Download IMPORTANT NOTICE You must read the following before continuing

IMPORTANT NOTICE
You must read the following before continuing. The following applies to the Offering Memorandum
dated September 28, 2012, and you are therefore advised to read this carefully before reading,
accessing or making any other use of the Offering Memorandum. In accessing the Offering
Memorandum, you agree to be bound by the following terms and conditions, including any
modifications to them, any time you receive any information from us as a result of such access.
This Offering Memorandum has been prepared in connection with the offer and sale of the notes
described therein. The Offering Memorandum and its contents should not be distributed, published or
reproduced (in whole or in part) or disclosed by recipients to any other person.
NOTHING IN THIS ELECTRONIC TRANSMISSION CONSTITUTES AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY THE NOTES DESCRIBED IN THE OFFERING
MEMORANDUM IN ANY JURISDICTION WHERE IT IS UNLAWFUL TO DO SO. THE
NOTES HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE ‘‘U.S. SECURITIES ACT’’) OR THE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR OTHER JURISDICTION.
THE NOTES ARE BEING OFFERED AND SOLD: (1) WITHIN THE UNITED STATES IN
RELIANCE ON RULE 144A UNDER THE U.S. SECURITIES ACT (‘‘RULE 144A’’) ONLY TO
PERSONS THAT ARE QUALIFIED INSTITUTIONAL BUYERS (EACH A ‘‘QIB’’) WITHIN THE
MEANING OF RULE 144A ACTING ON THEIR OWN ACCOUNT OR FOR THE ACCOUNT
OF ANOTHER QIB; AND (2) OUTSIDE THE UNITED STATES TO PERSONS OTHER THAN
U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE U.S. SECURITIES ACT
(‘‘REGULATION S’’)) IN AN OFFSHORE TRANSACTION IN RELIANCE ON REGULATION S.
THE OFFERING MEMORANDUM MAY NOT BE FORWARDED OR DISTRIBUTED TO ANY
PERSON AND MAY NOT BE REPRODUCED IN ANY MANNER WHATSOEVER AND, IN
PARTICULAR, MAY NOT BE FORWARDED TO ANY U.S. PERSON UNLESS SUCH PERSON
IS A QIB IN ACCORDANCE WITH RULE 144A. DISTRIBUTION OR REPRODUCTION OF
THE OFFERING MEMORANDUM IN WHOLE OR IN PART IS UNAUTHORIZED. FAILURE
TO COMPLY WITH THIS DIRECTIVE MAY RESULT IN A VIOLATION OF THE U.S.
SECURITIES ACT OR THE APPLICABLE SECURITIES LAWS OF OTHER JURISDICTIONS.
Confirmation of your Representation: In order to be eligible to receive the Offering Memorandum or
to make an investment decision with respect to the notes described therein, (1) each prospective
investor in respect of the notes being offered pursuant to Rule 144A must be a QIB, and (2) each
prospective investor in respect of the notes being offered outside the United States in an offshore
transaction pursuant to Regulation S must be a person other than a U.S. person. By accessing the
Offering Memorandum, you shall be deemed to have represented to us that (1) in respect of the notes
being offered pursuant to Rule 144A, you are (or the person you represent is) a QIB, and that the
e-mail address to which, pursuant to your request, the Offering Memorandum has been delivered by
electronic transmission is utilized by a QIB, or (2) in respect of the notes being offered outside of the
United States in an offshore transaction pursuant to Regulation S, you are (or the person you represent
is) a person other than a U.S. person, and that the e-mail address to which, pursuant to your request,
the Offering Memorandum has been delivered by electronic transmission is utilized by a person other
than a U.S. person, (3) you are a person to whom the Offering Memorandum may be delivered in
accordance with the restrictions set out in ‘‘Transfer Restrictions’’ in the Offering Memorandum, and
(4) you consent to the delivery of such Offering Memorandum by electronic transmission. You are
reminded that the Offering Memorandum has been delivered to you on the basis that you are a person
into whose possession the Offering Memorandum may be lawfully delivered and you may not, nor are
you authorized to, deliver the Offering Memorandum to any other person or make copies of the
Offering Memorandum.
The Offering Memorandum has not been approved by an authorized person in the United Kingdom.
No person may communicate or cause to be communicated any invitation or inducement to engage in
investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000
(the ‘‘FSMA’’)) received by it in connection with the issue or sale of the securities other than in
instances in which Section 21(1) of the FSMA does not apply to us.
The Offering Memorandum has been sent to you in an electronic form. You are reminded that
documents transmitted via this medium may be altered or changed during the process of electronic
transmission and consequently neither (i) Agrokor d.d. or any of its affiliates, nor (ii) the Initial
Purchasers named in the Offering Memorandum or any person who controls any of them or any
director, officer, employee or agent of them or affiliate of any such person accepts any liability or
responsibility whatsoever in respect of any alterations to the Offering Memorandum distributed to you
in electronic format.
This e-mail and the Offering Memorandum are intended only for use by the addressee named herein
and may contain legally privileged information. If you are not the intended recipient of this e-mail, you
are hereby notified that any dissemination, distribution or copying of this e-mail and the Offering
Memorandum is strictly prohibited. If you have received this e-mail in error, please immediately notify
the sender by reply e-mail and permanently delete all copies of this e-mail and destroy any printouts of
it.
This Offering Memorandum dated September 28, 2012 (the ‘‘Offering Memorandum’’) constitutes the listing particulars (the ‘‘Listing
Particulars’’) in connection with the application to have the Notes admitted to the Official List of the Irish Stock Exchange and
admitted for trading on the Global Exchange Market thereof. Application has been made for these Listing Particulars to be approved by
the Irish Stock Exchange; these Listing Particulars are provided only for the purpose of obtaining approval of admission of the Notes to
the Official List of the Irish Stock Exchange and admission for trading on the Global Exchange Market and shall not be used or
distributed for any other purposes. These Listing Particulars are dated as of November 1, 2012.
OFFERING MEMORANDUM
NOT FOR GENERAL CIRCULATION
IN THE UNITED STATES
19NOV200909044168
Agrokor d.d.
E325,000,000 9.125% Senior Notes due 2020
$300,000,000 8.875% Senior Notes due 2020
Guaranteed on an unsecured senior basis by certain subsidiaries of Agrokor d.d.
Agrokor d.d., a company incorporated under the laws of Croatia (the ‘‘Issuer’’), is offering (the ‘‘Offering’’) A325,000,000 aggregate
principal amount of its 9.125% Senior Notes due 2020 (the ‘‘Euro Notes’’) and $300,000,000 aggregate principal amount of its 8.875%
Senior Notes due 2020 (the ‘‘Dollar Notes,’’ and together with the Euro Notes, the ‘‘Notes’’).
Certain of the Issuer’s subsidiaries, including Agrokor trgovina d.d., Jamnica d.d., Konzum d.d., Ledo d.d., Ledo d.o.o. Čitluk,
PIK Vinkovci d.d., Sarajevski kiseljak d.d. and Zvijezda d.d. (each, a ‘‘Subsidiary Guarantor’’ and, collectively, the ‘‘Subsidiary
Guarantors’’) will guarantee the due and punctual payment of all amounts due and payable in respect of the Notes (the
‘‘Note Guarantees’’). The Issuer will pay interest on the Notes semi-annually in arrears on each February 1 and August 1 in each year,
commencing February 1, 2013. The Euro Notes will bear interest at a rate of 9.125% per annum, and the Dollar Notes will bear interest
at a rate of 8.875% per annum. The Notes will mature on February 1, 2020.
The Notes and the Note Guarantees will be senior indebtedness of the Issuer and each Subsidiary Guarantor, respectively, and will rank
pari passu in right of payment with all existing and future senior indebtedness of the Issuer and the Subsidiary Guarantors, senior in
right of payment to any future subordinated indebtedness of the Issuer and the Subsidiary Guarantors and effectively subordinated to
any existing and future secured indebtedness of the Issuer and the Subsidiary Guarantors to the extent of the value of the assets
securing such indebtedness.
At any time prior to February 1, 2016, the Issuer may, at its option, redeem all or part of the Euro Notes or the Dollar Notes at a
redemption price equal to 100% of the principal amount of the Euro Notes or the Dollar Notes redeemed plus accrued and unpaid
interest (if any) plus the applicable ‘‘make whole’’ premium. The Issuer also may redeem the Euro Notes or the Dollar Notes on or
after February 1, 2016, in whole or in part, at its option at a redemption price equal to the principal amount thereof plus accrued and
unpaid interest and the applicable redemption premium and certain additional amounts (if any) to the redemption date. In addition,
prior to October 10, 2015, the Issuer may redeem up to 35% of the aggregate principal amount of each of the Euro Notes and the
Dollar Notes with the net cash proceeds from specified equity offerings, provided that at least 65% of the aggregate principal amount of
the Euro Notes or the Dollar Notes, as applicable, remain outstanding after the redemption. In the event of certain developments
affecting taxation or certain other circumstances, the Issuer may redeem the Notes in whole, but not in part, at any time, at a
redemption price of 100% of the principal amount, plus accrued and unpaid interest (if any) and additional amounts (if any) to the date
of redemption. If the Issuer undergoes a change of control or sells certain of the assets of the Group (as defined herein), the Issuer
may be required to make an offer to purchase the Notes. See ‘‘Description of Notes.’’
This offering memorandum includes information on the terms of the Notes and the Note Guarantees, including redemption and
repurchase prices, covenants and transfer restrictions.
There is no public market for the Notes. Application will be made to admit the Notes to listing on the Official List of the Irish Stock
Exchange and to trading on the Global Exchange Market. There is no assurance that the Notes will be listed and admitted to trade on
the Global Exchange Market.
The Euro Notes and the Dollar Notes will be issued in denominations of A100,000 and $200,000, respectively, and in integral multiples
of A1,000 and $1,000, respectively, in excess thereof. On the closing date of the Offering, global notes representing the Euro Notes will
be deposited and registered in the name of a nominee of a common depositary for Euroclear Bank S.A./NV (‘‘Euroclear’’) and/or
Clearstream Banking, société anonyme (‘‘Clearstream’’) and global notes representing the Dollar Notes will be deposited and registered
in the name of a nominee of the Depository Trust Company (‘‘DTC’’). We expect the Notes to be delivered to the Initial Purchasers (as
defined herein) on or about October 10, 2012 against payment therefor in immediately available funds.
You should carefully consider the risk factors beginning on page 14 before investing in the Notes.
Offering Price of the Euro Notes: 100% plus accrued interest from October 10, 2012.
Offering Price of the Dollar Notes: 100% plus accrued interest from October 10, 2012.
We have not registered and will not register the Notes or the related Note Guarantees under the U.S. federal securities laws or the
securities laws of any other jurisdiction. The Initial Purchasers are offering the Notes and the related Note Guarantees only to
(i) ‘‘qualified institutional buyers’’ in reliance on Rule 144A of the U.S. Securities Act of 1933, as amended (the ‘‘U.S. Securities Act’’),
and (ii) to certain persons outside the United States in accordance with Regulation S of the U.S. Securities Act. See ‘‘Important
Information for Investors,’’ ‘‘Notice to Certain European Investors,’’ ‘‘Plan of Distribution’’ and ‘‘Transfer Restrictions’’ for additional
information about eligible offerees and transfer restrictions.
Joint Bookrunners
BNP PARIBAS
J.P. Morgan
UniCredit (Zagrebačka banka)
Co-Managers
Erste Group
Raiffeisen Bank International
Privredna banka Zagreb, a bank of Intesa Sanpaolo
Société Générale Corporate & Investment Banking
The date of this Offering Memorandum is September 28, 2012.
TABLE OF CONTENTS
Important Information for Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ii
Notice to New Hampshire Residents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
iii
Notice to Certain European Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
iv
Limitation on Enforcement of Civil Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
vi
Information Regarding Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
vii
Presentation of Financial, Market and Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ix
Currency Presentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
xi
Historical Exchange Rate Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
xi
Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
xii
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
Summary Consolidated Financial Information and Other Data . . . . . . . . . . . . . . . . . . . . . . . . .
12
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36
Selected Consolidated Financial Information and Other Data . . . . . . . . . . . . . . . . . . . . . . . . . .
38
Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . .
40
Business Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
72
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
95
Principal Shareholders and Share Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
98
Certain Relationships and Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
99
Description of Other Financing Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100
Description of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
109
Book Entry, Delivery and Form . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
164
Tax Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
170
Benefit Plan Investor Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
176
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
178
Transfer Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
182
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
185
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
185
Where You Can Find Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
186
Listing and General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
187
Index to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-1
i
IMPORTANT INFORMATION FOR INVESTORS
We accept responsibility for the information contained in this offering memorandum (the ‘‘Offering
Memorandum’’) and, to the best of our knowledge (having taken reasonable care to ensure that such is
the case), the information is in accordance with the facts and contains no omission likely to affect the
import of such information. As used in this Offering Memorandum, unless the context otherwise
requires, references to the ‘‘Issuer’’ are to Agrokor d.d. and references to ‘‘Agrokor,’’ ‘‘we,’’ ‘‘us,’’
‘‘our,’’ the ‘‘Group’’ and the ‘‘Agrokor Group’’ are to Agrokor d.d. and its consolidated subsidiaries.
This document does not constitute a prospectus for the purposes of Section 12(a)(2) of or any other
provision of or rule under the U.S. Securities Act.
This Offering Memorandum is based on information provided by us and other sources believed by us
to be reliable. BNP Paribas, BNP Paribas Securities Corp., J.P. Morgan Securities plc, J.P. Morgan
Securities LLC, UniCredit Bank AG, UniCredit Capital Markets LLC, Erste Group Bank AG,
Privredna banka Zagreb, d.d., RB International Markets (USA) LLC, Raiffeisen Bank
International AG and Société Générale (the ‘‘Initial Purchasers’’) are not responsible for, and are not
making any representation or warranty to you concerning, our future performance or the accuracy or
completeness of this Offering Memorandum.
In making an investment decision regarding the Notes offered hereby, you must rely on your own
examination of the Issuer and the Subsidiary Guarantors and the terms of this Offering, including the
merits and risks involved. You should rely only on the information contained in this Offering
Memorandum. We have not, and the Initial Purchasers have not, authorized any other person to
provide you with different information. If anyone provides you with different or inconsistent
information, you should not rely on it. You should assume that the information appearing in this
Offering Memorandum is accurate as of the date on the front cover of this Offering Memorandum
only. Our business, financial condition, results of operations and the information set forth in this
Offering Memorandum may have changed since that date.
You should not consider any information in this Offering Memorandum to be investment, legal or tax
advice. You should consult your own counsel, accountant and other advisors for legal, tax, business,
financial and related advice regarding purchasing the Notes. We are not, and the Initial Purchasers are
not, making any representation to any offeree or purchaser of the Notes regarding the legality of an
investment in the Notes by such offeree or purchaser under appropriate investment or similar laws.
This Offering Memorandum is to be used only for the purposes for which it has been published.
We obtained the market data used in this Offering Memorandum from internal surveys, industry
sources and currently available information. Although we believe that our sources are reliable, and, as
far as we are aware and are able to ascertain from the information obtained from third-party sources,
no facts have been omitted which would render the reproduced information inaccurate or misleading,
you should keep in mind that we have not independently verified information we have obtained from
industry and governmental sources and that information from our internal surveys has not been verified
by any independent sources. See ‘‘Presentation of Financial, Market and Other Information—Certain
Market and Other Data.’’
The contents of our website do not form any part of this Offering Memorandum.
We may withdraw this Offering at any time, and we and the Initial Purchasers reserve the right to
reject any offer to purchase the Notes in whole or in part and to sell to any prospective investor less
than the full amount of the Notes sought by such investor. The Initial Purchasers and certain related
entities may acquire a portion of the Notes for their own accounts.
The Notes and the related Note Guarantees have not been and will not be registered under the
U.S. Securities Act or the securities laws of any state of the United States and may not be offered or
sold within the United States or to, or for the account or benefit of, U.S. persons (as defined in
Regulation S under the U.S. Securities Act (‘‘Regulation S’’)) except pursuant to an exemption from, or
in a transaction not subject to, the registration requirements of the U.S. Securities Act.
The Notes and the related Note Guarantees are being offered and sold outside the United States in
reliance on Regulation S and within the United States to ‘‘qualified institutional buyers’’ (‘‘QIBs’’) in
reliance on Rule 144A of the U.S. Securities Act (‘‘Rule 144A’’). Prospective purchasers are hereby
notified that the sellers of the Notes may be relying on the exemption from the provisions of Section 5
of the U.S. Securities Act provided by Rule 144A. For a description of these and certain other
ii
restrictions on offers, sales and transfers of the Notes and the distribution of this Offering
Memorandum, see ‘‘Transfer Restrictions.’’
The Notes and the Note Guarantees have not been approved or disapproved by the U.S. Securities and
Exchange Commission (the ‘‘SEC’’), any state securities commission in the United States or any other
U.S. regulatory authority, nor have any of the foregoing authorities passed upon or endorsed the merits
of the Offering of the Notes or the accuracy or adequacy of this Offering Memorandum. Any
representation to the contrary is a criminal offense in the United States.
The Notes and the related Note Guarantees are subject to restrictions on transferability and resale and
may not be transferred or resold except as permitted under the U.S. Securities Act and applicable state
securities laws pursuant to registration thereunder or exemption therefrom. You should be aware that
you may be required to bear the financial risks of this investment for an indefinite period of time.
The distribution of this Offering Memorandum and the offer and sale of the Notes may be restricted
by law in certain jurisdictions. You must inform yourself about, and observe, any such restrictions. See
‘‘Important Information for Investors,’’ ‘‘Notice to Certain European Investors,’’ ‘‘Transfer Restrictions’’
and ‘‘Plan of Distribution’’ elsewhere in this Offering Memorandum. You must comply with all
applicable laws and regulations in force in any jurisdiction in which you purchase, offer or sell the
Notes or possess or distribute this Offering Memorandum and must obtain any consent, approval or
permission required for your purchase, offer or sale of the Notes under the laws and regulations in
force in any jurisdiction to which you are subject or in which you make such purchases, offers or sales.
We are not, and the Initial Purchasers are not, making an offer to sell the Notes or a solicitation of an
offer to buy any of the Notes to any person in any jurisdiction except where such an offer or
solicitation is permitted.
We expect that delivery of the Notes will be made against payment on the Notes on or about the date
specified on the cover of this Offering Memorandum, which is eight business days following the date of
pricing of the Notes in respect of the Euro Notes (this settlement cycle is referred to as ‘‘T + 8’’) and
seven business days following the date of pricing in respect of the Dollar Notes (this settlement cycle is
referred to as ‘‘T + 7’’). You should note that trading of the Euro Notes on the date of pricing or the
next four business days may be affected by the T + 8 settlement and that trading of the Dollar Notes
on the date of pricing or the next three business days may be affected by the T + 7 settlement. See
‘‘Plan of Distribution.’’
IN CONNECTION WITH THIS OFFERING, BNP PARIBAS, BNP PARIBAS SECURITIES CORP.,
J.P. MORGAN SECURITIES PLC, J.P. MORGAN SECURITIES LLC, UNICREDIT BANK AG AND
UNICREDIT CAPITAL MARKETS LLC (‘‘THE STABILIZING MANAGERS’’) (OR
AFFILIATES ACTING ON BEHALF OF THE STABILIZING MANAGERS) MAY OVER-ALLOT
NOTES OR EFFECT TRANSACTIONS WITH A VIEW TO SUPPORTING THE MARKET PRICE OF
THE NOTES AT A LEVEL HIGHER THAN THAT WHICH MIGHT OTHERWISE PREVAIL.
HOWEVER, THERE IS NO ASSURANCE THAT THE STABILIZING MANAGERS (OR
AFFILIATES ACTING ON BEHALF OF A STABILIZING MANAGER) WILL UNDERTAKE
STABILIZING ACTION. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT
ANY TIME AND MUST BE BROUGHT TO AN END AFTER A LIMITED TIME.
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED
STATUTES WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS
EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW
HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE
THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT
MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR
EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE
SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS
OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR
TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE
PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE
PROVISIONS OF THIS PARAGRAPH.
iii
NOTICE TO CERTAIN EUROPEAN INVESTORS
European Economic Area This Offering Memorandum has been prepared on the basis that all offers
of the Notes will be made pursuant to an exemption under Article 3 of Directive 2003/71/EC (the
‘‘Prospectus Directive’’), as implemented in member states of the European Economic Area (the
‘‘EEA’’), from the requirement to produce a prospectus for offers of the Notes. Accordingly, any person
making or intending to make any offer within the EEA of the Notes should only do so in circumstances
in which no obligation arises for us or any of the Initial Purchasers to produce a prospectus for such
offer. Neither we nor the Initial Purchasers have authorized, nor do they authorize, the making of any
offer of Notes through any financial intermediary, other than offers made by the Initial Purchasers,
which constitute the final placement of the Notes contemplated in this Offering Memorandum.
In relation to each Member State of the EEA that has implemented the Prospectus Directive (each, a
‘‘Relevant Member State’’), with effect from and including the date on which the Prospectus Directive
is implemented in that Relevant Member State (the ‘‘Relevant Implementation Date’’), the offer is not
being made and will not be made to the public of any Notes which are the subject of the Offering
contemplated by this Offering Memorandum in that Relevant Member State, other than: (a) to any
legal entity which is a qualified investor as defined in the Prospectus Directive; (b) to fewer than 100
or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending
Directive, 150, national or legal persons (other than qualified investors as defined in the Prospectus
Directive, subject to obtaining the prior consent of the relevant Initial Purchaser or the Issuer for any
such offer) or (c) in any other circumstances falling within Article 3(2) of the Prospectus Directive;
provided that no such offer of the Notes shall require us or the Initial Purchasers to publish a
prospectus pursuant to Article 3 of the Prospectus Directive. For the purposes of this provision, the
expression an ‘‘offer of Notes to the public’’ in relation to the Notes in any Relevant Member State
means the communication in any form and by any means of sufficient information on the terms of the
offer and the Notes to be offered so as to enable an investor to decide to purchase or subscribe the
Notes, as the same may be varied in that Relevant Member State by any measure implementing the
Prospectus Directive in that Relevant Member State and the expression ‘‘Prospectus Directive’’ means
Directive 2003/71/EU and includes any relevant implementing measure in each Relevant Member State
and the expression ‘‘2010 PD Amending Directive’’ means Directive 2010/73/EU (and any amendments
thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant
Member State).
Austria This Offering Memorandum has not been or will not be approved and/or published pursuant
to the Austrian Capital Markets Act (Kapitalmarktgesetz) as amended. Neither this Offering
Memorandum nor any other document connected therewith constitutes a prospectus according to the
Austrian Capital Markets Act and neither this Offering Memorandum nor any other document
connected therewith may be distributed, passed on or disclosed to any other person in Austria. No
steps may be taken that would constitute a public offering of the Notes in Austria and the offering of
the Notes may not be advertised in Austria. Any offer of the Notes in Austria will only be made in
compliance with the provisions of the Austrian Capital Markets Act (Kapitalmarktgesetz) and all other
laws and regulations in Austria applicable to the offer and sale of the Notes in Austria.
Croatia The Notes will only be available to and this Offering Memorandum and any other offering
material in relation to the Notes is directed only at persons who are qualified investors (kvalificirani
ulagatelji) within the meaning of Article 343, point 6 of the Capital Market Act (Official Gazette of the
Republic of Croatia Narodne novine Nos. 88/2008, 146/2008 and 74/2009) (the ‘‘Capital Market Act,’’
Zakon o tržištu kapitala). The definition of the ‘‘qualified investors’’ under the above-mentioned
provision of the Capital Market Act corresponds in its material scope to the definition of the same
term under the Prospectus Directive. Any offer, sale, or resale of the Notes in Croatia may only be
made in accordance with the Capital Market Act and other applicable laws. The Issuer has not, and
does not intend to, file a securities prospectus with the Croatian Financial Services Supervisory Agency,
and accordingly, the Notes may not be, and are not being, offered or advertised publicly.
France This Offering Memorandum has not been prepared in the context of a public offering in
France within the meaning of Article L. 411-1 of the Code Monétaire et Financier and Title I of Book II
of the Règlement Général of the Autorité des marchés financiers (the ‘‘AMF’’) and therefore has not been
submitted for clearance to the AMF. Consequently, the Notes may not be, directly or indirectly, offered
or sold to the public in France, and offers and sales of the Notes will only be made in France to
providers of investment services relating to portfolio management for the account of third parties
iv
(personnes fournissant le service d’investissement de gestion de portefeuille pour le compte de tiers) and/or
to qualified investors (investisseurs qualifiés) and/or to a closed circle of investors (cercle restreint
d’investisseurs) acting for their own accounts, as defined in and in accordance with Articles L. 411-2 and
D. 411-1 of the French Code Monétaire et Financier. Neither this Offering Memorandum nor any other
offering material may be distributed to the public in France.
Netherlands The Notes (including rights representing an interest in each global note that represents
the Notes) may not be offered or sold to individuals or legal entities in the Netherlands unless a
prospectus relating to the offer is available to the public which is approved by the Dutch Authority for
the Financial Markets (Autoriteit Financiële Markten) or by the competent supervisory authority of
another member state of the European Union. Article 5:3 of the Financial Supervision Act (the ‘‘FSA’’)
and article 53 paragraphs 2 and 3 of the Exemption Regulation of the FSA provide for several
exceptions to the obligation to make a prospectus available such as an offer to ‘‘qualified investors’’
within the meaning of article 1:1 FSA.
Germany In Germany, the Notes will only be available to, and this Offering Memorandum and any
other offering material in relation to the Notes is directed only at, persons who are qualified investors
(qualifizierte Anleger) within the meaning of Section 2 No. 6 of the Securities Prospectus Act
(Wertpapierprospektgesetz—WpPG). Any offer, sale, or resale of the Notes in Germany may only be
made in accordance with the Securities Prospectus Act and other applicable laws. The Issuer has not,
and does not intend to, file a securities prospectus with the German Federal Financial Supervisory
Authority (Bundesanstalt für Finanzdienstleistungsaufsicht—BaFin) or obtain a notification to BaFin from
another competent authority of a Member State of the European Economic Area, with which a
securities prospectus may have been filed, pursuant to Section 17 Para. 3 of the German Securities
Prospectus Act (Wertpapierprospektgesetz—WpPG).
Spain This Offering has not been registered with the Comisión Nacional del Mercado de Valores (the
‘‘CNMV’’) and therefore the Notes may not be offered or sold or distributed in Spain except in
circumstances which do not qualify as a public offer of securities in Spain in accordance with article 30
bis of the Securities Market Act (‘‘Ley 24/1988, de 28 de julio del Mercado de Valores’’) as amended and
restated, or pursuant to an exemption from registration in accordance with article 41 of the Royal
Decree 1310/2005 (‘‘Real Decreto 1310/2005, de 4 de noviembre por el que se desarrolla parcialmente la
Ley 24/1988, de 28 de julio, del Mercado de Valores, en materia de admisión a negociación de valores en
mercados secundarios oficiales, de ofertas públicas de venta o suscripción y del folleto exigible a tales
efectos’’).
United Kingdom The explicable provisions of the United Kingdom Financial Services and
Markets Act 2000 (the ‘‘FSMA’’) must be complied with in respect of anything done in relation to the
Notes in, from or otherwise involving the United Kingdom. This Offering Memorandum is for
distribution only to, and is only directed at, persons who (i) have professional experience in matters
relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000
(Financial Promotion) Order 2005, as amended, (the ‘‘Financial Promotion Order’’), (ii) are persons
falling within Article 49(2)(a) to (d) (high net-worth companies, unincorporated associations, etc.) of
the Financial Promotion Order or (iii) are persons to whom an invitation or inducement to engage in
investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000
(‘‘FSMA’’)) in connection with the issue or sale of any Notes may otherwise lawfully be communicated
(all such persons together being referred to as ‘‘relevant persons’’). This Offering Memorandum is
directed only at relevant persons and must not be acted on or relied on by persons who are not
relevant persons. Any investment or investment activity to which this document relates is available only
to relevant persons and will be engaged in only with relevant persons. The Notes are being offered
solely to ‘‘qualified investors’’ as defined in the Prospectus Directive and accordingly the offer of Notes
is not subject to the obligation to publish a prospectus within the meaning of the Prospectus Directive.
v
LIMITATION ON ENFORCEMENT OF CIVIL LIABILITIES
United States Law
None of the directors and executive officers of the Issuer and the Subsidiary Guarantors are resident in
the United States. All or a substantial portion of their and our assets are located outside the United
States. As a result, it may not be possible for you to:
•
effect service of process within the United States upon any directors and executive officers of the
Issuer or the Subsidiary Guarantors; or
•
enforce, in the United States, court judgments obtained in U.S. courts against the Issuer or the
Subsidiary Guarantors or any of the directors and executive officers of the Issuer or the Subsidiary
Guarantors in any action, including actions under the civil liability provisions of U.S. securities
laws.
The Notes and the Note Guarantees are governed by the laws of the State of New York, and the Issuer
and the Subsidiary Guarantors have agreed that disputes arising thereunder are subject to the
non-exclusive jurisdiction of federal and state courts in the Borough of Manhattan in the City of
New York.
Enforcement of Judgments in Croatia
Our counsel has advised that there is doubt as to the enforceability in Croatia in original actions, or in
actions for the enforcement of judgments of U.S. courts, of civil liabilities predicated solely upon the
laws of the State of New York and/or the federal laws of the United States. Our counsel has further
advised that Croatia is not a party to any multilateral or bilateral treaty by which the judgments of
U.S. courts would be recognized and enforced, and that to their knowledge there are no cases whereby
‘‘factual reciprocity’’ has been established. Therefore, the relevant Croatian conflict statutory laws will
directly apply. Our counsel has further advised that in general, judgments of non-Croatian courts will
have the same status and legal effect as of Croatian court judgments if they are recognized by a
Croatian court. Such a decision will be recognized unless (i) the issue involved falls within the exclusive
jurisdiction of a Croatian court; (ii) a Croatian court or another tribunal has rendered a final binding
decision on the same issue, or if another foreign judicial decision rendered on the same issue has been
recognized in Croatia; (iii) it is contrary to the public policy of Croatia; (iv) there is no reciprocity
(currently, there is a rebuttable presumption (praesumptio juris tanto) such reciprocity exists); or (v) it is
found that there were procedural irregularities in the proceedings before the non-Croatian court which
are objected to by the party against whom judgment was made.
Enforcement of Judgments in Bosnia and Herzegovina
Our counsel has advised us that there is doubt as to the enforceability in the Federation of Bosnia and
Herzegovina in original actions, or in actions for the enforcement of judgments of U.S. courts, of civil
liabilities predicated solely upon the laws of the State of New York and/or the federal laws of the
United States. Our counsel has further advised us that the Federation of Bosnia and Herzegovina is not
a party to any multilateral or bilateral treaty by which the judgments of U.S. courts would be
recognized and enforced, and that to their knowledge there are no cases whereby ‘‘factual reciprocity’’
has been established. Therefore, the relevant conflict statutory laws of the Federation of Bosnia and
Herzegovina will directly apply. Our counsel has further advised us that in general, judgments of
non-Bosnia and Herzegovina courts will have the same status and legal effect as judgments of courts in
the Federation of Bosnia and Herzegovina if they are recognized by a court in the Federation of
Bosnia and Herzegovina. Such a decision will be recognized unless (i) the issue involved falls within the
exclusive jurisdiction of a court in the Federation of Bosnia and Herzegovina; (ii) a court in the
Federation of Bosnia and Herzegovina or another tribunal has rendered a final binding decision on the
same issue, or if another foreign judicial decision rendered on the same issue has been recognized in
the Federation of Bosnia and Herzegovina; (iii) it is contrary to the public policy of the Federation of
Bosnia and Herzegovina; (iv) there is no reciprocity (currently, there is a rebuttable presumption that
such reciprocity exists); or (v) it is found that there were procedural irregularities in the proceedings
before the non-Bosnia and Herzegovina court which are objected to by the party against whom
judgment was made.
vi
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Offering Memorandum are not historical facts and are ‘‘forward-looking’’
within the meaning of Section 27A of the U.S. Securities Act and Section 21E of the U.S. Securities
Exchange Act of 1934, as amended (the ‘‘U.S. Exchange Act’’). This document contains certain
forward-looking statements in various sections, including, without limitation, under the headings
‘‘Summary,’’ ‘‘Risk Factors,’’ ‘‘Management’s Discussion and Analysis of Financial Condition and
Results of Operations’’ and ‘‘Business Description,’’ and in other sections where the Offering
Memorandum includes statements about our intentions, beliefs or current expectations regarding our
future financial results, plans, liquidity, prospects, growth, strategy and profitability, as well as the
general economic conditions of the industry in which we operate. We may from time to time make
written or oral forward-looking statements in other communications. Forward-looking statements
include statements concerning our plans, objectives, goals, strategies, future events, future sales or
performance, capital expenditures, financing needs, plans or intentions relating to acquisitions, our
competitive strengths and weaknesses, our business strategy and the trends we anticipate in the
industries and the political and legal environment in which we operate and other information that is
not historical information.
Words such as ‘‘believe,’’ ‘‘anticipate,’’ ‘‘estimate,’’ ‘‘expect,’’ ‘‘intend,’’ ‘‘predict,’’ ‘‘project,’’ ‘‘could,’’
‘‘may,’’ ‘‘will,’’ ‘‘plan’’ and similar expressions are intended to identify forward-looking statements but
are not the exclusive means of identifying such statements.
By their very nature, forward-looking statements involve inherent risks and uncertainties, both general
and specific, and risks exist that the predictions, forecasts, projections and other forward-looking
statements will not be achieved. These risks, uncertainties and other factors include, among other
things, those listed under ‘‘Risk Factors,’’ as well as those included elsewhere in this Offering
Memorandum. You should be aware that a number of important factors could cause actual results to
differ materially from the plans, objectives, expectations, estimates and intentions expressed in such
forward-looking statements. These factors include:
•
changes in, or failure to implement, political or economic reforms and agendas in the markets in
which we operate;
•
legal uncertainties related to the developing legal systems in the markets in which we operate;
•
our ability to obtain or comply with necessary regulatory approvals and licenses for our business;
•
risks related to conducting operations in several different countries;
•
risks related to general global and regional economic conditions;
•
the effects of competition and pricing pressure;
•
inflation, interest rate and exchange rate fluctuations;
•
our ability to manage our working capital;
•
disruptions of our business operations due to supply shortages, work stoppages or interruptions in
our supply chain or at our production or distribution facilities;
•
the impact of fluctuations in commodity and raw material prices;
•
the interests of our controlling shareholders;
•
our ability to recruit and retain senior management and personnel;
•
risks related to our ability to maintain the reputation of, control over and value associated with,
our trademarks and our brand names;
•
our reliance on our information technology systems;
•
risks related to national competition policy in the markets in which we operate, as well as litigation
and other legal proceedings we face in the normal course of our business and otherwise;
•
our ability to identify suitable sites for our future retail stores and enter into leases on acceptable
terms;
•
risks related to products liability claims or other consumer claims;
vii
•
the effects of the seasonality or extreme weather events on our business;
•
risks related to compliance with extensive regulation of our business in the markets in which we
operate;
•
the impact of diseases among or attributed to livestock or other nutritional or health-related
concerns related to our products;
•
our level of indebtedness and ability to service our existing indebtedness;
•
the effect of restrictions in our debt agreements and the Indenture governing the Notes impacting
our ability to operate our business;
•
our ability to refinance our short-term indebtedness;
•
risks related to our group structure;
•
risks related to relevant local insolvency laws applicable to the Subsidiary Guarantors; and
•
our success in identifying other risks to our businesses and managing the risks of the
aforementioned factors.
This list of important factors is not exhaustive. You should carefully consider the foregoing factors and
other uncertainties and events, especially in light of the political, economic, social and legal
environment in which we operate. Such forward-looking statements speak only as of the date on which
they are made. Accordingly, we do not undertake any obligation to update or revise any of them,
whether as a result of new information, future events or otherwise. We do not make any
representation, warranty or prediction that the results anticipated by such forward-looking statements
will be achieved, and such forward-looking statements represent, in each case, only one of many
possible scenarios and should not be viewed as the most likely or standard scenario.
viii
PRESENTATION OF FINANCIAL, MARKET AND OTHER INFORMATION
Presentation of Financial Information
We prepared our audited consolidated financial statements for the years ended December 31, 2009,
2010 and 2011, and our unaudited consolidated interim financial statements for the six months ended
June 30, 2011 and 2012 in accordance with International Financial Reporting Standards (‘‘IFRS’’) as
issued by the International Accounting Standards Board. IFRS differs in certain significant respects
from generally accepted accounting principles in the United States (‘‘U.S. GAAP’’). Furthermore, our
audited historical financial statements have been audited in conformity with IFRS, which differs in
certain significant respects from generally accepted auditing standards in the United States. The
financial statements included in this Offering Memorandum contain information with respect to both
guarantor and non-guarantor subsidiaries. The financial information included in this Offering
Memorandum is not intended to comply with SEC reporting requirements.
In various sections of this Offering Memorandum, we present unaudited financial information for the
twelve months ended June 30, 2012. The unaudited financial information for the twelve months ended
June 30, 2012 has been derived, on a line by line basis, by adding the audited consolidated income
statement data for the year ended December 31, 2011 and the unaudited consolidated interim income
statement data for the six months ended June 30, 2012 and subtracting the unaudited consolidated
interim income statement data for the six months ended June 30, 2011.
In various sections of this Offering Memorandum, we refer to our EBITDA. EBITDA represents
operating profit plus depreciation and amortization. We use EBITDA-based measures as internal
measures of performance to benchmark and compare performance, both between our own operations
and as against other companies. EBITDA-based measures are measures used by the Group, together
with measures of performance under IFRS, to compare the relative performance of operations in
planning, budgeting and reviewing the performances of various businesses. We believe that by
eliminating potential differences in results of operations between periods or companies caused by
factors such as depreciation and amortization methods, historic cost and age of assets, financing and
capital structures and taxation positions or regimes, EBITDA-based measures can provide a useful
additional basis for comparing the current performance of the underlying operations being evaluated.
For these reasons, we believe EBITDA-based measures and similar measures are regularly used by the
investment community as a means of comparison of companies in our industry. Different companies
and analysts may calculate EBITDA-based measures differently. EBITDA-based measures are not
measures of performance under IFRS and should not be considered in isolation or construed as
substitutes for operating profit or net profit as an indicator of our operations in accordance with IFRS.
EBITDA as presented herein also differs from ‘‘Consolidated EBITDA’’ as it will be defined in the
Indenture and as it is defined in certain other financing documents of the Group.
In addition to EBITDA, we have included other non-GAAP financial measures in this Offering
Memorandum. We believe that it is useful to include these non-GAAP measures as we use them for
internal performance analysis and to compare our business segments with other companies in our
industry, although our measures may not be comparable with similar measurements presented by other
companies. These other non-GAAP measures should not be considered in isolation or construed as a
substitute for GAAP measures in accordance with IFRS.
For the convenience of the reader, certain financial data in this Offering Memorandum has been
subject to rounding and, as a result, the totals of the data presented herein may vary slightly from the
actual arithmetic totals of such data.
Certain Market and Other Data
In this Offering Memorandum, we rely on and refer to information regarding our business and the
market in which we operate and compete. Certain market data and certain economic and industry data
and forecasts used in this Offering Memorandum were obtained from internal surveys, market research
(including market research from Raiffeisen Research), governmental and other publicly available
information, independent industry publications and reports prepared by industry consultants that we
believe to be reliable, including the Croatian Bureau of Statistics and other publicly available
information. Certain market share information and other statements presented herein regarding our
position relative to our competitors with respect to the production or distribution of particular products
are based on published statistical data or information obtained from independent third parties that we
ix
believe to be reliable, including the market research bureau GfK Croatia in connection with the food
retail market; the research bureau Nielsen Croatia in connection with the ice cream and frozen food
market, the edible oils and margarines market and the water and beverages market; and other sources,
as well as on our knowledge of our sales and markets, our own investigation into market conditions
and our calculations based on such information. We have also based these estimates on information
obtained from our customers, trade and business organizations and associations and other contacts in
our industries. However, we operate in a number of different market segments in a region in which it is
difficult to obtain precise or current industry and market information, which makes the available
industry and market information incomplete or non-comparable. In those cases where there was no
readily available or reliable external information to validate market-related analyses or estimates or the
data conflicted with other data or was non-comparable or internally inconsistent, we have relied on
internally developed estimates which we believe to be accurate. There can be no assurance that any of
these assumptions or estimates are accurate or correctly reflect our market share or our competitive
position or those of the other market participants.
Although we believe that our sources are reliable, and we accept responsibility for having correctly
reproduced information obtained from industry publications or public sources, you should keep in mind
that we have not independently verified information we have obtained from industry and other thirdparty sources and that information from our internal surveys and management estimates has not been
verified by any independent sources. We cannot assure you that any of the assumptions underlying
these statements are accurate or correctly reflect our position in the industry. Neither we nor the Initial
Purchasers make any representation or warranty as to the accuracy or completeness of this information.
Industry publications, surveys and forecasts generally state that the information contained therein has
been obtained from sources believed to be reliable, but that the accuracy and completeness of such
information is not guaranteed. In addition, there is less publicly available information and data
collection is generally less reliable and less up-to-date in our Primary Markets than in the European
Union or North America. All these factors make it more difficult to compile accurate market and other
information. Where we have found information from different sources to be conflicting, we have used
the information that we believe to be the most accurate and prepared on a basis consistent with the
other sources we have used.
Unless otherwise indicated, references to market share information concerning the operations of (i) our
Food Manufacturing and Distribution division are based on 2011 data from Nielsen Croatia and
(ii) our Retail and Wholesale division are based on 2011 data from GfK Croatia (GfK Consumer
Tracking) when referring to our operations in Croatia and management estimates when referring to our
operations in Bosnia and Herzegovina and Serbia.
As used herein, the term ‘‘ton’’ refers to a metric ton of 1,000 kilograms.
The information relating to Poslovni sistem Mercator, d.d. (‘‘Mercator’’) contained in this Offering
Memorandum is taken from Mercator’s public filings with the Ljubljana Stock Exchange (Ljubljanska
borza). While we have faithfully reproduced this information, it has not been independently verified by
us and we cannot assure you of its accuracy or completeness.
x
CURRENCY PRESENTATION
In this Offering Memorandum:
•
‘‘euro,’’ ‘‘A’’ or ‘‘EUR’’ refer to the single currency of the participating Member States in the Third
Stage of European Economic and Monetary Union of the Treaty Establishing the European
Community, as amended from time to time;
•
‘‘Convertible Marks’’ or ‘‘BAM’’ refer to the lawful currency of Bosnia and Herzegovina;
•
‘‘Forint’’ or ‘‘HUF’’ refer to the lawful currency of Hungary;
•
‘‘Kuna’’ or ‘‘HRK’’ refer to the lawful currency of Croatia;
•
‘‘Serbian Dinar,’’ ‘‘RSD’’ or ‘‘Dinar’’ refer to the lawful currency of Serbia; and
•
‘‘U.S. dollars,’’ ‘‘$,’’ or ‘‘USD’’ refer to the lawful currency of the United States of America.
HISTORICAL EXCHANGE RATE INFORMATION
The following tables set forth the high, low, average and period-end Bloomberg Composite Rate
(New York), expressed as Kuna per A1.00 and Kuna per $1.00 for the periods indicated. The
Bloomberg Composite Rate is a ‘‘best market’’ calculation, in which, at any point in time, the bid rate
is equal to the highest bid rate of all contributing bank indications and the ask rate is set to the lowest
ask rate offered by these banks. The Bloomberg Composite Rate is a mid-value rate between the
applied highest bid rate and the lowest ask rate. The rates may differ from the actual rates used in the
preparation of the consolidated financial statements and certain other financial information appearing
in this Offering Memorandum as we prepare our consolidated financial information utilizing the
relevant exchange rate information made available by the National Bank of Croatia as of the relevant
date or period end. In addition, in certain places in this Offering Memorandum we provide courtesy
translations from HRK into euro on the basis of the National Bank of Croatia official rate for the
relevant period or date (unless otherwise indicated). Neither we nor the Initial Purchasers represent
that the euro, or U.S. dollar amounts referred to below could be or could have been converted into
such currencies at any particular rate indicated or any other rate.
The average rate for a year means the average of the Bloomberg Composite Rates on the last day
of each month during a year. The average rate for a month, or for any shorter period, means the
average of the daily Bloomberg Composite Rates during that month, or shorter period, as the case may
be.
Kuna per euro
Year ended
2007 . . . .
2008 . . . .
2009 . . . .
2010 . . . .
2011 . . . .
December 31,
...........
...........
...........
...........
...........
Period End
.
.
.
.
.
.
.
.
.
.
.
.
.
.
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.
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.
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.
.
.
Bloomberg Composite Rate
Average
High
Low
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
7.3320
7.3737
7.2961
7.3853
7.5355
7.3371
7.2230
7.3377
7.2935
7.4507
7.4290
7.3737
7.5395
7.4305
7.5365
7.2746
7.0681
7.2246
7.1831
7.3557
Month ended
March 31, 2012 . . . . . . . . . . . . . . . . . . . . . . .
April 30, 2012 . . . . . . . . . . . . . . . . . . . . . . .
May 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . .
June 30, 2012 . . . . . . . . . . . . . . . . . . . . . . . .
July 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . .
August 31, 2012 . . . . . . . . . . . . . . . . . . . . . .
September 2012 (through September 27, 2012)
.
.
.
.
.
.
.
.
.
.
.
.
.
.
7.5128
7.5005
7.5655
7.5175
7.5173
7.4745
7.4628
7.5355
7.4977
7.5372
7.5441
7.5004
7.4851
7.4283
7.5705
7.5363
7.5810
7.5675
7.5260
7.5280
7.4743
7.5070
7.4698
7.4980
7.5163
7.4813
7.4525
7.3910
xi
Kuna per U.S. dollar
Year ended
2007 . . . .
2008 . . . .
2009 . . . .
2010 . . . .
2011 . . . .
December 31,
...........
...........
...........
...........
...........
Period End
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Bloomberg Composite Rate
Average
High
Low
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
5.0250
5.2785
5.0898
5.5165
5.8130
5.3264
4.9360
5.2773
5.5307
5.3373
5.7147
5.7645
5.9629
6.0918
5.8181
4.9295
4.5340
4.7992
5.0142
4.9655
Month ended
March 31, 2012 . . . . . . . . . . . . . . . . . . . . . . .
April 30, 2012 . . . . . . . . . . . . . . . . . . . . . . .
May 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . .
June 30, 2012 . . . . . . . . . . . . . . . . . . . . . . . .
July 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . .
August 31, 2012 . . . . . . . . . . . . . . . . . . . . . .
September 2012 (through September 27, 2012)
.
.
.
.
.
.
.
.
.
.
.
.
.
.
5.6312
5.6571
6.1182
5.9310
6.1099
5.9371
5.7847
5.7009
5.6929
5.8955
6.0103
6.1003
6.0362
5.7699
5.7708
5.7246
6.1182
6.0788
6.2144
6.1804
5.9433
5.6198
5.6254
5.6662
5.9310
5.9368
5.9371
5.6421
CERTAIN DEFINITIONS
Unless otherwise specified or the context requires otherwise, in this Offering Memorandum:
‘‘2009 Indenture’’ refers to the indenture dated as of December 7, 2009 among the Issuer, BNY Mellon
Corporate Trustee Services Limited, as trustee, The Bank of New York Mellon, as transfer agent and
principal paying agent, The Bank of New York Mellon (Luxembourg) S.A., as Luxembourg listing
agent, paying agent, transfer agent and registrar and the guarantors named therein, as amended or
supplemented from time to time;
‘‘2012 Indenture’’ refers to the indenture dated as of April 25, 2012 among the Issuer, BNY Mellon
Corporate Trustee Services Limited, as trustee, The Bank of New York Mellon, as transfer agent and
paying agent, The Bank of New York Mellon (Luxembourg) S.A., as registrar and the guarantors
named therein, as amended or supplemented from time to time;
‘‘2016 Notes’’ refers to the A400,000,000 aggregate principal amount of the Issuer’s 10% Senior Notes
due 2016 issued on December 7, 2009, together with the A150,000,000 aggregate principal amount of
the Issuer’s 10% Senior Notes due 2016 issued on January 20, 2011, issued pursuant to the 2009
Indenture;
‘‘2019 Notes’’ refers to the A300,000,000 aggregate principal amount of the Issuer’s 9.875% Senior
Notes due 2019 issued on April 25, 2012 pursuant to the 2012 Indenture;
‘‘Bilateral facilities’’ refers to our short-term and long-term bilateral credit facilities, as described under
‘‘Capitalization’’ and ‘‘Description of Other Financing Arrangements’’;
‘‘CEE’’ or ‘‘Central and Eastern Europe’’ refers to the countries of Albania, Bosnia and Herzegovina,
Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Kosovo, Latvia, Lithuania, Macedonia,
Montenegro, Poland, Serbia, Slovakia, Slovenia and Romania;
‘‘Credit Agricole’’ refers to Credit Agricole Srbija Ad Novi Sad;
‘‘Credit Agricole facility’’ refers to the 2011 Credit Agricole Loan Agreement as described under
‘‘Description of Other Financing Arrangements’’, which will be refinanced with the proceeds of the
Offering;
‘‘EBITDA’’ is defined under ‘‘Presentation of Financial, Market and Other Information’’;
‘‘EBRD’’ refers to the European Bank for Reconstruction and Development;
‘‘EBRD facilities’’ refers to the 2009 EBRD Loan Agreement, the 2008 EBRD Loan Agreement and
the EBRD Issuer Loan Agreement as described under ‘‘Description of Other Financing
Arrangements’’, each of which will be refinanced in connection with the Transactions;
‘‘EU’’ refers to the European Union;
‘‘IFC’’ refers to the International Finance Corporation;
xii
‘‘IFC facilities’’ refers to the 2010 IFC Loan Agreement, the 2006 IFC Loan Agreement and the 2008
IFC Loan Agreement as described under ‘‘Description of Other Financing Arrangements’’, each of
which will be refinanced with the proceeds of the Offering;
‘‘Indenture’’ refers to the indenture dated as of October 10, 2012 among, among others, the Issuer,
BNY Mellon Corporate Trustee Services Limited, as trustee, and the Subsidiary Guarantors;
‘‘Issuer’’ refers to Agrokor d.d.;
‘‘Offering’’ refers to the offering of the Notes hereby and the use of proceeds received therefrom as
described in ‘‘Use of Proceeds’’;
‘‘Primary Markets’’ refers to the countries of Croatia, Serbia and Bosnia and Herzegovina;
‘‘Revolving Credit Facility’’ refers to the revolving credit facility under the Revolving Credit
Facility Agreement that we intend to enter into on or about the Issue Date, as described under
‘‘Description of Other Financing Arrangements’’;
‘‘Senior Credit Facility’’ refers to the term loan and revolving credit facility provided under our Senior
Facilities Agreement as described under ‘‘Description of Other Financing Arrangements’’, which will be
refinanced with the proceeds of the Offering;
‘‘Subsidiary Guarantors’’ refers to Agrokor trgovina d.d., Jamnica d.d., Konzum d.d., Ledo d.d., Ledo
d.o.o. Čitluk, PIK Vinkovci d.d., Sarajevski kiseljak d.d. and Zvijezda d.d.;
‘‘Term Loan’’ refers to our term loan provided under our Term Loan Agreement as described under
‘‘Description of Other Financing Arrangements’’, which will be refinanced with the proceeds of the
Offering; and
‘‘Transactions’’ refers to the issuance of the Notes pursuant to this Offering and the use of proceeds
therefrom together with cash on hand to refinance the Senior Credit Facility, the Term Loan, the
EBRD facilities, the IFC facilities and the Credit Agricole facility and the entry into the Revolving
Credit Facility.
xiii
SUMMARY
This summary highlights information contained elsewhere in this Offering Memorandum about the Offering
and our business, financial performance and prospects. This summary does not contain all the information
that may be important to you in deciding to invest in the Notes and it is qualified in its entirety by the more
detailed information and financial statements appearing elsewhere in this Offering Memorandum. You
should read the entire Offering Memorandum, including the section entitled ‘‘Risk Factors’’ and the
financial statements and related notes contained in this Offering Memorandum before making an investment
decision.
Our Business
We are one of the leading food retailers and wholesalers and food and beverages producers in Central
and Eastern Europe (the ‘‘CEE’’). The primary markets in which we currently operate are Croatia,
Serbia and Bosnia and Herzegovina (our ‘‘Primary Markets’’). In addition, we also sell our food and
beverage products in Hungary, Macedonia, Montenegro and Slovenia. In total, our business operations
cover a region having a population of more than 30 million people.
Our activities are organized into two principal divisions:
•
Retailing and Wholesale; and
•
Food Manufacturing and Distribution, which is comprised of four segments: Ice Cream and Frozen
Foods, Water and Beverages, Edible Oils and Margarine, and Meat and Agriculture.
We are also engaged in commodity brokerage and other non-core activities (our ‘‘Other Businesses’’).
These divisions correspond to our business operating segments in the notes to our financial statements
and are hereinafter referred to as our ‘‘business operating segments’’ or ‘‘divisions’’.
Our two main business divisions are complementary and together provide us with an integrated
business model that covers the entire supply chain from sourcing raw materials, production and
distribution, to direct contact with customers through our wholesale and retail sales outlets. In addition,
the broad coverage of our retail network and the flexibility provided by our multi-format retail stores
(which allows us to tailor store size and format to local demographics) enhances our access to
consumers in our Primary Markets.
In 2011, we had consolidated sales of HRK 29,053.4 million (A3,908.1 million) and EBITDA of HRK
2,671.5 million (A359.4 million). For the six months ended June 30, 2012, we had consolidated sales of
HRK 13,524.9 million (A1,793.9 million) and EBITDA of HRK 1,144.8 million (A151.8 million). We had
36,588 employees as of June 30, 2012. Sales outside of Croatia represented 29.1% of our consolidated
total sales in 2011 and 27.8% in 2010 and 30.5% in the first six months of 2012.
Our Competitive Strengths
We believe that our business benefits from the following competitive strengths:
•
Leading market positions supported by a diverse portfolio of leading brands and products. We hold
leading market positions in a majority of our business segments in each of our Primary Markets, as
well as in certain of our business segments in Slovenia and Montenegro. For example, in 2011 our
Retailing and Wholesale division had the leading market position in terms of sales in both Croatia
and Bosnia and Herzegovina and the third leading market position in terms of sales in Serbia. In
the Food Manufacturing and Distribution division, we have the leading market position in terms of
volume of water in Croatia, as well as in Bosnia and Herzegovina. In ice cream and margarines,
we have the leading market position in terms of volume in each of our Primary Markets and in
Montenegro. We believe that we operate in markets where there is a strong brand culture and that
our leading market positions are supported by a diversified portfolio of leading brand names and
products in both our Retailing and Wholesale and Food Manufacturing and Distribution divisions.
Each of our brands has a high level of consumer awareness, and certain of our brands, such as
Zvijezda and Jamnica, are linked with products ranked among the top ten products with the
highest brand awareness in Croatia. In 2010 and 2011, we received the ‘‘Most Trusted’’ brand
award from Reader’s Digest in the applicable categories for Zvijezda, Ledo and Jana products and
also for Konzum. During 2011, Ipsos Puls, a market research agency, conducted an extensive
survey evaluating the effect of brands on Croatian consumers. According to Ipsos Puls’
‘‘BrandScore’’ list of the top 30 brands in the Croatian market during the first half of 2011,
1
Zvijezda’s oil and margarine and Jamnica’s carbonated water earned the first three places in
consumer opinion polls. Based on a national consumer survey conducted in 2011 by My Serbia, an
independent consumer association, Dijamant edible sunflower oil was awarded the My Choice
award, as the favorite cooking oil. In addition to the support provided by our strong brands, we
have been able to further strengthen our market positions by responding to our customers’
changing needs through the introduction of lower cost ‘‘B’’ brands in the Ice Cream and Frozen
Food and the Water and Beverages business segments to capture more price-sensitive customers.
•
Vertically integrated business model with local strategic partnerships. Our business model is based on
the vertical integration of our operations, which include agriculture, animal feeding and breeding,
as well as food manufacturing and distribution and food retailing and wholesaling. Through these
businesses, we have the ability to control the entire supply chain, from sourcing raw materials,
production and distribution to direct contact with end customers through our retail and wholesale
outlets and, as a result, we have full traceability and enhanced quality control over the products we
make. In addition, vertical integration enables us to quickly and efficiently adjust our Food
Manufacturing and Distribution product portfolio to respond to shifts in consumer purchasing
patterns and supports our product innovation and ability to lead and respond quickly to changes in
market trends. Vertical integration also reduces our dependence on external suppliers, and when
we use external suppliers, we generally rely on strategic partnerships with local suppliers for whom
we are often the largest buyer within our Primary Markets. The volume of our purchase orders
often enables us to have more favorable terms and conditions with our suppliers. We believe that
these strategic partnerships with local suppliers combined with our model of vertical integration
provides a competitive advantage.
•
Strong consumer access supported by broad distribution networks. Our extensive retail and wholesale
coverage, supported by an efficient distribution network and our flexible multi-format retail store
model provides us with broad access to consumers in our Primary Markets. For example, our
Konzum supermarket chain has the largest number of supermarket stores in Croatia, with
approximately 95% geographic coverage and is supported by one of the largest distribution
networks in the country. In addition, we have a wide range of products (up to 40,000 stock-keeping
units (‘‘SKUs’’)) that we regularly adjust to satisfy changing consumer tastes and preferences.
Furthermore, we are able to track consumer tastes and preferences on a store-by-store basis with
the data we obtain through our Konzum Plus loyalty card program, which comprises more than
800,000 customers in Croatia, and our point-of-sale terminals, and we then react to such data by
adjusting our inventory, pricing and marketing activities accordingly (which we refer to as our
‘‘customer-centric’’ approach to retailing). Our access to consumers is also supported by our
extensive distribution network in each of our business segments, which we believe presents a strong
competitive advantage. This is particularly important in Croatia due to its shape and geography,
including more than 1,000 islands, which present significant challenges for efficient and timely
distribution.
•
Strong financial results in a resilient industry. We have produced strong financial results through our
vertically integrated business model. Our model enables us to control the production and
distribution chain from agriculture to food production and ultimately to food retail, reducing
pricing pressures that may arise throughout the chain. We believe our business is less sensitive to
economic fluctuations because food consumption is less dependent on discretionary spending than
other areas of consumer spending. For example, during 2009, the food retail market fell by only
3.6% in Croatia in real terms, while the total retail market according to the Croatian Bureau of
Statistics, fell by 15.3% and the GDP of Croatia fell by 5.8%. Even during the challenging
conditions of 2010 and 2011, when the GDPs of the Primary Markets were stagnating, we
continued to demonstrate the resilience and success of our business model, which is reflected
through an increase in both our sales and EBITDA margin. In 2011, our sales grew by 9.6%
compared to 2010, whereas our EBITDA margin remained stable at 9.2% and 9.1% in 2011 and
2010, respectively. Our consolidated sales grew at a compound annual growth rate of 19.9% over
the ten-year period from 2001 to 2011, and EBITDA also grew at a rate of 20.0% over the same
period.
•
State-of-the-art facilities and cost efficiency. Our state-of-the-art facilities allow us to produce
high-quality products that meet international standards in a cost-efficient manner. During the
period from 2006 to 2011, we invested HRK 10,557.5 million in modernizing and increasing the
capacity of our production facilities. Since 2005, we have made a greenfield investment of more
2
than HRK 1 billion in PIK Vrbovec, our red meat production facility, in order to automate the
entire production process. Our investment in state-of-the-art facilities combined with our increasing
purchasing power has enabled us to increase our production efficiency, which has resulted in
greater profitability. As we have completed the majority of our investment requirements in the
Food Manufacturing and Distribution division, we do not expect these facilities to require
significant capital expenditures in the medium term.
•
Proven expertise of integrating and improving acquired companies. We have experienced significant
growth by successfully acquiring and integrating new small to medium-sized companies into our
operations and turning around underperforming businesses. For example, within six years of our
acquisition of PIK Vrbovec, we increased sales volume from 8,000 tons of fresh processed red
meat in 2004 to 65,000 tons in 2011 as a result of our investment in a new meat processing facility.
In addition, in 2003 we acquired the ice cream producer Frikom, whose market share has grown
from approximately 30% in 2003 to over 75% in 2011, gaining market share from both
international and domestic competitors. We also acquired and integrated the Serbian edible oil
producer Dijamant (2005) and carbonated water producers Sarajevski kiseljak in Bosnia and
Herzegovina (2000) and Fonyódi in Hungary (2005). Following these acquisitions, we implemented
our management and operational practices in the acquired companies to maximize efficiency and
to align their accounting policies, management information and reporting systems with ours. In
addition, following these acquisitions to the extent necessary, we may invest in the production
facilities, adjust and rebrand the product portfolio and integrate the supply of its products into our
distribution network.
•
Experienced and highly focused management team. We have an experienced management team with
deep knowledge of our industry, key markets and products. The members of our Supervisory
Board and Management Board have been with us for an average of 10 years and 12 years,
respectively, and have an average of over 15 years of industry experience. Our senior management
team is highly focused with a long history of growing our business and identifying, negotiating and
integrating strategic acquisitions. Each principal business activity has a responsible vice president
on the Management Board. Furthermore, each of our subsidiaries is run by its own management
team with industry-specific and local know-how and experience.
Our Business Strategy
We plan to increase the value of our business through growth in our Primary Markets and through
opportunistic and strategic expansion. We intend to achieve this through the following primary
objectives:
•
Maintain and strengthen our leading market positions in our Primary Markets through our brands and
product innovation. We plan to achieve this by further building on our strong brand names and
brand recognition, further developing our distribution networks, and building on our relationships
with local strategic suppliers. We also plan to continue to introduce new products in response to
changing consumer tastes or demand. For example, in response to increased consumer health
concerns, we developed Omegol, a line of omega-3-rich products. By expanding our portfolio with
product innovations aimed at satisfying local tastes and by adapting our existing portfolio to
changing consumer tastes and preferences, we aim to continue to meet customers’ demands and
increase our market share in each of our Primary Markets.
•
Focus on our core businesses. We intend to focus on our core Retailing and Wholesale and Food
Manufacturing and Distribution divisions, with an emphasis on exploring growth opportunities in
Retailing and Wholesale. We also expect to continue to upgrade our facilities, distribution
networks, processes and technology and to identify both strategic bolt-on acquisitions and attractive
larger acquisitions. As part of our focus on core businesses, we disposed of a number of our
non-core businesses such as Mlinar, Štampa and Kozmo and may dispose of additional non-core
businesses in the future.
•
Focus on operating profitability through vertical integration and efficiency measures. We adopt a
focused approach to enhancing our operating profitability by maximizing synergies through the
vertical integration of our value chain and implementing measures to increase efficiency at both
the subsidiary and parent levels. We intend to continue to establish group-wide procurement
contracts with large domestic and international suppliers and further optimize our logistics and
distribution networks.
3
•
Maintain our disciplined earnings and cash-flow oriented approach. We will continue to carefully
assess the potential for earnings and cash-flow stability and growth when we evaluate the
performance of our operations and new investment opportunities. In managing our business, we
seek to improve our profitability by optimizing our work processes, maintaining a strong focus on
employee efficiency, exploiting our extensive coverage and distribution network, realizing synergies
available within the Group, and continuing to build upon strategic relationships with local
suppliers. We seek to generate cash by improving our profitability, disposing of non-core assets and
businesses and maintaining a prudent capital expenditure policy.
•
Considered expansion into new markets. As a result of our regional expansion in the CEE, our sales
outside the Croatian market have increased significantly. Sales outside Croatia represented 29.1%
of our total consolidated sales in 2011 and 27.8% in 2010, and 30.5% in the first six months of
2012. We aim to capitalize on our competitive advantages and the growth potential of neighboring
markets and other countries where acquisition opportunities may arise, and we intend to continue
to broaden our presence in the CEE, while seeking to maintain our strong focus on profitability.
In addition, we believe that certain of our products, for example, water, have considerable export
potential and we will continue to expand our marketing efforts for these products. Furthermore,
we seek to exploit potential growth opportunities in our Primary Markets coming from increased
GDP and food consumption per capita which is expected to continue to converge towards the
EU levels over time. For example, in 2011 Jamnica entered into a new market segment consisting
of consumers focused on sports nutrition with the introduction of a vitamin-enhanced powdered
drink, Juicy Vita.
Recent Developments
Mercator Negotiations. On October 17, 2011, we submitted a non-binding bid in the public invitation to
tender for the purchase of 52.1% of the shares of Poslovni sistem Mercator, d.d. (‘‘Mercator’’).
According to its public filings, Mercator is the largest fast-moving consumer goods retailer in Slovenia
and one of the largest in the region. Based on our non-binding bid, on November 7, 2011, we were
selected as the preferred bidder and provided with exclusivity in negotiating the terms of the
acquisition. While we tried to agree to satisfactory terms and conditions during the exclusivity period,
we were unable to do so. Accordingly, on February 6, 2012, we terminated the exclusivity agreement
and withdrew our non-binding bid and have thus formally withdrawn from the sale process. This
acquisition would have represented our largest acquisition to date and under Slovenian law we would
have been required to launch a tender offer for the remaining outstanding shares. By way of
illustration, in 2011 and for the six months ended June 30, 2012, Mercator had total revenues of
A2.9 billion and A1.4 billion, respectively. Under the current circumstances we do not have plans to bid
for any shares in Mercator. We maintain rigorous standards that we apply to any potential acquisition
and will not proceed with a potential transaction where those standards are not met. While we remain
open to acquisition possibilities that meet our strategic goals, including Mercator, to the extent
circumstances change, or other significant or bolt-on acquisitions, we would only do so on terms
acceptable to us.
Revolving Credit Facility. We intend to enter into a facilities agreement on or about the Issue Date
with a group of lenders which would provide for a A150.0 million revolving credit facility (the
‘‘Revolving Credit Facility’’). The Revolving Credit Facility will be undrawn upon consummation of the
Transactions. See ‘‘Description of Other Financing Agreements—Revolving Credit Facility.’’
4
Corporate Structure and Certain Financing Arrangements
The following chart shows a simplified summary of our corporate and financing structure as of June 30,
2012, adjusted to give effect to the Transactions. The chart does not include all our subsidiaries, nor all
our indebtedness. For a summary of our indebtedness identified in this diagram, please refer to the
section entitled ‘‘Description of Notes,’’ ‘‘Description of Other Financing Arrangements’’ and
‘‘Capitalization.’’
I. Todorić
Revolving Credit
Facility (1)
EBRD
91.67%
2016 Notes (5)
8.33%
Agrokor d.d.
Croatia
(Issuer)
2019 Notes (6)
Bilateral facilities (2)
Long-term Bilateral
facilities (3)
Notes offered hereby
100%
Non-guarantor
subsidiaries
Agrokor trgovina
d.d. Croatia
(Guarantor)
80.44%
Jamnica d.d.
Croatia
(Guarantor)
96.56% (10)
Serajeviski
kiseljak d.d.
Bosnia and
Herzegovina
(Guarantor)
Short-term Bilateral
facilities (4)
71.62% (11)
Konzum d.d.
Croatia
(Guarantor)
78.85%
Ledo d.d.
Croatia
(Guarantor)
51.84%
Zvijezda d.d.
Croatia
(Guarantor)
70.87%
PIK Vinkovci d.d.
Croatia
(Guarantor)
100%
Ledo d.o.o. Citluk
Bosnia and
Herzegovina
(Guarantor)
= Subsidiary Guarantors of the Notes (7)(8)
12OCT201207325478
= Subsidiary Guarantor group (9)
(1)
We intend to enter into the Revolving Credit Facility Agreement for HRK 1,126.5 million (A150.0 million) on or about the
Issue Date. Upon consummation of the Transactions, the Revolving Credit Facility will be undrawn. The Revolving Credit
Facility would be guaranteed on a senior basis by the Subsidiary Guarantors. The Revolving Credit Facility would be
secured by share pledges over all the shares of the Subsidiary Guarantors owned, directly or indirectly, by the Issuer.
(2)
HRK 411.8 million (A54.8 million) outstanding under our unguaranteed bilateral facilities (HRK 374.3 million
(A49.8 million) as adjusted to give effect to the Transactions), of which HRK 374.3 million represented short-term bilateral
facilities, of which HRK 108.5 million (A14.4 million) was secured by liens on assets. These amounts of short-term bilateral
facilities and secured bilateral facilities will not change as a result of the Transactions.
(3)
HRK 122.0 million (A16.3 million) of unguaranteed long-term bilateral facilities. The amount that will mature within twelve
months is HRK 82.9 million (A11.0 million). HRK 54.3 million (A7.2 million) is secured by liens on certain assets. These
amounts will not change as a result of the Transactions.
(4)
HRK 545.2 million (A72.6 million) of unguaranteed short-term bilateral facilities. HRK 120.2 million (A16.0 million) is
secured by liens on certain assets. These amounts will not change as a result of the Transactions.
(5)
A550.0 million aggregate principal amount of 10% Senior Notes due 2016, which will rank pari passu with the Notes offered
hereby.
(6)
A300.0 million aggregate principal amount of 9.875% Senior Notes due 2019, which will rank pari passu with the Notes
offered hereby.
(7)
Certain of the Subsidiary Guarantors are borrowers under HRK 102.0 million (A13.6 million) of unguaranteed bilateral
facilities, of which HRK 56.4 million (A7.5 million) represented short-term unguaranteed bilateral facilities. HRK 0.4 million
(A0.1 million) is secured by liens on certain assets. These amounts will not change as a result of the Transactions.
(8)
For the year ended and as of December 31, 2011, the Subsidiary Guarantors represented 55.6% (HRK 16,146.4 million
(A2,144.2 million as translated at the period-end rate for 2011 of A1.00=HRK 7.53042 based on the Croatian National Bank
Rate)) of our consolidated revenues, 68.3% (HRK 1,824.8 million (A242.3 million as translated at the period-end rate for
2011 of A1.00=HRK 7.53042 based on the Croatian National Bank Rate)) of our consolidated EBITDA and 52.7%
(HRK 15,367.3 million (A2,040.7 million as translated at the period-end rate for 2011 of A1.00=HRK 7.53042 based on the
Croatian National Bank Rate)) of our consolidated total assets. See ‘‘Listing and General Information—Subsidiary
Guarantor Information—Unaudited Supplemental Information on the Subsidiary Guarantors.’’
5
(9)
The Subsidiary Guarantors provide guarantees in connection with the Revolving Credit Facility, the 2016 Notes and the
2019 Notes and will provide guarantees in connection with the Notes. The Revolving Credit Facility would be secured by
share pledges over all the shares of the Subsidiary Guarantors owned, directly or indirectly, by the Issuer.
(10) Additional 3.3% share capital owned by Agrokor-Zagreb d.o.o. which is a wholly-owned subsidiary of the Issuer which does
not guarantee the Notes.
(11) Additional 11.1% share capital owned by Jamnica d.d.
Notes:
(i)
Except as otherwise provided above, amounts have been translated at the period-end rate for the six months ended
June 30, 2012 of A1.00 = HRK 7.5101 based on the Croatian National Bank Rate.
(ii)
Our cash and cash equivalents, as adjusted to give effect to the Transactions, would have been HRK 778.5 million
(A103.7 million).
(iii) The undrawn committed facilities, as adjusted to give effect to the Transactions, would have been HRK 1,911.3 million
(A254.5 million), of which HRK 1,126.5 million (approximately A150.0 million) would have been available under the
Revolving Credit Facility and HRK 784.9 million (approximately A104.5 million) would have been available under certain
undrawn bilateral facilities.
6
The Offering
The following is a brief summary of certain terms of this Offering and the principal terms of the Notes. It
may not contain all the information that is important to you. For additional information regarding the Notes
and the Note Guarantees, see ‘‘Description of Notes.’’
Issuer . . . . . . . . . . . . . . . . . . . . . . .
Agrokor d.d., a company incorporated under the laws of
Croatia with registered MBS number 080020970 and
registered OIB number 05937759187 (the ‘‘Issuer’’).
Notes Offered . . . . . . . . . . . . . . . . . .
A325,000,000 aggregate principal amount of 9.125% Senior
Notes due 2020 (the ‘‘Euro Notes’’).
$300,000,000 aggregate principal amount of 8.875% Senior
Notes due 2020 (the ‘‘Dollar Notes’’ and, together with the
Euro Notes, the ‘‘Notes’’).
Issue Date . . . . . . . . . . . . . . . . . . . .
On or about October 10, 2012 (the ‘‘Issue Date’’).
Offering Price . . . . . . . . . . . . . . . . .
Euro Notes: 100% plus accrued interest from October 10,
2012.
Dollar Notes: 100% plus accrued interest from October 10,
2012.
Maturity Date . . . . . . . . . . . . . . . . .
February 1, 2020.
Interest Rate and Payment Dates . . .
We will pay interest on the Notes semi-annually in arrears on
February 1 and August 1 of each year, commencing on
February 1, 2013 at a rate of 9.125% per annum in respect of
the Euro Notes and 8.875% per annum in respect of the
Dollar Notes. Interest on the Notes will accrue from
October 10, 2012.
Form and Denomination . . . . . . . . . .
The Euro Notes will be represented on issue by one or more
Global Notes which will be delivered through Euroclear and
Clearstream against payment therefor in immediately available
funds, and each such Global Note will have a minimum
denomination of A100,000 and in integral multiples of A1,000
in excess thereof.
The Dollar Notes will be represented on issue by one or more
Global Notes which will be delivered through DTC against
payment therefor in immediately available funds, and each
such Global Note will have a minimum denomination of
$200,000 and in integral multiples of $1,000 in excess thereof.
Interests in each Global Note will be exchangeable for the
relevant definitive Notes only in certain limited circumstances.
See ‘‘Book Entry, Delivery and Form.’’
Ranking of the Notes . . . . . . . . . . . .
The Notes will be general unsecured senior obligations of the
Issuer and:
•
will rank pari passu in right of payment with all existing
and future senior indebtedness of the Issuer;
•
will be senior in right of payment to any future
subordinated indebtedness of the Issuer;
•
will be effectively subordinated to any existing and future
secured indebtedness of the Issuer to the extent of the
value of the assets securing such indebtedness; and
7
•
will be effectively subordinated to all obligations of the
Issuer’s subsidiaries that are not Subsidiary Guarantors.
Each of the Euro Notes and the Dollar Notes will constitute a
separate series of Notes, but shall be treated as a single class
for all purposes under the Indenture, including in respect of
any amendment, waiver or other modification of the Indenture
or any other action by the holders of the Notes hereunder,
except as otherwise provided in the Indenture.
Subsidiary Guarantors . . . . . . . . . . .
The Notes will be jointly and severally guaranteed on a senior
basis, subject to certain limits imposed by local law and as will
be set forth in the Indenture, by Agrokor trgovina d.d.,
Jamnica d.d., Konzum d.d., Ledo d.d., Ledo d.o.o. Čitluk,
PIK Vinkovci d.d., Sarajevski kiseljak d.d. and Zvijezda d.d.
The obligations of the Subsidiary Guarantors will be subject to
legal and contractual limitations and may be released in
certain circumstances. See ‘‘Description of Notes—
Note Guarantees’’ and see ‘‘Risk Factors—Risks Relating to
the Notes—The Note Guarantees may be limited by
applicable laws or subject to certain limitations or defenses.’’
Ranking of the Note Guarantees . . . .
Each Note Guarantee will be a senior obligation of the
respective Subsidiary Guarantor and:
•
will be pari passu in right of payment with all existing and
future senior indebtedness of that Subsidiary Guarantor;
•
will be senior in right of payment to any future
subordinated indebtedness of that Subsidiary Guarantor;
•
will be effectively subordinated to any existing and future
secured indebtedness of that Subsidiary Guarantor to the
extent of the value of the assets securing such
indebtedness; and
•
will be effectively subordinated to all obligations of the
subsidiaries of that Subsidiary Guarantor that are not
Subsidiary Guarantors.
As of June 30, 2012, after giving pro forma effect to the
Transactions:
•
the Issuer and its consolidated subsidiaries had
approximately HRK 11,661.0 million (approximately
A1,552.8 million) of indebtedness, of which approximately
A563.6 million is represented by the principal amount of
the Notes;
•
the Issuer and the Subsidiary Guarantors had
approximately HRK 108.9 million (approximately
A14.5 million) of secured financial indebtedness; and
•
the non-guarantor subsidiaries of the Issuer had
approximately HRK 667.3 million (approximately
A88.9 million) of financial indebtedness.
As of and for the twelve months ended June 30, 2012, the
Subsidiary Guarantors represented 55.7% of our consolidated
revenues, 67.2% of our consolidated EBITDA and 55.2% of
our consolidated total assets.
8
Although the Indenture will contain limitations on the amount
of additional indebtedness the Issuer and its restricted
subsidiaries, including subsidiaries that are not Subsidiary
Guarantors, will be allowed to incur, the amount of such
additional indebtedness, including secured indebtedness, could
be substantial.
Use of Proceeds . . . . . . . . . . . . . . . .
We will use the proceeds from the Offering together with cash
on hand to repay in full indebtedness under our Senior Credit
Facility, the Term Loan, the EBRD facilities, the IFC facilities
and the Credit Agricole facility. See ‘‘Use of Proceeds’’ and
‘‘Capitalization.’’
Additional Amounts . . . . . . . . . . . . .
Any payments made by the Issuer or any Subsidiary
Guarantor with respect to the Notes will be made without
withholding or deduction for taxes in any relevant taxing
jurisdiction unless required by law. If we are required by law
to withhold or deduct for such taxes with respect to a payment
to the holders of Notes, we will pay the additional amounts
(subject to certain exceptions) necessary so that the net
amount received by the holders of Notes after the withholding
is not less than the amount that they would have received in
the absence of the withholding, subject to certain exceptions.
See ‘‘Description of Notes—Additional Amounts.’’
Tax Redemption . . . . . . . . . . . . . . . .
In the event of certain developments affecting taxation or
certain other circumstances, the Issuer may redeem the Notes
in whole, but not in part, at any time, at a redemption price of
100% of the principal amount, plus accrued and unpaid
interest, if any, and additional amounts, if any, to the date of
redemption. See ‘‘Description of Notes—Redemption for
Changes in Taxes.’’
Optional Redemption . . . . . . . . . . . .
At any time prior to February 1, 2016, we may, at our option,
redeem all or part of the Euro Notes or the Dollar Notes at a
redemption price equal to 100% of the principal amount of
the Notes redeemed plus the applicable ‘‘make-whole’’
premium set forth in this Offering Memorandum, plus accrued
and unpaid interest, if any. See ‘‘Description of Notes—
Optional Redemption.’’
In addition, prior to October 10, 2015, we may redeem up to
35% of the aggregate principal amount of each of the Euro
Notes and the Dollar Notes with the net cash proceeds from
specified equity offerings at a redemption price equal to
109.125% of the principal amount thereof, in respect of the
Euro Notes, and 108.875% of the principal amount thereof, in
respect of the Dollar Notes, plus, in each case, accrued and
unpaid interest (if any) to the redemption date, provided that
at least 65% of the aggregate principal amount of the Euro
Notes or the Dollar Notes, as applicable, remain outstanding
after the redemption. See ‘‘Description of Notes—Optional
Redemption.’’
We may redeem the Euro Notes or the Dollar Notes on or
after February 1, 2016, in whole or in part, at our option at a
redemption price equal to the principal amount thereof plus
accrued and unpaid interest and the applicable redemption
premium and certain additional amounts, if any. See
‘‘Description of Notes—Optional Redemption.’’
9
Asset Sales . . . . . . . . . . . . . . . . . . . .
The Issuer will be required to offer to purchase the Notes
with excess proceeds, if any, following certain asset sales at a
purchase price equal to 100% of the principal amount of the
Notes and accrued and unpaid interest to the date of
purchase. See ‘‘Description of Notes—Repurchase at the
Option of Holders—Asset Sales.’’
Change of Control . . . . . . . . . . . . . .
Upon the occurrence of certain change of control events, the
Issuer will be required to offer to repurchase the Notes at a
purchase price equal to 101% of the aggregate principal
amount of the Notes, plus accrued and unpaid interest and
additional amounts, if any, to the date of the purchase. See
‘‘Description of Notes—Repurchase at the Option of
Holders—Change of Control.’’
Certain Covenants . . . . . . . . . . . . . .
The Indenture will limit, among other things, our ability to:
•
incur additional indebtedness;
•
pay dividends on, redeem or repurchase our capital stock;
•
make certain restricted payments and investments;
•
create certain liens;
•
impose restrictions on the ability of subsidiaries to pay
dividends or other payments to the Issuer;
•
transfer or sell assets;
•
enter into unrelated businesses;
•
merge or consolidate with other entities; and
•
enter into transactions with affiliates.
Each of these covenants is subject to a number of important
exceptions and qualifications. See ‘‘Description of Notes—
Certain Covenants.’’
Listing and Trading . . . . . . . . . . . . .
Application will be made to admit the Notes to listing on the
Official List of the Irish Stock Exchange and to trading on the
Global Exchange Market. There is no assurance that the
Notes will be listed and admitted to trade on the Global
Exchange Market.
Transfer Restrictions . . . . . . . . . . . .
The Notes and the Note Guarantees have not been and will
not be registered under the U.S. Securities Act or the
securities laws of any other jurisdiction. The Notes are subject
to restrictions on transferability and resale. See ‘‘Important
Information for Investors,’’ ‘‘Notice to Certain European
Investors,’’ ‘‘Transfer Restrictions’’ and ‘‘Plan of Distribution.’’
Holders of the Notes will not have the benefit of any
exchange or registration rights.
10
Limited Trading Market . . . . . . . . . .
Application will be made to admit the Notes to listing on the
Official List of the Irish Stock Exchange and to trading on the
Global Exchange Market. Although the Initial Purchasers have
informed the Issuer that they intend to make a market in the
Notes, they are not obligated to do so and they may
discontinue market-making at any time without notice.
Accordingly, the Issuer cannot assure you that an active
trading market for the Notes will develop or be maintained.
Governing Law of the Notes, the
Note Guarantees and the Indenture . .
New York law.
Trustee . . . . . . . . . . . . . . . . . . . . . .
BNY Mellon Corporate Trustee Services Limited.
Transfer Agent and Principal Paying
Agent . . . . . . . . . . . . . . . . . . . . . . . .
The Bank of New York Mellon.
Registrar . . . . . . . . . . . . . . . . . . . . .
The Bank of New York Mellon (Luxembourg) S.A.
Irish Listing Agent . . . . . . . . . . . . . .
The Bank of New York Mellon (Ireland) Limited.
U.S. Paying Agent and Transfer Agent
The Bank of New York Mellon.
Risk Factors
You should refer to ‘‘Risk Factors’’ beginning on page 14 of this Offering Memorandum for an
explanation of certain risks involved in investing in the Notes.
11
SUMMARY CONSOLIDATED FINANCIAL INFORMATION AND OTHER DATA
The following table presents summary consolidated financial information and other data as of and
for each of the years ended December 31, 2009, 2010 and 2011. This summary financial information
and other data is derived from our audited financial statements and related notes prepared in
accordance with IFRS for such years and included in this Offering Memorandum. Such information
was audited by Baker Tilly Discordia d.o.o., independent accountants. The following table also presents
summary consolidated interim financial information and other data for each of the six months ended
June 30, 2011 and 2012, and as of June 30, 2012. This summary interim financial information and other
data is derived from our unaudited interim financial statements and related notes prepared in
accordance with IFRS for such periods and included in this Offering Memorandum.
The following table also presents unaudited financial information for the twelve months ended June 30,
2012. The unaudited financial information for the twelve months ended June 30, 2012 has been
derived, on a line by line basis, by adding the audited consolidated income statement data for the year
ended December 31, 2011 and the unaudited consolidated interim income statement data for the
six months ended June 30, 2012 and subtracting the unaudited consolidated interim income statement
data for the six months ended June 30, 2011.
The following table should also be read in conjunction with the information contained in ‘‘Presentation
of Financial, Market and Other Information,’’ ‘‘Use of Proceeds,’’ ‘‘Capitalization,’’ ‘‘Selected
Consolidated Financial Information and Other Data,’’ ‘‘Management’s Discussion and Analysis of
Financial Condition and Results of Operations’’ and our consolidated financial statements and related
notes included in this Offering Memorandum.
For the Year Ended December 31,
2009
(Audited)
Income Statement Data:
Sales . . . . . . . . . . .
Cost of materials . . .
Cost of services . . . .
Other income . . . . .
Other expenses . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Operating Profit . . . . . . . . . . . . . . . . .
Excess of fair value of net assets over the
cost of acquisition net of written-off
goodwill . . . . . . . . . . . . . . . . . . .
Share of gain/loss of associates . . . . . . .
Impairment of financial assets . . . . . . .
Dividend income . . . . . . . . . . . . . . .
Sale of subsidiaries . . . . . . . . . . . . . .
Sale of properties, net . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . .
Net foreign exchange (loss)/profit . . . . .
2010
2011
(Audited)
(Audited)
(HRK thousands)
26,476,657 26,506,235 29,053,395
(18,324,864) (18,536,941) (20,403,812)
(2,210,414) (2,305,898) (2,445,841)
251,319
491,589
334,553
(4,731,171) (4,520,217) (4,733,038)
1,461,527
1,634,768
For the Six Months Ended
June 30,
2011
2012
(Unaudited) (Unaudited)
(HRK thousands)
13,211,740
(9,232,869)
(1,119,950)
85,469
(2,259,160)
13,524,931
(9,502,191)
(1,109,339)
77,313
(2,296,313)
For the Twelve Months
Ended June 30,
2012
2012
(Unaudited)
(HRK
thousands)
(Unaudited)(1)
(E thousands)
29,366,586
(20,673,134)
(2,435,230)
326,397
(4,770,191)
3,905,650
(2,749,453)
(323,877)
43,410
(634,418)
1,805,257
685,230
694,401
1,814,428
241,312
(22,438)
281
(12,631)
360
(127,712)
(22,829)
68,821
(744,308)
(150,484)
(69,719)
(2,563)
(13,256)
278
—
21,745
86,319
(951,984)
(340,347)
(84,546)
11
(3,931)
68
(46,347)
(23,034)
128,079
(1,090,077)
(267,417)
(714)
—
(1,488)
3
—
4,478
47,757
(440,909)
(426)
—
—
(3,360)
6,912
35,110
(11,455)
60,625
(542,390)
(242,481)
(83,832)
—
(5,803)
6,977
(11,237)
(38,967)
140,947
(1,191,558)
(509,472)
(11,149)
—
(772)
928
(1,494)
(5,128)
18,745
(158,473)
(67,758)
Profit before taxation . . . . . . . . . . . . . .
Taxation . . . . . . . . . . . . . . . . . . . .
450,587
(214,075)
365,241
(205,148)
418,063
(222,914)
293,931
(104,419)
(2,638)
(75,945)
121,494
(194,440)
16,158
(25,860)
Net profit for the year . . . . . . . . . . . . .
236,512
160,093
195,149
189,512
(78,583)
(72,946)
(9,702)
Attributable to
Equity holders of the parent . . . . . . . .
Minority interest . . . . . . . . . . . . . . .
75,571
160,941
32,935
127,158
21,120
174,029
118,604
70,908
(113,897)
35,314
(211,381)
138,435
(25,113)
18,411
12
As of December 31,
Balance Sheet Data (at end of period):
Property, plant and equipment . . . . .
Cash and cash equivalents . . . . . . .
Working capital(3) . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . .
Total equity . . . . . . . . . . . . . . . .
Total debt(4) . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2010
2011
2012
2012
(Audited)
(Audited)
(HRK thousands)
(Audited)
(Unaudited)
(HRK
thousands)
(Unaudited)(2)
(E thousands)
.
.
.
.
.
.
12,167,281
895,797
(224,882)
24,379,350
5,831,000
9,018,114
13,796,904
875,997
(489,062)
26,522,603
6,110,103
10,133,809
For the Year Ended December 31,
2009
2010
2,185,308
1,575,265
450,967
(675,487)
8,122,317
3.72x
3.24x
14,495,162
909,637
(800,470)
29,164,204
6,615,034
11,265,683
2,414,255
1,985,296
507,237
(865,665)
9,257,812
3.83x
2.79x
14,270,505
935,481
(1,128,425)
29,913,841
6,438,175
11,643,041
For the Six Months Ended
June 30,
2011
(Audited, except EBITDA and ratios)
(HRK thousands)
Other Financial Data:
EBITDA(5) . . . . . . . . . . . . . . . . . . . . .
Capital Expenditures(6) . . . . . . . . . . . . . .
Acquisitions(7) . . . . . . . . . . . . . . . . . . .
Net Interest Expense(8) . . . . . . . . . . . . . .
Net Debt(9) . . . . . . . . . . . . . . . . . . . . .
Ratio of Net Debt to EBITDA(5)(9) . . . . . . .
Ratio of EBITDA to Net Interest Expense(5)(8)
Ratio of Adjusted Net Debt to EBITDA(5)(10) .
Ratio of EBITDA to Adjusted Net Interest
Expense(5)(11) . . . . . . . . . . . . . . . . . . .
As of June 30,
2009
2011
2012
(Unaudited) (Unaudited)
(HRK thousands)
2,671,500
1,332,910
353,961
(961,998)
10,356,046(2)
3.88x
2.78x
1,106,598
663,286
115,810
(393,152)
9,772,049
—
—
1,144,769
437,635
11,622
(481,765)
10,707,560
—
—
1,900,175
124,563
(150,254)
3,983,148
857,269
1,550,318
For the Twelve Months
Ended June 30,
2012
2012
(Unaudited)
(HRK
thousands)
(Unaudited)(1)
(E thousands)
2,709,671
1,107,259
249,773
(1,050,611)
10,707,560
3.95x
2.58x
3.98x
360,377
147,261
33,219
(139,727)
1,425,755
—
—
2.11x
(1)
Amounts have been translated at an average rate for the twelve months ended June 30, 2012 of A1.00 = HRK 7.5190 based on the
Bloomberg Composite Rate on the last day of each month.
(2)
Amounts have been translated at the period-end rate for the six months ended June 30, 2012 of A1.00 = HRK 7.5101 based on the Croatian
National Bank Rate.
(3)
‘‘Working capital’’ represents accounts receivable plus inventories minus accounts payable as shown in the balance sheets, in each case at the
end of the period.
