for us, as we have grown dramatically during the crisis. However, organic growth has its own as well as some specific restrictions for each increase greater than 20% annually; it is a potential problem if you are not strong and large. We believe that the current situation is such that we will grow in the future and that will not be necessary to be taken over; organic growth is very important. Because we are small companies we are forced to invest considerable resources into education and development, but we were necessarily welcoming of government assistance “, noted Trivić.

Mircea Draja, general manager of Coca-Cola HBC Croatia, Coca-Cola HBC BH Sarajevo and Coca-Cola HBC Slovenia says that achievable growth should be highly productive of company capacities, some not needed for today, but for tomorrow need to be designed to achieve significant growth

and to be ahead of others. “In order to understand the trends and be at the forefront, all necessary knowledge and innovation are needed. It is an efficient organisation will almost become a requirement for competitiveness”, says Mircea Draja.

Milos Milovanovic, co-ordinator of FAO projects in Serbia is of the opinion that the elimination of tariffs and barriers within the region is imperative. “Due to its exposure to the market of lawmakers, agricultural policy must harmonise the policies of their countries related to the agricultural sector. All countries of the region have a large exposure to foreign companies in certain segments.

This is particularly evident in the segment of animal husbandry - direct regions have a lot of common interest to work on increasing competitiveness”, suggests Milos Milovanovic. 

Business networking at The FMCG, Retail & Agribusiness Arena 2014