(4)
‘‘Total Debt’’ represents Total Borrowings as stated in the Group’s financial statements contained herein.
(5)
‘‘EBITDA’’ represents operating profit plus depreciation and amortization. EBITDA and other non-GAAP measures should not be
considered in isolation or construed as a substitute for GAAP measures in accordance with IFRS. See ‘‘Presentation of Financial, Market and
Other Information.’’
The following table reconciles operating profit to EBITDA for the periods indicated:
For the Year Ended December 31,
2009
2010
2011
(Audited, except EBITDA)
(HRK thousands)
Operating profit . . . . . . . . . . . . . .
Depreciation and amortization . . . . . .
EBITDA . . . . . . . . . . . . . . . . . .
1,461,527
723,781
2,185,308
1,634,768
779,487
2,414,255
1,805,257
866,243
2,671,500
For the Six Months Ended
June 30,
2011
2012
(Unaudited) (Unaudited)
(HRK thousands)
685,230
421,368
1,106,598
For the Twelve Months
Ended June 30,
2012
(Unaudited)
(HRK
thousands)
694,401
1,814,428
450,368
895,243
1,144,769
2,709,671
2012
(Unaudited)(1)
(E thousands)
241,312
119,065
360,377
(6)
‘‘Capital Expenditures’’ represent additions to properties and intangible assets as shown in our cash flow statements, in each case for the
applicable period.
(7)
‘‘Acquisitions’’ represents acquisitions of subsidiaries, net of cash acquired as shown in the cash flow statements, in each case for the
applicable period.
(8)
‘‘Net Interest Expense’’ represents interest expense reduced by interest income as shown in our income statements, in each case for the
applicable period.
(9)
‘‘Net Debt’’ represents total debt less cash and cash equivalents as shown in our balance sheet, in each case at the end of the applicable
period.
(10)
‘‘Adjusted Net Debt’’ represents Net Debt adjusted to give pro forma effect to the Transactions as if they occurred on June 30, 2012.
(11)
‘‘Adjusted Net Interest Expense’’ represents Net Interest Expense adjusted to give pro forma effect to the Transactions as if they had
occurred on July 1, 2011.
13
RISK FACTORS
An investment in the Notes involves a high degree of risk. You should carefully consider the risks described
below before deciding to invest in the Notes. In assessing these risks, you should also refer to the other
information in this Offering Memorandum, including the financial statements and related notes. These risks
and uncertainties are not the only ones we face. Additional risks and uncertainties that are not currently
known to us or that we currently consider immaterial could also impair our business, financial condition,
results of operations and our ability to make payments on the Notes.
This Offering Memorandum also contains forward-looking statements that involve risks and uncertainties.
Our actual results may differ materially from those anticipated in these forward-looking statements as a
result of various factors, including the risks described below and elsewhere in this Offering Memorandum.
General Region-Related Risks
There can be no assurance that Croatia, Serbia and Bosnia and Herzegovina will continue to successfully
implement their respective political and economic reforms and agendas. Delays in or failures of any of these
reforms or agendas may have a material adverse effect on our business. Austerity measures, increased
taxation and retail margin caps currently being implemented in our Primary Markets could result in an
economic slowdown or a reduction in personal consumption which could impact both our sales and
profitability.
Croatia. We are based and conduct the majority of our business in Croatia, which is expected to
become the 28th member of the European Union by mid-2013 according to the Accession Treaty signed
on December 9, 2011. Recent governments in Croatia have pursued economic reforms designed to
develop and stabilize its free market economy through privatization of state-owned enterprises,
attracting foreign direct investment, and implementing reforms necessary to join the EU. Croatia’s
reforms seek to address several key economic challenges, including: (i) reducing economic imbalances
to promote stability while introducing complementary reforms to address underlying structural causes of
fiscal imbalances; (ii) increasing the flexibility of the economy and (iii) creating a business-friendly
environment that is conducive to attracting investment. Although Croatia has made the transition to a
functioning market economy, rebuilding Croatia’s infrastructure to a western European standard will
require further investment and may take some years to complete. We cannot assure you that Croatia
will achieve its intended aims with its reforms or that a political environment supportive of these
reforms will be maintained. The Croatian government recently increased the value added tax (‘‘VAT’’)
in the country from 23% to 25% and the scope of the intermediate VAT rate of 10% was widened for
certain products (e.g., oils and fats, children’s food and water supply). This increase in VAT, effective
since March 1, 2012, has decreased demand for our products and increased pressure on our margins in
the first half of 2012 as we have been unable to pass along this increase to consumers. There can be no
assurance that the government will not implement other regulations or fiscal or monetary policies,
including regulations or policies relating to or affecting taxation, the agriculture industry, the
environment, public procurement, compensation to owners of nationalized property or exchange
controls. Furthermore, upon the expected accession of Croatia to the European Union, Croatia will
have to abandon the preferential export regime which it benefited from under the Central European
Free Trade Agreement (CEFTA) for exports to Serbia, Bosnia and Herzegovina, Macedonia,
Montenegro, Albania, Kosovo, and Moldova. Instead, it will have to accept a trading regime which the
European Union has agreed to with each of these countries under separate stabilisation and association
agreements, allowing such countries to keep their customs duties on EU products for a given period of
time while at the same time being able to export all their products free of customs duties. Upon
Croatia’s accession to the European Union, our Croatian products will therefore be subject to customs
duties when exported to CEFTA member countries and compete in Croatia against products coming
from CEFTA member countries that are free of customs duties. As a result, we may lose positions in
important markets. The European Commission has been given a mandate to begin negotiations with
CEFTA members on behalf of Croatia in order to lower such countries’ customs duties on Croatian
products once Croatia joins the European Union. However, it is impossible to predict the outcome of
such negotiations. In addition, recent economic conditions could lead to significant austerity measures,
reduce disposable income or delay reforms. Any of these actions could have a material adverse effect
on our business.
Serbia and Bosnia and Herzegovina. We conduct part of our business in Serbia and Bosnia and
Herzegovina where political and economic reforms implemented by the respective governments are at a
14
lesser-developed stage than in Croatia. Serbia officially gained its independence from the dissolved
union of Serbia and Montenegro in 2006 and became an EU candidate country in March 2012. The key
risk to stability in Serbia remains the status of Kosovo’s independence. Bosnia and Herzegovina ended
its war with The Dayton Peace Agreement in 1995. Since such peace agreement, the country has made
progress with strong international support. There has been a large degree of trade liberalization, and
the country has been working towards accession to the EU, where it is currently a potential candidate
country. Nevertheless, in such an environment the success of economic policy initiatives cannot be
assured. For example, the Serbian government recently introduced measures limiting the retail margin
on certain basic consumer goods (including wheat flour, sunflower oil, milk, yoghurt, sugar) to 10%.
The measures apply to all retailers and will affect approximately 20% of our sales. These measures
have adversely impacted our profitability and will run until at least the end of 2012. The government
may extend such measures beyond that period. The Serbian government has also recently announced
an increase in the VAT from 18% to 20%, to take effect from October 1, 2012. Such an increase is
expected to decrease demand for our products and increase pressure on our margins. Due to the
history of political instability of these former Yugoslavian countries, it is impossible to predict the
occurrence of events or circumstances such as war or hostilities, or the impact of such occurrences, and
no assurance can be given that we would be able to sustain our current profit levels in these countries
if adverse political events or circumstances were to occur.
The legal systems in Croatia, Serbia and Bosnia and Herzegovina are still developing which can result in
legal uncertainties. We may be unable to obtain governmental authorizations or to enforce our rights
successfully in these countries.
Although Croatia’s legal system has been harmonized with the EU as a precondition for the upcoming
accession to the EU, Croatia, Serbia and Bosnia and Herzegovina each have short legislative, judicial
and administrative histories and it is not possible to predict the effect of current and future legislation
on our business. Company, commercial, contract, customs, currency, property, banking, bankruptcy,
competition, securities, labor, tax and other laws and regulations in Croatia, Serbia and Bosnia and
Herzegovina (including those concerning privatization and the compensation of former owners) are still
developing and continue to be substantially revised. In the case of Serbia and Bosnia and Herzegovina,
there is little precedent for how these laws and regulations will be interpreted or implemented either by
the courts or government agencies. Existing and future laws and regulations may be applied
inconsistently. We may experience difficulties or delays in obtaining any permits or other governmental
authorizations. Additionally, judicial systems in Croatia, Serbia and Bosnia and Herzegovina may not be
fully independent of social, economic and political forces, and many courts in the respective countries
experience a high volume of case backlogs, which can result in inconsistent judicial interpretation of
laws and regulations and excessive delays in court proceedings. As a result of the foregoing, we may
not be able to efficiently or successfully enforce our legal rights, including title to our real property,
under the laws of Croatia, Serbia or Bosnia and Herzegovina. See ‘‘Business Description—Croatian
Late Payment Legislation.’’
We are exposed to risks related to conducting operations in several different countries.
The primary markets in which we currently operate are Croatia, Serbia and Bosnia and Herzegovina. In
addition, we also sell our food and beverage products in Hungary, Macedonia, Montenegro and
Slovenia. Risks inherent in international operations include the following, among other risks:
•
general economic, social or political conditions in the countries in which we operate could have an
adverse effect on our earnings in those countries;
•
compliance with a variety of laws and regulations in various jurisdictions may be burdensome;
•
unexpected or adverse changes in laws or regulatory requirements in various jurisdictions may
occur;
•
the imposition of withholding taxes or other taxes or royalties on our income, or the adoption of
other restrictions on foreign trade or investment, including currency exchange controls could
decrease our net profit;
•
adverse changes in export duties, quotas and tariffs and difficulties in obtaining export licenses
could increase our costs or impair our operations;
•
intellectual property rights may be more difficult to enforce;
15
•
transportation and other shipping costs may increase;
•
staffing difficulties, national or regional labor strikes or other labor disputes could disrupt our
operations;
•
price controls may be imposed by the governments of the countries in which we operate; and
•
we may have difficulties in enforcing agreements and collecting receivables.
Any of these factors could have a material adverse impact on our results of operations.
Risks Relating to the Group
We are affected by general global and regional economic conditions.
Our businesses are susceptible to economic recessions or downturns. When the gross domestic product
declines in any or all of the markets in which we operate, customers may reduce their consumption of
certain products, reducing our sales volumes, or switch from premium brands to lower cost brands and
private label products, which may reduce the average prices we can achieve. In such an economic
environment, we may also need to reduce our prices (including through price based promotions) in
response to increased competition. For example, we experienced a decrease in sales in 2009 as a result
of the unfavorable economic situation in our Primary Markets, and in the current downturn we have
seen rising unemployment in our Primary Markets alongside falling consumption levels and a trend to
lower cost brands and private label products. During periods of adverse economic conditions, we may
also have difficulty in expanding our business and operations and be unable to meet our debt service
obligations or other financial obligations as they become due. In addition, during such periods we may
have difficulty accessing financial markets, which could make it more difficult, more expensive or
impossible to obtain funding for additional investments or refinancing and adversely affect our business,
financial condition and results of operations.
The global financial system has yet to overcome the disruptions and difficult conditions of recent years.
Financial market conditions have remained challenging and in certain respects, such as in relation to
sovereign credit risk and fiscal deficits in European countries, including in Greece, Ireland, Italy,
Portugal and Spain, show signs of weakness, including credit rating downgrades which have
affected each of these countries, as well as France. Conditions in most Eurozone countries deteriorated
in 2011 and in the first six months of 2012 amid rising yields on certain sovereign debt instruments
issued by certain Eurozone states and the market perception that the single European currency is
facing an institutional crisis of confidence related to contagion from sovereign debt. This deterioration
has raised concerns regarding the financial condition of European financial institutions and their
exposure to these countries and such concerns may have an impact on our ability to fund our business
in a similar manner and at a similar cost to the funding raised in the past. Challenging market
conditions have resulted in greater volatility and, in some cases, reduced liquidity, widening of credit
spreads and a lack of price transparency in credit markets. Changes in investment markets, including
changes in interest rates, exchange rates and returns from equity, property and other investments, may
affect our financial performance.
Our financial and operating performance has been adversely affected by these trends and could be
further adversely affected by a worsening of general economic conditions in the markets in which we
operate, as well as by international trading market conditions and/or related factors. More specifically
the continuation of the existing economic environment could make it extremely difficult for us, as well
as for our customers and suppliers, to access the necessary financing, and therefore maintain our
existing volumes of sales and profitability. Additionally, we could face decreased demand for our
branded products, resulting in a loss of market share, as customers switch to private-label brands.
Our business is affected by the financial, political and general economic conditions prevailing from time
to time in Croatia, Serbia and Bosnia and Herzegovina and the rest of the CEE. We cannot assure you
that we will be able to sustain our current profit levels if adverse financial or economic events or
circumstances continue to occur in the countries where we operate. See ‘‘Management’s Discussion and
Analysis of Financial Condition and Results of Operations—Certain Factors Affecting Financial
Condition and Results of Operations—Macroeconomics Factors.’’
Per capita consumption of certain of our core products, such as water and ice cream, is lower in
Croatia, Serbia and Bosnia and Herzegovina than in Western Europe, largely as a result of the region’s
lower per capita gross domestic product (‘‘GDP’’). Our growth in those products will depend on an
16
overall increase in consumption due to our strong market position. When the gross domestic product
declines in any or all of the markets in which we operate, customers may reduce their consumption of
certain products, reducing our sales volumes, or switch from premium brands to lower cost brands and
private-label products, which may reduce the average prices we can achieve. In such an economic
environment, we may also need to reduce our prices (including through price-based promotions) in
response to increased competition. Accordingly, in order to maintain growth in Croatia, Serbia and
Bosnia and Herzegovina, we will need to rely on (i) the region’s ability to recover from the global
financial crisis and stabilize its respective economies; (ii) increases in per capita consumption of our
products in these markets and (iii) further expansion into the greater CEE and other foreign markets.
There can be no guarantee that the economies of Croatia, Serbia and Bosnia and Herzegovina will
experience growth in the future, that increase in per capita consumption of our products in these
markets will occur or that our further expansion into the markets outside of our Primary Markets will
be successful.
We operate in a highly competitive environment.
We currently face competition in all our product categories from domestic and foreign companies.
Competition in our core businesses is based, among other things, on price, product quality and brand
reputation. This competition requires us to make continuing efforts to optimize costs, develop new
products, sales and marketing techniques and make strategic investments and acquisitions in order to
maintain our leading market positions. Although we currently have a strong presence in most of the
markets in which we operate, there can be no assurance that we will be able to maintain our market
share or margins in the future as many of our competitors are large international groups with greater
financial resources. In addition, as a result of the increasing importance of private labels, which puts
margins for our branded products under pressure, our Food Manufacturing and Distribution division
will have to continually strive to maintain and strengthen the image of our branded products in order
to maintain and increase our margins. Our brand, image and reputation constitute a significant part of
our value proposition. Our customers expect that we will provide them with a large selection of quality
and safe products, and this reputation has strengthened our image and brand. If we are unable to
control and guarantee the quality of our products, especially our own brand products and services, our
reputation may be negatively affected. Any event, such as a significant product recall, that could
damage our image, reputation or brand could have a material adverse effect on our business, results of
operations, financial condition and prospects. Furthermore, our food retail business is subject to
considerable margin pressure due to intense competition while at the same time seeking to successfully
compete in the private-label market without undermining such margins.
Our business may be adversely impacted by fluctuations in exchange rates which could affect our profitability
and our ability to comply with our financial covenants.
We carry out many transactions in foreign currencies, principally the euro, U.S. dollar, Serbian Dinar
and Convertible Mark whereas most of our receipts are in Kuna, which is also our currency of account.
The exchange rates between these currencies and the Kuna may fluctuate and the effect of these
fluctuations may affect our results of operations both because we may buy and produce goods in one
currency and sell them in another and as a result of the translation of the results of our non-Croatian
subsidiaries into our Kuna-denominated financial statements. For example, the Serbian Dinar was
under pressure in 2009 during which it depreciated against the Kuna by 11.9% followed by a further
depreciation of 9.4% during 2010. This movement impacted our revenues and operating profit primarily
because of its adverse effect on the translation of sales into Kuna. Although Dinar fluctuations
stabilized in 2011 (and the Dinar appreciated 3.0% against the Kuna compared to 2010), during the
first six months of 2012, the Dinar depreciated against the Kuna by 6.3% compared to the
corresponding period in 2011, which negatively impacted both our sales and EBITDA. Any negative
impact from fluctuations in exchange rates on our EBITDA or net financial expenses may affect our
ability to comply with our financial covenants. In addition, both local and international financing
available to Croatian companies is typically denominated in, or indexed to, the euro, increasing their
exposure to exchange rate fluctuations. Significant fluctuations in the exchange rate between foreign
currencies and the Kuna may affect our ability to make payments due under the Notes and other
borrowings denominated in foreign currencies. As we continue to implement our international
expansion strategy, our international operations will represent a larger part of our business and such
exchange rate fluctuations may have a greater impact on our business, financial condition and results of
operations. Further, from time to time, we may be party to certain derivative transactions, such as
17
currency hedges or exchange rate contracts, with financial institutions to hedge against certain financial
risks. Changes in the fair value of these derivative financial instruments could affect our reported
income in any period.
Further acquisition opportunities depend on a variety of factors over which we have little or no control, and
we may not be able to successfully consummate acquisitions or integrate acquired businesses, and any
acquisition may carry unexpected liabilities and/or increases in indebtedness levels of the Group.
Our strategy includes the expansion of our business both through organic growth and acquisitions.
Historically, we have engaged in acquisitions which have been complementary to our organic growth.
The continuation of this expansion strategy depends on, among other things, identifying suitable
acquisition or investment opportunities and successfully completing those transactions. Where we have
identified acquisition opportunities, we have historically faced competition for these acquisitions. Such
competition could increase the cost of acquisitions and make them less attractive. In addition, as a
result of our leading positions in most of the markets in which we operate, anti-trust or similar laws
may make it difficult for us to make additional acquisitions.
Acquisitions also require significant financial and operating resources in order to integrate the acquired
companies into our business, which could expose us to certain acquisition-related risks, including:
•
difficulties arising from operating a significantly larger and more complex organization spread
across additional jurisdictions;
•
diversion of management’s attention from existing operations to the integration of the acquired
company;
•
training of management and other personnel and adequate employee supervision;
•
integration of the acquired company into our existing systems and processes, including
development and expansion of our financial, information and internal control systems;
•
difficulties decreasing our leverage as anticipated following completion of the acquisition;
•
unforeseen legal, regulatory, contractual, labor or other issues;
•
difficulties in the assimilation and retention of employees; and
•
potential adverse effects on our operating results.
Our ability to integrate and manage acquired businesses effectively and to handle any future growth
will depend upon a number of factors, and failure to manage growth effectively could adversely affect
our business, financial condition and results of operations.
In the past, we have focused primarily on bolt-on acquisitions in our Primary Markets. However, we
could in the future undertake an acquisition of a much larger business, or of a business outside of our
Primary Markets. We do not have experience undertaking such a large acquisition or in markets outside
of our Primary Markets, increasing the risk that such an acquisition may not be successful, and our
acquisition and integration costs may be higher. Acquisitions of large businesses would likely prove
more difficult to integrate successfully, requiring greater financial and operating resources than have
been required in the past. Acquisitions of businesses outside of our Primary Markets may present
additional challenges due to cultural and linguistic differences and the difficulties presented by
integrating and managing a business that is geographically more remote. In addition, significant
acquisitions may result in unfavorable external perceptions of the transaction or us, creating the
potential for ratings downgrades or adversely affecting the market price of the Notes. Significant
acquisitions could also require changes to our share capital or other changes that may require the
consent of the EBRD. See ‘‘Principal Shareholders and Share Capital.’’ We cannot provide any
assurances that we will be able to adequately address the risks in making such an acquisition or in
successfully integrating such business.
Acquisitions may also increase our indebtedness, both through debt incurred to finance the acquisition
and existing indebtedness of the acquired company, which could significantly reduce or eliminate the
headroom under certain of our indebtedness and make it more difficult to incur additional
indebtedness. Any increases in indebtedness in connection with an acquisition may have a material
adverse effect on us. See ‘‘—Risks Relating to the Notes—Our level of indebtedness and the terms of
our indebtedness could adversely affect our business and liquidity position.’’
18
In future acquisitions, as part of our evaluation process, we will have to make assumptions about the
expected cost savings and synergies. These estimates are uncertain and subject to a wide variety of
significant business, economic, and competitive risks and uncertainties that could cause actual results to
differ materially from the ones that we had originally estimated. We may not achieve all, or even a
portion of, the anticipated cost savings and synergies that were anticipated at the time of an acquisition
or from the integration of our existing business divisions. In addition, when we acquire a business, we
generally acquire all of that business’s liabilities, as well as its assets. Although we perform due
diligence and other investigations with respect to a business prior to its acquisition and seek to obtain
appropriate representations, warranties and indemnities with respect to its assets and liabilities, there
can be no assurance that we will be able to identify all actual or potential liabilities of such business
prior to the acquisition. If we acquire businesses or assets which result in our assuming unforeseen
liabilities in respect of which we have not obtained contractual protections, this could adversely affect
our business, financial condition and results of operations.
If we do not successfully manage our working capital, our operating cash flows could be materially adversely
affected.
The successful management of working capital is a critical feature of our business operations. We may
experience significant pressure from both our competitors and our key suppliers to reduce the number
of days of our accounts payable, while at the same time, we might experience pressure from our
customers to extend the number of days before paying our accounts receivable. We have also made
significant capital investments in our logistics systems in order to increase our inventory turnover and
improve operational efficiency. While we have been able to maintain and improve our working capital
position in the past, we cannot provide any assurances that we will be able to do so in the future and
this may have a material adverse effect on our business, financial condition and results of operations.
We depend on a substantial number of third-party producers and suppliers and interruptions in our supply
chain could have a material adverse effect on our business, financial condition and results of operations.
We primarily rely on third-party producers and suppliers for key raw materials (such as milk and butter
for the production of ice cream) and for products sold in our food retail and wholesale businesses,
which exposes us to risks that such producers or suppliers may fail to meet timelines or provide us with
sufficient product. In particular, we require our producers and suppliers to meet certain specifications
and standards to ensure the high quality of our products. The use of third-party producers and
suppliers increases the demands on our quality control personnel and exposes us to risks that the
products provided by our producers and suppliers may not meet the relevant quality standards. In
addition, any major breakdown, disturbance or accident affecting these suppliers would have a material
impact on the operation of our supply chain, which would adversely impact our producers’ and
suppliers’ ability to produce and distribute our products in a timely manner. Also, many of our
producers and suppliers have unionized work forces. Work stoppages or other disruptions of the
business operations, strikes or similar measures at our suppliers’ sites could adversely impact our ability
to produce and deliver our products. This could, in turn, affect our product range and ability to meet
customer orders. Any of the events described above could have a material adverse effect on our
business, financial condition, reputation and results of operations.
Significant disruptions in our production and/or distribution could adversely affect our business, financial
condition and results of operations.
The production and distribution of our products is concentrated in a relatively small number of
facilities. The production at our facilities could be adversely affected by extraordinary events, including
fire, an explosion, the release of high-temperature steam or water, structural collapse, machinery
failure, mechanical failure, extended or extraordinary maintenance, road construction or closures of
primary access routes, flooding, windstorms or other severe weather conditions. Although we carry
insurance covering losses at these facilities and insurance to cover interruptions in our business, such
insurance will be subject to limitations such as deductibles and maximum liability amounts and
therefore may not cover all our losses. We may also incur losses that are outside of the coverage of our
insurance policies. In the future, we may not be able to obtain insurance coverage at current levels if at
all, and our premiums may increase significantly on the coverage that we maintain. Were any of our
facilities to be disrupted in either a significant manner or for a significant period of time, it may have a
material adverse effect on our business, financial condition and results of operations.
19
Raw material prices impact our profitability and cash flows.
Our results of operations are influenced by market prices for milk, sugar, oil, seeds, meat, electricity,
fuel and other raw materials and energy-related costs. Volatility in the price of raw materials can result
from poor harvests due to unfavorable weather conditions, disease, political instability, changes in
climate and other factors. During 2010, for example, the Croatian market saw a significant rise in
commodity prices (including wheat, sunflowers, barley and soybeans) which resulted in a reduced level
of activity from our brokerage company and consequently lower profitability. General economic
conditions, unanticipated demand, problems in production or distribution, natural disasters, weather
conditions during the growing and harvesting seasons, plant and livestock diseases and local, national or
international quarantines can also adversely affect availability and prices of commodities in the long
and short terms. Notwithstanding our hedging practices, we cannot fully eliminate the risks of
movements in raw material prices. Furthermore, we cannot assure you that raw material prices will not
increase in the future, adversely impacting our profitability and cash flows.
Increases in prices or scarcity of raw materials required for our products could increase our costs and
disrupt our operations. In addition, our ability to pass along higher costs through price increases to our
customers is dependent upon competitive pricing conditions in our industry. As a result, changes in our
input costs could impact our margins.
The Issuer is controlled by certain shareholders whose interests may not be aligned with those of the
Noteholders.
Mr. Ivica Todorić, the President of Agrokor, beneficially owns 91.67% of the voting rights in Agrokor’s
share capital, and the EBRD holds the remaining 8.33% of voting rights. Consequently, we are
effectively controlled by Mr. Todorić, who generally has sufficient voting power to determine the
composition of most of the supervisory and management boards, as well as the outcome of most
corporate transactions submitted to shareholder vote. The EBRD, however, has the right to approve
certain significant corporate transactions as set out in the articles of association of the Issuer;
accordingly, the EBRD may block certain strategic decisions and deadlock could result. See ‘‘Principal
Shareholders and Share Capital.’’ In certain circumstances, the interests of Mr. Todorić or the EBRD,
as controlling shareholders of the Issuer, could be in conflict with the interests of the holders of the
Notes.
We depend on management and key personnel.
We strongly rely on our employees as one of our major competitive strengths. As such, we need to
compete for and retain top talent at all levels in order to maintain our leading position in the market.
In particular, Mr. Ivica Todorić, our founder and CEO, has been the driving force behind our growth
and strategic vision. We cannot assure you that Mr. Todorić or other key personnel will continue to be
employed by us or that we will be able to attract and retain qualified personnel in the future. The loss
of service of key personnel, especially to a competitor, or a failure to attract and retain new qualified
personnel, could adversely affect our business. See ‘‘Management.’’
Significant disruption in our workforce could adversely affect our business, financial condition and results of
operations.
As of June 30, 2012, we employed approximately 36,588 employees. We could experience labor disputes
and work stoppages and difficulty in attracting and retaining operative personnel at one or more of our
stores or warehouses due to localized strikes or strikes in the larger retail food industry sector. In
particular, a labor stoppage or other interruption at one of our warehouses would impact our ability to
supply our stores and could have a more pronounced effect on our operations as a result.
In the past, we have implemented and may in the future continue to implement restructuring measures
in order to increase efficiency, exploit synergies and respond to changing customer preferences. These
measures could weaken our employee relations and result in labor disputes that could have a negative
impact on our reputation and our business, financial condition and results of operations.
20
We depend on our trademarks, proprietary rights and brands. Any negative impact on the reputation of our
brand names or failure to protect our intellectual property rights may adversely affect our competitive position.
The Food Manufacturing and Distribution division is focused on the production and distribution of
branded products, which are key assets of the Group. Maintaining the reputation of and value
associated with these brand names is central to the success of our business. Our principal brand names
and trademarks (such as Jamnica and Zvijezda) are key assets of our business. We rely upon a
combination of copyright, trademark and patent laws to establish and protect our intellectual property
rights, but cannot be certain that the actions we have taken or will take in the future will be adequate
to prevent violation of our proprietary rights. We also rely upon unpatented proprietary know-how and
other trade secrets to develop and maintain our competitive position. While it is our policy to enter
into confidentiality agreements with our employees and third parties to protect our intellectual
property, there can be no assurances that our confidentiality agreements will not be breached; such
agreements will provide meaningful protection for our trade secrets or proprietary know-how; or
adequate remedies will be available in the event of an unauthorized use or disclosure of these trade
secrets and know-how. There can be no assurance that litigation will not be necessary to enforce our
trademark or proprietary rights or to defend ourselves against claimed infringement of the rights of
third parties. Adverse publicity, legal action or other factors could lead to substantial erosion in the
value of our brand, which could lead to decreased consumer demand and have a material adverse
effect on our business, results of operations or financial condition and prospects.
We depend on a variety of information technology systems, and systems failures may harm our business.
We rely on numerous information technology systems that allow us to efficiently manage our
distribution capability, communicate with customers and suppliers, manage and evaluate our employees,
and gather all necessary information upon which management makes its business decisions. Our
business is becoming increasingly dependent on the use of these systems so any potential system
failures or disruptions resulting from computer viruses, hackers, hardware and software failures or
other causes could have a material adverse effect on our business, financial condition and results of
operations.
We are susceptible to claims of anti-competitive practices.
Part of our overall strategy is to be a market leader in the markets where we operate. For this reason
and taking into consideration our leading position in most former Yugoslavian countries, we may be
accused of the abuse of our position or the use of anti-competitive practices. This risk may increase in
the event we acquire companies that have strong market leading positions in any of the countries in
which we operate. Any such claims could adversely affect our reputation, potentially result in legal
proceedings that could have an impact on our business, financial condition and results of operations
and require us to divest assets in markets where we have a dominant position. Such claims could also
impair our acquisition growth strategy. Before certain future acquisitions may be consummated, we may
need to seek approvals and consents from regulatory entities or there may be applicable waiting
periods that will need to expire. We may be unable to obtain such regulatory approvals or consents, or
in order to obtain them, we may be required to dispose of assets or take other actions that could have
the effect of reducing our sales, profit, or cash flows. Even if regulatory authorities do not require
disposals or other actions, the regulatory approval process triggered by our leading position or claims of
anti-competitive practices may have the effect of delaying acquisitions.
We are subject to risks related to litigation and other legal proceedings in the normal course of our business
and otherwise.
We are subject to the risk of legal claims and proceedings and regulatory enforcement actions in the
ordinary course of our business and otherwise. In particular, as of June 30, 2012, we were involved in
proceedings relating to the collection of outstanding amounts from debtors in the amount of HRK
344.0 million and disputes with creditors in the amount of HRK 44.7 million. In addition, we were
engaged in ongoing proceedings in relation to other short-term receivables in the amount of HRK
63.1 million and other short-term liabilities in the amount of HRK 105.2 million as of June 30, 2012. In
addition, we were involved in proceedings concerning a decision dated October 6, 2011 issued by the
Croatian Financial Services Supervisory Agency (‘‘HANFA’’) requiring us to make a mandatory
takeover bid for the remaining 32.1% of shares of our subsidiary Belje d.d. (‘‘Belje’’) by December 5,
2011. In its decision, HANFA claimed that Agrokor’s obligation to make the mandatory bid was
21
triggered by the registration of a share capital increase of Belje on September 12, 2007, by which we
acquired a further 2,700,000 of newly issued shares of Belje. As a result of the share capital increase,
we increased our shareholding in Belje from 52.2% to 67.9%. We appealed this decision. On
January 31, 2012, the Constitutional Court stayed HANFA’s decision pending the appeal. On August 29,
2012, we received the judgment of the High Administrative Court of the Republic of Croatia, dated
July 11, 2012, in which the court overturned HANFA’s decision. Pursuant to the provisions of the
Croatian Law on Administrative Disputes, following the annulment of the HANFA decision, HANFA is
required to issue another decision to replace the annulled decision. In proceedings related to the new
decision, HANFA is bound by the high court’s legal conclusions and objections to the prior
proceedings. The high court has ordered HANFA to conduct an oral hearing prior to issuing a new
decision. We have received a notice from HANFA scheduling the hearing. We expect HANFA will issue
a new decision sometime in the fourth quarter of 2012. See ‘‘Business Description—Legal
Proceedings.’’ The results of these legal proceedings, and others that we may become party to, cannot
be predicted with certainty. We cannot guarantee that the results of current or future legal or
regulatory proceedings or actions will not materially harm our business nor can we guarantee that we
will not incur losses in connection with current or future legal or regulatory proceedings or actions that
exceed any provisions we may have set aside in respect of such proceedings or actions or that exceed
any available insurance coverage, which may have a material adverse effect on our business, financial
condition, liquidity and results of operations.
Our ability to make payments on the Notes will depend on our future operating performance.
Our indebtedness presents risks to investors, including the possibility that we may be unable to
generate sufficient cash to pay the principal of the Notes at maturity or earlier redemption, in
accordance with the terms of the Notes. It is likely that we will need to generate cash from our
operations or obtain external funds to repay the Notes if and when the holders of the Notes exercise
their repurchase options pursuant to the terms of the Notes or at maturity, as the case may be. Our
ability to pay the principal on the Notes will be dependent on our future operating performance, which
is, in turn, dependent on a number of factors. If we do not have sufficient resources to repay the Notes
when they become due for repayment, we may find it necessary to refinance our indebtedness before
any further investment activities, and such refinancing may not be available on reasonable terms.
Perishable food product losses could materially impact our results.
Our overall business strategy places an emphasis on fresh products, such as fruits, vegetables and meat,
and we have made a corresponding significant investment in our logistics distribution centers and
distribution fleet to ensure the quality and safety of our perishable goods. We rely upon electrical
power to operate our logistics distribution centers, distribution fleets and storage facilities. To attain
maximum performance, these types of facilities must often operate on a continuous basis and at the
appropriate pre-set temperatures. As a result, any shortage or interruption in power supply may have a
material adverse effect on our operations. However, any extended power supply shortages or
interruptions could result in perishable food losses which may have a material adverse effect on our
business, financial condition and results of operations.
We may incur liabilities or losses that are not covered by insurance.
We maintain our insurance coverage at a level that is consistent with customary industry practice in our
Primary Markets. Our insurance policies are primarily related to employee-related accidents and
injuries, machinery breakdowns, property damages and fixed assets. Additionally, we are covered for
adverse weather conditions relating to our agricultural business. However, not all liabilities and losses
are insurable or are covered by insurance and, as a result, we cannot provide any assurance that we will
not be exposed to a major incident which is not covered by our existing policies and that such incident
would not have a material adverse effect on our business, financial condition and results of operations.
Risks Relating to the Retailing and Wholesale Industry
To execute our retail strategy, we must continue to purchase, lease, rent or acquire a substantial number of
retail properties on acceptable terms.
In order to realize our retail strategy of growth, we will need to open new stores and lease, rent or
purchase properties within the CEE. Specific locations for many suitable sites within the markets in
22
which we operate have not yet been identified and therefore, the purchase, lease or acquisition terms
have not yet been evaluated. We could fall short in achieving our planned number of new store
openings and/or competition could drive up costs for these stores which may result in a lower than
expected financial performance by us. We cannot guarantee that we will successfully identify, lease,
rent, purchase and/or acquire suitable new properties on acceptable terms, and the failure to do so
could have an adverse effect on our business, financial condition and results of operations.
Furthermore, our existing leases or rentals can be subject to price increases in the rental property
markets in which we operate. In addition, we may choose to lease or rent more of our new stores than
we have traditionally done, which may result in an increase in the operating costs of our business and
will increase our exposure to price increases of rental property. In addition, our operations are subject
to price increases of various utilities and increases in local taxes and assessments in the areas in which
we operate. Any unanticipated or sharp increase in our rental payments, payments for utilities, taxes or
assessments could have a material adverse effect on our business, financial condition and results of
operations.
Any actual or alleged contamination or deterioration of food or beverages products could negatively impact
our business.
Food safety and the public’s perception that our products are safe and healthy are essential to our
image and business. We sell food products for human consumption, which subjects us to safety risks
such as product contamination, spoilage, misbranding or product tampering. Product contamination
(including the presence of a foreign object, substance, chemical or other agent or residue or the
introduction of a genetically modified organism), spoilage, misbranding or product tampering of our
products, raw materials or of third-party products or third-party raw materials that we sell could
require product withdrawals or recalls or destruction of inventory and could result in negative publicity,
temporary plant closures and substantial costs of compliance or remediation. We may be impacted by
publicity concerning the implications of any assertion that our products caused illness or injury. A
substantial portion of our products, primarily within the Ice Cream and Frozen Food and Meat and
Agriculture business segments, must be maintained within certain temperatures to retain their flavor
and nutritional value and avoid contamination or deterioration. Similar risks exist at each stage of the
production cycle, as well as in purchasing and delivery of raw materials. Furthermore, risks can be
associated with storage and shelving of finished products. With respect to water and beverages, the
natural sources of our supply may be subject to pollution. In the event that certain of our products are
found, or are alleged, to have suffered contamination or deterioration, whether or not while such
products were under our control, our business, financial condition and results of operations could be
materially adversely affected. In addition, reports or allegations of inadequate product quality control
with respect to certain products of other food manufacturers could negatively impact sales of our
products. In addition, even if our own products are not affected by contamination or other incidents
that compromise their safety and quality, negative publicity about our industry, ingredients or the
health implications of our food products could result in reduced consumer demand for our products.
We could be subject to product liability claims if people are harmed by the products we sell in our retail
stores.
We may be subject to significant liability should the consumption of any of our products cause, or be
alleged to cause, injury, illness or death. The sale of food products for human consumption involves the
risk of injury to consumers. Such injuries may result from tampering by third parties, or product
contamination or spoilage, including the presence of foreign objects, substances, chemicals, other agents
or residues introduced during the growing, storage, handling, processing or transportation phases of
production.
While we are subject to governmental inspection and regulations and believe our facilities comply in all
material respects with applicable laws and regulations, if the consumption of any of our products were
to cause, or was alleged to have caused, an illness, injury or death, we may become subject to claims or
lawsuits relating to such matters or be required to conduct product recalls. Even if a product liability
claim is unsuccessful or is not fully pursued, the negative publicity surrounding any assertion that our
products caused injury, illness or death could adversely affect our reputation with existing and potential
customers and our corporate and brand image. We can provide no assurance that we will not face
material product liability claims or product recalls in the future, that we will be able to successfully
dispose of any such claims or effect product recalls within acceptable costs, or that we will be able to
23
comply with existing or future regulations relating to the manufacturing, processing or packaging of our
products at an acceptable cost. Any successful product liability claim or product recall could have an
adverse effect on our business, financial condition and results of operations.
Risks Relating to the Food Manufacturing and Distribution Industry
Certain products and aspects of the food and beverage industry are seasonal, which results in uneven cash
flow or capital requirements. Also, sustained periods of abnormal weather can have a material adverse effect
on our business.
Our sales and cash flows have historically been affected by seasonal cyclicality. Sales of certain of our
products and trading activities, including ice cream and water have historically tended to be higher
during the warm summer months, and retail sales have historically been higher during the summer
tourist season, which can result in uneven cash flow and working capital requirements, as well as the
need to adjust production in anticipation of fluctuating demand. In addition, certain products and
brokerage activities are also dependent on weather conditions. For example, our crop performance has
suffered in 2012 due to the lack of rain. There can be no assurance that we will continue to manage
our seasonal businesses successfully, or that adverse weather conditions or changes in climate will not
have a material adverse effect on our business.
The food and beverages industry is highly regulated and could be materially adversely impacted by compliance
with or changes in government regulation and legislation.
As a manufacturer of products intended for human consumption, we are subject to extensive
governmental regulation and licensing. In Croatia and each of the other jurisdictions in which we
operate, as well as at the European Union level, we are subject to regulation with respect to the human
health, safety of our products, the health, safety and working conditions of our employees, safety and
protection of the environment (including those relating to air and water emissions, noise, waste water
treatment, waste disposal, environmental clean-up and product stewardship and safety), composition,
packaging, labeling, advertising and our competitive and marketplace conduct. The production of food
and beverages produces waste, effluents to water and emissions into the atmosphere, and as a result,
we are also required to obtain and comply with licenses for operations involving emissions or a
discharge of pollutants and for water extraction, waste water treatment and waste disposal. Health,
safety and environmental legislation in Europe and elsewhere has tended to become broader and
stricter over time, and enforcement has become more stringent. We try to follow and anticipate such
changes, but any failure to do so may lead to penalties or fines. While we believe we are currently in
material compliance with those laws, regulations and specific licenses and within the deadlines set by
legislative authorities, there can be no assurance that we will not incur significant costs to remedy
violations of or liabilities under these laws, regulations or specific licenses, to respond to negative
publicity or to comply with changes in existing laws and regulations or their enforcement, which could
have a material adverse effect on our business, financial condition and results of operations. For
example, we own or lease a substantial number of properties, including production facilities,
warehouses and distribution facilities, in some cases with a history of commercial or industrial
operations. Although we are not currently aware of any material remedial obligations relating to
environmental conditions at those sites, the discovery of contamination from current or historical
operations or the imposition of cleanup obligations in the future could result in significant additional
costs to us.
Moreover, from time to time, additional legislative initiatives may be introduced or existing laws and
regulations (or their interpretations) may change which may affect our operations, our products and/or
the conduct of our business. For example, the Serbian government recently imposed a cap on the
margins retailers can impose on certain basic food products. There can be no assurance that in the
future the cost of complying with any such initiatives or changes or the effects of such initiatives or
changes will not have a material adverse effect on our business, financial condition and results of
operations.
Our products also must comply with strict national and international hygiene regulations. Our stores,
the warehouses we own or lease and our suppliers’ production facilities are subject to regular
inspection by authorities for compliance with hygiene regulations applicable to the sale, storage and
manufacturing of foodstuffs and the traceability of genetically modified organisms, meats and other raw
materials. Despite the precautions we undertake, should any non-compliance with such regulations be
24
identified in the future, authorities may temporarily shut down the store, warehouse or facility
concerned and levy a fine for such non-compliance, which could have a material adverse effect on our
business, results of operations, financial condition and prospects.
Outbreaks of diseases or other nutritional or health-related concerns could significantly affect the production
of and demand for certain of our products.
We are subject to risks affecting the food industry generally, including risks posed by widespread
contamination and evolving nutritional and health-related concerns. Regulatory authorities may limit
the supply of certain types of food products in response to public health concerns, and consumers may
perceive certain products to be unsafe or unhealthy, which could require us or our suppliers to find
alternative supplies or ingredients that may or may not be available at commercially reasonable prices
and within acceptable time constraints. In addition, such governmental regulations may require us to
identify replacement products to offer to our customers or, alternatively, to discontinue certain
offerings or limit the range of products we offer. We may be unable to find substitutes that are as
appealing to our customer base, or such substitutes may not be widely available or may be available
only at increased costs. Such substitutions or limitations could also reduce demand for our products.
Furthermore, we believe consumers have been increasingly focused on food safety, health and wellness
with respect to the food products they buy and their ingredients. Demand for our products could be
affected by consumer concerns regarding the health effects of ingredients such as trans fats, sugar,
processed wheat or other product attributes.
While we take precautions to ensure that our livestock are healthy and that our farms and processing
plants operate in a sanitary manner, we are subject to risks relating to our ability to maintain animal
health and control potential diseases. Livestock health problems could adversely affect the production
and supply of raw materials to our meat and agriculture business segment and our ability to sell meat
products. Potential disease could reduce the number of existing livestock, impair growth of livestock to
a finished size and/or require expensive vaccination programs. Additionally, actual or alleged diseased
livestock could cause significant damage to our brands or cause consumer confidence in our meat
products to deteriorate. Any of these factors could have a negative impact on our business, financial
condition and results of operations.
Risks Relating to the Notes
Our level of indebtedness and the terms of our indebtedness could adversely affect our business and liquidity
position.
We have, and after the issuance of the Notes will continue to have, a high level of indebtedness. As of
June 30, 2012, after giving effect to the Transactions, we would have had HRK 11,661.0 million
(A1,552.8 million) of total indebtedness. For a detailed description of our indebtedness, you should read
the sections entitled ‘‘Capitalization,’’ ‘‘Management’s Discussion and Analysis of Financial Condition
and Results of Operations’’ and ‘‘Description of Other Financing Arrangements.’’
Our substantial indebtedness could have a material adverse impact on our financial condition and
results of operations that could have important consequences to you, including but not limited to:
•
making it more difficult to make payments on the Notes;
•
increasing our vulnerability to general economic and industry conditions;
•
requiring us to dedicate a substantial portion of our cash flow from operations to making payments
on our indebtedness, which would limit the availability of funds for working capital, capital
expenditures and other general corporate purposes;
•
limiting our flexibility in planning for, or reacting to, changes in our industry;
•
limiting our ability to make investments necessary to maintain or improve our existing market
shares or to enter into new markets;
•
placing us at a competitive disadvantage compared to those of our competitors who have less
indebtedness than we do; and
•
limiting our ability to obtain additional financing in the future or increase the costs of any such
additional financing.
25
If operating cash flows and other resources (for example, any available debt or equity funding or the
proceeds of asset sales) are not sufficient to repay obligations as they mature or to fund liquidity needs,
any member of the Group may be forced to do one or more of the following:
•
delay or reduce capital expenditures;
•
forego business opportunities, including acquisitions;
•
dispose of assets or subsidiaries; or
•
restructure or refinance all or a portion of its debt on or before maturity.
We have in the past and may in the future contemplate acquisitions of a significant size that could be
transformative of our business. See ‘‘Summary—Recent Developments—Mercator Negotiations.’’
Despite our significant current leverage, the Issuer and its subsidiaries may incur substantial additional
debt, including in connection with acquisitions (both as financing debt and acquired debt), in the
future. If we incur additional debt, the related risks we now face could intensify. In addition, if we
incur additional indebtedness our credit rating could be reduced, which could make it more costly for
us to refinance.
Any or all of the foregoing factors could have an adverse effect on our business, financial condition
and results of operations and therefore on the ability of the Issuer and the Subsidiary Guarantors to
perform their respective obligations in respect of the Notes.
Restrictive covenants in our debt agreements and the Indenture may restrict our ability to operate our
business. Our failure to comply with these covenants, including as a result of events beyond our control, could
result in an event of default that could materially and adversely affect our financial condition and results of
operations.
Our debt agreements, including the 2012 Indenture, the 2009 Indenture and the Revolving Credit
Facility, impose, and the Indenture will impose, significant operating and financial restrictions on us.
These restrictions include limitations on our ability to, among other things:
•
make investments and other restricted payments, including dividends;
•
incur additional indebtedness;
•
sell our assets or consolidate or merge with or into other companies;
•
enter into joint ventures; and
•
make capital expenditures.
Our debt agreements contain covenants that may adversely affect our ability to finance our future
operations and capital needs and to pursue available business opportunities. In addition, the Revolving
Credit Facility may require us to add guarantors from time to time depending on the ratio of guarantor
net debt to adjusted guarantor EBITDA. Furthermore, certain of our debt agreements contain financial
covenants. If any Group company were to fail to satisfy any of its debt service obligations or to breach
any related financial or operating covenants, the lender could declare the full amount of the
indebtedness to be immediately due and payable and could foreclose on any assets pledged as
collateral. Further, certain of our financing arrangements contain cross-default provisions such that a
default under one particular financing arrangement could automatically trigger defaults under other
financing arrangements. Such cross-default provisions could, therefore, magnify the effect of an
individual default. As a result, any default under any indebtedness to which a Group company is party
could result in a substantial loss to us or could otherwise have a material adverse effect on the ability
of the Issuer and the Subsidiary Guarantors to perform their respective obligations in respect of any
Notes.
We may have difficulty refinancing our short-term indebtedness.
As of June 30, 2012, we had total indebtedness of HRK 11,643.0 million (A1,550.3 million), of which
HRK 1,721.4 million (A229.2 million), or 14.8%, constituted short-term indebtedness (including the
current portion of long-term debt). On a pro forma basis, after giving effect to the Transactions, our
short-term indebtedness as of June 30, 2012 would have been approximately HRK 1,077.0 million
(A143.4 million), or 9.3% of total indebtedness. While we have historically renewed our bilateral
agreements at maturity and renewed or refinanced our other short-term debt, there is a possibility that
26
we will be unable to renew or refinance certain short-term debt. If we are not able to renew our
short-term debt as it matures, we will be forced to seek other sources of financing, to reduce or delay
capital expenditures, to forego business opportunities or to dispose of assets or businesses. We may not
be able to accomplish these alternatives on a timely basis or on satisfactory terms or at all. See
‘‘—Risks Relating to the Group—We are affected by general global and regional economic conditions’’
and ‘‘Description of Other Financing Arrangements.’’
The Issuer is a holding company and depends on distributions from its subsidiaries to service and repay the
Notes; not all of such subsidiaries, including certain of the Subsidiary Guarantors, are wholly owned by the
Issuer, and certain covenants in our financing arrangements and other agreements may limit the availability
of operating cash flow to the Issuer.
The Issuer is a holding company and conducts its operations principally through, and derives its sales
principally from, its subsidiaries. See ‘‘Management’s Discussion and Analysis of Financial Condition
and Results of Operations—Certain Factors Affecting Financial Condition and Results of Operations—
Organizational Structure.’’ The ability of the Issuer’s subsidiaries to pay dividends or make other
distributions or payments to the Issuer will be subject to the availability of profits or funds for such
purpose which, in turn, will depend on the future performance of the subsidiary concerned which, to a
certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other
factors that may be beyond its control. In addition, certain of our subsidiaries are subject to restrictions
on the making of such distributions contained in its financing arrangements and in applicable laws and
regulations. See ‘‘Description of Other Financing Arrangements.’’ Furthermore, a significant number of
our subsidiaries, including certain of the Subsidiary Guarantors, are not wholly owned by us. When
funds are distributed to us by such non-wholly-owned subsidiaries, funds also will be distributed to their
other owners. There can be no assurance that our subsidiaries will generate sufficient cash flow from
operations or that alternative sources of financing will be available at any time in an amount sufficient
to enable these subsidiaries to service their indebtedness, to fund their other liquidity needs and to
make payments to the Issuer sufficient to allow all payment obligations under the Notes to be met.
The Notes will be effectively subordinated to certain secured indebtedness of the Issuer and the Subsidiary
Guarantors and structurally subordinated to the indebtedness and other obligations of our non-guarantor
subsidiaries.
The Notes and the Note Guarantees are unsecured obligations of the Issuer and the Subsidiary
Guarantors, respectively. Accordingly, the Notes will be effectively subordinated to any existing and
future secured indebtedness we may incur, including drawings under the Revolving Credit Facility and
certain of our Bilateral facilities as well as other indebtedness permitted by the Indenture to be
secured, which amounts could be substantial, in each case to the extent of the value of the assets
securing such indebtedness. As of June 30, 2012, after giving effect to the Transactions, the Notes and
Note Guarantees will effectively rank junior to approximately HRK 283.3 million (approximately
A37.7 million) of secured debt.
The Notes will be structurally subordinated to any indebtedness of our subsidiaries that do not
guarantee the Notes. As of June 30, 2012, on a pro forma basis after giving effect to the Transactions,
our subsidiaries that do not guarantee the Notes would have had approximately HRK 667.3 million
(approximately A88.9 million) of indebtedness outstanding in addition to approximately HRK
2,700.3 million (approximately A359.6 million) and approximately HRK 365.9 million (approximately
A48.7 million) of trade payables and other liabilities outstanding, respectively. In the event of a
liquidation, winding up or dissolution or a bankruptcy, administration, reorganization, insolvency,
receivership or similar proceeding of any of these non-guarantor subsidiaries, the non-guarantor
subsidiaries will pay the holders of their own debt, their trade creditors and any preferred shareholders
before they would be able to distribute any of their assets to the Issuer or any of the Subsidiary
Guarantors. See ‘‘Listing and General Information—Subsidiary Guarantor Information.’’
The Note Guarantees may be limited by applicable laws or subject to certain limitations or defenses.
The Subsidiary Guarantors will guarantee the payment of the Notes on a senior unsecured basis. The
Note Guarantees provide the holders of the Notes with a direct claim against the assets of the
Subsidiary Guarantors. However, these Note Guarantees will be limited to the maximum amount that
can be guaranteed by the particular Subsidiary Guarantor without rendering the Note Guarantee, as it
relates to that Subsidiary Guarantor, voidable or otherwise ineffective under applicable laws, and
27
enforcement of any of these Note Guarantees against any Subsidiary Guarantor would be subject to
certain defenses available to guarantors generally or, in some cases, to limitations designed to ensure
full compliance with statutory requirements applicable to the relevant Subsidiary Guarantors. These
laws and defenses include those that relate to fraudulent conveyance or transfer, voidable preference,
unfair consideration, financial assistance, corporate purpose, capital maintenance or similar laws and
regulations or defenses affecting the rights of creditors generally. As a result, a Subsidiary Guarantor’s
liability under its respective Note Guarantee could be materially reduced or eliminated, depending
upon the amounts of its other obligations and upon applicable laws. In particular, in certain
jurisdictions, a guarantee issued by a company that is not in the company’s corporate interests or the
burden of which exceeds the benefit to the company may not be valid and enforceable. It is possible
that a Subsidiary Guarantor, a creditor of a Subsidiary Guarantor or the bankruptcy trustee in the case
of a bankruptcy of a Subsidiary Guarantor, may contest the validity and enforceability of the
Note Guarantee and that the applicable court may determine that the Note Guarantee should be
limited or voided. In the event that any Note Guarantees are invalid or unenforceable, in whole or in
part, or to the extent that agreed limitations on the Note Guarantee obligations apply, the Notes would
be effectively subordinated to all liabilities of the applicable Subsidiary Guarantor, including trade
payables of such Subsidiary Guarantor.
There are circumstances other than repayment or discharge of the Notes under which the Note Guarantees
will be released automatically, without your consent or the consent of the Trustee.
Under various circumstances, the Note Guarantees will be released automatically, including the
following:
•
in connection with any sale or other disposition of all or substantially all the assets of that
Subsidiary Guarantor (including by way of merger or consolidation) to a person that is not (either
before or after giving effect to such transaction) the Issuer or a restricted subsidiary, if the sale or
other disposition does not violate the ‘‘Asset Sale’’ provisions of the Indenture;
•
in connection with any sale or other disposition of capital stock of that Subsidiary Guarantor to a
person that is not (either before or after giving effect to such transaction) the Issuer or a restricted
subsidiary, if the sale or other disposition does not violate the ‘‘Asset Sale’’ provisions of the
Indenture and the Subsidiary Guarantor ceases to be a restricted subsidiary as a result of the sale
or other disposition;
•
upon the release or discharge of the Subsidiary Guarantee by such Guarantor of the indebtedness
that resulted in the creation of such Guarantee pursuant to the ‘‘Limitation on Issuance of
Guarantees of Indebtedness’’ covenant, so long as no event of default would arise as a result
thereof;
•
if the Issuer designates any restricted subsidiary that is a Subsidiary Guarantor to be an
unrestricted subsidiary in accordance with the applicable provisions of the Indenture;
•
upon legal defeasance, covenant defeasance or satisfaction and discharge of the Indenture; or
•
as described in ‘‘Description of Notes—Amendment, Supplement and Waiver.’’
Enforcement of the Notes and the Note Guarantees across multiple jurisdictions may be difficult.
The Issuer is incorporated under the laws of Croatia and the Subsidiary Guarantors are incorporated
under the laws of Croatia and Bosnia and Herzegovina. In the event of bankruptcy, insolvency or a
similar event, proceedings could be initiated in any of these jurisdictions. The rights of the holders of
the Notes under the Note Guarantees will thus be subject to the laws of these jurisdictions, and it may
be difficult to effectively enforce such rights in multiple bankruptcy, insolvency and other similar
proceedings. Moreover, such multi-jurisdictional proceedings are typically complex and costly for
creditors and often result in substantial uncertainty and delay in the enforcement of creditors’ rights. In
addition, the bankruptcy, insolvency, administration and other laws of the Issuer’s jurisdiction of
organization and the jurisdiction of organization of the Subsidiary Guarantors may be materially
different from, or in conflict with, one another, including creditors’ rights, priority of creditors, the
ability to obtain post-petition interest and the duration of the insolvency proceeding. The application of
these various laws in multiple jurisdictions could trigger disputes over which jurisdictions’ law should
apply and could adversely affect the ability to realize any recovery under the Notes and the
Note Guarantees. See ‘‘Limitation on Enforcement of Civil Liabilities.’’
28
Relevant local insolvency laws may not be as favorable to you as bankruptcy laws in the jurisdictions with
which you are familiar and may preclude holders of the Notes from recovering payments due on the Notes or
the Note Guarantees.
The Issuer is established under the laws of Croatia, and the Subsidiary Guarantors are established
under the laws of Croatia and Bosnia and Herzegovina. Any insolvency proceedings with regard to the
Issuer or any Subsidiary Guarantor would most likely be based on and governed by the insolvency laws
of the jurisdiction under which the relevant entity is established. The insolvency laws of Croatia and
Bosnia and Herzegovina may not be as favorable to your interests as creditors as the laws of
jurisdictions with which you are familiar.
In addition, the insolvency, administration and other laws of the jurisdiction in which the Issuer and the
Subsidiary Guarantors are established or operate may be materially different from, or conflict with,
each other, including in the areas of rights of creditors, priority of governmental and other creditors,
ability to obtain post-petition interest, duration of proceedings and preference periods. The application
of these laws, and any conflict between them, could call into question whether, and to what extent, the
laws of any particular jurisdiction should apply, which could adversely affect your ability to enforce your
rights under the Notes or the Note Guarantees in these jurisdictions or limit any amounts that you may
recover.
Croatia
Reasons for Commencement of Bankruptcy Proceeding; Persons Authorized to Commence the Bankruptcy
Proceeding
Pursuant to Croatian insolvency law, an insolvency proceeding can be commenced in circumstances
where the debtor is either insolvent or over-indebted. The debtor will be considered insolvent if it has
outstanding obligations recorded at the bank which transacts its payment operations for a period in
excess of 60 days and which obligations, based on valid grounds for collection (such as a judgment),
should have been collected from any of debtor’s accounts without its consent. If, during that period of
time, the debtor has sufficient financial assets in its other accounts with which it could settle such
obligations, this would not signify that the debtor is solvent. Under the terms of the Croatian
Bankruptcy Act, a bankruptcy proceeding can be commenced either by the debtor or by a creditor
filing a petition for bankruptcy. In circumstances where a corporation is either insolvent or
over-indebted, the corporation is required to promptly file a petition for bankruptcy without delay or,
at the latest, 21 days after the occurrence of over-indebtedness or the debtor became unable to make
payments when becoming due.
Categories and Ranking of Creditors
The Croatian Bankruptcy Act differentiates between four categories of creditors:
1.
creditors of the bankruptcy estate;
2.
creditors with exemption rights;
3.
separate creditors; and
4.
bankruptcy creditors.
Creditors of the Bankruptcy Estate
During the Croatian bankruptcy proceeding, the costs incurred in connection with the bankruptcy
proceeding and the ‘‘other obligations’’ of the bankruptcy estate shall be settled first out of the
bankruptcy estate. ‘‘Other obligations’’ include (i) liabilities caused by the action or the inaction of the
trustee in connection with the bankruptcy proceeding or in connection with the management of the
bankruptcy estate, the liquidation or distribution of the assets of the bankruptcy estate, and which are
not costs of the bankruptcy proceedings; (ii) claims of attorneys for their services rendered during the
six months immediately prior to the commencement of the bankruptcy proceeding in connection with
the protection of the debtor’s rights upon the debtor’s entry into the bankruptcy estate; and (iii) other
items prescribed in Articles 86 and 87 of the Croatian Bankruptcy Act. The costs incurred in
connection with the bankruptcy proceeding and the other obligations of the bankruptcy estate shall be
settled in the order in which they became due.
29
Creditors with Exemption Rights
Persons able to prove, based on a material or personal right, that a specific object does not belong to
the bankruptcy estate, shall not be considered a bankruptcy creditor. The right to exempt such object
from the bankruptcy proceeding shall be determined according to the provisions for enforcing of such
rights in accordance with Croatian general law outside of bankruptcy proceedings.
Separate Creditors
Creditors who have a separate claim against real estate, fixtures or rights that are entered on a public
register (for example, a land register, register of vessels, aircraft register, register of intellectual
property and similar registers) shall have the right to separate satisfaction of their claim in accordance
with the provisions of the Law on Enforcement Procedure of Croatia.
Bankruptcy Creditors
Creditors in a bankruptcy proceeding are personal creditors of the debtor who, at the time of the
commencement of the bankruptcy proceeding, have legally-based claims against the debtor
(‘‘bankruptcy creditors’’). Creditors are ranked according to their priority, which is based on the nature
of their claims. Creditors of a lower priority may be satisfied only after creditors of a higher priority
are satisfied in full. Creditors that rank pari passu rank with the same priority and are satisfied in
proportion to the amount of their claims.
Bankruptcy Creditors of a Higher Payment Priority
Claims of creditors with a higher payment priority are classified in order of ‘‘first higher priority’’ and
‘‘second higher priority.’’ Claims of the first higher priority include claims of the debtor’s employees
and ex-employees incurred up until the time of the commencement of the proceeding, any dismissal
wages up to the amount specified by law or by collective agreement, and damages for industrial injury
or professional illness. Claims of the second higher priority include all other claims against the debtor
that are not categorized as a lower priority claim.
Bankruptcy Creditors of a Lower Payment Priority
After the claims of a higher payment priority are the claims of a lower payment priority. The following
claims of a lower payment priority are satisfied in the following order:
1.
interest on claims of bankruptcy creditors incurred since the date of the commencement of the
bankruptcy proceeding;
2.
costs incurred by the creditors during their participation in the bankruptcy proceedings;
3.
monetary fines for criminal acts or infringements, as well as costs resulting from a penalty for a
criminal act or infringement;
4.
claims demanding a free performance by debtor; and
5.
claims for the repayment of a loan extended to a member of the debtor where the loan was
extended in exchange for capital or claims of a similar nature.
Creditors’ Claims
Creditors report their claims to the trustee in writing. A claim shall be considered established if, during
the examination hearing, it has not been refuted by the trustee or any of the creditors, or, in the case
where is has been refuted, such refutation has been withdrawn. If the trustee in bankruptcy or any of
the creditors has refuted a claim, the court shall direct the creditor to institute legal proceedings in
order to establish the refuted claim.
Bosnia and Herzegovina
In an insolvency, claims against a Subsidiary Guarantor subject to insolvency law of the Federation of
Bosnia and Herzegovina will be ranked according to their priority, which is determined in accordance
with the Bankruptcy Proceedings Act of the Federation of Bosnia and Herzegovina. A bankruptcy
creditor’s priority of payment is classified in accordance with the type/nature of its claims. Creditors
with a lower payment priority will have their claims paid only after the creditors of higher payment
30
priority have had their claims paid in full. Bankruptcy creditors with an equivalent payment priority will
have their claims paid pro rata with other creditors of an equivalent ranking. Claims of secured
creditors are paid out of the secured property, and in the event of their claim is not paid in full,
secured creditors and the remainder of their claim are ranked pari passu with creditors of a general
payment priority.
Creditors’ claims are paid from the existing assets of the unencumbered bankruptcy estate in
accordance with the following priority scheme:
1.
bankruptcy creditors of higher payment priority pursuant to Article 33 of the Bankruptcy
Proceedings Act of the Federation of Bosnia and Herzegovina;
2.
bankruptcy creditors of general payment priority pursuant to Article 32 of the Bankruptcy
Proceedings Act of the Federation of Bosnia and Herzegovina; and
3.
bankruptcy creditors of lower payment priority pursuant to Article 34 of the Bankruptcy
Proceedings Act of the Federation of Bosnia and Herzegovina.
Bankruptcy Creditors of Higher Payment Priority
Claims incurred during the period of preliminary administration, which neither the interim bankruptcy
trustee nor the bankruptcy trustee was able to pay, are paid before any other bankruptcy creditor claim.
Except for the creditors’ claims referred to in the preceding paragraph, certain claims of the debtor’s
employees have priority in payment to other bankruptcy creditor claims. In particular, claims for
employee wages earned during the eight months immediately preceding the commencement of the
bankruptcy proceedings are paid in an amount equal to the minimum wage for each month, which is
calculated in accordance with the General Collective Agreement for the Federation of Bosnia and
Herzegovina, and other contributions in accordance with laws of Federation of Bosnia and
Herzegovina. The same provision applies to payments of compensation for damages resulting from
labor injuries. These payments must be paid in full.
Bankruptcy Creditors of General Payment Priority
Creditors which, at the time of the commencement of the bankruptcy proceeding, have an ‘‘allowed’’
property claim against the debtor (‘‘bankruptcy creditors’’) are creditors of the general payment priority
unless they are included in a higher or lower payment priority.
Bankruptcy Creditors of Lower Payment Priority
Claims with a priority below other claims of bankruptcy creditors are paid in accordance with the
following priority scheme, but claim with the same priority are paid pro rata:
1.
interest on the claims of the bankruptcy creditors incurred since the commencement of the
bankruptcy proceeding;
2.
costs of particular bankruptcy creditors incurred during their participation in the proceeding;
3.
cash penalties and misdemeanor fees, as well as property damage resulting from criminal acts or
misdemeanors;
4.
claims related to particular gratuitous actions of the debtor; and
5.
claims related to the repayment of a loan from an equity holder to replace capital or equivalent
claims.
Claims for which the creditor and the debtor have agreed on a lower priority in the bankruptcy
proceeding are paid after the claims listed in paragraph 1 immediately above.
Interest on the claims of the bankruptcy creditors of lower priority and the costs of the creditors
incurred as a result of their participation in the proceeding have the same priority as the claims of
these creditors of a lower payment priority.
You may not be able to recover in civil proceedings for U.S. securities laws violations.
All the directors and executive officers of the Issuer and certain of the Subsidiary Guarantors are, and
are expected to continue to be, non-residents of the United States, and all the assets of these
31
companies are located outside of the United States. As a consequence, you may not be able to effect
service of process on these non-U.S. resident directors and officers in the United States or to enforce
judgments of U.S. courts in any civil liabilities proceedings under the U.S. federal securities laws. There
is also uncertainty about the enforceability in the courts of certain jurisdictions, including Croatia and
Bosnia and Herzegovina, of judgments against the Issuer and certain of the Subsidiary Guarantors
obtained in the United States and predicated upon the federal securities laws of the United States. See
‘‘Limitation on Enforcement of Civil Liabilities.’’
There may not be an active trading market for the Notes in which case your ability to sell the Notes will be
limited; the Notes are subject to transfer restrictions.
The Notes are new issues of securities for which there is currently no established trading market. We
cannot assure you as to:
•
the liquidity of any market in the Notes;
•
your ability to sell your Notes; or
•
the prices at which you would be able to sell your Notes.
Future trading prices of the Notes will depend on many factors, including, among other things,
prevailing interest rates, our operating results and the market for similar securities. The liquidity of a
trading market for the Notes may be adversely affected by a general decline in the market for similar
securities. Historically, the market for non-investment grade securities has been subject to disruptions
that have caused substantial volatility in the prices of securities similar to the Notes. Any such
disruption may have a negative effect on you, as a holder of Notes, regardless of our prospects and
financial performance. The initial purchasers have advised that they intend to make a market in the
Notes after completing the Offering. However, they have no obligation to do so and may discontinue
market-making activities at any time without notice. In addition, such market-making activity will be
subject to limitations imposed by the U.S. Securities Act and other applicable laws and regulations. As
a result, there may not be an active trading market for the Notes. If no active trading market develops,
you may not be able to resell your Notes at a fair value, if at all.
The Notes have not been registered under the U.S. Securities Act or any U.S. state securities laws, and
the Issuer has not agreed to and does not intend to register the Notes under the U.S. Securities Act or
under any other country’s securities laws. Therefore, you may not offer or sell the Notes, except
pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the
U.S. Securities Act and applicable state securities laws. You should read the discussion under the
heading ‘‘Transfer Restrictions’’ for further information about the transfer restrictions that apply to the
Notes. It is your obligation to ensure that your offers and sales of Notes within the United States and
other countries comply with all applicable securities laws.
Our audited consolidated financial information may be of limited use in assessing the financial position of the
Subsidiary Guarantors.
As non-guarantor subsidiaries represent over 25% of EBITDA and total assets in the audited
consolidated financial statements for the year ended December 31, 2011, the audited consolidated
financial information may be of limited use in assessing the financial position of the Subsidiary
Guarantors.
The Notes may not become, or remain, listed on the Irish Stock Exchange.
Although the Issuer will, in the Indenture, agree to use commercially reasonable efforts to have the
Notes listed on the Official List of the Irish Stock Exchange and admitted to trading on its Global
Exchange Market and to maintain such listing as long as the Notes are outstanding, the Issuer cannot
assure you that the Notes will become, or remain listed. If the Issuer cannot maintain the listing on the
Official List of the Irish Stock Exchange and the admission to trading on the Global Exchange Market
or it becomes unduly burdensome to make or maintain such listing, the Issuer may cease to make or
maintain such listing on the Official List of the Irish Stock Exchange, provided that it will use
reasonable efforts to obtain and maintain the listing of the Notes on another stock exchange although
there can be no assurance that the Issuer will be able to do so. Although no assurance is made as to
the liquidity of the Notes as a result of listing on the Official List of the Irish Stock Exchange or
another recognized listing exchange for comparable issuers in accordance with the Indenture, failure to
32
be approved for listing or the delisting of the Notes from the Official List of the Irish Stock Exchange
or another listing exchange in accordance with the Indenture may have a material adverse effect on a
holder’s ability to resell Notes in the secondary market.
We may not have access to sufficient funds to satisfy the change of control offer required by the Notes.
Upon the occurrence of certain change of control events, we are required to offer to repurchase all the
outstanding Notes at a price of 101% of the face amount of the Notes plus accrued and unpaid interest
to the date of the repurchase. Because the Issuer is a holding company, it is dependent upon payments
from its subsidiaries to fund a repurchase of the Notes. However, certain of our financing agreements
restrict the ability of subsidiaries to pay dividends to the Issuer. In any event, we cannot assure you that
our subsidiaries will have the cash available for distribution to us to fund our repurchase obligations
following a change of control.
If our subsidiaries cannot make payments to the Issuer to fund a change of control offer in relation to
the Notes, we could attempt to arrange debt or equity financing to fund our repurchase obligations.
However, we may not be able to do so on favorable terms or at all. Any failure by us to repurchase
Notes following a change of control will constitute an event of default with respect to the Notes. See
‘‘Description of Notes—Repurchase at the Option of Holders—Change of Control.’’
Market perceptions concerning the instability of the euro, the potential re-introduction of individual currencies
within the Eurozone, or the potential dissolution of the euro entirely, could adversely affect the value of the
Euro Notes and have adverse consequences for us with respect to our outstanding obligations that are
euro-denominated.
As a result of the continuing credit crisis in Europe, in particular in Greece, Italy, Ireland, Portugal and
Spain, the European Commission created the European Financial Stability Facility (the ‘‘EFSF’’) and
the European Financial Stability Mechanism (the ‘‘EFSM’’) to provide funding to Eurozone countries
in financial difficulties that seek such support. Throughout 2011, the EFSF and EFSM undertook a
series of interventions to provide direct financing or other credit support to European governments. In
March 2011, the European Council agreed on the need for Eurozone countries to establish a
permanent stability mechanism, the European Stability Mechanism (the ‘‘ESM’’), which will be
activated by mutual agreement, to assume the role of the EFSF and the EFSM in providing external
financial assistance to Eurozone countries after June 2013. In July 2011, the European Council agreed
to enlarge the EFSF capital guarantee from A440 billion to A780 billion, a decision which was ratified
by all relevant national legislatures in October 2011. In October 2011, the European Council agreed to
increase the ability of the EFSF to intervene in sovereign debt markets by granting it the ability to
offer insurance to third parties purchasing Eurozone sovereign debt. Throughout 2012, certain
Eurozone states announced austerity programs and other cost-cutting initiatives, and the EFSF was
permitted to further expand its powers to provide direct loans to certain Eurozone financial institutions.
Despite these measures, there can be no assurance that the recent market disruptions in Europe
related to sovereign debt, including the increased cost of funding for certain governments and financial
institutions, will not continue, nor can there be any assurance that future assistance packages will be
available or, even if provided, will be sufficient to stabilize the affected countries and markets in
Europe or elsewhere. Concerns persist regarding the debt burden of certain Eurozone countries and
regional governments and the solvency of certain European financial institutions and their respective
ability to meet future financial obligations. The protracted adverse market conditions have created
doubt as to the overall stability of the euro and the suitability of the euro as a single currency given the
diverse economic and political circumstances in individual Member States. These and other concerns
could lead to the re-introduction of individual currencies in one or more Member States, or, in more
extreme circumstances, the possible dissolution of the euro entirely. Should the euro dissolve entirely,
the legal and contractual consequences for holders of euro-denominated obligations including the Euro
Notes and for parties subject to other contractual provisions referencing the euro would be determined
by laws in effect at such time. These potential developments, or market perceptions concerning these
and related issues, could adversely affect the value of the Euro Notes (and, indirectly, the Dollar
Notes) and could have adverse consequences for us with respect to our outstanding debt obligations
that are euro-denominated (which comprise substantially all our long-term bank loans as well as the
Euro Notes, the 2016 Notes and the 2019 Notes). Furthermore, our debt agreements contain, and the
Indenture will contain, covenants restricting our and our subsidiaries’ corporate activities. Certain of
such covenants impose limitations based on euro amounts (e.g., the amount of additional indebtedness
33
we or our subsidiaries may incur). As such, if the euro were to significantly decrease in value, the
restrictions imposed by these covenants would become tighter, further restricting our ability to finance
our operations and conduct our day-to-day business. Such developments could result in a substantial
loss to us or could otherwise have a material adverse effect on the ability of the Issuer and the
Subsidiary Guarantors to perform their respective obligations in respect of the Notes.
The Notes will initially be held in book-entry form and therefore you must rely on the procedures of the
relevant clearing systems to exercise any rights and remedies.
Unless and until the Notes in definitive registered form, or definitive registered notes, are issued in
exchange for book-entry interests, owners of book-entry interests will not be considered owners or
holders of the Notes. The common depositary for Euroclear and Clearstream (or their nominee) will be
the sole holder of the global notes representing the Euro Notes and the custodian for DTC (or its
nominee) will be the sole holder of the global notes representing the Dollar Notes. After payment to
the common depositary or the custodian (as the case may be), the Issuer will have no responsibility or
liability for the payment of interest, principal or other amounts to the owners of book-entry interests.
Accordingly, if you own a book-entry interest, you must rely on the procedures of DTC, Euroclear or
Clearstream, as applicable, and if you are not a participant in DTC, Euroclear or Clearstream, on the
procedures of the participant through which you own your interest, to exercise any rights of a holder
under the Indenture. See ‘‘Book-Entry, Delivery and Form.’’
Unlike the holders of the Notes themselves, owners of book-entry interests will not have any direct
rights to act upon the Issuer’s solicitations for consents, requests for waivers or other actions from
holders of the Notes. Instead, if you own a book-entry interest, you will be permitted to act only to the
extent you have received appropriate proxies to do so from DTC, Euroclear or Clearstream or, if
applicable, from a participant. There can be no assurance that procedures implemented for the granting
of such proxies will be sufficient to enable you to vote on any request or action on a timely basis.
Similarly, upon the occurrence of an event of default under the Indenture, unless and until definitive
registered notes are issued in respect of all book-entry interests, if you own a book-entry interest, you
will be restricted to acting through DTC, Euroclear or Clearstream. The Issuer cannot assure you that
the procedures to be implemented through DTC, Euroclear or Clearstream will be adequate to ensure
the timely exercise of rights under the Notes. See ‘‘Book-Entry, Delivery and Form.’’
34
USE OF PROCEEDS
We expect that the gross proceeds from the Offering of the Notes will be approximately A557.5 million
equivalent (calculated based on an assumed exchange rate of A1.00=$1.29). We expect to pay
approximately A10.9 million of fees and expenses, including the Initial Purchasers’ discount and
commission and the estimated expenses in respect of the Offering and breakage costs for the
indebtedness to be refinanced, out of cash on hand. The proceeds from the Offering will be used
together with cash on hand to repay in full indebtedness outstanding under the Senior Credit Facility,
the Term Loan, the EBRD facilities, the IFC facilities and the Credit Agricole facility. To the extent
there are any remaining proceeds from the Offering, we will refinance certain bilateral credit facilities.
The Senior Credit Facility Agreement was originally made available in an aggregate principal amount
of up to A352.0 million, of which A320.8 million is currently outstanding and currently accrues interest
at a rate of EURIBOR plus a margin of 5.05%. The Senior Credit Facility Agreement is repayable in
semi-annual installments with a final maturity date of June 17, 2015. The Term Loan was originally
made available in an aggregate principal amount of up to A75.0 million, of which A75.0 million is
currently outstanding and currently accrues interest at a rate of EURIBOR plus a margin of 5.50%.
The Term Loan matures on March 20, 2015. The 2008 EBRD facility, 2009 EBRD facility and EBRD
Issuer facility were originally made available in aggregate principal amounts of up to A70.0 million, up
to A50.0 million and up to A5.0 million, respectively, of which A54.3 million, A38.1 million and
A5.0 million are currently outstanding. The 2008 EBRD facility, 2009 EBRD facility and EBRD Issuer
facility currently accrue interest at a rate of EURIBOR plus a margin of 4.25%, 4.50% and 4.50%,
respectively. The 2008 EBRD facility, 2009 EBRD facility and EBRD Issuer facility provide for
installment payments and have final maturity dates by October 24, 2015, May 20, 2016 and October 15,
2021, respectively. The 2006 IFC facility and 2008 IFC facility were each originally made available in an
aggregate amount of up to A40.0 million, of which A8.0 million and A30.0 million, respectively, is
currently outstanding under each facility. The 2006 IFC facility and 2008 IFC facility currently accrue
interest at a rate of EURIBOR plus a margin of 2.25% and 2.4%, respectively. The 2006 IFC facility
and 2008 IFC facility are each repayable in semi-annual installments with a final maturity of June 15,
2013 and March 15, 2015, respectively. The 2010 IFC facility and the Credit Agricole facility were
originally made available in aggregate principal amounts of A25.0 million and A15.0 million, respectively,
of which A18.8 million and A11.3 million are currently outstanding. The 2010 IFC facility and the Credit
Agricole facility each currently accrue interest at a rate of EURIBOR plus a margin of 6.25%. The
2010 IFC facility and the Credit Agricole facility are repayable in semi-annual installments with a final
maturity date of January 15, 2015.
The following table sets forth the estimated sources and uses for the proceeds from the
Offering. Actual fees and expenses may differ from those provided below.
E in millions
Sources
(1)
Notes offered hereby . . . . . . . . . .
Cash on hand . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . .
Uses
557.5
14.6
Repayment of existing
indebtedness(2) . . . . . . . . . . . . . .
Estimated commissions, fees and
expenses . . . . . . . . . . . . . . . . . . .
572.1
Total . . . . . . . . . . . . . . . . . . . . . . .
E in millions
561.2
10.9
572.1
(1)
Calculated based on an assumed exchange rate of A1.00=$1.29.
(2)
Excludes accrued and unpaid interest incurred under the Senior Credit Facility, the Term Loan, the EBRD facilities, the
IFC facilities and the Credit Agricole facility, which will be paid out of cash on hand upon repayment of such facilities.
35
CAPITALIZATION
The following table sets out our cash and cash equivalents and our consolidated capitalization as of
June 30, 2012 on an actual basis and as adjusted to give effect to the Transactions as if the Transactions
had occurred on June 30, 2012. The information provided on an actual basis was extracted from our
unaudited consolidated financial statements as of June 30, 2012 and should be read in conjunction with
‘‘Use of Proceeds,’’ ‘‘Management’s Discussion and Analysis of Financial Condition and Results of
Operations’’ and the financial statements and notes thereto included elsewhere in this Offering
Memorandum.
Actual amounts may vary from estimated amounts depending on several factors, including differences
from our estimate of fees and expenses, fluctuations in cash on hand between June 30, 2012 and the
Issue Date and fluctuations in applicable exchange rates.
As of June 30, 2012
Actual
(HRK in
millions)
Adjustments
(HRK in
millions)
As Adjusted
(HRK in
millions)
As
Adjusted(1)
(E in
millions)
Cash and cash equivalents(2) . . . . . . . . . . . . . . .
935.5
(109.4)
826.1
110.0
Short-term borrowings . . . . . . . . . . . . . . . . . . .
Current portion of long-term debt(3) . . . . . . . . . .
975.9
745.5
—
(644.5)
975.9
101.1
129.9
13.5
Total short-term debt . . . . . . . . . . . . . . . . . . . .
1,721.4
(644.5)
1,077.0
143.4
.
.
.
.
.
.
.
.
.
.
2,138.9
567.6
300.4
563.3
—
4,067.2
2,217.8
—
—
66.6
(2,138.9)
(567.6)
(300.4)
(563.3)
—
—
—
2,440.8
1,791.7
—
—
—
—
—
—
4,067.2
2,217.8
2,440.8
1,791.7
66.6
—
—
—
—
—
541.6
295.3
325.0
238.6
8.9
Total long-term debt . . . . . . . . . . . . . . . . . . . . .
9,921.6
662.4
10,584.1
1,409.4
...........................
11,643.0
17.9
11,661.0
1,552.8
Attributable to:
Equity holders of the parent . . . . . . . . . . . . .
Minority interest . . . . . . . . . . . . . . . . . . . . . .
3,526.3
2,911.9
(41.8)
(1.0)
3,484.5
2,910.9
464.0
387.6
Total shareholders’ equity(14) . . . . . . . . . . . . . . .
6,438.2
(42.7)
6,395.4
851.6
18,081.2
(24.6)
18,056.6
2,404.4
(4)
Senior Credit Facility . . . . . . . . . . . . . . .
EBRD facilities(5) . . . . . . . . . . . . . . . . . . .
IFC facilities and Credit Agricole facility(6) .
Term Loan(7) . . . . . . . . . . . . . . . . . . . . . .
Revolving Credit Facility(8) . . . . . . . . . . . .
2016 Notes(9) . . . . . . . . . . . . . . . . . . . . . .
2019 Notes(10) . . . . . . . . . . . . . . . . . . . . . .
Euro Notes offered hereby(11) . . . . . . . . . .
Dollar Notes offered hereby(11) . . . . . . . . .
Other long-term debt(12) . . . . . . . . . . . . . .
(13)
Total debt
(15)
Total capitalization
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
....................
(1)
Amounts have been translated at the period-end rate for the six months ended June 30, 2012 of A1.00 = HRK 7.5101 based
on the Croatian National Bank Rate.
(2)
Adjustments and As Adjusted columns reflect payment of fees and expenses and cash on hand used to refinance
indebtedness in connection with the Transactions. Such columns exclude accrued and unpaid interest incurred under the
Senior Credit Facility, the Term Loan, the EBRD facilities, the IFC facilities and the Credit Agricole facility which will be
paid out of cash on hand upon repayment of certain amounts due under such facilities. See ‘‘Use of Proceeds.’’
(3)
Includes current portion of long-term indebtedness under the Senior Credit Facility, EBRD facilities, IFC facilities and
Credit Agricole facility and Other long-term debt.
(4)
Excludes current portion of long-term debt. We expect to prepay the Senior Credit Facility on or about the Issue date
pursuant to the terms of the Senior Credit Facility Agreement.
(5)
Excludes current portion of long-term debt. Pursuant to the terms of the applicable agreements, the 2008 EBRD facility,
the 2009 EBRD facility and the EBRD Issuer facility are prepayable on October 24, 2012, November 20, 2012 and
October 15, 2012, respectively. We intend to negotiate earlier repayment dates with the EBRD.
(6)
Excludes current portion of long-term debt. Pursuant to the terms of the applicable agreements, the 2006 IFC facility, the
2008 IFC facility, the 2010 IFC facility and the Credit Agricole facility are prepayable on December 15, 2012, March 15,
2013, January 15, 2013 and January 15, 2013, respectively. We intend to negotiate earlier repayment dates with the IFC and
Credit Agricole.
36
(7)
We expect to prepay the Term Loan on or about the Issue Date pursuant to the terms of the Term Loan Agreement.
(8)
The Revolving Credit Facility will provide for up to HRK 1,126.5 million (A150.0 million) of revolving borrowings and will
be undrawn upon consummation of the Transactions.
(9)
Represents book value of the 2016 Notes, reflecting original issue discount and premium as appropriate, as of June 30,
2012. The 2016 Notes were issued in an aggregate principal amount of A550 million.
(10) The 2019 Notes were issued at par in an aggregate principal amount of A300 million.
(11) Represents the principal amount of the Euro Notes or Dollar Notes, as applicable, offered hereby translated at the periodend for the six months ended June 30, 2012 based on the Croatian National Bank Rate, which was A1.00=HRK 7.5101 and
$1.00=HRK 5.9722.
(12) Includes approximately HRK 10.9 million (approximately A1.5 million) of finance leases.
(13) The undrawn committed facilities, as adjusted to give effect to the Transactions, would have been HRK 1,911.3 million
(approximately A254.5 million), of which HRK 1,126.5 million (approximately A150.0 million) would have been available
under the Revolving Credit Facility and HRK 784.9 million (approximately A104.5 million) would have been available under
certain undrawn bilateral facilities.
(14) Shareholders’ equity is adjusted for breakage costs of HRK 11.6 million (A1.6 million) and the accelerated write-off of
upfront fees and discounts of HRK 31.1 million (A4.1 million) in connection with the indebtedness refinanced pursuant to
the Transactions.
(15) Total capitalization is calculated as the sum of total debt and total shareholders’ equity.
37
SELECTED CONSOLIDATED FINANCIAL INFORMATION AND OTHER DATA
The following table presents selected consolidated financial information and other data as of and
for each of the years ended December 31, 2009, 2010 and 2011; this selected financial information and
other data is derived from our audited financial statements and related notes prepared in accordance
with IFRS for such years and included in this Offering Memorandum. Such information was audited by
Baker Tilly Discordia d.o.o., independent accountants. The following table also presents selected
consolidated interim financial information and other data for each of the six months ended June 30,
2011 and 2012 and as of June 30, 2012; this selected interim financial information and other data is
derived from our unaudited interim financial statements and related notes prepared in accordance with
IFRS for such periods and included in this Offering Memorandum.
The following table should also be read in conjunction with ‘‘Presentation of Financial, Market and
Other Information,’’ ‘‘Summary Financial Information and Other Data,’’ ‘‘Use of Proceeds,’’
‘‘Capitalization’’ and ‘‘Management’s Discussion and Analysis of Financial Condition and Results of
Operations’’ located elsewhere in this Offering Memorandum, and our consolidated financial
statements and related notes included elsewhere in this Offering Memorandum.
For the Year Ended December 31,
2009
2010
2011
(Audited)
(Audited)
(Audited)
(HRK thousands)
Income Statement Data:
Sales . . . . . . . . . . . . . .
Cost of materials . . .
Cost of services . . . .
Other income . . . . . .
Other expenses . . . . .
.
.
.
.
.
.
.
.
.
.
For the Six Months Ended June 30,
2011
2012
2012
(Unaudited)
(Unaudited) (Unaudited)(1)
(HRK thousands)
(E thousands)
. 26,476,657
26,506,235
29,053,395 13,211,740 13,524,931
. (18,324,864) (18,536,941) (20,403,812) (9,232,869) (9,502,191)
. (2,210,414) (2,305,898) (2,445,841) (1,119,950) (1,109,339)
.
251,319
491,589
334,553
85,469
77,313
. (4,731,171) (4,520,217) (4,733,038) (2,259,160) (2,296,313)
Operating Profit . . . . . . . .
Excess of fair value of net
assets over the cost of
acquisition net of
written-off goodwill . . .
Share of gain/loss of
associates . . . . . . . . . .
Impairment of financial
assets . . . . . . . . . . . . .
Dividend income . . . . . .
Sale of subsidiaries . . . . .
Sale of properties, net . . .
Interest income . . . . . . .
Interest expense . . . . . . .
Net foreign exchange
(loss)/profit . . . . . . . . .
1,461,527
(22,438)
281
1,634,768
(69,719)
(2,563)
1,805,257
(84,546)
11
685,230
1,793,900
(1,260,338)
(147,139)
10,255
(304,575)
694,401
92,103
(714)
—
—
—
—
1
(12,631)
360
(127,712)
(22,829)
68,821
(744,308)
(13,256)
278
—
21,745
86,319
(951,984)
(3,931)
68
(46,347)
(23,034)
128,079
(1,090,077)
(1,488)
3
—
4,478
47,757
(440,909)
(3,360)
6,912
35,110
(11,455)
60,625
(542,390)
(446)
917
4,657
(1,519)
8,041
(71,941)
(150,484)
(340,347)
(267,417)
(426)
(242,481)
(32,162)
Profit before taxation . . . . .
Taxation . . . . . . . . . . . . .
450,587
(214,075)
365,241
(205,148)
418,063
(222,914)
293,931
(104,419)
(2,638)
(75,945)
(350)
(10,073)
Net profit for the year . . . .
236,512
160,093
195,149
189,512
(78,583)
(10,423)
Attributable to
Equity holders of the
parent . . . . . . . . . . . .
Minority interest . . . . . . .
75,571
160,941
32,935
127,158
21,120
174,029
118,604
70,908
(113,897)
35,314
(15,107)
4,684
38
Balance Sheet Data:
Property, plant and equipment
Intangible assets . . . . . . . . . .
Inventories . . . . . . . . . . . . . .
Accounts receivable . . . . . . . .
Other current assets . . . . . . . .
Cash and cash equivalents . . .
Total assets . . . . . . . . . . . . . .
Total equity . . . . . . . . . . . . . .
Borrowings . . . . . . . . . . . . . .
Total long-term liabilities . . . .
Accounts payable . . . . . . . . . .
Bank borrowings . . . . . . . . . .
Total current liabilities . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2009
(Audited)
As of December 31,
2010
(Audited)
(HRK thousands)
2011
(Audited)
12,167,281
1,329,408
3,707,158
3,779,776
250,132
895,797
24,379,350
5,831,000
5,780,404
6,463,612
7,711,816
2,292,675
12,084,738
13,796,904
1,246,032
4,148,720
3,735,184
293,232
875,997
26,522,603
6,110,103
6,994,394
7,650,486
8,372,966
2,316,406
12,762,014
14,495,162
1,503,264
4,869,906
4,003,630
315,107
909,637
29,164,204
6,615,034
7,554,648
8,162,509
9,674,006
2,619,531
14,386,661
For the Year Ended December 31,
2009
2010
2011
(Audited)
(Audited)
(Audited)
(HRK thousands)
Cash Flow Data:
Net cash flows from operating
activities before changes in
working capital . . . . . . . . . . 2,015,720 1,894,716
Net cash inflow from operating
activities before interest and
taxes . . . . . . . . . . . . . . . . . . 1,993,881 1,965,899
Net cash provided from
operating activities . . . . . . . . 1,115,505
829,410
Net cash used in investing
activities . . . . . . . . . . . . . . . (1,496,822) (1,901,396)
Net cash from financing
activities . . . . . . . . . . . . . . .
570,957 1,052,186
Net increase/decrease in cash
and cash equivalents . . . . . .
189,640
(19,800)
As of June 30,
2012
2012
(Unaudited)
(Unaudited)(2)
(HRK
(E thousands)
thousands)
14,270,505
1,494,184
4,561,727
4,544,607
276,367
935,481
29,913,841
6,438,175
9,921,591
10,518,661
10,234,759
975,921
12,957,005
1,900,175
198,957
607,412
605,133
36,799
124,563
3,983,148
857,269
1,321,100
1,400,602
1,362,799
129,948
1,725,277
For the Six Months Ended June 30,
2011
2012
2012
(Unaudited) (Unaudited) (Unaudited)(1)
(HRK thousands)
(E thousands)
2,412,060
1,116,363
915,620
121,445
2,081,532
685,825
843,865
111,927
820,514
135,820
215,320
28,559
(1,860,305)
(600,592)
(566,833)
(75,183)
1,073,431
488,022
377,357
50,051
33,640
23,250
25,844
3,428
(1)
Amounts have been translated at an average rate for the six months ended June 30, 2012 of A1.00 = HRK 7.5394 based on
the Croatian composite rates.
(2)
Amounts have been translated at the period-end rate for the six months ended June 30, 2012 of A1.00 = HRK 7.5101 based
on the Croatian National Bank Rate.
39
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read in conjunction
with our audited consolidated financial statements for the three years ended December 31, 2009, 2010 and
2011 and our unaudited consolidated interim financial statements for the six months ended June 30, 2011
and 2012 and the related notes and other financial information included elsewhere in this Offering
Memorandum. Our consolidated financial statements have been prepared in accordance with IFRS. This
discussion includes forward-looking statements based on assumptions about our future business that involve
risks and uncertainties. The forward-looking statements are not historical facts, but rather are based on our
current expectations, estimates, assumptions and projections about our industry, business and future
financial results. Our actual results could differ materially from those contained in the forward-looking
statements.
Overview
We are one of the leading food retailers and wholesalers and food and beverages producers in Central
and Eastern Europe (the ‘‘CEE’’). The primary markets in which we currently operate are Croatia,
Serbia and Bosnia and Herzegovina (our ‘‘Primary Markets’’). In addition, we also sell our food and
beverage products in Hungary, Macedonia, Montenegro and Slovenia. In total, our business operations
cover a region having a population of more than 30 million people.
Our activities are organized into two principal divisions:
•
Retailing and Wholesale; and
•
Food Manufacturing and Distribution, which is comprised of four segments: Ice Cream and Frozen
Foods, Water and Beverages, Edible Oils and Margarine, and Meat and Agriculture.
We are also engaged in commodity brokerage and other non-core activities (our ‘‘Other Businesses’’).
These divisions correspond to our business operating segments in the notes to our financial statements
and are hereinafter referred to as our ‘‘business operating segments’’ or ‘‘divisions’’.
Our two main business divisions are complementary and together provide us with an integrated
business model that covers the entire supply chain from sourcing raw materials, production and
distribution, to direct contact with customers through our wholesale and retail sales outlets. In addition,
the broad coverage of our retail network and the flexibility provided by our multi-format retail stores
(which allows us to tailor store size and format to local demographics) enhances our access to
consumers in our Primary Markets.
In 2011, we had consolidated sales of HRK 29,053.4 million (A3,908.1 million) and EBITDA of HRK
2,671.5 million (A359.4 million). For the six months ended June 30, 2012, we had consolidated sales of
HRK 13,524.9 million (A1,793.9 million) and EBITDA of HRK 1,144.8 million (A151.4 million). We had
approximately 36,588 employees as of June 30, 2012. Sales outside of Croatia represented 30.5% of our
consolidated total sales in the first six months of 2012, 29.1% in 2011 and 27.8% in 2010.
Recent Developments
During 2011 and the first six months of 2012, we continued our focus on:
•
increasing operational profitability;
•
maintaining and improving our market positions;
•
reducing capital expenditures;
•
extending the maturity profile of our indebtedness;
•
significantly reducing the number of our acquisitions; and
•
disposing of non-core businesses.
Despite challenging macro-economic conditions, our EBITDA margin in the first six months of 2012
experienced an increase from 8.4% to 8.5% compared to the same period in 2011 as a result of our
continued focus on cost optimization and efficiency improvement measures seeking to reduce costs of
services and other expenses as a percentage of sales. The EBITDA margin of our Retailing and
Wholesale division decreased from 4.7% to 4.4% primarily as a result of lower retail prices in our
40
stores, an increase in VAT in Croatia effective since March 1, 2012 which we did not pass onto
consumers, and a margin cap on basic products in Serbia. The EBITDA margin of our Food
Manufacturing and Distribution division declined from 15.0% to 14.8% due to the higher contribution
of Meat and Agriculture to the division’s EBITDA which has lower margins than the other segments.
The EBITDA margin of our Other Businesses improved from 5.0% to 6.9% due to the discontinuation
of loss making activities in our commodities brokerage business and continuous implementation of cost
optimization programs.
We managed to maintain or increase market shares in our Primary Markets in most of our businesses
despite an overall decline in consumption and resulting changes in consumer behavior. In our Retailing
and Wholesale division, we opened new stores, continued to adjust our pricing strategy through our
customer-centric approach to retailing, continued our focus on customer care and service quality, and
aggressively invested in marketing and promotional activities.
Although our Food Manufacturing and Distribution division came under pressure from customer price
sensitivity and a stronger orientation towards less expensive and lower quality products, we managed to
maintain or increase our market shares through effective marketing strategies, promotions and
innovations in our leading brands portfolio, lower retail prices, as well as through adjusting our product
assortment by introducing lower-priced brands in some of our businesses.
During the first six months of 2012, our capital expenditures amounted to HRK 437.6 million and were
significantly lower compared to HRK 663.3 million at the same period in 2011. For 2011, our capital
expenditures were significantly lower compared to full year 2010 levels. Our capital expenditures
related to the maintenance of continuing operations have remained relatively stable, in the range of
HRK 550 million to HRK 650 million per year during the periods under review. Our reduction in
capital expenditures compared to prior periods is mainly the result of the completion of the capital
investment cycle in our Food Manufacturing and Distribution division, as well as from reducing the rate
of expansion of our retail network in Croatia. We expect capital expenditures levels for the full year of
2012 to be substantially lower than levels for the full year of 2011.
On August 29, 2012, we received the judgment of the High Administrative Court of the Republic of
Croatia, dated July 11, 2012, in which the court overturned HANFA’s decision. Pursuant to the
provisions of the Croatian Law on Administrative Disputes, following the annulment of the HANFA
decision, HANFA is required to issue another decision to replace the annulled decision. In proceedings
related to the new decision, HANFA is bound by the high court’s legal conclusions and objections to
the prior proceedings. The high court has ordered HANFA to conduct an oral hearing prior to issuing
a new decision. We have received a notice from HANFA scheduling the hearing. We expect HANFA
will issue a new decision sometime in the fourth quarter of 2012.
In October 2011, we submitted a non-binding bid for the purchase of 52.1% of the shares of Mercator
and were selected as the preferred bidder in November 2011, but ultimately we withdrew our bid. The
acquisition would have represented our largest acquisition to date. See ‘‘Summary—Recent
Developments—Mercator Negotiations.’’
We routinely evaluate small, opportunistic acquisitions that we consider to offer significant potential.
For example, we are currently pursuing the acquisition of Roto Dinamic d.o.o., one of the largest
beverage distributors focused on the HoReCa channel in Croatia, with revenues and EBITDA for 2011
of around HRK 580 million and HRK 35 million, respectively. We received regulatory clearance from
the Croatian Competition Agency in February 2012 and anticipate closing the transaction, subject to
certain conditions, in the fourth quarter of 2012 or in the first quarter of 2013.
We are considering divesting certain non-core companies or assets. None of these companies or assets
are part of our core group of businesses and their revenues are not material to the Group.
We intend to enter into a facilities agreement on or about the Issue Date with a group of lenders
which would provide for a A150.0 million revolving credit facility (the ‘‘Revolving Credit Facility’’). The
Revolving Credit Facility will be undrawn upon consummation of the Transactions. See ‘‘Description of
Other Financing Agreements—Revolving Credit Facility.’’
Acquisitions and Disposals
In light of the challenging economic environment, we significantly reduced our acquisition program in
2011 and had no material acquisitions in 2011 and in the first six months of 2012. However, during the
41
periods under review, we completed a number of smaller targeted acquisitions through which we
increased the size of our operations. These acquisitions also impacted the comparability of our results
of operations over each of the periods under review. In addition to the principal acquisitions described
below, we made a series of smaller bolt-on acquisitions. Following an acquisition, we typically make
significant investments in the acquired company, integrating its accounting and management
information systems into ours and generally introducing best management and operational practices
throughout its business. For acquisitions in the Food Manufacturing and Distribution division, the most
significant post-acquisition capital expenditures are typically in modernizing the acquired company’s
production facilities, whereas in the Retailing and Wholesale division, the most significant capital
expenditures are typically in opening new and refurbishing existing stores.
Acquisitions
Our principal acquisitions during the periods under review were as follows:
Acro
During 2011, we acquired management control of Acro d.o.o., to facilitate the development of retail
stores in Serbia, through the purchase of 100% ownership of Acro d.o.o. for HRK 171.4 million. The
main business activity of Acro d.o.o. is the development of real estate projects.
Slobodna Dalmacija
In October 2010, our Croatian kiosk retail company Tisak acquired the remaining 50% of Slobodna
Dalmacija Trgovina that it did not already own for HRK 76.2 million. Slobodna Dalmacija Trgovina
operates the same type of business as Tisak and is predominantly focused on Dalmatia. The Croatian
Competition Agency approved the acquisition in April 2011.
Vupik
In 2010, we acquired management control of the Croatian agricultural conglomerate Vupik d.d. through
the purchase of a 55.8% ownership interest for HRK 117.6 million. Vupik d.d.’s activities include the
production of wine, fruit, vegetables, cereals, pigs and cattle. We have fulfilled our contractual
obligation to invest HRK 430 million in Vupik d.d.
Jadrankomerc
In 2010, we acquired a 96.3% interest in the Croatian retail chain Jadrankomerc d.d. through Konzum,
our food retailer and wholesaler, for HRK 45.9 million. Jadrankomerc d.d. operates a network of 18
grocery stores, primarily in Dalmatia.
Dijamant agrar
In 2010, we acquired management control over Dijamant agrar a.d., through the purchase of a 61.9%
interest for HRK 114.3 million. Dijamant agrar a.d.’s activities include crop husbandry, fruit seedling
production and livestock farming.
Nova Sloga
In 2009, we acquired management control over Nova Sloga a.d. through the purchase of an 85.8%
ownership interest in Nova Sloga a.d. by Frikom for HRK 32.5 million, paid entirely in cash. The main
business activity of Nova Sloga a.d. is the production and bottling of mineral water.
Disposals
In the beginning of 2012, we disposed of our stake in the media buying company Unex.
We disposed of our stake in the book publishing company Znanje d.d. for HRK 71.8 million at the end
of 2011, representing a loss of HRK 46.3 million.
In June 2009, we sold the bakery business of Mlinar, together with our remaining bakery business, and
we divested Štampa, our kiosk retail chain in Montenegro, as well as Kozmo, our drug-store chain in
Croatia.
42
Certain Factors Affecting Financial Condition and Results of Operations
Our results of operations for the periods under review have been primarily affected by:
Macroeconomic factors
Macroeconomic conditions in the countries in which we operate may have a significant effect on our
results of operations. The food industry is generally impacted less by economic downturns than other
industries that rely on a greater amount of discretionary spending. However, in periods of recession,
when the gross domestic product declines in any or all of the markets in which we operate, customers
may reduce their consumption of certain products, reducing our sales volumes, or switch from premium
brands to lower cost brands and private-label products, which may reduce the average prices we can
achieve. In such an economic environment, we may also need to reduce our prices (including through
price-based promotions) in response to increased competition. These trends have been evident in the
current downturn and we have responded by adjusting our product offering, pricing and marketing
strategies accordingly.
The following is a short overview of the macroeconomic environment in our Primary Markets in 2011
and the first six months of 2012, based on publicly available information:
Croatia
According to Raiffeisenbank Croatia Research, Croatia’s economy remained stagnant with 0% GDP
growth from 2010 to 2011. Croatia’s nominal GDP in 2011 was A44.9 billion. There was no recovery for
the third consecutive year, reflecting significant structural internal weaknesses due to the global
economic slowdown. GDP was positively affected by an increase in personal consumption (which is
estimated to have increased by 0.2% year-on-year (‘‘yoy’’)) and stronger exports of goods and services
(up 2.2%, compared to imports, up 1%). In addition, the tourist season had a favorable impact on
certain areas of the economy, contributing to growth in retail trade and increased employment. In 2011,
the number of tourist arrivals in Croatia increased by 8.0% as compared to 2010, and the number of
tourist nights increased by 7.0% over the same period. However, after the end of the peak tourist
season, unemployment rose again reaching 13.9% in the fourth quarter of 2011, as compared with
13.3% for the full year 2011. Furthermore, GDP was adversely affected by the 7.2% yoy decrease in
investments and the decrease in government consumption, which shrank by 0.2% from 2010 to 2011. In
addition, the steady demand for foreign currency (in particular by the corporate sector) due to
maturing foreign obligations, amid high Kuna liquidity and a modest inflow of foreign capital,
continued to create depreciation pressures on the Kuna.
According to Raiffeisenbank Croatia Research and Central Bureau of Statistics of Republic of Croatia,
the first half of 2012 has been marked by inflationary pressures with a CPI (consumer price index)
increase of 2.5%. Inflation was more acute in the second quarter of 2012 due to increased costs rather
than a recovery of the domestic demand. The higher inflation has been caused by an increase in the
VAT rate in March and increases in gas and electricity prices in May affecting the majority of the index
constituents. Industrial production has fallen sharply—the greatest fall since November 2009 (–9.4%
annually). The retail industry has experienced several months of negative growth with a fall of over 5%
in real terms year-on-year (‘‘yoy’’) recorded in June 2012 alone. Other industries, such as the
construction industry, have experienced longer periods of negative growth. As lending has stagnated
and developments in the trade of goods has mildly deteriorated, we expect that GDP will fall in the
second quarter of 2012 by more than the 1.3% yoy decrease recorded in the first quarter of 2012. Since
there is no recovery in the real economy, the trends in the labor market continue to be unfavorable.
Although the spring brought about a demand for seasonal workers and contributed towards the decline
in unemployment on a monthly basis, on an annual basis unemployment continues to rise. The lack of
recovery in the labor market has also had a negative impact on salaries. The stagnation of real wages
and the increase in the cost of living is depleting the available income of households. However, in the
first half of 2012 as compared to the same period of the previous year, the number of tourist arrivals in
all accommodation facilities in the Republic of Croatia increased by 4.6% and the number of tourist
nights by 4.0%.
Serbia
According to Raiffeisenbank Serbia Research, Serbian GDP decreased by 0.5% from the third quarter
of 2010 to the third quarter of 2011. Serbia’s nominal GDP in 2011 was A32.4 billion. Inflation was
43
7.0% yoy in December 2011, compared to 10.3% for 2010. Despite the single digit inflation in
December 2011, average annual inflation was 11% yoy and ranged from 7.0% in December 2011 to
14.7% in April 2011, indicating substantial volatility in price levels in 2011. On December 8, 2011, the
National Bank of Serbia lowered its key interest rate by 25 basis points to 9.75%, following improved
inflation dynamics driven by weak domestic demand, delays in increasing administered prices and
favorable agricultural price trends.
According to Raiffeisenbank Serbia Research, Serbia experienced a 1% GDP decline in the first half of
2012, with almost all components falling further, namely industrial production and retail trade. After a
period of relatively low inflation, inflationary pressures appeared in the second quarter of 2012.
Inflation kept the upward trend in June 2012 increasing by 5.5% on an annual basis
(1.1% month-on-month (‘‘mom’’)), supported by the food and non-food alcoholic beverages and energy.
Weak economic sentiment was further confirmed by the unemployment rate that, according to April
2012’s survey, climbed to 25.5%, up from 23.7% in November 2011. The largest unemployment rise was
evidenced in agriculture, manufacturing and construction. In May 2012, the average monthly salary
reached EUR 346.8, which represents a decline of 5.5% mom in real terms (10% yoy). Exports fell in
May 2012 by 1.8% mom, while imports grew by 0.5% mom. The value of the Serbian Dinar relative to
the euro was volatile throughout June 2012 moving in the range 114.0-117.7 Dinar to the euro, though
for the first time this year it appreciated in June by 0.6% mom in nominal terms. This significant
depreciation was exacerbated by prolonged coalition talks to form the government. The government has
extended a decree on capping the retail margins on certain staple food products (wheat flour, sunflower
oil, milk, yoghurt, sugar and meat) at 10% for another six months at the end of June 2012.
Bosnia and Herzegovina
According to Raiffeisenbank Bosnia and Herzegovina Research, Bosnia and Herzegovina’s nominal
GDP in 2011 was A13.3 billion. Economic indicators for the fourth quarter of 2011 confirmed the
slowdown of the main drivers of Bosnia and Herzegovina’s economy. Industrial production and exports
eased to their weakest performance since 2009. The economic crisis in Eurozone countries had a
negative impact on Bosnia and Herzegovina’s trade performance, affecting in particular exports to
Germany and Croatia, traditionally Bosnia and Herzegovina’s two largest trade partners. Amid this
economic slowdown, the unemployment rate reached 43.6% in November 2011, the highest rate since
the end of 2007. Nevertheless, real GDP was 1.9% yoy in 2011, mostly driven by the strong economic
rebound in the first half of 2011. In 2011, inflation remained unchanged from 2010 at 3.7%.
According to Raiffeisenbank Bosnia and Herzegovina Research, Bosnia and Herzegovina’s economy has
declined since the beginning of the year, dragged down by negative readings in most of the key
macroeconomic indicators. The total industrial production in the first half of 2012 was down by 6.7%
yoy. The lower industrial output was supplemented by the fragile growth in other indicators of GDP
performance such as construction, retail trade and tourism. Consequently, the loss of positive
momentum in key sectors resulted in increased unemployment, as the unofficial rate peaked at 44.1%
in the first quarter of 2012, the highest unemployment rate since the middle of 2009. After two years of
rapid export growth, foreign trade from Bosnia and Herzegovina is falling in 2012, adversely affected by
economic pessimism in the Eurozone and the CEE region. Imports of goods have stagnated over the
same period. Inflation in the first half of 2012 was 2.2%.
Economies of scale
As our business has grown, we have achieved certain economies of scale as a result of our increased
size. Our greater purchasing power allows us to negotiate more favorable prices with suppliers. In
particular, as we have expanded throughout the region, we have been able to enter into agreements
with certain suppliers to purchase goods for the entire region, achieving greater economies of scale.
Even with local suppliers, our greater size and financial resources compared to many of our
competitors make us a preferred customer, giving us better pricing and purchasing terms. In addition,
as we have expanded our geographic footprint in new countries, we have achieved economies of scale
in terms of transportation, distribution and sales and marketing. Accordingly, our margins tend to be
lower when we enter a new market and invest in essential infrastructure and brand awareness.
However, our margins in new markets have historically improved over time as our coverage broadened
and we realized a return on our investments.
44
Raw material prices
Our key raw materials include wheat and corn (for animal feed), beef, pork and other meats (for our
fresh and processed meat industry), milk and butter (for the production of ice cream and cheese),
sunflower and other oil seeds (for the production of margarine and vegetable oils), as well as plastic
bottle pre-forms and other packaging materials and energy. The Food Manufacturing and Distribution
division is affected by the prices of the raw materials used. The Retailing and Wholesale division is also
affected by the prices of raw materials as it affects the costs of goods sold. In general, we try to pass on
price increases to our customers, although competitive and other factors may make it difficult for us to
pass on the full amount of price increases. In addition, our ability to pass on price increases can be
more limited for commodity-based products, such as edible oils, than for higher value-added products,
such as ice cream. Our margins can also be affected by the price of electricity, fuel prices and other
energy-related costs.
Wheat, corn and other cereal crops
Wheat, corn and other cereal crops are key raw materials for animal feed, edible oils and flour
production, and are brokerage commodities for Agrokor trgovina. Prices for these crops are heavily
dependent on movements in commodities markets, although the prices in our Primary Markets are
insulated to a degree by state subsidies. Our strategy is to source the majority of our requirements
internally through production and contract farming and to obtain the rest through the commodity
markets.
In general, prices for wheat, barley and soybeans in Croatia significantly declined in 2009 as a result of
the global economic crisis and then increased in 2010 due to the rise in global demand, backed by signs
of economic recovery and poor weather conditions. These prices steadily decreased throughout 2011
but then started to rise again throughout the first half of 2012. Sunflower seed prices declined in 2009
and then increased in 2010. In 2011, sunflower seed prices declined in the first three quarters of 2011
followed by an increase in the fourth quarter and most of the first half of 2012. Similarly, corn prices
slowly increased in 2009 and more significantly improved in 2010. In the first three quarters of 2011,
corn prices were more or less steady followed by a decline in the fourth quarter and an increase in the
first quarter of 2012. In the second quarter of 2012, prices started to decline slightly.
Meat
The key raw material in our meat segment is livestock, principally for the production of pork, beef and
veal. The market price of livestock depends on supply and demand, as well as on the price of animal
feed. Market prices for pigs decreased in 2009, but grew in 2010. Cattle prices have been more stable,
with slight increases in 2009 and slight decreases in 2010. In 2011, livestock prices increased reaching
the highest level in the last five years, with the trend continuing in the first six months of 2012. Our
strategy is to source approximately half of our livestock needs internally in order to reduce the impact
of fluctuations in market prices.
Milk and butter
Fresh milk, skimmed milk powder and butter are key raw materials for ice cream and cheeses. We
source these products both internally and through suppliers. Fresh milk prices tend to follow market
trends, but are also insulated to a degree by state subsidies. The primary factors influencing prices
include supply (which in turn is influenced by the weather) and demand and subsidies in the European
Union. In general, pasteurized milk and butter prices in Croatia have been quite volatile. After a
decline in 2009, prices rose in 2010 and 2011. The average price of pasteurized milk at the end of 2011
was the highest in the last five years but then began to decline in the first six months of 2012.
Oil seeds and crude vegetable oil
The principal raw materials used in the production of edible oils, margarine and mayonnaise are oil
seeds (including sunflower, soybeans and rapeseed), as well as crude and refined vegetable oils
(including sunflower, soybeans, rapeseed and, to a lesser extent, palm oil). In addition, soy meal is an
important ingredient in animal feed. Oil seeds and crude vegetable oils are exchange-traded
commodities with significant volatility reflecting global supply and demand. During the periods under
review, oil seed prices decreased significantly in 2009 during the global economic crisis and then
45
recovered in 2010. In the first three quarters of 2011, prices declined and then started to increase in
the last quarter, with the trend continuing in the first half of 2012.
We source the majority of our requirements through our own production and long-term contracts with
local farmers in order to ensure supply stability and to reduce price volatility.
Pre-forms
Pre-forms are plastic tubes with the bottle neck and threads on one end that are used in the
manufacture of polyethylene terephtalate (‘‘PET’’) plastic bottles. Being a petroleum derivative, the
price of pre-forms tends to fluctuate with world oil prices, although with generally lower volatility.
Pre-form prices declined during 2009 compared to 2008, while in 2010 they recovered. Through 2011,
prices of PET increased approximately 14%. After a slight decline in prices at the end of 2011 the
trend reversed and prices started to increase again in the first quarter of 2012. However, in the second
quarter of 2012, prices started to decline slightly. We have a strategic supplier from whom we source
the majority of our requirements and obtain the remainder principally from one alternate supplier.
Expansion strategy
We expanded significantly up until the beginning of 2009 as a result of a combination of organic growth
and acquisitions, which resulted in increases in substantially all of the line items in our financial
statements over the past several years through 2009. In response to the more unfavorable environment,
starting in 2009 we significantly slowed the pace and number of acquisitions and reduced our capital
investments. However, we believe that our expansion strategy will continue to be an important driver of
profitability given the importance of economies of scale in our industry and the potential synergies
available to us. See ‘‘—Acquisitions and Disposals.’’
International expansion
We have expanded our business internationally since 2000 and now have operations in Croatia, Serbia,
Bosnia and Herzegovina, Hungary, Montenegro, Macedonia and Slovenia, and export to countries
around the world. Following our entry into a new market, it generally will take some time in order for
us to develop a critical mass in terms of new stores or customers, to build out our distribution network
and to achieve efficiencies in sales and marketing. As a result, our margins tend to be lower following
our entry into a new market and have historically improved as we develop economies of scale. See
‘‘—Economies of scale.’’ In addition, when we enter countries with lower GDP per capita, such as
Serbia and Bosnia and Herzegovina, we need to adjust our pricing in order to remain competitive.
However, as we have acquired or built production facilities in these countries, we have been able to
generally offset lower sales prices by lower costs.
Product range expansion
We have also sought to expand the range of products that we offer. For example, in Retailing and
Wholesale, we have introduced private labels in categories that do not directly compete with our Food
Production and Distribution. In Food Manufacturing and Distribution, we have introduced new
products, such as frozen foods and fruit juices. In order to reduce the seasonality of our ice cream and
mineral water businesses (see ‘‘—Seasonality’’ below), we introduced ‘‘B’’ brands (lines of mainstream
products other than our main or ‘‘A’’ branded products, for example, Jamnica’s ‘‘To’’ ‘‘B’’ brand vs.
‘‘Juicy’’ ‘‘A’’ brand) in certain categories to better respond to consumer demands in the current
economic environment and also broadened our product portfolio in order to capture sales in products
that are complementary to our existing products. The margins on these new products are often lower
than those on certain of our core products, such as ice cream and mineral water, due to, among other
things, higher production costs. However, by broadening our product range we believe that we can
achieve synergies in terms of the purchase of raw materials and distribution costs and capture a larger
percentage of the total market. Notably, we have expanded PIK Vrbovec’s product portfolio by not
only expanding the existing product assortment, but also by initiating production of packed fresh meat,
which has generated growth in both revenues and operating margins due to consumer preference for
both quality and safety.
46
New store openings
In the Retailing and Wholesale division, we have expanded our market coverage by opening new stores
in the countries in which we operate. While new store openings increase our sales, we incur high fixed
costs during the construction and/or refurbishment period at a time when the store is generating no
sales. In addition, following a store opening, there is a period of one to four years, depending on store
format, during which sales at the store typically do not meet our projected sales targets.
As of June 30, 2012, we had a total of 1,025 stores (including 32 Velpro wholesale stores) which we
own or operate under operating leases and rental arrangements. When we lease or rent a store
property, we are generally responsible for the refurbishment and fit-out of the store. Our store leases
and rentals are typically long-term (10 to 15 year) agreements that are terminable at our option prior
to their maturity without material penalty. We normally would be obliged to pay about 3 months’ rent
or lease payments, or, in a small number of cases, 3 to 12 months. Our leases and rents do not permit
the landlord to terminate during the term of the agreement as long as we continue to make lease or
rental payments and otherwise comply with the provisions of the agreement. Lease or rental payments
are generally set at a fixed base amount, although a small number of agreements have payments that
increase by reference to the retail price or another reference index. Lease and rental payments typically
represent between 2% and 4% of total store sales.
The table below shows new retail (excluding wholesale) store openings and closings by country in each
of 2009, 2010 and 2011 and the first six months of 2012.
Start of Period
Sales
Number
Area
(sqm)
Six Months Ended June 30,
2012
Konzum (Croatia) . . . . . .
Konzum Sarajevo (Bosnia
and Herzegovina) . . . . .
IDEA (Serbia) . . . . . . . . .
Group Total . . . . . . . . . .
Year Ended December 31,
2011
Konzum (Croatia) . . . . . .
Konzum Sarajevo (Bosnia
and Herzegovina) . . . . .
IDEA (Serbia) . . . . . . . . .
Group Total . . . . . . . . . .
Year Ended December 31,
2010
Konzum (Croatia) . . . . . .
Konzum Sarajevo (Bosnia
and Herzegovina) . . . . .
IDEA (Serbia) . . . . . . . . .
Group Total . . . . . . . . . .
Year Ended December 31,
2009
Konzum (Croatia) . . . . . .
Konzum Sarajevo (Bosnia
and Herzegovina) . . . . .
IDEA (Serbia) . . . . . . . . .
Group Total . . . . . . . . . .
Store Openings
Sales
Number
Area
(sqm)
Store Closings
Sales
Number
Area
(sqm)
Format
Change
Sales
Area
(sqm)
Period End
Sales
Number
Area
(sqm)
662
253,428
34
10,862
(17)
(1,236)
208
679
263,262
148
161
67,068
75,978
6
4
3,373
4,220
(2)
(3)
—
(2,671)
—
62
152
162
68,740
78,825
971
396,474
44
18,455
(22)
270
993
410,827
654
235,970
58
25,458
(50)
(10,276)
2,276
662
253,428
136
132
64,958
56,167
14
32
4,084
20,542
(2)
(3)
(1,186)
(714)
148
161
67,068
75,978
922
357,095
104
50,084
(55)
(12,176)
1,471
971
396,474
628
220,281
46
18,111
(20)
(3,402)
980
654
235,970
115
97
56,068
40,851
24
35
9,828
15,195
(3)
—
(813)
—
(125)
121
136
132
64,958
56,167
840
317,200
105
43,134
(23)
(4,215)
976
922
357,095
658
199,808
51
31,749
(81)
(14,308)
3,032
628
220,281
85
85
37,399
34,641
45
13
20,979
6,366
(15)
(1)
(2,221)
(156)
115
97
56,068
40,851
828
271,848
109
59,094
(97)
(16,685)
840
317,200
—
(788)
(17)
(89)
—
2,943
We are subject to currency transaction risks when our revenues and costs are denominated in different
currencies. For example, our revenues have principally been denominated in Kuna, our currency of
accounts, whereas our debt and operating expenses have been denominated both in Kuna and in a
number of foreign currencies, principally euro, in which a greater proportion of our indebtedness is
denominated. Accordingly, we are exposed to the risk of changes in foreign exchange rates. We attempt
to manage this currency transaction risk principally by matching revenues and costs in the same
47
currency. However, our ability to match our euro and U.S. dollar-denominated costs, particularly
financing costs, in this manner is limited. We do not currently hedge our currency exposure, but we
expect to enter into hedging arrangements with respect to the notional amount of the Dollar Notes.
See ‘‘Risk Factors—Risks Relating to the Group—Our business may be adversely impacted by
fluctuations in exchange rates which could affect our profitability and our ability to comply with our
financial covenants.’’
In addition, we are subject to currency translation risk in that the results of each of our subsidiaries are
reported in the operating currency of the jurisdiction in which it primarily operates. These amounts, if
not reported in Croatian Kuna, are then translated into Kuna for inclusion in our consolidated financial
statements. Accordingly, changes in foreign exchange rates may impact the contribution of our
non-Croatian subsidiaries to our financial results in a manner different to the changes in the results of
those subsidiaries in their local currencies. The principal currencies of account of our subsidiaries
include Kuna, Convertible Marks (which are pegged to the euro), Serbian Dinars and Forint. The
Serbian Dinar was under pressure in 2009 during which it depreciated against the Kuna by 11.9%
followed by a further depreciation of 9.4% during 2010. This movement impacted our revenues and
operating profit primarily because of adverse translation impacts on sales. However, Dinar fluctuations
stabilized in 2011 and the Dinar appreciated 3.0% against the Kuna compared to 2010. During the first
six months of 2012, the Dinar depreciated again against the Kuna by 6.3% compared to the
corresponding period in 2011. Such adverse changes in exchange rates might impact our financial
covenant compliance through decreased EBITDA and our payment capacity.
As we continue to expand internationally, currency transaction and currency translation risks may more
significantly impact our financial results. During each of the periods under review, approximately 70%
of foreign exchange differences represented unrealized losses.
Seasonality
Sales from certain of our products and brokerage activities, including ice cream, mineral water and
agricultural products, are seasonal, resulting in uneven cash flow and working capital requirements, as
well as the need to adjust production in anticipation of fluctuating demand. In addition, certain
products and brokerage activities, such as ice cream, mineral water and agricultural products, are also
dependent on weather conditions. As a result, our revenues do not occur evenly throughout the year.
In addition, to a certain extent, our businesses are dependent on the success of the tourist season,
which has a seasonal character and whose success directly impacts our profitability. At the Group level
during 2011, our third-quarter sales and EBITDA represented 29.2% and 30.5% of consolidated annual
sales respectively. In particular, our ice cream and mineral water sales are particularly affected by the
tourist season, and a poor tourist season would adversely affect our sales in these products in the
second and third quarters. Croatia had approximately 55.0 million, 56.4 million and 60.4 million tourist
nights in 2009, 2010 and 2011 respectively, according to the Croatian Bureau of Statistics. Our fourth
quarter results are also impacted by volume purchase rebates, which are typically received from
suppliers by companies in our Retailing and Wholesale division (and granted to customers by
companies in our Food Manufacturing and Distribution division) at the end of the year. Our Retailing
and Wholesale division is also positively affected by the year-end holiday season.
48
The table below shows our sales by quarter (by amount and as a percentage of annual sales for that
entity) in each of 2009, 2010 and 2011 and the first six months of 2012 for three of our subsidiaries,
Ledo, Jamnica, Konzum and the consolidated Group to illustrate the seasonality of those businesses.
Ledo
HRK
millions
% of Year
First quarter 2009 . .
Second quarter 2009
Third quarter 2009 .
Fourth quarter 2009
First quarter 2010 . .
Second quarter 2010
Third quarter 2010 .
Fourth quarter 2010
First quarter 2011 . .
Second quarter 2011
Third quarter 2011 .
Fourth quarter 2011
First quarter 2012 . .
Second quarter 2012
.
.
.
.
.
.
.
.
.
.
.
.
.
.
194.2
373.2
579.5
172.2
171.1
342.6
369.2
184.0
168.1
385.8
428.3
219.0
186.0
365.1
17.3
33.2
34.3
15.3
16.0
32.1
34.6
17.2
14.0
32.1
35.7
18.2
—
—
Jamnica
HRK
millions
% of Year
169.7
303.7
344.5
189.4
178.9
309.9
392.6
210.2
180.5
344.9
425.0
248.6
202.9
353.2
16.8
30.2
34.2
18.8
16.4
28.4
36.0
19.3
15.1
28.8
35.4
20.7
—
—
Konzum
HRK
millions
% of Year
Consolidated Group
HRK
millions
% of Year
2,602.1
3,193.3
3,647.3
3,090.4
2,592.5
3,053.9
3,778.2
3,071.0
2,706.8
3,384.4
4,004.9
2,399.5
2,833.1
3,430.8
5,475.4
6,759.4
7,493.1
6,748.7
5,478.5
6,721.7
7,512.3
6,793.8
5,714.8
7,497.0
8,485.8
7,355.8
6,063.7
7,461.3
20.8
25.5
29.1
24.7
20.7
24.4
30.2
24.6
21.7
27.1
32.1
19.2
—
—
20.7
25.5
28.3
25.5
20.7
25.4
28.3
25.6
19.7
25.8
29.2
25.3
—
—
We seek to minimize the effects of seasonality in a number of ways. For example, in our ice cream
business, we have introduced lines of frozen pastry, fruit and vegetables and fish to reduce the
seasonality of our ice cream sales, which peak during the summer months. In addition, we had a
marketing campaign aimed at promoting ice cream consumption throughout the year.
Organizational structure
Agrokor d.d. is a holding company and conducts its operations principally through, and derives its sales
principally from, its subsidiaries. A significant number of these subsidiaries, including certain of the
Subsidiary Guarantors, are not wholly owned by Agrokor d.d. or one of its subsidiaries. See Note 2.3
(Investments in Subsidiaries) to our 2011 financial statements. Our statement of income presents net
profit for the year attributable to the equity holders of the parent company as well as net profit for
the year attributable to non-controlling interests. Net profit attributable to equity holders of the parent
as a percentage of total net profit was 32.0%, 20.6% and 10.8% in 2009, 2010 and 2011, respectively,
with such amounts primarily attributable to losses in certain of our wholly-owned subsidiaries and the
allocation of certain expenses, including financing costs, to the parent. This trend continued in the
six months ended June 30, 2012 when the total net loss of HRK 78.6 million was comprised of a net
loss attributable to equity holders of the parent of HRK 113.9 million and a net profit attributable to
non-controlling interests of HRK 35.3 million. In addition, our balance sheet presents, among other
items, our attributable share of the gain or loss of entities that we account for as associates (over which
we have significant influence but not control, generally which are 20%-50% owned). Investments in
associates declined from HRK 120.7 million as of December 31, 2010 to HRK 9.7 million as of
December 31, 2011, principally due to the full consolidation of Slobodna Dalmacija Trgovina d.o.o.
following the purchase by Tisak d.d. of the remaining interest in Slobodna Dalmacija Trgovina d.o.o.
Investments in associates remained relatively constant, from HRK 9.7 million as of December 31, 2011
to HRK 12.9 million as of June 30, 2012.
Principal Income Statement Items
The following is a description of the principal line items in our income statement.
Sales
Sales principally consist of revenues from the sale of products and services and other sales revenue.
Changes in sales are driven by changes in sales volumes and changes in prices, the main drivers of
which are discussed in ‘‘—Certain Factors Affecting Financial Condition and Results of Operations’’
above.
49
Cost of materials
Cost of materials includes the cost of goods sold (including raw material costs) and change in inventory
during the period. It is also driven by changes in volumes and prices. Higher volume purchases can also
result in lower prices, to the extent that our increased purchasing power enables us to negotiate more
favorable terms with suppliers.
Cost of services
Cost of services includes other external costs, such as utilities costs, external distribution costs,
operating lease expense, rent and maintenance. Cost of services has a high percentage of fixed costs
and, accordingly, increases as a percentage of sales when sales decrease, and decreases as a percentage
of sales when sales increase.
Other income
Other income consists of gain on sale of subsidiaries and investments classified as available-for-sale but
excluding gain from (i) government grants (primarily granted to our agricultural companies; the amount
depends on the level of the activities), (ii) reversal of value adjustments, (iii) reversal of provisions for
litigation, (iv) collected receivables that had been written off, (v) other revenues and (vi) adjustments to
the value of receivables.
Other expenses
Other expenses consists of (i) wages and salaries, (ii) taxes, social insurance and pension costs,
(iii) depreciation and amortization, (iv) research and development costs, (v) net write-offs of bad debts
and other short-term assets and (vi) other expenses. Changes in wages and salaries and in taxes, social
insurance and pension costs are driven principally by headcount and, to a lesser extent, by inflation and
the relative employment costs in the countries in which we operate. Depreciation and amortization is
driven principally by the size of our depreciable assets (which in turn is affected by investments and
acquisitions) and by our depreciation policies.
Operating profit
Operating profit represents sales plus other income, less cost of materials, cost of services and other
expenses.
Excess of fair value of net assets over the cost of acquisition, net of written-off goodwill
Excess of fair value of net assets over the cost of acquisition, net of written-off goodwill consists of
(i) the amount by which the fair value of net assets acquired during the period exceeds the cost of
acquisition of those assets, less (ii) the amount of goodwill written off during the period. Goodwill is
subject to impairment testing on each reporting date. The excess of the fair value of the acquired assets
over the acquisition cost is shown as gain in the income statement in the year of acquisition. See
‘‘—Critical Accounting Policies—Business Combinations and Goodwill’’ and ‘‘—Key sources of
estimation.’’
Share of gain/loss of associates
Share of gain/loss of associates represents our attributable share of the gain or loss of entities that we
account for as associates (over which we have significant influence but not control, generally which are
20%–50%-owned) and is carried in the balance sheet at the lower of the equity-accounted amount and
the recoverable amount, and the attributable share of the income/(loss) of associates is included in
income. See Note 1.4 (Investments in Associates) to our 2011 financial statements.
Impairment of financial assets
Impairment of financial assets represents (i) the decline in the fair value of financial assets classified as
financial assets at fair value through the profit and loss, (ii) impairment of available-for-sale
investments and (iii) impairment of other financial assets that are intended to be held until maturity.
50
Dividend income
Dividend income represents dividends declared by entities accounted for as investments.
Gain/(loss) from sale of subsidiaries
Gain/(loss) from sale of subsidiaries represents the gain or loss from the sale of a consolidated
subsidiary, which represents an extraordinary gain or loss.
Interest income
Interest income consists principally of income on deposits with banks, as well as interest received on
trade finance loans granted by the Group and interest income from customers.
Interest expense
Interest expense consists of interest on our outstanding bank loans and bonds, as well as interest paid
to suppliers.
Net foreign exchange (loss)/profit
Net foreign exchange (loss)/profit represents the difference between positive (revenues) and negative
(expenses) exchange differences. They principally are incurred due to the fact that on the date of the
balance sheet, all items denominated in a foreign currency are translated into Kuna, our reporting
currency. Foreign exchange differences in the income statement are principally non-realized foreign
exchange differences calculated on the principal amount of our indebtedness. During each of the
periods under review, approximately 70% of foreign exchange differences each year are unrealized.
Taxation
Taxation in each year represents the tax charge payable by us in respect of our taxable income for
the year. For interim financial periods, taxation is calculated and paid on a monthly basis, based on the
tax paid for the preceding year and the final calculation of income tax is done at the end of the
financial year. As a result, our effective rate of taxation for any interim period will not necessarily be
indicative of our final tax rate for the entire year. Taxation consists of Croatian corporate taxes, foreign
corporate taxes and deferred taxation. The Croatian corporate tax rate is 20%. However, our effective
tax rate can be significantly different as a result of disallowable items, tax loss carry forwards and tax
relief. See Note 26 (Taxation) to our 2011 financial statements.
51
Results of Operations
The following table presents our results of operations for the years ended December 31, 2009, 2010 and
2011 and for the six months ended June 30, 2011 and 2012:
For the Year Ended December 31,
2009
(audited)
% of
Sales
2010
(audited)
% of
Sales
For the Six Months Ended June 30,
2011
(audited)
% of
Sales
2011
(unaudited)
% of
Sales
2012
(unaudited)
% of
Sales
(HRK millions, except percentages)
Sales . . . . . . . . . . . . . . . . . . . . . . 26,476.7
Cost of materials . . . . . . . . . . . . . . . (18,324.9)
Cost of services . . . . . . . . . . . . . . . (2,210.4)
100.0 26,506.2
(69.2) (18,536.9)
(8.3) (2,305.9)
100.0 29,053.4
(69.9) (20,403.8)
(8.7) (2,445.8)
100.0
(70.2)
(8.4)
13,211.7
(9,232.9)
(1,120.0)
100
(69.9)
(8.5)
13,524.9
(9,502.2)
(1,109.3)
100.0
(70.3)
(8.2)
5,941.4
251.3
(4,731.2)
22.4
5,663.4
0.9
491.6
(17.9) (4,520.2)
21.4
6,203.7
1.9
334.6
(17.1) (4,733.0)
21.4
1.2
(16.3)
2,858.9
85.5
(2,259.2)
21.6
0.6
(17.1)
2,913.4
77.3
(2,296.3)
21.5
0.6
(17.0)
Other income . . . . . . . . . . . . . . . . .
Other expenses . . . . . . . . . . . . . . . .
Operating profit . . . . . . . . . . . . . . .
Excess of fair value of net assets over the
cost of acquisition, net of written-off
goodwill . . . . . . . . . . . . . . . . . .
Share of gain/loss of associates . . . . . . .
Impairment of financial assets . . . . . . .
Dividend income . . . . . . . . . . . . . . .
Sale of subsidiaries . . . . . . . . . . . . .
Sale of properties, net . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . .
Net foreign exchange (loss)/profit . . . . .
1,461.5
5.5
1,634.8
6.2
1,805.3
6.2
685.2
(0.7)
—
(1.5)
0
5.2
694.4
5.1
—
—
(3.3)
6.9
35.1
(11.4)
60.6
(542.4)
(242.5)
—
—
(0.0)
0.0
0.3
(0.1)
0.4
(4.0)
(1.8)
(22.4)
0.3
(12.6)
0.4
(127.7)
(22.8)
68.8
(744.3)
(150.5)
(0.1)
—
—
—
(0.5)
(0.1)
0.3
(2.8)
(0.6)
(69.7)
(2.6)
(13.3)
0.3
—
21.7
86.3
(952.0)
(340.3)
—
(84.5)
—
—
(0.1)
(3.9)
0.0
0.1
—
(46.3)
0.1
(23.0)
0.3
128.1
(3.6) (1,090.1)
(1.3)
(267.4)
—
—
(0.0)
0.0
(0.2)
0.1
0.4
(3.8)
(0.9)
4.5
47.8
(440.9)
(0.4)
(0.0)
—
(0.0)
0.0
0.0
0.0
0.4
3.3
(0.0)
Profit before taxation . . . . . . . . . . . .
Taxation . . . . . . . . . . . . . . . . . . . .
450.6
(214.1)
1.7
(0.8)
365.2
(205.1)
1.4
(0.8)
418.1
(222.9)
1.4
(0.8)
293.9
(104.4)
2.2
(0.8)
(2.6)
(75.9)
(0.0)
(0.6)
Net profit for the period . . . . . . . . . .
236.5
0.9
160.1
0.6
195.1
0.7
189.5
1.4
(78.6)
(0.6)
Attributable to:
Equity holders of the parent . . . . . . .
Non-controlling interest . . . . . . . . .
75.6
160.9
0.3
0.6
32.9
127.2
0.1
0.5
21.1
174.0
0.1
0.6
118.6
70.9
0.9
0.5
(113.9)
35.3
(0.8)
0.3
Segmental Analysis
We have two principal business operating segments:
•
Retailing and Wholesale, which includes our Konzum, Konzum Sarajevo and IDEA retail chains
and our Tisak and Slobodna Dalmacija Trgovina kiosks; and
•
Food Manufacturing and Distribution, which includes Ledo and Frikom ice cream and frozen food,
Jamnica, Sarajevski kiseljak and Fonyódi water and beverages, Zvijezda and Dijamant margarine
and vegetable oil, PIK Vrbovec meat production and Agroprerada, Belje, Vupik and PIK Vinkovci
agricultural production.
For purposes of the segmental analysis in our financial statements, we also analyze our business
operations by Other Businesses, which includes Agrokor trgovina (which sources agricultural raw
materials and conducts our agricultural brokerage business), other food-related businesses and Agrokor
Holding (which includes the management fees paid by subsidiaries for treasury, accounting, audit and
other centralized services, as well as certain sales from the rental of certain assets to third parties).
Geographically, we divide our operations into Croatia, which includes all sales within Croatia, and
Other Countries, which predominantly includes Bosnia and Herzegovina, Serbia and Hungary, but also
includes sales elsewhere in the world, including North America and Asia.
Our intersegment sales include the following:
•
Companies in our Food Manufacturing and Distribution division sell products to our Retailing and
Wholesale division. For example, Ledo and Jamnica supply ice cream, frozen foods, mineral water
and other beverages to our Konzum supermarkets for resale.
•
Companies within the Food Manufacturing and Distribution division sell products to each other.
For example, PIK Vinkovci sells animal feed to Belje, which sells livestock to PIK Vrbovec to
produce fresh and processed meat for sale.
•
Agrokor trgovina sells agricultural and other commodities that it has acquired in market
transactions to companies in the Food Manufacturing and Distribution division.
52
•
Agrokor Holding provides treasury, accounting, audit, centralized purchasing and centralized
marketing services to other companies within the Group.
Transfer pricing between segments is based on cost plus an appropriate margin, as specified by Group
accounting policies.
The table below provides information on our business segments as defined in the notes to our financial
statements:
Business operating segments
Food
Manufacturing
and
Distribution
Agrokor
Holding
Retailing
and
Wholesale
Other
Businesses
Intersegment
Sales
Consolidated
(HRK millions, except percentages)
Six Months Ended June 30, 2012
Sales to external customers . . . . . . . . . . . . .
Intersegment sales . . . . . . . . . . . . . . . . . . .
5.0
201.3
2,682.8
2,503.7
10,413.2
467.9
423.9
367.6
—
(3,540.5)
—
—
Total sales . . . . . . . . . . . . . . . . . . . . . . . .
206.3
5,186.5
10,881.1
791.5
(3,540.5)
13,524.9
Operating profit . . . . . . . . . . . .
Operating profit margin (%) . . . .
Depreciation and amortization(1) .
EBITDA(2) . . . . . . . . . . . . . . . .
Six Months Ended June 30, 2011
Sales to external customers . . . . .
Intersegment sales . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
(156.4)
—
3.5
(152.9)
544.4
10.5%
221.7
766.1
261.0
2.4%
216.0
477.0
45.4
5.7%
9.2
54.6
—
—
—
—
694.4
—
450.4
1,144.8
........
........
11.1
192.2
2,631.0
2,331.8
10,047.1
422.3
522.5
465.3
—
(3,411.6)
—
—
Total sales . . . . . . . . . . . . . . . . . . . . . . . .
203.3
4,962.8
10,469.4
987.8
(3,411.6)
13,211.7
Operating profit . . . . . . . . . . .
Operating profit margin (%) . . .
Depreciation and amortization(1)
EBITDA(2) . . . . . . . . . . . . . . .
2011
Sales to external customers . . . .
Intersegment sales . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
(187.6)
—
3.6
(184.1)
536.3
10.8%
210.0
746.3
301.6
2.9%
193.6
495.1
35.0
3.5%
14.2
49.2
—
—
—
—
685.2
—
421.4
1,106.6
.........
.........
106.6
391.5
5,866.4
5,483.9
21,930.3
925.5
1,150.0
1,078.5
—
(7,879.4)
—
—
Total sales . . . . . . . . . . . . . . . . . . . . . . . .
498.2
11,350.3
22,855.8
2,228.5
(7,879.4)
29,053.4
Operating profit . . . . . . . . . . .
Operating profit margin (%) . . .
Depreciation and amortization(1)
EBITDA(2) . . . . . . . . . . . . . . .
2010
Sales to external customers . . . .
Intersegment sales . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
(243.2)
—
7.1
(236.1)
1,064.3
899.9
9.4%
3.9%
434.7
398.4
1,499.0
1,298.3
84.2
3.8%
26.1
110.3
—
—
—
—
1,805.3
6.2%
866.2
2,671.5
.........
.........
25.6
387.9
5,135.6
4,669.7
20,019.5
825.4
1,325.6
789.2
—
(6,672.2)
—
—
Total sales . . . . . . . . . . . . . . . . . . . . . . . .
413.5
9,805.2
20,844.8
2,114.9
(6,672.2)
26,506.2
Operating profit . . . . . . . . . . .
Operating profit margin (%) . . .
Depreciation and amortization(1)
EBITDA(2) . . . . . . . . . . . . . . .
2009
Sales to external customers . . . .
Intersegment sales . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
(249.0)
—
20.9
(228.1)
885.6
935.0
9.0%
4.5%
409.3
333.1
1,294.9
1,268.1
63.2
3.0%
16.2
79.4
—
—
—
—
1,634.8
6.2%
779.6
2,414.3
.........
.........
59.6
368.9
5,012.9
4,094.3
19,596.9
852.0
1,807.2
755.4
—
(6,070.6)
—
—
Total sales . . . . . . . . . . . . . . . . . . . . . . . .
428.6
9,107.3
20,448.9
2,562.6
(6,070.6)
26,476.7
Operating profit . . . . . . . . . . .
Operating profit margin (%) . . .
Depreciation and amortization(1)
EBITDA(2) . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
(408.9)
—
28.6
(380.3)
901.5
836.3
9.9%
4.1%
380.5
306.4
1,282.0
1,142.7
132.6
5.2%
8.3
140.9
—
—
—
—
1,461.5
5.5%
723.8
2,185.3
(1)
Depreciation and amortization is reported under ‘‘Other expenses’’ in our consolidated income statement. It is shown
separately here solely for purposes of calculating EBITDA.
(2)
EBITDA represents operating profit plus depreciation and amortization. EBITDA and other non-GAAP measures should
not be considered in isolation or construed as a substitute for GAAP measures in accordance with IFRS. See ‘‘Presentation
of Financial, Market and other Information.’’
53
Comparison of the Six Months Ended June 30, 2011 and June 30, 2012
Sales
Total sales increased by 2.4% in the six months ended June 30, 2012 compared to the same six months
period of the previous year, from HRK 13,211.7 million to HRK 13,524.9 million.
Excluding intersegment sales, Retailing and Wholesale increased by HRK 366.1 million, or 3.6%, from
HRK 10,047.1 million in the six months ended June 30, 2011 to HRK 10,413.2 million in the
six months ended June 30, 2012. Retailing and Wholesale sales contributed 77.0% of total consolidated
sales for the first six months of 2012. The increase in sales was primarily the result of new store
openings as well as significant promotional and marketing activities followed by lower sale prices
through discounts and rebates.
The largest increase in sales in the six months ended June 30, 2012 compared to the corresponding
period in 2011, in absolute terms, came from Croatia and Serbia. In relative terms, sales on a standalone basis in Bosnia and Herzegovina grew the most, by 5.4%, while Retail and Wholesale sales in
Serbia increased by 3.0%. Solid growth in Serbia and Bosnia and Herzegovina was driven by the
expansion of our retail network and increase in the number of customer accounts combined with
continuous price investments. Our kiosk retailer Tisak also contributed to total growth with a sales
increase on a stand-alone basis of 7.1%. Retail and Wholesale generated 77.0% of total consolidated
sales for the six months ended June 30, 2012, compared to 76.0% of total consolidated sales for the
same period in 2011.
Excluding intersegment sales, Food Manufacturing and Distribution sales increased by HRK
51.8 million, or 2.0%, from HRK 2,631.0 million in the six months ended June 30, 2011 to HRK
2,682.8 million in the six months ended June 30, 2012. Food Manufacturing and Distribution generated
19.8% of total consolidated sales for the six months ended June 30, 2012, compared to 19.9% of total
consolidated sales for the same period in 2011. The increase in sales was mostly driven by significant
sales growth in the Ice Cream and Frozen Food and Water and Beverages segments.
Cost of materials
Cost of materials increased by HRK 269.3 million, or 2.9%, from HRK 9,232.9 million in the
six months ended June 30, 2011 to HRK 9,502.2 million in the six months ended June 30, 2012. As a
percentage of sales, cost of materials increased from 69.9% in the first six months of 2011 to 70.3% in
the corresponding period in 2012. These increases were primarily driven by lower retail prices which
included price discounts in our Retailing and Wholesale division, lower in-store inflation (i.e., lower
price increase) compared to the general market inflation, an increase in VAT in Croatia that was not
passed onto consumers, and a margin cap in Serbia mostly affecting profitability margins of our
Croatian and Serbian retail chains, Konzum and Idea.
Cost of services
Cost of services decreased by HRK 10.6 million, or 0.9%, from HRK 1,120.0 million in the six months
ended June 30, 2011 to HRK 1,109.3 million in the six months ended June 30, 2012. In the same
period, cost of services expressed as a percentage of total sales, decreased by 27 basis points from 8.5%
to 8.2% as a result of our cost optimization and increased efficiency efforts such as optimization in
logistics and rent agreement renegotiations.
Other income
Other income decreased by HRK 8.2 million, or 9.5%, from HRK 85.5 million in the six months ended
June 30, 2011 to HRK 77.3 million in the six months ended June 30, 2012. The decrease was
principally driven by lower government subsidies, in absolute terms, as a result of lower subsidized sales
volumes due to lower crop yields on account of weather conditions in the six months ended June 30,
2011 in our Retailing and Wholesale division. As a percentage of total sales, other income decreased
from 1.0% to 0.3%.
Other expenses
Other expenses increased by HRK 37.2 million, or 1.6%, from HRK 2,259.2 million in the six months
ended June 30, 2011 to HRK 2,296.3 million in the six months ended June 30, 2012 predominantly as a
54
result of higher sales. However, as a percentage of total sales, other expenses decreased from 17.1% in
the six months ended June 30, 2011 to 17.0% in the corresponding period in 2012, driven by our
continuous focus on cost optimization, operating processes enhancement and other efficiency
improvements such as optimization in wages and number of employees and usage of company vehicles.
Operating profit
Operating profit increased by HRK 9.2 million, or 1.3%, from HRK 685.2 million in the six months
ended June 30, 2011 to HRK 694.4 million in the six months ended June 30, 2012. Operating profit
margin decreased from 5.2% to 5.1%. These decreases were mainly the result of lower retail prices in
both of our divisions.
The Retailing and Wholesale division decreased operating profit by HRK 40.6 million, or 13.5%, from
HRK 301.6 million in the six months ended June 30, 2011 to HRK 261.0 million in the six months
ended June 30, 2012.
Operating profit generated from the Food Manufacturing and Distribution business operating segment
increased by HRK 8.1 million, or 1.5%, from HRK 536.3 million in the six months ended June 30, 2011
to HRK 544.4 million in the six months ended June 30, 2012.
Impairment of financial assets
Impairment of financial assets increased by HRK 1.9 million, from HRK 1.5 million in the six months
ended June 30, 2011 to HRK 3.4 million in the six months ended June 30, 2012.
Dividend income
Dividend income increased by HRK 6.9 million, from HRK 3.0 thousand in the six months ended
June 30, 2011 to HRK 6.9 million in the six months ended June 30, 2012.
Sale of subsidiaries
In the six months ended June 30, 2012, sale of subsidiaries amounted to HRK 35.1 million, primarily as
a result of disposing of our stake in Unex. There were no sales of subsidiaries in the six months ended
June 30, 2011.
Sale of properties, net
Net sale of properties decreased by HRK 15.9 million, from a gain of HRK 4.5 million in the first
six months of 2011 to a loss of HRK 11.4 million in the first six months of 2012.
Interest income
Interest income increased by HRK 12.9 million, or 26.9%, from HRK 47.8 million in the first
six months of 2011 to HRK 60.6 million in the first six months of 2012, principally due to higher
interest rates applicable to our deposits with financial institutions and the overall increase in loans and
deposits.
Interest expense
Interest expense increased by HRK 101.5 million, or 23.0%, from HRK 440.9 million in the first
six months of 2011 to HRK 542.4 million in the first six months of 2012. The increase was principally
due to an increase in the overall debt outstanding as a result of funding larger operations and working
capital needs and an overall increase in the cost of financing due to the refinancing of short-term debt
with long-term debt with higher financing costs. As a percentage of sales, interest expense increased
from 3.3% to 4.0% in the period under review.
Net foreign exchange (loss)/profit
We had a net foreign exchange loss of HRK 242.5 million in the first six months of 2012, compared to
a loss of HRK 0.4 million in the corresponding period in 2011. The loss is predominantly the result of
negative foreign currency movement in countries in which we operate, mainly in Serbia where the
Dinar depreciated against the Kuna by 6.3% during the first six months of 2012.
55
Profit before taxation
As a result of the foregoing items, profit before taxation decreased by HRK 296.5 million from a
positive HRK 293.9 million in the first six months of 2011 to a loss of HRK 2.6 million in the first
six months of 2012.
Taxation
In the first six months of 2012, income tax amounted to HRK 75.9 million, which is the same amount
recorded in the first six months of 2011. Tax advance payments are paid according to the calculation
based on the results of the previous year. The final settlement of income tax takes place at the end of
the calendar (fiscal) year. Because of the manner in which taxation is calculated for interim periods,
our effective rate of taxation for any interim period is not necessarily indicative of our final tax rate for
the entire year. See ‘‘—Principal Income Statement Items—Taxation.’’
Net profit
Due to the factors discussed above, net profit decreased by HRK 268.1 million from a gain in the
amount of HRK 189.5 million in the first six months of 2011 to a loss in the amount of HRK
78.6 million in the first six months of 2012. Net profit attributable to our equity holders decreased by
HRK 232.5 million from positive HRK 118.6 million to negative HRK 113.9 million and the
non-controlling interest decreased by HRK 35.6 million from HRK 70.9 million to HRK 35.3 million.
Comparison of the Years Ended December 31, 2010 and December 31, 2011
Sales
Sales increased by HRK 2,547.2 million, or 9.6%, from HRK 26,506.2 million in the year ended
December 31, 2010 to HRK 29,053.4 million in the year ended December 31, 2011. Sales in Croatia in
2011 represented 70.9% of total sales while sales outside Croatia represented 29.1% of total sales,
compared to 2010 when they amounted to 72.2% and 27.8%, respectively.
Our strong sales increase is a result of our focus on both growth and profitability, timely adjustments to
a challenging macroeconomic environment, an exceptional tourist season in Croatia, with 8.0% growth
in tourist arrivals and 7.0% growth in overnights according to the Croatia Bureau of Statistics, and the
stabilization of the Serbian Dinar against the Kuna over the period which had a positive impact on
profitability.
Excluding intersegment sales, Retailing and Wholesale increased by HRK 1,910.8 million, or 9.5%,
from HRK 20,019.5 million in the year ended December 31, 2010 to HRK 21,930.3 million in the year
ended December 31, 2011. Retail and Wholesale sales contributed 75.5% of total consolidated sales
revenue. The increase in sales was the result of the combination of new store openings, an increase in
consumer spending due to an exceptional tourist season, as well as significant promotional and
marketing activities followed by continuous price investments, such as discounts and rebates.
The largest geographic increase, in absolute terms, came from Croatia and Serbia. In relative terms,
our sales in Serbia grew the most, by 24.3%, while Retail and Wholesale sales in Bosnia and
Herzegovina increased by 8.0%. The reason behind strong growth in Serbia and Bosnia and
Herzegovina was the expansion of our retail network and customer accounts. Our kiosk retailer Tisak
also contributed to total growth with a sales increase of 9.3%.
Excluding intersegment sales, Food Manufacturing and Distribution sales increased by HRK
730.9 million, or 14.2%, from HRK 5,135.6 million in the year ended December 31, 2010 to HRK
5,866.4 million in the year ended December 31, 2011. Food Manufacturing and Distribution generated
20.2% of total consolidated sales. The increase of sales is mostly driven by significant sales growth in
the Meat and Agriculture segment due primarily to previous years’ investments, higher livestock and
animal feed prices, significant growth in production and sales of animal feed, increased production of
fruits and vegetables, a rise of diary product sales and widening of the dairy products portfolio. The
Edible Oils and Margarines and Ice Cream and Frozen Food segments also contributed to increased
sales, the former as a result of higher edible oil prices due to an increase in commodity prices and the
latter as a result of adequate changes in pricing policy and an exceptional tourist season in 2011.
56
Cost of materials
The table below illustrates the components of cost of materials during the periods shown:
For the Year Ended
December 31,
2010
2011
(HRK millions)
Cost of materials
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18,834.1
(297.1)
20,834.9
(431.1)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18,536.9
20,403.8
Cost of materials increased by HRK 1,866.9 million, or 10.1% from HRK 18,536.9 million in the year
ended December 31, 2010 to HRK 20,403.8 million in the year ended December 31, 2011. As a
percentage of sales, cost of materials increased from 69.9% in 2010 to 70.2% in 2011. These increases
were primarily driven by inflation and discounts and rebates more than offsetting price increases in the
Retailing and Wholesale division, and increased contribution by the Edible Oils and Margarines and
Meat and Agriculture segments due to the increase in raw material prices.
Cost of services
Cost of services increased by HRK 139.9 million, or 6.1%, from HRK 2,305.9 million in the year ended
December 31, 2010 to HRK 2,445.8 million in the year ended December 31, 2011. The increase is
predominantly the result of higher sales, which can be seen from the percentage of total sales data that
decreased compared to the previous year, from 8.7% to 8.4%, as a result of our cost optimization
efforts.
Other income
The table below illustrates the components of other income during the periods shown:
Year Ended December 31,
2010
2011
(HRK millions)
Other income
Gain on sale of securities . . . . . .
Government grants . . . . . . . . . . .
Reversal of provision for litigation
Collected receivables written off .
Other revenues . . . . . . . . . . . . . .
Value adjustment of receivables . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
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.
.
.
.
.
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.
.
.
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.
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.
.
.
.
.
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.
.
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.
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.
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.
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.
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.
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.
.
.
.
.
.
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.
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.
.
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.
.
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.
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.
.
.
.
.
.
.
.
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.
.
.
.
.
.
.
.
.
.
.
.
.
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.
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.
.
.
.
.
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.
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.
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.
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.
.
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.
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.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
263.5
173.1
0.1
27.8
54.9
(27.8)
55.1
146.7
115.0
19.0
17.8
(19.0)
491.6
334.6
Other income decreased by HRK 157.0 million, or 31.9%, from HRK 491.6 million in the year ended
December 31, 2010 to HRK 334.6 million in the year ended December 31, 2011. The decrease was
principally driven by a reduction in gain on sales of securities, which decreased by HRK 208.4 million,
as we sold fewer securities in 2011. In addition, a decrease in other income was affected by the changes
in government legislation resulting in a decrease in the amount of government grants provided in
connection with pig and dairy cattle breeding. The reversal of provisions for litigation in the table
above reflects settlements or other positive developments concerning litigation matters involving certain
of our subsidiaries. As a percentage of total sales, other income decreased from 1.9% to 1.2%.
57
Other expenses
The table below illustrates the components of other expenses during the periods shown:
Year Ended December 31,
2010
2011
(HRK millions)
Other expenses
Wages and salaries . . . . . . . . . . . . . . . . . .
Taxes, social insurance and pension costs . .
Depreciation and amortization . . . . . . . . .
Research and development costs . . . . . . . .
Write-off of bad debts and other short-term
Other expenses . . . . . . . . . . . . . . . . . . . . .
.....
.....
.....
.....
assets,
.....
...
...
...
...
net
...
.
.
.
.
.
.
.
.
.
.
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.
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.
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.
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.
.
.
.
.
.
.
.
.
.
.
.
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.
.
.
.
.
.
.
.
.
.
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.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
1,663.8
1,147.7
779.5
9.1
56.8
863.3
1,741.4
1,236.0
866.2
10.4
49.8
829.3
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,520.2
4,733.0
Other expenses increased by HRK 212.8 million, or 4.7%, from HRK 4,520.2 million in the year ended
December 31, 2010 to HRK 4,733.0 million in the year ended December 31, 2011, primarily due to the
expansion of our business. However as a percentage of total sales, other expenses decreased from
17.1% in 2010 to 16.3% in 2011 driven by our continuous focus on cost optimization, operating
processes enhancement and other efficiency improvements.
Operating profit
Operating profit increased by HRK 170.5 million, or 10.4%, from HRK 1,634.8 million in the year
ended December 31, 2010 to HRK 1,805.3 million in the year ended December 31, 2011. Operating
profit margin remained at 6.2%. This stable level of operating profit margin is predominantly the result
of improved efficiency, focus on cost optimization and operating processes enhancement as well as
other efforts to improve efficiency in addition to the increased operating profitability of our Food
Manufacturing and Distribution division that offset decreased profitability in our Retailing and
Wholesale division.
Operating profit generated from the Food Manufacturing and Distribution business operating segment
increased by HRK 178.8 million, or 20.2%, from HRK 885.6 million in the year ended December 31,
2010 to HRK 1,064.3 million in the year ended December 31, 2011, with the Edible oils and
Agriculture segments as the primary profitability drivers.
Operating profit from the Retailing and Wholesale decreased by HRK 35.1 million, or 3.8%, from
HRK 935.0 million in the year ended December 31, 2010 to HRK 899.9 million in the year ended
December 31, 2011. The decrease in both absolute as well as relative terms was driven by our Serbian
and Croatian operations where inflation and discounts and rebates more than offset price increases.
Impairment of financial assets
Impairment of financial assets decreased by HRK 9.3 million, or 70.3%, from HRK 13.3 million in
the year ended December 31, 2010 to HRK 3.9 million in the year ended December 31, 2011 due to
lower declines in the fair values of financial assets.
Dividend income
Dividend income decreased by HRK 0.2 million, from HRK 0.3 million in the year ended
December 31, 2010 to HRK 0.1 million in the year ended December 31, 2011, because a number of
companies in which we have non-controlling shareholdings reduced their dividend payouts.
Sale of subsidiaries
In 2011, we experienced a loss of HRK 46.3 million from the sale of our subsidiary Znanje d.o.o.
Sale of properties, net
Net sale of properties decreased by HRK 44.8 million, from a gain of HRK 21.7 million in the year
ended December 31, 2010 to a loss of HRK 23.0 million in the year ended December 31, 2011.
58
Interest income
Interest income increased by HRK 41.8 million, or 48.4%, from HRK 86.3 million in the year ended
December 31, 2010 to HRK 128.1 million in the year ended December 31, 2011 principally due to an
increase in loans and deposits as well as higher applicable interest rates.
Interest expense
Interest expense increased by HRK 138.1 million, or 14.5%, from HRK 952.0 million in the year ended
December 31, 2010 to HRK 1,090.1 million in the year ended December 31, 2011. The increase was
principally due to an increase in the overall debt outstanding as a result of funding larger operations
and working capital needs as well as a result of the refinancing of our existing indebtedness by
lengthening maturities at higher interest rates. As a percentage of sales, interest expense increased
from 3.6% in 2010 to 3.8% in 2011.
Net foreign exchange (loss)/profit
We had a net foreign exchange loss of HRK 340.3 million in 2010, compared to a loss of HRK
267.4 million in 2011. The decrease in loss is predominantly a result of less negative foreign currency
movement in countries in which the Group operates.
Profit before taxation
As a result of the foregoing items, profit before taxation increased by HRK 52.8 million, or 14.5%,
from HRK 365.2 million in the year ended December 31, 2010 to HRK 418.1 million in the year ended
December 31, 2011.
Taxation
Taxation increased by HRK 17.8 million, or 8.7%, from HRK 205.1 million in the year ended
December 31, 2010 to HRK 222.9 million in the year ended December 31, 2011. Our effective tax rate
was 53.3% for the year ended December 31, 2011 compared to 56.2% in the corresponding period of
2010.
Corporate taxation is based on the accounting profit for the year adjusted for permanent and
temporary differences between taxable and accounting income.
Net profit
Due to the factors discussed above, net profit increased by HRK 35.1 million, or 21.9% from HRK
160.1 million in the year ended December 31, 2010 to HRK 195.1 million in the year ended
December 31, 2011. Net profit attributable to our equity holders decreased by HRK 11.8 million from
HRK 32.9 million to HRK 21.1 million and the non-controlling interest increased by HRK 46.9 million,
or 36.9%, from HRK 127.2 million to HRK 174.0 million, primarily due to losses in certain of our
wholly-owned subsidiaries and the allocation of certain expenses, including financing costs, to the
parent.
Comparison of the Years Ended December 31, 2009 and December 31, 2010
Sales
Sales increased by HRK 29.5 million, or 0.1%, from HRK 26,476.7 million in the year ended
December 31, 2009 to HRK 26,506.2 million in the year ended December 31, 2010. Sales in Croatia in
2010 represented 72.2% of total sales while sales outside Croatia represented 27.8% of total sales,
compared to 2009 when they amounted to 74.5% and 25.5%, respectively. Sales growth is a result of
increases in both of our Retailing and Wholesale division and our Food Manufacturing and
Distribution division, despite a challenging macroeconomic environment.
Excluding intersegment sales, Retailing and Wholesale sales increased by HRK 422.6 million, or 2.2%,
from HRK 19,596.9 million in the in the year ended December 31, 2009 to HRK 20,019.5 million in
2010, principally driven by new store openings and organic growth in Serbia and Bosnia and
Herzegovina, which experienced sales growth of 6.9% and 14.2% respectively. Our kiosk retailer Tisak,
which operates in Croatia, also contributed to the growth with an increase of 6.4%. Despite the
difficult environment in the Croatian retail market our retail chain Konzum continued to increase its
59
market share. The increase of market share is a direct result of new store openings, successful
promotional and marketing activities, MultiPlus loyalty card implementation and constant customer
care.
Excluding intersegment sales, Food Manufacturing and Distribution sales increased by HRK
122.7 million, or 2.4%, from HRK 5,012.9 million in the year ended December 31, 2009 to HRK
5,135.6 million in 2010. Food Manufacturing and Distribution sales grew in spite of adverse economic
conditions and a depreciation of the Serbian Dinar against the Croatian Kuna of 9.4%. Lower sales
were recorded in the Ice Cream and Frozen Food segment due to unfavorable weather conditions, and
lower sales in the Edible Oils & Margarines segment were primarily due to a fall in retail prices of
edible oils.
The strategic decision to lower the volume of our commodity brokerage business in order to limit the
risk exposure to price volatility resulted in a 26.6% decrease in consolidated sales in the Other
Businesses division.
Cost of materials
The table below illustrates the components of cost of materials during the periods shown:
For the Year Ended
December 31,
2009
2010
(HRK millions)
Cost of materials
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18,595.8
(271.0)
18,834.1
(297.1)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18,324.9
18,536.9
Cost of materials increased by HRK 212.0 million, or 1.2%, from HRK 18,324.9 million in the year
ended December 31, 2009 to HRK 18,536.9 million in the year ended December 31, 2010. As a
percentage of sales, cost of materials increased from 69.2% in the year ended December 31, 2009 to
69.9% in 2010 as a result of higher raw material prices caused by commodity prices increase in 2010
compared to 2009 and investments in our price competitiveness through discounts, rebates and other
promotions.
Cost of services
Cost of services increased by HRK 95.5 million, or 4.3%, from HRK 2,210.4 million in the year ended
December 31, 2009 to HRK 2,305.9 million in the year ended December 31, 2010, driven by higher
rental costs due to store openings and investments in our price competitiveness through discounts,
rebates and other promotions. The increase was offset in part by cost optimization measures
undertaken by us, particularly in respect of distribution costs. As a percentage of total sales, cost of
services increased from 8.3% in the year ended December 31, 2009 to 8.7% in the year ended
December 31, 2010.
Other income
The table below illustrates the components of other income during the periods shown:
Year Ended December 31,
2009
2010
(HRK millions)
Other income
Gain on sale of securities . . . . . .
Government grants . . . . . . . . . . .
Reversal of provision for litigation
Collected receivables written off .
Other revenues . . . . . . . . . . . . . .
Value adjustment of receivables . .
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Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
60
57.8
143.5
3.1
25.5
46.9
(25.5)
263.5
173.1
0.1
27.8
54.9
(27.8)
251.3
491.6
Other income increased by HRK 240.3 million, or 95.6%, from HRK 251.3 million in the year ended
December 31, 2009 to HRK 491.6 million in the year ended December 31, 2010. The increase was
primarily driven by an increase in gain on sale of securities of HRK 205.7 million and an increase in
government grants. As a percentage of total sales, other income increased from 0.9% to 1.9%.
Other expenses
The table below illustrates the components of other expenses during the periods shown:
Year Ended December 31,
2009
2010
(HRK millions)
Other expenses
Wages and salaries . . . . . . . . . . . . . . . . . .
Taxes, social insurance and pension costs . .
Depreciation and amortization . . . . . . . . .
Research and development costs . . . . . . . .
Write-off of bad debts and other short-term
Other expenses . . . . . . . . . . . . . . . . . . . . .
.....
.....
.....
.....
assets,
.....
...
...
...
...
net
...
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.
1,659.9
1,161.9
723.8
9.2
57.8
1,118.6
1,663.8
1,147.7
779.5
9.1
56.8
863.3
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,731.2
4,520.2
Other expenses decreased by HRK 211.0 million, or 4.5%, from HRK 4,731.2 million in the year ended
December 31, 2009 to HRK 4,520.2 million in the year ended December 31, 2010. The decrease was
driven principally by a HRK 255.3 million decrease in other expenses. As a percentage of total sales,
other expenses decreased from 17.9% in the year ended December 31, 2009 to 17.1% in the year
ended December 31, 2010.
Operating profit
Operating profit increased by HRK 173.3 million, or 11.9%, from HRK 1,461.5 million in the year
ended December 31, 2009 to HRK 1,634.8 million in the year ended December 31, 2010. Operating
profit margin increased from 5.5% to 6.2%, mainly as a result of measures taken to reduce operating
costs and increase efficiency. The increase in operating profit margin was principally due to increased
profitability in the Retailing and Wholesale business operating segment as a result of efficiency
improvement measures, notably in selling, general and administrative expense, and better terms from
suppliers.
The Food Manufacturing and Distribution division experienced a decrease in profitability
predominantly due to increases in commodity and energy prices in the last three months of 2010.
Impairment of financial assets
Impairment of financial assets increased by HRK 0.7 million, from HRK 12.6 million in the year ended
December 31, 2009 to HRK 13.3 million in the year ended December 31, 2010.
Dividend income
Dividend income decreased by HRK 0.1 million, from HRK 0.4 million in the year ended
December 31, 2009 to HRK 0.3 million in the year ended December 31, 2010, as a number of
companies in which we have non-controlling shareholdings reduced their dividends.
Sale of subsidiaries
No subsidiary was sold in 2010.
Sale of properties, net
Net sale of properties increased by HRK 44.5 million, from a loss of HRK 22.8 million in the year
ended December 31, 2009 to a gain of HRK 21.7 million in the year ended December 31, 2010.
61
Interest income
Interest income increased by HRK 17.5 million, or 25.4%, from HRK 68.8 million in the year ended
December 31, 2009 to HRK 86.3 million in the year ended December 31, 2010, principally due to an
increase in the amount of loans given by us to third parties.
Interest expense
Interest expense increased by HRK 207.7 million, or 27.9%, from HRK 744.3 million in the year ended
December 31, 2009 to HRK 952.0 million in the year ended December 31, 2010. The increase was
principally due to an increase in the amount of debt outstanding during 2010 as compared to 2009 and
due to more expensive sources of funds due to refinancing the Senior Facilities Agreement in June
2010 with higher margins. As a percentage of sales, interest expense increased from 2.8% to 3.6%.
Net foreign exchange (loss)/profit
We had a net foreign exchange loss of HRK 340.3 million in the year ended December 31, 2010,
compared to a loss of HRK 150.5 million in 2009. The change principally reflects adverse movements
in the value of the Serbian Dinar which depreciated against the Kuna by 9.4% on a year on year basis.
As a result, the underlying net foreign exchange loss was greater in 2010 than in 2009. An increase in
the value of the euro against the Kuna increased our losses in 2010.
Profit before taxation
As a result of the foregoing items, profit before taxation decreased by HRK 85.4 million, or 18.9%,
from HRK 450.6 million in the year ended December 31, 2009 to HRK 365.2 million in the year ended
December 31, 2010.
Taxation
Taxation decreased by HRK 9 million, or 4.2%, from HRK 214.1 million in the year ended
December 31, 2009 to HRK 205.1 million in the year ended December 31, 2010. Our effective tax rate
was 56.2% for the year ended December 31, 2010 compared to 47.5% as of December 31, 2009.
Net profit
Due to the factors discussed above, net profit decreased by HRK 76.4 million or 32.2%, from HRK
236.5 million in the year ended December 31, 2009 to HRK 160.1 million in the year ended
December 31, 2010. Net profit attributable to our majority equity holders decreased by HRK
42.7 million from HRK 75.6 million to HRK 32.9 million and non-controlling interest decreased by
HRK 33.7 million, or 21%, from HRK 160.9 million to HRK 127.2 million.
Liquidity and Capital Resources
Our principal sources of liquidity have traditionally consisted of net cash flows provided by our
operating activities and financing from credit institutions and capital markets. We believe that our
operating cash flows and borrowing capacity, taken together, provide adequate resources to fund our
ongoing operating requirements and future investments related to the expansion of our business, and
that our cash flow from operations, financing activities and other sources of liquidity described below
will be sufficient for us to meet our working capital and debt service requirements for the next
12 months.
As of June 30, 2012, after giving effect to the Transactions, our total indebtedness amounted to
HRK 11,661.0 million (A1,552.8 million), 91.6% of which constituted long-term debt (including the
current portion of long term debt that amounted to HRK 101.1 million (A13.5 million)), and 8.4%
under short-term Bilateral facilities. As of June 30, 2012, after giving effect to the Transactions, our
undrawn committed facilities would have been HRK 1,911.3 million (A254.5 million). This capital
structure, which we believe provides us with increased financial stability, resulted to a great extent from
our efforts over the past several years to convert a large part of our short-term debt into long term
debt in accordance with our strategic guidelines. See ‘‘Risk Factors—Risks Relating to the Notes—We
may have difficulty refinancing our short-term indebtedness,’’ ‘‘Capitalization’’ and ‘‘Description of
Other Financing Arrangements.’’
62
Our working capital requirements are seasonal as we are required to build up inventories prior to the
agricultural season and also in respect of other seasonal businesses such as ice cream and mineral
water. We have sought to minimize our working capital needs through improved inventory and raw
material management, terms from suppliers and customer collections.
We have in the past derived, and we expect to continue to derive, substantially all of our revenues from
funds generated by our operating subsidiaries, mainly in the form of management fees, intercompany
loans and dividends, and therefore rely on the ability of these companies to transfer funds to us.
The table below presents our cash flows for each of the years ended December 31, 2009, 2010 and 2011
and for the six months ended June 30, 2011 and 2012.
Year Ended December 31,
2009
2010
2011
(audited)
(audited)
(audited)
(HRK millions)
Cash flows
Net cash flows from operating
activities before changes in
working capital . . . . . . . . . . . . .
(1)
Interest paid . . . . . . . . . . . . . . .
Changes in working capital . . . . . .
Net cash provided by/(used in)
operating activities . . . . . . . . . .
Capital expenditure . . . . . . . . . . . .
Acquisitions of subsidiaries, net of
cash acquired . . . . . . . . . . . . . .
Net cash used in investing
activities . . . . . . . . . . . . . . . . . .
2,015.7
(624.4)
(91.5)
(900.4)
123.2
1,115.5
829.4
2,412.1
(1,064.0)
109.2
820.5
1,116.4
915.6
(426.1)
(373.9)
(512.5)
(144.2)
135.8
215.3
(1,575.3)
(1,985.3)
(1,332.9)
(663.3)
(437.6)
(451.0)
(507.2)
(354.0)
(115.8)
(11.6)
(1,496.8)
(1,901.4)
(1,860.3)
(600.6)
(566.8)
1,052.2
1,073.4
488.0
377.4
33.6
23.3
25.9
Net cash from financing activities .
571.0
Net increase/(decrease) in cash
and cash equivalents . . . . . . . . .
189.6
(1)
1,894.7
Six months ended June 30,
2011
2012
(unaudited)
(unaudited)
(19.8)
‘‘Interest paid’’ represents cash outflows during the period and therefore may not be equal to the ‘‘interest expense’’ line
item on our statement of income, which is an accrued amount.
Changes in working capital
Working capital represents accounts receivable plus inventories minus accounts payable as shown on
the balance sheet.
Cash flows
Year Ended December 31,
2009
2010
2011
(audited)
(audited)
(audited)
(HRK millions)
Six months ended June 30,
2011
2012
(unaudited)
(unaudited)
Change in receivables . . . . . . . . . .
(166.5)
(5.9)
(277.2)
(427.7)
(531.4)
Change in inventories . . . . . . . . . .
Changes in liabilities towards
creditors . . . . . . . . . . . . . . . . . .
(501.3)
(532.1)
(807.3)
(245.7)
(192.6)
576.3
661.2
1,193.8
299.5
579.8
Changes in working capital . . . . . .
(91.5)
123.2
109.2
(373.9)
(144.2)
Changes in working capital were negative and amounted to HRK 373.9 million in the first six months
of 2011 compared to a negative change of HRK 144.2 million in the corresponding period in 2012.
Both changes were negative due to the seasonality of our business in which the first few months of
the year are used as pre-season preparation requiring additional working capital, however the lower
negative change in 2012 reflects better working capital management.
Changes in working capital were HRK 123.2 million in 2010 compared to HRK 109.2 million in 2011.
The movement in changes in working capital was negatively impacted by an increase in receivables as
we increased our operations in the HoReCa channel where we allowed for longer payment terms in
63
order to support our partners in their preparation for the tourist season and by an increase in inventory
due to the enhanced scope of the overall operations, predominantly within our Meat and Agriculture
segment. Changes in working capital were HRK 123.2 million in 2010 compared to a negative HRK
91.5 million in 2009. The movement on changes in working capital was positively impacted by better
working capital management, more specifically through better collection of receivables.
Capital expenditures
Capital expenditures decreased by HRK 225.7 million, or 34.0%, from HRK 663.3 million in the first
six months of 2011 to HRK 437.6 million in the corresponding period in 2012.
Capital expenditures decreased by HRK 652.4 million, or 32.9%, from HRK 1,985.3 million in 2010 to
HRK 1,332.9 million in 2011.
Capital expenditures increased by HRK 410 million, or 26.0%, from HRK 1,575.3 million in 2009 to
HRK 1,985.3 million in 2010.
In the six months ended June 30, 2012, the investments in our Retailing and Wholesale division
included investments in the further development of our store network in Croatia, Serbia and Bosnia
and Herzegovina, continued implementation of a new ERP (Enterprise Resource Planning) system in
our Croatian retail operation and other IT investments throughout the Group. In the six month period
ended June 30, 2012, in the Food Manufacturing and Distribution division we invested in new orchards
and vineyards, reconstruction of silos and a loading ramp in Vupik, the refurbishment of equipment
and facilities in farming and IT equipment and software.
In the year ended December 31, 2011, the investments in our Retailing and Wholesale division
included investments in the further development of our store network in Croatia, Serbia and Bosnia
and Herzegovina, continued implementation of a new ERP (Enterprise Resource Planning) system in
our Croatian retail operation and other IT investments throughout the Group. In the year ended
December 31, 2011, in the Food Manufacturing and Distribution division we invested in new machines
and equipment in all of our segments, the most significant investments being in expansion of our meat
processing company PIK Vrbovec and dairy and pig farms.
In the year ended December 31, 2010, investments in our Retailing and Wholesale division included
investments in the further development on our store network in Croatia, Serbia and Bosnia and
Herzegovina, in the construction of additional distribution and logistics centers in Croatia and Serbia
and in the implementation of a new ERP system in our Croatian retail operations. In the year ended
December 31, 2010, in the Food Manufacturing and Distribution division we invested in new machines
and equipment in all of our segments, the most significant investments being in dairy and pig farms,
reconstruction of silos, new agricultural land and certain investments in the meat factory in our Meat
and Agriculture segment.
In the year ended December 31, 2009 the investments in our Retailing and Wholesale division included
the further development of our store network in Croatia, Serbia and Bosnia and Herzegovina and of
our distribution and logistics centers in Croatia and Serbia. In the Food Manufacturing and
Distribution division, we invested in the Agriculture (extension of production capacities), Ice Cream
and Frozen Food (frozen food processing machines), Edible Oils and Margarines (state of the art
storage and processing facilities) segments and in a new fruit and vegetables storage facility for Nova
Sloga.
Indebtedness
We have historically financed a significant portion of our expansion through bank borrowings and bond
issuances. In general, our financing agreements contain a number of covenants and restrictions,
including financial covenants, limitations on incurring further indebtedness and granting liens on our
properties and prohibitions on sales of assets. They also typically include cross defaults to other of our
indebtedness. These covenants and restrictions impose limitations on the way in which we conduct our
business, and may prevent us from raising further debt financing should we need to do so. See
‘‘Description of Other Financing Arrangements.’’
64
The following table summarizes our indebtedness as of December 31, 2009, 2010 and 2011, as of
June 30, 2012, and as of June 30, 2012 after giving effect to the Transactions:
2009
(audited)
Borrowings
Long-term Borrowings
Bank loans . . . . . . . . .
Bonds . . . . . . . . . . . .
Non-bank loans . . . . .
Finance leases . . . . . .
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.
As of June 30,
2012 As
2012
Adjusted(1)
(unaudited)
(unaudited)
As of December 31,
2010
2011
(audited)
(audited)
(HRK millions)
.
.
.
.
3,820.6
2,833.8
23.3
16.9
4,858.9
2,878.1
40.3
14.0
4,385.5
4,071.3
16.0
17.0
4,370.2
6,285.0
1.0
10.9
155.7
10,517.5
1.0
10.9
Total long-term borrowings . . . . . .
6,694.6
7,791.3
8,489.9
10,667.1
10,685.2
Current portion of long-term
borrowings . . . . . . . . . . . . .
(914.2)
(796.9)
(935.2)
(745.5)
(101.1)
Short-term borrowings
Bank loans . . . . . . . . . . . . . . . . . .
Non-bank loans . . . . . . . . . . . . . .
2,292.7
30.8
2,316.4
26.1
2,619.5
156.3
975.9
—
975.9
—
Total short-term borrowings . . . . .
2,323.5
2,342.5
2,775.8
975.9
975.9
Total borrowings . . . . . . . . . . . . . .
9,018.1
10,133.8
11,265.7
11,643.0
11,661.0
(1)
Reflects indebtedness as of June 30, 2012, as adjusted to give effect to the Transactions as if they occurred on June 30,
2012.
In 2009, 2010 and 2011 and the first six months of 2012 the increase in indebtedness was primarily
driven by working capital requirements and capital expenditures.
The average borrowing cost on our indebtedness was 8.3%, 9.4%, 9.7% and 10.2% as of December 31,
2009, 2010 and 2011 and June 30, 2012, respectively. See ‘‘Description of Other Financing
Arrangements.’’
As of June 30, 2012, 43.4% of our debt had a fixed interest rate and 56.6% of our debt had a floating
interest rate. As of June 30, 2012, we have not hedged our interest rate exposure.
The table below summarizes the maturity profile of our long-term indebtedness as of June 30, 2012:
Maturity
2012
2013
2014
2015
2016
2017
.......
.......
.......
.......
.......
and later
Total
(HRK
thousands)
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382.5
825.0
910.2
2,194.1
4,112.8
2,242.5
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,667.1
We intend to use the proceeds from the Offering of the Notes together with cash on hand to repay in
full indebtedness outstanding under our Senior Credit Facility, the Term Loan, the EBRD facilities, the
IFC facilities and the Credit Agricole facility. See ‘‘Use of Proceeds’’ and ‘‘Capitalization.’’
Off-balance sheet items
We have certain operating leases relating principally to buildings (including leased retail shops),
equipment and motor vehicles. The average cancellation period for our operating leases is between six
and nine months. Leasing is a regulated business in Croatia, with only authorized entities permitted to
be lessors under operating and finance leases. However, individuals and non-authorized entities may
enter into rental arrangements for real property and other assets that do not constitute operating or
finance leases. We record both operating lease expense and rental expense under cost of services.
65
Details of our operating lease commitments are set out in the table below:
2009
(audited)
Operating Lease Commitments
Payable
Payable
Payable
Payable
over 5 years . .
in 2 to 5 years
in 1 to 2 years
within 1 year .
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As of
June 30,
2012
(unaudited)
As of December 31,
2010
2011
(audited)
(audited)
(HRK thousands)
.
.
.
.
449,873
469,443
298,546
364,453
609,795
638,125
365,118
443,239
850,887
790,923
412,270
503,786
826,102
809,851
399,542
491,697
Total operating lease commitments . . . . . . . . . .
1,582,315
2,056,277
2,557,866
2,527,192
Quantitative and Qualitative Disclosures about Market Risk
Currency Risk
Most of our assets and cash flows are denominated in Kuna. As we have expanded internationally,
however, an increasing proportion of our assets and cash flows are denominated in other currencies, in
particular Serbia Dinars and Convertible Marks. A significant portion of our loan liabilities are linked
to foreign currencies, predominantly euro. Accordingly, we are exposed to the risk of changes in foreign
exchange rates. However, considering the long-term policy of the Croatian National Bank to manage
the exchange rate of the Kuna to the euro, we do not consider this risk to be significant. We do not
currently hedge our currency exposure, but we expect to enter into hedging arrangements with respect
to the notional amount of the Dollar Notes. See ‘‘Risk Factors—Risks Relating to the Group—Our
business may be adversely impacted by fluctuations in exchange rates which could affect our
profitability and our ability to comply with our financial covenants.’’
The table below illustrates the impact of a five percent increase or decrease in the exchange rate of the
currencies listed on our profit before tax due to changes in the fair value of monetary assets and
liabilities in each of the years shown:
Effect on
profit before
tax
(HRK
thousands)
2011
Euro . . . . . . . .
U.S. dollars . . .
Swiss francs . . .
Pound sterling .
Danish krona . .
2010
Euro . . . . . . . .
U.S. dollars . . .
Swiss francs . . .
Pound sterling .
Danish krona . .
Canadian dollar
2009
Euro . . . . . . . .
U.S. dollars . . .
Swiss francs . . .
Czech koruna . .
Pound sterling .
Danish krona . .
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519,709
(1,004)
301
22
1
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393,645
(9,320)
271
(2)
1
(1)
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395,618
567
1,740
8
2
16
Interest Rate Risk
The majority of our interest bearing assets and liabilities represent loans received.
66
The table below illustrates the impact of a 50 basis point increase or decrease in interest rates by
currency listed on our profit before tax due to the impact on floating rate borrowings in each of
the years shown:
Effect on
profit before
tax
(HRK
thousands)
2011
Euro . . . . . . . . . . . . .
Hungarian forint (100)
Swiss francs . . . . . . . .
Croatian kuna . . . . . .
2010
Euro . . . . . . . . . . . . .
Hungarian forint (100)
Swiss francs . . . . . . . .
Croatian kuna . . . . . .
2009
Euro . . . . . . . . . . . . .
U.S. dollars . . . . . . . .
Hungarian forint (100)
Swiss francs . . . . . . . .
Croatian kuna . . . . . .
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28,865
—
35
3,076
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29,648
1,028
48
3,047
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22,161
4
2,778
174
185
Liquidity Risk
Exposure to adverse situations in the debt or capital markets can hinder or prevent us from obtaining
the financing required to carry on our business activities and implement our business plan. However,
we seek to mitigate this risk by maintaining our long standing relationships with banks both within and
outside of Croatia. As of June 30, 2012, we had total borrowings of HRK 11,643.0 million, of which
HRK 1,721.4 million, or 14.8%, consisted of short-term debt and the current portion of long-term debt.
As of June 30, 2012, after giving effect to the Transactions, short-term debt and the current portion of
long-term debt are expected to be reduced to HRK 1,077.0 million, or 9.3% of total borrowings.
Critical Accounting Policies
Our consolidated financial statements have been prepared in accordance with IFRS. The consolidated
financial statements have been prepared on a historical cost basis, except for certain property, plant
and equipment and long-term investments which are included at valuation, as described in the following
accounting policy notes. The accounting policies have been consistently applied by us and are consistent
with those of the previous year, except as described in Note 1 to our interim financial statements for
the six months ended June 30, 2012, Note 1.28 to our 2011 financial statements, Note 1.28 to our 2010
financial statements and Note 1.28 to our 2009 financial statements. Our consolidated financial
statements are presented in Croatian Kuna (HRK), which is the functional currency of the Company
and the presentation currency for the consolidated financial statements. The effective exchange rate of
the Croatian Kuna (expressed in HRK) as of June 30, 2012 was HRK 5.97 per United States Dollar
(USD) (December 31, 2011: HRK 5.82; 2010: HRK 5.57; 2009: HRK 5.09) and HRK 7.51 per euro
(December 31, 2011: HRK 7.53; 2010: HRK 7.39; 2009: HRK 7.31). All amounts disclosed in the
financial statements are stated in thousands of HRK, except when otherwise indicated.
Revenue recognition
Revenue is recognized to the extent that it is probable that the economic benefits will flow to us and
the revenue can be reliably measured. Revenue is measured at the fair value of the consideration
received, excluding discounts, rebates and sales taxes. We assess our revenue arrangements against
specific criteria in order to determine whether we are acting as a principal or as an agent. We have
concluded that we are acting as a principal in all of our revenue arrangements. The following
recognition criteria must also be met before the revenue is recognized: In relation to the sale of goods,
revenue is recognized when the significant risks and rewards of ownership have been transferred to the
67
buyer and no significant uncertainties remain regarding the derivation of consideration, associated costs
or the possible return of goods. In relation to the rendering of services, revenue is recognized by
reference to the stage of completion of the transaction, when no significant uncertainties remain
concerning the derivation of consideration or associated costs. Interest income and dividends arising
from the use by others of our resources are recognized when it is probable that the economic benefits
associated with the transaction will flow to us and the revenue can be measured reliably. Interest
income is recognized as it accrues (taking into account the effective yield on the asset) unless collection
is in doubt. Dividend income is recognized when the right to receive the payment is established.
Business Combinations and Goodwill
Business combinations are accounted for using the acquisition method. The cost of an acquisition is
measured as the aggregate of the consideration transferred, measured at acquisition date, fair value and
the amount of any non-controlling interest in the acquiree. For each business combination, the acquirer
measures the non-controlling interests in the acquiree either at fair value or at the proportionate share
of the acquiree’s identifiable net assets. Acquisition related costs incurred are expensed. When we
acquire a business, we assess the financial assets and liabilities assumed for appropriate classification
and designation in accordance with the contractual terms, economic circumstances and pertinent
conditions at the acquisition date.
If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s
previously held equity interest in the acquiree is re-measured to fair value as at the acquisition date.
Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the
acquisition date. Subsequent changes to the fair value of the contingent consideration will be
recognized in profit or loss.
Goodwill and Excess of fair value of net assets over the cost of acquisition represent the difference
between the cost of acquisition and the acquirer’s interest in the fair value of the identifiable net assets
at the date of acquisition.
Goodwill is subject to impairment testing at each reporting date, as described in Note 1.8 in our
financial statements for the year ended December 31, 2011. Excess of fair value of net assets over the
cost of acquisition is reported as a gain through the income statement in the year of acquisition.
Impairment of assets
We assess at each financial year-end date whether there is an indication that an asset may be impaired.
If any such indication exists, or when annual impairment testing for an asset is required, we make an
estimate of the asset’s recoverable amount. The recoverable amount is estimated as the higher of an
asset’s or cash-generating unit’s (CGU) fair value less costs to sell and value in use. The fair value less
costs to sell is the amount obtainable from the sale of an asset in an arm’s length transaction less the
costs of disposal while value in use is the present value of estimated future cash flows expected to arise
from the continuing use of an asset and from its disposal at the end of its useful life. Recoverable
amounts are estimated for individual assets or, if this is not possible, for the cash-generating unit to
which the asset belongs. Cash-generating units are primarily identified at entity level. Where carrying
values exceed this estimated recoverable amount the assets are written down to their recoverable value.
The following criteria are also applied in assessing impairment of specific assets:
Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances
indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing
the recoverable amount of each CGU (or group of CGUs) to which the goodwill relates. Where the
recoverable amount of the CGU is less than its carrying amount an impairment loss is recognized.
Impairment losses relating to goodwill cannot be reversed in future periods.
Intangible assets
Intangible assets with indefinite useful lives are tested for impairment annually either individually or at
the cash-generating unit level, as appropriate and when the circumstances indicate that the carrying
value may be impaired.
68
Leasing
The determination of whether an arrangement is, or contains, a lease is based on the substance of the
arrangement at the inception date; whether fulfillment of the arrangement is dependent on use of a
specific asset or the arrangement conveys a right to use the asset.
We use the following policies when we act as a lessee: Finance leases, which effectively transfer to us
substantially all the risk and benefits incidental to ownership of the leased item, are capitalized at the
lower of the fair value of the leased property or present value of the minimum lease payments at the
inception of the lease term and disclosed as leased property, plant and equipment. Lease payments are
apportioned between the finance charges and reduction of the lease liability so as to achieve a constant
rate of interest on the remaining balance of the liability. Finance charges are recognized in finance
costs in the income statement. Capitalized leased assets are depreciated over the shorter of the leased
term and its useful life. Leases where the lessor effectively retains substantially all the risks and benefits
of ownership of the leased item are classified as operating leases. Operating lease payments are
recognized as an expense in the income statement on a straight-line basis over the lease term. The
accounting treatment of a sale and leaseback transaction depends upon the type of lease involved. If a
sale and leaseback transaction results in a finance lease, any excess of sales proceeds over the carrying
amount is deferred and amortized over the lease term. If a sale and leaseback transaction results in an
operating lease, and the transaction is established at fair value, any profit or loss is recognized
immediately.
We use the following policies when we act as a lessor: Leases where we do not transfer substantially all
the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs
incurred in negotiating an operating lease are added to the carrying amount of the leased asset and
recognized over the lease term on the same basis as the rental income. Contingent rents are recognized
as revenue in the period in which they are earned.
Foreign currencies
The individual financial statements of each of our entities are presented in the currency of the primary
economic environment in which the entity operates (its functional currency). For purposes of the
consolidated financial statements, the results and financial position of each of our entities are expressed
in Croatian Kuna (HRK), which is the functional currency of the Company and the presentation
currency for the consolidated financial statements.
Transactions and balances: Transactions in foreign currencies are initially recorded by our entities at
their respective functional currency rates prevailing at the date of the transaction. Monetary assets and
liabilities denominated in a foreign currency are translated into the reporting currency using the
reporting period closing exchange rate. Non-monetary items that are measured in terms of historical
cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions.
Non-monetary items measured at fair value in a foreign currency are translated using the exchange
rates at the date when the fair value is determined. Exchange differences arising on foreign currency
transactions and the translation of monetary and non-monetary assets and liabilities are recognized in
the consolidated income statement in the period in which they arise.
Our companies: The assets and liabilities of foreign subsidiaries are translated into the reporting
currency using the Croatian National Bank middle exchange rate at the balance sheet date. Revenues
and expenses are translated at the average exchange rate for the year. The effects of translating these
items are included in other comprehensive income. Any goodwill and fair value adjustments arising on
the acquisition of a foreign subsidiary are treated as assets and liabilities of that foreign subsidiary and
are translated at the closing rate.
Pensions and employee benefits
We, in the normal course of business, make fixed contributions into the State mandatory pension funds
on behalf of our employees. We do not operate any other pension scheme or post retirement benefit
plan, and consequently, have no legal or constructive obligation to make further contributions if the
funds do not hold sufficient assets to pay all employee benefits relating to employee service in the
current and prior periods. We make payments to employees that include one-off retirement and jubilee
benefits. The obligation and costs of these benefits are determined using a projected unit credit
method. The projected unit credit method considers each period of service as giving rise to an
69
additional unit of benefit entitlement and measures each unit separately to build up the final
obligation. Past service costs are recognized on a straight-line basis over the average period until the
amended benefits become vested. Gains or losses on the curtailment or settlement of pension benefits
are recognized when the curtailment or settlement occurs. The pension obligation is measured at the
present value of estimated future cash flows using a discount rate that is similar to the interest rate on
government bonds where the currency and terms of the government bonds are consistent with the
currency and estimated terms of the defined benefit obligation.
Agriculture
We recognize a biological asset or agricultural produce, such as livestock and crops, when there is
control over the asset as a result of past events, it is probable that future economic benefits associated
with the asset will flow to us and the fair value or cost of the asset can be measured reliably. A
biological asset is measured on initial recognition and at each balance sheet date at its fair value less
costs to sell, except when the fair value cannot be measured reliably. Agricultural produce harvested
from our biological assets is measured at its fair value less cost to sell at the point of harvest. For
biological assets valued at cost, depreciation is recorded by a charge to income computed on a
straight-line basis over the estimated useful life of the asset, as follows:
•
•
•
Vineyards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Apple orchards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Olive groves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10-20 years
10 years
20 years
The useful life, depreciation method and residual values are reviewed at each financial year-end and if
expectations differ from previous estimates, any changes are accounted for as a change in accounting
estimate.
Government grants
Government grants are recognized where there is reasonable assurance that the grant will be received
and all attaching conditions will be complied with. When the grant relates to an expense item, it is
recognized as income over the period necessary to match the grant on a systematic basis to the costs
that it is intended to compensate. Where the grant relates to an asset it is recognized as deferred
income and is released to the income statement in equal amounts over the expected useful life or the
relevant asset.
Key sources of estimation
The preparation of financial statements in conformity with IFRS requires the use of estimates and
assumptions that affect the amounts reported in our financial statements and notes thereto. Although
these estimates are based on management’s best knowledge of current events and actions, actual results
may differ from those estimates. The key assumptions concerning the future and other key sources of
estimation uncertainty at the balance sheet date that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed
below.
Impairment of goodwill:
We determine whether goodwill is impaired at least on an annual basis. This requires an estimation of
the value in use of the cash-generating units to which the goodwill is allocated. Estimating the value in
use requires us to make an estimate of the expected future cash flows from the cash-generating unit
and also to choose a suitable discount rate in order to calculate the present value of those cash flows.
For additional information see Note 7 to our financial statements for the year ended December 31,
2011.
Purchase price allocation:
Significant estimates are used in the purchase price allocation process and mainly relate to assessments
of fair value of land, impairment of plant and equipment, valuation of allowances and doubtful debts,
provisions for employee benefits and legal claims, as well as value of any separable intangible assets
existing at the acquisition date.
70
Other estimates:
Furthermore, in our normal course of business, estimates are used for, but not limited to: assessments
of value of land, depreciable lives and residual values of property, plant and equipment and intangible
assets, allowances for inventories and doubtful debts and provisions for employee benefits, legal claims
and taxes. Future events and their effects cannot be perceived with certainty. Details of estimates and
related amounts are disclosed in the respective accounting policies and notes to the financial
statements.
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BUSINESS DESCRIPTION
Overview
We are one of the leading food retailers and wholesalers and food and beverages producers in Central
and Eastern Europe (the ‘‘CEE’’). The primary markets in which we currently operate are Croatia,
Serbia and Bosnia and Herzegovina (our ‘‘Primary Markets’’). In addition, we also sell our food and
beverage products in Hungary, Macedonia, Montenegro and Slovenia. In total, our business operations
cover a region having a population of more than 30 million people.
Our activities are organized into two principal divisions:
•
Retailing and Wholesale; and
•
Food Manufacturing and Distribution, which is comprised of four segments: Ice Cream and Frozen
Foods, Water and Beverages, Edible Oils and Margarine, and Meat and Agriculture.
We are also engaged in commodity brokerage and other non-core activities (our ‘‘Other Businesses’’).
These divisions correspond to our business segments in the notes to our financial statements and are
hereinafter referred to as our ‘‘business operating segments’’ or ‘‘divisions’’.
Our two main business divisions are complementary and together provide us with an integrated
business model that covers the entire supply chain from sourcing raw materials, production and
distribution, to direct contact with customers through our wholesale and retail sales outlets. In addition,
the broad coverage of our retail network and the flexibility provided by our multi-format retail stores
(which allows us to tailor store size and format to local demographics) enhances our access to
consumers in our Primary Markets.
In 2011, we had consolidated sales of HRK 29,053.4 million (A3,908.1 million) and EBITDA of
HRK 2,671.5 million (A359.4 million). For the six months ended June 30, 2012, we had consolidated
sales of HRK 13,524.9 million (A1,793.9 million) and EBITDA of HRK 1,144.8 million (A151.8 million).
We had 36,588 employees as of June 30, 2012. Sales outside of Croatia represented 29.1% of our
consolidated total sales in 2011 and 27.8% in 2010 and 30.5% in the first six months of 2012.
Retailing and Wholesale division
We are the leading food retailer and wholesaler in terms of combined sales in our Primary Markets.
We are the largest food retailer and wholesaler in Croatia and Bosnia and Herzegovina, and the third
largest in Serbia, based on 2011 sales. As of June 30, 2012, we operate 993 stores through four
different retail formats: Small (which has up to 800 sqm of retail space), Maxi (800-1,300 sqm), Super
(1,300-4,000 sqm) and Hyper (over 4,000 sqm). Taken together, these retail stores provide us with
access to over 16 million residents in our Primary Markets. Our wholesale business, Velpro, operates
32 stores in our Primary Markets (20 in Croatia, 9 in Serbia, 3 in Bosnia and Herzegovina). Our kiosk
chain, Tisak, operates 1,242 kiosks in Croatia and holds more than 70% of the Croatian kiosk market.
Food Manufacturing and Distribution division
Our Food Manufacturing and Distribution division holds leading positions in terms of volume in each
of our Primary Markets with respect to certain key products. This division consists of the following
business segments: Ice Cream and Frozen Food, Water and Beverages, Edible Oils and Margarines and
Meat and Agriculture. In most of these business segments, we hold market shares of over 50% in each
of our Primary Markets. For example, in the carbonated water segment, we have a market share of
over 85% in Croatia through the Jamnica and Sarajevski kiseljak brands. In the non-carbonated water
segment, we hold a market share of more than 65% in Croatia through Jana, our most-recognized
brand internationally. In the ice cream market, we hold a market share of more than 90% in Croatia,
more than 85% in Bosnia and Herzegovina and more than 75% in Serbia through the Ledo and
Frikom brands. In the margarine market, we hold a market share of more than 85% in Croatia, 65% in
Bosnia and Herzegovina and 65% in Serbia through the Zvijezda and Dijamant brands. Our most
significant customers are the largest retailers present in our Primary Markets, including Konzum (which
generates intersegment sales), Billa, Delta, Kaufland, Mercator, Lidl and Plodine.
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Other Businesses division
Our Other Businesses include the commodity brokerage business, Agrokor trgovina, and other non-core
businesses. Agrokor trgovina’s main line of business is brokering agri-food products.
Company organization
The following chart sets out the organizational structure of our businesses, including the beneficial
ownership in our major subsidiaries as of June 30, 2012:
Food and Beverages Production
Food Retail
Other Businesses
FOOD
RETAIL
ICE CREAM
AND FROZEN
FOOD
WATER AND
BEVERAGES
EDIBLE
OILS AND
MARGARINES
MEAT AND
AGRICULTURE
OTHER
BUSINESSES
KONZUM
Croatia
80.55%
LEDO
Croatia
78.85%
JAMNICA
Croatia
80.44%
ZVIJEZDA
Croatia
51.84%
PIK VRBOVEC
Croatia
99.99%
AGROKOR TRGOVINA
Croatia
100.00%
KONZUM
B&H*
80.55%
FRIKOM
Serbia
95.83%
SARAJEVSKI
KISELJAK
B&H*
80.98%
DIJAMANT
Serbia
73.08%
BELJE
Croatia
67.92%
IDEA
Serbia
100.00%
LEDO
B&H*
78.85%
FONYÓDI
Hungary
80.44%
SOJARA
Croatia
51.84%
PIK VINKOVCI
Croatia
70.87%
TISAK
Croatia
54.15%
LEDO Kft
Hungary
78.85%
AGROLAGUNA
Croatia
85.22%
SOLANA PAG
Croatia
96.49%
NOVA SLOGA
Serbia
95.83%
VUPIK
Croatia
55.76%
Percentages refer to Agrokor d.d. ownership in the respective subsidiaries.
12OCT201207334730
*B&H stands for Bosnia and Herzegovina.
History
Agrokor was founded by Mr. Ivica Todorić in 1976, although many of the businesses we have acquired
since then have been operating for considerably longer. Our original business involved the cultivation
and trading of flowers and flower seedlings. By the mid-1980s, we had become the market leader in the
production and import of flowers within the former Yugoslavia and had developed our own distribution
network. In 1989, we were incorporated as a joint stock company, by which time we had expanded into
agricultural import-export trading opportunities.
With the introduction of privatization in Croatia and elsewhere in the former Yugoslavia, we were able
to acquire majority shareholdings in a number of well-established companies with leading market
positions. In 1992, we acquired Jamnica (a producer of water and beverages) and in 1993, we acquired
Zvijezda (a producer of edible oils, margarine and mayonnaise) and Konzum (a food retail and
wholesale chain). In 1994, we acquired Ledo (a producer of ice cream and frozen food). The period
from 1995 to 2000 was dedicated to integrating previously acquired companies, while making significant
investments in new technologies, development of new products, distribution networks, marketing and
employee education and training.
73
In 2000, we expanded internationally with our acquisition of Ledo Čitluk and Sarajevski kiseljak,
producers of ice cream and frozen food and water and beverages in Bosnia and Herzegovina. In 2003,
we entered the Serbian market by acquiring a majority stake in the ice cream and frozen food producer
Frikom. In 2004, we entered the EU market with the acquisitions of water producer Fonyódi and ice
cream producer Baldauf (now Ledo Kft.) in Hungary.
In 2005, we acquired the leading Serbian edible oil, margarines and mayonnaise producer Dijamant and
entered the Serbian food retail and wholesale market through the acquisition of IDEA. In the
same year, we also entered the meat production and processing and agricultural industries by acquiring
the Croatian companies PIK Vrbovec and Belje. In 2006, the EBRD joined our ownership structure
through a capital increase of A110 million, which resulted in the EBRD receiving an 8.33% ownership
interest in the Group. In 2007, we acquired Tisak, the leading Croatian kiosk chain and distributor of
newspapers, tobacco and other commercial goods. In 2008, we shifted our focus to significantly
expanding our food retail network in our Primary Markets. In 2010, we expanded our Meat and
Agricultural business with the acquisition of Vupik, one of the largest agricultural companies in Croatia.
Competitive Strengths
We believe that our business benefits from the following competitive strengths:
•
Leading market positions supported by a diverse portfolio of leading brands and products. We hold
leading market positions in a majority of our business segments in each of our Primary Markets, as
well as in certain of our business segments in Slovenia and Montenegro. For example, in 2011 our
Retailing and Wholesale division had the leading market position in terms of sales in both Croatia
and Bosnia and Herzegovina and the third leading market position in terms of sales in Serbia. In
the Food Manufacturing and Distribution division, we have the leading market position in terms of
volume of water in Croatia, as well as in Bosnia and Herzegovina. In ice cream and margarines,
we have the leading market position in terms of volume in each of our Primary Markets and in
Montenegro. We believe that we operate in markets where there is a strong brand culture and that
our leading market positions are supported by a diversified portfolio of leading brand names and
products in both our Retailing and Wholesale and Food Manufacturing and Distribution divisions.
Each of our brands has a high level of consumer awareness, and certain of our brands, such as
Zvijezda and Jamnica, are linked with products ranked among the top ten products with the
highest brand awareness in Croatia. In 2010 and 2011, we received the ‘‘Most Trusted’’ brand
award from Reader’s Digest in the applicable categories for Zvijezda, Ledo and Jana products and
also for Konzum. During 2011, Ipsos Puls, a market research agency, conducted an extensive
survey evaluating the effect of brands on Croatian consumers. According to Ipsos Puls’
‘‘BrandScore’’ list of the top 30 brands in the Croatian market during the first half of 2011,
Zvijezda’s oil and margarine and Jamnica’s carbonated water earned the first three places in
consumer opinion polls. Based on a national consumer survey conducted in 2011 by My Serbia, an
independent consumer association, Dijamant edible sunflower oil was awarded the My Choice
award, as the favorite cooking oil. In addition to the support provided by our strong brands, we
have been able to further strengthen our market positions by responding to our customers’
changing needs through the introduction of lower cost ‘‘B’’ brands in the Ice Cream and Frozen
Food and the Water and Beverages business segments to capture more price-sensitive customers.
•
Vertically integrated business model with local strategic partnerships. Our business model is based on
the vertical integration of our operations, which include agriculture, animal feeding and breeding,
as well as food manufacturing and distribution and food retailing and wholesaling. Through these
businesses, we have the ability to control the entire supply chain, from sourcing raw materials,
production and distribution to direct contact with end customers through our retail and wholesale
outlets and, as a result, we have full traceability and enhanced quality control over the products we
make. In addition, vertical integration enables us to quickly and efficiently adjust our Food
Manufacturing and Distribution product portfolio to respond to shifts in consumer purchasing
patterns and supports our product innovation and ability to lead and respond quickly to changes in
market trends. Vertical integration also reduces our dependence on external suppliers, and when
we use external suppliers, we generally rely on strategic partnerships with local suppliers for whom
we are often the largest buyer within our Primary Markets. The volume of our purchase orders
often enables us to have more favorable terms and conditions with our suppliers. We believe that
these strategic partnerships with local suppliers combined with our model of vertical integration
provides a competitive advantage.
74
•
Strong consumer access supported by broad distribution networks. Our extensive retail and wholesale
coverage, supported by an efficient distribution network and our flexible multi-format retail store
model provides us with broad access to consumers in our Primary Markets. For example, our
Konzum supermarket chain has the largest number of supermarket stores in Croatia, with
approximately 95% geographic coverage and is supported by one of the largest distribution
networks in the country. In addition, we have a wide range of products (up to 40,000 stock-keeping
units (‘‘SKUs’’)) that we regularly adjust to satisfy changing consumer tastes and preferences.
Furthermore, we are able to track consumer tastes and preferences on a store-by-store basis with
the data we obtain through our Konzum Plus loyalty card program, which comprises more than
800,000 customers in Croatia, and our point-of-sale terminals, and we then react to such data by
adjusting our inventory, pricing and marketing activities accordingly (which we refer to as our
‘‘customer-centric’’ approach to retailing). Our access to consumers is also supported by our
extensive distribution network in each of our business segments, which we believe presents a strong
competitive advantage. This is particularly important in Croatia due to its shape and geography,
including more than 1,000 islands, which present significant challenges for efficient and timely
distribution.
•
Strong financial results in a resilient industry. We have produced strong financial results through our
vertically integrated business model. Our model enables us to control the production and
distribution chain from agriculture to food production and ultimately to food retail, reducing
pricing pressures that may arise throughout the chain. We believe our business is less sensitive to
economic fluctuations because food consumption is less dependent on discretionary spending than
other areas of consumer spending. For example, during 2009, the food retail market fell by only
3.6% in Croatia in real terms, while the total retail market according to the Croatian Bureau of
Statistics, fell by 15.3% and the GDP of Croatia fell by 5.8%. Even during the challenging
conditions of 2010 and 2011, when the GDPs of the Primary Markets were stagnating, we
continued to demonstrate the resilience and success of our business model, which is reflected
through an increase in both our sales and EBITDA margin. In 2011, our sales grew by 9.6%
compared to 2010, whereas our EBITDA margin remained stable at 9.2% and 9.1% in 2011 and
2010, respectively. Our consolidated sales grew at a compound annual growth rate of 19.9% over
the ten-year period from 2001 to 2011, and EBITDA also grew at a rate of 20.0% over the same
period.
•
State-of-the-art facilities and cost efficiency. Our state-of-the-art facilities allow us to produce
high-quality products that meet international standards in a cost-efficient manner. During the
period from 2006 to 2011, we invested HRK 10,557.5 million in modernizing and increasing the
capacity of our production facilities. Since 2005, we have made a greenfield investment of more
than HRK 1 billion in PIK Vrbovec, our red meat production facility, in order to automate the
entire production process. Our investment in state-of-the-art facilities combined with our increasing
purchasing power has enabled us to increase our production efficiency, which has resulted in
greater profitability. As we have completed the majority of our investment requirements in the
Food Manufacturing and Distribution division, we do not expect these facilities to require
significant capital expenditures in the medium term.
•
Proven expertise of integrating and improving acquired companies. We have experienced significant
growth by successfully acquiring and integrating new small to medium-sized companies into our
operations and turning around underperforming businesses. For example, within six years of our
acquisition of PIK Vrbovec, we increased sales volume from 8,000 tons of fresh processed red
meat in 2004 to 65,000 tons in 2011 as a result of our investment in a new meat processing facility.
In addition, in 2003 we acquired the ice cream producer Frikom, whose market share has grown
from approximately 30% in 2003 to over 75% in 2011, gaining market share from both
international and domestic competitors. We also acquired and integrated the Serbian edible oil
producer Dijamant (2005) and carbonated water producers Sarajevski kiseljak in Bosnia and
Herzegovina (2000) and Fonyódi in Hungary (2005). Following these acquisitions, we implemented
our management and operational practices in the acquired companies to maximize efficiency and
to align their accounting policies, management information and reporting systems with ours. In
addition, following these acquisitions to the extent necessary, we may invest in the production
facilities, adjust and rebrand the product portfolio and integrate the supply of its products into our
distribution network.
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•
Experienced and highly focused management team. We have an experienced management team with
deep knowledge of our industry, key markets and products. The members of our Supervisory
Board and Management Board have been with us for an average of 10 years and 12 years,
respectively, and have an average of over 15 years of industry experience. Our senior management
team is highly focused with a long history of growing our business and identifying, negotiating and
integrating strategic acquisitions. Each principal business activity has a responsible vice president
on the Management Board. Furthermore, each of our subsidiaries is run by its own management
team with industry-specific and local know-how and experience.
Strategy
We plan to increase the value of our business through growth in our Primary Markets and through
opportunistic and strategic expansion. We intend to achieve this through the following primary
objectives:
•
Maintain and strengthen our leading market positions in our Primary Markets through our brands and
product innovation. We plan to achieve this by further building on our strong brand names and
brand recognition, further developing our distribution networks, and building on our relationships
with local strategic suppliers. We also plan to continue to introduce new products in response to
changing consumer tastes or demand. For example, in response to increased consumer health
concerns, we developed Omegol, a line of omega-3-rich products. By expanding our portfolio with
product innovations aimed at satisfying local tastes and by adapting our existing portfolio to
changing consumer tastes and preferences, we aim to continue to meet customers’ demands and
increase our market share in each of our Primary Markets.
•
Focus on our core businesses. We intend to focus on our core Retailing and Wholesale and Food
Manufacturing and Distribution divisions, with an emphasis on exploring growth opportunities in
Retailing and Wholesale. We also expect to continue to upgrade our facilities, distribution
networks, processes and technology and to identify both strategic bolt-on acquisitions and attractive
larger acquisitions. As part of our focus on core businesses, we disposed of a number of our
non-core businesses such as Mlinar, Štampa and Kozmo and may dispose of additional non-core
businesses in the future.
•
Focus on operating profitability through vertical integration and efficiency measures. We adopt a
focused approach to enhancing our operating profitability by maximizing synergies through the
vertical integration of our value chain and implementing measures to increase efficiency at both
the subsidiary and parent levels. We intend to continue to establish group-wide procurement
contracts with large domestic and international suppliers and further optimize our logistics and
distribution networks.
•
Maintain our disciplined earnings and cash-flow oriented approach. We will continue to carefully
assess the potential for earnings and cash-flow stability and growth when we evaluate the
performance of our operations and new investment opportunities. In managing our business, we
seek to improve our profitability by optimizing our work processes, maintaining a strong focus on
employee efficiency, exploiting our extensive coverage and distribution network, realizing synergies
available within the Group, and continuing to build upon strategic relationships with local
suppliers. We seek to generate cash by improving our profitability, disposing of non-core assets and
businesses and maintaining a prudent capital expenditure policy.
•
Considered expansion into new markets. As a result of our regional expansion in the CEE, our sales
outside the Croatian market have increased significantly. Sales outside Croatia represented 29.1%
of our total consolidated sales in 2011 and 27.8% in 2010, and 30.5% in the first six months of
2012. We aim to capitalize on our competitive advantages and the growth potential of neighboring
markets and other countries where acquisition opportunities may arise, and we intend to continue
to broaden our presence in the CEE, while seeking to maintain our strong focus on profitability.
In addition, we believe that certain of our products, for example, water, have considerable export
potential and we will continue to expand our marketing efforts for these products. Furthermore,
we seek to exploit potential growth opportunities in our Primary Markets coming from increased
GDP and food consumption per capita which is expected to continue to converge towards the
EU levels over time. For example, in 2011 Jamnica entered into a new market segment consisting
of consumers focused on sports nutrition with the introduction of a vitamin-enhanced powdered
drink, Juicy Vita.
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Retailing and Wholesale
Overview
We are the leading food retailer and wholesaler in terms of combined sales in our Primary Markets.
We are the largest food retailer and wholesaler in Croatia and Bosnia and Herzegovina, and the third
largest in Serbia, based on 2011 sales. Through our Primary Markets, we cover a population of over
16 million people, serving more than one million customers daily. We currently operate 993 food retail
stores comprising a net sales area of 410,827 sqm and have a nationwide presence in each of our
Primary Markets. Through Velpro’s 32 wholesale centers with a net sales area of 103,769 sqm, we
service the Hotels, Restaurants and Catering segment (‘‘HoReCa’’), as well as independent shops. We
are also the leading retail kiosk operator and newspaper and tobacco wholesaler in Croatia with 1,242
kiosks with a net sales area of 15,808 sqm.
We have grown in the last ten years primarily due to our high market penetration and broad customer
base in our Primary Markets. Our growth was further supported by implementation of leading practices
in supply chain management, logistics, sales and marketing and IT solutions. We seek to continue to
strengthen our leading market positions in our Primary Markets, with a strong focus on the growing
markets of Serbia and Bosnia and Herzegovina. The expansion of our Retailing and Wholesale
operations creates intra-group synergies through economies of scale based on sales of products from
our Food Manufacturing and Distribution division and increased utilization of our distribution and
logistics network. We believe the expansion of our Retailing and Wholesale division provides us with
strong and stable cash flow generation throughout the year.
The Retailing and Wholesale division had consolidated sales of HRK 21,930.3 million in 2011,
representing growth of 9.5% compared to 2010 and EBITDA of HRK 1,298.3 million in 2011,
representing growth of 2.4% compared to 2010. For the six months ended June 30, 2012 we had
consolidated sales of HRK 10,413.2 million, representing growth of 3.6% compared to the six months
ended June 30, 2011 and EBITDA of HRK 477.0 million as of June 30, 2012 which compared to the
six months ended June 30, 2011 represents a decline of 3.7%. The division represented 75.5% of our
total sales in 2011 and 77.0% of our total sales for the first six months of 2012. We operate our
Retailing and Wholesale stores in each of our Primary Markets through the following brands:
•
Konzum, the leading food retailer and wholesaler in Croatia in terms of sales.
•
IDEA, the third largest food retailer and wholesaler in Serbia in terms of sales.
•
Konzum Sarajevo, the leading food retailer and wholesaler in Bosnia and Herzegovina in terms of
sales.
•
Tisak, the largest national kiosk retail chain in Croatia and the leading distributor of print media,
tobacco products and prepaid mobile vouchers, with an estimated market share of over 70% of the
daily newspaper and print media market, over 75% of mobile prepaid vouchers market and over
25% of the tobacco market in Croatia according to our estimates based on sales for the first
six months of 2012.
•
Velpro, a leading wholesaler in our Primary Markets.
Operations
We operate our stores through four different retail formats: Small (which has up to 800 sqm of retail
space), Maxi (800-1,300 sqm), Super (1,300-4,000 sqm) and Hyper (over 4,000 sqm). Our stores offer
more than 40,000 different SKUs. Through Tisak, we have the largest kiosk network in Croatia.
Velpro is a leading wholesaler in our Primary Markets, with 20 centers in Croatia, 9 in Serbia and 3 in
Bosnia and Herzegovina. Velpro’s format is tailored for professional customers and provides a range of
over 14,000 food and non-food items. Velpro Croatia cooperates with more than 1,250 independent
shops in Croatia operating under the Plus Market brand. The goal of the Plus Market project is to
actively partner with small shop owners in order to transfer retail best practices to small independent
stores. Shared know-how includes advising on product range, price structure, in-store layout, key
performance indicators, marketing activities and employee education.
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The following tables set out the number of stores (by store type) and the selling surface (in sqm)
in each of our Primary Markets as of January 1, 2011, December 31, 2011 and June 30, 2012:
As of January 1, 2011
As of December 31, 2011
Total
Number
of Stores
Small
Maxi .
Super
Hyper
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Total retail . . . . . .
Sales
Area
(m2)
774 136,150
84 67,794
63 146,516
1
6,635
Croatia
Number
of Stores
Share
Sales
Area
(m2)
Number
of Stores
Serbia
Sales
Area
(m2)
Number
of Stores
38.1%
19.0%
41.0%
1.9%
581 104,766
30 25,141
51 123,521
99 17,823
41 31,320
8 17,925
127
16
17
1
922 357,095 100.0%
662 253,428
148 67,068
Velpro . . . . . . . .
27 105,022
Total retail and
wholesale . . . . .
949 462,117
Tisak . . . . . . . . .
Bosnia and
Herzegovina
1,210
14,773
19
44,924
2
681 298,352
1,115
Number
of Stores
Sales
Area
(m2)
Share
28,893
11,281
29,169
6,635
807 151,482
87 67,742
76 170,615
1
6,635
161
75,978
971 396,474 100.0%
7
52,094
1,800
150 68,868
Total
Sales
Area
(m2)
168 128,072
14,376
28
38.2%
17.1%
43.0%
1.7%
98,818
999 495,292
1,115
14,376
As of June 30, 2012
Croatia
Sales
Number
Area
of Stores
(m2)
Small .
Maxi .
Super .
Hyper
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Bosnia and
Herzegovina
Sales
Number
Area
of Stores
(m2)
Serbia
Number
of Stores
Sales
Area
(m2)
Number
of Stores
Total
Sales
Area
(m2)
Share
.
.
.
.
596
31
52
0
111,844
26,152
125,266
0
103
41
8
0
18,709
31,565
18,466
0
127
15
19
1
28,578
10,239
33,185
6,823
826
87
79
1
159,131
67,956
176,917
6,823
38.7%
16.5%
43.1%
1.7%
Total retail . . .
679
263,262
152
68,740
162
78,825
993
410,827
100.0%
Velpro . . . . . .
20
45,044
3
2,297
9
56,428
32
103,769
Total retail
and
wholesale . .
699
308,306
155
71,037
171
135,253
1,025
514,596
Tisak . . . . . . .
1,242
15,080
1,242
15,808
Before opening a store, we evaluate the local market. The main factors we consider when making our
initial evaluation include competition, average income in the area, store surface area and geographic
location and accessibility. This evaluation is aimed at identifying possible store locations with the
requisite potential for operating a profitable business. Once a site has been identified, we conduct a
feasibility study which forecasts store sales and operating performance. Our analysts consider factors
such as local store sales per square meter and profitability, average salary in the region, competition
data and qualitative variables, including growth potential and expected competition. Based on their
conclusions, we decide whether or not to establish a store in the area and, if so, whether to rent, lease
or build. We tend to enter into standard 10- to 15-year lease and rental agreements, which are
terminable at our option prior to their expiration without material penalty. We normally would be
obliged to pay about 3 months’ rent or lease payments or, in a small number of cases, 3 to 12 months.
We monitor the performance of each of our stores on an ongoing basis, focusing on store profitability,
the scale of sales and the trends in the competitive environment. If a store does not meet our
performance standards, it is either closed or changes are made to adjust the product offering and
pricing strategy at the store. Some stores are closed because of an opportunity to open a new store
nearby at lower cost or in a better location.
Markets and competition
Through our subsidiary Konzum, we are the largest food retailer and wholesaler in Croatia in terms of
2011 sales. We are the only food retailer and wholesaler with nationwide coverage and are more than
three times larger in terms of sales than the second largest company. Our competitors are established
foreign and domestic food retailers and wholesalers such as Billa, Kaufland, Lidl, Mercator, Spar and
78
Plodine. The Croatian food retail and wholesale market is relatively consolidated when compared with
the markets in Serbia and Bosnia and Herzegovina, and we expect market consolidation to continue.
Konzum held a 28.2% market share of the Croatian food retail market (excluding wholesale) in terms
of sales in the first six months of 2012, more than three times than Kaufland, which held market share
of 9.3% according to GfK Croatia. Other main competitors include Lidl, Plodine and Mercator, with
market shares of 8.1%, 6.6% and 4.5%, respectively, according to GfK Croatia.
We entered the Serbian market in 2005 through the acquisition of IDEA. IDEA is one of the few
nationwide food retailers and wholesalers in the country and the third largest food retailer and
wholesaler in terms of sales in 2011. From 2006 through 2011, the Serbian food retail market has
grown steadily. Our food retail and wholesale operations in Serbia grew by 24.3% and 3.3% in terms of
sales in 2011 compared to 2010 and in the first six months of 2012 compared to the first six months of
2011, respectively. Our competition in Serbia includes both domestic and international companies, with
Delta Maxi (which is owned by Delhaize) holding the leading position in the market. Other competitors
include C market (which is also owned by Delhaize), Mercator, Metro, Dis, Univerexport, Cort,
Familija market, Interex, Tuš and Vero. The Serbian retail market is very fragmented and characterized
by a large number of small shops and a substantial grey market.
In 2004, we entered the food retail and wholesale market of Bosnia and Herzegovina through the
establishment of Konzum Sarajevo. Konzum Sarajevo is one of the few nationwide food retailers and
wholesalers in the country and the largest food retailer and wholesaler in terms of sales. From 2006
through 2011, the market in Bosnia and Herzegovina grew steadily. Our food retail operations in
Bosnia and Herzegovina grew by 8.0% and 4.8% in terms of sales in 2011 compared to 2010 and in the
first six months of 2012 compared to the first six months of 2011, respectively. Our main competitors
are Bingo, Interex and Mercator. Like Serbia, the food retail market in Bosnia and Herzegovina is still
very fragmented and is characterized by a large number of small shops and a substantial grey market.
According to our estimates, Tisak held more than 70% of the daily newspaper market and other print
media in Croatia (e.g., magazines, comics and foreign press) in the first six months of 2012. We also
held over 75% of the prepaid mobile phone vouchers market and over 25% of the tobacco market,
according to our estimates. Tisak’s main competitors are Inovine, Fibis and Glas Istre. According to
our estimates, Tisak is also the largest retailer and wholesaler of print media and tobacco in Croatia,
accounting for more than 50% of the total market. The primary competitor in the wholesale kiosk
segment is the Croatian company Distripress.
Products and Services
We offer a wide range of food and nonfood products in our retail stores, from low-end private labels to
premium brands. In each country in our Primary Markets, we offer between 25,000 and 40,000 of our
own and third-party SKUs. We customize our product range, inventory and pricing based on the
purchasing power and price-sensitivity of customers in an area in order to increase the efficiency of our
operations. We are also focused on providing our customers with a fresh offering of fruits and
vegetables, meat and processed meat products sourced from our meat and agricultural business or
third-party suppliers with whom we have longstanding relationships. In addition, we sell bread and
bakery products, as well as dairy products and fresh fish. The fresh food segment is typically provided
on a daily basis by reliable local suppliers who offer high-quality products and traceability. We believe
our ability to provide our customers with an attractive, daily supply of fresh assortments is one of our
primary competitive advantages. Our top-selling SKUs are fresh meat, fruits and vegetables,
confectionary products, juices and milk products. We also offer non-food items such as textiles,
household appliances and dinnerware, among others, which represent a small portion of our total sales.
In 2002, we introduced the K-plus private-label brand and in 2006, we introduced the Standard discount
brand. In 2010, we expanded our private-label brand offering with a new premium range of products
under the ‘‘Volim najbolje’’ (‘‘I love the best’’) brand name and also continued to broaden our basic
K-Plus and discount Standard offering. We sell over 3,000 private-label products covering essential
consumer goods. We believe our private-label assortment matches the product range of our
competitors, including the discounters Lidl and Kaufland and that our tight control of the origin and
processes of production, frequent packaging redesigns and favorable prices means that our customers
recognize our private labels for their quality and value. Konzum offers over 3,600 private-label SKUs
which accounted for 16.1% of its total sales in the first six months of 2012. Konzum Sarajevo and
IDEA offer approximately 1,950 and 2,800 private-label SKUs, representing 10.5% and 10.8% of their
79
total sales in the first six months of 2012, respectively. Although these products are sold at lower prices,
we still manage to achieve strong margins due to less expensive packaging, bulk purchasing and lower
advertising costs.
Tisak, which includes Slobodna Dalmacija Trgovina, offers 16,000 SKUs in its overall product portfolio,
including magazines, newspapers, cigarettes and tobacco products, other impulse food and beverage
products (including water, beverages, ice cream and chewing gum) and pre-paid mobile phone
vouchers. Although the vast majority of Tisak kiosks are of a uniform size (traditional kiosks range
from 9-15 sqm), in 2008 we developed a new format—Tisak Media—with stores varying in size from
100-300 sqm, through which we entered the multi-media and book retailing business. We regularly
introduce new services in order to strengthen the relationship with our customers. In 2008, we
introduced at Konzum a billing service which allows our customers to pay their utility bills at our store
tills. We have also introduced a self-checkout system in Konzum for our customers. In addition, in 2008
we introduced point-of-sale tills in each of the Tisak kiosks, which enable us to set up the infrastructure
for extension of our loyalty card scheme.
Sales and Marketing
Our sales are organized into regional units headed by regional directors. There are seven geographic
regions in Croatia, six in Serbia and five in Bosnia and Herzegovina. Each region is subdivided into
sales areas headed by supervisors who are responsible for the operation of between 10 and 20 stores.
Their responsibilities range from tracking store performance, monitoring and improving inventory
turnover, managing store outlook, coordinating logistics, assessing product quality and seeking ways to
improve or adjust as necessary product assortment, to training and evaluating the workforce. The sales
managers report to the regional directors on a daily basis with results monitored against
weekly, monthly and yearly targets. Key performance data consists of sales per square meter, sales per
employee, inventory turnover, store profitability and other store-specific data. We continually seek to
improve our sales force through training programs and seminars.
Marketing promotions may be held throughout the entire national sales network, a particular region, a
store format, or for a specific occasion. Weekend offers, which last from Friday to Sunday, take place
across the entire national sales network. In addition, we typically have promotions for grand openings
or reopening of stores or in response to a promotion or store opening by one of our competitors. We
also hold promotional offers during the holiday season. We use a variety of media to communicate
promotions, including television, radio and in-store print materials.
Our retail operations use marketing campaigns tailored to meet the specific needs of customers
through carefully chosen and intense marketing activities directed towards targeted segments of
customers. Our marketing campaigns focus on price promotion throughout the whole week; through
activities including catalogue price offers, weekend price offers, and happy hours on certain product
assortments. We use image campaigns, including billboards and in-store print materials, to communicate
our competitive advantages and the new services that we have to offer.
In September 2010, we launched Multipluscard, a coalition loyalty program in partnership with
prominent Croatian companies from a range of industries, as an extension of the Konzum Pluscard
program. With more than 800,000 active customers and with a database of 1.1 million customers,
approximately 60% of Konzum’s sales are captured by loyalty card users. This program gives us
detailed information about our customers’ preferences and shopping habits on a store-by-store basis.
This information allows us to adjust our inventory, pricing and marketing strategies accordingly.
Pricing
We implement a customer-centric concept in several areas: store format, category and price
management. The store format is designed to reflect customer preferences and income levels in its
catchment area. In addition to segmentation by store size, Konzum has also implemented store
segmentation by shopper preferences—premium, standard and economy. This positioning is derived
from customer segmentation based on our analysis of loyalty card data and other relevant store
environment indicators. In high-income areas, our stores offer more premium products, such as a better
selection of wines, in order to benefit from the higher purchasing power of the consumers in that area.
On the other hand, if the area has more price-sensitive customers, we will customize inventory and
pricing accordingly in order to increase the efficiency of our operations.
80
We regularly monitor prices within the market and adjust our pricing points when necessary in order to
target the most suitable pricing level for our various customers. Price monitoring is done on a daily,
weekly and monthly basis to help us determine our pricing strategy in the near and long term. The
prices vary depending on the competitiveness and costs of business operations in the specific location.
Buying and Merchandising
In Croatia, Konzum sources products from over 970 different suppliers, with our top ten suppliers
representing over 36.5% of our total turnover in the country in the first six months of 2012 (where
‘‘turnover’’ refers to sales and VAT). In Serbia, we cooperate with more than 990 suppliers, with the
top ten suppliers representing 41.9% of our total turnover in the country in the first six months of
2012. In Bosnia and Herzegovina, we cooperate with more than 700 suppliers, with the top ten
suppliers representing 36.2% of our total turnover in the country in the first six months of 2012. Part of
our overall strategy is to develop strong relationships with reliable and high-quality local suppliers,
which we consider to be one of the main pillars of our future development in the region as they play
an integral part in improving our sourcing options and purchasing power in each of our Primary
Markets. Currently, more than 60% of our total procurement is done at the local level and we expect
this percentage to increase over time.
Due to our size and leadership position, we benefit from significant rebates from our suppliers
(including listing fees, promotion fees and positioning fees), which reduce our costs and improve our
operating margins. As we continue to grow and as suppliers start viewing our Primary Markets as a
single market, we believe we will be able to negotiate better terms and improve our bargaining power
and cost savings. Our suppliers have historically offered us a mixture of over-riders (volume discounts
usually paid at year end), advertising contributions and product specific promotions, while we provide
them with customer information, including data relating to consumer preferences and purchasing
habits.
Logistics and Distribution
The Retailing and Wholesale division has developed its own logistics and distribution network in each
of our Primary Markets. Konzum has two logistic distribution centers and six cross docks in Croatia.
There are seven warehouses for fruits and vegetables, three warehouses for fresh food and two
warehouses for packaged food, personal and home care goods, one warehouse for non-food products
and three warehouses for PrePacked Cross Docking.
We operate warehouses equipped with radio frequency scanners and voice terminals, as well as
just-in-time zero-stock capability and yard management systems. Route planning is supported by
Paragon routing, while the 410-vehicle fleet operates through Skytrack Fleet control. Each of our retail
stores maintains an automatic ordering system for products delivered from the central warehouse. The
stores are stocked within 24/48/72 hours with the shortest turnaround for fresh food. With the
completion of our logistics and distribution centers in Zagreb in 2009 and in Dugopolje in 2010.
Our retail operations in Serbia and in Bosnia and Herzegovina are implementing Konzum’s
technologies and operating standards. IDEA in Serbia and Konzum Sarajevo in Bosnia and
Herzegovina operate seven and two wholesale centers, respectively, providing us with nationwide
coverage in each of these countries. In June 2011, we opened our new logistics and distribution center
in Belgrade. We believe that we currently operate among the largest and most advanced logistics and
distribution centers in our Primary Markets.
Tisak’s logistics are organized along product categories. Following the suppliers’ delivery of goods to
our wholesale center, the goods are sorted and delivered to the designated selling points. Commercial
goods from our wholesale operations are sourced from Velpro stores following the order receipt
from each point-of-sale and are delivered within 48 hours. The remaining goods are delivered by other
suppliers directly to the point-of-sale. Newspapers and magazines are delivered to the central
warehouse, which are then distributed throughout macro lines to the main branches in each region and
then through micro lines to every point of sale. Tisak has a strong distribution network supplying over
9,500 points of sale in Croatia with a fleet of 245 vehicles. Tisak supplies not only our kiosks and retail
stores but also stores and kiosks of other market participants.
We have improved our supply chain management by increasing our centralized distribution, which has
resulted in reduced costs, increased service levels and fill rates. The primary drivers of cost reduction
81
have been better utilization of truck capacity, more efficient routing, better inventory management and
consolidation of our warehouses.
Food Manufacturing and Distribution
We are a leading company in terms of sales volume in our Primary Markets in a majority of our
product segments in our Food Manufacturing and Distribution division. The Food Manufacturing and
Distribution division is comprised of four segments: Ice Cream and Frozen Foods, Water and
Beverages, Edible Oils and Margarines and Meat and Agriculture. Our Food Manufacturing and
Distribution division generated consolidated sales of HRK 5,866.4 million in 2011, an increase of 14.2%
compared to the previous year. For the six months ended June 30, 2012, this division generated
consolidated sales of HRK 2,682.8 million, which represents an increase of 2.0% compared to the same
period in the prior year, and EBITDA of HRK 766.1 million, which represents an increase of 2.6%
compared to the same period in the prior year. The division accounted for 20.2% of our total sales in
2011 and 19.8% of our total sales in the first six months of 2012.
The evolution of our sales in recent years in our Food Manufacturing and Distribution division has
been driven by our strategy of regional expansion and investments in our businesses in order to
establish our brands as regional leaders. We attribute a significant portion of our growth in profitability
to prior period investments in state-of-the-art facilities, equipment and technology, distribution
networks, modernization of management and marketing processes, research and development, as well
as the education and training of our management and employees. By expanding our product portfolio
through innovations aimed at satisfying local tastes, we are continuously adapting to local market needs
and changing customer demand. During the course of 2010, in response to challenging market
conditions, with customers becoming more price sensitive, we decided to launch a dual brand strategy
and introduced ‘‘B’’ brands in some of our segments as a complement to our premium brands. One
part of our strategy focused on our ‘‘A’’ (premium) brands, where, through an aggressive marketing
campaign, we communicated the additional premium value as well as innovative and functional features
of our products. The other part of the strategy was the introduction of the ‘‘B’’ brands to our portfolio
in order to capture our more price-sensitive customers. This dual strategy allowed our ‘‘B’’ brands to
compete successfully with our competitors’ private-label products, without significantly impacting sales
of our ‘‘A’’ brands. As a result of our prior investments in the Food Manufacturing and Distribution
division’s capacity, we believe we do not need material additional investments in the medium term.
Ice Cream and Frozen Food
Overview
We are one of the leading ice cream and frozen food producers and distributors in terms of volume in
the CEE. We are the market leader in our Primary Markets, as well as Montenegro. We are also
present in Hungary, Macedonia, Slovenia, Romania, Slovakia, Kosovo, Albania and Azerbaijan. This
business segment includes the production and processing of ice cream (under the King, Snjeguljica,
Macho, Kornet, Quattro, Grandissimo and Twice brands), frozen fruits and vegetables, frozen fish,
frozen pastry, and other frozen foods, including ready-to-eat meals and frozen meat, all of which are
sold under the Ledo and Frikom brands. Our production facilities are located in Croatia, Serbia,
Bosnia and Herzegovina and Hungary.
Markets and Competition
In Croatia, we operate through our subsidiary Ledo, in Bosnia and Herzegovina through Ledo Čitluk
and in Serbia through Frikom. Our products hold significant market shares in terms of sales in each of
our Primary Markets.
We hold the leading market position in ice cream in Croatia, Serbia and Bosnia and Herzegovina based
on volume, with a market share of 90% in Croatia, greater than 75% in Serbia and 85% in Bosnia and
Herzegovina.
We also hold the leading market position in Croatia and Serbia in frozen vegetables, frozen fish and
frozen pastry based on volume, with market shares in Croatia above 70%, 70% and 60%, respectively,
and in Serbia above 65%, 35% and 35%, respectively. In Bosnia and Herzegovina, we have the leading
market position in frozen vegetables and frozen fish based on volume, with market shares in excess of
75% in each category, and a market share of more than 40% in frozen pastries.
82
Our major competitors in ice cream are Podravka, Unilever and retail private labels in Croatia, Nestlé,
Ice Cream factory, and retail private labels in Serbia and Cermat, Nestlé and Unilever in Bosnia and
Herzegovina. Our major competitors in frozen vegetables are Bonduelle, Podravka and retail private
labels in Croatia, Higlo, Hladnjača Apatin and retail private labels in Serbia, and Bonduelle, Higlo,
Friko and private labels in Bosnia and Herzegovina.
Our major competitors in frozen fish are Stanic, ZMH Horvat and retail private labels in Croatia, retail
private labels (Premia Delhaize), Principal Duo and Tropic Ribarstvo in Serbia, and Fratelo, Viciunai
Group and Tropic Ribarstvo in Bosnia and Herzegovina. Our major competitors in frozen pastries are
Jami, Podravka and retail private labels in Croatia, BPI, Mara Sombor and retail private labels in
Serbia, and Klas, Sprind and Jami in Bosnia and Herzegovina.
Sales and Marketing
Our sales department is comprised of 24 sales centers, each covering different geographic areas in our
Primary Markets (10 in Croatia, 6 in Serbia and 8 in Bosnia and Herzegovina). In each area, the sales
force is further divided into two sales channels: retail and HoReCa.
The sales force within each geographical area is led by a regional manager. Besides the significant
experience and know-how of our regional managers, our competitive strength lies with our key account
managers and sales representatives who are responsible for regularly communicating with our
customers, who are predominantly retail chains. Our sales and distribution system is supported by a
pre-sale model with 24-hour delivery to the customer, enabling on-time delivery and optimization of the
supply chain. Our top ten customers in Croatia, Serbia and Bosnia and Herzegovina amount to 50.4%,
23.2% and 30.7% of sales in our domestic market, respectively (46.7%, 25.3% and 30.4%, respectively,
in full year 2011).
We regularly innovate and introduce new products which serve as seasonal drivers and successful brand
extensions. We support such initiatives with various marketing activities, either through point-of-sale
locations or through the media. For example, in first half of 2012 Ledo introduced 13 new ice cream
products in Croatia. Some of the products were introduced under existing brands, such as the King
Extra Panna Cotta Raspberry, Maximo Almond, Maximo Yogurt Wild Berry, Quattro Dalmatia,
Quattro + 1, and Grandissimo Vanilla, while others were launched under new brands such as Bla Bla
brand, Box brand and Gool that were thematically related to the European Football Championship.
Ledo Medo ice cream was also launched with collectable graphical images aimed at children. Unlike
the seasonal or occasional products we launch, brand extensions are part of a longer-term strategy to
build and support brand names and brand identity.
Point-of-sale activities include different types of below the line (or non-media) marketing activities such
as in-store posters, small posters placed on shelves (‘‘shelf wobblers’’) to highlight products and special
offers, product sampling and sharing promotional materials for buying our products. Each year, we
organize sweepstakes to encourage ice cream consumption. During the summer of 2012, Ledo
organized a sweepstakes which included Snjeguljica, Njofra and Gool ice creams. Furthermore, in 2012,
Ledo participated in co-branding projects with Sanrio’s Hello Kitty and Jamnica’s Sky Cola brand.
Ledo and Kraft International Foods continued their cooperation on the Milka ice cream project which
can be found in impulse, family and the HoReCa ice cream assortments. In the frozen food segment
we rely on above-the-line (including television, press, outdoor advertising and Internet) and
below-the-line (including events organization, point-of-sale material and tastings) marketing activities.
In 2012, we launched a new campaign for the frozen food segment to communicate the benefits of
Ledo frozen food products. The new slogan for the campaign is ‘‘If it’s not perfect, it’s not Ledo!’’. In
2012, Ledo has continued with its campaign for frozen pastry with a focus on product quality and
tradition. Furthermore, as a part of our marketing strategy, we are involved in sponsorships of various
children’s events, sports events and sports clubs.
Procurement and Production
We work with approximately 1,170 suppliers in Croatia, approximately 1,310 in Serbia and
approximately 690 in Bosnia and Herzegovina, with the top ten suppliers accounting for 21.2%, 27.7%
and 59.9% of our turnover in the first six months of 2012, respectively (66.0%, 99.3% and 76.5%,
respectively, in full year 2011). We have production facilities in Croatia, Serbia, Bosnia and
Herzegovina and Hungary. Our total production capacity is 42,100 tons for ice cream and 41,800 tons
for frozen food. Our production capacities are more than adequate for our current production levels
83
and can support higher production levels in the future. We operate state-of-the-art facilities in the
production of ice cream and we believe we are one of the few producers that have the capability of
producing multi-layer ice creams. We have recently invested in expanding our ice cream and frozen
food production capacity in response to rising demand. Our main raw materials include fresh milk,
skimmed milk powder, butter, cocoa and foil and these are primarily sourced externally. Currently we
believe that we are able to pass on increases in prices of our raw materials to the customer.
Logistics and Distribution
Our logistics and distribution network is another significant competitive advantage, particularly in
Croatia where distribution tends to be very expensive before achieving economies of scale due to the
unusual shape of the country and its more than 1,000 islands. We believe that the difficulties associated
with establishing a distribution network provide a competitive advantage.
The following table sets out in our Primary Markets logistics and distribution data in the Ice Cream
and Frozen Food segment as of June 30, 2012:
Logistics and Distribution
Employees . . . . . . . .
Distribution centers .
Warehouses . . . . . . .
Pallet spots (+/C)
Distribution vehicles .
Cooling units . . . . . .
Delivery points . . . . .
Total
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841
16
32
53,242
358
113,345
54,979
Water and Beverages
Overview
We are a leading water and beverages producer and distributor in our Primary Markets. We are a
market leader in Croatia and Bosnia and Herzegovina in terms of volume and also export to more than
20 countries around the world. This business segment includes the production and processing of
carbonated water (under the Jamnica, Sarajevski kiseljak, Mivela and Fonyódi brands), non-carbonated
water (under the Jana, Fonyódi and Akvia brands), fruit juices (under the Juicy and TO brands), still
drinks (under the Jamnica and Juicy fruits brands), ice tea (under the Jamnica brand) and powdered
drinks (under the Juicy Vita brand). The production facilities are located in Croatia, Serbia, Bosnia and
Herzegovina and Hungary.
Markets and Competition
In Croatia, we operate through our subsidiary Jamnica, in Serbia through our subsidiaries Nova Sloga
and Jamnica Belgrade, and in Bosnia and Herzegovina through our subsidiary Sarajevski kiseljak. Our
water and beverages are sold mainly through our Jana brand, a premium non-carbonated water. We
export Jana to Germany, Austria, Switzerland, Romania, Portugal, Canada, Japan, Australia, Korea and
the United States, among others. We began exporting it into the United States in 2005 with a focus on
New York. Jana is now available in more than 8,000 stores across the United States, including Kroger,
one of the largest retail chains in the United States, Sweetbay, Whole Foods, Ingles, Food Lion and
Duane Reade.
In Croatia, we hold the leading market position based on volume in carbonated water, non-carbonated
water, fruit juices and still drinks, with market shares above 85%, 65%, 45% and 30%, respectively. We
also hold the leading market position based on volume in ice tea, with a market share above 40%. Our
principal competitors in Croatia are Podravka for carbonated water, Naturalis, Coca-Cola, Sveti Rok
and Podravka for non-carbonated water, Vindija and retail private labels for still drinks and Coca-Cola
and Podravka for ice tea.
In 2009, we entered the Serbian water and beverage market with the acquisition of Nova Sloga and its
carbonated water brand Mivela. Although we have yet to establish a major presence in the Serbian
water and beverage market, we believe there is strong potential to replicate the growth model that we
have implemented in Croatia and Bosnia and Herzegovina.
84
In Bosnia and Herzegovina, we hold the leading market position based on volume in carbonated water,
non-carbonated water, still drinks and ice tea, with market shares in excess of 30%, 40%, 25% and
50%, respectively. Our main competitors in carbonated water are Vitnika and Princess, in
non-carbonated water, Prolom and Vitinka, in still drinks, Coca-Cola and Fructal and in ice tea,
Coca-Cola and Teloptic. We believe that we hold the second market position in the carbonated soft
drinks segment with our brand Sky Cola, with a market share of 14%. Our main competitor in this
segment is Coca-Cola.
Sales and Marketing
Our sales department is comprised of 22 sales centers, each covering a different geographic area in our
most significant markets (11 in Croatia, 3 in Serbia, 5 in Bosnia and Herzegovina, 2 in Hungary and
1 in Slovenia). In each area, the sales force is further divided into two sales channels: retail and
HoReCa. Our sales force within each geographical area is led by a regional manager. In addition to the
significant experience and know-how of our regional managers, our competitive strength is derived from
our key account managers and sales representatives who are responsible for continuous communication
with customers. Each customer is visited by our sales representative at least once a week enabling us to
maintain a strong personal bond that is very important in these markets. Furthermore, our sales and
distribution system is supported by a pre-sale model with a 24-hour delivery to the customer enabling
on-time delivery, and optimization of the supply chain. Our top ten customers in Croatia, Serbia and
Bosnia and Herzegovina amounted to 51.8%, 62.7% and 45.8% of our sales in the first six months of
2012, respectively (50.8%, 60.8% and 45.1%, respectively, in full year 2011).
We coordinate all our promotional and marketing activities with respect to our water and beverages
products. We market these products through various media, including TV, print, radio and Internet
promotions, direct marketing and below-the-line activities, which include point-of-sale promotions
through sampling and loyalty card programs. In addition, we regularly sponsor different sports clubs
and events in order to emphasize our healthy, fitness-oriented image. In addition, we also support
different cultural events. We closely monitor shifts in consumer tastes and preferences in order to
respond effectively to changing consumer demands. We often develop and introduce new products in
response to changes in consumer demand. For example, in 2012, Jamnica launched two new products in
the segment of carbonated soft drinks: Gineta and Ginger. With this product Jamnica entered into a
new market segment and achieved good sales. In addition, Jamnica also launched new packages and
flavors for already well-known brands.
Procurement and Production
We source our water pursuant to renewable government concessions that expire between 2029 and
2032. We work with 72 suppliers of raw materials in Croatia, 10 in Serbia and 30 in Bosnia and
Herzegovina, with the top ten suppliers accounting for 67.5%, 100.0% and 75.0% of our turnover in
the first six months of 2012, respectively (66.0%, 99.3% and 76.5%, respectively, in full year 2011). Our
production facilities are located in Croatia, Serbia, Bosnia and Herzegovina and Hungary. Our total
annual bottling capacity is 620 million liters. Our production capacities are more than adequate for the
current production level and can support higher production levels in the future. Our production
facilities are state-of-the-art enabling us to produce high-quality water and beverages. The closed-end
production cycle, supported by aseptic and isolated ultra-clean production lines, ensures that the first
contact between water and the outside environment occurs upon the customer’s opening of the bottle.
Our main raw materials include pre-forms, caps and labels which are predominantly sourced externally.
We use spring water, mineral water and tap water, depending on the product. Currently, we believe
that we are able to pass on increases in prices of our raw materials to the customer.
Logistics and Distribution
We have invested in building a regional distribution network for our water and beverages products with
26 distribution centers, of which 16 are located in Croatia, 5 in Serbia, 5 in Bosnia and Herzegovina.
Our distribution network comprises more than 72,000 warehouse pallet spots, a fleet of 227 trucks
covering 22,381 delivery points and 34,224 cooling units placed directly at the points of sale.
85
The following table sets out in our Primary Markets logistics and distribution data in the Water and
Beverages segment as of June 30, 2012:
Logistics and Distribution
Employees . . . . . . . .
Distribution centers .
Warehouses . . . . . . .
Pallets spots (+/C)
Distribution vehicles .
Cooling units . . . . . .
Delivery points . . . . .
Total
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676
26
32
72,302
227
34,224
22,381
Edible Oils and Margarines
Overview
We are a leading producer of edible oils in our Primary Markets. This business segment includes the
production and processing of edible oils (under the Zvijezda, Dijamant and Omegol brands),
margarines (under the Zvijezda, Dijamant, Omegol, Dobro jutro and Margo brands) and mayonnaise
(under the Zvijezda and Dijamant brands). We also produce vegetable ghee, vinegar, dressings and
ketchup under various brand names. Our production facilities for edible oils and margarines are located
in Croatia and Serbia. We have market shares that are significantly higher than our competitors in
Croatia and Serbia. According to PGM’s market research, Zvijezda had the highest brand awareness
among Croatian consumers in 2010. During 2011, Ipsos Puls, a market research agency, conducted an
extensive survey evaluating the effect of brands on Croatian consumers. According to the ‘‘BrandScore’’
list of the top 30 brands on the Croatian market during the first half of 2011, Zvijezda’s oil earned the
first place position and margarine earned the third place position. According to the unique QUDAL
(Quality MEDAL) quality study in Croatia provided by the Center for Market Research GfK, Zvijezda
won five QUDAL certificates in the categories: vegetable oil, olive oil, margarine, mayonnaise and
ketchup. According to the study Trusted Brands 2012 (consumer confidence in brands), organized by
Reader’s Digest magazine, Zvijezda earned first place in the olive oil category.
Based on a national consumer survey conducted in 2011 by My Serbia, an independent consumer
association, Dijamant edible sunflower oil was awarded with the My Choice award, as the favorite
cooking oil.
Markets and Competition
In Croatia, we operate through our subsidiary Zvijezda, in Serbia through our subsidiary Dijamant and
in Bosnia and Herzegovina through our subsidiary Zvijezda Sarajevo. Certain of our products hold
leading market shares positions in our Primary Markets.
In Croatia, we hold the leading market positions based on volume in edible oil, margarines and
mayonnaise, with market shares of more than 70%, 85% and 75%, respectively. Our principal
competitors in Croatia are Bimal, Bunge Cereol and retail private labels for edible oil, Unilever and
Stanic for margarines, and Nestlé and retail private labels for mayonnaise.
In Serbia, we also hold the leading market position based on volume in edible oil, margarines and
mayonnaise, with market shares of more than 40%, 65% and 35%, respectively. Our principal
competitors in Serbia are Vital Vrbas for edible oil and margarines, and Polimark for mayonnaise.
In Bosnia and Herzegovina, we hold the second leading market position based on volume in edible oil,
the leading market position in margarines with a market share of more than 65% and the third market
position in mayonnaise. Our principal competitors in Bosnia and Herzegovina are Bimal and Bunge
Cereol for edible oil, Unigrà, Unilever and Vital for margarines and Nestlé and Polimark for
mayonnaise.
We also have leading positions in Montenegro and Macedonia where we hold market shares in
margarines of more than 60% and 35%, respectively.
86
Sales and Marketing
Our sales department is comprised of 16 sales centers, each covering a different geographical area in
our Primary Markets (six in Croatia, five in Bosnia and Herzegovina and five in Serbia). In each area,
the sales force is further divided into three sales channels: B2B, retail and HoReCa. By focusing on the
strong relationships with our customers in each major sales channel, we are able to execute transparent
commercial policies based on the size, value and future potential growth of each customer we serve.
On-time delivery is crucial for our business, and the pre-sale model with 24 hour delivery is achieved
largely as a result of customer demand. In the first six months of 2012 the top ten customers in Croatia
and Serbia amount to 85.1% and 57.6% of total sales, respectively (82.3% and 58.9%, respectively, in
full year 2011), while Bosnia and Herzegovina is covered through exports from Croatia and Serbia.
We have focused on expanding the range of our edible oils and margarine product assortment. With
the growing awareness of product quality and consumer concerns relating to a balanced diet, we have
developed new products and improved the nutritional value of existing products. For example, we
introduced the Omegol line of products (oil and margarine—functional food with omega-3) and market
them as a healthy alterative to other edible oils and margarines. To develop this line of healthy
products, our two companies Zvijezda and Dijamant cooperated by sharing recipes and selling the
products in our Primary Markets under the same brand name. In early 2012, Zvijezda launched a new
edible oil for the Croatian market—Omegol 4 plus—that contains four high-quality oils: rapeseed oil,
extra virgin olive oil, sunflower oil and corn oil.
Marketing efforts in this business segment are centered around the nutritional value and quality of the
products and responding to health focused consumption trends. We focus on maintaining and
enhancing our long-standing market leading position, expanding our product portfolio and
strengthening our brand awareness and high customer loyalty. All our products in this business segment
are positioned as premium products in terms of price and quality. As far as promotional activities, we
employ above-the-line (television, press, outdoor advertising and Internet) and below-the-line (events
organization, point of sale material and tastings) activities.
Procurement and Production
Through our control of the supply chain, from the production of the raw materials and oilseed crushing
to the production and sale of the final products, we believe we are less sensitive to volatility in
commodity prices than companies which do not control their supply chain. In addition, we rely on the
stability of our procurement, production and sales. We have various international suppliers, according
to the businesses we engage in and the raw materials needed. We work with approximately 250
suppliers in Croatia and approximately 230 in Serbia, with the top ten suppliers accounting for 70.0%,
and 64.1% of our turnover in the first six months of 2012, respectively (72.5% and 61.0%, respectively,
in full year 2011).
To maximize synergies within the Group and benefit from economies of scale, we procure common
production materials, such as foils, cups and lids for margarine on the Group level. In addition, as we
procure certain raw materials such as glass materials in large volumes we are able to obtain better
commercial conditions and pricing terms. We actively monitor commodity market prices (such as edible
oils) to assist in determining our procurement strategy.
We have production facilities in Croatia and Serbia. Our total annual production capacity is 120,000
tons of edible oil, 47,500 tons of margarine and 12,500 tons of mayonnaise. In addition, we have the
only soybean crushing/processing plant in Croatia: Sojara d.d. Our production capacities are more than
adequate for the current production level and can support higher production levels in the future.
Our main raw materials include sunflower oil, rapeseed oil, soybean oil, sunflower oil and pre forms.
These are predominantly sourced externally. Currently we believe that we are able to pass on increases
in prices of our raw materials to the customer.
Logistics and Distribution
We have six distribution centers in Croatia, five in Serbia and five in Bosnia and Herzegovina. In
addition, we have long-term partnerships with distributors in Macedonia, Kosovo and Montenegro.
87
The following table sets out in our Primary Markets logistics and distribution data in the Edible Oils
and Margarines segment as of June 30, 2012:
Logistics and Distribution
Employees . . . . . . . .
Distribution centers .
Warehouses . . . . . . .
Pallets spots (+/C)
Distribution vehicles .
Cooling units . . . . . .
Delivery points . . . . .
Total
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357
16
21
29,469
225
2,447
16,234
Zvijezda is an exclusive distributor for international producers Zott and Lesaffre. Zott is one of the
leading dairy producers in Europe, while Lesaffre is one of the largest international producers of yeast.
Distributing such goods will increase our turnover, profitability and efficiency of our distribution
network and supply chain.
Meat and Agriculture
Overview
We are the leading producer of red meat and meat products and the largest agricultural company in
Croatia. We primarily conduct our Meat and Agriculture business in Croatia. We engage in activities
that form a closed chain ‘‘from the field to the table.’’ This enables full traceability of the final
products stocked in our retail chains. Specifically, we engage in crop farming, animal feed production,
cattle breeding, meat and processed meat production. In 2011 we had over 163,000 hectares of arable
land under our control and owned 38 modern farms with annual capacity (including contract farming)
of more than 300,000 livestock. We sell more than 65,000 tons of various meat products annually. We
began investing in meat production and agriculture in order to ensure the competitiveness of our food
production and secure the Retailing and Wholesale division’s competitive advantage of providing fresh
food and meat to consumers on a daily basis.
Markets and competition
We operate our meat business through our subsidiary PIK Vrbovec, one of the largest meat producers
in Croatia. Since PIK Vrbovec’s acquisition in 2005, our total sales have grown from 8,000 tons in 2004
to 65,000 tons in 2011. PIK Vrbovec’s product range includes: fresh meat; meat products, including
semi-durable dry and durable dry sausages and meats; canned products; frozen shaped meat; fats and
tallow. We also export our products to the European Union, the United States and many other
countries and have the required export licenses. The size of the Croatian meat market according to our
estimates is 300,000 tons comprised of 190,000 tons of red meat and 110,000 tons of poultry. We
believe we are the market leader in the fresh meat market in Croatia with market share of more than
40% in terms of volume. Our primary competitors are local producers Pivac and Gavrilović.
Our agricultural business is comprised of crop farming, cattle breeding, animal feed production and
wine production. We operate our agricultural business through our subsidiaries Belje (agriculture, crop
and animal husbandry, and wine production), PIK Vinkovci (agriculture and animal feed production),
Vupik (agriculture, crop and animal husbandry and wine production), Agrolaguna (wine and olive oil
production), Solana Pag (sea salt processing) and Dijamant Agrar (agriculture, crop and animal
husbandry).
•
Crop farming—Through our own production and contract farming, we control a total of 1,067,880
tons of crops, including wheat, corn, sunflower, soybeans, oil seed and barley.
•
Cattle breeding (Dairy, Beef and Pork)—Through our own production and contract farming, we
engage in the following types of cattle breeding: (i) dairy cattle breeding, (ii) beef cattle breeding
and (iii) pig breeding. In 2010, we reconstructed an automated dairy cow farm with a total capacity
of 500 livestock.
•
Animal feed production—We have capacity to produce more than 250,000 tons of animal feed
annually.
88
•
Wine production—We are the leading producer of wine in Croatia with the Laguna, Belje and
Festigia brands. We have more than 1,113 hectares of our own vineyards located mostly in the
region of Istria and Baranja with an annual production of more than 8.2 million liters.
Sales and Marketing
Our sales department is comprised of eight sales centers in Croatia. In each area, the sales force is
further divided into two sales groups: retail and HoReCa. The sales force within each geographical area
is led by a regional manager. Beyond the significant experience and know-how of our regional
managers, our competitive strength lies with our key account managers and sales representatives who
are responsible for continuous communication with customers. Each customer is visited by our sales
representative at least once a week enabling us to maintain a strong personal bond that is very
important in these markets. Furthermore, our sales and distribution system is supported by a pre-sale
model with a 24 hour delivery to the customer enabling on-time delivery, and optimization of the
supply chain. The top ten customers of PIK Vrbovec comprised 67.6% of total sales in the first
six months of 2012 (65.9% in full year 2011). In our meat business, we are focused on the production
of kulen and smoked bacon which we sell under the Belje brand. We expect that the quality of our
meat products will soon be recognized by the PGI (protected geographic indication) label. We closely
monitor product trends, including customer demand for small convenience packaging and healthy
product choices with high nutritional value. In response, we introduced seeds enhanced sausages and
products with less salt content. PIK Vrbovec launched an educational campaign on the health benefits
of red meat and its importance as part of a balanced diet.
Procurement and Production
We have various suppliers from around the world, depending on the businesses we engage in and the
raw materials we require. We work with over 950 suppliers worldwide, with the top 10 suppliers
accounting for 42.0% of our turnover in the first six months of 2012 (27.5% in full year 2011). We have
production facilities in Croatia, and our annual capacity for fresh meat production is 65,000 tons for
pork macro cut, 34,000 tons for macro packing, 18,200 tons for sausages, 3,000 tons for mortadella,
3,600 tons for ham and 5,000 tons for durable sausages and meats. In 2009, we completed a one billion
Kuna (approximately A134.5 million) greenfield investment in building a new state-of-the-art production
facility at PIK Vrbovec. The factory produces meat products in accordance with health and safety
standards acceptable to the U.S. and EU markets. Our main raw material is livestock, principally pork,
beef and veal. These are sourced primarily internally. Currently we believe that we are able to pass on
increases in prices of our raw materials to the customer.
Other Businesses
Our Other Businesses include our commodity brokerage business Agrokor trgovina, and other non-core
businesses. Agrokor trgovina primarily serves as a brokerage of the following agri-food products:
•
proteins, including soy bean, soya-meal, sunflower meal, rape seed, rape meal, and crude oil;
•
production materials for agricultural production of cereal crops and seeds, including oilseeds,
protective agents and mineral fertilizers;
•
cereal crops, including wheat, corn, barley, oats and rye;
•
strategic goods, including sugar, flour and meat; and
•
other goods and services.
Property, Plant and Equipment
We conduct our Retailing and Wholesale and Food Manufacturing and Distribution operations through
the ownership and leasing of property, plants and equipment. In the Retailing and Wholesale division,
our principal properties comprise our retail and wholesale stores under the Konzum, IDEA and Velpro
brand names. In addition, we own and lease 30 warehouses (16 in Croatia, 9 in Serbia and 5 in Bosnia
and Herzegovina) and distribution centers in each of our Primary Markets and own and operate a
chain of kiosk stores throughout Croatia under the Tisak brand on land which we lease. As of June 30,
2012, we had 1,025 retail and wholesale stores with a total selling surface area of 514,596 sqm and
1,242 kiosks with a total selling surface area of 15,808 sqm. Our stores are typically leased for a period
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of 10 to 15 years. In general, our lease agreements are terminable at our option prior to their maturity
either with no penalty or with a penalty in the amount of between three to 12 months lease or rent
payments. In the Retailing and Wholesale division, we have expanded our market coverage by opening
new stores in the countries in which we operate. While new store openings increase our sales, we incur
high fixed costs during the construction and/or refurbishment period at a time when the store is
generating no sales. In addition, following a store opening, there is a period of one to four years,
depending on store format, during which sales have not reached their maturity potential.
Our Food Manufacturing and Distribution operations comprise a network of owned and leased
production facilities, warehouses and distribution centers. We generally own our production facilities,
including four in the Ice Cream and Frozen Food segment, four in Water and Beverages, two in Edible
Oils and Margarines and one in Meat and Agriculture, and both own and lease the operating
equipment within the facilities. We also own or lease 85 warehouses (32 in Ice Cream and Frozen
Foods, 32 in Water and Beverages and 21 in Edible Oils and Margarines) and 58 distribution centers
(16 in Ice Cream and Frozen Foods, 26 in Water and Beverages and 16 in Edible Oils and Margarines)
in our Primary Markets. We source our water pursuant to renewable government concessions that
expire between 2029 and 2032. In the Meat and Agriculture segment, we own, rent and enter into
concessions with Croatia and Serbia to use more than 163,000 hectares of arable land and 38 farms. We
also own and lease a number of other properties, including our corporate headquarters in Zagreb,
Croatia which such facility we predominantly own.
Research and Development
We conduct research and development in order to develop new products and to improve our existing
products and processes. We do not have a centralized research and development team and research
and development center. Instead, in each of our operating companies, our local research and
development teams operate in small product technology centers to provide expertise for specific
product categories, and to actively monitor and respond to consumer trends in nutrition and to the
latest technological changes.
We have identified a number of new product categories developed in Western European markets that
are in the early stages in our core markets, such as premium products, value-for-money products,
health and well-being products and convenience products, and, in response, we have established a
process to share internally key insights, best practices, and research results regarding these products.
Whenever relevant, we assign multi-company teams to work on common business opportunities. For
example, we formed an intercompany team within Zvijezda and Dijamant on a project to reformulate
the recipes and existing technology for the production of low-trans margarines. We also collaborate
with universities, research centers and suppliers that are important sources of innovation. Research and
development initiatives have included the identification and isolation of a representative microbial
species from kulen, a traditional Croatian dry fermented sausage, for the purpose of developing our
own starter culture, which we conducted in cooperation with the Max Rubner Institute in Germany.
Another example of a successful collaboration was the creation of a new product recipe and
corresponding technology for the production of mortadellas.
Our approach to recipe innovation involves the reduction or elimination of certain unhealthy
ingredients and substituting in their place beneficial/healthy micronutrients or other food components.
For example, we added phytosterols in spreadable margarine under the Omegol brand which are known
to decrease the risk of cardiovascular disease. Furthermore, we are examining the content and healthy
properties in mineral water with the aim of producing healthier water and beverages. As an example,
we launched carbonated water Mivela, a natural source of daily magnesium intake in bio available,
bicarbonate form. Innovation and development further includes a number of premium origin products
following the global trend toward more regional products with geographical indication. The most
representative projects of protected geographical indication are traditional fermented sausages ‘‘kulen’’
from the region of Baranja, mandarins from Neretva valley and sea salt from the island of Pag. The
first two projects are coordinated and co-financed by the Food and Agriculture Organization of the
United Nations, with respect to the great potential for the overall stimulus of the region’s development.
We also focus on developing and improving the food and beverage packaging in each of our business
segments. A recent project included the development of modern packaging for fresh meat designed to
prolong shelf life using state-of-the-art Modified Atmosphere Packaging (‘‘MAP’’) technology. This
technology allowed us to enter the fresh ready-to-eat market. In addition, to respond to consumer
demand we are adapting our packaging to self-service sliced, snack sized and portable products.
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Information Technology
We consider our information systems and data management tools integral to our success. Therefore, we
designed and implemented ISO 27001 compliant IT norms and procedures, with which our IT
professionals and other employees must comply. In addition, we use leading business solutions and IT
products from SAP, Oracle, Aurora, Cisco and IBM. Oracle Retail, a merchandising management
solution that allows retailers to better manage and control merchandising activities, was implemented at
the end of 2011.
Intellectual Property
We own a substantial number of registered and unregistered trademarks in the countries in which we
operate for use in the sale and marketing of our various products. These trademarks are important
because brand name recognition is a key factor in the success of many of our product lines. The
current registrations of these trademarks are effective for varying periods of time and may be renewed
periodically, provided that we comply with the applicable requirements. We are not aware of any
material challenge to the ownership of any of our major trademarks nor are we aware of any violation
of our intellectual property rights in any of our Primary Markets or elsewhere. Our key brands are:
Konzum (K Plus), IDEA, Tisak (Tisak Media), Ledo (Ledo, King, Snjeguljica, Macho, Queens,
Quattro), Frikom, Jamnica (Jamnica, Jana, Juicy), Sarajevski kiseljak, Zvijezda (Omegol, Dobro Jutro),
Dijamant, PIK Vrbovec (Piko, Sljeme) and Belje (ABC).
Employees
At June 30, 2012, we had 36,588 employees (of which 28,731 employees had contracts with undefined
durations and 7,857 employees had fixed duration contracts).
The following table sets out the total number of employees by business division for the periods
indicated:
Six
Months
Ended
June 30,
2012
2007
Year Ended December 31,
2008
2009
2010
2011
.
.
.
.
289
10,633
19,181
127
363
12,076
23,417
236
395
11,409
22,018
536
313
11,108
22,058
245
328
11,300
23,796
228
309
12,306
23,796
177
Total . . . . . . . . . . . . . . . . . . . . . . . . . .
30,230
36,092
34,358
33,724
35,652
36,588
Agrokor Head Office . .
Food Manufacturing and
Retailing and Wholesale
Other . . . . . . . . . . . . . .
..........
Distribution .
..........
..........
.
.
.
.
In 1996, we were the first privately owned company in Croatia to conclude a collective bargaining
agreement with the trade unions, which contains terms that are more favorable than those outlined in
the Croatian Labour Law, particularly in relation to overtime, vacation, allowance, severance payments,
transport expenses, health insurance and health care and bonuses. The unions are regularly informed
about all major decisions and business results and we endeavor to consult with the unions on all major
issues affecting employees. We actively support the unions’ humanitarian, educational and sports
activities, as well as other initiatives. We have not experienced any strikes, stoppages or other similar
work-related disruptions.
Legal Proceedings
We are party to various legal proceedings in the ordinary course of business. In particular, as of
June 30, 2012, we were involved in proceedings relating to the collection of outstanding amounts from
debtors in the amount of HRK 344.0 million and disputes with creditors in the amount of
HRK 44.7 million. In addition, we were engaged in ongoing proceedings in relation to other short term
receivables in the amount of HRK 63.1 million and other short term liabilities in the amount of
HRK 105.2 million as of June 30, 2012. We do not believe that these legal proceedings will have a
material adverse effect on our business, financial condition or results of operations. In addition, we
have procedures designed to analyze and minimize counterparty risk before agreeing to deliver
products to the customer.
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On October 6, 2011, a decision was issued by HANFA requiring us to make a mandatory takeover bid
for the remaining 32.08% of shares of our subsidiary Belje by December 5, 2011. In its decision,
HANFA claimed that Agrokor’s obligation to make the mandatory bid was triggered by the registration
of a share capital increase of Belje on September 12, 2007, by which we acquired a further 2,700,000 of
newly issued shares of Belje. As a result of the share capital increase, we increased our shareholding in
Belje from 52.21% to 67.92%.
We are of the view that HANFA’s decision has no legal basis and that the registration of the share
capital increase did not trigger any obligation to commence a mandatory bid because: (i) in connection
with the share capital increase, we acted in concert with the Republic of Croatia (acting through its
state agency, the Agency for the Management of the State Owned Assets (‘‘AUDIO’’) (formerly known
as the Croatian Privatisation Fund)) and (ii) Agrokor and the Croatian Privatisation Fund did not
jointly acquire more than 5% of Belje’s shares, which is the threshold for triggering a further
mandatory takeover bid pursuant to the Croatian Takeover Act in force at the time of the share capital
increase at issue.
Our view that Agrokor acted in concert with the Croatian Privatisation Fund is based upon the fact
that a share purchase agreement for Belje shares, dated March 7, 2005, entered into among the
Croatian Privatisation Fund and the Republic of Croatia—Ministry of Finance, the Republic of
Croatia—Ministry of Economy Work and Undertaking, the Republic of Croatia—Ministry of
Agriculture, Woods and Water Economy, the State Agency for Deposit Insurance and Bank
Rehabilitation, the Croatian Water Company and Agrokor contained explicit provisions setting forth
voting arrangements between Agrokor and the Croatian Privatisation Fund in connection with certain
decisions to be made at the Shareholders’ Meeting of Belje. Specifically, the vendor assumed the
obligation to vote in favor of the share capital increase of Belje for the purpose of the subscription of
newly issued shares. AUDIO (as the successor of the Croatian Privatisation Fund) has confirmed in
writing the accuracy of, and their agreement with, Agrokor’s understanding of the facts. We also have
obtained an opinion from a court-appointed expert confirming that the number of the voting shares
acquired in the share capital increase constituted less than 5% of the voting shares of Belje.
On November 3, 2011, we submitted a complaint to the Administrative Court of the Republic of
Croatia (now the High Administrative Court of the Republic of Croatia) and to the Constitutional
Court of the Republic of Croatia, seeking the dismissal and annulment of the foregoing HANFA
decision. We have also requested that the Constitutional Court of the Republic of Croatia grant a stay,
postponing the legal effects of HANFA’s decision until the case is finally resolved. On January 31, 2012,
the Constitutional Court of the Republic of Croatia granted the stay and ruled that any enforcement of
the HANFA decision will be temporarily postponed until the proceedings before the Constitutional
Court of the Republic of Croatia are complete. The effect of this ruling is that the voting rights of the
Belje shares held by Agrokor remain intact until such time that the Constitutional Court of the
Republic of Croatia reaches its decision on the merits of Agrokor’s complaint.
On August 29, 2012, we received the judgment of the Administrative Court of the Republic of Croatia
dated July 11, 2012 in which the court overturned HANFA’s decision. Pursuant to the provisions of the
Croatian Law on Administrative Disputes, following the annulment of the HANFA decision, HANFA is
required to issue another decision to replace the annulled decision. In proceedings related to the new
decision, HANFA is bound by the high court’s legal conclusions and objections to the prior
proceedings. The high court has ordered HANFA to conduct an oral hearing prior to issuing a new
decision. We have received a notice from HANFA scheduling the hearing. We expect HANFA will issue
a new decision sometime in the fourth quarter of 2012.
Croatian Late Payment Legislation
In preparation for its accession into the European Union, Croatia enacted legislation implementing the
EU Late Payment Directive with effect from January 1, 2012, which is due to be implemented by all
EU member states by February 2013. This legislation limits the payment terms for transactions in both
the public and the private sector to 30 or 60 days, depending on the nature of the transaction. We
believe that in general, particularly for retail and fast moving consumer goods, our current payment
terms largely comply with the new legislation and we do not expect a material impact in terms of our
accounts payable, although the ageing of our accounts receivable may be improved. However, our terms
for the purchase of agricultural commodities typically provide for much longer payment terms,
reflecting the harvest cycle, and these contracts will need to be revised to reflect new legislation. The
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legislation also provides for certain exceptions to be provided, but the regulations implementing these
exceptions have not yet been adopted. Accordingly, the full impact of this legislation on our business
remains uncertain.
Regulatory and Environmental Matters
Like other participants in our industry, we are subject to various laws and regulations administered by
local, national and other government entities and agencies in Croatia, Serbia, Bosnia and Herzegovina,
Hungary, and at the European Union level, regarding environmental protection, worker and public
health and safety, including, among others, laws relating to air and water emissions; noise; waste water
treatment; waste disposal; environmental cleanup; and product stewardship and safety. Failure to
comply with these requirements may result in fines and penalties and liability for compliance costs and
damages. For more information, see ‘‘Risk Factors—Risks Relating to the Food Manufacturing and
Distribution Industry.’’ The food and beverages industry is highly regulated and could be materially
adversely impacted by compliance with or changes in government regulation and legislation.’’ From
time to time, we receive notices and inquiries from regulatory authorities and others asserting that we
are not in compliance with/or otherwise have some liability under such laws and regulations. In some
instances, litigation ensues. We believe that we are currently in substantial compliance with all material
governmental laws and regulations affecting our business, including environmental and health and
safety laws and regulations, and maintain all material permits and licenses relating to our operations.
We are continually seeking ways to improve the design, development and implementation of our
environmental management systems. For example, we are shifting our business operations towards the
implementation and maintenance of integrated management systems, in accordance with international
system standards and requirements. More specifically, we have implemented the ISO 14001:2004
environmental management standard in most of our companies. Through our management systems, the
quality and food safety of raw and production materials, as well as the final products are ensured
throughout the production cycle. Workplace safety and environmental protection are also in place
in each of our business divisions. Our environmental management policy was formulated by the
Agrokor Environmental Consultancy Service. It is largely based on sustainable development aimed at
reducing pollution in the immediate and broader surroundings of our operations, and receives
continuous support through improvement programs. We seek to have all environmental aspects relating
to our business operations properly documented and supported by programs designed to minimize
negative impacts on the environment. The principal tasks of the Agrokor Environmental Protection
Consultancy Service include: (i) compliance with the law when addressing environmental protection and
nature conservation; (ii) systematic hazardous and non-hazardous waste management; (iii) control of
emissions in water, soil and air; (iv) monitoring the use of energy and other sources; (v) prevention of
pollution; (vi) adequate response to emergencies; (vii) promoting and advancing education and raising
awareness on environmental protection; (viii) exchange of communications and know-how within the
Group and beyond; and (ix) internal audits and external system controls and encouraging cooperation
with the most distinguished companies and suppliers in the field of environmental protection with
which it cooperates. We are an active member of environmental protection organizations and
associations, such as HR PSOR (the Croatian Business Council for Sustainable Development), a
non-profit organization within the private sector promoting sustainable development in the economy
and the Environmental Protection Association in the economy within the Croatian Chamber of
Economy. We also closely cooperate with state administration bodies, relevant ministries, and units of
local government and self-government, the Environmental Protection Agency, the Croatian Cleaner
Production Centre, REC—Regional Environmental Protection Centre for Central and Eastern Europe
and others. Food Safety is one of our highest priorities as our basic principle is—‘‘Quality is the key to
success.’’ Our companies have an integrated Management System which includes Quality Management
System (QMS), Environmental Management System (EMS), Occupational Healthcare and Safety
Management System (OHSMS). Our companies are certificated with the ISO 9001:2008, ISO 22000,
OHSAS 18001:2007 and ISO 14001:2004. They also implemented HACCP (Hazard Analysis Critical
Control Point) as a prevention method ensuring that any potential food safety hazards are eliminated.
Our companies meet all the requirements needed to export in EU markets and are the suppliers of
NATO bases. We have Halal and Kosher certificates for specific foods. We follow the strategy ‘‘from
the field to the table’’ and our company Belje has obtained the Global Gap Certificate internationally
recognized standard based on principles of good agricultural practice. As one of the leading
agribusiness companies in the area, Agrokor has started to market regional foods under protected
geographic origin labels. We have two pilot projects underway in Croatia, with EBRD and FAO
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technical assistance, to secure Protected Geographical Indication (‘‘PGI’’) labels for Baranjski Kulen
sausage and mandarins from the Neretva valley. These projects join our other geographic origin label
initiatives. We are currently re-registering sea salt from the island of Pag from a Protected Designation
of Origin (‘‘PDO’’) label to a PGI label. A PDO label for sea salt was obtained in 2011 in Croatia, but
it appears unlikely that sea salt will receive PDO confirmation on the EU level. We therefore initiated
a product re-registration procedure to register sea salt as a PGI, which is a lower level of protection.
We are currently preparing a PDO label application for Istrian extra virgin olive oil.
We are also engaged in energy efficiency and environmental promotion initiatives. For example, with
IFC assistance, PIK Vrbovec and Frikom undertook a clean production audit and resource efficiency
assessment to promote clean and efficient energy usage in the production process. Findings of both
processes led to immediate cost-saving measures. In addition to implementing low-cost efficiency
measures, Frikom is preparing to invest in a waste water treatment plant, and PIK plans to invest in
efficiency-promoting measures such as the re-usage of treated water, a wastewater treatment plant, heat
recovery systems and the construction of a new tunnel for pre-cooling meat products.
Insurance
We maintain comprehensive insurance coverage, where appropriate, with respect to damage to assets,
machine breakage, damage to vehicles, vehicle liability, general liability from business activities, damage
to orchards and other crops resulting from inclement weather conditions, damage to livestock, domestic
and international transport of commodities, employers’ liability and life insurance for our directors and
managers and, where appropriate, business interruption insurance, product liability and third party
liability. We believe that the level of insurance which we maintain is appropriate for the risks of our
various businesses and is comparable, in each case, to that maintained by other companies in our
Primary Markets operating in the same business areas.
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MANAGEMENT
In accordance with our Articles of Association and pursuant to the Croatian Companies Act, we have a
Supervisory Board and a Management Board. The Management Board is responsible for managing our
business in accordance with applicable laws and our Articles of Association.
The principal function of the Supervisory Board is to supervise the Management Board. It is also
responsible for appointing and removing members of the Management Board. Certain major or unusual
transactions such as purchases and sales of real estate, significant investments and the incurrence of
significant indebtedness may require the consent of the Supervisory Board. The Supervisory Board does
not, however, supervise our day to day business. In carrying out their duties, individual members of the
Supervisory Board and the Management Board must exercise the standard of care of a diligent and
prudent business person. They must take into account a broad range of considerations, including the
interests of the Group, as well as the interests of our shareholders, employees and creditors.
Supervisory Board
The Supervisory Board consists of five members, three of whom are elected by a General Meeting of
shareholders by a simple majority of the votes present at the meeting, one appointed by the EBRD for
so long as the EBRD is a preference shareholder of the Issuer, and one appointed by the Issuer’s
employees for as long as the conditions regulated by the Croatian Labor Act in force are in existence.
The quorum for a meeting of the Supervisory Board is three, though votes may be submitted in writing
by members who are not present. The members of the Supervisory Board are elected or appointed, as
applicable, for a period of four years. A member of the Supervisory Board may be removed by 75% of
the votes cast at a General Meeting of shareholders. The Supervisory Board elects a Chairman and
Vice-Chairman from among its members. Unless otherwise provided for by the relevant provisions of
Croatian law or the Articles of Association, resolutions of the Supervisory Board are passed by a
simple majority of the votes cast.
The current members of our Supervisory Board are Ivan Todorić, Branko Tarnik and Branko Mikša
(the three elected Supervisory Board members), Vitorija Svić (appointed by the Issuer’s employees) and
Gilles Mettetal (appointed by the EBRD). The Chairman of the Supervisory Board is Ivan Todorić and
the Deputy Chairman is Branko Mikša. The business address of each member of the Supervisory Board
is Trg Dražena Petrovića 3, 10000 Zagreb, Croatia.
Ivan Todorić was born in 1984. He has been a member of our Supervisory Board since 2008. He
graduated from the Faculty of Economics in Zagreb. He started his career with us in 2002 as a flower
store manager. In 2003, he was the Assistant to the Director for Wholesales for Konzum. In 2004, he
worked as the Assistant to the Director for Purchase of Packaged Foods for Konzum. From 2004 to
2007, he was the Assistant to the Executive Director for Purchase in Konzum. In 2008, he became an
Executive Director and was appointed to the position of the Chairman of the Supervisory Board. He is
also a member of the supervisory boards of Plodovi zemlje Matijević d.o.o., Donji Miholjac and Ledo
Kft., Hungary, Budapest.
Branko Tarnik was born in 1949. He has been a member of our Supervisory Board since 2003. He
graduated from the Faculty of Economics in Zagreb. Mr. Tarnik started his career in 1973 at the
Croatian National Bank as Foreign Transactions Controller. From 1978 to 1987, he worked at INA
COMMERCE, Zagreb, first as Director of Foreign Exchange Operations, then as Director of Finance.
From 1987 to 1995, he was employed by INTERINA, Switzerland and, from 1995 to 1998, by
MARTAG, Switzerland as Managing Director. He has been with us since 1998, having served as a
Board Member of Kreditna banka Zagreb. From 1998 to 2000 and from 2000 to 2003, Mr. Tarnik
served as our Executive Vice President for Finance.
Branko Mikša was born in 1947. He has been a member of our Supervisory Board since 2000. He
holds a Bachelor’s and a Master’s Degree from the Faculty of Economics in Zagreb. He started his
career at Pliva Zagreb in 1970 and left in 1991 as Director of Marketing to become Director of Pliva
Handels GmbH in Hamburg. From 1992 to 1993, he was Minister of Trade and Tourism in the
Croatian government and the Mayor of the City of Zagreb from 1993 to 1996. He returned to Pliva
Handels GmbH in Hamburg in 1996. He joined us in 1999 as Advisor to the President. Mr. Mikša was
President of the Supervisory Board of the Brijuni National Park from 1992 to 1994 and, from 1995 to
1999, a member of the Supervisory Board of Pliva d.d. Zagreb. From 1998 to 1999, he served as
President of the Croatian Football Union, a member of the Supervisory Board of Croatia Airlines d.d.
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from 1998 to 2001, and, in addition he worked at FIFA as a member of the Board of National Football
Unions from 1999 to 2000. Since 2004, he has been Honorary Consul of the Republic of South Africa.
Vitorija Svić was born in 1969. She has been a member of our Supervisory Board since 2010. She holds
a Bachelor Degree from the Faculty of Law in Zagreb. She started her career in 1992 with the County
Court in Zagreb. She passed the Bar exam in 1994. She has been with us since 1995 where she started
as an Assistant to the Director of Legal Affairs. From 1996 until 2007 she was the Director of Legal
Affairs. She is currently the Secretary to the Management Board.
Gilles Mettetal is Director of Agribusiness at the EBRD. His previous work experience was with the
Investment Centre of the United Nations Food and Agriculture Organisation (FAO) where he
supervised the identification and preparation of projects to be financed by major international financing
institutions such as the World Bank or the International Fund of Agriculture (IFAD) in Asia (mainly
China), Africa and South America. He also worked for the OECD/Club du Sahel on the Analysis of
the Competitiveness of Agriculture in the Sahel and Grain policies in Senegal, Côte d’Ivoire and Mali.
Gilles Mettetal holds a diploma of agronomy engineering from l’École Nationale Supérieure
Agronomique de Montpellier. He also holds a university degree (Maı̂trise) in Biology.
Management Board
Under the Articles of Association, our Management Board consists of between one and ten members.
The members are appointed and dismissed by the Supervisory Board in accordance with applicable
Croatian law and the Articles of Association. The Supervisory Board also appoints the President and
Vice President of the Management Board. The members of the Management Board are appointed by
the Supervisory Board for a term of five years and may be reappointed without limitation.
The Management Board must report regularly to the Supervisory Board, particularly in relation to
proposed business policy and strategy, profitability and the current business of Agrokor and on any
exceptional matters which may arise from time to time.
The current members of the Management Board of Agrokor are Ivica Todorić, Ljerka Puljić, Damir
Kuštrak, Mislav Galić, Ante Todorić, Piruška Canjuga, Tomislav Lučić, Ivan Crnjac and Gordan Radin.
The business address of each member of the Management Board is Trg Dražena Petrovića 3, 10000
Zagreb, Croatia.
Ivica Todorić was born in 1951. He has been a member of our Management Board since 1989. He
graduated from the Faculty of Economics in Zagreb. In 1976, Mr. Todorić founded a private flower
production and trade company. The company business expanded into the import and export of
commodities, fruits and vegetables. Agrokor was registered as a joint-stock company in 1989, with
Mr. Todorić as sole owner. Since then, we have grown to become leaders in the CEE, through the
acquisition of food production and processing companies, as well as retail and wholesale companies,
with Mr. Todorić as the main driving force behind our mission and vision. In 1993, he was one of the
founders of the Croatian Employers’ Association and its President from 1993 to 1998. Mr. Todorić has
been President of our Management Board since its establishment.
Ljerka Puljić was born in 1954. She has been a member of our Management Board since 2000. From
1995 to 1998, she was the President of the Board of Ledo. Ms. Puljić has been employed at Ledo since
1981. She started her career in the Ministry of Science and Technology. Ms. Puljić is also the President
of the Trade Association at the Chamber of Commerce and Member of the Executive Committee of
the Employer’s Association of the Republic of Croatia. She was the Senior Executive Vice President for
Strategic Business Groups and Marketing for us since 2000. Since 2008, she has been the Senior
Executive Vice President for Strategic Business Groups, Marketing and Business Group Agriculture.
Damir Kuštrak was born in 1956. He has been a member of our Management Board since 2008. He
graduated from the University of Zagreb with a degree in civil engineering and received a Master’s
Degree from the Faculty of Agronomy, University of Zagreb. Mr. Kuštrak started his professional
career as a project associate in Convest Inženjering in Zagreb where he worked from 1983 to 1985. For
the next five years he was employed as an associate at the Institute of Mechanization, Technology and
Construction. From 1990 to 1994, he was an assistant lecturer at the Faculty of Agronomy in Zagreb.
Mr. Kuštrak was a Senior Executive Vice President for Operations and Marketing in Agrokor from
1994 to 2000. From 2000 to 2003, he was a Deputy Finance Minister. In 2004, he was elected President
of the Management Board of Medika where he stayed for the next four years. Mr. Kuštrak has been
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the President of the Croatian Employers’ Association since 2004. He is our Executive Vice President
for Export Markets since 2008.
Mislav Galić was born in 1972. He has been a member of our Management Board since 2008. He
holds a degree in management from Université Paris IX Dauphine and a masters in Informatic
management from Université Paris IX Dauphine and an MBA from Université Paris V Descartes in
banking and finance. He started his career at the Banque Nationale de Paris. He has been with us
since 1997 where he started as an Assistant in Corporate Finance. From 1997 to 1998, he was an
Assistant of the Vice President for Finance. From 1998 to 2008, he was the CEO of Ledo. In 2008, he
was appointed to the position of the Executive Vice President for the Food Business Group.
Ante Todorić was born in 1978. He has been a member of our Management Board since 2008. He
graduated in 2000 from the Faculty of Economics in Zagreb, where he obtained a Masters Degree in
Finance. He has worked with us since 1996, when he was Assistant to the CEO of the Group and
Assistant to the Director of the Flower Division. In 1997, he became Assistant in the Wheat Export
Department of Agrokor trgovina and in 1998 he became Assistant to the CEO, then a Regional Retail
Manager and Store Manager at Konzum. In 1999, he was named Director and Deputy Head of the
Supply Department—Fruits and Vegetable Division at Konzum and in 2000 he became Assistant to the
Director of Logistics and Purchasing. In 2000, he became Director and Deputy Head of our Wholesale
Department of Konzum and Executive Wholesale Director of Agrokor. He is a member of the
supervisory boards of RTL, Ledo, Solana Pag and Jamnica. In 2008, he became the Executive Vice
President for the Business Group Retail.
Piruška Canjuga was born in 1965. She has been a member of our Management Board since 1998. She
graduated from the Faculty of Agriculture in Zagreb, where she obtained her Masters Degree. She was
Assistant in the Department of Entomology between 1989 and 1996. She has been employed by us
since 1996. She was an assistant in brand development of our marketing department from 1996 to 1997
and Director of Sales in Konzum from 1997 to 1998. In 1998 she became the Executive Vice President
for Retailing. Since 2006, she has been the Executive Vice President for Business Development.
Tomislav Lučić was born in 1970. He has been a member of our Management Board since 2003. He
graduated from the Faculty of Economics in Zagreb. He has been employed in our corporate finance
department since 1996 and has been the Executive Vice President for Finance and Control since 2003.
Ivan Crnjac was born in 1977. He has been a member of our Management Board since 2008. He
graduated from the Faculty of Economics in Zagreb and has acquired his MBA at the IEDC Bled. His
professional career started in 2000, in CAIB Investment Banking. In 2005, he joined us as the
Executive Director for Strategy and M&A. In 2008, he became the Executive Vice President for
Strategy and Capital Markets.
Gordan Radin was born in 1958. He has been a member of our Management Board since April 2010.
Mr. Radin graduated from the University of Zagreb, Faculty of Law. Between 1983 and 2000, he
worked on different positions in public administration, including the positions of Secretary General of
the Government and Chief of the Cabinet of the President of the Republic. In 2000, he moved to the
private sector where he was appointed to the position of the director of Legal Affairs of the company
Dukat. In 2004, he became the President of the Board, and in 2006, he became a member of the
Supervisory Board of the same company. Between 2007 and 2010, Mr. Radin was a member of the
Board of LURA Investment. In 2010, he became the Executive Vice President for Human Resources,
Legal Affairs and Central Services.
Hrvoje Balent was born in 1972. He has been a member of our Management Board since July 2012. He
graduated from the Faculty of Economics in Zagreb. His professional career started in 1997, at
Agrokor trgovina as a trader. In 1998, he became Associate to the Senior Executive Vice President for
Strategic Business Groups at Agrokor d.d. From 1999 to 2004, he was a Director of Trading of
Non-Food Goods at Konzum d.d. In 2004, he became an Executive Director at Agrokor d.d.
performing various functions and recently he became the Executive Vice President for Sales and
Services.
Committees
We do not currently have any Supervisory or Management Board committees.
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PRINCIPAL SHAREHOLDERS AND SHARE CAPITAL
The Issuer has a registered share capital of HRK 161,591,000 divided into 296,250 ordinary
shares, each having a nominal value of HRK 500 per share, and 26,932 preference shares, each having
a nominal value of HRK 500 per share. Our ordinary shares and preference shares are each entitled to
one vote per share in our shareholders’ meetings and are equally entitled to dividends declared at our
shareholders’ meetings.
Mr. Ivica Todorić, the founder of Agrokor and current Chief Executive Officer and President of the
Issuer’s management board, owns all outstanding ordinary shares of the Issuer, constituting 91.67% of
voting rights at our shareholder meetings. The European Bank for Reconstruction and Development
owns all outstanding preference shares of the Issuer, constituting 8.33% of voting rights at our
shareholder meetings.
In the event of a liquidation, bankruptcy or other insolvency event of the Issuer, holders of the
preference shares shall be entitled, upon payment of all indebtedness owing to creditors of the Issuer,
to receive the entire subscription price for the preference shares plus all dividends declared but unpaid
at such time prior to any payment being made to holders of the ordinary shares. The preference shares
are not entitled to mandatory dividend or similar rights. Some or all the preference shares may be, at
any time, converted into ordinary shares at a ratio of one preference share per ordinary share unless
the nominal value of the ordinary shares was reduced (in which case the conversion ratio shall be the
ratio of the nominal amount of the newly issued ordinary shares to the nominal amount of the existing
ordinary shares). In the event of an initial public offering of the Issuer’s ordinary shares, the preferred
shares shall be automatically converted into ordinary shares in accordance with the ratio described in
the preceding sentence.
For so long as the EBRD is a preference shareholder of the Issuer, it shall be entitled to appoint one
member of the supervisory board of directors. See ‘‘Management’’ for further information.
Pursuant to the Issuer’s articles of association, subject to certain exceptions, the following decisions at
the shareholders’ meetings require 100% of the votes of both the ordinary shares and the preference
shares: (i) decisions amending the Issuer’s articles of association, (ii) decisions increasing the share
capital of the Issuer (other than in respect of an initial public offering of the Issuer or an increase of
not more than 10% of the share capital in total), (iii) decisions changing the rights relating to existing
share capital or creating a new class of share capital, (iv) decisions approving the withdrawal of shares
or stock-splits and (v) decisions approving dividends or any distributions from the share capital
exceeding A8 million per annum.
The EBRD acquired the preference shares of the Issuer on June 20, 2006 pursuant to a subscription
agreement with the Issuer for a cash consideration of A110,000,000. In the subscription agreement, as
amended, the Issuer undertakes not to incur any financial debt that would result in the group breaching
a ratio of net financial debt to EBITDA of 4.00:1 for the trailing four-quarter period. The Issuer is
obligated to actively take into consideration the obligation to maintain the aforementioned financial
ratio when considering any future capital expenditures or acquisitions. In the event that the financial
ratio is breached for reasons outside of the Issuer’s control, the Issuer shall agree with EBRD on
corrective actions to take.
The subscription agreement shall continue in effect until such time as EBRD ceases to own either
ordinary shares or preference shares of the Issuer or an initial public offering of ordinary shares of the
Issuer occurs.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Our principal shareholder, Mr. Ivica Todorić, the founder of Agrokor and current Chief Executive
Officer and President of the Issuer’s management board, has received dividends in respect of his
ordinary shares totaling HRK 53,621,300 (A7,359,265) and HRK 45,351,121 (A6,100,333) for the years
ended December 31, 2009 and 2010, respectively, and is entitled to HRK 45,622,493 (A6,074,818) of
dividends declared on June 26, 2012 but not yet paid for the year ended December 31, 2011. Dividends
are generally paid in the year following reported results.
Certain members of Todorić family are also members of the supervisory and management board and
employees of the Issuer. Mr. Ivan Todorić, the son of Mr. Ivica Todorić, is president of the supervisory
board of the Issuer. Mr. Ante Todorić, also a son of Mr. Ivica Todorić, is a member of the management
board of the Issuer, serving as Executive Vice President for the Business Group Retail division. See
‘‘Management’’ for further information. Mrs. Iva Balent, a daughter of Mr. Ivica Todorić, is Executive
Marketing Director of the Issuer.
EBRD, the holder of all our preference shares, which has a representative on our supervisory board,
has received dividends in respect of its preference shares totaling HRK 4,874,642 (A669,021) and
HRK 4,095,725 (A550,929) for the years ended December 31, 2009 and 2010, respectively, and is
entitled to HRK 4,145,535 (A551,995) of dividends declared on June 26, 2012, but not yet paid for the
year ended December 31, 2011. EBRD has made certain loans to certain non-guarantor subsidiaries of
the Issuer totaling A92.3 million as of June 30, 2012. In addition, the Issuer has HRK 37.6 million
(A5.0 million) of an unsecured EBRD facility outstanding. This indebtedness is guaranteed by the
Issuer and is secured by certain assets of the relevant borrowers. EBRD benefits from certain
arrangements with the borrowers under the loans and other Group companies pursuant to which the
Group companies agree to subordinate their intercompany claims in respect of the borrowers to the
repayment of the EBRD loans. We intend to repay the indebtedness outstanding under the EBRD
facilities with the proceeds of the Offering. See ‘‘Description of Other Financing Arrangements’’ for
further information.
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DESCRIPTION OF OTHER FINANCING ARRANGEMENTS
The following summary of the material terms of certain financing arrangements to which the Issuer and
certain of its subsidiaries are a party does not purport to be complete. For further information regarding our
existing indebtedness, see ‘‘Use of Proceeds,’’ ‘‘Capitalization,’’ and ‘‘Management’s Discussion and Analysis
of Financial Condition and Results of Operations.’’ For further information about our refinancing plans
which may affect certain of our financing arrangements, see ‘‘Use of Proceeds.’’
Revolving Credit Facility Agreement
We intend to enter into on or about the Issue Date a revolving credit facility agreement (the
‘‘Revolving Credit Facility’’) with a group of lenders which provides, among other things, for a revolving
credit facility of A150,000,000. The commitments under the Revolving Credit Facility mature in March
2015. The Revolving Credit Facility would be governed by English law. The Revolving Credit Facility
will be undrawn upon consummation of the Transactions.
Borrowers
The original borrower under the Revolving Credit Facility would be Agrokor.
Guarantees
The Revolving Credit Facility would be guaranteed on a senior basis by Jamnica, Ledo, Zvijezda,
Konzum, Agrokor trgovina, PIK Vinkovci, Sarajevski kiseljak and Ledo Čitluk. The Issuer may be
required to add additional guarantors under the Revolving Credit Facility and may be entitled to
release guarantors depending on the ratio of guarantor net debt to adjusted guarantor EBITDA from
time to time, as tested under the Revolving Credit Facility.
Security
The obligations under the Revolving Credit Facility would be secured by share pledges over all shares
owned directly or indirectly by the Issuer of the guarantors of the Facility. If any future guarantees of
the Revolving Credit Facility are required to be granted by subsidiaries of the Issuer, the Issuer would
be required to grant a share pledge in respect of such additional guarantors’ shares in favor of the
lenders under the Revolving Credit Facility.
Amount and Repayment of Borrowings
The minimum amount of borrowing under the Revolving Credit Facility would be A10,000,000 and
multiples of A5,000,000 above that amount. A borrowing under the Revolving Credit Facility would be
repayable on the last day of its interest period, which can be a period of one, three or six months as
selected by the borrower in the utilization request for that borrowing or any other period agreed by the
Issuer and the agent. All outstanding borrowings under the Revolving Credit Facility would be required
to be repaid in full upon maturity.
Interest Rates and Fees
The annual interest rate on borrowings would be calculated based on EURIBOR, plus a margin of
either 5.50%, for the first A75,000,000 of borrowings, or 5.25%, for any borrowing in excess of that
amount, plus certain mandatory costs, if any. Interest on borrowings would be payable on the last day
of the borrowings’ respective interest periods (and, if the interest period is longer than six months, on
the dates falling at six monthly intervals after the first day of that interest period or, if sooner, the last
day of that interest period).
The borrower would also be obliged to pay a commitment fee on available commitments during the
availability period of the Revolving Credit Facility. Other fees would also be payable, including an
arrangement fee, an agency fee and a security trustee fee.
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Covenants
Availability of amounts under the Revolving Credit Facility would be subject to compliance with
financial covenants. Such covenants generally require that in respect of any relevant period:
•
consolidated leverage may not exceed (i) 4.375:1 until March 31, 2013 and (ii) 4.25:1 from April 1,
2013;
•
consolidated interest cover may not be less than 2.0:1; and
•
consolidated fixed cost cover may not be less than 1.50:1.
Additionally, guarantor leverage may not exceed 6.25:1 in the first year and 6.00:1 thereafter.
Change of Control
Upon the occurrence of a change of control (if the Todorić family or any funds controlled by the
Todorić family cease to control directly or indirectly at least 50.1% of the maximum number of votes
that might be cast at a general meeting of the Issuer) or the sale of all or substantially all the assets of
the Issuer, each lender would have the right to elect to have its share in the Revolving Credit
Facility cancelled and all outstanding utilizations of such lender, together with accrued interest, and all
other amounts accrued to it under the finance documents, become immediately due and payable.
Undertakings
Subject in each case to certain exceptions, the Revolving Credit Facility would contain negative
covenants and restrictions, including among others: restrictions on mergers, change of business,
acquisitions and joint ventures, restrictions on dealing with assets and security (including in respect of
preservation of assets, pari passu ranking, liens and disposals, restrictions on loans, guarantees,
indemnities, dividends and share redemption, restrictions on financial indebtedness, issues of share
capital, and other miscellaneous restrictions). The restrictions on financial indebtedness would include
an exception for the incurrence of such indebtedness by the Issuer and any guarantor if such incurrence
is not prohibited by the debt incurrence covenant included in the 2009 Indenture (except that for
purposes of the Revolving Credit Facility the fixed charge coverage ratio is set at 2.4 to 1).
The Revolving Credit Facility would also contain affirmative covenants such as for the periodic
reporting of financial and other information and for notification upon the occurrence of any default.
Events of Default
The Revolving Credit Facility would contain events of default, such as failure to pay principal or
interest, breach of financial covenants and other obligations, misrepresentation, cross default,
insolvency, unlawfulness and invalidity, cessation of business, audit qualification, expropriation,
repudiation and rescission of agreements and material adverse change. The occurrence of an event of
default could result in the acceleration of payment obligations under the Revolving Credit Facility.
Bilateral Facilities
The Issuer and certain of its subsidiaries are currently borrowers under various bilateral credit facility
arrangements with local lenders (both bank and non-bank financial institutions, such as insurance
companies) in Croatia, Serbia and Bosnia and Herzegovina. In the past we have relied to a significant
degree on short term indebtedness to finance our operations and liquidity needs. Although the bilateral
credit facilities have short maturities—usually less than a year—as is customary in Croatia, Serbia and
Bosnia and Herzegovina, in the past we have routinely been able to extend our bilateral credit facilities.
See ‘‘Risk Factors—Risks Relating to the Notes—We may have difficulty refinancing our short-term
indebtedness.’’ We believe that we continue to have strong banking relationships with our bilateral
banks and expect to continue to utilize bilateral credit facilities to finance a portion of our operations
and liquidity needs.
As of June 30, 2012, approximately HRK 1,181.1 million (A157.3 million) of indebtedness (including
approximately HRK 10.9 million (A1.5 million) of finance leases) was outstanding under such such
bilateral credit facilities (each of which was fully drawn) including the EBRD Issuer facility, of which
approximately HRK 975.9 million (A129.9 million) is outstanding under short-term bilateral credit
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facilities, approximately HRK 205.2 million (A27.3 million) is outstanding under long-term bilateral
credit facilities and:
•
the Issuer was a borrower in respect of 8 bilateral facilities, representing approximately
HRK 411.8 million (A54.8 million) (denominated in both HRK and euro) of indebtedness.
HRK 374.3 million (A49.8 million) was outstanding under unguaranteed short-term bilateral credit
facilities, of which HRK 108.5 million (A14.4 million) was secured by liens on assets.
HRK 37.5 million (A5.0 million) was outstanding under unguaranteed long-term bilateral credit
facilities, none of which was secured by liens on assets;
•
certain of the Subsidiary Guarantors were borrowers under 8 bilateral facilities, representing
approximately HRK 102.0 million (A13.6 million) (denominated in both HRK and euro) of
unguaranteed indebtedness. HRK 56.4 million (A7.5 million) was outstanding under unguaranteed
short-term bilateral credit facilities, none of which was secured. HRK 45.6 million (A6.1 million)
was outstanding under unguaranteed long-term bilateral credit facilities, of which approximately
HRK 0.4 million (A0.1 million) was secured by liens on certain assets; and
•
certain subsidiaries that do not guarantee the Notes were borrowers under 50 bilateral facilities,
representing approximately HRK 667.3 million (A88.9 million) (denominated in both HRK and
euro) of unguaranteed indebtedness. HRK 545.2 million (A72.6 million) was outstanding under
unguaranteed short-term bilateral credit facilities, of which approximately HRK 120.2 million
(A16.0 million) was secured by liens on certain assets. HRK 122.0 million (A16.3 million) was
outstanding under unguaranteed long-term bilateral credit facilities, of which approximately
HRK 54.3 million (A7.2 million) were secured by liens on certain assets.
At June 30, 2012, we had 66 bilateral credit facilities outstanding, and after giving effect to the
Transactions, we would have had 65 Bilateral credit facilities outstanding. If the issuance had occurred
on June 30, 2012 and the proceeds therefrom had been applied at such date, approximately
HRK 1,143.5 million (A152.3 million) of indebtedness (including approximately HRK 10.9 million
(A1.5 million) of finance leases) would have been outstanding under such Bilateral credit facilities (each
of which would have been fully drawn), of which approximately HRK 975.9 million (A129.9 million)
would have been outstanding under short-term Bilateral credit facilities, approximately
HRK 167.6 million (A22.3 million) would have been outstanding under long-term Bilateral credit
facilities and:
•
the Issuer would have been a borrower in respect of 7 Bilateral facilities, representing
approximately HRK 374.3 million (A49.8 million) (denominated in both HRK and euro) of
indebtedness. HRK 374.3 million (A49.8 million) would have been outstanding under unguaranteed
short-term indebtedness, of which HRK 108.5 million (A14.4 million) was secured by liens on
assets. There would have been no unguaranteed long-term Bilateral credit facilities;
•
certain of the Subsidiary Guarantors would have been borrowers under 8 Bilateral facilities,
representing approximately HRK 102.0 million (A13.6 million) (denominated in both HRK and
euro) of unguaranteed indebtedness. HRK 56.4 million (A7.5 million) would have been outstanding
under unguaranteed short-term Bilateral credit facilities, none of which would have been secured
by liens on assets. HRK 45.6 million (A6.1 million) would have been outstanding under long-term
Bilateral credit facilities, of which approximately HRK 0.4 million (A0.1 million) would have been
secured by liens on certain assets; and
•
certain subsidiaries that do not guarantee the Notes would have been borrowers under 50 Bilateral
facilities, representing approximately HRK 667.3 million (A88.9 million) (denominated in both
HRK and euro of unguaranteed indebtedness) of indebtedness. HRK 545.2 million (A72.6 million)
would have been outstanding under unguaranteed short-term Bilateral credit facilities, of which
approximately HRK 120.2 million (A16.0 million) was secured by liens on certain assets.
HRK 122.0 million (A16.3 million) would have been outstanding under unguaranteed long-term
Bilateral credit facilities, of which approximately HRK 54.3 million (A7.2 million) would have been
secured by liens on certain assets.
At June 30, 2012, the interest rates on loans outstanding under the 66 Bilateral credit facilities that
remain outstanding after giving effect to the Transactions ranged from 4% to 11% on both a fixed rate
and floating rate basis determined based on a margin over EURIBOR, as applicable. Loans under such
Bilateral credit facilities are extended principally in HRK and euro. Certain of our non-bank loans are
denominated in U.S. dollars, HRK and RSD. In general, these agreements are governed by local law
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and do not contain representations, warranties or cross default provisions, although certain of them
contain customary covenants.
Amounts in this section have been translated at the period-end rate for the six months ended June 30,
2012 of A1.00 = HRK 7.5101 based on the Croatian National Bank Rate.
Senior Notes due 2016
Overview
On December 7, 2009, the Issuer issued A400,000,000 aggregate principal amount of 10% Senior Notes
due 2016 (the ‘‘2016 Notes’’) under an indenture dated December 7, 2009 (the ‘‘2009 Indenture’’),
among the Issuer, BNY Mellon Corporate Trustee Services Limited, as trustee, The Bank of New York
Mellon, as transfer agent and principal paying agent, The Bank of New York Mellon
(Luxembourg) S.A., as Luxembourg listing agent, paying agent, transfer agent and registrar and the
guarantors named therein, as supplemented. On January 20, 2011, the Issuer issued an additional
A150,000,000 aggregate principal amount of the 2016 Notes pursuant to the 2009 Indenture. As of
June 30, 2012, there was A550,000,000 aggregate principal amount of the 2016 Notes issued and
outstanding.
Ranking
The 2016 Notes are the general unsecured senior obligations of the Issuer and rank equally with the
Issuer’s existing and future senior indebtedness, rank senior to all the Issuer’s existing and future
subordinated indebtedness and are effectively subordinated to all its existing and future secured
indebtedness to the extent of the value of the assets securing such indebtedness. In addition, the 2016
Notes are effectively subordinated to all existing and future indebtedness and other liabilities of the
Issuer’s non-guarantor subsidiaries.
Interest Rates, Payment Dates and Maturity
The 2016 Notes bear interest at a rate of 10% per annum. Interest on the 2016 Notes is payable
semi-annually in arrears on June 7 and December 7, beginning June 7, 2010. The 2016 Notes will
mature on December 7, 2016.
Guarantees
The 2016 Notes are jointly and severally guaranteed (the ‘‘2016 Note Guarantees’’) on a senior
unsecured basis by certain guarantors (collectively, the ‘‘2016 Note Guarantors’’), which are the same
entities as the Subsidiary Guarantors under the Indenture.
The 2016 Note Guarantees are the unsecured senior obligations of each 2016 Note Guarantor and rank
equally with such 2016 Note Guarantor’s existing and future senior indebtedness (including its
Note Guarantee under the Indenture), rank senior to all the 2016 Note Guarantor’s existing and future
subordinated indebtedness and are effectively subordinated to all its existing and future secured
indebtedness to the extent of the value of the assets securing such indebtedness.
Optional Redemption and Change of Control
At any time prior to December 7, 2013, the Issuer may redeem all or part of the 2016 Notes at a
redemption price equal to 100% of the principal amount of the 2016 Notes redeemed plus the greater
of (1) 1.0% of the principal amount of such note; or (2) the excess of (a) the present value at such
redemption date of (i) the redemption price of such note as of December 7, 2013 (such redemption
price being 105.000%), plus (ii) all required interest payments that would otherwise be due to be paid
on such note during the period between the redemption date and December 7, 2013 (excluding accrued
but unpaid interest), computed using a discount rate equal to the applicable Bund rate plus 50 basis
points; over (b) the principal amount of such note.
The 2016 Notes will be subject to redemption at any time on or after December 7, 2013, at the option
of the Issuer, in whole or in part, at the following redemption prices (expressed as percentages of the
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aggregate principal amount), if redeemed during the 12-month period beginning on December 7 of
the year indicated below:
Redemption
Price
Year
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
105.000%
102.500%
100.000%
Upon the occurrence of certain change of control events, each holder of 2016 Notes may require the
Issuer to repurchase all or a portion of its 2016 Notes at a purchase price equal to 101% of the
principal amount of the 2016 Notes, plus accrued interest to, but not including, the date of purchase.
If the Issuer sells assets under certain circumstances, the Issuer is required to make an offer to
purchase the 2016 Notes at 100% of the principal amount of the 2016 Notes, plus accrued interest to,
but not including, the date of purchase, with the excess proceeds from the sale of the assets.
In addition, in the event that the Issuer becomes obligated to pay additional amounts (as defined in the
2009 Indenture) to holders of the 2016 Notes as a result of changes affecting withholding taxes
applicable to payments on the 2016 Notes, the Issuer may redeem the 2016 Notes in whole but not in
part at any time at 100% of the principal amount of the 2016 Notes plus accrued interest to the
redemption date.
Covenants
The 2009 Indenture contains covenants that, among other things, limit our ability and the ability of our
subsidiaries to:
•
incur or guarantee additional indebtedness or issue certain preferred stock;
•
make restricted payments, including dividends or other distributions;
•
create or incur certain liens;
•
sell, lease or transfer certain assets;
•
in the case of our restricted subsidiaries, enter into arrangements that restrict dividends or other
payments to us;
•
consolidate, merge or transfer all or substantially all our assets and the assets of our subsidiaries
on a consolidated basis;
•
in the case of our restricted subsidiaries, guarantee debt;
•
engage in certain transactions with affiliates; and
•
designate a restricted subsidiary as an unrestricted subsidiary.
These covenants are subject to important exceptions and qualifications. Currently, all the Issuer’s
subsidiaries are restricted subsidiaries, as defined in the 2009 Indenture.
Events of Default
The 2009 Indenture contains customary events of default, including, among others, the non-payment of
principal or interest on the 2016 Notes, certain failures to perform or observe any other obligation
under the 2009 Indenture, the failure to pay certain indebtedness or judgments, the failure,
unenforceability or invalidity of any 2016 Note Guarantee and the bankruptcy or insolvency of the
Issuer or any Significant Subsidiary (as defined in the 2009 Indenture). The occurrence of any of the
events of default would permit or require the acceleration of all obligations outstanding under the 2016
Notes.
Senior Notes due 2019
Overview
On April 25, 2012, the Issuer issued A300,000,000 aggregate principal amount of 9.875% Senior Notes
due 2019 (the ‘‘2019 Notes’’) under an indenture dated April 25, 2012 (the ‘‘2012 Indenture’’), among
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the Issuer, BNY Mellon Corporate Trustee Services Limited, as trustee, The Bank of New York
Mellon, as transfer agent and paying agent, The Bank of New York Mellon (Luxembourg) S.A., as
registrar and the guarantors named therein, as supplemented.
Ranking
The 2019 Notes are the general unsecured senior obligations of the Issuer and rank equally with the
Issuer’s existing and future senior indebtedness, rank senior to all the Issuer’s existing and future
subordinated indebtedness and are effectively subordinated to all its existing and future secured
indebtedness to the extent of the value of the assets securing such indebtedness. In addition, the 2019
Notes are effectively subordinated to all existing and future indebtedness and other liabilities of the
Issuer’s non-guarantor subsidiaries.
Interest Rates, Payment Dates and Maturity
The 2019 Notes bear interest at a rate of 9.875% per annum. Interest on the 2019 Notes is payable
semi-annually in arrears on May 1 and November 1, beginning November 1, 2012. The 2019 Notes will
mature on May 1, 2019.
Guarantees
The 2019 Notes are jointly and severally guaranteed (the ‘‘2019 Note Guarantees’’) on a senior
unsecured basis by certain guarantors (collectively, the ‘‘2019 Note Guarantors’’), which are the same
entities as the Subsidiary Guarantors under the Indenture.
The 2019 Note Guarantees are the unsecured senior obligations of each 2019 Note Guarantor and rank
equally with such 2019 Note Guarantor’s existing and future senior indebtedness (including its
Note Guarantee under the Indenture), rank senior to all the 2019 Note Guarantor’s existing and future
subordinated indebtedness and are effectively subordinated to all its existing and future secured
indebtedness to the extent of the value of the assets securing such indebtedness.
Optional Redemption and Change of Control
At any time prior to May 1, 2015, the Issuer may redeem all or part of the 2019 Notes at a redemption
price equal to 100% of the principal amount of the 2019 Notes redeemed plus the greater of (1) 1.0%
of the principal amount of such note; or (2) the excess of (a) the present value at such redemption
date of (i) the redemption price of such note as of May 1, 2015 (such redemption price being
107.406%), plus (ii) all required interest payments that would otherwise be due to be paid on such note
during the period between the redemption date and May 1, 2015 (excluding accrued but unpaid
interest), computed using a discount rate equal to the applicable Bund rate plus 50 basis points; over
(b) the principal amount of such note.
The 2019 Notes will be subject to redemption at any time on or after May 1, 2015, at the option of the
Issuer, in whole or in part, at the following redemption prices (expressed as percentages of the
aggregate principal amount), if redeemed during the 12-month period beginning on May 1 of the year
indicated below:
Redemption
Price
Year
2015
2016
2017
2018
...........
...........
...........
and thereafter .
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107.406%
104.938%
102.469%
100.000%
Upon the occurrence of certain change of control events, each holder of 2019 Notes may require the
Issuer to repurchase all or a portion of its 2019 Notes at a purchase price equal to 101% of the
principal amount of the 2019 Notes, plus accrued interest to, but not including, the date of purchase.
If the Issuer sells assets under certain circumstances, the Issuer is required to make an offer to
purchase the 2019 Notes at 100% of the principal amount of the 2019 Notes, plus accrued interest to,
but not including, the date of purchase, with the excess proceeds from the sale of the assets.
105
In addition, in the event that the Issuer becomes obligated to pay additional amounts (as defined in the
2012 Indenture) to holders of the 2019 Notes as a result of changes affecting withholding taxes
applicable to payments on the 2019 Notes, the Issuer may redeem the 2019 Notes in whole but not in
part at any time at 100% of the principal amount of the 2019 Notes plus accrued interest to the
redemption date.
Covenants
The 2012 Indenture contains covenants that, among other things, limit our ability and the ability of our
subsidiaries to:
•
incur or guarantee additional indebtedness or issue certain preferred stock;
•
make restricted payments, including dividends or other distributions;
•
create or incur certain liens;
•
sell, lease or transfer certain assets;
•
in the case of our restricted subsidiaries, enter into arrangements that restrict dividends or other
payments to us;
•
consolidate, merge or transfer all or substantially all our assets and the assets of our subsidiaries
on a consolidated basis;
•
in the case of our restricted subsidiaries, guarantee debt;
•
engage in certain transactions with affiliates; and
•
designate a restricted subsidiary as an unrestricted subsidiary.
These covenants are subject to important exceptions and qualifications. Currently, all the Issuer’s
subsidiaries are restricted subsidiaries, as defined in the 2012 Indenture.
Events of Default
The 2012 Indenture contains customary events of default, including, among others, the non-payment of
principal or interest on the 2019 Notes, certain failures to perform or observe any other obligation
under the 2012 Indenture, the failure to pay certain indebtedness or judgments, the failure,
unenforceability or invalidity of any 2019 Note Guarantee and the bankruptcy or insolvency of the
Issuer or any Significant Subsidiary (as defined in the 2012 Indenture). The occurrence of any of the
events of default would permit or require the acceleration of all obligations outstanding under the 2019
Notes.
Term Loan Agreement
In March 2012, Agrokor entered into a facility agreement with a group of lenders which provides for a
A75.0 million term loan facility (the ‘‘Term Loan Agreement’’). The Term Loan matures on March 20,
2015. The Term Loan Agreement is governed by English law. As of June 30, 2012, A75.0 million was
outstanding under the Term Loan. The Term Loan accrues interest at a rate of EURIBOR plus a
margin of 5.50%. The Term Loan matures on March 20, 2015. The Term Loan is guaranteed on a
senior basis by Jamnica, Ledo, Zvijezda, Konzum, Agrokor trgovina, PIK Vinkovci, Sarajevski kiseljak
and Ledo Čitluk. We intend to prepay all amounts outstanding and to cancel the Term Loan on or
about the Issue Date with proceeds of the Offering.
Senior Facilities Agreement
In June 2010, the Issuer entered into a senior facilities agreement (as amended by an amendment
dated April 16, 2012, the ‘‘Senior Facilities Agreement’’) with a group of lenders which provides,
among other things, for up to A352,000,000 of borrowing availability, consisting of a A212,000,000 term
loan facility and a A140,000,000 revolving credit facility. The commitments under the Senior Facilities
Agreement mature on June 17, 2015. The Senior Facilities Agreement is governed by English law. As
of June 30, 2012, A320.8 million was outstanding under the Senior Facilities Agreement. The original
borrower under the Senior Facilities Agreement is Agrokor. The Senior Facilities Agreement is
guaranteed on a senior basis by Jamnica, Ledo, Zvijezda, Konzum, Agrokor trgovina, PIK Vinkovci,
Sarajevski kiseljak and Ledo Čitluk and secured by share pledges over all shares owned directly or
106
indirectly by the Issuer of the guarantors of the facilities. We intend to repay all amounts outstanding
and to cancel the facility under the Senior Facilities Agreement on or about the Issue Date with
proceeds of the Offering.
2009 EBRD Loan Agreement
In May 2009, Konzum Sarajevo entered into a loan agreement (the ‘‘2009 EBRD Loan Agreement’’)
with the EBRD, pursuant to which the EBRD agreed to lend to Konzum Sarajevo an amount not to
exceed A50,000,000, half on a firm commitment basis and the other half on a best-efforts syndicated
basis. The 2009 EBRD Loan Agreement is governed by English law. As of June 30, 2012, A38.1 million
was outstanding under the 2009 EBRD Loan Agreement. The final maturity of the 2009 EBRD Loan
Agreement is May 2016. The borrower under the 2009 EBRD Loan Agreement is Konzum Sarajevo.
The Issuer guarantees Konzum Sarajevo’s obligations under the 2009 EBRD Loan Agreement. The
obligations under the 2009 EBRD Loan Agreement are secured by liens on certain assets of Konzum
Sarajevo and a pledge over the entire participatory interest of Konzum Sarajevo held by Konzum d.d.
which represents the registered share capital of BAM 24.9 million (A12.7 million). We intend to prepay
all amounts outstanding and to cancel the facility under the 2009 EBRD Loan Agreement with
proceeds of the Offering. Pursuant to the terms of the 2009 EBRD Loan Agreement, the 2009 EBRD
facility is prepayable on November 20, 2012. We intend to negotiate with the EBRD an earlier
prepayment date.
2008 EBRD Loan Agreement
In October 2008, Idea d.o.o. entered into a loan agreement with the EBRD (the ‘‘2008 EBRD Loan
Agreement’’), pursuant to which the EBRD agreed to lend to IDEA an amount not to exceed
A70,000,000 half of it on a firm commitment and the other half on a best-efforts syndicated basis. The
2008 EBRD Loan Agreement is governed by English law. As of June 30, 2012, A54.3 million was
outstanding under the 2008 EBRD Loan Agreement. The final maturity of the 2008 EBRD Loan
Agreement is October 2015. The original borrower under the 2008 EBRD Loan Agreement is IDEA.
The Issuer guarantees IDEA’s obligations under the 2008 EBRD Loan Agreement. The obligations
under the 2008 EBRD Loan Agreement are secured by liens on the assets of SL Gross, a subsidiary
that was merged into IDEA in 2010. We intend to prepay all amounts outstanding and to cancel the
facility under the 2008 EBRD Loan Agreement with proceeds of the Offering. Pursuant to the terms of
the 2008 EBRD Loan Agreement, the 2008 EBRD facility is prepayable on October 24, 2012. We
intend to negotiate with the EBRD an earlier prepayment date.
EBRD Issuer Facility Agreement
In 2011, the Issuer entered into a loan agreement with the EBRD (the ‘‘EBRD Issuer Loan
Agreement’’), pursuant to which the EBRD extended a loan to the Issuer for A2.5 million. In 2012, the
EBRD extended a further loan to the Issuer for A2.5 million. The terms of the EBRD Issuer Loan
Agreement are substantially similar to the 2009 EBRD Loan Agreement. We intend to prepay all
amounts outstanding and to cancel the facility under the EBRD Issuer Loan Agreement with proceeds
of the Offering. Pursuant to the terms of the EBRD Issuer Loan Agreement, the EBRD Issuer Loan
Agreement is prepayable on October 15, 2012. We intend to negotiate with the EBRD an earlier
prepayment date.
2010 IFC Loan Agreement and 2011 Credit Agricole Loan Agreement
In December 2010 Frikom amended and restated the terms of its existing A40,000,000 loan agreement
(as so amended and restated, the ‘‘2010 IFC Loan Agreement’’) with the International Finance
Corporation (the ‘‘IFC’’) to finance certain projects to increase production at Frikom and Nova Sloga.
On January 10, 2011 Frikom entered into a parallel loan agreement with Credit Agricole Srbija Ad
Novi Sad (‘‘Credit Agricole’’) to refinance a portion of the original IFC loan (the ‘‘2011 Credit
Agricole Loan Agreement’’; together with the 2010 IFC Loan Agreement, the ‘‘Refinancing
Agreements’’). Under the Refinancing Agreements, the IFC provided Frikom with a loan in an initial
principal amount of A25 million and Credit Agricole provided Frikom with a loan in an initial principal
amount of A15 million. As of June 30, 2012, A18.8 million was outstanding under the 2010 IFC Loan
Agreement and A11.3 million was outstanding under the 2011 Credit Agricole Loan Agreement. The
final maturity of the Refinancing Agreements is January 15, 2015. The borrower under the 2010 IFC
Loan Agreement and the 2011 Credit Agricole Loan Agreement is Frikom. The Issuer guarantees
107
Frikom’s obligations under the 2010 IFC Loan Agreement and the 2011 Credit Agricole Loan
Agreement. The obligations under the 2010 IFC Loan Agreement and the 2011 Credit Agricole Loan
Agreement are secured by liens on certain assets of Frikom and the shares held by the Issuer in
Frikom, Belje and PIK Vrbovec. We intend to prepay all amounts outstanding and to cancel the
facilities under the 2010 IFC Loan Agreement and the 2011 Credit Agricole Loan Agreement with
proceeds of the Offering. Pursuant to the terms of the 2010 IFC Loan Agreement and the 2011 Credit
Agricole Loan Agreement, the 2010 IFC Loan Agreement and the 2011 Credit Agricole Loan
Agreement are each prepayable on January 15, 2013. We intend to negotiate with the IFC and Credit
Agricole an earlier prepayment date.
2006 IFC Loan Agreement
In June 2006, PIK Vrbovec and Belje entered into a Loan Agreement, which was amended in 2008 to
coordinate certain of its provisions with the 2008 IFC Loan Agreement (the ‘‘2006 IFC Loan
Agreement’’), with the IFC pursuant to which the IFC agreed to lend, and PIK Vrbovec and Belje, on
a joint and several basis, agreed to borrow up to A40,000,000. The final maturity of the 2006 IFC Loan
Agreement is June 15, 2013. As of June 30, 2012, A8.0 million was outstanding under the 2006 IFC
Loan Agreement. The obligations under the 2006 IFC Loan Agreement are secured by liens on certain
assets of PIK Vrbovec and Belje. We intend to prepay all amounts outstanding and to cancel the
facility under the 2006 IFC Loan Agreement with proceeds of the Offering. Pursuant to the terms of
the 2006 IFC Loan Agreement, the 2006 IFC Loan Agreement is prepayable on December 15, 2012.
We intend to negotiate with the IFC an earlier prepayment date.
2008 IFC Loan Agreement
In June 2008, PIK Vrbovec and Belje entered into a Second Loan Agreement (the ‘‘2008 IFC Loan
Agreement’’) with the IFC pursuant to which the IFC agreed to lend, and PIK Vrbovec and Belje, on a
joint and several basis, agreed to borrow up to A40,000,000. The final maturity of the 2008 IFC Loan
Agreement is March 15, 2015. As of June 30, 2012, A30.0 million was outstanding under the 2008 IFC
Loan Agreement. The obligations under the 2008 IFC Loan Agreement are secured by liens on certain
assets of PIK Vrbovec and Belje. We intend to prepay all amounts outstanding and to cancel the
facility under the 2008 IFC Loan Agreement with proceeds of the Offering. Pursuant to the terms of
the 2008 IFC Loan Agreement, the 2008 IFC Loan Agreement is prepayable on March 15, 2013. We
intend to negotiate with the IFC an earlier prepayment date.
108
DESCRIPTION OF NOTES
Agrokor d.d. (the ‘‘Issuer’’) will issue A325,000,000 million aggregate principal amount of 9.125% Senior
Notes due 2020 (the ‘‘Euro Notes’’) and $300,000,000 million aggregate principal amount of 8.875%
Senior Notes due 2020 (the ‘‘Dollar Notes’’ and, together with the Euro Notes, the ‘‘Notes’’) under an
indenture to be dated as of October 10, 2012 (the ‘‘Indenture’’), among itself, as issuer, the Issuer’s
subsidiaries that guarantee the Notes (the ‘‘Guarantors’’) and BNY Mellon Corporate Trustee Services
Limited, as trustee (the ‘‘Trustee’’), and the other parties thereto in a private transaction that is not
subject to the registration requirements of the Securities Act of 1933, as amended (the
‘‘Securities Act’’). See ‘‘Transfer Restrictions.’’ Each of the Euro Notes and the Dollar Notes will
constitute a separate series of Notes, but shall be treated as a single class for all purposes under the
Indenture, including in respect of any amendment, waiver or other modification of the Indenture or
any other action by the holders of the Notes hereunder, except as otherwise provided in the Indenture.
The terms of the Notes include those set forth in the Indenture. The Indenture will not incorporate or
include any of the provisions of the U.S. Trust Indenture Act of 1939, as amended.
The following description is a summary of the material provisions of the Indenture and the Notes. It
does not restate those agreements in their entirety. We urge you to read the Indenture because it, and
not this description, defines your rights as holders of the Notes. Copies of the Indenture and the form
of Notes are available as set forth below under ‘‘Additional Information.’’
Certain defined terms used in this description but not defined below under ‘‘—Certain Definitions’’
have the meanings assigned to them in the Indenture. You can find the definitions of certain terms
used in this description under the subheading ‘‘Certain Definitions.’’ In this description, the term
‘‘Issuer’’ refers only to the Issuer and not to any of its Subsidiaries.
The registered holder of a Note will be treated as the owner of it for all purposes. Only registered
holders will have rights under the Indenture.
Brief Description of the Notes and the Note Guarantees
The Notes
The Notes:
•
will be general unsecured obligations of the Issuer;
•
will be pari passu in right of payment with all existing and future unsecured senior Indebtedness of
the Issuer;
•
will be effectively subordinated to all obligations of the Issuer’s Subsidiaries that are not
Guarantors;
•
will be effectively subordinated to any existing and future secured Indebtedness of the Issuer to the
extent of the value of the assets securing such Indebtedness;
•
will be senior in right of payment to any future subordinated Indebtedness of the Issuer; and
•
will be unconditionally guaranteed by the Guarantors, subject to limitations under applicable law.
The Note Guarantees
The Notes will be guaranteed by the Guarantors. The term ‘‘Guarantors’’ refers initially to Jamnica
d.d., Konzum d.d., Ledo d.d., Zvijezda d.d., Agrokor trgovina d.d., PIK Vinkovci d.d., Sarajevski
kiseljak d.d. and Ledo d.o.o. Čitluk.
Each Note Guarantee:
•
will be a general unsecured obligation of the Guarantor;
•
will be pari passu in right of payment with all existing and future unsecured senior Indebtedness of
that Guarantor;
•
will be senior in right of payment to any future subordinated Indebtedness of that Guarantor; and
•
will be effectively subordinated to any existing and future secured Indebtedness of the Guarantor
to the extent of the value of the assets securing such Indebtedness.
Not all of the Issuer’s Subsidiaries will guarantee the Notes. In the event of a bankruptcy, liquidation
or reorganization of any of these non-guarantor Subsidiaries, the non-guarantor Subsidiaries will pay
109
the holders of their debt and their trade creditors before they will be able to distribute any of their
assets to the Issuer. As of and for the year ended December 31, 2011, the Guarantors represented
55.6% (HRK 16,146.4 million (A2,144.2 million as translated at the period-end rate for 2011 of
A1.00=HRK 7.53042 based on the Croatian National Bank Rate)) of our consolidated revenues, 68.3%
(HRK 1,824.8 million (A242.3 million as translated at the period-end rate for 2011 of
A1.00=HRK 7.53042 based on the Croatian National Bank Rate)) of our consolidated EBITDA and
52.7% (HRK 15,367.3 million (A2,040.7 million as translated at the period-end rate for 2011 of
A1.00=HRK 7.53042 based on the Croatian National Bank Rate)) of our consolidated total assets.
A significant portion of the operations of the Issuer is conducted through its Subsidiaries and,
therefore, the Issuer depends on the cash flow of Subsidiaries to meet its obligations, including its
obligations under the Notes. The Notes will be effectively subordinated in right of payment to all
Indebtedness and other liabilities and commitments (including trade payables and lease obligations) of
the Issuer’s non-guarantor Subsidiaries. Any right of the Issuer or any Guarantor to receive assets of
any of its non-guarantor Subsidiaries upon that non-guarantor Subsidiary’s liquidation or reorganization
(and the consequent right of the holders of the Notes to participate in those assets) will be effectively
subordinated to the claims of that non-guarantor Subsidiary’s creditors, except to the extent that the
Issuer or such Guarantor is itself recognized as a creditor of the non-guarantor Subsidiary, in which
case the claims of the Issuer or such Guarantor, as the case may be, would still be subordinate in right
of payment to any security in the assets of the non-guarantor Subsidiary and any Indebtedness of the
non-guarantor Subsidiary senior to that held by the Issuer or such Guarantor. As of June 30, 2012, on
a pro forma basis after giving effect to the Transactions, the Issuer’s non-guarantor Subsidiaries would
have had approximately HRK 667.3 million (approximately A88.9 million) of Indebtedness outstanding
and approximately HRK 2,700.3 million (approximately A359.6 million) of trade payables and
approximately HRK 365.9 million (approximately A48.7 million) of other liabilities outstanding. See
‘‘Risk Factors—Risks Relating to the Notes—The Notes will be effectively subordinated to certain
secured indebtedness of the Issuer and the Subsidiary Guarantors and structurally subordinated to the
indebtedness of our non-guarantor subsidiaries.’’
As of the Issue Date, all of the Issuer’s Subsidiaries will be ‘‘Restricted Subsidiaries’’ for purposes of
the Indenture. However, under the circumstances described below under the caption ‘‘Certain
Covenants—Designation of Restricted and Unrestricted Subsidiaries,’’ the Issuer will be permitted to
designate certain Subsidiaries as ‘‘Unrestricted Subsidiaries.’’ The Issuer’s Unrestricted Subsidiaries will
not be subject to many of the restrictive covenants in the Indenture. The Issuer’s Unrestricted
Subsidiaries will not guarantee the Notes.
Principal, Maturity and Interest
The Issuer will issue A325,000,000 million in aggregate principal amount of Euro Notes and
$300,000,000 million in aggregate principal amount of Dollar Notes on the Issue Date. The Issuer may
issue Additional Notes (the ‘‘Additional Notes’’) under the Indenture from time to time after the Issue
Date. Any issuance of Additional Notes is subject to all of the covenants in the Indenture, including
the covenant described below under the caption ‘‘Certain Covenants—Incurrence of Indebtedness and
Issuance of Preferred Stock.’’ The Notes and any Additional Notes subsequently issued under the
Indenture will be treated as a single class for all purposes under the Indenture, including, without
limitation, waivers, amendments, redemptions and offers to purchase. The Issuer will issue the Euro
Notes in denominations of A100,000 and integral multiples of A1,000 in excess thereof and will issue the
Dollar Notes in denominations of $200,000 and integral multiples of $1,000 in excess thereof. The
Notes will mature on February 1, 2020.
Interest on the Euro Notes will accrue at the rate of 9.125% per annum and interest on the Dollar
Notes will accrue at a rate of 8.875% per annum and, in each case, will be payable semi-annually in
arrears on February 1 and August 1, commencing on February 1, 2013. Interest on overdue principal
and interest, including Additional Amounts (as defined herein), if any, will accrue at a rate that is 1%
higher than the then applicable interest rate on the Notes. The Issuer will make each interest payment
to the holders of record on the immediately preceding January 15 and July 15.
Interest on the Notes will accrue from the date of original issuance, or, if interest has already been
paid, from the date it was most recently paid. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
Unless earlier redeemed, on the maturity date, the Notes shall be repaid at a price equal to 100% of
the principal amount of the Notes.
110
Paying Agent and Registrar for the Notes
The Issuer will maintain one or more paying agents (each, a ‘‘Paying Agent’’) for the Notes in each of
(i) London (the ‘‘Principal Paying Agent’’) and (ii) the City of New York. The Issuer will undertake to
maintain a Paying Agent in a member state of the European Union that will not be obliged to withhold
or deduct tax pursuant to the European Union Directive 2003/48/EC or any other directive
implementing the conclusions of the ECOFIN Council meeting of 26 and 27 November 2000 on the
taxation of savings income, or any law implementing, or complying with or introduced in order to
conform to, such directive. The initial Paying Agents will be The Bank of New York Mellon in London
(as Principal Paying Agent) and The Bank of New York Mellon in New York.
The Issuer will also maintain one registrar (the ‘‘Registrar’’), and the initial Registrar will be The Bank
of New York Mellon (Luxembourg) S.A. The initial transfer agents will be The Bank of New York
Mellon in London and The Bank of New York Mellon in New York. The Registrar and the transfer
agents will maintain a register reflecting ownership of Definitive Registered Notes outstanding from
time to time and will make payments on and facilitate transfer of Definitive Registered Notes on the
behalf of the Issuer.
The Issuer may change the Paying Agents, the Registrar or transfer agents without prior notice to the
Holders. For so long as the Notes are listed on the Irish Stock Exchange and admitted to trading on
the Global Exchange Market and the rules of the Irish Stock Exchange so require, the Issuer will
publish a notice of any change of Paying Agent, Registrar or transfer agent in a newspaper having a
general circulation in Ireland (which is expected to be The Irish Times) or, to the extent and in the
manner permitted by such rules, posted on the official website of the Irish Stock Exchange.
Transfer and Exchange
Each of the Euro Notes and the Dollar Notes sold within the United States to qualified institutional
buyers pursuant to Rule 144A under the Securities Act (‘‘Rule 144A’’) will initially be represented by
one or more global notes in registered form without interest coupons attached (the ‘‘144A Global
Notes’’). The 144A Global Notes representing the Euro Notes (the ‘‘Euro 144A Global Notes’’) will be
deposited, on the Issue Date, with a common depository and registered in the name of the nominee of
the common depository for the accounts of Euroclear and Clearstream. The 144A Global Notes
representing the Dollar Notes (the ‘‘Dollar 144A Global Notes’’) will be deposited upon issuance with
The Bank of New York Mellon as custodian for DTC and registered in the name of Cede & Co., as
nominee of DTC. Each of the Euro Notes and the Dollar Notes sold outside the United States
pursuant to Regulation S under the Securities Act (‘‘Regulation S’’) will initially be represented by one
or more global notes in registered form without interest coupons attached (the ‘‘Reg S Global Notes,’’
and together with the 144A Global Notes, the ‘‘Global Notes’’). The Reg S Global Notes representing
the Euro Notes (the ‘‘Euro Reg S Global Notes’’) will be deposited, on the Issue Date, with a common
depository and registered in the name of the nominee of the common depository for the accounts of
Euroclear and Clearstream. The Reg S Global Notes representing the Dollar Notes (the ‘‘Dollar Reg S
Global Notes’’) will be deposited upon issuance with The Bank of New York Mellon as custodian for
DTC and registered in the name of Cede & Co., as nominee of DTC.
During the 40-day distribution compliance period, book-entry interests in the Reg S Global Notes may
be transferred only to non-U.S. Persons under Regulation S or to Persons whom the transferor
reasonably believes are ‘‘qualified institutional buyers’’ within the meaning of Rule 144A in a
transaction meeting the requirements of Rule 144A or otherwise in accordance with applicable transfer
restrictions and any applicable securities laws of any state of the United States or any other jurisdiction.
Ownership of interests in the Global Notes (‘‘Book-Entry Interests’’) will be limited to persons that have
accounts with Euroclear and Clearstream (in the case of the Euro Notes) or DTC (in the case of the
Dollar Notes) or persons that may hold interests through such participants. Ownership of interests in
the Book-Entry Interests and transfers thereof will be subject to the restrictions on transfer and
certification requirements summarized below and described more fully under ‘‘Transfer Restrictions.’’ In
addition, transfers of Book-Entry Interests between participants in Euroclear or participants in
Clearstream (in the case of the Euro Notes) or participants in DTC (in the case of the Dollar Notes)
will be effected by Euroclear or Clearstream, as applicable (in the case of the Euro Notes) or DTC (in
the case of the Dollar Notes), pursuant to customary procedures and subject to the applicable rules and
procedures established by Euroclear or Clearstream, as applicable (in the case of the Euro Notes) or
DTC (in the case of the Dollar Notes), and their respective participants.
111
Book-Entry Interests in a 144A Global Note, or the ‘‘Restricted Book-Entry Interests,’’ may be
transferred to a person who takes delivery in the form of Book-Entry Interests in the Reg S Global
Note denominated in the same currency, or the ‘‘Reg S Book-Entry Interests,’’ only upon delivery by the
transferor of a written certification (in the form provided in the Indenture) to the effect that such
transfer is being made in accordance with Regulation S. Reg S Book-Entry Interests may be transferred
to a person who takes delivery in the form of the Restricted Book-Entry Interests only upon delivery by
the transferor of a written certification (in the form provided in the Indenture) to the effect that such
transfer is being made to a person who the transferor reasonably believes is a ‘‘qualified institutional
buyer’’ within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A or
otherwise in accordance with the transfer restrictions described under ‘‘Transfer Restrictions’’ and in
accordance with any applicable securities law of any other jurisdiction.
Any Book-Entry Interest that is transferred as described in the immediately preceding paragraphs will,
upon transfer, cease to be a Book-Entry Interest in the Global Note from which it was transferred and
will become a Book-Entry Interest in the Global Note to which it was transferred. Accordingly, from
and after such transfer, it will become subject to all transfer restrictions, if any, and other procedures
applicable to Book-Entry Interests in the Global Note to which it was transferred.
If Definitive Registered Notes are issued, they will be issued only in minimum denominations of
A100,000 principal amount and integral multiples of A1,000 in excess thereof (in the case of the Euro
Notes) and $200,000 principal amount and integral multiples of $1,000 in excess thereof (in the case of
the Dollar Notes), in each case, upon receipt by the applicable Registrar of instructions relating thereto
and any certificates and other documentation required by the Indenture. It is expected that such
instructions will be based upon directions received by Euroclear, Clearstream or DTC, as applicable,
from the participant who owns the relevant Book-Entry Interests. Definitive Registered Notes issued in
exchange for a Book-Entry Interest will, except as set forth in the Indenture or as otherwise
determined by the Issuer in compliance with applicable law, be subject to, and will have a legend with
respect to the restrictions on transfer summarized below and described more fully under ‘‘Transfer
Restrictions.’’
Subject to the restrictions on transfer referred to above, Notes issued as Definitive Registered Notes
may be transferred or exchanged, in whole or in part, in minimum denominations of A100,000 in
principal amount and integral multiples of A1,000 in excess thereof (in the case of the Euro Notes) and
$200,000 principal amount and integral multiples of $1,000 in excess thereof (in the case of the Dollar
Notes), in each case, to Persons who take delivery thereof in the form of Definitive Registered Notes.
In connection with any such transfer or exchange, the Indenture requires the transferring or exchanging
holder to, among other things, furnish appropriate endorsements and transfer documents, furnish
information regarding the account of the transferee at Euroclear, Clearstream or DTC, where
appropriate, furnish certain certificates and opinions, and pay any Taxes in connection with such
transfer or exchange. Any such transfer or exchange will be made without charge to the holder, other
than any Taxes payable in connection with such transfer or exchange.
Notwithstanding the foregoing, the Issuer is not required to register the transfer of any Definitive
Registered Notes:
(1) for a period of 15 days prior to any date fixed for the redemption of the Notes;
(2) for a period of 15 days immediately prior to the date fixed for selection of Notes to be redeemed
in part;
(3) for a period of 15 days prior to the record date with respect to any interest payment date; or
(4) which the holder has tendered (and not withdrawn) for repurchase in connection with a Change of
Control Offer or an Asset Sale Offer.
Additional Amounts
All payments made under or with respect to the Notes (whether or not in the form of Definitive
Registered Notes) or with respect to any Note Guarantee will be made free and clear of and without
withholding or deduction for, or on account of, any present or future Taxes unless the withholding or
deduction of such Taxes is then required by law. If any deduction or withholding for, or on account of,
any Taxes imposed or levied by or on behalf of any jurisdiction in which the Issuer or any Guarantor
(including any successor entity), is then incorporated, engaged in business or resident for tax purposes
or any political subdivision thereof or therein or any jurisdiction from or through which payment is
made by or on behalf of the Issuer or any Guarantor (including, without limitation, the jurisdiction of
112
any paying agent) (each, a ‘‘Tax Jurisdiction’’), will at any time be required to be made from any
payments made under or with respect to the Notes or with respect to any Note Guarantee, including,
without limitation, payments of principal, redemption price, purchase price, interest or premium, the
Issuer or the relevant Guarantor, as applicable, will pay such additional amounts (the ‘‘Additional
Amounts’’) as may be necessary in order that the net amounts received in respect of such payments
(including Additional Amounts) after such withholding or deduction will equal the respective amounts
that would have been received in respect of such payments in the absence of such withholding or
deduction; provided, however, that no Additional Amounts will be payable with respect to:
(1) any Taxes that would not have been imposed but for the holder or the beneficial owner of the
Notes being a citizen or resident or national of, incorporated in or carrying on a business, in the
relevant Tax Jurisdiction in which such Taxes are imposed or having any other present or former
connection with the relevant Tax Jurisdiction other than the mere acquisition, holding, enforcement
or receipt of payment in respect of the Notes or with respect to any Note Guarantee;
(2) any Taxes that are imposed or withheld as a result of the failure of the holder of the Note or
beneficial owner of the Notes to comply with any reasonable written request, made to that holder
or beneficial owner in writing at least 60 days before any such withholding or deduction would be
payable, by the Issuer or any of the Guarantors to provide timely and accurate information
concerning the nationality, residence or identity of such holder or beneficial owner or to make any
valid and timely declaration or similar claim or satisfy any certification information or other
reporting requirement, which is required or imposed by a statute, treaty, regulation or
administrative practice of the relevant Tax Jurisdiction as a precondition to any exemption from or
reduction in all or part of such Taxes to which such Holder or beneficial owner is entitled;
(3) any Note presented for payment (where Notes are in the form of Definitive Registered Notes and
presentation is required) more than 30 days after the relevant payment is first made available for
payment to the Holder (except to the extent that the holder would have been entitled to
Additional Amounts had the Note been presented on the last day of such 30 day period);
(4) any estate, inheritance, gift, sale, transfer, personal property or similar Taxes;
(5) any Taxes withheld, deducted or imposed on a payment to an individual and that are required to
be made pursuant to European Council Directive 2003/48/EC or any other directive implementing
the conclusions of the ECOFIN Council meeting of 26 and 27 November 2000 on the taxation of
savings income or any law implementing or complying with or introduced in order to conform to,
such Directive;
(6) any Note presented for payment by or on behalf of a holder of Notes who would have been able
to avoid such withholding or deduction by presenting the relevant Note to another Paying Agent in
a member state of the European Union;
(7) any Tax imposed on or with respect to any payment by the Issuer or any Guarantor to the holder
if such holder is a fiduciary or partnership or person other than the sole beneficial owner of such
payment to the extent that Taxes would not have been imposed on such payment had such holder
been the sole beneficial owner of such Note;
(8) any Taxes payable other than by deduction or withholding from payments under, or with respect
to, the Notes or with respect to any Note Guarantee;
(9) any Taxes withheld, deducted or imposed on or with respect to any payment by the Issuer, any
Guarantor, any Paying Agent or any other person in respect of any Note pursuant to Sections 1471
to 1474 of the United States Internal Revenue Code of 1986, as amended (the ‘‘Code’’), as of the
date of the indenture (or any successor version that is substantively comparable and not materially
more onerous to comply with), or any agreement between the Issuer and the United States or any
authority thereof pursuant to such sections; or
(10) any combination of items (1) through (9) above.
In addition to the foregoing, the Issuer and the Guarantors will also pay and indemnify the holder for
any present or future stamp, issue, registration, court or documentary taxes, or any other excise or
property taxes, charges or similar levies or Taxes which are levied by any Tax Jurisdiction on the
execution, delivery, registration or enforcement of any of the Notes, the Indenture, any
Note Guarantee, or any other document or instrument referred to therein.
113
If the Issuer or any Guarantor, as the case may be, becomes aware that it will be obligated to pay
Additional Amounts with respect to any payment under or with respect to the Notes or any
Note Guarantee, the Issuer or the relevant Guarantor, as the case may be, will deliver to the Trustee
on a date that is at least 30 days prior to the date of that payment (unless the obligation to pay
Additional Amounts arises after the 30th day prior to that payment date, in which case the Issuer or
the relevant Guarantor shall notify the Trustee promptly thereafter) an Officer’s Certificate stating the
fact that Additional Amounts will be payable and the amount estimated to be so payable. The Officer’s
Certificate must also set forth any other information reasonably necessary to enable the Paying Agents
to pay Additional Amounts to holders on the relevant payment date. The Trustee shall be entitled to
rely solely on such Officer’s Certificate as conclusive proof that such payments are necessary. The
Issuer or the relevant Guarantor will provide the Trustee with documentation reasonably satisfactory to
the Trustee evidencing the payment of Additional Amounts.
The Issuer or the relevant Guarantor will make all withholdings and deductions required by law and
will remit the full amount deducted or withheld to the relevant Tax authority in accordance with
applicable law. Upon request, the Issuer or the relevant Guarantor will provide to the Trustee an
official receipt or, if official receipts are not obtainable, other documentation reasonably satisfactory to
the Trustee evidencing the payment of any Taxes so withheld or deducted. The Issuer or the relevant
Guarantor will attach to each certified copy or other document a certificate stating the amount of such
Taxes paid per A1,000 or $1,000, as applicable, principal amount of the Notes then outstanding. Upon
request, copies of those receipts or other documentation, as the case may be, will be made available by
the Trustee to the holders of the Notes during normal business hours.
Whenever in the Indenture or in this ‘‘Description of Notes’’ there is mentioned, in any context, the
payment of amounts based upon the principal amount of the Notes or of principal, interest or of any
other amount payable under, or with respect to, any of the Notes or Note Guarantee, such mention
shall be deemed to include the payment of Additional Amounts to the extent that, in such context,
Additional Amounts are, were or would be payable in respect thereof.
The foregoing obligations will survive any termination, defeasance or discharge of the Indenture and
will apply mutatis mutandis to any jurisdiction in which any successor to the Issuer or any Guarantor is
organized, engaged in business or resident for tax purposes, or any political subdivision or taxing
authority or agency thereof or therein.
Note Guarantees
The Notes will be guaranteed by the Guarantors. These Note Guarantees will be joint and several
obligations of the Guarantors. The obligations of each Guarantor under its Note Guarantee will be
limited as necessary to recognize certain limitations imposed due to local law and defenses generally
available to guarantors (including those that relate to fraudulent conveyance or transfer, voidable
preference, financial assistance, corporate purpose, capital maintenance or similar laws, regulations or
defenses affecting the rights of creditors generally or other considerations under applicable law). See
‘‘Risk Factors—Risks Relating to the Notes—The Guarantees may be limited by applicable laws or
subject to certain limitations or defenses.’’
A Guarantor may not sell, lease or otherwise dispose of all or substantially all of its assets to, or
consolidate with or merge with or into (whether or not such Guarantor is the surviving Person) another
Person, other than the Issuer or another Guarantor, unless:
(1) immediately after giving effect to that transaction, no Default or Event of Default exists; and
(2) either:
(a) the Person acquiring the property in any such sale, lease or disposition or the Person formed
by or surviving any such consolidation or merger assumes all the obligations of that Guarantor
under its Note Guarantee and the Indenture pursuant to agreements reasonably satisfactory to
the Trustee; or
(b) the Net Proceeds of such sale or other disposition are applied in accordance with the
applicable provisions of the Indenture.
The Note Guarantee of a Guarantor will be released:
(1) in connection with any sale or other disposition of all or substantially all of the assets of that
Guarantor (including by way of merger or consolidation) to a Person that is not (either before or
114
after giving effect to such transaction) the Issuer or a Restricted Subsidiary, if the sale or other
disposition does not violate the ‘‘Asset Sale’’ provisions of the Indenture;
(2) in connection with any sale or other disposition of Capital Stock of that Guarantor to a Person
that is not (either before or after giving effect to such transaction) the Issuer or a Restricted
Subsidiary, if the sale or other disposition does not violate the ‘‘Asset Sale’’ provisions of the
Indenture and the Guarantor ceases to be a Restricted Subsidiary as a result of the sale or other
disposition;
(3) upon the release or discharge of the Guarantee by such Guarantor of the Indebtedness that
resulted in the creation of such Note Guarantee pursuant to the covenant described under
‘‘Certain Covenants—Limitation on Issuance of Guarantees of Indebtedness,’’ so long as no Event
of Default would arise as a result thereof;
(4) if the Issuer designates any Restricted Subsidiary that is a Guarantor to be an Unrestricted
Subsidiary in accordance with the applicable provisions of the Indenture;
(5) upon legal defeasance, covenant defeasance or satisfaction and discharge of the Indenture as
provided below under the captions ‘‘Legal Defeasance and Covenant Defeasance’’ and
‘‘Satisfaction and Discharge’’; or
(6) as provided below under the caption ‘‘—Amendment, Supplement and Waiver.’’
Optional Redemption
At any time prior to October 10, 2015, the Issuer may on any one or more occasions redeem up to
35% of the aggregate principal amount of outstanding Euro Notes issued under the Indenture, upon
not less than 30 nor more than 60 days’ notice, at a redemption price equal to 109.125% of the
principal amount of the outstanding Euro Notes redeemed, plus accrued and unpaid interest and
Additional Amounts, if any, to the date of redemption (subject to the rights of holders of Euro Notes
on the relevant record date to receive interest on the relevant interest payment date), with the net cash
proceeds of an Equity Offering; provided that:
(1) at least 65% of the aggregate principal amount of Euro Notes issued under the Indenture
(excluding Euro Notes held by the Issuer and its Subsidiaries) remains outstanding immediately
after the occurrence of such redemption; and
(2) the redemption occurs within 120 days of the date of the closing of such Equity Offering.
At any time prior to October 10, 2015, the Issuer may on any one or more occasions redeem up to
35% of the aggregate principal amount of outstanding Dollar Notes issued under the Indenture, upon
not less than 30 nor more than 60 days’ notice, at a redemption price equal to 108.875% of the
principal amount of the outstanding Dollar Notes redeemed, plus accrued and unpaid interest and
Additional Amounts, if any, to the date of redemption (subject to the rights of holders of Dollar Notes
on the relevant record date to receive interest on the relevant interest payment date), with the net cash
proceeds of an Equity Offering; provided that:
(1) at least 65% of the aggregate principal amount of Dollar Notes issued under the Indenture
(excluding Dollar Notes held by the Issuer and its Subsidiaries) remains outstanding immediately
after the occurrence of such redemption; and
(2) the redemption occurs within 120 days of the date of the closing of such Equity Offering.
At any time prior to February 1, 2016, the Issuer may on any one or more occasions redeem all or a
part of the Euro Notes or the Dollar Notes, upon not less than 30 nor more than 60 days’ notice, at a
redemption price equal to 100% of the principal amount of the Notes redeemed, plus the Applicable
Premium as of, and accrued and unpaid interest and Additional Amounts, if any, to the date of
redemption, subject to the rights of holders of Notes on the relevant record date to receive interest due
on the relevant interest payment date.
Except pursuant to the preceding three paragraphs and below under the caption ‘‘Redemption for
Changes in Taxes’’, the Notes will not be redeemable at the Issuer’s option prior to February 1, 2016.
On or after February 1, 2016, the Issuer may on any one or more occasions redeem all or a part of the
Euro Notes or the Dollar Notes, upon not less than 30 nor more than 60 days’ notice, at the
redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and
unpaid interest and Additional Amounts, if any, on the Notes redeemed, to the applicable date of
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redemption, if redeemed during the twelve-month period beginning on February 1 of the years
indicated below, subject to the rights of holders of Notes on the relevant record date to receive interest
on the relevant interest payment date:
Euro Note
Redemption
Price
Year
2016
2017
2018
2019
...........
...........
...........
and thereafter .
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106.844%
104.563%
102.281%
100.000%
Dollar Note
Redemption
Price
106.656%
104.438%
102.219%
100.000%
Unless the Issuer defaults in the payment of the redemption price, interest will cease to accrue on the
Notes or portions thereof called for redemption on the applicable redemption date.
Except as set forth below under ‘‘Redemption for Changes in Taxes,’’ any redemption and notice may,
in the Issuer’s discretion, be subject to the satisfaction of one or more conditions precedent.
Any redemption notice given in respect of any redemption referred to above under the caption
‘‘—Optional Redemption’’ may be given prior to completion of the related Equity Offering or prior to
the commencement of the relevant redemption period, as applicable.
Redemption for Changes in Taxes
The Issuer may redeem the Notes, in whole but not in part, at its discretion at any time upon giving
not less than 30 nor more than 60 days’ prior notice to the holders of the Notes (which notice will be
irrevocable and given in accordance with the procedures described in ‘‘Selection and Notice’’), at a
redemption price equal to the principal amount thereof, together with accrued and unpaid interest, if
any, to the date fixed by the Issuer for redemption (a ‘‘Tax Redemption Date’’) and all Additional
Amounts (if any) then due and which will become due on the Tax Redemption Date as a result of the
redemption or otherwise (subject to the right of holders of the Notes on the relevant record date to
receive interest due on the relevant interest payment date and Additional Amounts (if any) in respect
thereof), if on the next date on which any amount would be payable in respect of the Notes, the Issuer
or a Guarantor is or would be required to pay Additional Amounts (but, in the case of a Guarantor,
only if the payment giving rise to such requirement cannot be made by the Issuer or another Guarantor
who can make such payment without the obligation to pay Additional Amounts), and the Issuer or
Guarantor cannot avoid any such payment obligation by taking reasonable measures available
(including, for the avoidance of doubt, the appointment of a new Paying Agent where this would be
reasonable), and the requirement arises as a result of:
(1) any change in, or amendment to, the laws or treaties (or any regulations, or rulings promulgated
thereunder) of the relevant Tax Jurisdiction (as defined above) affecting taxation which change or
amendment has not been publicly announced before and which becomes effective on or after the
Issue Date (or, if the relevant Tax Jurisdiction has changed since the Issue Date, the date on which
the then current Tax Jurisdiction became the applicable Tax Jurisdiction under the Indenture); or
(2) any change in, or amendment to, the existing official position or the introduction of an official
position regarding the application, administration or interpretation of such laws, treaties,
regulations or rulings (including a holding, judgment or order by a court of competent jurisdiction
or a change in published practice), which change, amendment, application or interpretation has not
been publicly announced before and becomes effective on or after the Issue Date (or, if the
relevant Tax Jurisdiction has changed since the Issue Date, the date on which the then current Tax
Jurisdiction became the applicable Tax Jurisdiction under the Indenture).
The Issuer will not give any such notice of redemption earlier than 90 days prior to the earliest date on
which the Issuer (or the Guarantor, as applicable) would be obligated to make such payment or
withholding if a payment in respect of the Notes were then due. Prior to the publication or, where
relevant, mailing of any notice of redemption of the Notes pursuant to the foregoing, the Issuer will
deliver to the Trustee an opinion of counsel to the effect that there has been such change or
amendment which would entitle the Issuer to redeem the Notes hereunder. In addition, before the
Issuer publishes or mails notice of redemption of the Notes as described above, it will deliver to the
Trustee an Officer’s Certificate to the effect that it or the applicable Guarantor cannot avoid its
obligation to pay Additional Amounts by the Issuer or such Guarantor, as applicable, taking reasonable
measures available to it.
116
The Trustee will accept such Officer’s Certificate and opinion of counsel as sufficient evidence of the
existence and satisfaction of the conditions precedent as described above, in which event it will be
conclusive and binding on the holders.
For the avoidance of doubt, the implementation of European Council Directive 2003/48/EC on any
other directive implementing the conclusions of the ECOFIN Council meeting of 26 and 27 November
2000 on the taxation of savings income or any law implementing or complying with or introduced in
order to conform to, such directive will not be a change or amendment for such purposes.
The foregoing will apply mutatis mutandis to any jurisdiction in which any successor Person to the
Issuer is incorporated or organized, engaged in business or resident for tax purposes or any jurisdiction
from or through which payment is made by or on behalf of such Person on the Notes and any political
subdivision thereof or therein.
Mandatory Redemption
The Issuer is not required to make mandatory redemption or sinking fund payments with respect to the
Notes.
For the avoidance of doubt, the Issuer and its Restricted Subsidiaries may at any time and from time to
time purchase Notes in the open market or otherwise.
Repurchase at the Option of Holders
Change of Control
If a Change of Control occurs, each holder of Notes will have the right to require the Issuer to
repurchase all or any part (equal to A100,000 or an integral multiple of A1,000 in excess thereof, in the
case of the Euro Notes, or $200,000 or an integral multiple of $1,000 in excess thereof, in the case of
the Dollar Notes) of that holder’s Notes pursuant to a tender offer (a ‘‘Change of Control Offer’’) on
the terms set forth in the Indenture. In the Change of Control Offer, the Issuer will offer a payment in
cash equal to 101% of the aggregate principal amount of Notes repurchased, plus accrued and unpaid
interest and Additional Amounts, if any, on the Notes repurchased to the date of purchase (the
‘‘Change of Control Payment’’), subject to the rights of holders of Notes on the relevant record date to
receive interest due on the relevant interest payment date. Within 30 days following any Change of
Control, the Issuer will mail a notice to each holder describing the transaction or transactions that
constitute the Change of Control and offering to repurchase Notes on the date (the ‘‘Change of Control
Payment Date’’) specified in the notice, which date will be no earlier than 30 days and no later than
60 days from the date such notice is mailed, pursuant to the procedures required by the Indenture and
described in such notice. The Issuer will comply with the requirements of Rule 14e-1 under the
U.S. Exchange Act and any other applicable securities laws and regulations to the extent those laws and
regulations are applicable in connection with the repurchase of the Notes as a result of a Change of
Control. To the extent that the provisions of any securities laws or regulations conflict with the Change
of Control provisions of the Indenture, the Issuer will comply with the applicable securities laws and
regulations and will not be deemed to have breached its obligations under the Change of Control
provisions of the Indenture by virtue of such compliance.
On the Change of Control Payment Date, the Issuer will, to the extent lawful:
(1) accept for payment all Notes or portions of Notes properly tendered pursuant to the Change of
Control Offer;
(2) deposit with the paying agent an amount equal to the Change of Control Payment in respect of all
Notes or portions of Notes properly tendered; and
(3) deliver or cause to be delivered to the Trustee the Notes properly accepted together with an
Officer’s Certificate stating the aggregate principal amount of Notes or portions of Notes being
purchased by the Issuer.
The paying agent will promptly mail (or cause to be delivered) to each holder of Notes properly
tendered the Change of Control Payment for such Notes, and the Trustee will promptly authenticate
and mail (or cause to be transferred by book-entry) to each holder a new Note equal in principal
amount to any unpurchased portion of the Notes surrendered, if any. The Issuer will publicly announce
117
the results of the Change of Control Offer on or as soon as practicable after the Change of Control
Payment Date.
The provisions described above that require the Issuer to make a Change of Control Offer following a
Change of Control will be applicable whether or not any other provisions of the Indenture are
applicable. Except as described above with respect to a Change of Control, the Indenture does not
contain provisions that permit the holders of the Notes to require that the Issuer repurchase or redeem
the Notes in the event of a takeover, recapitalization or similar transaction.
The Issuer will not be required to make a Change of Control Offer upon a Change of Control if (1) a
third party makes the Change of Control Offer in the manner, at the times and otherwise in
compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer
made by the Issuer and purchases all Notes properly tendered and not withdrawn under the Change of
Control Offer, or (2) notice of redemption has been given pursuant to the Indenture as described
above under the caption ‘‘Optional Redemption,’’ unless and until there is a default in payment of the
applicable redemption price. Notwithstanding anything to the contrary contained herein, a Change of
Control Offer may be made in advance of a Change of Control, conditioned upon the consummation
of such Change of Control, if a definitive agreement is in place for the Change of Control at the time
the Change of Control Offer is made.
The Issuer’s ability to repurchase the Notes pursuant to the Change of Control Offer may be limited by
a number of factors. The ability of the Issuer to pay cash to the holders of the Notes following the
occurrence of a Change of Control may be limited by its then existing financial resources, and sufficient
funds may not be available when necessary to make any required repurchases. We expect that we would
require third party financing to make an offer to repurchase the Notes upon a Change of Control. We
cannot assure you that we would be able to obtain such financing. Any failure by the Issuer to offer to
purchase Notes would constitute a Default under the Indenture, which could, in turn, constitute a
default under the Revolving Credit Facility. See ‘‘Risk Factors—Risks Relating to the Notes—Change
of Control Offer—We may not have access to sufficient funds to satisfy the change of control offer
required by the Notes.’’
The definition of Change of Control includes a phrase relating to the direct or indirect sale, lease,
transfer, conveyance or other disposition of ‘‘all or substantially all’’ of the properties or assets of the
Issuer and its Subsidiaries taken as a whole. Although there is a limited body of case law interpreting
the phrase ‘‘substantially all,’’ there is no precise established definition of the phrase under applicable
law. Accordingly, the ability of a holder of Notes to require the Issuer to repurchase its Notes as a
result of a sale, lease, transfer, conveyance or other disposition of less than all of the assets of the
Issuer and its Subsidiaries taken as a whole to another Person or group may be uncertain.
Holders may not be entitled to require the Issuer to purchase their Notes in certain circumstances
involving a significant change in the composition of the Issuer’s Board of Directors, including in
connection with a proxy contest, where the Issuer’s Board of Directors initially publicly opposes the
election of a dissident slate of directors, but subsequently approves such directors for the purposes of
the Indenture governing the Notes. This may result in a change in the composition of the Board of
Directors that, but for such subsequent approval, would have otherwise constituted a Change of
Control requiring a repurchase offer under the terms of the Indenture governing the Notes.
If and for so long as the Notes are listed on the Irish Stock Exchange and admitted to trading on the
Global Exchange Market and the rules of the Irish Stock Exchange so require, the Issuer will publish
notices relating to the Change of Control Offer in a leading newspaper of general circulation in Ireland
(which is expected to be The Irish Times) or, to the extent and in the manner permitted by such rules,
posted on the official website of the Irish Stock Exchange.
The provisions of the Indenture relating to the Issuer’s obligation to make an offer to repurchase the
Notes as a result of a Change of Control may be waived or modified with the written consent of
holders of a majority in outstanding principal amount of the Notes.
118
Asset Sales
The Issuer will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or
indirectly, consummate an Asset Sale unless:
(1) the Issuer (or the Restricted Subsidiary, as the case may be) receives consideration at the time of
the Asset Sale at least equal to the Fair Market Value (measured as of the date of the definitive
agreement with respect to such Asset Sale) of the assets or Equity Interests issued or sold or
otherwise disposed of; and
(2) at least 75% of the consideration received in the Asset Sale by the Issuer or such Restricted
Subsidiary is in the form of cash or Cash Equivalents. For the purposes of this provision, each of
the following will be deemed to be cash:
(a) any liabilities, as shown on the Issuer’s most recent consolidated balance sheet, of the Issuer
or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their
terms subordinated to the Notes or any Note Guarantee) that are assumed by the transferee
of any such assets, and as a result of which, including pursuant to a customary novation or
indemnity agreement, the Issuer or such Restricted Subsidiary is released from or indemnified
against further liability;
(b) any securities, notes or other obligations received by the Issuer or any such Restricted
Subsidiary from such transferee that are converted by the Issuer or such Restricted Subsidiary
into cash or Cash Equivalents within 120 days following the closing of the Asset Sale, to the
extent of the cash or Cash Equivalents received in that conversion;
(c) any Capital Stock or assets of the kind referred to in clauses (2) or (4) of the next paragraph
of this covenant;
(d) Indebtedness of any Restricted Subsidiary that is no longer a Restricted Subsidiary as a result
of such Asset Sale, provided that the Issuer and each Restricted Subsidiary are released from
any guarantee of payment of such Indebtedness in connection with such Asset Sale;
(e) consideration consisting of Indebtedness of the Issuer or any Restricted Subsidiary (other than
Subordinated Indebtedness) received after the Issue Date from Persons who are not the Issuer
or any Restricted Subsidiary, provided, however, that any such Indebtedness that is
subsequently transferred to a Person that is not either the Issuer or a Restricted Subsidiary for
consideration other than cash or Cash Equivalents or to the extent that the purchase price
received in respect of such Indebtedness is less than the aggregate principal amount of, or if
less, the value allocated to, such Indebtedness in the Asset Sale will not be deemed to be cash
consideration pursuant to this clause (e); and
(f) any Designated Noncash Consideration received by the Issuer or any Restricted Subsidiary in
such Asset Sale having an aggregate Fair Market Value, taken together with all other
Designated Noncash Consideration received pursuant to this clause (f) that is at the time
outstanding, that does not exceed the greater of A30.0 million and 1.6% of Tangible Assets at
the time of the receipt of such Designated Noncash Consideration.
Within 365 days after the receipt of any Net Proceeds from an Asset Sale, the Issuer (or the applicable
Restricted Subsidiary, as the case may be) may apply such Net Proceeds:
(1) to repurchase, repay, redeem or repay Indebtedness (a) of a Restricted Subsidiary which is not a
Guarantor, or Indebtedness of the Issuer or a Guarantor that is secured by a Lien on such assets;
(b) which is pari passu in right of payment with the Notes or any Note Guarantee to the extent
required by the terms of such Indebtedness; or (c) which is pari passu in right of payment with the
Notes or any Note Guarantee in an aggregate amount, together with all other Indebtedness so
repurchased, prepaid, redeemed or repaid pursuant to this clause (c), not to exceed A30.0 million;
provided that, the Issuer (or the applicable Restricted Subsidiary) shall repurchase, prepay, redeem
or repay such pari passu Indebtedness in a manner which is not in compliance with this clause (1)
only if the Issuer (or the applicable Restricted Subsidiary) makes (at such time or subsequently in
compliance with this covenant) an offer to all holders of the Notes to purchase their Notes in
accordance with the provisions set forth below for an Asset Sale Offer for an aggregate principal
amount of Notes at least equal to the proportion that (x) the total aggregate principal amount of
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Notes outstanding bears to (y) the sum of the total aggregate principal amount of Notes
outstanding plus the total aggregate principal amount outstanding of such pari passu Indebtedness;
(2) to acquire all or substantially all of the assets of, or any Capital Stock of, a Permitted Business, if,
after giving effect to any such acquisition of Capital Stock, the Permitted Business is or becomes a
Restricted Subsidiary;
(3) to make a capital expenditure;
(4) to acquire other assets (other than Capital Stock) that are not classified as current assets under
IFRS and that are used or useful in a Permitted Business;
(5) to enter into a binding commitment to apply the Net Proceeds pursuant to clause (2), (3) or
(4) above; provided that such binding commitment shall be treated as a permitted application of
the Net Proceeds from the date of such commitment until the earlier of (x) the date on which such
acquisition or expenditure is consummated, and (y) the 180th day following the expiration of the
aforementioned 365-day period; or
(6) any combination of the foregoing,
provided that, in the case of Net Proceeds relating to an Asset Sale of assets of a Guarantor or Capital
Stock of a Guarantor (i) no Net Proceeds may be utilized in accordance with clause (2) of this
paragraph, unless such Restricted Subsidiary simultaneously executes and delivers a supplemental
indenture providing for a Note Guarantee of the payment of the Notes by such Restricted Subsidiary
and (ii) to the extent any Net Proceeds are utilized in accordance with clauses (3) or (4) of this
paragraph, any capital expenditures made or assets acquired shall be for (a) the Issuer or any
Guarantor or (b) any other Restricted Subsidiary, provided that such Restricted Subsidiary
simultaneously executes and delivers a supplemental indenture providing for a Note Guarantee of the
payment of the Notes by such Restricted Subsidiary; provided, however, that, notwithstanding any of the
provisions in each of (i) and (ii) above, a Restricted Subsidiary shall not be obligated to guarantee the
Notes in any of the circumstances described in the third paragraph under the caption ‘‘Certain
Covenants—Limitation on Issuances of Guarantees of Indebtedness.’’ Each additional Note Guarantee
provided pursuant to this covenant will constitute a senior Obligation of such Restricted Subsidiary and
will be limited as described in the second paragraph under the caption ‘‘Certain Covenants—Limitation
on Issuances of Guarantees of Indebtedness.’’
Pending the final application of any Net Proceeds, the Issuer (or the applicable Restricted Subsidiary)
may temporarily reduce revolving credit borrowings or otherwise invest the Net Proceeds in any
manner that is not prohibited by the Indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as provided in the second
paragraph of this covenant will constitute ‘‘Excess Proceeds.’’ When the aggregate amount of Excess
Proceeds exceeds A10.0 million or at such earlier time that the Issuer elects, within fifteen
calendar days thereof, the Issuer will make an offer (an ‘‘Asset Sale Offer’’) to all holders of Notes and
may make an offer to all holders of other Indebtedness that is pari passu with the Notes containing
provisions similar to those set forth in the Indenture with respect to offers to purchase, prepay or
redeem with the proceeds of sales of assets to purchase, prepay or redeem the maximum principal
amount of Notes (in a principal amount of A100,000 in the case of Euro Notes, or $200,000, in the case
of Dollar Notes, or an integral multiple of A 1,000 or $1,000, as applicable, in excess thereof, such that
no Euro Note of less than A100,000 or Dollar Note of less than $200,000 remains outstanding
thereafter) and such other pari passu Indebtedness (plus all accrued interest on the Indebtedness and
the amount of all fees and expenses, including premiums, incurred in connection therewith) that may
be purchased, prepaid or redeemed out of the Excess Proceeds. The offer price in any Asset Sale Offer
will be equal to 100% of the principal amount, plus accrued and unpaid interest and Additional
Amounts, if any, to the date of purchase, prepayment or redemption, subject to the rights of holders of
Notes on the relevant record date to receive interest due on the relevant interest payment date, and
will be payable in cash. If any Excess Proceeds remain after consummation of an Asset Sale Offer, the
Issuer may use those Excess Proceeds for any purpose not otherwise prohibited by the Indenture. If the
aggregate principal amount of Notes and other pari passu Indebtedness tendered into (or required to
be prepaid or redeemed in connection with) such Asset Sale Offer exceeds the amount of Excess
Proceeds, the Trustee will select the Notes and such other pari passu Indebtedness to be purchased on
a pro rata basis, based on the amounts tendered or required to be prepaid or redeemed. Upon
completion of each Asset Sale Offer, the amount of Excess Proceeds will be reset at zero.
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The Issuer will comply with the requirements of Rule 14e-1 under the U.S. Exchange Act and any
other applicable securities laws and regulations to the extent those laws and regulations are applicable
in connection with each repurchase of Notes pursuant to an Asset Sale Offer. To the extent that the
provisions of any securities laws or regulations conflict with the Asset Sale provisions of the Indenture,
the Issuer will comply with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under the Asset Sale provisions of the Indenture by virtue of such
compliance.
Selection and Notice
If less than all of the Notes are to be redeemed at any time, the Trustee will select Notes for
redemption on a pro rata basis (or, in the case of Notes issued in global form as discussed under
‘‘Book Entry, Delivery and Form,’’ based on a method that most nearly approximates a pro rata
selection as the Trustee deems fair and appropriate) unless otherwise required by law or applicable
stock exchange or depositary requirements.
No Notes in a principal amount of A100,000 or less (in the case of the Euro Notes) or $200,000 or less
(in the case of the Dollar Notes) can be redeemed in part. Notices of redemption will be mailed by
first class mail at least 30 but not more than 60 days before the redemption date to each holder of
Notes to be redeemed at its registered address, except that redemption notices may be mailed more
than 60 days prior to a redemption date if the notice is issued in connection with a defeasance of the
Notes or a satisfaction and discharge of the Indenture.
If any Note is to be redeemed in part only, the notice of redemption that relates to that Note will state
the portion of the principal amount of that Note that is to be redeemed. A new Note in principal
amount equal to the unredeemed portion of the original Note will be issued in the name of the holder
of Notes upon cancellation of the original Note. Notes called for redemption become due on the date
fixed for redemption. On and after the redemption date, interest ceases to accrue on Notes or portions
of Notes called for redemption.
For Notes which are represented by global certificates held on behalf of Euroclear, Clearstream or
DTC, notices may be given by delivery of the relevant notices to Euroclear, Clearstream or DTC for
communication to entitled account holders in substitution for the aforesaid mailing. So long as any
Notes are listed on the Irish Stock Exchange and admitted to trading on the Global Exchange Market
and the rules of the Irish Stock Exchange so require, any such notice to the holders of the relevant
Notes shall also be published in a newspaper having a general circulation in Ireland (which is expected
to be The Irish Times) and, in connection with any redemption, the Issuer will notify the Irish Stock
Exchange of any change in the principal amount of Notes outstanding. Notices may also be published
on the website of the Irish Stock Exchange (www.ise.ie).
Certain Covenants
Suspension of Covenants when Notes Rated Investment Grade
If on any date following the Issue Date:
(1) the Notes have achieved Investment Grade Status; and
(2) no Default or Event of Default shall have occurred and be continuing on such date,
then, beginning on that day and continuing until such time, if any, at which the Notes cease to have
Investment Grade Status (such period, the ‘‘Suspension Period’’), the covenants specifically listed under
the following captions in this Offering Memorandum will no longer be applicable to the Notes and any
related default provisions of the Indenture will cease to be effective and will not be applicable to the
Issuer and its Restricted Subsidiaries:
(1) ‘‘Repurchase at the Option of Holders—Asset Sales’’;
(2) ‘‘Restricted Payments’’;
(3) ‘‘Incurrence of Indebtedness and Issuance of Preferred Stock’’;
(4) ‘‘Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries’’;
(5) ‘‘Designation of Restricted and Unrestricted Subsidiaries’’;
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(6) ‘‘Transactions with Affiliates’’; and
(7) clause (4) of the first paragraph of the covenant described under ‘‘Merger, Consolidation or Sale
of Assets.’’
Such covenants will not, however, be of any effect with regard to the actions of the Issuer and the
Restricted Subsidiaries properly taken during the continuance of the Suspension Period; provided that
(1) with respect to the Restricted Payments made after any such reinstatement, the amount of
Restricted Payments will be calculated as though the covenant described under the caption ‘‘Restricted
Payments’’ had been in effect prior to, but not during, the Suspension Period and (2) all Indebtedness
incurred, or Disqualified Stock or preferred stock issued, during the Suspension Period will be classified
to have been incurred or issued pursuant to clause (2) of the second paragraph of the caption
‘‘Incurrence of Indebtedness and Issuance of Preferred Stock.’’ Upon the occurrence of a Suspension
Period, the amount of Excess Proceeds shall be reset at zero.
There can be no assurance that the Notes will ever achieve or maintain an Investment Grade Status.
Restricted Payments
The Issuer will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or
indirectly:
(1) declare or pay any dividend or make any other payment or distribution on account of the Issuer’s
or any of its Restricted Subsidiaries’ Equity Interests (including, without limitation, any payment in
connection with any merger or consolidation involving the Issuer or any of its Restricted
Subsidiaries) or to the direct or indirect holders of the Issuer’s or any of its Restricted
Subsidiaries’ Equity Interests in their capacity as such (other than dividends or distributions
payable in Equity Interests (other than Disqualified Stock) of the Issuer and other than dividends
or distributions payable to the Issuer or a Restricted Subsidiary or in Subordinated Shareholder
Funding);
(2) purchase, redeem or otherwise acquire or retire for value (including, without limitation, in
connection with any merger or consolidation involving the Issuer) any Equity Interests of the
Issuer or any direct or indirect parent entity of the Issuer;
(3) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or
retire for value (x) any Subordinated Indebtedness of the Issuer or any Guarantor (excluding any
intercompany Indebtedness between or among the Issuer and any of its Restricted Subsidiaries),
except (i) a payment of interest or principal at the Stated Maturity thereof or (ii) the purchase,
repurchase or other acquisition of Indebtedness, and the payment of accrued interest thereon,
purchased in anticipation of satisfying a sinking fund obligation, principal installment or scheduled
maturity, in each case due within one year of the date of such purchase, repurchase or other
acquisition or (y) any Subordinated Shareholder Funding other than the payment of interest
thereon in the form of additional Subordinated Shareholder Funding; or
(4) make any Restricted Investment,
(all such payments and other actions set forth in these clauses (1) through (4) above being collectively
referred to as ‘‘Restricted Payments’’), unless, at the time of and after giving effect to such Restricted
Payment:
(a) no Default or Event of Default has occurred and is continuing or would occur as a consequence of
such Restricted Payment;
(b) the Issuer would, at the time of such Restricted Payment and after giving pro forma effect thereto
as if such Restricted Payment had been made at the beginning of the applicable four-quarter
period, have been permitted to incur at least A1.00 of additional Indebtedness pursuant to the first
paragraph of the covenant described below under the caption ‘‘Incurrence of Indebtedness and
Issuance of Preferred Stock;’’ and
(c) such Restricted Payment, together with the aggregate amount of all other Restricted Payments
made by the Issuer and its Restricted Subsidiaries since the Issue Date (excluding Restricted
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Payments permitted by clauses (2), (3), (6), (7), (8) and (14) of the next succeeding paragraph), is
less than the sum, without duplication, of:
(i) 50% of the Consolidated Net Income of the Issuer for the period (taken as one accounting
period) commencing with the beginning of the fiscal quarter in which the Issue Date occurs to
the end of the Issuer’s most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if such Consolidated Net
Income for such period is a deficit, less 100% of such deficit); plus
(ii) 100% of the aggregate net cash proceeds and the Fair Market Value of property or assets or
marketable securities received by the Issuer since the Issue Date as a contribution to its
common equity capital or from the issue or sale of Equity Interests of the Issuer (other than
Disqualified Stock or an Excluded Contribution) or Subordinated Shareholder Funding or
from the issue or sale of convertible or exchangeable Disqualified Stock of the Issuer or
convertible or exchangeable debt securities of the Issuer, in each case that have been
converted into or exchanged for Equity Interests of the Issuer (other than Equity Interests (or
Disqualified Stock or debt securities) sold to a Subsidiary of the Issuer or an Excluded
Contribution) or Subordinated Shareholder Funding; plus
(iii) to the extent that any Restricted Investment that was made after the date of the Indenture is
(a) sold, disposed of or otherwise cancelled, liquidated or repaid, 100% of the aggregate
amount received in cash and the Fair Market Value of the property, assets and marketable
securities received by the Issuer or any Restricted Subsidiary, or (b) made in an entity that
subsequently becomes a Restricted Subsidiary, 100% of the Fair Market Value of the
Restricted Investment of the Issuer and its Restricted Subsidiaries as of the date such entity
becomes a Restricted Subsidiary; plus
(iv) to the extent that any Unrestricted Subsidiary of the Issuer designated as such after the date
of the Indenture is redesignated as a Restricted Subsidiary or is merged or consolidated into
the Issuer or a Restricted Subsidiary, or all of the assets of such Unrestricted Subsidiary are
transferred to the Issuer or a Restricted Subsidiary after the date of the Indenture, the Fair
Market Value of the property, assets and marketable securities received by the Issuer or
Restricted Subsidiary or the Issuer’s Restricted Investment in such Subsidiary as of the date of
such redesignation, merger, consolidation or transfer of assets, to the extent such Investments
reduced the restricted payments capacity under this clause (c) and were not previously repaid
or otherwise reduced; plus
(v) 100% of any dividends and distributions received by the Issuer or a Restricted Subsidiary after
the Issue Date from an Unrestricted Subsidiary, to the extent that such dividends and
distributions were not otherwise included in the Consolidated Net Income of the Issuer for
such period; plus
(vi) an amount equal to the amount available as of the Issue Date for making Restricted Payments
pursuant to clause (c) of Section 4.07(a) (i.e., the restricted payments build-up basket) of the
2019 Senior Notes Indenture (which includes the restricted payments build-up basket from the
2016 Senior Notes Indenture).
The preceding provisions will not prohibit:
(1) the payment of any dividend or the consummation of any irrevocable redemption within 60 days
after the date of declaration of the dividend or giving of the redemption notice, as the case may
be, if at the date of declaration or notice, the dividend or redemption payment would have
complied with the provisions of the Indenture;
(2) the making of any Restricted Payment in exchange for, or out of or with the net cash proceeds of
the substantially concurrent sale (other than to a Subsidiary of the Issuer) of, Equity Interests of
the Issuer (other than Disqualified Stock or an Excluded Contribution) or Subordinated
Shareholder Funding or from the substantially concurrent contribution of common equity capital to
the Issuer; provided that the amount of any such net cash proceeds that are utilized for any such
Restricted Payment will be excluded from clause (c)(ii) of the preceding paragraph;
(3) the repurchase, redemption, defeasance or other acquisition or retirement for value of
Subordinated Indebtedness of the Issuer or any Restricted Subsidiary with the net cash proceeds
from a substantially concurrent incurrence of Permitted Refinancing Indebtedness;
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(4) so long as no Default or Event of Default has occurred and is continuing, the repurchase,
redemption or other acquisition or retirement for value of any Equity Interests of the Issuer or any
Restricted Subsidiary held by any current or former officer, director or employee of the Issuer or
any of its Restricted Subsidiaries pursuant to any equity subscription agreement, stock option
agreement, shareholders’ agreement or similar agreement; provided that the aggregate price paid
for all such repurchased, redeemed, acquired or retired Equity Interests may not exceed
A2.0 million in any twelve-month period (with any unused amounts in any such period being
carried over to the next succeeding two twelve-month periods); provided, further, that such amount
in any twelve-month period may be increased by an amount not to exceed the cash proceeds from
the sale of Equity Interests of the Issuer to members of management, directors or consultants of
the Issuer, any of its Subsidiaries or any of its direct or indirect parent companies or Subordinated
Shareholder Funding to the extent the cash proceeds from the sale of Equity Interests or
Subordinated Shareholder Funding have not otherwise been applied to the making of Restricted
Payments pursuant to clause (c) of the preceding paragraph or clause (2) of this paragraph;
(5) the repurchase of Equity Interests deemed to occur upon the exercise of stock options to the
extent such Equity Interests represent a portion of the exercise price of those stock options;
(6) the declaration and payment of regularly scheduled or accrued dividends to holders of any class or
series of Disqualified Stock of the Issuer or any preferred stock of any Restricted Subsidiary issued
on or after the Issue Date pursuant to the first paragraph of the covenant described below under
the caption ‘‘Incurrence of Indebtedness and Issuance of Preferred Stock;’’
(7) payments of cash, dividends, distributions, advances or other Restricted Payments by the Issuer or
any of its Restricted Subsidiaries to allow the payment of cash in lieu of the issuance of fractional
shares upon (i) the exercise of options or warrants or (ii) the conversion or exchange of Capital
Stock of any such Person;
(8) the payment of any dividend (or, in the case of any partnership or limited liability company, any
similar distribution) by a Restricted Subsidiary to the holders of its Equity Interests on a pro rata
basis;
(9) payment of any Securitization Fees and purchases of Securitization Assets pursuant to a
Securitization Repurchase Obligation in connection with a Qualified Securitization Financing;
(10) the payment of dividends and other distributions on the Equity Interests of the Issuer in an
aggregate amount not to exceed A15.0 million in any twelve-month period (with any unused
amounts in any such period being carried over to the next succeeding two twelve-month periods),
provided that the payment of dividends and other distributions on such Equity Interests under this
clause (10) shall not be permitted following an Initial Public Offering;
(11) so long as no Default or Event of Default has occurred and is continuing, other Restricted
Payments in an aggregate amount not to exceed A50.0 million since the Issue Date;
(12) so long as no Default or Event of Default has occurred and is continuing (or would result
therefrom), the declaration and payment by the Issuer of, or loans, advances, dividends or
distributions to any Parent to pay, dividends on the common stock or common equity interests of
the Issuer or any Parent following an Initial Public Offering of such common stock or common
equity interests, in an amount not to exceed in any fiscal year the greater of (a) 6% of the net
cash proceeds received by the Issuer from such Initial Public Offering or contributed to the equity
(other than through the issuance of Disqualified Stock or through an Excluded Contribution) of
the Issuer; provided that, if the IPO Entity is a Parent, the net cash proceeds of any such dividend
are used to fund a corresponding dividend in equal or greater amount on the Capital Stock of
such Parent and (b) 6% of the Market Capitalization;
(13) any purchase, repurchase, redemption, defeasance or other acquisition or retirement of
Subordinated Indebtedness (other than Subordinated Shareholder Funding):
(a) (i) from Excess Proceeds to the extent permitted above under the caption ‘‘—Repurchase at
the Option of Holders—Asset Sales,’’ but only if the Issuer shall have complied with the terms
described under the caption ‘‘—Repurchase at the Option of Holders—Asset Sales’’ and
purchased all Notes tendered pursuant to any offer to repurchase Notes required thereby,
prior to purchasing, repurchasing, redeeming, defeasing or otherwise acquiring or retiring such
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Subordinated Indebtedness and (ii) at a purchase price not greater than 100% of the principal
amount of such Subordinated Indebtedness plus accrued and unpaid interest; or
(b) to the extent required by the agreement governing such Subordinated Indebtedness, following
the occurrence of a Change of Control (or other similar event described therein as a ‘‘change
of control’’), but only (i) if required, if the Issuer shall have complied with the terms described
above under the caption ‘‘Repurchase at the Option of Holders—Change of Control’’ and
purchased all Notes tendered pursuant to the offer to repurchase all the Notes required
thereby, prior to purchasing, repurchasing, redeeming, defeasing or otherwise acquiring or
retiring such Subordinated Indebtedness and (ii) at a purchase price not greater than 101% of
the principal amount of such Subordinated Indebtedness plus accrued and unpaid interest;
and
(14) Restricted Payments in an aggregate amount outstanding at any time not to exceed the aggregate
cash amount of Excluded Contributions, or Investments in exchange for or using as consideration
Investments previously made under this clause (14).
The amount of all Restricted Payments (other than cash) will be the Fair Market Value on the date of
the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Issuer
or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Issuer will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, ‘‘incur’’) any Indebtedness (including Acquired
Debt), and the Issuer will not and will not permit any Restricted Subsidiary to, issue any Disqualified
Stock and will not permit any of its Restricted Subsidiaries to issue any shares of preferred stock;
provided, however, that the Issuer may incur Indebtedness (including Acquired Debt) or issue
Disqualified Stock and the Restricted Subsidiaries may incur Indebtedness (including Acquired Debt)
or issue preferred stock, if (i) the Consolidated Leverage Ratio at the time such additional
Indebtedness is incurred or such Disqualified Stock or such preferred stock is issued, as the case may
be, would not have exceeded 4.0 to 1.0 and (ii) the Fixed Charge Coverage Ratio for the Issuer’s most
recently ended four full fiscal quarters for which internal financial statements are available immediately
preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock or
such preferred stock is issued, as the case may be, would have been at least 2.0 to 1.0, in the case of
(i) and (ii), determined on a pro forma basis (including a pro forma application of the net proceeds
therefrom), as if the additional Indebtedness had been incurred or the Disqualified Stock or the
preferred stock had been issued, as the case may be, at the beginning of such four-quarter period;
provided further, however, that Restricted Subsidiaries that are not Guarantors may only incur
Indebtedness (including Acquired Debt) or issue preferred stock under this paragraph in an aggregate
principal amount (or accreted value, as applicable) at any time outstanding not to exceed the difference
of (x) A180 million less (y) the aggregate principal amount of outstanding Indebtedness (at the time of
the incurrence of such Indebtedness or issuance of such preferred stock) under the Bilateral Credit
Facilities (including Permitted Refinancing Indebtedness with respect thereto) that is incurred or
guaranteed by Restricted Subsidiaries that are not Guarantors, it being understood that (a) any such
Indebtedness in (y) with respect to which the issuer or the borrower thereof, as the case may be, is or
becomes a Guarantor or is the Issuer and which is not guaranteed by any other Restricted Subsidiary
that is not a Guarantor and (b) any Indebtedness incurred by a Restricted Subsidiary that is not a
Guarantor pursuant to clause (19) of the second paragraph of this covenant, in each case shall not be
deemed outstanding for purposes of this clause (y).
The first paragraph of this covenant will not prohibit the incurrence of any of the following items of
Indebtedness (collectively, ‘‘Permitted Debt’’):
(1) the incurrence by the Issuer and any Guarantor of additional Indebtedness and letters of credit
under Credit Facilities in an aggregate principal amount at any one time outstanding under this
clause (1) (with letters of credit being deemed to have a principal amount equal to the maximum
potential liability of the Issuer and its Restricted Subsidiaries thereunder) not to exceed
A500 million, plus in the case of any refinancing of any Indebtedness permitted under this
clause (1) or any portion thereof, the aggregate amount of fees, underwriting discounts, premiums
and other costs and expenses incurred in connection with such refinancing;
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(2) the incurrence by the Issuer and its Restricted Subsidiaries of the Existing Indebtedness;
(3) the incurrence by the Issuer and the Guarantors of Indebtedness represented by the Notes and the
related Note Guarantees to be issued on the Issue Date;
(4) the incurrence by the Issuer or any Restricted Subsidiary of Indebtedness represented by Capital
Lease Obligations, mortgage financings or purchase money obligations, in each case, incurred for
the purpose of financing or refinancing all or any part of the purchase price or cost of design,
construction, lease, installation or improvement of property (real or personal), plant or equipment
or other assets (including Capital Stock) used or useful in the business of the Issuer or any of its
Restricted Subsidiaries, in an aggregate principal amount, including all Permitted Refinancing
Indebtedness incurred in exchange for, or the net proceeds of which were used to renew, refund,
refinance, replace, defease or discharge any Indebtedness incurred pursuant to this clause (4), not
to exceed A25.0 million at any time outstanding;
(5) the incurrence by the Issuer or any of its Restricted Subsidiaries of Permitted Refinancing
Indebtedness in exchange for, or the net proceeds of which are used to renew, refund, refinance,
replace, defease or discharge any Indebtedness (other than intercompany Indebtedness) that was
permitted by the Indenture to be incurred under the first paragraph of this covenant or clauses (2),
(3), (5), (12), (13) or (15) of this paragraph;
(6) the incurrence by the Issuer or any of its Restricted Subsidiaries of intercompany Indebtedness
between or among the Issuer and any of such Restricted Subsidiaries; provided, however, that:
(a) if the Issuer or any Guarantor is the obligor on such Indebtedness and the payee is not the
Issuer or a Guarantor, such Indebtedness must be (i) unsecured and expressly subordinated to
the prior payment in full in cash of all Obligations then due with respect to the Notes in the
case of the Issuer, or the relevant Note Guarantee, in the case of a Guarantor or (ii) a
Working Capital Intercompany Loan; and
(b) (i) any subsequent issuance or transfer of Equity Interests that results in any such
Indebtedness being held by a Person other than the Issuer or a Restricted Subsidiary and
(ii) any sale or other transfer of any such Indebtedness to a Person that is not either the
Issuer or a Restricted Subsidiary will be deemed, in each case, to constitute an incurrence of
such Indebtedness by the Issuer or such Restricted Subsidiary, as the case may be, that was
not permitted by this clause (6);
(7) the issuance by any Restricted Subsidiary to the Issuer or to any of its Restricted Subsidiaries of
shares of preferred stock; provided, however, that:
(a) any subsequent issuance or transfer of Equity Interests that results in any such preferred stock
being held by a Person other than the Issuer or a Restricted Subsidiary; and
(b) any sale or other transfer of any such preferred stock to a Person that is not either the Issuer
or a Restricted Subsidiary,
will be deemed, in each case, to constitute an issuance of such preferred stock by such
Restricted Subsidiary that was not permitted by this clause (7);
(8) the incurrence by the Issuer or any Restricted Subsidiary of Hedging Obligations in the ordinary
course of business and not for speculative purposes;
(9) the Guarantee by the Issuer or any Restricted Subsidiary of Indebtedness of the Issuer or any
Restricted Subsidiary (other than the Guarantee by a Guarantor of Indebtedness of another
Restricted Subsidiary that is not a Guarantor) to the extent that the guaranteed Indebtedness was
permitted to be incurred by another provision of this covenant; provided that if the Indebtedness
being guaranteed is subordinated to or pari passu with the Notes or a Note Guarantee, then the
Guarantee must be subordinated or pari passu, as applicable, to the same extent as the
Indebtedness guaranteed;
(10) the incurrence by the Issuer or any of its Restricted Subsidiaries of Indebtedness in respect of
workers’ compensation claims, self-insurance obligations, bankers’ acceptances, performance and
surety bonds in the ordinary course of business;
(11) the incurrence by the Issuer or any of its Restricted Subsidiaries of Indebtedness arising from the
honoring by a bank or other financial institution of a check, draft or similar instrument
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inadvertently drawn against insufficient funds, so long as such Indebtedness is covered within five
business days;
(12) the incurrence by the Issuer or any of its Restricted Subsidiaries, as the case may be, of
Indebtedness represented by the Bilateral Credit Facilities outstanding on the Issue Date;
(13) the incurrence by the Issuer or any of its Restricted Subsidiaries, as the case may be, of
Indebtedness represented by the 2016 Senior Notes and the 2019 Senior Notes, in each case
outstanding on the Issue Date as described in the Offering Memorandum dated September 28,
2012;
(14) any Indebtedness incurred by the Issuer or any of its Restricted Subsidiaries for the purpose of
providing prefinancing loans made to farmers and other co-operatives in the ordinary course of
business not to exceed A30.0 million at any time outstanding;
(15) Indebtedness of any Person outstanding on the date on which such Person becomes a Restricted
Subsidiary or is merged, consolidated, amalgamated or otherwise combined with (including
pursuant to any acquisition of assets and assumption of related liabilities) the Issuer or any
Restricted Subsidiary (other than Indebtedness incurred to provide all or any portion of the funds
used to consummate the transaction or series of related transactions pursuant to which such
Person became a Restricted Subsidiary or was otherwise acquired by the Issuer or a Restricted
Subsidiary); provided, however, with respect to this clause (15), that at the time of the acquisition
or other transaction pursuant to which such Indebtedness was deemed to be incurred (A) the
Issuer would have been able to incur A1.00 of additional Indebtedness pursuant to the first
paragraph of this covenant after giving pro forma effect to the incurrence of such Indebtedness
pursuant to this clause (15) or (B) the Consolidated Leverage Ratio for the Issuer after giving
pro forma effect thereto would not be greater than it was immediately prior to giving pro forma
effect thereto;
(16) Indebtedness arising from agreements of the Issuer or a Restricted Subsidiary providing for
customary indemnification, obligations in respect of earnouts or other adjustments of purchase
price or, in each case, similar obligations, in each case, incurred or assumed in connection with the
acquisition or disposition of any business or assets or Person or any Equity Interests of a
Subsidiary, provided that, in the case of a disposition, the maximum liability of the Issuer and its
Restricted Subsidiaries in respect of all such Indebtedness shall at no time exceed the gross
proceeds, including the Fair Market Value of non-cash proceeds (measured at the time received
and without giving effect to any subsequent changes in value), actually received by the Issuer and
its Restricted Subsidiaries in connection with such disposition;
(17) Indebtedness incurred in a Qualified Securitization Financing;
(18) Indebtedness of the Issuer or a Restricted Subsidiary in respect of (A) letters of credit, surety,
performance or appeal bonds, completion guarantees, judgment, advance payment, customs, VAT
or other tax guarantees or similar instruments issued in the ordinary course of business of such
Person and not in connection with the borrowing of money, including letters of credit or similar
instruments in respect of self-insurance and workers compensation obligations or (B) any
customary cash management (including overdrafts), cash pooling or netting or setting off
arrangements; provided, however, that upon the drawing of such letters of credit or other
instrument, such obligations are reimbursed within 30 days following such drawing; and
(19) the incurrence by the Issuer or any Restricted Subsidiary of additional Indebtedness in an
aggregate principal amount (or accreted value, as applicable) at any time outstanding, including all
Permitted Refinancing Indebtedness incurred to renew, refund, refinance, replace, defease or
discharge any Indebtedness incurred pursuant to this clause (19), not to exceed the greater of
(A) A100.0 million and (B) 5.2% of Tangible Assets; provided that not more than A40.0 million may
be incurred by Restricted Subsidiaries that are not Guarantors.
Neither the Issuer nor any Guarantor will incur any Indebtedness (including Permitted Debt) that is
contractually subordinated in right of payment to any other Indebtedness of the Issuer or such
Guarantor unless such Indebtedness is also contractually subordinated in right of payment to the Notes
and the applicable Note Guarantee on substantially identical terms; provided, however, that no
Indebtedness will be deemed to be contractually subordinated in right of payment to any other
Indebtedness of the Issuer or any Guarantor solely by virtue of being unsecured or by virtue of being
secured on a junior priority basis.
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For purposes of determining compliance with this ‘‘Incurrence of Indebtedness and Issuance of
Preferred Stock’’ covenant, in the event that an item of Indebtedness meets the criteria of more than
one of the categories of Permitted Debt described in clauses (1) through (19) above, or is entitled to be
incurred pursuant to the first paragraph of this covenant, the Issuer will be permitted to classify all or a
portion of such item of Indebtedness on the date of its incurrence and to reclassify all or a portion of
such item of Indebtedness, in any manner that complies with this covenant. If, due to a change in IFRS
as in effect as of the Issue Date, any item of Indebtedness classified in one of the categories of
Permitted Debt described in clauses (1) through (19) of the second paragraph of this covenant ceases
to be eligible under IFRS to be so classified, the Issuer, in its sole discretion, will be permitted to
continue to classify such item of Indebtedness under such clause. Indebtedness under the Revolving
Credit Facility outstanding on the date on which Notes are first issued and authenticated under the
Indenture will initially be deemed to have been incurred on such date in reliance on the exception
provided by clause (1) of the definition of Permitted Debt and may not be reclassified. Indebtedness
under the Bilateral Credit Facilities outstanding on the date on which Notes are first issued and
authenticated under the Indenture will initially be deemed to have been incurred on such date in
reliance on the exception provided by clause (12) of the definition of Permitted Debt and may not be
reclassified. The accrual of interest or preferred stock dividends, the accretion or amortization of
original issue discount, the payment of interest on any Indebtedness in the form of additional
Indebtedness with the same terms, the reclassification of commitments or obligations or preferred stock
as Indebtedness due to a change in accounting principles, and the payment of dividends on preferred
stock or Disqualified Stock in the form of additional shares of the same class of preferred stock or
Disqualified Stock will not be deemed to be an incurrence of Indebtedness or an issuance of preferred
stock or Disqualified Stock for purposes of this covenant. Notwithstanding any other provision of this
covenant, the maximum amount of Indebtedness that the Issuer or any Restricted Subsidiary may incur
pursuant to this covenant shall not be deemed to be exceeded solely as a result of fluctuations in
exchange rates or currency values.
The amount of any Indebtedness outstanding as of any date will be:
(1) the accreted value of the Indebtedness, in the case of any Indebtedness issued with original issue
discount;
(2) the principal amount of the Indebtedness, in the case of any other Indebtedness; and
(3) in respect of Indebtedness of another Person secured by a Lien on the assets of the specified
Person, the lesser of:
(i) the Fair Market Value of such assets at the date of determination; and
(ii) the amount of the Indebtedness of the other Person.
For purposes of determining compliance with any euro-denominated restriction on the incurrence of
Indebtedness, the euro equivalent of the principal amount of Indebtedness denominated in another
currency will be calculated based on the relevant currency exchange rate in effect on the date such
Indebtedness was incurred, in the case of term Indebtedness, or first committed, in the case of
Indebtedness incurred under a revolving credit facility; provided that (1) if such Indebtedness is incurred
to refinance other Indebtedness denominated in a currency other than euros, and such refinancing
would cause the applicable euro-denominated restriction to be exceeded if calculated at the relevant
currency exchange rate in effect on the date of such refinancing, such euro-denominated restriction will
be deemed not to have been exceeded so long as the principal amount of such Permitted Refinancing
Indebtedness does not exceed the principal amount of such Indebtedness being refinanced; (2) the euro
equivalent of the principal amount of any such Indebtedness outstanding on the Issue Date will be
calculated based on the relevant currency exchange rate in effect on the Issue Date; and (3) if and for
so long as any such Indebtedness is subject to an agreement intended to protect against fluctuations in
currency exchange rates with respect to the currency in which such Indebtedness is denominated
covering principal and interest on such Indebtedness, the amount of such Indebtedness, if denominated
in euros, will be the amount of the principal payment required to be made under such currency
agreement and, otherwise, the euro equivalent of such amount plus the euro equivalent of any
premium which is at such time due and payable but is not covered by such currency agreement.
For purposes of determining any particular amount of Indebtedness under this ‘‘—Incurrence of
Indebtedness and Issuance of Preferred Stock’’ covenant and compliance with such covenant,
(i) guarantees, Liens or obligations with respect to letters of credit, bankers’ acceptances or other
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similar instruments relating to, or Liens securing, Indebtedness that is otherwise included in the
determination of a particular amount of Indebtedness shall not be included; (ii) if obligations in respect
of letters of credit, bankers’ acceptances or other similar instruments are incurred pursuant to any
Credit Facility and are being treated as incurred pursuant to clause (1), (4), (11) or (19) of the second
paragraph above or the first paragraph above and the letters of credit, bankers’ acceptances or other
similar instruments relate to other Indebtedness, then such other Indebtedness shall not be included;
(iii) the principal amount of any Disqualified Stock of the Issuer or a Restricted Subsidiary, or
preferred stock of a Restricted Subsidiary, will be equal to the greater of the maximum mandatory
redemption or repurchase price (not including, in either case, any redemption or repurchase premium)
or the liquidation preference thereof; and (iv) for purposes of calculating compliance with clause (1) of
the second paragraph of this covenant or for calculating the amount of Indebtedness outstanding under
the Revolving Credit Facility, to the extent a Credit Facility is utilized for the purpose of guaranteeing
or cash collateralizing any letter of credit or guarantee, such guarantee or collateralization and issuance
of such letter of credit or guarantee shall be deemed to be a utilization of such Credit
Facility permitted under clause (1) of the second paragraph of this covenant without double counting;
and (v) the amount of Indebtedness of any Person at any time in the case of a revolving credit or
similar facility shall be the total amounts of funds borrowed thereunder and then outstanding.
Liens
The Issuer will not and will not cause or permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume or otherwise cause or suffer to exist or become effective any Lien (the
‘‘Initial Lien’’) of any kind securing Indebtedness upon any of their property or assets, now owned or
hereafter acquired, except Permitted Liens, unless contemporaneously with (or prior to) all payments
due under the Indenture and the Notes are secured on an equal and ratable basis with the obligations
so secured; provided that, if the Indebtedness secured by such Lien is subordinate or junior in right of
payment to the Notes or a Note Guarantee, as the case may be, then the Lien securing such
Indebtedness shall be subordinate or junior in priority to the Lien securing the Notes at least to the
same extent as such Indebtedness is subordinate or junior to the Notes or a Note Guarantee, as the
case may be.
Any Lien created for the benefit of the holders of the Notes pursuant to the preceding paragraph of
this covenant will provide by its terms that such Lien will be automatically and unconditionally released
and discharged (1) upon the release and discharge of the Initial Lien, (2) upon the sale or other
disposition of the assets subject to such Initial Lien (or the sale or other disposition of the Person that
owns such assets) in compliance with the terms of the Indenture, (3) with respect to any Guarantor the
assets or the Capital Stock of which are encumbered by such Lien, upon the release of the
Note Guarantee of such Guarantor in accordance with the terms of the Indenture, (4) upon the
designation of a Restricted Subsidiary whose property or assets secure such Initial Lien as an
Unrestricted Subsidiary in accordance with the terms of the Indenture, (5) upon the effectiveness of
any defeasance or satisfaction and discharge of the Notes as specified in the Indenture or (6) as
provided below under the caption ‘‘—Amendment, Supplement and Waiver.’’
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The Issuer will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or
indirectly, create or permit to exist or become effective any consensual encumbrance or restriction on
the ability of any Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock to the Issuer or any Restricted
Subsidiary, or with respect to any other interest or participation in, or measured by, its profits, or
pay any Indebtedness owed to the Issuer or any Restricted Subsidiary;
(2) make loans or advances to the Issuer or any Restricted Subsidiary; or
(3) sell, lease or transfer any of its properties or assets to the Issuer or any Restricted Subsidiary;
provided that (x) the priority of any preferred stock in receiving dividends or liquidating distributions
prior to dividends or liquidating distributions being paid on common stock and (y) the subordination of
(including the application of any standstill period to) loans or advances made to the Issuer or any
Restricted Subsidiary to other Indebtedness incurred by the Issuer or any Restricted Subsidiary, shall
not be deemed to constitute such an encumbrance or restriction.
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However, the preceding restrictions will not apply to encumbrances or restrictions existing under or by
reason of:
(1) agreements governing Existing Indebtedness, Credit Facilities, the Revolving Credit Facility, the
Bilateral Credit Facilities, the 2016 Senior Notes and the 2019 Senior Notes as in effect on the
Issue Date and any amendments, restatements, modifications, renewals, supplements, refundings,
replacements or refinancings of those agreements; provided that the amendments, restatements,
modifications, renewals, supplements, refundings, replacements or refinancings are not materially
more restrictive, taken as a whole, with respect to such dividend and other payment restrictions
than those contained in those agreements on the Issue Date;
(2) the Indenture, the Notes and the Note Guarantees;
(3) agreements governing other Indebtedness permitted to be incurred under the provisions of the
covenant described above under the caption ‘‘Incurrence of Indebtedness and Issuance of
Preferred Stock’’ and any amendments, restatements, modifications, renewals, supplements,
refundings, replacements or refinancings of those agreements; provided that the restrictions therein
are not materially less favorable to the holders of the Notes than is customary in comparable
financings (as determined in good faith by the Issuer) or the Issuer determines in good faith at the
time of the incurrence of such Indebtedness that such encumbrances or restrictions will not
adversely affect, in any material respect, the Issuer’s ability to make principal or interest payments
on the Notes;
(4) applicable law, rule, regulation or order or the terms of any license, authorization, concession or
permit;
(5) any agreement or instrument of a Person or governing Indebtedness or Capital Stock of a Person
acquired by the Issuer or any of its Restricted Subsidiaries as in effect at the time of such
acquisition or which is assumed by the Issuer or any of its Restricted Subsidiaries in connection
with an acquisition of assets of such Person (in each case, except to the extent such Indebtedness
or Capital Stock was incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person, or the property or assets of the Person, so acquired; provided that,
in the case of Indebtedness, such Indebtedness was permitted by the terms of the Indenture to be
incurred;
(6) customary non-assignment and similar provisions in contracts, leases, licenses, mortgages, security
agreements or reciprocal easement agreements entered into in the ordinary course of business;
(7) purchase money obligations for property acquired in the ordinary course of business and Capital
Lease Obligations that impose restrictions on the property purchased or leased of the nature
described in clause (3) of the preceding paragraph;
(8) any agreement for the sale or other disposition of the Capital Stock or all or substantially all of
the property and assets of a Restricted Subsidiary that restricts distributions by that Restricted
Subsidiary pending its sale or other disposition;
(9) Permitted Refinancing Indebtedness; provided that the restrictions contained in the agreements
governing such Permitted Refinancing Indebtedness are not materially more restrictive, taken as a
whole, than those contained in the agreements governing the Indebtedness being refinanced;
(10) Liens permitted to be incurred under the provisions of the covenant described above under the
caption ‘‘Liens’’ that limit the right of the debtor to dispose of the assets subject to such Liens;
(11) provisions limiting the disposition or distribution of assets or property in joint venture agreements,
asset sale agreements, sale-leaseback agreements, stock sale agreements and other similar
agreements (including agreements entered into in connection with a Restricted Investment)
entered into with the approval of the Issuer’s Board of Directors, which limitation is applicable
only to the assets that are the subject of such agreements;
(12) restrictions on cash or other deposits or net worth imposed by customers or suppliers or required
by insurance, surety or bonding companies or imposed by leases or other agreements, in each case,
under contracts entered into in the ordinary course of business;
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(13) any encumbrance or restriction effected in connection with a Qualified Securitization Financing
that, in the good faith determination of the Board of Directors of the Issuer, is necessary or
advisable to effect such Qualified Securitization Financing; or
(14) any agreement that extends, renews, refinances or replaces the agreements containing the
encumbrances or restrictions in the foregoing clauses (1) through (13), or in this clause (14);
provided that the terms and conditions of any such encumbrances or restrictions are no more
restrictive in any material respect than those under or pursuant to the agreement so extended,
renewed, refinanced or replaced.
Merger, Consolidation or Sale of Assets
The Issuer will not, directly or indirectly: (1) consolidate or merge with or into another Person
(whether or not the Issuer is the surviving corporation), or (2) sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of the properties or assets of the Issuer and its Subsidiaries
which are Restricted Subsidiaries taken as a whole, in one or more related transactions, to another
Person, unless:
(1) either: (a) the Issuer is the surviving corporation; or (b) the Person formed by or surviving any
such consolidation or merger (if other than the Issuer) or to which such sale, assignment, transfer,
conveyance, lease or other disposition has been made is an entity organized or existing under the
laws of any member state of the European Union, Switzerland, Croatia, the United States, any
state of the United States or the District of Columbia;
(2) the Person formed by or surviving any such consolidation or merger (if other than the Issuer) or
the Person to which such sale, assignment, transfer, conveyance, lease or other disposition has been
made assumes all the obligations of the Issuer under the Notes and the Indenture pursuant to
agreements reasonably satisfactory to the Trustee;
(3) immediately after giving effect to such transaction on a pro forma basis, no Default or Event of
Default exists;
(4) (i) the Issuer or the Person formed by or surviving any such consolidation or merger (if other than
the Issuer), or to which such sale, assignment, transfer, conveyance, lease or other disposition has
been made would, on the date of such transaction after giving pro forma effect thereto and any
related financing transactions as if the same had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least A1.00 of additional Indebtedness pursuant to the
first paragraph of the covenant described above under the caption ‘‘Incurrence of Indebtedness
and Issuance of Preferred Stock’’ or (ii) the Consolidated Leverage Ratio for the Issuer or such
Person, as applicable, on the date of such transaction after giving pro forma effect thereto and any
related financing transactions as if the same had occurred at the beginning of the applicable four
quarter period, would not be greater than it was immediately prior to giving pro forma effect
thereto; and
(5) the Issuer delivers to the Trustee an Officer’s Certificate and opinion of counsel, in each case,
stating that such consolidation, merger or transfer and such supplemental indenture comply with
this covenant.
Clauses (3) and (4) of the first paragraph of this covenant will not apply to any merger or consolidation
of any Guarantor with or into the Issuer and clause (4) of the first paragraph of this covenant will not
apply to any merger or consolidation of the Issuer with or into an Affiliate solely for the purpose of
reincorporating the Issuer in another jurisdiction for tax reasons.
There is no precise established definition of the phrase ‘‘substantially all’’ under applicable law.
Accordingly, in certain circumstances there may be a degree of uncertainty as to whether a particular
transaction would involve ‘‘all or substantially all’’ of the property or assets of a Person.
Transactions with Affiliates
The Issuer will not, and will not cause or permit any of its Restricted Subsidiaries to, make any
payment to or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase
any property or assets from, or enter into or make or amend any transaction, contract, agreement,
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understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate of the Issuer (each,
an ‘‘Affiliate Transaction’’), unless:
(1) the Affiliate Transaction is on terms that are no less favorable to the Issuer or the relevant
Restricted Subsidiary than those that would have been obtained in a comparable arm’s length
transaction by the Issuer or such Restricted Subsidiary with a Person who is not an Affiliate of the
Issuer or any of its Restricted Subsidiaries; and
(2) the Issuer delivers to the Trustee:
(a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of A5.0 million, a resolution of the Board of Directors of the
Issuer set forth in an Officer’s Certificate certifying that such Affiliate Transaction complies
with this covenant and that such Affiliate Transaction has been approved by a majority of the
Board of Directors of the Issuer; and
(b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of A10.0 million, an opinion (i) as to the fairness to the
Issuer or such Subsidiary of such Affiliate Transaction from a financial point of view, taking
into account all relevant circumstances or (ii) that the terms of the transaction are on terms
not materially less favorable than might have been obtained in a comparable transaction at
such time on an arm’s length basis from a Person who is not an Affiliate, in each case issued
by an accounting, appraisal or investment banking firm of international standing;
provided that any Affiliate Transaction shall be deemed to have satisfied the requirements set forth in
clause (a) of this paragraph if such Affiliate Transaction is approved by a resolution of a majority of
the disinterested members of the Board of Directors, and, if there are no disinterested members, any
Affiliate Transaction shall be deemed to have satisfied the requirements set forth in clause (a) of this
covenant if the Issuer or any of its Restricted Subsidiaries, as the case may be, delivers to the Trustee
an opinion in respect of such Affiliate Transaction complying with the requirements set forth in
clause (b).
The following items will not be deemed to be Affiliate Transactions and, therefore, will not be subject
to the provisions of the prior paragraph:
(1) any employment agreement, collective bargaining agreement, consultancy arrangement, employee
benefit arrangements with any employee, consultant, officer or director of the Issuer or any
Restricted Subsidiary, including under any stock option, stock appreciation rights, stock incentive
or similar plans, entered into in the ordinary course of business;
(2) transactions between or among the Issuer and/or its Restricted Subsidiaries;
(3) transactions with a Person (other than an Unrestricted Subsidiary of the Issuer) that is an Affiliate
of the Issuer solely because the Issuer owns, directly or through a Restricted Subsidiary, an Equity
Interest in, or controls, such Person;
(4) payment of reasonable and customary fees and reimbursements of expenses (pursuant to indemnity
arrangements or otherwise) of Officers, directors, employees or consultants of the Issuer or any of
its Restricted Subsidiaries;
(5) (i) issuances or sales of Capital Stock (other than Disqualified Stock) of the Issuer or options,
warrants or other rights to acquire such Capital Stock or Subordinated Shareholder Funding;
provided that the interest rate and other financial terms of such Subordinated Shareholder Funding
are approved by a majority of the members of the Board of Directors of the Issuer in their
reasonable determination and (ii) any amendment, waiver or other transaction with respect to any
Subordinated Shareholder Funding is made in compliance with the other provisions of the
Indenture;
(6) any Investment (other than a Permitted Investment) or other Restricted Payment, in either case
that does not violate the provisions of the Indenture described above under the caption
‘‘Restricted Payments;’’
(7) Permitted Investments (other than Permitted Investments described as defined in clauses (3),
(12) and (14) of the definition thereof);
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(8) transactions pursuant to, or contemplated by, any agreement in effect on the Issue Date and
transactions pursuant to any amendment, modification or extension to such agreement, so long as
such amendment, modification or extension, taken as a whole, is not materially more
disadvantageous to the holders of the Notes than the original agreement as in effect on the Issue
Date;
(9) transactions with customers, clients, suppliers, or purchasers or sellers of goods or services, in each
case in the ordinary course of business and otherwise in compliance with the terms of this
Indenture that are fair to the Issuer or the Restricted Subsidiaries, in the reasonable determination
of the members of the Board of Directors of the Issuer or the senior management thereof, or are
on terms at least as favorable as might reasonably have been obtained at such time from an
unaffiliated Person;
(10) any transaction effected as part of a Qualified Securitization Financing;
(11) the entry into and performance of any registration rights or other listing agreement in connection
with any Equity Offering; and
(12) Management Advances and any waiver or transaction with respect thereto.
Business Activities
The Issuer will not, and will not permit any of its Restricted Subsidiaries to, engage in any business
other than a Permitted Business, except to such extent as would not be material to the Issuer and its
Restricted Subsidiaries taken as a whole.
Limitation on Issuances of Guarantees of Indebtedness
The Issuer will not cause or permit any of its Restricted Subsidiaries (other than a Guarantor), directly
or indirectly, to guarantee, assume or in any manner become liable with respect to any other
Indebtedness of the Issuer or a Guarantor, unless such Restricted Subsidiary simultaneously executes
and delivers a supplemental indenture providing for the Note Guarantee of the payment of the Notes
by such Restricted Subsidiary, which Note Guarantee will be senior to or pari passu with such
Restricted Subsidiary’s guarantee of such other Indebtedness.
Each additional Note Guarantee will be limited as necessary to recognize certain defenses generally
available to guarantors (including those that relate to fraudulent conveyance or transfer, voidable
preference, financial assistance, corporate purpose, capital maintenance or similar laws, regulations or
defenses affecting the rights of creditors generally) or other considerations under applicable law.
Notwithstanding the foregoing, the Issuer shall not be obligated to cause such Restricted Subsidiary to
guarantee the Notes to the extent that such guarantee by such Restricted Subsidiary would reasonably
be expected to give rise to or result in (1) a violation of applicable law which, in any case, cannot be
prevented or otherwise avoided in the applicable jurisdiction through measures reasonably available to
the Issuer or the Restricted Subsidiary; (2) any personal liability for the officers, directors or (except in
the case of a Restricted Subsidiary that is a partnership) shareholders of such Restricted Subsidiary (or,
in the case of a Restricted Subsidiary that is a partnership, directors or shareholders of the partners of
such partnership); or (3) any significant cost, expense, liability or obligation (including with respect to
any Taxes but excluding any obligation under the Note Guarantee itself) other than reasonable out of
pocket expenses and other than reasonable expenses incurred in connection with any governmental or
regulatory filing required as a result of, or any measures pursuant to clause (1) undertaken in
connection with, such Note Guarantee.
Designation of Restricted and Unrestricted Subsidiaries
The Board of Directors of the Issuer may designate any Restricted Subsidiary to be an Unrestricted
Subsidiary if that designation would not cause a Default. If a Restricted Subsidiary is designated as an
Unrestricted Subsidiary, the aggregate Fair Market Value of all outstanding Investments owned by the
Issuer and its Restricted Subsidiaries in the Subsidiary designated as Unrestricted will be deemed to be
an Investment made as of the time of the designation and will reduce the amount available for
Restricted Payments under the covenant described above under the caption ‘‘Restricted Payments’’ or
under one or more clauses of the definition of Permitted Investments, as determined by the Issuer.
That designation will only be permitted if the Investment would be permitted at that time and if the
Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The Board of
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Directors of the Issuer may redesignate any Unrestricted Subsidiary to be a Restricted Subsidiary if
that redesignation would not cause a Default.
Any designation of a Subsidiary of the Issuer as an Unrestricted Subsidiary will be evidenced to the
Trustee by filing with the Trustee a copy of a resolution of the Board of Directors giving effect to such
designation and an Officer’s Certificate certifying that such designation complied with the preceding
conditions and was permitted by the covenant described above under the caption ‘‘—Restricted
Payments.’’ If, at any time, any Unrestricted Subsidiary would fail to meet the preceding requirements
as an Unrestricted Subsidiary, it will thereafter cease to be an Unrestricted Subsidiary for purposes of
the Indenture and any Indebtedness of such Subsidiary will be deemed to be incurred by a Restricted
Subsidiary as of such date and, if such Indebtedness is not permitted to be incurred as of such date
under the covenant described under the caption ‘‘—Incurrence of Indebtedness and Issuance of
Preferred Stock,’’ the Issuer will be in default of such covenant. The Board of Directors of the Issuer
may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such
designation will be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of any
outstanding Indebtedness of such Unrestricted Subsidiary, and such designation will only be permitted
if (1) such Indebtedness is permitted under the covenant described under the caption ‘‘Incurrence of
Indebtedness and Issuance of Preferred Stock,’’ calculated on a pro forma basis as if such designation
had occurred at the beginning of the applicable reference period; and (2) no Default or Event of
Default would be in existence following such designation.
Payments for Consent
The Issuer will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or
indirectly, pay or cause to be paid any consideration to or for the benefit of any holder of Notes for or
as an inducement to any consent, waiver or amendment of any of the terms or provisions of the
Indenture or the Notes unless such consideration is offered to be paid and is paid to all holders of the
Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents
relating to such consent, waiver or agreement.
Notwithstanding the foregoing, the Issuer and its Restricted Subsidiaries shall be permitted, in any offer
or payment of consideration for, or as an inducement to, any consent, waiver or amendment of any of
the terms or provisions of the Indenture or the Notes, to exclude holders of the Notes in any
jurisdiction where (1) the solicitation of such consent, waiver or amendment, including in connection
with an exchange offer or offer to purchase for cash, or (2) the payment of the consideration therefor
(i) would require the Issuer or any of its Restricted Subsidiaries to file a registration statement,
prospectus or similar document under any applicable securities laws (including, but not limited to, the
United States federal securities laws and the laws of the European Union or its member states), which
the Issuer in its sole discretion determines (acting in good faith) would be materially burdensome; or
(ii) such solicitation would otherwise not be permitted under applicable law in such jurisdiction.
Maintenance of Listing
The Issuer will use its commercially reasonable efforts to obtain and maintain the listing of the Notes
on the Global Exchange Market for so long as such Notes are outstanding; provided that if at any time
the Issuer determines that it can no longer reasonably comply with the requirements for listing the
Notes on the Global Exchange Market or if maintenance of such listing becomes unduly onerous or it
will not otherwise maintain such listing, it will obtain prior to the delisting of the Notes from the
Global Exchange Market, and thereafter use its commercially reasonable efforts to maintain, a listing of
such Notes on such other ‘‘recognised stock exchange’’ as defined in Section 1005 of the Income Tax
Act 2007 of the United Kingdom.
Reports
So long as any Notes are outstanding, the Issuer will furnish to the Trustee:
(1) within 120 days after the end of the Issuer’s fiscal year beginning with the fiscal year ending
December 31, 2012, annual reports containing the following information: (a) audited consolidated
balance sheet, income statements and statements of cash flow of the Issuer for the two most recent
fiscal years, including complete footnotes to such financial statements and the report of the
independent auditors on the financial statements; (b) pro forma income statement and balance
sheet information of the Issuer, together with explanatory footnotes, for any material acquisitions,
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dispositions or recapitalizations that have occurred since the beginning of the most recently
completed fiscal year as to which such annual report relates (unless such pro forma information has
been provided in a previous report pursuant to clause (2) or (3) below, and provided that such
pro forma financial information shall only be provided only to the extent available without
unreasonable difficulty or expense, in which case the Issuer will provide, in the case of a material
acquisition, acquired company financial statements); (c) an operating and financial review of the
audited financial statements, including a discussion of the results of operations (including a
discussion by business segment), financial condition and liquidity and capital resources, and a
discussion of material commitments and contingencies and critical accounting policies; and (d) a
summary description of the business and material contractual arrangements, including material
debt instruments, and material recent developments;
(2) within 60 days following the end of each of the first three fiscal quarters in each fiscal year of the
Issuer beginning with the quarter ending September 30, 2012, quarterly reports containing the
following information: (a) an unaudited condensed consolidated balance sheet as of the end of
such quarter and unaudited condensed statements of income and cash flow for the quarterly
and year to date periods ending on the unaudited condensed balance sheet date, and the
comparable prior year periods for the Issuer, together with condensed footnote disclosure;
(b) pro forma income statement and balance sheet information of the Issuer, together with
explanatory footnotes, for any material acquisitions, dispositions or recapitalizations that have
occurred since the beginning of the most recently completed fiscal quarter as to which such
quarterly report relates (provided that such pro forma financial information shall only be provided
only to the extent available without unreasonable difficulty or expense, in which case the Issuer will
provide, in the case of a material acquisition, acquired company financial statements); (c) an
operating and financial review of the unaudited financial statements (including a discussion by
business reporting segment), including a discussion of the consolidated financial condition and
results of operations of the Issuer and any material change between the current quarterly period
and the corresponding period of the prior year; and (d) a summary of material recent
developments; and
(3) promptly after the occurrence of any material acquisition, disposition or restructuring of the Issuer
and the Restricted Subsidiaries, taken as a whole, or any senior executive officer changes at the
Issuer or change in auditors of the Issuer or any other material event that the Issuer announces
publicly, a report containing a description of such event.
If the Issuer has designated any of its Subsidiaries as Unrestricted Subsidiaries and such Subsidiaries
are Significant Subsidiaries, then the quarterly and annual financial information required by the
preceding paragraph will include a reasonably detailed presentation, either on the face of the financial
statements or in the footnotes thereto, of the financial condition and results of operations of the Issuer
and its Restricted Subsidiaries separate from the financial condition and results of operations of the
Unrestricted Subsidiaries of the Issuer.
All financial statements shall be prepared in accordance with IFRS. Except as provided for above, no
report need include separate financial statements for the Issuer or Subsidiaries of the Issuer or any
disclosure with respect to the results of operations or any other financial or statistical disclosure not of
a type included in this Offering Memorandum.
In addition, for so long as any Notes remain outstanding, the Issuer has agreed that it will furnish to
the holders and to prospective investors, upon their request, the information required to be delivered
pursuant to Rule 144A(d)(4) under the Securities Act.
Contemporaneously with the furnishing of each such report discussed above, the Issuer will also make
such report available to holders of the Notes either on the Issuer’s website or through other electronic
media and, in the case of furnishing the information pursuant to clauses (1) and (2) of the first
paragraph of this covenant, will promptly thereafter hold a conference call with holders of the Notes
hosted by an Officer of the Issuer to discuss the operations of the Issuer and its Subsidiaries in respect
of the relevant period. The Issuer will also make available copies of all reports required by clauses (1)
through (3) of the first paragraph of this covenant, if and so long as the Notes are listed on the Official
List of the Irish Stock Exchange and admitted for trading on the Global Exchange Market and the
rules of the Irish Stock Exchange so require, at the offices of the Principal Paying Agent.
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Events of Default and Remedies
Each of the following is an ‘‘Event of Default’’:
(1) default for 30 days in the payment when due of interest or Additional Amounts, if any, with
respect to the Notes;
(2) default in the payment when due (at maturity, upon redemption or otherwise) of the principal of,
or premium, if any, on, the Notes;
(3) failure by the Issuer to make a Change of Control Offer or Asset Sale Offer or to purchase the
Notes in accordance with the provisions described under the captions ‘‘Repurchase at the Option
of Holders—Change of Control,’’ ‘‘Repurchase at the Option of Holders—Asset Sales’’;
(4) failure by the Issuer or relevant Guarantor to comply with the provisions described under the
caption ‘‘Certain Covenants—Consolidation, Merger and Sale of Assets’’ and the second paragraph
under the caption ‘‘Note Guarantees,’’ respectively;
(5) failure by the Issuer or relevant Guarantor for 60 days after written notice to the Issuer by the
Trustee or the holders of at least 25% in aggregate principal amount of the Notes then outstanding
voting as a single class to comply with any of the agreements in the Indenture (other than a
default in performance, or breach, or a covenant or agreement which is specifically dealt with in
clauses (1), (2), (3) or (4)), the Notes or the Note Guarantee;
(6) default under any mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness for money borrowed by the Issuer or any of
its Restricted Subsidiaries (or the payment of which is guaranteed by the Issuer or any of its
Restricted Subsidiaries), whether such Indebtedness or Guarantee now exists, or is created after
the Issue Date, if that default:
(a) is caused by a failure to pay principal of such Indebtedness prior to the expiration of the
grace period provided in such Indebtedness on the date of such default (a ‘‘Payment Default’’);
or
(b) results in the acceleration of such Indebtedness prior to its Stated Maturity,
and, in each case, the principal amount of any such Indebtedness, together with the principal
amount of any other such Indebtedness under which there has been a Payment Default or the
maturity of which has been so accelerated, aggregates A20.0 million or more;
(7) failure by the Issuer or any of its Restricted Subsidiaries to pay final judgments entered by a court
or courts of competent jurisdiction aggregating in excess of A20.0 million, which judgments are not
paid, discharged or stayed for a period of 60 consecutive days or more during which a stay of
enforcement of such judgment was not (by reason of pending appeal or otherwise) in effect;
(8) except as permitted by the Indenture, any Note Guarantee is held in any judicial proceeding to be
unenforceable or invalid or ceases for any reason to be in full force and effect, or any Guarantor,
or any Person acting on behalf of any Guarantor, denies or disaffirms its obligations under its
Note Guarantee; and
(9) certain events of bankruptcy or insolvency described in the Indenture with respect to the Issuer or
any of its Restricted Subsidiaries that is a Significant Subsidiary or any group of its Restricted
Subsidiaries that, taken together, would constitute a Significant Subsidiary.
In the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect
to the Issuer, all outstanding Notes will become due and payable immediately without further action or
notice. If any other Event of Default occurs and is continuing, the Trustee or the holders of at least
25% in aggregate principal amount of the then outstanding Notes may declare all the Notes to be due
and payable immediately.
Subject to certain limitations, holders of a majority in aggregate principal amount of the then
outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from holders of the Notes notice of any continuing Default or Event of Default if it
determines that withholding notice is in their interest, except a Default or Event of Default relating to
the payment of principal, interest or Additional Amounts or premium, if any.
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Subject to the provisions of the Indenture relating to the duties of the Trustee, in case an Event of
Default occurs and is continuing, the Trustee will be under no obligation to exercise any of the rights
or powers under the Indenture at the request or direction of any holders of Notes unless such holders
have offered to the Trustee indemnity or security reasonably satisfactory to it against any loss, liability
or expense. Except to enforce the right to receive payment of principal, premium, if any, or interest or
Additional Amounts when due, no holder of a Note may pursue any remedy with respect to the
Indenture or the Notes unless:
(1) such holder has previously given the Trustee notice that an Event of Default is continuing;
(2) holders of at least 25% in aggregate principal amount of the then outstanding Notes have
requested the Trustee to pursue the remedy;
(3) such holders have offered the Trustee security or indemnity reasonably satisfactory to it against any
loss, liability or expense;
(4) the Trustee has not complied with such request within 60 days after the receipt of the request and
the offer of security or indemnity; and
(5) holders of a majority in aggregate principal amount of the then outstanding Notes have not given
the Trustee a direction inconsistent with such request within such 60-day period.
In the event of a declaration of acceleration of the Notes because an Event of Default described in
clause (6) of the first paragraph of this section has occurred and is continuing, the declaration of
acceleration of the Notes shall be automatically annulled if the event of default or payment default
triggering such Event of Default pursuant to clause (6) shall be remedied or cured, or waived by the
holders of the Indebtedness that gave rise to such Event of Default, or such Indebtedness shall have
been discharged in full, within 30 days after the declaration of acceleration with respect thereto and if
(1) the annulment of the acceleration of the Notes would not conflict with any judgment or decree of a
court of competent jurisdiction and (2) all existing Events of Default, except non-payment of principal,
premium or interest on the Notes that became due solely because of the acceleration of the Notes,
have been cured or waived.
The holders of a majority in aggregate principal amount of the then outstanding Notes by notice to the
Trustee may, on behalf of the holders of all of the Notes, rescind an acceleration or waive any existing
Default or Event of Default and its consequences under the Indenture except a continuing Default or
Event of Default in the payment of interest, Additional Amounts or premium, if any, on, or the
principal of, the Notes (which may only be waived with the consent of holders of the Notes holding at
least 90% of the aggregate principal amount of the Notes outstanding under the Indenture).
The Issuer is required to deliver to the Trustee annually a statement regarding compliance with the
Indenture. Within 15 days of becoming aware of any Default or Event of Default, the Issuer is required
to deliver to the Trustee a statement specifying such Default or Event of Default.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of the Issuer or any Guarantor, as such, will
have any liability for any obligations of the Issuer or the Guarantors under the Notes, the Indenture,
the Note Guarantees, or for any claim based on, in respect of, or by reason of, such obligations or their
creation. Each holder of Notes by accepting a Note waives and releases all such liability. The waiver
and release are part of the consideration for issuance of the Notes. The waiver may not be effective to
waive liabilities under the U.S. federal securities laws (or other securities laws) and it is the view of the
U.S. Securities and Exchange Commission that such waiver is against public policy.
Legal Defeasance and Covenant Defeasance
The Issuer may at any time, at the option of its Board of Directors evidenced by a resolution set forth
in an Officer’s Certificate, elect to have all of its obligations discharged with respect to the outstanding
Notes and all obligations of the Guarantors discharged with respect to their Note Guarantees (‘‘Legal
Defeasance’’) except for:
(1) the rights of holders of outstanding Notes to receive payments in respect of the principal of, or
interest (including Additional Amounts or premium, if any) on, such Notes when such payments
are due from the trust referred to below;
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(2) the Issuer’s obligations with respect to the Notes concerning issuing temporary Notes, registration
of Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an office or agency for
payment and money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the Trustee, and the Issuer’s and the
Guarantors’ obligations in connection therewith; and
(4) the Legal Defeasance and Covenant Defeasance provisions of the Indenture.
In addition, the Issuer may, at its option and at any time, elect to have the obligations of the Issuer
and the Guarantors released with respect to certain covenants (including its obligation to make Change
of Control Offers and Asset Sale Offers) that are described in the Indenture (‘‘Covenant Defeasance’’)
and thereafter any omission to comply with those covenants will not constitute a Default or Event of
Default with respect to the Notes. In the event Covenant Defeasance occurs, all Events of Default
described under ‘‘Events of Default and Remedies’’ (except those relating to payments on the Notes or,
solely with respect to the Issuer, bankruptcy, receivership, rehabilitation or insolvency events) will no
longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) the Issuer must irrevocably deposit with the Trustee, in trust, for the benefit of the holders of the
Notes, cash in euros, non-callable euro-denominated government securities, or a combination of
cash in euros and non-callable euro-denominated government securities, in amounts as will be
sufficient, in the opinion of a nationally recognized investment bank, appraisal firm or firm of
independent public accountants, to pay the principal of, or interest (including Additional Amounts
and premium, if any) on the outstanding Notes on the stated date for payment thereof or on the
applicable redemption date, as the case may be, and the Issuer must specify whether the Notes are
being defeased to such stated date for payment or to a particular redemption date;
(2) in the case of Legal Defeasance, the Issuer must deliver to the Trustee (i) an opinion of United
States counsel reasonably acceptable to the Trustee confirming that (a) the Issuer has received
from, or there has been published by, the U.S. Internal Revenue Service a ruling or (b) since the
Issue Date, there has been a change in the applicable U.S. federal income tax law, in either case
to the effect that, and based thereon such opinion of counsel will confirm that, the holders of the
outstanding Notes will not recognize income, gain or loss for U.S. federal income tax purposes as a
result of such Legal Defeasance and will be subject to tax on the same amounts, in the same
manner and at the same times as would have been the case if such Legal Defeasance had not
occurred; and (ii) an opinion of counsel in the jurisdiction of incorporation of the Issuer and
reasonably acceptable to the Trustee to the effect that the holders of the Notes will not recognize
income, gain or loss for tax purposes of such jurisdiction as a result of such deposit and defeasance
and will be subject to tax in such jurisdiction on the same amounts and in the same manner and at
the same times as would have been the case if such deposit and defeasance had not occurred;
(3) in the case of Covenant Defeasance, the Issuer must deliver to the Trustee (i) an opinion of
United States counsel reasonably acceptable to the Trustee confirming that the holders of the
outstanding Notes will not recognize income, gain or loss for U.S. federal income tax purposes as a
result of such Covenant Defeasance and will be subject to U.S. federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred; and (ii) an opinion of counsel in the jurisdiction of incorporation of
the Issuer and reasonably acceptable to the Trustee to the effect that the holders of the Notes will
not recognize income, gain or loss for tax purposes of such jurisdiction as a result of such deposit
and defeasance and will be subject to tax in such jurisdiction on the same amounts and in the
same manner and at the same times as would have been the case if such deposit and defeasance
had not occurred;
(4) the Issuer must deliver to the Trustee an Officer’s Certificate stating that the deposit was not made
by the Issuer with the intent of preferring the holders of Notes over the other creditors of the
Issuer with the intent of defeating, hindering, delaying or defrauding any creditors of the Issuer or
others; and
(5) the Issuer must deliver to the Trustee an Officer’s Certificate and an opinion of counsel (subject to
customary assumptions and qualifications), each stating that all conditions precedent relating to the
Legal Defeasance or the Covenant Defeasance have been complied with.
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Amendment, Supplement and Waiver
Except as provided in the next four succeeding paragraphs, the Indenture, the Notes and the
Note Guarantees may be amended or supplemented with the consent of the holders of at least a
majority in aggregate principal amount of the Notes then outstanding (including, without limitation,
consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes), and
any existing Default or Event of Default or compliance with any provision of the Indenture or the
Notes or the Note Guarantees may be waived with the consent of the holders of a majority in
aggregate principal amount of the then outstanding Notes (including, without limitation, consents
obtained in connection with a purchase of, or tender offer or exchange offer for, Notes).
Unless consented to by the holders of at least 90% of the aggregate principal amount of then
outstanding Notes (including, without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, Notes), an amendment, supplement or waiver may not (with respect
to any Notes held by a non-consenting holder):
(1) reduce the principal amount of Notes whose holders must consent to an amendment, supplement
or waiver;
(2) reduce the principal of or change the fixed maturity of any Note or alter the provisions with
respect to the redemption of the Notes (other than provisions relating to the covenants described
above under the caption ‘‘Repurchase at the Option of Holders’’);
(3) reduce the rate of or change the time for payment of interest, including default interest, on any
Note;
(4) waive a Default or Event of Default in the payment of principal of, or interest, Additional
Amounts or premium, if any, on, the Notes (except a rescission of acceleration of the Notes by the
holders of at least a majority in aggregate principal amount of the then outstanding Notes and a
waiver of any payment default that resulted from such acceleration);
(5) make any Note payable in money other than that stated in the Notes (except to the extent the
currency stated in the Notes has been succeeded or replaced pursuant to applicable laws);
(6) make any change in the provisions of the Indenture relating to waivers of past Defaults or the
rights of holders of Notes to receive payments of principal of, or interest, Additional Amounts or
premium, if any, on, the Notes;
(7) waive a redemption payment with respect to any Note (other than a payment required by one of
the covenants described above under the caption ‘‘Repurchase at the Option of Holders’’);
(8) release any Guarantor from any of its obligations under its Note Guarantee or the Indenture,
except in accordance with the terms of the Indenture; or
(9) make any change in the preceding amendment and waiver provisions.
Notwithstanding the foregoing, the Indenture will provide that any Guarantee will be released in
connection with any sale or other disposition of property or assets (including Capital Stock) that does
not violate the ‘‘Asset Sales’’ provisions or the covenant described under the caption ‘‘—Certain
Covenants—Restricted Payments’’ of the Indenture (as such provision or covenant may be amended
from time to time with the consent of the holders of at least a majority in aggregate principal amount
of the Notes then outstanding and, in the case of any such amendment, the consent of at least a
majority in aggregate principal amount of the Notes then outstanding will suffice for such release).
Notwithstanding the foregoing, if any amendment, waiver or other modification affects only the rights
of the Euro Notes or the Dollar Notes, as applicable, the holders of the other series of Notes shall not
be required to consent thereto (and in such case, the consent of a majority or at least 75% or 90%, as
the case may be, in aggregate principal amount of the affected series of Notes shall be required to
consent thereto).
Notwithstanding the preceding, without the consent of any holder of Notes, the Issuer, the Guarantors
and the Trustee may amend or supplement the Indenture, the Notes or the Note Guarantees:
(1) to cure any ambiguity, defect, inconsistency or error;
(2) to provide for uncertificated Notes in addition to or in place of certificated Notes;
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(3) to provide for the assumption of the Issuer’s or a Guarantor’s obligations to holders of Notes and
Note Guarantees in the case of a merger or consolidation or sale of all or substantially all of the
Issuer’s or such Guarantor’s assets, as applicable, undertaken in accordance with the Indenture;
(4) to make any change that would provide any additional rights or benefits to the holders of Notes or
that does not adversely affect the legal rights under the Indenture of any such holder in any
material respect;
(5) to conform the text of the Indenture, the Note Guarantees, or the Notes to any provision of this
Description of Notes to the extent that such provision in this Description of Notes was intended to
be a verbatim recitation of a provision of the Indenture, the Note Guarantees or the Notes;
(6) to provide for the issuance of Additional Notes in accordance with the limitations set forth in the
Indenture as of the Issue Date;
(7) to allow any Guarantor to execute a supplemental indenture and/or a Note Guarantee with respect
to the Notes;
(8) to provide for uncertificated Notes in addition to or in place of certificated Notes (provided that
the uncertificated Notes are issued in registered form for purposes of Section 163(f) of the Code,
or in a manner such that the uncertificated Notes are described in Section 163(f)(2)(B) of the
Code);
(9) to evidence and provide the acceptance of the appointment of a successor Trustee under the
Indenture;
(10) to add to the covenants or to provide for a Note Guarantee for the benefit of the Holders or
surrender any right or power conferred upon the Issuer or any Restricted Subsidiary; or
(11) to add security to or for the benefit of the Notes, or to effectuate or confirm and evidence the
release, termination, discharge or retaking of any Note Guarantee or Lien or any amendment in
respect thereof with respect to or securing the Notes when such release, termination, discharge or
retaking or amendment is provided for under the Indenture.
The consent of the holders of Notes is not necessary under the Indenture to approve the particular
form of any proposed amendment. It is sufficient if such consent approves the substance of the
proposed amendment.
For purposes of voting (or any other matter requiring a determination based on a percentage of
principal amount of Notes outstanding), the aggregate principal amount of outstanding Euro Notes will
be calculated using the noon buying rate in The City of New York for cable transfers in euro as
certified for customs purposes by the Federal Reserve Bank of New York on the date of the Offering
Memorandum dated September 28, 2012.
Satisfaction and Discharge
The Indenture will be discharged and will cease to be of further effect as to all Notes issued
thereunder, when:
(1) either:
(a) all Notes that have been authenticated, except lost, stolen or destroyed Notes that have been
replaced or paid and Notes for whose payment money has been deposited in trust and
thereafter repaid to the Issuer, have been delivered to the Trustee for cancellation; or
(b) all Notes that have not been delivered to the Trustee for cancellation have become due and
payable by reason of the mailing of a notice of redemption or otherwise or are due and
payable or will become due and payable within one year and the Issuer or any Guarantor has
irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust solely
for the benefit of the holders, cash in euros, non-callable euro-denominated government
securities, or a combination of cash in euros and non-callable euro-denominated government
securities, in amounts as will be sufficient, without consideration of any reinvestment of
interest, to pay and discharge the entire Indebtedness on the Notes not delivered to the
Trustee for cancellation for principal, premium and Additional Amounts, if any, and accrued
interest to the date of maturity or redemption;
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(2) the Issuer or any Guarantor has paid or caused to be paid all sums payable by it under the
Indenture; and
(3) the Issuer has delivered irrevocable instructions to the Trustee under the Indenture to apply the
deposited money toward the payment of the Notes at maturity or on the redemption date, as the
case may be.
In addition, the Issuer must deliver an Officer’s Certificate and an opinion of counsel to the Trustee
stating that all conditions precedent to satisfaction and discharge have been satisfied; provided that any
such counsel may rely upon an Officer’s Certificate as to matters of fact (including compliance with the
foregoing clauses (1), (2) and (3)).
Judgment Currency
Any payment on account of an amount that is payable in euros (in the case of the Euro Notes) or
U.S. dollars (in the case of the Dollar Notes) (each, a ‘‘Required Currency’’), which is made to or for
the account of any holder of the Notes or the Trustee in lawful currency of any other jurisdiction (the
‘‘Judgment Currency’’), whether as a result of any judgment or order or the enforcement thereof or the
liquidation of the Issuer or a Guarantor, shall constitute a discharge of the Issuer or the Guarantor’s
obligation under the Indenture and the Notes or Note Guarantee, as the case may be, only to the
extent of the amount of the Required Currency which such holder or the Trustee, as the case may be,
could purchase in the London foreign exchange markets with the amount of the Judgment Currency in
accordance with normal banking procedures at the rate of exchange prevailing on the first Business
Day following receipt of the payment in the Judgment Currency. If the amount of the Required
Currency that could be so purchased is less than the amount of the Required Currency originally due
to such holder or the Trustee, as the case may be, the Issuer shall indemnify and hold harmless the
holder or the Trustee, as the case may be, from and against all loss or damage arising out of, or as a
result of, such deficiency. This indemnity shall constitute an obligation separate and independent from
the other obligations contained in the Indenture or the Notes, shall give rise to a separate and
independent cause of action, shall apply irrespective of any indulgence granted by any holder or the
Trustee from time to time and shall continue in full force and effect notwithstanding any judgment or
order for a liquidated sum in respect of an amount due hereunder or under any judgment or order.
Concerning the Trustee
If the Trustee becomes a creditor of the Issuer or any Guarantor, the Indenture limits the right of the
Trustee to obtain payment of claims in certain cases, or to realize on certain property received in
respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days
or resign as Trustee.
The holders of a majority in aggregate principal amount of the then outstanding Notes will have the
right to direct the time, method and place of conducting any proceeding for exercising any remedy
available to the Trustee, subject to certain exceptions. The Indenture provides that in case an Event of
Default occurs and is continuing, the Trustee will be required, in the exercise of its power, to use the
degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the
Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the
request of any holder of Notes, unless such holder has offered to the Trustee security or indemnity
reasonably acceptable to it against any loss, liability or expense.
Listing
Application will be made to list the Notes on the Official List of the Irish Stock Exchange and to admit
the Notes to trading on the Global Exchange Market. There can be no guarantee that the application
to list the Notes on the Official List of the Irish Stock Exchange and to admit the Notes on the Global
Exchange Market will be approved as of the date the Notes are issued or at any time thereafter, and
settlement of the Notes is not conditioned on obtaining this listing. As long as the Notes are listed on
the Irish Stock Exchange and admitted to trading on the Global Exchange Market, an agent for making
payments on, and transfers of, Notes will be maintained in London and in the City of New York. The
Issuer has initially designated The Bank of New York Mellon in London and in the City of New York
as its agent for those purposes. The address of The Bank of New York Mellon in London is One
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Canada Square, London E14 5AL, United Kingdom and in the City of New York is 101 Barclay Street,
New York, NY, 10296, United States of America.
Additional Information
Anyone who receives this Offering Memorandum may, following the Issue Date, obtain a copy of the
Indenture without charge by writing to the Issuer at Trg Dražena Petrovića 3, 10000 Zagreb, Croatia,
Attention: Strategy and Capital Markets.
So long as the Notes are listed on the Irish Stock Exchange and admitted to trading on the Global
Exchange Market and the rules of the Irish Stock Exchange shall so require, copies, current and future,
of all of the Issuer’s annual audited consolidated financial statements, the Issuer’s unaudited
consolidated interim quarterly financial statements and the Offering Memorandum may be obtained,
free of charge, during normal business hours at the offices of the Principal Paying Agent.
Consent to Jurisdiction and Service of Process
The Indenture will provide that the Issuer and each Guarantor will appoint CT Corporation as its
agent for service of process in any suit, action or proceeding with respect to the Indenture, the Notes
and the Note Guarantees brought in any Federal or state court located in the City of New York and
will submit to such jurisdiction.
Enforceability of Judgments
Since substantially all of the assets of the Issuer and the Guarantors are outside the United States, any
judgment obtained in the United States against the Issuer or any Guarantor, including judgments with
respect to the payment of principal, premium, interest, Additional Amounts and any redemption price
and any purchase price with respect to the Notes, may not be collectable within the United States.
Prescription
Claims against the Issuer or any Guarantor for the payment of principal or Additional Amounts, if any,
on the Notes will be prescribed ten years after the applicable due date for payment thereof. Claims
against the Issuer or any Guarantor for the payment of interest on the Notes will be prescribed five
years after the applicable due date for payment of interest.
Certain Definitions
Set forth below are certain defined terms used in the Indenture.
‘‘2016 Senior Notes’’ means the Issuer’s 10% senior notes due 2016 issued under the 2016 Senior Notes
Indenture and outstanding on the Issue Date.
‘‘2016 Senior Notes Indenture’’ means the indenture dated as of December 7, 2009, among, inter alia, the
Issuer, the guarantors named therein and BNY Mellon Corporate Trustee Services Limited, as trustee,
as it may from time to time be supplemented or amended by one or more supplemental indentures
thereto entered into pursuant to the applicable provisions thereof.
‘‘2019 Senior Notes’’ means the Issuer’s 9.875% Senior Notes due 2019 issued under the 2019 Senior
Notes Indenture and outstanding on the Issue Date.
‘‘2019 Senior Notes Indenture’’ means the indenture dated as of April 25, 2012, among, inter alia, the
Issuer, the guarantors named therein and BNY Mellon Corporate Trustee Services Limited, as trustee,
as it may from time to time be supplemented or amended by one or more supplemental indentures
thereto entered into pursuant to the applicable provisions thereof.
‘‘Acquired Debt’’ means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other Person is merged with or into or
became a Restricted Subsidiary of such specified Person, whether or not such Indebtedness is
incurred in connection with, or in contemplation of, such other Person merging with or into, or
becoming a Restricted Subsidiary; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person.
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‘‘Affiliate’’ of any specified Person means any other Person directly or indirectly controlling or
controlled by or under direct or indirect common control with such specified Person. For purposes of
this definition, ‘‘control,’’ as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or otherwise. For purposes of this
definition, the terms ‘‘controlling,’’ ‘‘controlled by’’ and ‘‘under common control with’’ have correlative
meanings.
‘‘Applicable Premium’’ means, with respect to any Note on any redemption date, the greater of:
(1) 1.0% of the principal amount of the Note; and
(2) (a) in the case of a Euro Note, the excess of:
(i) the present value at such redemption date of (x) the redemption price of the Note at
February 1, 2016 (such redemption price being set forth in the table appearing under the
caption ‘‘Optional Redemption’’ and being calculated exclusive of accrued and unpaid
interest and Additional Amounts) plus (y) all required interest payments due on the
Note through February 1, 2016 (excluding accrued but unpaid interest to the redemption
date and Additional Amounts), computed using a discount rate equal to the Bund Rate
as of such redemption date plus 50 basis points; over
(ii) the principal amount of the Euro Note, if greater; or
(b) in the case of a Dollar Note, the excess of:
(i) the present value at such redemption date of (x) the redemption price of the Dollar
Note at February 1, 2016 (such redemption price being set forth in the table appearing
under the caption ‘‘Optional Redemption’’ and being calculated exclusive of accrued and
unpaid interest and Additional Amounts) plus (y) all required interest payments due on
the Dollar Note through February 1, 2016 (excluding accrued but unpaid interest to the
redemption date and Additional Amounts), computed using a discount rate equal to the
Treasury Rate as of such redemption date plus 50 basis points; over
(ii) the principal amount of the Dollar Note, if greater.
‘‘Asset Sale’’ means:
(1) the sale, lease, conveyance or other disposition of any assets by the Issuer or any of its Restricted
Subsidiaries; provided that the sale, lease, conveyance or other disposition of all or substantially all
of the assets of the Issuer and its Restricted Subsidiaries taken as a whole will be governed by the
provisions of the Indenture described above under the caption ‘‘Repurchase at the Option of
Holders—Change of Control’’ and/or the provisions described above under the caption ‘‘Certain
Covenants—Merger, Consolidation or Sale of Assets’’ and not by the provisions of the Asset Sale
covenant; and
(2) the issuance of Equity Interests by any Restricted Subsidiary or the sale by the Issuer or any of its
Restricted Subsidiaries of Equity Interests in any of the Issuer’s Restricted Subsidiaries (other than
directors’ qualifying shares).
Notwithstanding the preceding, none of the following items will be deemed to be an Asset Sale:
(1) any single transaction or series of related transactions that involves assets having a Fair Market
Value of less than A5.0 million;
(2) a transfer of assets between or among the Issuer and its Restricted Subsidiaries;
(3) an issuance of Equity Interests by a Restricted Subsidiary to the Issuer or to a Restricted
Subsidiary;
(4) the sale, lease or other transfer of inventory, products, services or accounts receivable in the
ordinary course of business and any sale or other disposition of damaged, worn-out or obsolete
assets;
(5) licenses and sublicenses by the Issuer or any of its Restricted Subsidiaries of software or
intellectual property in the ordinary course of business;
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(6) any surrender or waiver of contract rights or settlement, release, recovery on or surrender of
contract, tort or other claims;
(7) the granting of Liens not prohibited by the covenant described above under the caption ‘‘Liens;’’
(8) the sale or other disposition of cash or Cash Equivalents;
(9) a Restricted Payment that does not violate the covenant described above under the caption
‘‘Certain Covenants—Restricted Payments’’ or a Permitted Investment or any transaction
specifically excluded from the definition of Restricted Payment;
(10) the disposition of receivables in connection with the compromise, settlement or collection thereof
in the ordinary course of business or in bankruptcy or similar proceedings and exclusive of
factoring or similar arrangements;
(11) the foreclosure, condemnation or any similar action with respect to any property or other assets or
a surrender or waiver of contract rights or the settlement, release or surrender of contract, tort or
other claims of any kind;
(12) the disposition of assets to a Person who is providing services (the provision of which have been or
are to be outsourced by the Issuer or any Restricted Subsidiary to such Person) related to such
assets;
(13) the sale of Securitization Assets and related assets of the type specified in the definition of
‘‘Securitization Financing’’ in connection with any Qualified Securitization Financing;
(14) the sale or discount (with or without recourse, and on customary or commercially reasonable
terms) of accounts receivable or notes receivable arising in the ordinary course of business, or the
conversion or exchange of accounts receivable for notes receivable; or
(15) operating leases entered into in the ordinary course of business.
‘‘Asset Sale Offer’’ has the meaning assigned to that term under the caption ‘‘—Repurchase at the
Option of Holders—Asset Sales’’ above.
‘‘Beneficial Owner’’ has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the
Exchange Act, except that in calculating the beneficial ownership of any particular ‘‘person’’ (as that
term is used in Section 13(d)(3) of the Exchange Act), such ‘‘person’’ will be deemed to have beneficial
ownership of all securities that such ‘‘person’’ has the right to acquire by conversion or exercise of
other securities, whether such right is currently exercisable or is exercisable only after the passage of
time. The terms ‘‘beneficially owns’’ and ‘‘beneficially owned’’ have a corresponding meaning.
‘‘Bilateral Credit Facilities’’ means, with respect to the Issuer or any Restricted Subsidiary, one or more
debt facilities or arrangements (excluding the Revolving Credit Facility), or commercial paper facilities
and overdraft facilities with banks or other institutional lenders, providing for revolving credit loans,
term loans, receivables financing (including through the sale of receivables to such institutions or to
special purpose entities formed to borrow from such institutions against such receivables) or letters of
credit, in each case, as amended, restated, modified, renewed, refunded, replaced, restructured,
refinanced, repaid, increased or extended, in whole or in part from time to time (whether or not with
the original administrative agent and lenders or another administrative agent or agents or other banks
or institutions and whether provided under the original agreement or one or more other credit or other
agreements, indentures, financing agreements or otherwise) and, in each case, including all agreements,
instruments and documents executed and delivered pursuant to or in connection with the foregoing.
‘‘Board of Directors’’ means:
(1) with respect to the Issuer or any other corporation, the members of the supervisory board or
advisory board of the corporation or such corporation’s management board of directors;
(2) with respect to a partnership, the board of directors of the general partner of the partnership;
(3) with respect to a limited liability company, the managing member or members (or analogous
governing body) or any controlling committee of managing members thereof; and
(4) with respect to any other Person, the board or committee of such Person serving a similar function.
Whenever any provision of the Indenture requires any action or determination to be made by, or any
approval of, a Board of Directors, such action, determination or approval shall be deemed to have been
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taken or made if approved by a majority of the directors (excluding employee representatives, if any)
on any such Board of Directors.
‘‘Bund Rate’’ means, with respect to any relevant date, the rate per annum equal to the equivalent yield
to maturity as of such date of the Comparable German Bund Issue, assuming a price for the
Comparable German Bund Issue (expressed as a percentage of its principal amount) equal to the
Comparable German Bund Price for such relevant date, where:
(1) ‘‘Comparable German Bund Issue’’ means the German Bundesanleihe security selected by any
Reference German Bund Dealer as having a fixed maturity most nearly equal to the period from
such redemption date to February 1, 2016, and that would be utilized at the time of selection and
in accordance with customary financial practice, in pricing new issues of euro-denominated
corporate debt securities in a principal amount approximately equal to the then outstanding
principal amount of the Notes and of a maturity most nearly equal to February 1, 2016; provided,
however, that, if the period from such redemption date to February 1, 2016, is less than one year, a
fixed maturity of one year shall be used;
(2) ‘‘Comparable German Bund Price’’ means, with respect to any relevant date, the average of all
Reference German Bund Dealer Quotations for such date (which, in any event, must include at
least two such quotations), after excluding the highest and lowest such Reference German Bund
Dealer Quotations, or if the Issuer obtains fewer than four such Reference German Bund Dealer
Quotations, the average of all such quotations;
(3) ‘‘Reference German Bund Dealer’’ means any dealer of German Bundesanleihe securities appointed
by the Issuer in good faith; and
(4) ‘‘Reference German Bund Dealer Quotations’’ means, with respect to each Reference German Bund
Dealer and any relevant date, the average as determined by the Issuer of the bid and offered
prices for the Comparable German Bund Issue (expressed in each case as a percentage of its
principal amount) quoted in writing to the Issuer by such Reference German Bund Dealer at
3:30 p.m. Frankfurt, Germany, time on the third business day in Frankfurt preceding the relevant
date.
‘‘Business Day’’ means a day other than a Saturday, Sunday or other day on which banking institutions
in London, New York, Dublin or Zagreb or a place of payment under the Indenture are authorized or
required by law to close; provided, however, that for any payments to be made in euro under the
Indenture such day shall also be a day on which the Trans-European Automated Real-time Gross
Settlement Express Transfer 2 payment system is open for the settlement of payments.
‘‘Capital Lease Obligation’’ means, at the time any determination is to be made, the amount of the
liability in respect of a capital lease that would at that time be required to be capitalized and reflected
as a liability on a balance sheet (excluding the footnotes thereto) prepared in accordance with IFRS,
and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due
under such lease prior to the first date upon which such lease may be prepaid by the lessee without
payment of a penalty. For the avoidance of doubt, operating leases will not be deemed Capital Lease
Obligations.
‘‘Capital Stock’’ means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all shares, interests, participations, rights
or other equivalents (however designated) of corporate stock;
(3) in the case of a partnership or limited liability company, partnership interests (whether general or
limited) or membership interests; and
(4) any other interest or participation that confers on a Person the right to receive a share of the
profits and losses of, or distributions of assets of, the issuing Person, but excluding from all of the
foregoing any debt securities convertible into Capital Stock, whether or not such debt securities
include any right of participation with Capital Stock.
‘‘Cash Equivalents’’ means:
(1) direct obligations (or certificates representing an interest in such obligations) issued by, or
unconditionally guaranteed by, the government of a member state of the European Union
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(including any agency or instrumentality thereof), Republic of Croatia (including any agency or
instrumentality thereof) or of the United States of America (including any agency or
instrumentality thereof), as the case may be, the payment of which is backed by the full faith and
credit of the relevant member state of the European Union, Switzerland or the United States of
America, as the case may be, and which are not callable or redeemable at the issuer’s option;
(2) overnight bank deposits, time deposit accounts, certificates of deposit, banker’s acceptances and
money market deposits with maturities (and similar instruments) of 12 months or less from the
date of acquisition issued by a bank or trust company which is organized under, or authorized to
operate as a bank or trust company under, (i) the laws of a member state of the European Union
(as of the Issue Date), Switzerland or the United States of America or any state thereof (provided
that such bank or trust company has capital, surplus and undivided profits aggregating in excess of
A500 million (or the foreign currency equivalent thereof as of the date of such investment) and
whose long-term debt is rated ‘‘A-3’’ or higher by Moody’s or ‘‘A’’ or higher by S&P or the
equivalent rating category of another internationally recognized rating agency) or (ii) the laws of
the Republic of Croatia, Bosnia and Herzegovina, Hungary or Serbia, provided that in the case of
(ii) such bank or trust company is either (a) a controlled Affiliate of a bank or trust company
meeting the conditions of subclause (i) or (b) a bank or trust company (including successors
thereto) which, at any time since 2009 through the Issue Date, has issued to the Issuer or any
Restricted Subsidiary overnight bank deposits, time deposit accounts, certificates of deposit,
banker’s acceptances and money market deposits with maturities (and similar instruments) of
12 months or less from the date of acquisition;
(3) repurchase obligations with a term of not more than 30 days for underlying securities of the types
described in clauses (1) and (2) above entered into with any financial institution meeting the
qualifications specified in clause (2) above;
(4) commercial paper having one of the two highest ratings obtainable from Moody’s or S&P and,
in each case, maturing within one year after the date of acquisition; and
(5) interest in any investment company or money market funds at least 95% of the assets of which
constitute Cash Equivalents of the kinds described in clauses (1) through (4) of this definition.
‘‘Change of Control’’ means (i) in the event the Notes are then rated lower than ‘‘BB’’ by S&P or
‘‘Ba2’’ by Moody’s or, if S&P or Moody’s or both shall not make a rating on the Notes publicly
available, the equivalent or lower rating by a ‘‘nationally recognized statistical rating organization or
organizations’’ (within the meaning of Rule 15c3-1(c)(2)(vi)(F) under the U.S. Exchange Act), as the
case may be, or if the Notes are not then rated, the occurrence of any of the events described in
clauses (1), (2), (3), or (4) below or (ii) in the event the Notes are then rated ‘‘BB’’ or higher by S&P
and ‘‘Ba2’’ or higher by Moody’s or, if S&P or Moody’s or both shall not make a rating on the Notes
publicly available, the equivalent or higher rating by a ‘‘nationally recognized statistical rating
organization or organizations’’ (within the meaning of Rule 15c3-1(c)(2)(vi)(F) under the
U.S. Exchange Act), as the case may be, the occurrence of (x) any of the events described in
clauses (1), (2), (3), or (4) below and (y) a Rating Decline:
(1) the direct or indirect sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or substantially all of the
properties or assets of the Issuer and its Restricted Subsidiaries taken as a whole to any Person
(including any ‘‘person’’ (as that term is used in Section 13(d)(3) of the U.S. Exchange Act)) other
than a Principal or a Related Party of a Principal;
(2) the adoption of a plan relating to the liquidation or dissolution of the Issuer;
(3) the consummation of any transaction (including, without limitation, any merger or consolidation),
the result of which is that any Person (including any ‘‘person’’ as defined above), other than a
Principal and/or any of its Related Parties, becomes the Beneficial Owner, directly or indirectly, of
more than 50% of the Voting Stock of the Issuer, measured by voting power rather than number
of shares; provided that for the purposes of this clause, (x) any holding company whose sole asset is
the Capital Stock of the Issuer will not itself be considered a ‘‘person’’ or ‘‘group’’ and (y) any
Person or group that includes a Principal or a Related Party shall also be deemed to be a Related
Party so long as a Principal and/or its Related Parties (before giving effect to the existence of any
such group) shall beneficially own (as so defined) at least 50% of the voting power of the Voting
Stock of the Issuer owned by such Person or group; or
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(4) the first day on which a majority of the members of the Board of Directors of the Issuer are not
Continuing Directors; provided, however, that this clause (4) shall not apply to members of the
Board of Directors nominated or re-elected by employees pursuant to co-determination and similar
statutes providing for employee representatives on supervisory or similar boards.
‘‘Change of Control Offer’’ has the meaning assigned to that term under the caption ‘‘—Repurchase at
the Option of Holders—Change of Control.’’
‘‘Consolidated EBITDA’’ means, with respect to any specified Person for any period, the Consolidated
Net Income of such Person for such period plus, without duplication, the following to the extent
deducted in calculating such Consolidated Net Income:
(1) provision for taxes based on income or profits of such Person and its Subsidiaries which are
Restricted Subsidiaries for such period; plus
(2) the Fixed Charges of such Person and its Subsidiaries which are Restricted Subsidiaries for such
period; plus
(3) depreciation, amortization (including amortization of intangibles but excluding amortization of
prepaid cash expenses that were paid in a prior period) and other non-cash charges and expenses
(excluding any such non-cash charge or expense to the extent that it represents an accrual of or
reserve for cash charges or expenses in any future period or amortization of a prepaid cash charge
or expense that was paid in a prior period) of such Person and its Subsidiaries which are
Restricted Subsidiaries for such period; plus
(4) any expenses, charges or other costs related to the issuance of any Capital Stock, or any Permitted
Investment, acquisition, disposition, recapitalization or listing or the incurrence of Indebtedness
permitted to be incurred under the covenant described above under the caption ‘‘Certain
Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock’’ (including refinancing
thereof) whether or not successful, including (i) such fees, expenses or charges related to any
incurrence of Indebtedness or issuance and (ii) any amendment or other modification of any
incurrence; minus
(5) non-cash items increasing such Consolidated Net Income for such period, other than the accrual of
revenue or the reversal of a reserve for cash charges in a future period,
in each case, on a consolidated basis and determined in accordance with IFRS.
‘‘Consolidated Indebtedness’’ means, at any date of determination, the aggregate amount of all
outstanding Indebtedness of the Issuer and its Restricted Subsidiaries on a consolidated basis and
determined in accordance with IFRS (excluding Hedging Obligations and any Qualified Securitization
Financing) net of cash and Cash Equivalents of the Issuer and its Restricted Subsidiaries on a
consolidated basis.
‘‘Consolidated Leverage Ratio’’ means with respect to any specified Person as of any date of
determination, the ratio of the Consolidated Indebtedness of such Person as of such date to the
Consolidated EBITDA of such Person for the four most recent full fiscal quarters ending immediately
prior to such date for which internal financial statements are available. In the event that the specified
Person or any of its Subsidiaries which are Restricted Subsidiaries incurs, assumes, guarantees, repays,
repurchases, redeems, defeases or otherwise discharges any Indebtedness (other than ordinary working
capital borrowings) or issues, repurchases or redeems preferred stock subsequent to the commencement
of the period for which the Consolidated Leverage Ratio is being calculated and prior to or, except as
provided in the proviso below, on the date on which the event for which the calculation of the
Consolidated Leverage Ratio is made (the ‘‘Calculation Date’’), then the Consolidated Leverage Ratio
will be calculated giving pro forma effect (as determined in good faith by the Issuer’s Chief Financial
Officer or Chief Accounting Officer) to such incurrence, assumption, guarantee, repayment, repurchase,
redemption, defeasance or other discharge of Indebtedness, or such issuance, repurchase or redemption
of preferred stock, and the use of the proceeds therefrom, as if the same had occurred at the beginning
of the applicable four-quarter reference period, provided, however, that the pro forma calculation of the
Consolidated Leverage Ratio shall not give effect to (i) any Indebtedness incurred on the date of
determination pursuant to the provisions described in the second paragraph under the caption
‘‘—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock’’ or (ii) the
discharge on the date of determination of any Indebtedness to the extent that such discharge results
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from the proceeds incurred pursuant to the provisions described in the second paragraph under the
caption ‘‘—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock.’’
In addition, for purposes of calculating the Consolidated Leverage Ratio:
(1) acquisitions that have been made by the specified Person or any of its Subsidiaries which are
Restricted Subsidiaries, including through mergers or consolidations, or any Person or any of its
Subsidiaries which are Restricted Subsidiaries acquired by the specified Person or any of its
Subsidiaries which are Restricted Subsidiaries, and including all related financing transactions and
including increases in ownership of Subsidiaries which are Restricted Subsidiaries, during the
four-quarter reference period or subsequent to such reference period and on or prior to the
Calculation Date, or that are to be made on the Calculation Date, will be given pro forma effect
(as determined in good faith by the Issuer’s Chief Financial Officer or Chief Accounting Officer
and may include anticipated expense and cost reduction synergies) as if they had occurred on the
first day of the four-quarter reference period;
(2) the Consolidated EBITDA attributable to discontinued operations, as determined in accordance
with IFRS, and operations or businesses (and ownership interests therein) disposed of prior to the
Calculation Date, will be excluded;
(3) any Person that is a Restricted Subsidiary on the Calculation Date will be deemed to have been a
Restricted Subsidiary at all times during such four-quarter period; and
(4) any Person that is not a Restricted Subsidiary on the Calculation Date will be deemed not to have
been a Restricted Subsidiary at any time during such four-quarter period.
‘‘Consolidated Net Income’’ means, with respect to any specified Person for any period, the aggregate of
the net income (loss) of such Person and its Subsidiaries which are Restricted Subsidiaries for such
period, on a consolidated basis (excluding the net income (loss) of any Unrestricted Subsidiary),
determined in accordance with IFRS; provided that:
(1) all extraordinary gains (losses) and all gains (losses) realized in connection with any Asset Sale or
the disposition of securities or the early extinguishment, write-off or forgiveness of Indebtedness,
together with any related provision for taxes on any such gain, and all deferred financing costs
written off, and premiums paid or other expenses incurred directly, in connection with any early
extinguishment or any write-off or forgiveness of Indebtedness, will be excluded;
(2) the net income (loss) of any Person that is not a Restricted Subsidiary or that is accounted for by
the equity method of accounting will be included only to the extent of the amount of dividends or
similar distributions paid in cash to the specified Person or a Restricted Subsidiary which is a
Subsidiary of the Person;
(3) solely for the purpose of determining the amount available for Restricted Payments under
clause (c)(i) of the first paragraph under the caption ‘‘Certain Covenants—Restricted Payments,’’
any net income (loss) of any Restricted Subsidiary will be excluded if such Subsidiary is subject to
restrictions, directly or indirectly, on the payment of dividends or the making of distributions by
such Restricted Subsidiary, directly or indirectly, to the Issuer by operation of the terms of such
Restricted Subsidiary’s charter or any agreement, instrument, judgment, decree, order, statute or
governmental rule or regulation applicable to such Restricted Subsidiary or its shareholders (other
than (a) restrictions that have been waived or otherwise released, (b) restrictions pursuant to the
Notes or the Indenture, (c) contractual restrictions in existence on the Issue Date with respect to
the Restricted Subsidiaries and other restrictions with respect to the Restricted Subsidiaries that,
taken as a whole, are not materially less favorable to the Holders of the Notes than such
restrictions in effect on the Issue Date, and (d) any restriction listed under clauses (1), (2), (3),
(4), (9) or, to the extent it relates to restrictions listed under the foregoing clauses, clause (14), of
the second paragraph of the covenant described above under the caption ‘‘Certain Covenants—
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries’’); except that the
Issuer’s equity in the net income of any such Restricted Subsidiary for such period will be included
in such Consolidated Net Income up to the aggregate amount of cash or Cash Equivalents actually
distributed or that could have been distributed by such Restricted Subsidiary during such period to
the Issuer or another Restricted Subsidiary as a dividend or other distribution (subject, in the case
of a dividend to another Restricted Subsidiary, to the limitation contained in this clause);
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(4) any net gain (loss) realized upon the sale or other disposition of any asset or disposed operations
of the Issuer or any Restricted Subsidiaries (including pursuant to any sale leaseback transaction)
which is not sold or otherwise disposed of in the ordinary course of business (as determined in
good faith by the Issuer) or in connection with the sale or disposition of securities will be
excluded;
(5) any extraordinary or exceptional gain, loss or charge or any profit or loss on the disposal of
property, investments and businesses and asset impairments, or any charges or reserves in respect
of any restructuring, redundancy, integration or severance, or any increases in amortization or
depreciation resulting from purchase accounting in relation to any acquisition of another Person or
business or resulting from any reorganization or restructuring or any expenses, charges, reserves or
other costs related to acquisitions (including amounts paid in connection with the acquisition or
retention of one or more individuals comprising part of a management team retained to manage
the acquired business; provided that, such payments are made in connection with such acquisition
and are consistent with the customary practice in the industry at the time of such acquisition),
dispositions, recapitalizations or the Refinancing Transactions (in each case, as determined in good
faith by the Issuer) will be excluded;
(6) the cumulative effect of a change in accounting principles will be excluded;
(7) any goodwill or other intangible asset impairment charge will be excluded;
(8) any non-cash compensation charge or expense arising from any grant of stock, stock options or
other equity based awards and any non-cash deemed finance charges in respect of any pension
liabilities or other provisions will be excluded;
(9) any unrealized gains or losses in respect of Hedging Obligations or other derivative instruments or
any ineffectiveness recognized in earnings related to qualifying hedge transactions or the fair value
or changes therein recognized in earnings for derivatives that do not qualify as hedge transactions,
in each case, in respect of Hedging Obligations or other derivative instruments will be excluded;
(10) any unrealized foreign currency translation or transaction gains or losses in respect of Indebtedness
of any Person denominated in a currency other than the functional currency of such Person and
any unrealized foreign exchange gains or losses relating to translation of assets and liabilities
denominated in foreign currencies will be excluded; and
(11) the impact of capitalized, accrued or accreting or pay-in-kind interest or principal on Subordinated
Shareholder Funding will be excluded.
‘‘continuing’’ means, with respect to any Default or Event of Default, that such Default or Event of
Default has not been cured or waived.
‘‘Continuing Directors’’ means, as of any date of determination, any member of the Board of Directors
of the Issuer who:
(1) was a member of such Board of Directors on the Issue Date; or
(2) was nominated for election or elected to such Board of Directors with the approval of a majority
of the Continuing Directors who were members of such Board of Directors at the time of such
nomination or election.
‘‘Credit Facilities’’ means, with respect to the Issuer or any Guarantor, one or more debt facilities or
arrangements (including the Revolving Credit Facility but excluding the Bilateral Credit Facilities), or
commercial paper facilities and overdraft facilities, notes, bonds, debentures, indentures, trust deeds,
fiscal agency agreements, note purchase agreements, debt instruments or arrangements with banks,
insurance companies or other institutional lenders, providing for revolving credit loans, term loans,
receivables financing (including through the sale of receivables to such institutions or to special purpose
entities formed to borrow from such institutions against such receivables), letters of credit or other
forms of guarantees and assurances, notes, bonds, debentures, indentures, trust deeds, fiscal agency
agreements, note purchase agreements, debt instruments or other indebtedness, including overdrafts,
in each case, as amended, restated, modified, renewed, refunded, replaced, refinanced, restructured,
repaid, increased or extended (including by means of sales of debt securities to institutional investors),
in whole or in part from time to time (whether or not with the original administrative agent and
lenders or another administrative agent or agents or trustee or trustees or fiscal agents or agents or
other banks or investors or institutions, and whether provided under the Revolving Credit Facility or
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one or more other credit or other agreements, indentures, financing agreements or trust deeds or fiscal
agency agreements or note purchase agreements or other debt instruments or otherwise) and, in each
case, including all agreements, instruments and documents executed and delivered pursuant to or in
connection with the foregoing, including any notes, bonds, debentures and letters of credit issued
pursuant thereto and any guarantee and collateral agreement, patent and trademark security
agreement, mortgages or letter of credit applications and other guarantees, pledges, agreements,
security agreements and collateral documents). Without limiting the generality of the foregoing, the
term ‘‘Credit Facilities’’ shall include any agreement or instrument (1) changing the maturity of any
Indebtedness incurred thereunder or contemplated thereby, (2) adding Subsidiaries of the Issuer as
additional borrowers or guarantors thereunder, (3) increasing the amount of Indebtedness incurred
thereunder or available to be borrowed thereunder or (4) otherwise altering the terms and conditions
thereof.
‘‘Default’’ means any event that is, or with the passage of time or the giving of notice or both would be,
an Event of Default.
‘‘Designated Noncash Consideration’’ means the Fair Market Value of all consideration (other than cash
and Cash Equivalents) received by the Issuer or a Restricted Subsidiary in connection with an Asset
Sale that is so designated as Designated Noncash Consideration pursuant to an Officer’s Certificate of
the Issuer setting forth the basis of such valuation, less the amount of cash or Cash Equivalents
received by the Issuer or a Restricted Subsidiary in connection with a subsequent payment, redemption,
retirement, sale or other disposition of such Designated Noncash Consideration.
‘‘Disqualified Stock’’ means any Capital Stock that, by its terms (or by the terms of any security into
which it is convertible, or for which it is exchangeable, in each case, at the option of the holder of the
Capital Stock), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to
a sinking fund obligation or otherwise, or redeemable at the option of the holder of the Capital Stock,
in whole or in part, on or prior to the date on which the Notes mature. Notwithstanding the preceding
sentence, (i) only the portion of Capital Stock which so matures or is mandatorily redeemable, is so
convertible or exchangeable or is so redeemable at the option of the holder thereof prior to such date
will be deemed to be Disqualified Stock and (ii) any Capital Stock that would constitute Disqualified
Stock solely because the holders of the Capital Stock have the right to require the issuer thereof to
repurchase such Capital Stock upon the occurrence of a change of control or an asset sale (however so
defined or referred to) will not constitute Disqualified Stock if the terms of such Capital Stock provide
that the issuer thereof may not repurchase or redeem any such Capital Stock pursuant to such
provisions unless such repurchase or redemption complies with the covenant described above under the
caption ‘‘Certain Covenants—Restricted Payments.’’
For purposes hereof, the amount of Disqualified Stock which does not have a fixed repurchase price
shall be calculated in accordance with the terms of such Disqualified Stock as if such Disqualified Stock
were purchased on any date on which Indebtedness shall be required to be determined pursuant to the
Indenture, and if such price is based upon, or measured by, the Fair Market Value of such Disqualified
Stock, such Fair Market Value to be determined as set forth herein.
‘‘Equity Interests’’ means Capital Stock and all warrants, options or other rights to acquire Capital Stock
(but excluding any debt security that is convertible into, or exchangeable for, Capital Stock).
‘‘Equity Offering’’ means a public sale either (1) of Equity Interests of the Issuer by the Issuer (other
than Disqualified Stock and other than to a Subsidiary of the Issuer or as an Excluded Contribution) or
(2) of Equity Interests of a Parent (other than to the Issuer or a Subsidiary of the Issuer) to the extent
that the net proceeds therefrom are contributed to the common equity capital of the Issuer.
‘‘European Union’’ means, unless otherwise provided herein, the European Union as of January 1, 2004,
including the countries of Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy,
Luxembourg, the Netherlands, Portugal, Spain, Sweden and the United Kingdom, but not including
Greece or any country which becomes a member of the European Union after January 1, 2004.
‘‘euro’’ or ‘‘A’’ means the currency introduced at the start of the third stage of the European economic
and monetary union pursuant to the Treaty establishing the European Community, as amended by the
Treaty on European Union.
‘‘Excluded Contribution’’ means net cash proceeds received by the Issuer as capital contributions to the
equity (other than through the issuance of Disqualified Stock) of the Issuer after the Issue Date or
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from the issuance or sale (other than to a Restricted Subsidiary or an employee stock ownership plan
or trust established by the Issuer or any Subsidiary of the Issuer for the benefit of its employees to the
extent funded by the Issuer or any Restricted Subsidiary) of Capital Stock (other than Disqualified
Stock) or Subordinated Shareholder Funding of the Issuer, in each case, to the extent designated as an
Excluded Contribution pursuant to an Officer’s Certificate of the Issuer (which shall be designated no
later than the date on which such Excluded Contribution has been received by the Issuer), the net cash
proceeds of which are excluded from the calculation set forth in clause (c)(ii) of the covenant described
under ‘‘—Certain Covenants—Restricted Payments’’ hereof.
‘‘Existing Indebtedness’’ means all Indebtedness of the Issuer and its Restricted Subsidiaries (other than
Indebtedness under the 2016 Senior Notes, the 2019 Senior Notes, the Bilateral Credit Facilities and
the Securitization Financings) outstanding on the Issue Date after giving effect to the use of proceeds
of the Notes, until such amounts are repaid.
‘‘Fair Market Value’’ means the value that could reasonably be expected to be paid by a willing buyer to
an unaffiliated willing seller in an arm’s length transaction not involving distress or necessity of either
party, determined in good faith by the chief financial officer or the Board of Directors of the Issuer;
provided that for transactions valued in excess of A25.0 million, such determination must be made in
good faith by the Board of Directors of the Issuer (in any case unless otherwise provided in the
Indenture).
‘‘Fixed Charge Coverage Ratio’’ means with respect to any specified Person for any period, the ratio of
the Consolidated EBITDA of such Person for such period to the Fixed Charges of such Person for
such period. In the event that the specified Person or any of its Subsidiaries which are Restricted
Subsidiaries incurs, assumes, guarantees, repays, repurchases, redeems, defeases or otherwise discharges
any Indebtedness (other than ordinary working capital borrowings) or issues, repurchases or redeems
preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated and prior to or, except as provided in the proviso below, on the date on which
the event for which the calculation of the Fixed Charge Coverage Ratio is made (the ‘‘Calculation
Date’’), then the Fixed Charge Coverage Ratio will be calculated giving pro forma effect (as determined
in good faith by the Issuer’s Chief Financial Officer or Chief Accounting Officer) to such incurrence,
assumption, guarantee, repayment, repurchase, redemption, defeasance or other discharge of
Indebtedness, or such issuance, repurchase or redemption of preferred stock, and the use of the
proceeds therefrom, as if the same had occurred at the beginning of the applicable four-quarter
reference period; provided, however, that the pro forma calculation of the Fixed Charge Coverage Ratio
shall not give effect to (i) any Indebtedness incurred on the date of determination pursuant to the
provisions described in the second paragraph under the caption ‘‘—Certain Covenants—Incurrence of
Indebtedness and Issuance of Preferred Stock’’ or (ii) the discharge on the date of determination of
any Indebtedness to the extent that such discharge results from the proceeds incurred pursuant to the
provisions described in the second paragraph under the caption ‘‘—Certain Covenants—Incurrence of
Indebtedness and Issuance of Preferred Stock.’’
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) acquisitions that have been made by the specified Person or any of its Subsidiaries which are
Restricted Subsidiaries, including through mergers or consolidations, or any Person or any of its
Subsidiaries which are Restricted Subsidiaries acquired by the specified Person or any of its
Subsidiaries which are Restricted Subsidiaries, and including all related financing transactions and
including increases in ownership of Subsidiaries which are Restricted Subsidiaries, during the
four-quarter reference period or subsequent to such reference period and on or prior to the
Calculation Date, or that are to be made on the Calculation Date, will be given pro forma effect
(as determined in good faith by the Issuer’s Chief Financial Officer or Chief Accounting Officer
and may include anticipated expense and cost reduction synergies) as if they had occurred on the
first day of the four-quarter reference period;
(2) the Consolidated EBITDA attributable to discontinued operations, as determined in accordance
with IFRS, and operations or businesses (and ownership interests therein) disposed of prior to the
Calculation Date, will be excluded;
(3) the Fixed Charges attributable to discontinued operations, as determined in accordance with IFRS,
and operations or businesses (and ownership interests therein) disposed of prior to the Calculation
Date, will be excluded, but only to the extent that the obligations giving rise to such Fixed Charges
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will not be obligations of the specified Person or any of its Subsidiaries which are Restricted
Subsidiaries following the Calculation Date;
(4) any Person that is a Restricted Subsidiary on the Calculation Date will be deemed to have been a
Restricted Subsidiary at all times during such four-quarter period;
(5) any Person that is not a Restricted Subsidiary on the Calculation Date will be deemed not to have
been a Restricted Subsidiary at any time during such four-quarter period;
(6) if any Indebtedness bears a floating rate of interest, the interest expense on such Indebtedness will
be calculated as if the rate in effect on the Calculation Date had been the applicable rate for the
entire period (taking into account any Hedging Obligation applicable to such Indebtedness if such
Hedging Obligation has a remaining term as at the Calculation Date in excess of 12 months, or, if
shorter, at least equal to the remaining term of such Indebtedness); and
(7) in making such computation, the Fixed Charges of such Person attributable to interest or any
Indebtedness under a revolving credit facility computed on a pro forma basis shall be computed
based on the average daily balance of such Indebtedness during the applicable period.
‘‘Fixed Charges’’ means, with respect to any specified Person for any period, the sum, without
duplication, of:
(1) the consolidated interest expense (net of interest income) of such Person and its Subsidiaries which
are Restricted Subsidiaries for such period, whether paid or accrued, including, without limitation,
amortization of debt discount (but not debt issuance costs, commissions, fees and expenses),
non-cash interest payments (but excluding any non-cash interest expense attributable to the
movement in the mark to market valuation of Hedging Obligations or other derivative
instruments), the interest component of all payments associated with Capital Lease Obligations,
commissions, discounts and other fees and charges incurred in respect of letter of credit or
bankers’ acceptance financings, and net of the effect of all payments made or received pursuant to
Hedging Obligations in respect of interest rates; plus
(2) the consolidated interest expense of such Person and its Subsidiaries which are Restricted
Subsidiaries that was capitalized during such period (including, without limitation, Securitization
Fees); plus
(3) any interest on Indebtedness of another Person that is guaranteed by such Person or one of its
Subsidiaries which are Restricted Subsidiaries or secured by a Lien on assets of such Person or one
of its Subsidiaries which are Restricted Subsidiaries, to the extent such Guarantee or Lien is called
upon; plus
(4) all dividends, whether paid or accrued and whether or not in cash, on any series of preferred stock
of such Person’s Subsidiaries which are Restricted Subsidiaries, other than dividends on Equity
Interests payable solely in Equity Interests of the Issuer (other than Disqualified Stock) or to the
Issuer or a Restricted Subsidiary,
but excluding amortization of fees and any interest or other expense associated with Subordinated
Shareholder Funding.
‘‘Guarantee’’ means a guarantee (other than by endorsement of negotiable instruments for collection in
the ordinary course of business), direct or indirect, in any manner including, without limitation, by way
of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all
or any part of any Indebtedness (whether arising by virtue of agreements to keep-well, to take or pay
or to maintain financial statement conditions or otherwise).
‘‘Guarantors’’ means each of Jamnica d.d., Konzum d.d., Ledo d.d., Zvijezda d.d., Agrokor trgovina
d.d., PIK Vinkovci d.d., Sarajevski kiseljak d.d. and Ledo d.o.o. Čitluk and any Restricted Subsidiary
that executes a Note Guarantee in accordance with the provisions of the Indenture, and their
respective successors and assigns, in each case, until the Note Guarantee of such Person has been
released in accordance with the provisions of the Indenture.
‘‘Hedging Obligations’’ means, with respect to any specified Person, the obligations of such Person
under:
(1) interest rate swap agreements (whether from fixed to floating or from floating to fixed), interest
rate cap agreements and interest rate collar agreements;
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(2) other agreements or arrangements designed to manage interest rates or interest rate risk; and
(3) other agreements or arrangements designed to protect such Person against fluctuations in currency
exchange rates or commodity prices.
‘‘IFRS’’ means International Financial Reporting Standards promulgated by the International
Accounting Standards Board or any successor board or agency and as adopted by the European Union,
as in effect on the date of any calculation or determination required hereunder.
‘‘Indebtedness’’ means, with respect to any specified Person, without duplication, any indebtedness of
such Person (excluding accrued expenses and trade payables and accrued current liabilities arising in
the ordinary course of business that are not more than 120 days past due and Guarantees thereof),
whether or not contingent:
(1) in respect of borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement
agreements in respect thereof);
(3) in respect of banker’s acceptances;
(4) representing Capital Lease Obligations;
(5) representing the balance deferred and unpaid of the purchase price of any property or services due
more than one year after such property is acquired or such services are completed; and
(6) representing net obligations under any Hedging Obligations (the amount of any such obligations to
be equal at any time to the termination value of such agreement or arrangement giving rise to
such obligation that would be payable by such Person at such time).
if and to the extent any of the preceding items (other than letters of credit and Hedging Obligations)
would appear as a liability upon a balance sheet (excluding the footnotes thereto) of the specified
Person prepared in accordance with IFRS. In addition, the term ‘‘Indebtedness’’ includes all
Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not such
Indebtedness is assumed by the specified Person) and, to the extent not otherwise included, the
Guarantee by the specified Person of any Indebtedness of any other Person.
The term ‘‘Indebtedness’’ shall not include:
(1) in connection with the purchase by the Issuer or any Restricted Subsidiary of any business, any
post-closing payment adjustments to which the seller may become entitled to the extent such
payment is determined by a final closing balance sheet or such payment depends on the
performance of such business after the closing; provided however, that, at the time of closing, the
amount of any such payment is not determinable and, to the extent such payment thereafter
becomes fixed and determined, the amount is paid within 30 days thereafter;
(2) any lease of property which would be considered an operating lease under IFRS;
(3) in connection with the purchase by the Issuer or any Restricted Subsidiary of any business, any
post-closing payment adjustments to which the seller may become entitled to the extent such
payment is determined by a final closing balance sheet or such payment depends on the
performance of such business after the closing;
(4) any contingent obligations in respect of workers’ compensation claims, early retirement or
termination obligations, pension fund obligations or contributions or similar claims, obligations or
contributions or indemnities, repayment obligations or other obligations having a similar effect
undertaken in connection with the issuance of guarantees to regulatory authorities of securities
markets unless and until called upon, or social security or wage Taxes;
(5) contingent obligations in the ordinary course of business;
(6) Subordinated Shareholder Funding;
(7) prepayments of deposits received from clients or customers in the ordinary course of business;
(8) obligations under any license, permit or other approval (or Guarantees given in respect of such
obligations) Incurred prior to the Issue Date or in the ordinary course of business; and
(9) parallel debt obligations, to the extent such obligations mirror other Indebtedness.
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‘‘Initial Public Offering’’ means a bona fide underwritten Equity Offering of common stock or other
common equity interests of the Issuer or any Parent or any successor of the Issuer or any Parent (the
‘‘IPO Entity’’) following which there is a Public Market and, as a result of which, the shares of common
stock or other common equity interests of the IPO Entity in such offering are listed on the Zagreb
stock exchange or on any internationally recognized exchange.
‘‘Investment Grade Status’’ shall occur when the Notes are rated Baa3 or better by Moody’s and BBBor better by S&P (or, if either such entity ceases to rate the Notes, the equivalent investment grade
credit rating from any other ‘‘nationally recognized statistical rating organization or organizations’’
(within the meaning of Rule 15c3-1(c)(2)(vi)(F) under the U.S. Exchange Act) selected by the Issuer as
a replacement agency).
‘‘Investments’’ means, with respect to any Person, all direct or indirect investments by such Person in
other Persons (including Affiliates) in the forms of loans (including Guarantees or other obligations,
but excluding advances or extensions of credit to customers or suppliers made in the ordinary course of
business), advances or capital contributions (excluding payroll, commission, travel and similar advances
made in the ordinary course of business), purchases or other acquisitions for consideration of
Indebtedness, Equity Interests or other securities, together with all items that are or would be classified
as Investments on a balance sheet (excluding the footnotes thereto) prepared in accordance with IFRS;
provided that endorsements of negotiable instruments and documents in the ordinary course of business
shall not be deemed to be an Investment.
If the Issuer or any Restricted Subsidiary sells or otherwise disposes of any Equity Interests of any
direct or indirect Restricted Subsidiary such that, after giving effect to any such sale or disposition, such
Person is no longer a Restricted Subsidiary, the Issuer will be deemed to have made an Investment on
the date of any such sale or disposition equal to the Fair Market Value of the Issuer’s Investments in
such Restricted Subsidiary that were not sold or disposed of in an amount determined as provided in
the final paragraph of the covenant described above under the caption ‘‘Certain Covenants—Restricted
Payments.’’ Except as otherwise provided in the Indenture, the amount of an Investment will be
determined at the time the Investment is made or deemed to be made and without giving effect to
subsequent changes in value.
‘‘Issue Date’’ means October 10, 2012.
‘‘Lien’’ means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or
encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected
under applicable law, including any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security interest in and any filing of or
agreement to give any financing or similar statement under the laws of any jurisdiction.
‘‘Management Advances’’ means loans or advances made to, or Guarantees with respect to loans or
advances made to, directors, officers, employees or consultants of any Parent, the Issuer or any
Restricted Subsidiary:
(1) in respect of travel, entertainment or moving related expenses incurred in the ordinary course of
business;
(2) in respect of moving related expenses incurred in connection with any closing or consolidation of
any facility or office; or
(3) (in the case of this clause (3)) not exceeding A5.0 million in the aggregate outstanding at any time.
‘‘Market Capitalization’’ means an amount equal to (i) the total number of issued and outstanding
shares of common stock or common equity interests of the IPO Entity on the date of the declaration of
the relevant dividend multiplied by (ii) the arithmetic mean of the closing prices per share of such
common stock or common equity interests for the 30 consecutive trading days immediately preceding
the date of declaration of such dividend.
‘‘Moody’s’’ means Moody’s Investors Service, Inc.
‘‘Net Proceeds’’ means the aggregate cash proceeds and Cash Equivalents received by the Issuer or any
of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash or
Cash Equivalents received upon the sale or other disposition of any non-cash consideration received in
any Asset Sale), net of (i) the direct costs relating to such Asset Sale, including, without limitation,
legal, accounting and investment banking fees, and brokerage and sales commissions, and any
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relocation expenses incurred as a result of the Asset Sale, (ii) Taxes paid or payable as a result of the
Asset Sale, in each case, after taking into account any available tax credits or deductions and any tax
sharing arrangements, (iii) any reserve for adjustment or indemnification obligations in respect of the
sale price of such asset or assets established in accordance with IFRS, (iv) all payments made on any
Indebtedness which is secured by any assets subject to such Asset Sale, in accordance with the terms of
any Lien upon such assets, or which must by its terms, or in order to obtain a necessary consent to
such Asset Sale, or by applicable law, be repaid out of the proceeds from such Asset Sale, and (v) all
distributions and other payments required to be made to minority interest holders (other than the
Issuer or any of its Restricted Subsidiaries) in Subsidiaries as a result of such Asset Sale.
‘‘Non-Recourse Debt’’ means Indebtedness as to which neither the Issuer nor any of its Restricted
Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or
instrument that would constitute Indebtedness) or (b) is directly or indirectly liable as a guarantor or
otherwise.
‘‘Notch’’ means any change in gradation (+ and for S&P; 1, 2 and 3 for Moody’s; or the equivalent
gradation for another Rating Agency) with respect to Rating Categories.
‘‘Note Guarantee’’ means the Guarantee by each Guarantor of the Issuer’s obligations under the
Indenture and the Notes, executed pursuant to the provisions of the Indenture.
‘‘Obligations’’ means any principal, interest, penalties, fees, indemnifications, reimbursements, damages
and other liabilities payable under the documentation governing any Indebtedness.
‘‘Officer’’ means, with respect to any Person, the Chairman of the Board of Directors, the Chief
Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the
Treasurer, any Assistant Treasurer, the Controller, the Secretary, any Managing Director or any
Vice-President of such Person.
‘‘Officer’s Certificate’’ means a certificate signed on behalf of the Issuer by an Officer of the Issuer ;
provided, however, that any Officer’s Certificate delivered pursuant to the covenants described under
‘‘—Certain Covenants—Restricted Payments’’ and ‘‘—Certain Covenants—Transactions with Affiliates’’
must be signed by the principal executive officer, the principal financial officer, the treasurer, the
principal accounting officer or similar position of the Issuer.
‘‘Parent’’ means any Person of which the Issuer at any time is or becomes a Subsidiary after the Issue
Date and any holding companies established by a Principal or any Related Party for purposes of
holding its investment in any Parent.
‘‘Permitted Business’’ means (i) any activity or business engaged in by the Issuer or any of its
Subsidiaries on the Issue Date or related to the production and distribution of food and drink, food
retailing and the trading, production, processing and storage of agricultural goods, (ii) any other
business or activity which is ancillary, reasonably related, complementary, incidental or similar thereto
or (iii) an extension or development of any thereof.
‘‘Permitted Investments’’ means:
(1) any Investment in the Issuer or in a Restricted Subsidiary;
(2) any Investment in cash and Cash Equivalents;
(3) any Investment by the Issuer or any Restricted Subsidiary in a Person, if as a result of such
Investment:
(a) such Person becomes a Restricted Subsidiary; or
(b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Issuer or a Restricted Subsidiary;
(4) any Investment made as a result of the receipt of non-cash consideration or deemed cash
consideration from an Asset Sale that was made pursuant to and in compliance with the covenant
described above under the caption ‘‘Repurchase at the Option of Holders—Asset Sales;’’
(5) any acquisition of assets or Capital Stock solely in exchange for the issuance of Equity Interests
(other than Disqualified Stock) of the Issuer;
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(6) any Investments received in compromise or resolution of (A) obligations of trade creditors or
customers that were incurred in the ordinary course of business of the Issuer or any of its
Restricted Subsidiaries, including pursuant to any plan of reorganization or similar arrangement
upon the bankruptcy or insolvency of any trade creditor or customer; or (B) litigation, arbitration
or other disputes;
(7) Investments in receivables owing to the Issuer or any Restricted Subsidiary created or acquired in
the ordinary course of business;
(8) Investments represented by Hedging Obligations, which obligations are permitted by clause (8) of
the second paragraph of the covenant entitled ‘‘Certain Covenants—Incurrence of Indebtedness
and Issuance of Preferred Stock’’;
(9) Investments in the Notes, the 2016 Senior Notes, the 2019 Senior Notes and any other
Indebtedness of the Issuer or any of its Restricted Subsidiaries;
(10) any Guarantee not prohibited by the covenant entitled ‘‘Certain Covenants—Incurrence of
Indebtedness and Issuance of Preferred Stock’’ and (other than with respect to Indebtedness)
guarantees, keepwells and similar arrangements in the ordinary course of business;
(11) any Investment existing on, or made pursuant to binding commitments existing on, the Issue Date
and any Investment consisting of an extension, modification or renewal of any Investment existing
on, or made pursuant to a binding commitment existing on, the Issue Date; provided that the
amount of any such Investment may be increased (a) as required by the terms of such Investment
as in existence on the Issue Date or (b) as otherwise permitted under the Indenture;
(12) Investments acquired after the Issue Date as a result of the acquisition by the Issuer or any
Restricted Subsidiary of another Person, including by way of a merger, amalgamation or
consolidation with or into the Issuer or any of its Restricted Subsidiaries in a transaction that is
not prohibited by the covenant described above under the caption ‘‘Merger, Consolidation or Sale
of Assets’’ after the Issue Date to the extent that such Investments were not made in
contemplation of such acquisition, merger, amalgamation or consolidation and were in existence on
the date of such acquisition, merger, amalgamation or consolidation;
(13) any Investment in a Securitization Subsidiary or any Investment by a Securitization Subsidiary in
any other Person in connection with a Qualified Securitization Financing, including Investments of
funds held in accounts permitted or required by the arrangements governing such Qualified
Securitization Financing or any related Indebtedness;
(14) other Investments in any Person having an aggregate Fair Market Value (measured on the
date each such Investment was made and without giving effect to subsequent changes in value),
when taken together with all other Investments made pursuant to this clause (14) that are at the
time outstanding not to exceed the greater of A125.0 million and 6.5% of Tangible Assets, provided,
that if an Investment is made pursuant to this clause in a Person that is not a Restricted Subsidiary
and such Person subsequently becomes a Restricted Subsidiary or is subsequently designated a
Restricted Subsidiary pursuant to ‘‘Certain Covenants—Restricted Payments,’’ such Investment, if
applicable, shall thereafter be deemed to have been made pursuant to clause (3) of the definition
of ‘‘Permitted Investments’’ and not this clause;
(15) Management Advances;
(16) pledges or deposits with respect to leases or utilities provided to third parties in the ordinary
course of business or Liens otherwise described in the definition of ‘‘Permitted Liens’’ or made in
connection with Liens permitted under the covenant described under the caption ‘‘—Certain
Covenants—Limitation on Liens’’; and
(17) any transaction to the extent constituting an Investment that is permitted and made in accordance
with the provisions of the second paragraph of the covenant described under the caption
‘‘—Certain Covenants—Transactions with Affiliates’’ (except those described in clauses (3), (6), (7),
(8) and (12) of that paragraph).
‘‘Permitted Liens’’ means:
(1) Liens in favor of the Issuer or any Restricted Subsidiary;
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(2) Liens on property of a Person existing at the time such Person becomes a Restricted Subsidiary or
is merged with or into or consolidated with the Issuer or any Restricted Subsidiary; provided that
such Liens were in existence prior to the contemplation of such Person becoming a Restricted
Subsidiary or such merger or consolidation and do not extend to any assets other than those of the
Person that becomes a Restricted Subsidiary or is merged with or into or consolidated with the
Issuer or any Restricted Subsidiary;
(3) Liens on property (including Capital Stock) existing at the time of acquisition of the property by
the Issuer or any Subsidiary of the Issuer; provided that such Liens were in existence prior to such
acquisition and not incurred in contemplation of, such acquisition;
(4) Liens to secure the performance of statutory obligations, trade contracts, insurance, surety or
appeal bonds, workers compensation obligations, leases, performance bonds or other obligations of
a like nature incurred in the ordinary course of business (including Liens to secure letters of credit
issued to assure payment of such obligations);
(5) Liens to secure Indebtedness (including Capital Lease Obligations) permitted by clause (4) of the
second paragraph of the covenant entitled ‘‘Certain Covenants—Incurrence of Indebtedness and
Issuance of Preferred Stock’’ covering only the assets acquired with or financed by such
Indebtedness;
(6) Liens existing on the Issue Date;
(7) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that
are being contested in good faith by appropriate proceedings promptly instituted and diligently
concluded; provided that any reserve or other appropriate provision as is required in conformity
with IFRS has been made therefor;
(8) Liens imposed by law, such as carriers’, warehousemen’s, landlord’s and mechanics’ Liens, in each
case, incurred in the ordinary course of business;
(9) survey exceptions, easements or reservations of, or rights of others for, licenses, rights-of-way,
sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other
restrictions as to the use of real property that were not incurred in connection with Indebtedness
and that do not in the aggregate materially impair their use in the operation of the business of
such Person and any condemnation or eminent domain proceedings or compulsory purchase order
affecting real property;
(10) Liens created for the benefit of (or to secure) the Notes (or the Note Guarantees);
(11) Liens in respect of the Capital Stock of any Guarantors securing Credit Facilities permitted by
clause (1) of the second paragraph of the covenant entitled ‘‘Certain Covenants—Incurrence of
Indebtedness and Issuance of Preferred Stock’’;
(12) Liens securing Indebtedness under Hedging Obligations, which obligations are permitted by
clause (8) of the second paragraph of the covenant entitled ‘‘Certain Covenants—Incurrence of
Indebtedness and Issuance of Preferred Stock’’;
(13) Liens to secure any Permitted Refinancing Indebtedness permitted to be incurred under the
Indenture; provided, however, that:
(a) the new Lien is limited to all or part of the same property and assets that secured or, under
the written agreements pursuant to which the original Lien arose, could secure the original
Lien (plus improvements and accessions to, such property or proceeds or distributions
thereof); and
(b) the Indebtedness secured by the new Lien is not increased to any amount greater than the
sum of (x) the outstanding principal amount, or, if greater, committed amount, of the
Indebtedness renewed, refunded, refinanced, replaced, defeased or discharged with such
Permitted Refinancing Indebtedness and (y) an amount necessary to pay any fees and
expenses, including premiums, related to such renewal, refunding, refinancing, replacement,
defeasance or discharge;
(14) bankers’ Liens, rights of setoff or similar rights and remedies as to deposit accounts, Liens arising
out of judgments or awards not constituting an Event of Default and notices of lis pendens and
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associated rights related to litigation being contested in good faith by appropriate proceedings and
for which adequate reserves have been made;
(15) Liens on cash, Cash Equivalents or other property arising in connection with the defeasance,
discharge or redemption of Indebtedness and any security granted over Cash Equivalents in
connection with the disposal thereof to a third party;
(16) Liens on specific items of inventory or other goods (and the proceeds thereof) of any Person
securing such Person’s obligations in respect of bankers’ acceptances issued or created in the
ordinary course of business for the account of such Person to facilitate the purchase, shipment or
storage of such inventory or other goods;
(17) Liens on the Capital Stock of Securitization Subsidiaries, Securitization Assets and related assets of
the type specified in the definition of ‘‘Securitization Financing’’ incurred in connection with any
Qualified Securitization Financing;
(18) Liens arising out of conditional sale, title retention, consignment or similar arrangements for the
sale of goods entered into in the ordinary course of business;
(19) Liens on property or assets under construction (and related rights) in favour of a contractor or
developer or arising from progress or partial payments by a third party relating to such property or
assets;
(20) Liens in respect of Capital Stock of any Guarantor securing Indebtedness permitted to be incurred
by the Issuer or a Guarantor pursuant to the first paragraph or clause (19) of the second
paragraph of the covenant described above under ‘‘Incurrence of Indebtedness and Issuance of
Preferred Stock’’ in an aggregate amount not to exceed A150 million at any time outstanding;
(21) Liens incurred by the Issuer or any Restricted Subsidiary with respect to Indebtedness that does
not exceed A50.0 million at any one time outstanding;
(22) Liens on insurance policies and proceeds thereof, or other deposits, to secure insurance premium
financings;
(23) leases, licenses, subleases and sublicenses of assets in the ordinary course of business;
(24) Liens securing or arising by reason of any netting or set-off arrangement entered into in the
ordinary course of banking or other trading activities;
(25) Liens (including put and call arrangements) on Capital Stock or other securities of any unrestricted
Subsidiary that secure Indebtedness of such Unrestricted Subsidiary;
(26) Liens over cash paid into an escrow account pursuant to any purchase price retention arrangement
as part of any permitted disposal by the Issuer or a Restricted Subsidiary on condition that the
cash paid into such escrow account in relation to a disposal does not represent more than 15% of
the net proceeds of such disposal;
(27) limited recourse Liens in respect of the ownership interests in, or assets owned by, any joint
ventures which are not Restricted Subsidiaries securing obligations of such joint ventures;
(28) Liens on assets or property of a Restricted Subsidiary that is not a Guarantor securing
Indebtedness of any Restricted Subsidiary that is not a Guarantor (including any such Indebtedness
that benefits from a Guarantee by the Issuer);
(29) Liens on escrowed proceeds for the benefit of the related holders of debt securities or other
Indebtedness (or the underwriters or arrangers thereof) or on cash set aside at the time of
Incurrence of any Indebtedness or government securities purchased with such cash, in either case
to the extent such cash or government securities prefund the payment of interest on such
Indebtedness and are held in an escrow account or similar arrangement to be applied for such
purpose;
(30) Liens incurred to secure cash management services (including overdrafts) or to implement cash
pooling arrangements or to cash collateralize letters of credit or similar instruments in the ordinary
course of business;
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(31) any limited recourse Lien to secure Indebtedness incurred in connection with any project
financing; provided that the assets or revenues which are subject to that Lien are:
(a) assets which are the subject of the applicable project; or
(b) claims, revenues or proceeds which arise from the use or operation, failure to meet
specifications, failure to complete, expropriation, sale, or loss of or damage to, those assets;
and
(32) any extension, renewal, refinancing or replacement, in whole or in part, of any Lien described in
the foregoing clauses (1) through (31) (but excluding clauses (5), (11), (19), (20) and (21));
provided that any such Lien is limited to all or part of the same property or assets (plus
improvements, accessions, proceeds or dividends or distributions in respect thereof) that secured
(or, under the written arrangements under which the Lien arose, could secure) the Indebtedness
being refinanced.
‘‘Permitted Refinancing Indebtedness’’ means any Indebtedness of the Issuer or any of its Restricted
Subsidiaries issued in exchange for, or the net proceeds of which are used to renew, refund, refinance,
replace, defease or discharge other Indebtedness of the Issuer or any of its Restricted Subsidiaries
(other than intercompany Indebtedness); provided that:
(1) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness
does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness
renewed, refunded, refinanced, replaced, defeased or discharged (plus all accrued interest on the
Indebtedness and the amount of all fees and expenses, including premiums, incurred in connection
therewith);
(2) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity
date of the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged or,
if shorter, the Notes; and
(3) if the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged is
expressly subordinated in right of payment to the Notes or the Note Guarantees, as the case may
be, such Permitted Refinancing Indebtedness is subordinated in right of payment to the Notes or
the Note Guarantees, as the case may be, on terms at least as favorable to the holders of Notes or
the Note Guarantees, as the case may be, as those contained in the documentation governing the
Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged;
provided, however, that Refinancing Indebtedness shall not include (x) Indebtedness of a Restricted
Subsidiary that is not a Guarantor that refinances Indebtedness with respect to which the issuer or the
borrower thereof is the Issuer or a Guarantor or (y) Indebtedness of the Issuer or a Restricted
Subsidiary that refinances Indebtedness of an Unrestricted Subsidiary.
Refinancing Indebtedness in respect of any Credit Facility or any other Indebtedness may be Incurred
from time to time after the termination, discharge or repayment of any such Credit Facility or other
Indebtedness.
‘‘Person’’ means any individual, corporation, partnership, joint venture, association, joint-stock company,
trust, unincorporated organization, limited liability company or government or other entity.
‘‘Principal’’ means Mr. Ivica Todorić. Any Person or group whose acquisition of beneficial ownership
constitutes a Change of Control in respect of which a Change of Control Offer is made in accordance
with the requirements of the Indenture, and any Person or Group whose acquisition of beneficial
ownership would have constituted or would have resulted in a Change of Control but for a Rating
Decline not occuring, will, in each case, thereafter constitute an additional Principal.
‘‘Public Market’’ means any time after:
(1) an Initial Public Offering has been consummated; and
(2) shares of common stock or other common equity interests of the IPO Entity representing at least
15% of the total issued and outstanding common stock of such IPO entity have been distributed to
investors other than the Principal or any Related Party or their respective Affiliates or any other
direct or indirect shareholders of the Issuer pursuant to such Initial Public Offering.
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‘‘Qualified Securitization Financing’’ means any Securitization Financing of a Securitization Subsidiary
that meets the following conditions: (i) the Board of Directors of the Issuer shall have determined in
good faith that such Qualified Securitization Financing (including financing terms, covenants,
termination events and other provisions) is in the aggregate economically fair and reasonable to the
Issuer and the Securitization Subsidiary, (ii) all sales of Securitization Assets and related assets to the
Securitization Subsidiary are made at Fair Market Value and (iii) the financing terms, covenants,
termination events and other provisions thereof shall be market terms (as determined in good faith by
the Issuer) and may include Standard Securitization Undertakings. The grant of a security interest in
any Securitization Assets of the Issuer or any of its Subsidiaries which are Restricted Subsidiaries
(other than a Securitization Subsidiary) to secure Indebtedness under Credit Facilities and any
refinancing Indebtedness with respect thereto shall not be deemed a Qualified Securitization Financing.
‘‘Rating Agency’’ means S&P and Moody’s or, if S&P or Moody’s or both shall not make a rating on
the Notes publicly available, a ‘‘nationally recognized statistical rating organization or organizations’’
(within the meaning of Rule 15c3-1(c)(2)(vi)(F) under the U.S. Exchange Act), as the case may be,
then making a rating on the notes publicly available selected by the Issuer which shall be substituted
for S&P or Moody’s or both, as the case may be.
‘‘Rating Categories’’ means (i) with respect to S&P, any of the following categories: AAA, AA, A, BBB,
BB, B, CCC, CC or C; (ii) with respect to Moody’s, any of the following categories: Aaa, Aa, A, Baa,
Ba, B, Caa, Ca or C; and (iii) with respect to any other Rating Agency, the equivalent of any such
category of S&P or Moody’s used by such other Rating Agency.
‘‘Rating Date’’ means the date which is the earlier of (x) 120 days prior to the occurrence of an event
specified in clauses (1), (2), (3) or (4) of the definition of a Change of Control and (y) the date of the
first public announcement of the possibility of such event.
‘‘Rating Decline’’ means the occurrence on any date within the 90-day period following the occurrence
of an event specified in clauses (1), (2), (3) or (4) of the definition of a Change of Control (which
period shall be extended so long as during such period the rating of the Notes is under publicly
announced consideration for a possible downgrade by a Rating Agency) of: (i) the rating of the Notes
by such Rating Agency within such period being at least one Notch below the rating of the Notes by
such Rating Agency on the Rating Date or (ii) any Rating Agency withdrawing its rating of the Notes.
In determining how many Notches the rating of the Notes has decreased, gradation with respect to
Rating Categories will be taken into account (e.g., with respect to S&P, a decline in rating from BB+
to BB, or BB to B+, will constitute a decrease of one Notch).
‘‘Refinancing Transactions’’ means the transactions relating to the repayment of certain credit facilities
of the Issuer and its Restricted Subsidiaries with the net proceeds from the issuance of the Notes and
cash on hand.
‘‘Related Party’’ means:
(1) any controlling stockholder, majority owned Subsidiary, or immediate family member (in the case
of an individual) of any Principal;
(2) any trust, corporation, partnership, limited liability company or other entity, the beneficiaries,
stockholders, partners, members, owners or Persons beneficially holding a majority (and
controlling) interest of which consist of any Principal and/or such other Persons referred to in the
immediately preceding clause (1) or clause (3) below; or
(3) the heirs of any Principal or beneficiaries of the estate of any Principal or any trust or similar
arrangement established in respect of the estate of any Principal.
‘‘Restricted Investment’’ means an Investment other than a Permitted Investment.
‘‘Restricted Subsidiary’’ means any Subsidiary of the Issuer that is not an Unrestricted Subsidiary.
‘‘Revolving Credit Facility’’ means the credit agreement providing for revolving borrowings of up to
A150.0 million to be entered into among the Issuer, as borrower, and certain of the Issuer’s
Subsidiaries, as Guarantors, and certain financial institutions, described in the Offering Memorandum
dated September 28, 2012, as amended, restated, supplemented, waived, replaced (whether or not upon
termination, and whether with the original lenders or otherwise), restructured, repaid, refunded,
refinanced or otherwise modified from time to time, including any agreement or indenture extending
the maturity thereof, refinancing, replacing or otherwise restructuring all or any portion of the
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Indebtedness under such agreement or agreement or any successor or replacement agreement or
agreements or increasing the amount loaned thereunder (subject to compliance with the covenant
described under ‘‘—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock’’)
or altering the maturity thereof.
‘‘S&P’’ means Standard & Poor’s Ratings Group.
‘‘Securitization Assets’’ means any accounts receivable, inventory, royalty or revenue streams from sales
of inventory or other assets subject to a Qualified Securitization Financing.
‘‘Securitization Fees’’ means distributions or payments made directly or by means of discounts with
respect to any participation interest issued or sold in connection with, and other fees paid to a Person
that is not a Restricted Subsidiary in connection with, any Qualified Securitization Financing.
‘‘Securitization Financing’’ means any transaction or series of transactions that may be entered into by
the Issuer or any of its Subsidiaries pursuant to which the Issuer or any of its Subsidiaries may sell,
convey or otherwise transfer to (a) a Securitization Subsidiary (in the case of a transfer by the Issuer or
any of its Subsidiaries) and (b) any other Person (in the case of a transfer by a Securitization
Subsidiary), or may grant a security interest in, any Securitization Assets (whether now existing or
arising in the future) of the Issuer or any of its Subsidiaries, and any assets related thereto including,
without limitation, all collateral securing such Securitization Assets, all contracts and all guarantees or
other obligations in respect of such Securitization Assets, proceeds of such Securitization Assets and
other assets which are customarily transferred or in respect of which security interests are customarily
granted in connection with asset securitization transactions involving Securitization Assets and any
Hedging Obligations entered into by the Issuer or any such Subsidiary in connection with such
Securitization Assets.
‘‘Securitization Repurchase Obligation’’ means any obligation of a seller of Securitization Assets in a
Qualified Securitization Financing to repurchase Securitization Assets arising as a result of a breach of
a representation, warranty or covenant or otherwise, including as a result of a receivable or portion
thereof becoming subject to any asserted defense, dispute, off-set or counterclaim of any kind as a
result of any action taken by, any failure to take action by or any other event relating to the seller.
‘‘Securitization Subsidiary’’ means a Wholly Owned Subsidiary of the Issuer (or another Person formed
for the purposes of engaging in a Qualified Securitization Financing in which the Issuer or any
Subsidiary of the Issuer makes an Investment and to which the Issuer or any Subsidiary of the Issuer
transfers Securitization Assets and related assets) which engages in no activities other than in
connection with the financing of Securitization Assets of the Issuer or its Subsidiaries, all proceeds
thereof and all rights (contractual and other), collateral and other assets relating thereto, and any
business or activities incidental or related to such business, and which is designated by the Board of
Directors of the Issuer (as provided below) as a Securitization Subsidiary and (a) no portion of the
Indebtedness or any other obligations (contingent or otherwise) of which (i) is guaranteed by the Issuer
or any other Subsidiary of the Issuer (excluding guarantees of obligations (other than the principal of,
and interest on, Indebtedness) pursuant to Standard Securitization Undertakings), (ii) is recourse to or
obligates the Issuer or any other Subsidiary of the Issuer in any way other than pursuant to Standard
Securitization Undertakings or (iii) subjects any property or asset of the Issuer or any other Subsidiary
of the Issuer, directly or indirectly, contingently or otherwise, to the satisfaction thereof, other than
pursuant to Standard Securitization Undertakings, (b) with which neither the Issuer nor any other
Subsidiary of the Issuer has any material contract, agreement, arrangement or understanding other than
on terms which the Issuer reasonably believes to be no less favorable to the Issuer or such Subsidiary
than those that might be obtained at the time from Persons that are not Affiliates of the Issuer and
(c) to which neither the Issuer nor any other Subsidiary of the Issuer has any obligation to maintain or
preserve such entity’s financial condition or cause such entity to achieve certain levels of operating
results. Any such designation by the Board of Directors of the Issuer or such other Person shall be
evidenced to the Trustee by filing with the Trustee a copy of the resolution of the Board of Directors of
the Issuer giving effect to such designation and an Officer’s Certificate certifying that such designation
complied with the foregoing conditions.
‘‘Significant Subsidiary’’ means, at the date of determination, any Restricted Subsidiary that together
with its Subsidiaries which are Restricted Subsidiaries (i) for the most recent fiscal year for which
internal financial statements are available, accounted for more than 10% of the consolidated revenues
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of the Issuer or (ii) as of the end of the most recent fiscal quarter for which internal financial
statements are available, was the owner of more than 10% of the consolidated assets of the Issuer.
‘‘Stated Maturity’’ means, with respect to any installment of interest or principal on any series of
Indebtedness, the date on which the payment of interest or principal was scheduled to be paid in the
documentation governing such Indebtedness as of the Issue Date, and will not include any contingent
obligations to repay, redeem or repurchase any such interest or principal prior to the date originally
scheduled for the payment thereof.
‘‘Standard Securitization Undertakings’’ means representations, warranties, covenants, indemnities and
guarantees of performance entered into by the Issuer or any Subsidiary of the Issuer which the Issuer
has determined in good faith to be customary in a Securitization Financing, including, without
limitation, those relating to the servicing of the assets of a Securitization Subsidiary, it being
understood that any Securitization Repurchase Obligation shall be deemed to be a Standard
Securitization Undertaking.
‘‘Subordinated Indebtedness’’ means, with respect to any person, any Indebtedness (whether outstanding
on the Issue Date or thereafter incurred) which is contractually subordinated in right of payment to the
Notes or to any Note Guarantee.
‘‘Subordinated Shareholder Funding’’ means, collectively, any funds provided to the Issuer by any Parent,
any Affiliate of any Parent or the Principal or any Related Party or any Affiliate thereof, in exchange
for or pursuant to any security, instrument or agreement other than Capital Stock, in each case issued
to and held by any of the foregoing Persons, together with any such security, instrument or agreement
and any other security or instrument other than Capital Stock issued in payment of any obligation
under any Subordinated Shareholder Funding; provided, however, that such Subordinated Shareholder
Funding:
(1) does not (including upon the happening of any event) mature or require any amortization,
redemption or other repayment of principal or any sinking fund payment prior to the date that is
six months following the Stated Maturity of the Notes (other than through conversion or exchange
of such funding into Capital Stock (other than Disqualified Stock) of the Issuer or any funding
meeting the requirements of this definition);
(2) does not (including upon the happening of any event) require, prior to the date that is six months
following the Stated Maturity of the Notes, payment of cash interest, cash withholding amounts or
other cash gross-ups, or any similar cash amounts or the making any such payment prior to the
date that is six months following the Stated Maturity of the Notes is otherwise restricted;
(3) contains no change of control or similar provisions and does not (including upon the happening of
any event) accelerate and has no right to declare a default or event of default or take any
enforcement action or otherwise require any cash payment, in each case, prior to the date that is
six months following the Stated Maturity of the Notes or the payment of any amount as a result of
any such action or provision or the exercise of any rights or enforcement action, in each case, prior
to the date that is six months following the Stated Maturity of the Notes otherwise restricted;
(4) does not provide for or require any security interest or encumbrance over any asset of the Issuer
or any of its Subsidiaries;
(5) pursuant to its terms or other agreement, is fully subordinated and junior in right of payment to
the Notes pursuant to subordination, payment blockage and enforcement limitation terms which
are customary in all material respects for similar funding; and
(6) does not contain terms the compliance with which would result in a default by the Issuer under the
Notes and the Indenture.
‘‘Subsidiary’’ means, with respect to any specified Person:
(1) any corporation, association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of any contingency and
after giving effect to any voting agreement or stockholders’ agreement that effectively transfers
voting power) to vote in the election of directors, managers or trustees of the corporation,
association or other business entity is at the time owned or controlled, directly or indirectly, by
that Person or one or more of the other Subsidiaries of that Person (or a combination thereof);
and
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(2) any partnership or limited liability company of which (a) more than 50% of the capital accounts,
distribution rights, total equity and voting interests or general and limited partnership interests, as
applicable, are owned or controlled, directly or indirectly, by such Person or one or more of the
other Subsidiaries of that Person or a combination thereof, whether in the form of membership,
general, special or limited partnership interests or otherwise, and (b) such Person or any Subsidiary
of such Person is a controlling general partner or otherwise controls such entity.
‘‘Tangible Assets’’ means the consolidated property, plant and equipment of the Issuer and its Restricted
Subsidiaries as shown on the most recent balance sheet of the Issuer.
‘‘Tax’’ means any tax, duty, levy, impost, assessment or other governmental charge (including penalties
and interest related thereto, and, for the avoidance of doubt, including any withholding or deduction
for or on account of Tax).
‘‘Taxes’’ and ‘‘Taxation’’ shall be construed to have corresponding meanings.
‘‘Treasury Rate’’ means, as of any redemption date, the yield to maturity as of such redemption date of
United States Treasury securities with a constant maturity (as compiled and published in the most
recent Federal Reserve Statistical Release H-15 (519) that has become publicly available at least two
business days prior to the redemption date (or, if such Statistical Release is no longer published, any
publicly available source of similar market data)) most nearly equal to the period from the redemption
date to February 1, 2016, provided, however, that if the period from the redemption date to February 1,
2016, is less than one year, the weekly average yield on actually traded United States Treasury
securities adjusted to a constant maturity of one year will be issued.
‘‘Unrestricted Subsidiary’’ means any Subsidiary of the Issuer (other than the Guarantors or any
successor to any of them) that is designated by the Board of Directors of the Issuer as an Unrestricted
Subsidiary pursuant to a resolution of the Board of Directors, but only to the extent that such
Subsidiary:
(1) at the time of such designation, has no Indebtedness other than Non-Recourse Debt;
(2) except as permitted by the covenant described above under the caption ‘‘Certain Covenants—
Transactions with Affiliates,’’ is not party to any agreement, contract, arrangement or
understanding with the Issuer or any Restricted Subsidiary unless the terms of any such agreement,
contract, arrangement or understanding are no less favorable to the Issuer or such Restricted
Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of
the Issuer or, to the extent such condition is not satisfied, the value of such agreement, contract,
arrangement or understanding to such Unrestricted Subsidiary shall be deemed a Restricted
Payment; and
(3) at the time of such designation, is a Person with respect to which neither the Issuer nor any
Restricted Subsidiary has any direct or indirect obligation (a) to subscribe for additional Equity
Interests or (b) to maintain or preserve such Person’s financial condition or to cause such Person
to achieve any specified levels of operating results.
‘‘Voting Stock’’ of any specified Person as of any date means the Capital Stock of such Person that is at
the time entitled to vote in the election of the Board of Directors of such Person.
‘‘Working Capital Intercompany Loan’’ means any loan to or by the Issuer or any of its Restricted
Subsidiaries to or from the Issuer or any of its Restricted Subsidiaries from time to time (i) for
purposes of consolidated cash and tax management and working capital management and (ii) for a
duration of less than one year.
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BOOK ENTRY, DELIVERY AND FORM
Each series of Notes sold outside the United States pursuant to Regulation S under the
U.S. Securities Act will initially be represented by one or more global notes in registered form without
interest coupons attached (the ‘‘Regulation S Global Notes’’). The Regulation S Global
Note representing the Euro Notes (the ‘‘Euro Regulation S Global Note’’) will be deposited, on the
closing date, with a common depository and registered in the name of the nominee of the common
depository for the accounts of Euroclear Bank S.A./N.V., as operator of the Euroclear system
(‘‘Euroclear’’), and Clearstream Banking, S.A. (‘‘Clearstream’’). The Regulation S Global
Note representing the Dollar Notes (the ‘‘Dollar Regulation S Global Note’’) will be deposited upon
issuance with the trustee as custodian for The Depository Trust Company (‘‘DTC’’) and registered in
the name of Cede & Co., as nominee of DTC.
Each series of Notes sold within the United States to qualified institutional buyers pursuant to
Rule 144A under the U.S. Securities Act will initially be represented by one or more global notes in
registered form without interest coupons attached (the ‘‘Rule 144A Global Notes’’ and, together with
the Regulation S Global Notes, the ‘‘Global Notes’’). The Rule 144A Global Note representing the
Euro Notes (the ‘‘Euro 144A Global Note’’ and, together with the Euro Regulation S Global Note, the
‘‘Euro Global Notes’’), will be deposited, on the closing date, with a common depository and registered
in the name of the nominee of the common depository for the accounts of Euroclear and Clearstream.
The Rule 144A Global Note representing the Dollar Notes (the ‘‘Dollar 144A Global Note’’ and,
together with the Dollar Regulation S Global Note, the ‘‘Dollar Global Notes’’) will be deposited upon
issuance with the trustee as custodian for DTC and registered in the name of Cede & Co., as nominee
of DTC.
The Euro Notes and the Dollar Notes will be issued in denominations of A100,000 and $200,000,
respectively, and in integral multiples of A1,000 and $1,000, respectively, in excess thereof. Notes will be
issued at the closing of this offering only against payment in immediately available funds.
Ownership of interests in the Rule 144A Global Notes (the ‘‘Restricted Book-Entry Interests’’) and
ownership of interests in the Regulation S Global Notes (the ‘‘Regulation S Book-Entry Interests’’ and,
together with the Restricted Book-Entry Interests, the ‘‘Book-Entry Interests’’) will be limited to
persons that have accounts with DTC, Euroclear and/or Clearstream or persons that may hold interests
through such participants. Clearstream and Euroclear are direct and indirect participants, respectively,
in DTC and, accordingly, persons who have accounts with Clearstream or Euroclear (or with
participants in Clearstream or Euroclear) may own beneficial interests in the Global Notes. Book-Entry
Interests will be shown on, and transfers thereof will be effected only through, records maintained in
book-entry form by DTC, Euroclear and Clearstream and their participants.
The Book-Entry Interests will not be held in definitive form. Instead, DTC, Euroclear and/or
Clearstream, as applicable, will credit on their respective book-entry registration and transfer systems a
participant’s account with the interest beneficially owned by such participant. The laws of some
jurisdictions, including certain states of the United States, may require that certain purchasers of
securities take physical delivery of such securities in definitive form. The foregoing limitations may
impair the ability to own, transfer or pledge Book-Entry Interests. In addition, while the Notes are in
global form, ‘‘holders’’ of Book-Entry Interests will not be considered the owners or ‘‘holders’’ of Notes
for any purpose.
So long as the Notes are held in global form, DTC, Euroclear and/or Clearstream, as applicable, or
their respective nominees, will be considered the holders of Global Notes for all purposes under the
Indenture. As such, beneficial owners of an interest in a Global Note must rely on the procedures of
DTC, Euroclear and/or Clearstream, the procedures provided under the Indenture and the procedures
of the participants through which they own Book-Entry Interests in order to transfer their interests or
exercise any rights of holders under the Indenture.
Neither we nor the trustee under the Indenture nor any of our or its respective agents and neither the
registrar nor the transfer agent will have any responsibility or be liable for any aspect of the records
relating to the Book-Entry Interests.
The Notes will be subject to certain transfer restrictions and restrictive legends as described under
‘‘Transfer Restrictions.’’
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Redemption of the Global Notes
In the event any Global Note, or any portion thereof, is redeemed, DTC, Euroclear or Clearstream, as
applicable, or their respective nominees, will distribute the amount received by it in respect of the
Global Note so redeemed to the holders of the Book-Entry Interests in such Global Note from the
amount received by it in respect of the redemption of such Global Note. The redemption price payable
in connection with the redemption of such Book-Entry Interests will be equal to the amount received
by DTC, Euroclear or Clearstream, as applicable, in connection with the redemption of such Global
Note (or any portion thereof). We understand that under existing practices of DTC, Euroclear and
Clearstream, if fewer than all the Notes are to be redeemed at any time, DTC, Euroclear and
Clearstream will credit their respective participants’ accounts on a proportionate basis (with
adjustments to prevent fractions) or by lot or on such other basis as they deem fair and appropriate;
provided, however, that no Book-Entry Interest of less than A100,000, in the case of the Euro Global
Notes, or $200,000, in the case of the Dollar Global Notes, principal amount, may be redeemed in part.
Payments on the Global Notes
Payments of the amounts owing in respect of the Global Notes (including principal, premium, if any,
interest and Additional Amounts, if any) will be made by us to a paying agent. The paying agent will,
in turn, make such payments to the common depository for Euroclear and Clearstream (in the case of
the Euro Global Notes) and to DTC or its nominee (in the case of the Dollar Global Notes), which
will distribute such payments to participants in accordance with their respective procedures. Payments
of all such amounts will be made without deduction or withholding for or on account of any present or
future taxes, duties, assessments or governmental charges of whatever nature except as may be required
by law. If any such deduction or withholding is required to be made by any applicable law or regulation
of Croatia or otherwise as described under ‘‘Description of Notes—Additional Amounts,’’ then, to the
extent described under the aforementioned section, such Additional Amounts will be paid as may be
necessary in order that the net amounts received by any holder of the Global Notes or owner of
Book-Entry Interests after such deduction or withholding will equal the net amounts that such holder
or owner would have otherwise received in respect of such Global Note or Book-Entry Interest, as the
case may be, absent such withholding or deduction. We expect that payments by participants to owners
of Book-Entry Interests held through those participants will be governed by standing customer
instructions and customary practices. Under the terms of the Indenture, the Issuer, the Subsidiary
Guarantors and the Trustee will treat the registered holders of the Global Notes (e.g., DTC, Euroclear
or Clearstream (or their respective nominees)) as the owners thereof for the purpose of receiving
payments and for all other purposes. Consequently, none of the Issuer, the Subsidiary Guarantors, the
Trustee or any of our or the Trustee’s agents have or will have any responsibility or liability for:
•
any aspect of the records of DTC, Euroclear, Clearstream or any participant or indirect participant
relating to, or payments made on account of, a Book-Entry Interest, for maintaining, supervising or
reviewing the records of DTC, Euroclear, Clearstream or any participant or indirect participant
relating to or payments made on account of a Book-Entry Interest;
•
DTC, Euroclear, Clearstream or any participant or indirect participant; or
•
the records of the common depositary.
Payments by participants to owners of Book-Entry Interests held through participants are the
responsibility of such participants.
Currency of Payment for the Global Notes
The principal of, premium, if any, and interest on, and all other amounts payable in respect of, the
Euro Global Notes will be paid to holders of interests in such Notes (the ‘‘Euroclear/Clearstream
Holders’’) through Euroclear and/or Clearstream in euro. The principal of, premium, if any, and
interest on, and all other amounts payable in respect of, the Dollar Global Notes will be paid to
holders of interests in such Notes (the ‘‘DTC Holders’’) through DTC in U.S. dollars.
Notwithstanding the payment provisions described above, Euroclear/Clearstream Holders may elect to
receive payments in respect of the Euro Global Notes in U.S. dollars and DTC Holders may elect to
receive payments in respect of the Dollar Global Notes in euro.
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If so elected, a Euroclear/Clearstream Holder may receive payments of amounts payable in respect of
its interest in the Euro Global Notes in U.S. dollars in accordance with Euroclear or Clearstream’s
customary procedures, which include, among other things, giving to Euroclear or Clearstream, as
appropriate, a notice of such holder’s election. All costs of conversion resulting from any such election
will be borne by such holder.
If so elected, a DTC Holder may receive payment of amounts payable in respect of its interest in the
Dollar Global Notes in euro in accordance with DTC’s customary procedures, which include, among
other things, giving to DTC a notice of such holder’s election to receive payments in euro. All costs of
conversion resulting from any such election will be borne by such holder.
Payments will be subject in all cases to any fiscal or other laws and regulations (including any
regulations of the applicable clearing system) applicable thereto. Neither we nor the trustee nor the
Initial Purchasers nor any of our or their respective agents will be liable to any holder of a Global
Note or any other person for any commissions, costs, losses or expenses in relation to or resulting from
any currency conversion or rounding effected in connection with any such payment. Holders may be
subject to foreign exchange risks that may have economic and tax consequences to them.
Action by Owners of Book-Entry Interests
DTC, Euroclear and Clearstream have advised us that they will take any action permitted to be taken
by a holder of the Notes (including the presentation of the Notes for exchange as described above)
only at the direction of one or more participants to whose account the Book-Entry Interests in the
Global Notes are credited and only in respect of such portion of the aggregate principal amount of the
Notes as to which such participant or participants has or have given such direction. DTC, Euroclear
and Clearstream will not exercise any discretion in the granting of consents, waivers or the taking of
any other action in respect of the Global Notes. However, if there is an Event of Default under the
Notes, each of DTC, Euroclear and Clearstream reserves the right to exchange the Global Notes for
definitive registered Notes (the ‘‘Definitive Registered Notes’’) in certificated form, and to distribute
such Definitive Registered Notes to their respective participants.
Transfers
Transfers between participants in DTC will be done in accordance with DTC rules and will be settled
in immediately available funds. If a holder requires physical delivery of Definitive Registered Notes for
any reason, including to sell the Notes to persons in states which require physical delivery of such
securities or to pledge such securities, such holder must transfer its interest in the Global Notes in
accordance with the normal procedures of DTC and in accordance with the provisions of the
Indenture.
The Global Notes will bear a legend to the effect set forth in ‘‘Transfer Restrictions.’’ Book-Entry
Interests in the Global Notes will be subject to the restrictions on transfer discussed in ‘‘Transfer
Restrictions.’’
Book-Entry Interests in a Rule 144A Global Note may be transferred to a person who takes delivery in
the form of Book-Entry Interests in a Regulation S Global Note denominated in the same currency
only upon delivery by the transferor of a written certification (in the form provided in the Indenture)
to the effect that such transfer is being made in accordance with Regulation S under the
U.S. Securities Act. Prior to 40 days after the date of initial issuance of the Notes, ownership of
Regulation S Book-Entry Interests will be limited to persons that have accounts with DTC, Euroclear
or Clearstream or persons who hold interests through DTC, Euroclear or Clearstream, and any sale or
transfer of such interest to U.S. persons shall not be permitted during such periods unless such resale
or transfer is made pursuant to Rule 144A under the U.S. Securities Act. Regulation S Book-Entry
Interests may be transferred to a person who takes delivery in the form of Restricted Book-Entry
Interests only upon delivery by the transferor of a written certification (in the form provided in the
Indenture) to the effect that such transfer is being made to a person who the transferor reasonably
believes is a ‘‘qualified institutional buyer’’ within the meaning of Rule 144A under the
U.S. Securities Act in a transaction meeting the requirements of Rule 144A under the
U.S. Securities Act or otherwise in accordance with the transfer restrictions described under ‘‘Transfer
Restrictions’’ and in accordance with any applicable securities laws of any other jurisdiction.
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Any Book-Entry Interest in one of the Global Notes that is transferred to a person who takes delivery
in the form of a Book-Entry Interest in the other Global Note of the same denomination will, upon
transfer, cease to be a Book-Entry Interest in the first mentioned Global Note and become a
Book-Entry Interest in the other Global Note, and accordingly, will thereafter be subject to all transfer
restrictions, if any, and other procedures applicable to Book-Entry Interests in such other Global
Note for as long as it retains such a Book-Entry Interest.
Definitive Registered Notes may be transferred and exchanged for Book-Entry Interests in a Global
Note only as described under ‘‘—Definitive Registered Notes’’ below and, if required, only if the
transferor first delivers to the trustee a written certificate (in the form provided in the Indenture) to
the effect that such transfer will comply with the appropriate transfer restrictions applicable to such
Notes. See ‘‘Transfer Restrictions.’’
This paragraph refers to transfers and exchanges with respect to Dollar Global Notes only. Transfers
involving an exchange of a Regulation S Book-Entry Interest for a Restricted Book-Entry Interest in a
Dollar Global Note will be done by DTC by means of an instruction originating from the trustee
through the DTC Deposit/Withdrawal Custodian system. Accordingly, in connection with any such
transfer, appropriate adjustments will be made to reflect a decrease in the principal amount of the
relevant Regulation S Global Note and a corresponding increase in the principal amount of the
corresponding Rule 144A Global Note. The policies and practices of DTC may prohibit transfers of
unrestricted Book-Entry Interests in the Regulation S Global Note prior to the expiration of the
40 days after the date of initial issuance of the Notes. Any Book-Entry Interest in one of the Global
Notes that is transferred to a person who takes delivery in the form of a Book-Entry Interest in any
other Global Note will, upon transfer, cease to be a Book-Entry Interest in the first mentioned Global
Note and become a Book-Entry interest in such other Global Note, and accordingly will thereafter be
subject to all applicable transfer restrictions, if any, and other procedures applicable to Book-Entry
Interests in such other Global Note for as long as it remains such a Book-Entry Interest.
Definitive Registered Notes
Under the terms of the Indenture, owners of the Book-Entry Interests will receive the Definitive
Registered Notes only:
(1) if Euroclear and Clearstream (with respect to the Euro Global Notes) or DTC (with respect to the
Dollar Global Notes) notify us that it is unwilling or unable to continue to act as depository and a
successor depository is not appointed by us within 90 days;
(2) if DTC, Euroclear or Clearstream so requests following an Event of Default under the Indenture;
or
(3) at any time if we, in our sole discretion, so determine.
In such an event, the registrar will issue Definitive Registered Notes, registered in the name or names
and issued in any approved denominations, requested by or on behalf of DTC, Euroclear and/or
Clearstream, as applicable (in accordance with their respective customary procedures and based upon
directions received from participants reflecting the beneficial ownership of Book-Entry Interests), and
such Definitive Registered Notes will bear the restrictive legend set forth in ‘‘Transfer Restrictions,’’
unless that legend is not required by the indenture or applicable law.
If Definitive Registered Notes are issued, they will be issued only in minimum denominations of
A100,000 or $200,000 principal amount, as the case may be, and integral multiples of A1,000 in excess
thereof or $1,000 in excess thereof, as the case may be, upon receipt by the applicable registrar of
instructions relating thereto and any certificates, opinions and other documentation required by the
Indenture. It is expected that such instructions will be based upon directions received by Euroclear,
Clearstream or DTC, as applicable, from the participant which owns the relevant Book-Entry Interests.
Subject to the restrictions on transfer referred to above in ‘‘—Transfers’’ and as set forth in ‘‘Transfer
Restrictions,’’ Euro Notes issued as Definitive Registered Notes may be transferred or exchanged, in
whole or in part, in minimum denominations of A100,000 in principal amount and integral multiples of
A1,000 in excess thereof and Dollar Notes issued as Definitive Registered Notes may be transferred or
exchanged in whole or in part, in minimum denominations of $200,000 in principal amount and integral
multiples of $1,000 in excess thereof. In connection with any such transfer or exchange, the Indenture
will require the transferring or exchanging holder to, among other things, furnish appropriate
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endorsements and transfer documents, to furnish information regarding the account of the transferee at
Euroclear, Clearstream or DTC, where appropriate, to furnish certain certificates and opinions, and to
pay any taxes, duties and governmental charges in connection with such transfer or exchange. Any such
transfer or exchange will be made without charge to the holder, other than any taxes, duties and
governmental charges payable in connection with such transfer.
So long as the Notes are listed on the Official List of and the rules of the Irish Stock Exchange so
require, the Issuer will publish a notice of any issuance of Definitive Registered Notes in a newspaper
having general circulation in Ireland (which is expected to be The Irish Times). Payment of principal,
any repurchase price, premium and interest on Definitive Registered Notes will be payable at the office
of the paying agent.
Global Clearance and Settlement under the Book-Entry System
The Notes represented by the Global Notes are expected to be listed on the Irish Stock Exchange and
to trade in DTC’s Same-Day Funds Settlement System. Any permitted secondary market trading
activity in such Notes will, therefore, be required by DTC to be settled in immediately available funds.
The Issuer expects that secondary trading in any certificated Notes will also be settled in immediately
available funds. Subject to compliance with the transfer restrictions applicable to the Global Notes,
cross market transfers between participants in DTC, on the one hand, and Euroclear or Clearstream
participants, on the other hand, will be effected through DTC in accordance with DTC’s rules on
behalf of each of Euroclear or Clearstream by its common depository; however, such cross-market
transactions will require delivery of instructions to Euroclear or Clearstream by the counterparty in
such system in accordance with the rules and regulations and within the established deadlines (Brussels
time) of such system. Euroclear or Clearstream will, if the transaction meets its settlement
requirements, deliver instructions to the common depository to take action to effect final settlement on
its behalf by delivering or receiving interests in the Global Notes in DTC, and making and receiving
payment in accordance with normal procedures for same-day funds settlement applicable to DTC.
Euroclear participants and Clearstream participants may not deliver instructions directly to the common
depository.
Because of the time zone differences, the securities account of a Euroclear or Clearstream participant
purchasing an interest in a Global Note from a participant in DTC will be credited, and any such
crediting will be reported to the relevant Euroclear or Clearstream participant, during the securities
settlement processing day (which must be a business day for Euroclear and Clearstream) immediately
following the settlement date of DTC. Cash received in Euroclear and Clearstream as a result of a sale
of an interest in a Global Note by or through a Euroclear or Clearstream participant to a participant in
DTC will be received with value on the settlement date of DTC but will be available in the relevant
Euroclear or Clearstream cash account only as of the business day for Euroclear or Clearstream
following DTC’s settlement date.
Although DTC, Euroclear and Clearstream currently follow the foregoing procedures in order to
facilitate transfers of interests in the Global Notes among participants in DTC, Euroclear or
Clearstream, as the case may be, they are under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued or modified at any time. None of the Issuer, the
trustee, the paying agent or any of our or their respective agents will have any responsibility for the
performance by DTC, Euroclear or Clearstream or their respective participants or indirect participants
of their respective obligations under the rules and procedures governing their operations, which rules
and operating procedures may change from time to time.
Initial Settlement
Initial settlement for the Notes will be made in euro and U.S. dollars. Book-Entry Interests owned
through DTC, Euroclear or Clearstream accounts will follow the settlement procedures applicable to
conventional bonds in registered form. Book-Entry Interests will be credited to the securities custody
accounts of DTC Euroclear and Clearstream holders on the business day following the settlement date
against payment for value on the settlement date.
Secondary Market Trading
The Book-Entry Interests will trade through participants of Euroclear or Clearstream and DTC and
will settle in same-day funds. Since the purchase determines the place of delivery, it is important to
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establish at the time of trading of any Book-Entry Interests where both the purchaser’s and the seller’s
accounts are located to ensure that settlement can be made on the desired value date.
Information Concerning DTC, Euroclear and Clearstream
All Book-Entry Interests will be subject to the operations and procedures of DTC, Euroclear and
Clearstream, as applicable. The following description of the operations and procedures of DTC,
Euroclear and Clearstream are provided solely as a matter of convenience. These operations and
procedures are solely within the control of the respective settlement systems and are subject to changes
by them. Neither we nor the Initial Purchasers take any responsibility for these operations and
procedures and we urge investors to contact the system or their participants directly to discuss these
matters.
DTC has advised us that it is:
•
a limited purpose trust company organized under New York Banking Law;
•
a ‘‘banking organization’’ under New York Banking Law;
•
a member of the Federal Reserve System;
•
a ‘‘clearing corporation’’ within the meaning of the New York Uniform Commercial Code; and
•
a ‘‘clearing agency’’ registered under Section 17A of the U.S. Exchange Act.
DTC was created to hold securities for its participants and to facilitate the clearance and settlement of
transactions among its participants. It does this through electronic book-entry changes in the accounts
of securities participants, eliminating the need for physical movement of securities certificates. DTC
participants include securities brokers and dealers, banks, trust companies, clearing corporations and
certain other organizations. DTC’s owners are the New York Stock Exchange, Inc., the American Stock
Exchange, Inc. and the National Association of Securities Dealers, Inc. and a number of its direct
participants. Others, such as banks, brokers and dealers and trust companies that clear through or
maintain a custodial relationship with a direct participant also have access to the DTC system and are
known as indirect participants.
Like DTC, Euroclear and Clearstream hold securities for participating organizations. They also
facilitate the clearance and settlement of securities transactions between their respective participants
through electronic book-entry changes in the accounts of such participants. Euroclear and Clearstream
provide various services to their participants, including the safekeeping, administration, clearance,
settlement, lending and borrowing of internationally traded securities. Euroclear and Clearstream
interface with domestic securities markets. Euroclear and Clearstream participants are financial
institutions such as underwriters, securities brokers and dealers, banks, trust companies and certain
other organizations. Indirect access to Euroclear and Clearstream is also available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with
a Euroclear and Clearstream participant, either directly or indirectly.
Paying Agent and Registrar for the Notes
We have undertaken to maintain one or more paying agents for the Notes (i) in London, England and
(ii) in the City of New York. The paying agents currently are The Bank of New York Mellon, London
Branch, in London and The Bank of New York Mellon in the City of New York. The registrar
currently is The Bank of New York Mellon (Luxembourg) S.A., in Luxembourg. The registrar will
maintain a register reflecting ownership of Notes outstanding from time to time and facilitate transfer
of Notes on our behalf. We may change the paying agents or registrars without prior notice to the
holders.
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TAX CONSIDERATIONS
The following summary of certain Croatian and U.S. federal income tax consequences of the acquisition,
ownership and disposition of the Notes is based on present law. It does not describe all tax considerations
that may be relevant to a particular purchaser’s decision to purchase Notes. The discussion is a summary
only; it is not a substitute for tax advice.
Croatian Taxation
The following summary is of a general nature and is included herein solely for information purposes.
The discussion describes certain material tax matters under Croatian tax law with respect to the Notes.
The discussion does not purport to be a comprehensive description of all the tax considerations that
may be relevant to a decision to purchase Notes. The discussion is based on the tax laws in Croatia in
effect on the date of this Offering Memorandum, and may be subject to change during the life of the
Notes. Prospective investors in the Notes should therefore consult their own professional advisers as to
the effects of state, local or foreign laws, including Croatian tax law, to which they may be subject.
Taxation of Interest
Any payment of interest on the Notes is not subject to payment of value added tax.
Sales realized by Croatian legal entities from interest, including interest on the Notes, are included in
the tax base of corporate income tax (profit tax) as all other regular revenues. Profit is taxed at a rate
of 20%.
Income of natural persons who are taxpayers in the Republic of Croatia realized from interest on the
Notes is not considered as income and is not included in the tax base of income tax and is therefore
not subject to taxation.
In accordance with Croatian laws and regulations, interest on the Notes held by foreign legal entities is
exempted from payment of a withholding tax, and the payment of interest on the Notes to foreign
natural persons is not subject to payment of withholding tax.
Taxation of Principal
In accordance with Croatian laws and regulations, payment of principal is not subject to payment of
any special taxes.
Taxation of Capital Gains
Capital gain is, within the meaning of this Offering Memorandum, revenue realized by sale of the
Notes, in the amount of difference between the price at which they were sold and the price at which
they were paid-up or purchased.
Any capital gain realized by a Croatian legal entity and branches of foreign legal entities in Croatia
who purchase the Notes, i.e., taxpayers of corporate income tax (profit tax), is included in the tax base
of corporate income tax (profit tax) as all other regular revenues. Profit is taxed at a rate of 20%.
Capital gain realized through sale of the Notes by natural persons who are taxpayers of the income tax,
is not included in the tax base of income tax and is not subject to taxation, unless the Notes are held as
part of the taxpayer’s business activity.
Capital gains realised by persons other than Croatian legal entities and Croatian tax-resident natural
persons are not subject to taxation in Croatia.
Taxation in case of inheriting the Notes or receiving the Notes as a gift
Subject to any applicable double taxation treaty, any natural person or legal entity who inherits or
receives gifts (including the Notes) with individual value higher than HRK 50,000.00 in the Republic of
Croatia is under an obligation to pay Croatian tax in respect of such inheritance or gift at a rate of 5%.
Provided the Notes are received outside of the Republic of Croatia, no Croatian taxes will be payable
in respect of such inheritance or gift.
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EU Savings Directive
Under EC Council Directive 2003/48/EC on the taxation of savings income (the ‘‘Directive’’), each
member state of the European Union (a ‘‘Member State’’) is required to provide to the tax authorities
of another Member State details of payments of interest (or similar income) made by a person within
its jurisdiction to, or collected by such a person for, an individual resident in that other Member State
or certain limited types of entity established in that other Member State. However, for a transitional
period, Luxembourg and Austria may instead apply (unless during such period they elect otherwise) a
withholding system in relation to such payments deducting tax at a rate of 35%. The transitional period
is to terminate at the end of the first full fiscal year following agreement by certain non-EU countries
to the exchange of information relating to such payments.
A number of non-EU countries and certain dependent or associated territories of certain Member
States have adopted similar measures (either provision of information or transitional withholding) in
relation to payments made by a person within its jurisdiction to, or collected by such a person for, an
individual resident in that other Member State or certain limited types of entities established in a
Member State. In addition, the Member States have entered into provision of information or
transitional withholding arrangements with certain of those dependent or associated territories in
relation to payments made by a person in a Member State to, or collected by such a person for, an
individual resident or certain limited types of entities established in one of those territories.
On September 15, 2008, the European Commission issued a report to the Council of the European
Union on the operation of the Directive, which included the Commission’s advice on the need for
changes to the Directive. On November 13, 2008, the European Commission published a more detailed
proposal for amendments to the Directive, which included a number of suggested changes. The
European Parliament approved an amended version of this proposal on April 24, 2009. If any of those
proposed changes are made in relation to the Directive, they may amend or broaden the scope of the
requirements described above.
Croatian legislation has been aligned to EC Directive 2003/48/EC on the taxation of savings income
through amendments to the Croatian general tax Act (Official Gazette of the Republic of Croatia
Narodne novine No 118/2011), however provisions on the taxation of savings income (Art 11 to
Art 20) will enter into force only after the accession of the Republic of Croatia to the EU, which is
expected by mid-2013.
United States Federal Income Taxation
CIRCULAR 230 NOTICE: ANY DISCUSSIONS OF U.S. FEDERAL TAX MATTERS SET FORTH
HEREIN WERE WRITTEN IN CONNECTION WITH THE PROMOTION AND MARKETING
(WITHIN THE MEANING OF TREASURY DEPARTMENT CIRCULAR 230) BY THE ISSUER AND
THE INITIAL PURCHASERS OF THE TRANSACTIONS OR MATTERS ADDRESSED HEREIN.
SUCH DISCUSSIONS WERE NOT INTENDED OR WRITTEN TO BE LEGAL OR TAX ADVICE TO
ANY PERSON AND WERE NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE
USED, BY ANY PERSON FOR THE PURPOSE OF AVOIDING ANY U.S. FEDERAL TAX
PENALTIES THAT MAY BE IMPOSED ON SUCH PERSON. EACH HOLDER AND BENEFICIAL
OWNER OF THE NOTES SHOULD SEEK ADVICE BASED ON ITS PARTICULAR
CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.
General
The following discussion is a general summary of certain U.S. federal income tax consequences of the
purchase, ownership and disposition of the Notes by U.S. holders (as defined below). The summary is
based on the Code, Treasury regulations promulgated thereunder, rulings, judicial decisions, and
administrative pronouncements, all as in effect as of the date hereof, and all which are subject to
change or changes in interpretation, possibly on a retroactive basis. This summary addresses only Notes
purchased by U.S. holders in this offering at the price set forth on the cover of the Offering
Memorandum and held as capital assets, within the meaning of Section 1221 of the Code.
This summary does not discuss all the tax consequences that may be relevant to U.S. holders in light of
their particular circumstances or to U.S. holders subject to special tax rules, including U.S. expatriates,
insurance companies, tax-exempt institutions or investors, financial institutions, regulated investment
companies, entities classified as partnerships, persons subject to the alternative minimum tax, dealers in
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securities or currencies, traders who have elected ‘‘mark-to-market’’ treatment, persons holding their
Notes as part of a short sale, straddle, hedging transaction, conversion transaction or other integrated
transaction, or U.S. holders whose functional currency is not the U.S. dollar. Such holders may be
subject to U.S. federal income tax consequences different from those set forth below.
We have not sought any ruling from the U.S. Internal Revenue Service (the ‘‘IRS’’) with respect to the
statements made and the conclusions reached in this discussion, and there can be no assurance that the
IRS will agree with such statements and conclusions. Thus, all persons considering the purchase of the
Notes should consult their tax advisors concerning the application of U.S. federal, state and local tax
laws to their particular situations, as well as any consequences of the purchase, ownership and
disposition of the Notes arising under the laws of any foreign taxing jurisdiction or under any
applicable tax treaty.
As used herein, the term ‘‘U.S. holder’’ means a beneficial owner of Notes that is (a) an individual
citizen or resident of the United States for U.S. federal income tax purposes, (b) a corporation,
including an entity treated as a corporation for U.S. federal income tax purposes, created or organized
in or under the laws of the United States or any State thereof (including the District of Columbia),
(c) an estate whose income is subject to U.S. federal income taxation regardless of its source, or (d) a
trust if a court within the United States can exercise primary supervision over the administration of the
trust and one or more U.S. persons have the authority to control all substantial decisions of the trust.
Notwithstanding clause (d) of the preceding sentence, to the extent provided in Treasury regulations,
certain trusts in existence on August 20, 1996, and treated as United States persons prior to that date
that elect to continue to be treated as United States persons also will be U.S. holders. In addition, if a
partnership (or other entity treated as a partnership for U.S. federal income tax purposes) holds Notes,
the tax treatment of a partner in the partnership generally will depend upon the status of the partner
and the activities of the partnership. If a U.S. holder is a partner in a partnership (or other entity
treated as a partnership for U.S. federal income tax purposes) that holds Notes, the U.S. holder is
urged to consult its own tax advisor regarding the specific tax consequences of the purchase, ownership
and dispositions of the Notes.
It is intended that the Issuer will not operate so as to be engaged in a trade or business in the United
States for U.S. federal income tax purposes and, accordingly, will not be subject to U.S. federal income
taxes on its net income. This summary assumes that the Issuer will not be so engaged. The Issuer will
treat the Notes as debt for U.S. federal income tax purposes, and this summary assumes such
treatment.
Interest
Payments of interest (including any amounts withheld and any Additional Amounts paid in respect of
withholding taxes imposed on payments on the Notes as described in ‘‘Description of Notes—
Additional Amounts’’) on a Note will be includible in the gross income of a U.S. holder as ordinary
interest income at the time the interest is received or accrued, in accordance with the U.S. holder’s
regular method of accounting for U.S. federal income tax purposes. As a result of the inclusion of any
amounts attributable to withheld taxes and Additional Amounts, the amount included in a U.S. holder’s
gross income for U.S. federal income tax purposes with respect to a payment of interest may be greater
than the amount of cash actually received (or receivable) by such U.S. holder.
Payments of Interest in Euros—Cash Method U.S. holders of Euro Notes
A U.S. holder of Euro Notes that uses the cash method of accounting for tax purposes will recognize
interest income in an amount equal to the U.S. dollar value of the euro interest payment, based on a
spot exchange rate on the date of receipt, regardless of whether the payment is in fact converted into
U.S. dollars at that time. Such U.S. dollar value will be the U.S. holder’s tax basis in the euros. Such
U.S. holder will not recognize foreign currency exchange gain or loss with respect to the receipt of such
payment.
Payments of Interest in Euros—Accrual Method U.S. holders of Euro Notes
A U.S. holder of Euro Notes that uses the accrual method of accounting for U.S. federal income tax
purposes, or who otherwise is required to accrue interest prior to receipt, may determine the amount
recognized with respect to such interest in accordance with either of two methods. Under the first
method, such U.S. holder will be required to include in income the U.S. dollar value of the interest
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income that has accrued and is otherwise required to be taken into account with respect to a Euro
Note during an accrual period, determined by translating such amount into U.S. dollars at the average
spot exchange rate in effect during the accrual period (or, with respect to an accrual period that spans
two taxable years, at the average rate for the partial period within the U.S. holder’s taxable year).
Alternatively, a U.S. holder may make an election (which must be applied consistently to all debt
instruments from year to year and cannot be changed without the consent of the IRS) to translate
accrued interest income at the spot exchange rate on the last day of the accrual period (or the last day
of the taxable year in the case of a partial accrual period), or at the spot exchange rate on the date of
receipt, if that date is within five business days of the last day of the accrual period. A U.S. holder
should consult a tax advisor before making this election. A U.S. holder of Euro Notes that uses the
accrual method of accounting for U.S. federal income tax purposes will recognize foreign currency
exchange gain or loss in an amount equal to the difference between the U.S. dollar value of the euro
payment received, determined at the spot exchange rate on the date the payment is received, and the
U.S. dollar value of the interest income previously accrued in respect of such payment (determined as
described above). This foreign currency exchange gain or loss will be treated as U.S. source ordinary
income or loss, and generally will not be treated as an adjustment to interest income or expense.
Foreign Tax Credit
The interest income (including any Additional Amounts paid) received or accrued by a U.S. holder will
generally be income from sources outside the United States and will generally be treated as ‘‘passive
category income’’ or, in certain cases, ‘‘general category income,’’ for purposes of computing allowable
foreign tax credits under U.S. federal income tax laws. Any non-U.S. withholding tax paid by a
U.S. holder at the rate applicable to such holder may be eligible for foreign tax credits (or deduction in
lieu of such credits) for U.S. federal income tax purposes, subject to applicable limitations. The
U.S. foreign tax credit rules are complex. U.S. holders should consult their own tax advisors regarding
the availability of the U.S. foreign tax credits and the application of the U.S. foreign tax credit rules to
their particular situation.
Purchase, Sale and Disposition of the Notes
A U.S. holder’s initial tax basis in a Note generally will equal the cost of the Note to the U.S. holder.
The cost of a Euro Note purchased with euros will be the U.S. dollar value of the purchase price of
the Euro Note in euros on the date of purchase, calculated at the spot exchange rate in effect on that
date. If the Euro Note is traded on an established securities market, a U.S. holder that is a cash basis
taxpayer (and if it elects, a U.S. holder that is an accrual basis taxpayer) will determine the U.S. dollar
value of the cost of the Euro Note at the spot exchange rate on the settlement date of purchase.
Upon the sale, exchange, redemption or other disposition of a Note, a U.S. holder generally will
recognize gain or loss in an amount equal to the difference between the amount realized (other than
amounts attributable to accrued and unpaid interest, which will be taxable as ordinary interest income
in accordance with the U.S. holder’s regular method of U.S. federal income tax accounting as described
above) and the U.S. holder’s adjusted tax basis in the Note. A U.S. holder’s adjusted tax basis in a
Note generally will equal the U.S. holder’s initial tax basis (calculated as described above) decreased by
any principal payments previously received. The amount realized on the sale, exchange, redemption or
other disposition of a Euro Note for an amount of euros will generally be the U.S. dollar value of the
euros received based on the spot exchange rate on (i) the date payment is received in the case of a
cash basis U.S. holder or (ii) the date of disposition in the case of an accrual basis U.S. holder. If the
Euro Note is traded on an established securities market, a U.S. holder that is a cash basis taxpayer and,
upon election, a U.S. holder that is an accrual method taxpayer, will determine the U.S. dollar value of
the amount realized by translating the payment in euros received at the spot exchange rate on the
settlement date of the disposition. Such an election described in this or the preceding paragraph by a
U.S. holder that is an accrual method taxpayer must be applied consistently to all debt instruments
from year to year and cannot be changed without the consent of the IRS.
Gain or loss recognized by a U.S. holder upon the sale, exchange, redemption or other disposition of a
Euro Note that is attributable to changes in currency exchange rates relating to the principal thereof
will be ordinary income or loss and generally will be equal to the difference between the U.S. dollar
value of the purchase price of the Euro Note in euros determined on the date of the sale, exchange,
redemption or other disposition, and the U.S. dollar value of the purchase price of the Euro Note in
euros determined on the date the U.S. holder acquired the Euro Note. The foreign currency exchange
173
gain or loss will be recognized only to the extent of the total gain or loss realized by the U.S. holder in
the sale, exchange, redemption or other disposition of the Euro Note, and will be treated as ordinary
income or loss generally from sources within the United States for U.S. foreign tax credit limitation
purposes.
Any gain or loss recognized by a U.S. holder on the sale, exchange, redemption or other disposition of
a Dollar Note and any gain or loss recognized by a U.S. holder of a Euro Note in excess of foreign
currency exchange gain or loss recognized on the sale, exchange, redemption or other disposition of
such Euro Note will generally be U.S. source capital gain or loss and will generally be long-term capital
gain or loss if the Note has been held for more than one year at the time of the sale, exchange,
redemption or other disposition. In the case of certain non-corporate U.S. holders, under current law
any such gain will generally be eligible for preferential U.S. federal income tax rates if that U.S. holder
satisfies certain prescribed minimum holding periods. The deductibility of capital losses is subject to
limitations.
Receipt of Euro
A U.S. holder of Euro Notes will receive euros in payment for interest (including any Additional
Amounts paid) or principal. The tax basis of any euros received by a U.S. holder generally will equal
the U.S. dollar equivalent of such euros at the spot exchange rate on the date the euros are received.
Upon any subsequent exchange of euros for U.S. dollars, a U.S. holder generally will recognize foreign
currency exchange gain or loss in an amount equal to the difference between the amount of
U.S. dollars received and the U.S. holder’s tax basis in the euros. Any such foreign currency exchange
gain or loss generally will be treated as U.S. source ordinary income or loss.
U.S. Information Reporting and Backup Withholding
Payments of interest (including any Additional Amounts paid) on and proceeds from the sale,
exchange, redemption or other disposition of the Notes will generally be subject to U.S. information
reporting requirements unless the U.S. holder qualifies as an exempt recipient, such as a corporation.
Backup withholding may apply to payments made or proceeds paid to a U.S. holder who fails to
furnish a correct taxpayer identification number or any other required certification, or who fails to
report in full interest income from the Notes. U.S. holders who are required to establish their exempt
status generally must provide a duly completed IRS Form W-9 (Request for Taxpayer Identification
Number and Certification). U.S. holders should consult their own tax advisors regarding the application
of the information reporting and backup withholding rules.
Backup withholding is not additional tax. Amounts withheld as backup may be credited against a
U.S. holder’s U.S. federal income tax liability. A U.S. holder may obtain a refund of any excess
amounts withheld under the backup withholding rules by filing the appropriate claim for refund with
the IRS and furnishing any required information in a timely manner.
Reportable Transactions
Treasury Regulations meant to require the reporting of certain tax shelter transactions could be
interpreted to cover transactions generally not regarded as tax shelters, including certain foreign
currency transactions. Under the Treasury Regulations, certain transactions are required to be reported
to the IRS including, in certain circumstances, a sale, exchange, retirement or other taxable disposition
of a Euro Note or foreign currency received in respect of a Euro Note to the extent that such sale,
exchange, retirement or other taxable disposition results in a tax loss in excess of a threshold amount.
Prospective investors are urged to consult with their own tax advisors to determine their tax return
obligations, if any, with respect to their acquisition, holding or disposition of the Euro Notes, including
any requirement to file IRS Form 8886 (Reportable Transaction Disclosure Statement).
Information with Respect to Foreign Financial Assets
Individuals that own ‘‘specified foreign financial assets’’ with an aggregate value in excess of $50,000 in
taxable years beginning after March 18, 2010, generally are required to file an information report with
respect to such assets with their tax returns. ‘‘Specified foreign financial assets’’ include any financial
accounts maintained by certain foreign financial institutions, as well as any of the following, but only if
they are not held in accounts maintained by financial institutions: (i) stocks and securities issued by
non-U.S. persons, (ii) financial instruments and contracts held for investment that have non-U.S. issuers
174
or counterparties and (iii) interests in foreign entities. U.S. holders that are individuals are urged to
consult their tax advisors regarding the application of this legislation to their ownership of the Notes.
Additional Notes
If Additional Notes are issued in the future, it is possible that those Additional Notes will not be
fungible with the Notes offered hereby for U.S. federal income tax purposes. This could have an
adverse tax effect for U.S. holders who hold Notes and did not acquire them in this initial offering, and
therefore could adversely affect the marketability and fair market value of the Notes. U.S. holders are
urged to consult their own tax advisor concerning such matters.
Recently Enacted Withholding Legislation
Pursuant to the Foreign Account Tax Compliance Act (‘‘FATCA’’), certain non-U.S. issuers of debt
interests may be required to withhold U.S. tax on a portion of payments on such debt interests.
Pursuant to proposed Treasury Regulations, as currently drafted, we do not expect there to be any such
withholding.
Under proposed Treasury Regulations, debt interests issued before January 1, 2013 would not be
subject to FATCA withholding. Accordingly, if the proposed regulations are finalized, then the Notes
generally should not be subject to the withholding regime under FATCA. However, if we were to issue
additional notes associated with this offering on or after January 1, 2013, such additional notes may not
be eligible for such an exemption. Furthermore, it may not be possible for withholding agents to
differentiate between such additional notes and the original notes. In such case, it is possible that
withholding would apply to all of the notes (including the original exempt notes). If withholding under
FATCA is required with respect to the Notes, there will be no additional amounts payable by way of
compensation to the holder for the deducted amount.
The IRS’s guidance with respect to these rules is only preliminary, and the scope of these rules remains
unclear and potentially subject to material changes. Holders should consult their own tax advisors on
how these rules may apply to payments they receive under the Notes.
175
BENEFIT PLAN INVESTOR CONSIDERATIONS
The following is a summary of certain considerations associated with the purchase of the Notes by
(a) employee benefit plans (as defined in Section 3(3) of Employee Retirement Income Security Act of
1974, as amended (‘‘ERISA’’)), whether or not they are subject to Title I of ERISA, (b) individual
retirement accounts, plans or other arrangements subject to Section 4975 of the Code, (c) plans or
other arrangements that are subject to provisions under any federal, state, local, non-U.S. or other laws
or regulations that are similar to such provisions of the Code or ERISA (collectively, ‘‘Similar Laws’’),
(d) entities whose underlying assets include ‘‘plan assets’’ (within the meaning of regulations issued by
the United States Department of Labor, set forth in 29 C.F.R, §2510.3-101, as modified by
Section 3(42) of ERISA (the ‘‘Plan Asset Regulations’’)) (the ‘‘Plan Assets’’) by reason of any such
plan’s or arrangement’s investment therein (we refer to the foregoing collectively as ‘‘Plans’’) and
(e) persons who are fiduciaries with respect to Plans. In addition, certain governmental, church and
non-U.S. plans (‘‘Non-ERISA Arrangements’’) are not subject to Section 406 of ERISA or
Section 4975 of the Code, but may be subject to Similar Laws.
ERISA and the Code impose certain duties on persons who are fiduciaries of a Plan subject to Title I
of ERISA or Section 4975 of the Code and prohibit certain transactions involving the assets of a Plan
and its fiduciaries or other interested parties. Under ERISA and the Code, any person who exercises
any discretionary authority or control over the administration of such a Plan or the management or
disposition of the assets of such a Plan, or who renders investment advice for a fee or other
compensation to such a Plan, is generally considered to be a fiduciary of the Plan.
In addition to ERISA’s general fiduciary standards, Section 406 of ERISA and Section 4975 of the
Code prohibit the Plans, subject to Title I of ERISA or Section 4975 of the Code, from engaging in
specific transactions involving Plan Assets with persons or entities, including fiduciaries, who have
specified relationships to the Plan, i.e., ‘‘parties in interest’’ as defined in ERISA or ‘‘disqualified
persons’’ as defined in Section 4975 of the Code (we refer to the foregoing collectively as ‘‘parties in
interest’’) unless exemptive relief is available under a statutory exemption or an exemption issued by
the United States Department of Labor. Parties in interest that engage in a non-exempt prohibited
transaction may be subject to excise taxes and/or other penalties and liabilities under ERISA and
Section 4975 of the Code. In considering an investment in the Notes of a portion of the assets of any
Plan, a fiduciary should determine whether the investment is in accordance with the documents and
instruments governing the Plan and the applicable provisions of ERISA, the Code or any Similar Laws
relating to a fiduciary’s duties to the Plan including, without limitation, the prudence, diversification,
delegation of control and prohibited transaction provisions of ERISA, the Code and any other
applicable Similar Laws. No representation is made that the sale of any Notes to a Plan meets the
fiduciary requirements for investments by Plans generally or any particular Plan or that such an
investment is appropriate for Plans generally or any particular Plan. Neither the Issuer, the Guarantors
nor any of the parties described in this Offering Memorandum, or their affiliates, is providing
investment advice to any Plan, through this Offering Memorandum or otherwise, in connection with the
sale of the Notes.
The acquisition and/or holding of Notes by a Plan with respect to which the Issuer or the Guarantors
are considered a party in interest or a disqualified person may constitute or result in a direct or
indirect prohibited transaction under Section 406 of ERISA and/or Section 4975 of the Code, unless
the investment is acquired and is held in accordance with an applicable statutory, class or individual
prohibited transaction exemption. In this regard, the United States Department of Labor (the ‘‘DOL’’)
has issued prohibited transaction class exemptions (‘‘PTCEs’’), that may apply to the acquisition and
holding of the Notes. These class exemptions (as may be amended from time to time) include, without
limitation: (A) the in-house asset manager exemption (PTCE 96-23), (B) the insurance company
general account exemption (PTCE 95-60), (C) the bank collective investment fund exemption (PTCE
91-38), (D) the insurance company pooled separate account exemption (PTCE 90-1) and (E) the
qualified professional asset manager exemption (PTCE 84-14). In addition, ERISA Section 408(b)(17)
and Section 4975(d)(20) of the Code provide a limited exemption for certain transactions, provided that
neither any parties in interest nor any of its affiliates have or exercise any discretionary authority or
control or render any investment advice with respect to the assets of any Plan involved in the
transaction and provided further that the Plan pays no more than adequate consideration in connection
with the transaction (the so-called ‘‘service provider exemption’’). There can be no assurance that any
of these statutory or class exemptions will be available with respect to transactions involving the Notes.
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In analyzing these issues with their own counsel, prospective purchasers of the Notes should consider,
among other things, that, although the Notes will be treated as debt for United States federal income
tax purposes, see ‘‘Tax Considerations—United States Federal Income Taxation,’’ it is not clear whether
the Notes would be treated as issued by the Issuer or any entity related to the Issuer. The Notes should
not be purchased or held by any person investing Plan Assets of any Plan, unless such purchase and
holding will be exempt from the prohibited transaction restrictions contained in ERISA and/or the
Code or in any applicable Similar Laws.
Each purchaser or holder of a Note, and each fiduciary who causes any entity to purchase or hold a
Note, shall be deemed to have represented and warranted, on each day such purchaser or holder holds
such Notes, that either (i) it is not, and for so long as it holds the Notes (or interest therein) it will not
be, a Plan nor a Non-ERISA Arrangement and it is not purchasing or holding Notes on behalf of or
with the assets of any Plan or Non-ERISA Arrangement; or (ii) its purchase, holding and subsequent
disposition of such Notes either (A) shall not constitute or result in a non-exempt prohibited
transaction under ERISA, the Code or any provision of Similar Law and will not constitute or result in
a prohibited transaction under Section 406 of ERISA or Section 4975 of the Code or Similar Laws for
which an exemption is not available, and are otherwise permissible under all applicable Similar Laws or
(ii) are entitled to exemptive relief from the prohibited transaction provisions of ERISA and the Code
in accordance with one or more available statutory, class or individual prohibited transaction
exemptions and are otherwise permissible under all applicable Similar Laws. The purchaser of Notes
(or any interest therein) will be deemed to have represented, warranted and agreed, among other
things, that the purchaser will not transfer the Notes to any person or entity, unless such person or
entity could itself truthfully make the foregoing representations and covenants.
Fiduciaries of any Plans and Non-ERISA Arrangements should consult their own legal counsel before
purchasing the Notes. It is particularly important that fiduciaries, or other persons considering
purchasing the Notes on behalf of, or with the assets of, any Plan, consult with their counsel regarding
the potential applicability of ERISA, the Code and any Similar Laws to such investment and whether
an exemption would be applicable to the purchase and holding of the Notes. We also refer you to the
portions of this Offering Memorandum addressing restrictions applicable under ERISA, the Code and
Similar Law.
The foregoing discussion is general in nature and is not intended to be all inclusive. Each purchaser of
a Note will have exclusive responsibility for ensuring that its purchase, holding and subsequent
disposition of the Note does not violate the fiduciary or prohibited transaction rules of ERISA, the
Code or any Similar Law. Nothing herein shall be construed as a representation that an investment in
the Notes would meet any or all of the relevant legal requirements with respect to investments by, or is
appropriate for, Plans or Non-ERISA Arrangements generally or any particular Plan or Non-ERISA
Arrangement.
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PLAN OF DISTRIBUTION
Subject to the terms and conditions of a purchase agreement dated September 28, 2012 (the ‘‘Purchase
Agreement’’) entered into by and among the Issuer, the Subsidiary Guarantors and the Initial
Purchasers indicated below, the Initial Purchasers have severally agreed to purchase from the Issuer
and the Issuer has agreed to sell the respective principal amount of the Notes set forth opposite their
names below.
Principal amount
of Euro Notes
Principal amount
of Dollar Notes
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107,900,000
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107,900,000
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107,900,000
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325,000
325,000
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325,000
325,000
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99,600,000
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99,600,000
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99,600,000
300,000
300,000
300,000
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300,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
A325,000,000
$300,000,000
Initial Purchasers
BNP Paribas . . . . . . . . . . . . . . . . . . .
BNP Paribas Securities Corp. . . . . . . .
J.P. Morgan Securities plc . . . . . . . . . .
J.P. Morgan Securities LLC . . . . . . . .
UniCredit Bank AG . . . . . . . . . . . . . .
UniCredit Capital Markets LLC . . . . .
Erste Group Bank AG . . . . . . . . . . . .
Privredna banka Zagreb, d.d. . . . . . . .
RB International Markets (USA) LLC
Raiffeisen Bank International AG . . . .
Société Générale . . . . . . . . . . . . . . . .
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The Purchase Agreement provides that the obligations of the Initial Purchasers to purchase and accept
delivery of the Notes offered hereby are subject to the approval by our and their counsel of certain
legal matters and to certain other conditions. The Initial Purchasers are obligated to purchase and
accept delivery of all the Notes if any are purchased. The Initial Purchasers have advised us that any
offer of the Notes by any of them in the United States will be made through their respective
U.S. broker-dealer affiliates, if any. Erste Group Bank AG, Privredna banka Zagreb, d.d. and Société
Générale are not U.S. registered broker-dealers, and will not effect any offers or sales of any Notes in
the United States unless it is through one or more U.S. registered broker-dealers as permitted by the
regulations of the Financial Industry Regulatory Authority, Inc.
The purchase price for the Notes will be the offering price set forth on the cover page of this Offering
Memorandum, plus accrued interest from the Issue Date. After the initial Offering of the Notes, the
Initial Purchasers may from time to time vary the offering price and other selling terms without notice.
We will pay the Initial Purchasers a customary fee and will reimburse the Initial Purchasers for certain
expenses related to the Offering.
Persons who purchase Notes from the Initial Purchasers may be required to pay stamp duty, taxes and
other charges in accordance with the laws and practice of the country of purchase in addition to the
offering price set forth on the cover page hereof.
The Issuer and the Subsidiary Guarantors have agreed, jointly and severally, to indemnify the Initial
Purchasers against certain liabilities, including liabilities under the U.S. Securities Act, or to contribute
to payments which the Initial Purchasers may be required to make in respect of any such liabilities. We
have agreed that, subject to certain exceptions, we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, any securities issued or guaranteed by the Issuer, or any
Subsidiary Guarantor and having maturity of more than one year from the date of issue, without the
prior written consent of the Initial Purchasers for a period of 180 days after the date of this Offering
Memorandum. The Issuer and the Subsidiary Guarantors have also agreed that they will not at any
time offer, sell, pledge, contract to sell, pledge or otherwise dispose of directly or indirectly, any
securities under circumstances in which such offer, sale, pledge, contract or disposition would cause the
exemption afforded by Section 4(2) of the U.S. Securities Act or the safe harbor of Rule 144A and
Regulation S under the U.S. Securities Act to cease to be applicable to the offer and sale of the Notes.
No action has been or will be taken in any jurisdiction by the Issuer, the Subsidiary Guarantors or the
Initial Purchasers that would permit a public offering of the Notes or the possession, circulation or
distribution of this Offering Memorandum or any other material relating to the Issuer, the Subsidiary
Guarantors or the Notes in any jurisdiction where action for that purpose is required. Accordingly, the
Notes may not be offered or sold, directly or indirectly, and neither this Offering Memorandum nor
178
any other offering material or advertisements in connection with the Notes may be distributed or
published, in or from any country or jurisdiction, except in compliance with any applicable rules and
regulations of any such country or jurisdiction. This Offering Memorandum does not constitute an offer
to purchase or a solicitation of an offer to sell in any jurisdiction where such offer or solicitation would
be unlawful. Persons into whose possession this Offering Memorandum comes are advised to inform
themselves about, and to observe any restrictions relating to, the Offering of the Notes, the distribution
of this Offering Memorandum and resales of the Notes. See ‘‘Transfer Restrictions’’ and ‘‘Notice to
Certain European Investors.’’
United States
The Notes and the Note Guarantees have not been and will not be registered under the
U.S. Securities Act and may not be offered, sold or resold within the United States or to, or for the
account or benefit of, U.S. persons except in certain transactions exempt from or not subject to the
registration requirements of the U.S. Securities Act. Terms used in this paragraph have the meanings
given to them by Regulation S. See ‘‘Transfer Restrictions’’ and ‘‘Notice to Certain European
Investors.’’
The Issuer and the Subsidiary Guarantors have been advised by the Initial Purchasers that the Initial
Purchasers and their broker dealer affiliates, if any propose to offer the Notes for resale initially to
(i) persons they reasonably believe to be ‘‘qualified institutional buyers’’ (as defined in Rule 144A
under the U.S. Securities Act) in reliance on Rule 144A under the U.S. Securities Act, or (ii) certain
eligible persons outside the United States in reliance on Regulation S under the U.S. Securities Act.
Each purchaser of Notes offered hereby in making the purchase will, by such purchase, be deemed to
have made certain acknowledgements, representations, warranties and agreements as set forth under
‘‘Transfer Restrictions’’ and ‘‘Notice to Certain European Investors.’’ Terms used above have the
meanings assigned to them in Rule 144A or Regulation S. Erste Group Bank AG, Privredna banka
Zagreb, d.d. and Société Générale are not U.S. registered broker-dealers, and will not effect any offers
or sales of any Notes in the United States unless it is through one or more U.S. registered brokerdealers as permitted by the regulations of the Financial Industry Regulatory Authority, Inc.
Until the expiration of 40 days after the later of (i) the commencement of the Offering, and (ii) the
Issue Date of the Notes, an offer or sale of Notes initially sold pursuant to Regulation S to, or for the
account of, a U.S. Person (as defined in Regulation S) by a person receiving a concession, fee or
remuneration in respect of the Notes (whether or not participating in the Offering) may violate the
registration requirements of the U.S. Securities Act if such offer or sale is made otherwise than in
accordance with Rule 144A under the U.S. Securities Act. Resales of the Notes are restricted as
described under ‘‘Notice to Investors’’ and ‘‘Notice to Non-U.S. Investors.’’
European Economic Area
Each Initial Purchaser has represented, warranted and agreed that:
In relation to each Relevant Member State of the EEA that has implemented the Prospectus Directive,
with effect from and including the Relevant Implementation Date, the offer is not being made and will
not be made to the public of any Notes which are the subject of the Offering contemplated by this
Offering Memorandum in that Relevant Member State, other than: (a) to any legal entity which is a
qualified investor as defined in the Prospectus Directive; (b) to fewer than 100 or, if the Relevant
Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150,
national or legal persons (other than qualified investors as defined in the Prospectus Directive, subject
to obtaining the prior consent of the relevant Initial Purchaser or Initial Issuer for any such offer); or
(c) in any other circumstances falling within Article 3(2) of the Prospectus Directive; provided that no
such offer of the Notes shall require us or the Initial Purchasers to publish a prospectus pursuant to
Article 3 of the Prospectus Directive. For the purposes of this provision, the expression an ‘‘offer of
Notes to the public’’ in relation to the Notes in any Relevant Member State means the communication
in any form and by any means of sufficient information on the terms of the offer and the Notes to be
offered so as to enable an investor to decide to purchase or subscribe the Notes, as the same may be
varied in that Relevant Member State by any measure implementing the Prospectus Directive in that
Relevant Member State and the expression ‘‘Prospectus Directive’’ means Directive 2003/71/EC (and
any amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the
179
Relevant Member State) and includes any relevant implementing measure in each Relevant Member
State.
United Kingdom
Each Initial Purchaser has represented, warranted and agreed that:
(1) it has only communicated or caused to be communicated and will only communicate or cause to be
communicated any invitation or inducement to engage in investment activity (within the meaning
of Section 21 of the FSMA) received by it in connection with the issue or sale of any notes in
circumstances in which Section 21(1) of the FSMA does not apply to the Issuer or the Subsidiary
Guarantors; and
(2) it has complied and will comply with all applicable provisions of the FSMA with respect to
anything done by it in relation to any Notes in, from or otherwise involving the United Kingdom.
Settlement
We expect that delivery of the Notes will be made against payment on the Notes on or about the date
specified on the cover page of this Offering Memorandum, which will be eight business days (as such
term is used for purposes of Rule 15c6-1 of the U.S. Exchange Act) following the date of pricing of the
Notes in respect of the Euro Notes (this settlement cycle is being referred to as ‘‘T + 8’’) and seven
business days following the date of pricing in respect of the Dollar Notes (this settlement cycle is being
referred to as ‘‘T + 7’’). Under Rule 15c6-1 of the U.S. Exchange Act, trades in the secondary market
generally are required to settle in three business days unless the parties to any such trade expressly
agree otherwise. Accordingly, purchasers who wish to trade the Euro Notes on the date of this Offering
Memorandum or the next four business days and purchasers who wish to trade the Dollar Notes on the
date of this Offering Memorandum or the next three business days will be required to specify an
alternative settlement cycle at the time of any such trade to prevent a failed settlement. Purchasers of
the Notes who wish to make such trades should consult their own advisors.
Other
In connection with the Offering, BNP Paribas, BNP Paribas Securities Corp., J.P. Morgan Securities plc,
J.P. Morgan Securities LLC, UniCredit Bank AG and UniCredit Capital Markets LLC and their
affiliates may over-allot or effect transactions with a view to supporting the market price of the Notes
at a level higher than that which might otherwise prevail in the open market for a limited period after
the Issue Date or anyone acting on its behalf. However, there may be no obligation on BNP Paribas,
BNP Paribas Securities Corp., J.P. Morgan Securities plc, J.P. Morgan Securities LLC, UniCredit
Bank AG and UniCredit Capital Markets LLC and their affiliates to do this. Such stabilizing, if
commenced, may be discontinued at any time and must be brought to an end after a limited period.
BNP Paribas, BNP Paribas Securities Corp., J.P. Morgan Securities plc, J.P. Morgan Securities LLC,
UniCredit Bank AG and UniCredit Capital Markets LLC does not intend to disclose the extent of any
stabilizing transactions or the amount of any long or short position.
•
Over-allotment involves sales in excess of the offering size, which creates a short position for the
Initial purchases.
•
Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing
bids do not exceed a specified maximum.
•
Covering transactions involve purchases of the Notes in the open market after the distribution has
been completed in order to cover short positions.
•
Penalty bids permit the Initial Purchasers to reclaim a selling concession from a broker/dealer
when the Notes originally sold by such broker/dealer are purchased in a stabilizing or covering
transaction to cover short positions.
Application will be made to admit the Notes to listing on the Official List of the Irish Stock Exchange
and to trading on the Global Exchange Market. There is no assurance that the Notes will be listed and
admitted to trade on the Global Exchange Market. Although the Initial Purchasers have informed the
Issuer that they intend to make a market in the Notes, they are not obligated to do so and they may
discontinue market making at any time without notice. Accordingly, the Issuer cannot assure you that
an active trading market for the Notes will develop or be maintained or as to the liquidity of any
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trading market for the Notes, the ability of holders of the Notes to sell their Notes or the price at
which holders would be able to sell their Notes. In addition, any such market making activity will be
subject to the limits imposed by the U.S. Securities Act and the U.S. Exchange Act. Accordingly, the
liquidity of the trading market in the Notes and the future trading price of the Notes will depend on
many factors, including those disclosed under the captions entitled ‘‘Risk Factors—Risks Relating to the
Notes. The Notes are subject to transfer restrictions.’’
Certain Relationships
The Initial Purchasers and certain of their affiliates from time to time have performed, and in the
future will perform, banking, investment banking, advisory, consulting and other financial services for
Agrokor, d.d. and its subsidiaries, for which they have received and may in the future receive customary
advisory and transaction fees and expense reimbursement. Certain of the Initial Purchasers or their
respective affiliates, as applicable, acted as initial purchasers for the original offering of the 2016 Notes,
the subsequent offering of the 2016 Notes and the offering of the 2019 Notes and received fees and
commissions in connection with such transactions. BNP Paribas, J.P. Morgan Securities plc and
UniCredit Bank AG, or their respective affiliates, as applicable, will be lenders under the Revolving
Credit Facility. In addition, the Initial Purchasers or their respective affiliates, as applicable, are lenders
under our Senior Facilities Agreement, and lenders under the Senior Facilities Agreement will be
repaid with the proceeds of the issuance of the Notes. Furthermore, BNP Paribas, J.P. Morgan
Securities plc, UniCredit Bank AG or their respective affiliates, as applicable, are lenders under the
Term Loan, and lenders under the Term Loan will be repaid with the proceeds of the issuance of the
Notes. Certain of the Initial Purchasers or their respective affiliates, as applicable, are lenders under
certain of our bilateral facilities, and additionally, were also lenders under certain of our bilateral
facilities which were repaid with the proceeds of the issuance of the 2019 Notes. See ‘‘Use of Proceeds’’
and ‘‘Description of Other Financing Arrangements.’’
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TRANSFER RESTRICTIONS
Because of the following restrictions, you are advised to consult legal counsel prior to making any offer,
resale, pledge or other transfer of the Notes offered hereby.
Rule 144A Notes
Each purchaser of Notes sold in reliance on Rule 144A under the U.S. Securities Act (the ‘‘Rule 144A
Notes’’) within the United States, by accepting delivery of this Offering Memorandum and the
Rule 144A Notes, will be deemed to have represented, agreed and acknowledged that:
(1) It is not an ‘‘affiliate’’ (as defined in Rule 144 under the U.S. Securities Act) nor is it acting on
behalf of the Issuer or any Subsidiary Guarantor, and it is (a) a qualified institutional buyer within
the meaning of Rule 144A, (b) aware, and each beneficial owner of such Notes has been advised,
that the sale of the Notes is being made in reliance on Rule 144A, and (c) acquiring those Notes
solely for its own account or the account of one or more qualified institutional buyers.
(2) It understands that the Rule 144A Notes have not been and will not be registered under the
U.S. Securities Act or any other applicable securities laws and that (i) any offer, sale, pledge
thereof by it must be made either (a) to a person that it and any person acting on its behalf
reasonably believe is a qualified institutional buyer in transaction meeting the requirements of
Rule 144A, (b) in transaction meeting the requirements of Rule 904 of Regulation S, (c) pursuant
to an exemption from registration under the U.S. Securities Act provided by Rule 144, thereunder
(if available) or (d) to the Issuer, or any Subsidiary thereof, and (ii) in each case in accordance
with all applicable laws of any other jurisdiction.
(3) It understands that the Rule 144A Notes, unless otherwise agreed between the Issuer and the
trustee in accordance with applicable law, will bear a legend substantially to the following effect:
THIS NOTE AND THE GUARANTEES IN RESPECT HEREOF AND ANY INTEREST
HEREIN HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE ‘‘U.S. SECURITIES ACT’’) OR
OTHER SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THIS
NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE OFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF
IN THE ABSENCE OF SUCH REGISTRATION UNLESS THE TRANSACTION IS EXEMPT
FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
U.S. SECURITIES ACT.
THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT
IT IS A ‘‘QUALIFIED INSTITUTIONAL BUYER’’ (AS DEFINED IN RULE 144A UNDER
THE U.S. SECURITIES ACT), (2) AGREES THAT IT WILL NOT PRIOR TO (X) THE DATE
WHICH IS ONE YEAR (OR SUCH SHORTER PERIOD OF TIME AS PERMITTED BY
RULE 144 UNDER THE U.S. SECURITIES ACT OR ANY SUCCESSOR PROVISION
THEREUNDER) AFTER THE LATER OF THE ISSUE DATE HEREOF (OR OF ANY
PREDECESSOR OF THIS NOTE) OR THE LAST DAY ON WHICH THE ISSUER OR ANY
AFFILIATE OF THE ISSUER WERE THE OWNERS OF THIS NOTE (OR ANY
PREDECESSOR OF THIS NOTE) AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE
REQUIRED BY APPLICABLE LAW (THE ‘‘RESALE RESTRICTION TERMINATION
DATE’’), OFFER, SELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT
(A) TO AGROKOR D.D. OR ANY SUBSIDIARY THEREOF, (B) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE
U.S. SECURITIES ACT, (C) FOR SO LONG AS THE NOTES ARE ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A UNDER THE U.S. SECURITIES ACT, TO A PERSON IT
REASONABLY BELIEVES IS A ‘‘QUALIFIED INSTITUTIONAL BUYER’’ AS DEFINED IN
RULE 144A UNDER THE U.S. SECURITIES ACT THAT PURCHASES FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO
WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A UNDER THE U.S. SECURITIES ACT, (D) PURSUANT TO OFFERS
AND SALES TO NON U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES
WITHIN THE MEANING OF REGULATION S UNDER THE U.S. SECURITIES ACT OR
(E) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION
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REQUIREMENTS OF THE U.S. SECURITIES ACT, IN EACH CASE, IN ACCORDANCE
WITH ALL APPLICABLE LAWS OF ANY OTHER JURISDICTION, AND (3) AGREES
THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND; PROVIDED THAT THE
ISSUER, THE TRUSTEE AND THE REGISTRAR SHALL HAVE THE RIGHT PRIOR TO
ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D) PRIOR TO THE
END OF THE 40-DAY DISTRIBUTION COMPLIANCE PERIOD WITHIN THE MEANING
OF REGULATION S UNDER THE U.S. SECURITIES ACT OR PURSUANT TO
CLAUSE (E) PRIOR TO THE RESALE RESTRICTION TERMINATION DATE TO
REQUIRE THAT AN OPINION OF COUNSEL, CERTIFICATIONS AND/OR OTHER
INFORMATION SATISFACTORY TO THE ISSUER, THE TRUSTEE AND THE
REGISTRAR IS COMPLETED AND DELIVERED BY THE TRANSFEROR. THIS LEGEND
WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE
RESTRICTION TERMINATION DATE. AS USED HEREIN, THE TERMS ‘‘OFFSHORE
TRANSACTION,’’ ‘‘UNITED STATES’’ AND ‘‘U.S. PERSON’’ HAVE THE MEANINGS
GIVEN TO THEM BY REGULATION S UNDER THE U.S. SECURITIES ACT.
(4) It understands that the issuance of Notes under the Indenture may have the effect of extending
the Resale Restriction Termination Date.
(5) It acknowledges that the Issuer, the Subsidiary Guarantors, the Registrar, the Initial Purchasers
and their respective affiliates, and others will rely upon the truth and accuracy of the above
acknowledgements, representations and agreements and agrees that, if any of the
acknowledgements, representations or agreements deemed to have been made by it by its purchase
of Rule 144A Notes is no longer accurate, it shall promptly notify the Issuer, the Subsidiary
Guarantors and the Initial Purchasers. If it is acquiring any Notes as a fiduciary or agent for one
or more investor accounts, it represents that it has sole investment discretion with respect to each
of those accounts and that it has full power to make the above acknowledgements, representations
and agreements on behalf of each account.
(6) It understands that the Rule 144A Notes will be evidenced by a Rule 144A Global Note. Before
any interest in the Rule 144A Global Note may be offered, sold, pledged or otherwise transferred
to a person who takes delivery in the form of an interest in the Regulation S Global Note, it will
be required to provide a transfer agent with a written certification (in the form provided in the
Indenture) as to compliance with applicable securities laws.
Prospective purchasers are hereby notified that sellers of the Notes may be relying on the exemption
from the provisions of Section 5 of the U.S. Securities Act provided by Rule 144A.
Regulation S Notes
Each purchaser of Notes sold in reliance on Regulation S under the U.S. Securities Act (‘‘Regulation S
Notes’’) outside the United States and each subsequent purchaser of Regulation S Notes in resales
prior to the expiration of the 40-day distribution compliance period (as defined in Regulation S), by
accepting delivery of this Offering Memorandum and the Regulation S Notes, will be deemed to have
represented, agreed and acknowledged that:
(1) It is, or at the time Regulation S Notes are purchased will be, the beneficial owner of such
Regulation S Notes and it is not a U.S. person and it is located outside the United States (within
the meaning of Regulation S).
(2) The purchase of the Regulation S Notes is not part of a plan or scheme to evade the registration
requirements of the U.S. Securities Act.
(3) It understands that the Regulation S Notes have not been and will not be registered under the
U.S. Securities Act or any applicable securities laws and that (i) the Notes may be offered, sold,
pledged or transferred only (a) in accordance with Rule 144A to a person that it and any person
acting on its behalf reasonably believe is a qualified institutional buyer purchasing for its own
account or the account of a qualified institutional buyer or (b) in an offshore transaction in
accordance with Rule 904 of Regulation S or (c) to the Issuer or any Subsidiary Guarantor, and
that (ii) the Regulation S Notes may be offered, sold, pledged or otherwise transferred only in
compliance with the U.S. Securities Act, and, in each case in accordance with any applicable
securities laws of any state of the United States.
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(4) It understands that, except as set forth in the Indenture or as otherwise determined by the Issuer
in accordance with applicable law, the Regulation S Notes will have a legend substantially to the
following effect.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933,
AS AMENDED (THE ‘‘SECURITIES ACT’’) AND, ACCORDINGLY, MAY NOT BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED
STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS
SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF OR OF A
BENEFICIAL INTEREST HEREIN, THE HOLDER (1) REPRESENTS THAT IT IS NOT A
U.S. PERSON, IS NOT ACQUIRING THIS NOTE FOR THE ACCOUNT OR BENEFIT OF A
U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES
THAT IT WILL NOT, PRIOR TO THE DATE WHICH IS 40 DAYS AFTER THE DATE OF
ORIGINAL ISSUE, RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO
THE ISSUER OR ANY SUBSIDIARY THEREOF, (B) TO A PERSON WHOM THE
HOLDER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A ‘‘QIB’’) PURCHASING FOR
ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN COMPLIANCE WITH RULE
144A UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN AN
OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 903 OR 904 OF
REGULATION S UNDER THE SECURITIES ACT, (D) PURSUANT TO ANY OTHER
AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OR
(E) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS, AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO
WHOM THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND PROVIDED THAT THE ISSUER,
THE TRUSTEE AND THE REGISTRAR SHALL HAVE THE RIGHT PRIOR TO ANY
SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (C) PRIOR TO THE END
OF THE 40-DAY DISTRIBUTION COMPLIANCE PERIOD WITHIN THE MEANING OF
REGULATION S UNDER THE SECURITIES ACT OR PURSUANT TO CLAUSE (D) TO
REQUIRE THAT AN OPINION OF COUNSEL, CERTIFICATIONS AND/OR OTHER
INFORMATION SATISFACTORY TO THE ISSUER, THE TRUSTEE AND THE
REGISTRAR IS COMPLETED AND DELIVERED BY THE TRANSFEROR. THE
INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO
REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING
RESTRICTIONS. AS USED HEREIN, THE TERMS ‘‘OFFSHORE TRANSACTION,’’
‘‘UNITED STATES’’ AND ‘‘U.S. PERSON’’ HAVE THE MEANINGS GIVEN TO THEM BY
RULE 902 OF REGULATION S UNDER THE SECURITIES ACT.
(5) If you are a purchaser in a sale that occurs outside the United States within the meaning of
Regulation S, you acknowledge that until the expiration of the ‘‘distribution compliance period,’’
you shall not make any offer or sale of Notes to a U.S. Person or for the account or benefit of a
U.S. Person within the meaning of rule 902 under the U.S. Securities Act. The ‘‘distribution
compliance period’’ means the 40-day period following the Issue Date for the Notes.
(6) It agrees that it will deliver to each purchaser of Regulation S Notes from it a notice to
substantially the foregoing effect.
(7) It acknowledges that the Issuer, the Subsidiary Guarantors, the Registrar, the Initial Purchasers
and their respective affiliates, and others will rely upon the truth and accuracy of the above
acknowledgements, representations and agreements and agrees that, if any of the
acknowledgements, representations or agreements deemed to have been made by it by its purchase
of Notes is no longer accurate, it shall promptly notify the Issuer, the Subsidiary Guarantors and
the Initial Purchasers. If it is acquiring any Notes as a fiduciary or agent for one or more investor
accounts, it represents that it has sole investment discretion with respect to each of those accounts
and that it has full power to make the above acknowledgements, representations and agreements
on behalf of each account.
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LEGAL MATTERS
Certain legal matters in connection with this offering will be passed upon for us by Cravath, Swaine &
Moore LLP as to matters of United States federal and New York law and by Travaš I Partneri Law
Firm Ltd. as to matters of Croatian law. Certain legal matters in connection with this offering will be
passed upon for us and for the Initial Purchasers by the offices of the Attorney Femil Čurt as to
matters of Bosnian law. Certain legal matters in connection with this offering will be passed upon for
the Initial Purchasers by Latham & Watkins (London) LLP as to matters of United States federal and
New York law and by Law Firm Glinska & Mišković Ltd. as to matters of Croatian law.
INDEPENDENT AUDITORS
The Issuer’s audited consolidated financial statements as of and for the years ended December 31,
2009, 2010 and 2011 included in this Offering Memorandum have been audited by Baker Tilly
Discordia d.o.o., our independent auditors, as stated in their reports appearing herein. Baker Tilly
Discordia d.o.o. is a member of the Croatian Chamber of Auditors.
185
WHERE YOU CAN FIND ADDITIONAL INFORMATION
Each purchaser of the Notes from the Initial Purchasers will be furnished a copy of this Offering
Memorandum and any related amendments or supplements to this Offering Memorandum. Each
person receiving this Offering Memorandum and any related amendments or supplements to the
Offering Memorandum acknowledges that:
(1) such person has been afforded an opportunity to request from us, and to review and has received,
all additional information considered by it to be necessary to verify the accuracy and completeness
of the information herein;
(2) such person has not relied on the Initial Purchasers or any person affiliated with any of the Initial
Purchasers in connection with its investigation of the accuracy of such information or its
investment decision; and
(3) except as provided pursuant to paragraph (1) above, no person has been authorized to give any
information or to make any representation concerning the Notes offered hereby other than those
contained herein and, if given or made, such other information or representation should not be
relied upon as having been authorized by us or the Initial Purchasers.
We have agreed that, so long as any Notes remain outstanding, we will furnish to the holders and to
prospective investors, upon their request, the information required to be delivered pursuant to
Rule 144A(d)(4) under the U.S. Securities Act.
The additional documents and information specified in ‘‘Listing and General Information’’ herein and
not included in this Offering Memorandum will be available to be inspected and obtained by holders at
the specified office of the listing agent in Ireland during normal business hours on any weekday.
186
LISTING AND GENERAL INFORMATION
Listing
Application will be made for the Notes to be listed on the Official List of the Irish Stock Exchange and
to be traded on the Irish Stock Exchange’s Global Exchange Market. Notice of any change of control,
change in the rate of interest payable on the Notes or early redemption of the Notes will be published
in a Ireland newspaper of general circulation (which is expected to be The Irish Times) or on the
website of the Irish Stock Exchange, at www.ise.ie.
For so long as the Notes are listed on the Irish Stock Exchange and admitted to trading on the Global
Exchange Market and the rules of that exchange so require, copies of the following documents
(together with English translations thereof) will be made available in electronic or hard copy at the
specified office of the listing agent in Ireland where they may be inspected and obtained by holders
during normal business hours on any weekday:
•
the organizational documents of the Issuer;
•
the organizational documents of each of the Subsidiary Guarantors;
•
the Indenture (which includes the form of the Notes);
•
the Issuer’s audited consolidated financial statements as of and for the years ended December 31,
2009, 2010 and 2011;
•
the Issuer’s unaudited interim consolidated financial statements for the six months ended June 30,
2011 and 2012; and
•
the Issuer’s most recent annual consolidated financial statements and any interim consolidated
financial statements published by the Issuer.
Except as disclosed herein, there has been no material adverse change in our consolidated financial
position, prospects or trading position since December 31, 2011.
The estimated expenses related to admission to trading will be approximately A5,000.
The statute of limitations applicable to payment of interest and repayment of principal under New York
law is six years.
We will maintain a Paying and Transfer agent in London and in the City of New York. We reserve the
right to vary such appointment and we will publish notice of such change of appointment in a
newspaper having a general circulation in Ireland (which is expected to be The Irish Times) or on the
website of the Irish Stock Exchange, at www.ise.ie.
Clearing Information
The Euro Notes sold pursuant to Regulation S and Rule 144A under the U.S. Securities Act have been
accepted for clearance through the facilities of Clearstream and Euroclear under common codes
083649518 and 083649569, respectively. The ISIN number for the Euro Notes sold pursuant to
Regulation S is XS0836495183 and the ISIN number for the Euro Notes sold pursuant to Rule 144A is
XS0836495696.
The Dollar Notes sold pursuant to Regulation S and Rule 144A under the U.S. Securities Act have
been accepted for clearance through the facilities of DTC. The ISIN number for the Dollar Notes sold
pursuant to Regulation S is USX0027KAG32 and the ISIN number for the Dollar Notes sold pursuant
to Rule 144A is US00855UAB52. The CUSIP number for the Dollar Notes sold pursuant to
Regulation S is X0027K AG3 and the CUSIP number for the Dollar Notes sold pursuant to Rule 144A
is 00855U AB5.
Legal Information Regarding the Issuer
The Issuer, Agrokor, was incorporated as a joint stock company on September 11, 1989. Its registration
MBS number is 080020970 and OIB number is 05937759187; its address is Trg Dražena Petrovića 3,
10000 Zagreb, Croatia; and its telephone number is +385 1 4894 111.
187
Authorization
The creation and issue of the Notes has been authorized by resolutions passed by the Supervisory and
Management Boards of the Issuer, in each case, dated September 20, 2012. The granting of the
Note Guarantees has been authorized by resolutions passed by the Supervisory and Management
Boards of each of the Subsidiary Guarantors dated September 20, 2012.
Business Year
The Issuer’s fiscal year ends on December 31 of each year.
Financial Statements
Financial statements will be published by the Issuer on an annual basis. These statements will be
approved by an external auditor. In addition, unaudited financial statements will be published on a
quarterly basis.
Auditors
The consolidated financial statements of the Issuer and the Subsidiary Guarantors have been audited
without qualification for the years ended December 31, 2009, December 31, 2010 and December 31,
2011 by the Issuer’s and the Subsidiary Guarantors’ independent auditors Baker Tilly Discordia d.o.o.
Baker Tilly Discordia d.o.o.’s address is Ulica grada Vukovara 11, 10000 Zagreb, Croatia.
Litigation
Except as disclosed herein, the Issuer, the Subsidiary Guarantors and each of their subsidiaries have
not been involved in any legal or arbitration proceedings against or affecting the Issuer, nor is the
Issuer aware of any pending or threatened proceedings of such kind, occurring in the last twelve
months which is or may be material to the Group’s financial position or profitability.
No Conflict of Interests and Major Shareholders
There are no potential conflicts of interests between any duties to the Issuer, of the directors, of the
statutory auditors and their private interests and or other duties. Mr. Ivica Todorić, the President of
Agrokor, beneficially owns 91.67% of the voting rights in Agrokor’s share capital, and the EBRD holds
the remaining 8.33% of voting rights. See ‘‘Principal Shareholders and Share Capital.’’ Under the laws
of Croatia, Mr. Todorić, as President of Agrokor, owes a fiduciary duty to Agrokor.
Subsidiary Guarantor Information
Each Subsidiary Guarantor will fully and unconditionally guarantee the due and punctual payment of
all amounts due and payable in respect of the Notes.
(1) Agrokor trgovina: Agrokor trgovina was incorporated as a joint stock company in accordance with
the Croatian Companies Act on February 2, 1996. Its registration number is 080041079; its address
is Ulica grada Vukovara 284/a, Zagreb, Croatia; and its telephone number is +385 1 6052 200.
(2) Jamnica: Jamnica was incorporated as a joint stock company in accordance with the Croatian
Companies Act on June 2, 1995. Its registration number is 080001412; its address is Getaldićeva 3,
10000 Zagreb, Croatia; and its telephone number is +385 1 2393 111.
(3) Ledo: Ledo was incorporated as a joint stock company in accordance with the Croatian
Companies Act on May 15, 1995. Its registration number is 080002964; its address is M. Čavića 9,
10000 Zagreb, Croatia; and its telephone number is +385 1 2385 555.
(4) Konzum: Konzum represented approximately 41.0% (HRK 1,095.4 million (A145.5 million as
translated at the period-end rate for 2011 of A1.00=HRK 7.53042 based on the Croatian National
Bank Rate)) of consolidated EBITDA and approximately 38.6% (HRK 2,554.8 million
(A339.3 million as translated at the period-end rate for 2011 of A1.00=HRK 7.53042 based on the
Croatian National Bank Rate)) of consolidated net assets as of December 31, 2011. Konzum was
incorporated as a joint stock company in accordance with the Croatian Companies Act on June 27,
1995. Its registration number is 080000926; its address is M. Čavića la, 10000 Zagreb, Croatia; and
its telephone number is +385 1 2482 222. 7,020 shares out of 16,259,940, representing 0.043% of
188
Konzum’s share capital held by Agrokor d.d., are not fully paid. Konzum is a food retail and
wholesale chain. For risks that could impact Konzum’s guarantee, see ‘‘Risk Factors—Risks
Relating to the Retailing and Wholesale Industry.’’
(5) Ledo Čitluk: Ledo Čitluk was incorporated as a limited liability company under the laws of Bosnia
and Herzegovina on February 3, 2000. Its registration number is 1-10174; its address is Industrijska
zona—Tromea b.b., Čitluk, Bosnia and Herzegovina; and its telephone number is +387 36 650 220.
(6) PIK Vinkovci: PIK Vinkovci, was incorporated as a joint stock company in accordance with the
Croatian Companies Act on August 22, 1995. Its registration number is 030001628; its address is
Matije Gupca 130, Vinkovci, Croatia; and its telephone number is +385 32 339 730.
(7) Sarajevski kiseljak: Sarajevski kiseljak was incorporated as a joint stock company under the laws
of Bosnia and Herzegovina on August 30, 2000. Its registration number is 51-02-0001-09; its
address is Ulica Kraljice mira br.7., Kiseljak, Bosnia and Herzegovina; and its telephone number
is +387 30 871 800.
(8) Zvijezda: Zvijezda was incorporated as a joint stock company in accordance with the Croatian
Companies Act on June 9, 1995. Its registration number is 080001822; its address is M. Čavića 1,
10000 Zagreb, Croatia; and its telephone number is +385 1 2832 666.
Unaudited Supplemental Information on the Subsidiary Guarantors
The Issuer’s obligations under the Notes will be guaranteed by the Subsidiary Guarantors on a senior
unsecured basis. The following table sets forth the sales, EBITDA and total assets of the Subsidiary
Guarantors and the Issuer’s non-guarantor subsidiaries (in absolute terms and expressed as a
percentage of our consolidated sales, EBITDA and assets) for the year ended and as of December 31,
2011, the six months ended and as of June 30, 2012 and the twelve months ended and as of June 30,
2012, along with, in each case, intercompany eliminations. This table should be read in conjunction with
‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ and the
financial statements and related notes thereto included elsewhere in this Offering Memorandum.
Year ended and as of December 31, 2011
(HRK millions)
Subsidiary
Guarantors
HRK
%
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . .
EBITDA . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . .
16,146.4
1,824.8
15,367.3
55.6%
68.3%
52.7%
Non-Guarantors
HRK
%
12,907.0
846.7
13,736.9
44.4%
31.7%
47.3%
Totals
HRK
%
29,053.4
2,671.5
29,164.2
100.0%
100.0%
100.0%
Six months ended and as of June 30, 2012
(HRK millions)
Subsidiary
Guarantors
Non-Guarantors
Totals
HRK
%
HRK
%
HRK
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . .
EBITDA . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . .
7,603.9
776.2
16,505.2
56.2%
67.8%
55.2%
5,921.0
368.6
13,408.3
43.8%
32.2%
44.8%
13,524.9
1,144.8
29,913.8
100.0%
100.0%
100.0%
Twelve months ended and as of June 30, 2012
(HRK millions)
Subsidiary
Guarantors
Non-Guarantors
Totals
HRK
%
HRK
%
HRK
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . .
EBITDA . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . .
16,398.2
1,821.6
16,505.2
189
56.7%
67.2%
55.2%
13,045.7
881.1
13,408.3
44.3%
32.8%
44.8%
29,443.9
2,709.7
29,913.8
%
%
100.0%
100.0%
100.0%
General
Except as disclosed herein, there has been no significant change in the consolidated financial position
or trading position of the Issuer and its subsidiaries since the date of its unaudited interim consolidated
financial statements for the six months ended June 30, 2012.
The initial Trustee under the Indenture is BNY Mellon Corporate Trustee Services Limited, whose
head office is at One Canada Square, London E14 5AL, United Kingdom.
190
INDEX TO FINANCIAL STATEMENTS
Page
Unaudited Interim Consolidated Financial Statements for the six months ended
Consolidated Statement of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Cash Flow Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . .
June 30, 2012
...........
...........
...........
...........
F-2
F-3
F-5
F-7
Audited Consolidated Financial Statements for the year ended December 31, 2011
Auditor’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statement of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statement of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statement of Financial Position . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statement of Changes in Equity . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . .
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F-15
F-16
F-17
F-18
F-20
F-21
F-22
Audited Consolidated Financial Statements for the year ended December 31, 2010
Auditor’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statement of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statement of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statement of Financial Position . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statement of Changes in Equity . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . .
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F-63
F-64
F-65
F-66
F-68
F-69
F-70
Audited Consolidated Financial Statements for the year ended December 31, 2009
Auditor’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statement of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statement of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statement of Financial Position . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statement of Changes in Equity . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . .
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F-112
F-113
F-114
F-115
F-117
F-118
F-119
F-1
AGROKOR GROUP
CONSOLIDATED STATEMENT OF INCOME
For the six months ended 30 June 2012 and 2011
(in thousands of HRK)
30.06.2012
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30.06.2011
13,524,931 13,211,740
(9,502,191) (9,232,869)
(1,109,339) (1,119,950)
GROSS MARGIN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,913,401
2,858,921
Other revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
77,313
85,469
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OPERATING PROFIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,296,313) (2,259,160)
694,401
685,230
.
.
.
.
.
.
.
—
(3,360)
6,912
35,110
(11,455)
(481,765)
(242,481)
(714)
(1,488)
3
—
4,478
(393,152)
(426)
PROFIT BEFORE TAXATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,638)
293,931
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(75,945)
(104,419)
NET PROFIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(78,583)
189,512
ATTRIBUTABLE TO:
Equity holders of the parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-controlling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(113,897)
35,314
118,604
70,908
Excess of fair value of net assets over the cost of acquisition, net of written
off goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of financial assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sale of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sale of properties, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net foreign exchange loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-2
.
.
.
.
.
.
.
AGROKOR GROUP
CONSOLIDATED BALANCE SHEET
As at 30 June 2012 and 31 December 2011
(in thousands of HRK)
30.06.2012
(audited)
31.12.2011
.
.
.
.
.
14,270,505
1,494,184
369,115
12,949
1,222,555
14,495,162
1,503,264
379,080
9,697
1,060,091
TOTAL NON-CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . .
17,369,308
17,447,294
4,561,727
1,047,234
328,082
851,035
4,544,607
276,367
935,481
4,869,906
546,445
350,769
721,416
4,003,630
315,107
909,637
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12,544,533
11,716,910
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29,913,841
29,164,204
Notes
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment
Intangible assets . . . . . . . . . . .
Biological assets . . . . . . . . . . .
Investments in associates . . . .
Other non-current investments
CURRENT ASSETS
Inventories . . . . . . . . . . .
Live stock and crops . . . . .
Other assets held for sale .
Loans and deposits . . . . .
Accounts receivable . . . . .
Other current assets . . . . .
Cash and cash equivalents
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F-3
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1
1
2
AGROKOR GROUP
CONSOLIDATED BALANCE SHEET
As at 30 June 2012 and 31 December 2011
(in thousands of HRK)
30.06.2012
(audited)
31.12.2011
EQUITY AND LIABILITIES
EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE
PARENT
Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
161,591
3,364,689
161,591
3,535,052
NON-CONTROLLING INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . .
3,526,280
2,911,895
3,696,643
2,918,391
TOTAL EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,438,175
6,615,034
9,921,591
66,009
428,311
47,714
55,036
7,554,648
67,321
432,006
48,221
60,313
TOTAL LONG-TERM LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . .
10,518,661
8,162,509
CURRENT LIABILITIES
Accounts payable . . . . . . . . . . . . . . . . . . .
Liabilities due to other assets held for sale
Income tax payable . . . . . . . . . . . . . . . . .
Current portion of long-term borrowings . .
Bank borrowings . . . . . . . . . . . . . . . . . . .
Non-bank borrowings . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . .
10,234,759
—
29,418
745,529
975,921
—
971,378
9,674,006
—
71,466
935,208
2,619,531
156,296
930,154
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . .
12,957,005
14,386,661
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23,475,666
22,549,170
TOTAL EQUITY AND LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . .
29,913,841
29,164,204
Notes
LIABILITIES
LONG-TERM LIABILITIES
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for employee benefits . . . . . . . . . . . . .
Deferred tax liability related to land revaluation
Other deferred taxation . . . . . . . . . . . . . . . . . .
Other long term liabilities . . . . . . . . . . . . . . . . .
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F-4
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4
4
4
4
5
AGROKOR GROUP
CONSOLIDATED CASH FLOW STATEMENT
For the six months ended 30 June 2012 and 2011
(in thousands of HRK)
30.06.2012
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net earnings to net cash provided by operating
activities
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess of fair value of net assets over the cost of acquisition, net of written
goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of financial assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss/(gain) on sale of properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of financial assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Value adjustment of receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
...
...
off
...
...
...
...
...
...
...
...
Result from operating activities before changes in working capital . . . . . . . . .
Increase in receivables . . . . . . . . . . . . . . . . .
Increase in inventories . . . . . . . . . . . . . . . . .
Increase of liabilities towards creditors . . . . . .
Decrease/(increase) of other short term assets
Increase in other short term liabilities . . . . . .
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.
.
(123,861)
(426,144)
Net cash provided from operating activities . . . . . . . . . . . . . . . . . . . . . . . . . .
215,320
135,820
.
.
.
.
.
.
.
.
(11,622)
(437,635)
(169,076)
(129,620)
45,457
91,025
37,726
6,912
(115,810)
(663,286)
(12,472)
134,958
38,064
—
17,951
3
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(566,833)
(600,592)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt . . . . . . . . . . . . . . . .
Repayments of long-term debt . . . . . . . . . . . . . . . .
Repayments of short-term debt . . . . . . . . . . . . . . .
Repayments of short-term non-bank debt . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
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.
1,116,363
(116,067)
(512,478)
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.
.
.
.
.
.
.
915,620
Income tax paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
.
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.
.
.
.
.
714
(47,757)
1,488
(4,478)
—
10,191
(3)
440,909
685,825
.
.
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.
.
.
.
.
.
.
.
—
(60,625)
3,360
11,455
(35,110)
13,332
(6,912)
542,390
843,865
.
.
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.
.
.
.
.
.
.
.
.
.
421,368
Net cash inflow from operating activities before interest and taxes . . . . . . . . .
.
.
.
.
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.
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.
.
450,368
(427,698)
(245,707)
299,519
(93,975)
37,323
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.
.
293,931
(531,410)
(192,610)
579,800
32,651
39,814
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of subsidiaries, net of cash acquired . . .
Additions to properties and intangible assets . . . . .
Increase in long term investments . . . . . . . . . . . . .
(Increase)/decrease in short term investments . . . . .
Proceeds from sale of properties . . . . . . . . . . . . . .
Proceeds from sale of financial assets . . . . . . . . . . .
Interest received . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend received . . . . . . . . . . . . . . . . . . . . . . . . .
.
.
.
.
.
(2,638)
30.06.2011
.
.
.
.
.
2,674,148 1,212,322
(496,885) (428,182)
(1,643,610) (246,612)
(156,296)
(41)
—
(49,465)
Net cash from financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
377,357
488,022
NET INCREASE/DECREASE IN CASH AND CASH EQUIVALENTS . . . . . . .
25,844
23,250
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD . . . . . . .
909,637
875,997
CASH AND CASH EQUIVALENTS, AND OF PERIOD . . . . . . . . . . . . . . . . .
935,481
899,247
F-5
Significant accounting policies
The accounting policies adopted in the preparation of the interim condensed consolidated financial
statements are consistent with those followed in the preparation of the Group’s annual financial
statements for the year ended 31 December 2011, except for noted below.
The Group has adopted the following new and amended IFRS and IFRIC interpretations on 1 January
2012:
•
Amendments to IFRS 7 Financial instruments—Disclosures: Transfer of financial assets (effective
for annual periods beginning on or after 1 July 2011)
•
Amendments to IFRS 1 First-time Adoption of IFRS: severe hyperinflation and removal of fixed
dates for first-time adopters (effective for annual periods beginning on or after 1 July 2011)
•
Amendments to IAS 12 Income tax—Deferred tax: recovery of underlying assets (effective for
annual periods beginning on or after 1 January 2012.
The adoption of these amendments to the existing standards did not have any influence on financial
position or performance of the Group.
F-6
AGROKOR GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at 30 June 2012 and 31 December 2011
NOTE 1
INVENTORIES
(audited)
30.06.2012
31.12.2011
(in thousands of HRK)
Raw Materials . .
Work in progress
Merchandise . . .
Finished goods . .
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597,227
628,032
2,750,723
585,745
606,650
1,060,285
2,584,812
618,159
4,561,727
4,869,906
TOTAL BIOLOGICAL ASSETS
(audited)
30.06.2012
31.12.2011
(in thousands of HRK)
Live stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Crops . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
368,513
678,721
262,425
284,020
1,047,234
546,445
Except for increase in volume of production in live stock farming (Belje, Vupik and PIK Vinkovci),
increase in biological assets is mostly related to additional costs of crop husbandry and spring sowing,
mainly related to raw materials and fertilisers in period of exceptional drynes as well as due to fuel and
raw materials price growth.
NOTE 2
LOANS AND DEPOSITS
(audited)
30.06.2012
31.12.2011
(in thousands of HRK)
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
748,158
102,877
553,823
167,593
851,035
721,416
Loans relate to commercial loans to farmers and other loans which bear interest at annual rate of
4–10% while deposits relate to bank and other short term placements in the normal course of business
which bear interest at annual rate of 2–4%. Increase of loans is related to increase of the commercial
loans to farmers granted for financing of preparation of harvest and for upcoming purchase of
agricultural produce.
NOTE 3
CONTINGENCIES
The Group is involved in normal commercial litigation relating to the collection of outstanding amounts
from debtors of HRK 344,003 thousand and disputes with creditors over amounts of HRK
44,714 thousand. In addition, proceedings are ongoing in relation to other short-term receivables of
HRK 63,150 thousand and other short-term liabilities of HRK 105,211 thousand.
On August 29th, 2012 we received the verdict of the Administrative Court of the Republic of Croatia
dated 11th July, 2012, related to the court procedure initiated by Agrokor d.d. against Croatian
Financial Services Supervisory Agency (CFSSA). The court accepted the procedure initiated by
Agrokor d.d. and CFSSA’s decision dated 6th October, 2011 is annulled.
F-7
AGROKOR GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at 30 June 2012 and 31 December 2011
NOTE 4
BORROWINGS
(audited)
30.06.2012
31.12.2011
(in thousands of HRK)
Long-term borrowings
Bank loans . . . . . . . . .
Bonds . . . . . . . . . . . .
Non-bank loans . . . . .
Finance leases . . . . . .
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4,370,244
6,284,956
1,008
10,912
4,385,473
4,071,301
16,036
17,046
Total long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,667,120
8,489,856
Current portion of long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . .
(745,529)
(935,208)
Short-term borrowings
Bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
975,921
—
2,619,531
156,296
Total short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
975,921
2,775,827
TOTAL BORROWINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,643,041
11,265,683
During the second quarter of 2012 the Group successfully refinanced its short-term debt by issuing a
new Senior Note with a 9.875 per cent coupon due 2019 in the amount of A300 million. This
transaction improved its overall maturity profile by increasing the share of long-term facilities in the
overall debt.
NOTE 5
OTHER CURRENT LIABILITIES
(audited)
30.06.2012
31.12.2011
(in thousands of HRK)
Sales and employment taxes . . . . . . . .
Amounts due to employees . . . . . . . . .
Advance payments . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . .
Accrued expenses and deferred income
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F-8
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.
157,072
157,010
242,578
272,385
142,333
164,592
155,701
276,172
245,858
87,831
971,378
930,154
CONSOLIDATED STATEMENT OF INCOME
For the period ended 31st March 2012 and 2011
(in thousands of HRK)
31.03.2012
31.03.2011
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,063,667
(4,193,042)
(534,939)
5,714,764
(3,934,331)
(525,136)
GROSS MARGIN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,335,686
1,255,297
Other revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20,909
(1,098,186)
55,012
(1,048,253)
OPERATING PROFIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
258,409
262,056
Excess of fair value of net assets over the cost of acquisition, net of written
off goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of financial assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sale of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sale of properties, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net foreign exchange loss/gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
—
(2,132)
—
35,110
(13,013)
(167,441)
(153,761)
(714)
(79)
—
—
(1,950)
(153,228)
5,217
PROFIT BEFORE TAXATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(42,828)
111,302
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(25,377)
(25,417)
NET PROFIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(68,205)
85,885
ATTRIBUTABLE TO:
Equity holders of the parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-controlling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(75,859)
7,654
56,483
29,402
F-9
CONSOLIDATED BALANCE SHEET
As at 31st March 2012 and 31st December 2011
(in thousands of HRK)
Notes
31.03.2012
31.12.2011
(audited)
.
.
.
.
.
14,318,191
1,492,252
374,684
12,218
1,061,159
14,495,162
1,503,264
379,080
9,697
1,060,091
TOTAL NON-CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . . . .
17,258,504
17,447,294
4,734,766
798,988
330,322
830,960
4,086,530
296,961
854,362
4,869,906
546,445
350,769
721,416
4,003,630
315,107
909,637
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,932,889
11,716,910
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29,191,393
29,164,204
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment
Intangible assets . . . . . . . . . . .
Biological assets . . . . . . . . . . .
Investments in associates . . . . .
Other non-current investments
CURRENT ASSETS
Inventories . . . . . . . . . . . .
Live stock and crops . . . . .
Other assets held for sale .
Loans and deposits . . . . . .
Accounts receivable . . . . .
Other current assets . . . . .
Cash and cash equivalents .
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F-10
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1
1
2
CONSOLIDATED BALANCE SHEET (Continued)
As at 31st March 2012 and 31st December 2011
(in thousands of HRK)
Notes
31.03.2012
31.12.2011
(audited)
161,591
3,437,623
161.591
3,535,052
3,599,214
2,895,575
6,494,789
3,696,643
2,918,391
6,615,034
7,943,836
66,466
431,462
48,221
58,076
7,554,648
67,321
432,006
48,221
60,313
..................
8,548,061
8,162,509
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9,742,196
—
53,267
867,017
2,490,315
91,260
904,488
9,674,006
—
71,466
935,208
2,619,531
156,296
930,154
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,148,543
22,696,604
14,386,661
22,549,170
TOTAL EQUITY AND LIABILITIES . . . . . . . . . . . . . . . . . . . . . . .
29,191,393
29,164,204
EQUITY AND LIABILITIES
EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE
PARENT
Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NON-CONTROLLING INTERESTS . . . . . . .
TOTAL EQUITY . . . . . . . . . . . . . . . . . . . . . .
LIABILITIES
LONG-TERM LIABILITIES
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for employee benefits . . . . . . . . . . . .
Deferred tax liability related to land revaluation
Other deferred taxation . . . . . . . . . . . . . . . . .
Other long term liabilities . . . . . . . . . . . . . . . .
TOTAL LONG-TERM LIABILITIES . . . . .
CURRENT LIABILITIES
Accounts payable . . . . . . . . . . . . . . . . . . .
Liabilities due to other assets held for sale .
Income tax payable . . . . . . . . . . . . . . . . . .
Current portion of long-term borrowings . .
Bank borrowings . . . . . . . . . . . . . . . . . . . .
Non-bank borrowings . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . .
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F-11
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4
4
4
4
5
CONSOLIDATED CASH FLOW STATEMENT
For the period ended 31st March 2012 and 2011
(in thousands of HRK)
31.03.2012
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net earnings to net cash provided by operating
activities
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess of fair value of net assets over the cost of acquisition, net of written
off goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of financial assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on sale of properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of financial assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Value adjustment of receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31.03.2011
.
(42,828)
111,302
.
227,637
204,720
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.
—
(41,368)
2,132
13,013
(35,110)
6,607
—
208,809
714
(23,642)
79
1,950
—
3,199
—
176,870
338,892
475,192
(64,557)
(117,403)
49,143
13,226
(12,729)
441,673
(165,961)
(424,761)
(38,391)
(267,252)
Net cash inflow from operating activities before interest and taxes . . . . . . .
206,572
20,500
Income tax paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(28,611)
(197,810)
(32,715)
(170,970)
Net cash provided from operating activities . . . . . . . . . . . . . . . . . . . . . . . .
(19,849)
(183,185)
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—
(160,656)
(5,721)
(109,544)
6,576
90,756
16,418
—
(20)
(223,511)
(19,752)
37,693
13,939
—
7,918
—
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(162,171)
(183,733)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt . . . . . . . . . . . . . . .
Repayments of long-term debt . . . . . . . . . . . . . . .
Repayments of short-term debt . . . . . . . . . . . . . .
Repayments of short-term non-bank debt . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . .
531,417
(210,421)
(129,216)
(65,035)
—
1,193,118
(255,772)
(635,158)
(26)
(11,300)
Net cash from financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
126,745
290,862
NET INCREASE/DECREASE IN CASH AND CASH EQUIVALENTS . . . . .
(55,275)
(76,056)
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD . . . . .
909,637
875,997
CASH AND CASH EQUIVALENTS, AND OF PERIOD . . . . . . . . . . . . . . .
854,362
799,941
Result from operating activities before changes in working capital . . . . . . .
(Increase)/Decrease in receivables . . . . . . . . . . .
Increase in inventories . . . . . . . . . . . . . . . . . . .
Increase/(decrease) of liabilities towards creditors
Decrease/(increase) of other short term assets . .
Decrease in other short term liabilities . . . . . . . .
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CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of subsidiaries, net of cash acquired . .
Additions to properties . . . . . . . . . . . . . . . . . . . .
Increase in long term investments . . . . . . . . . . . .
Decrease/(increase) in short term investments . . .
Proceeds from sale of properties . . . . . . . . . . . . .
Proceeds from sale of financial assets . . . . . . . . . .
Interest received . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend received . . . . . . . . . . . . . . . . . . . . . . . .
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F-12
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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
INVENTORIES
Raw materials . .
Work in progress
Merchandise . . . .
Finished goods . .
31.03.2012
31.12.2011
(in thousands of HRK)
(audited)
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TOTAL BIOLOGICAL ASSETS
625,508
825,954
2,678,709
604,595
606,650
1,060,285
2,584,812
618,159
4,734,766
4,869,906
31.03.2012
31.12.2011
(in thousands of HRK)
(audited)
Live stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Crops . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
334,000
464,988
262,425
284,020
798,988
546,445
Increase in biological assets is the result of increased volumes of production in live stock farming
(Vupik, PIK Vinkovci, Belje), higher animal feed prices and increased agricultural production for the
preparation of spring sowing (Vupik, Pik Vinkovci, Agrolaguna, Belje).
NOTE 2
LOANS AND DEPOSITS
31.03.2012
31.12.2011
(in thousands of HRK)
(audited)
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
666,829
164,131
553,823
167,593
830,960
721,416
Loans relate to commercial loans to farmers and other loans which bear interest at annual rate of
4-10% and deposits relate to bank and other short term placements in the normal course of business
which bear interest at annual rate of 2-4%. Increase of commercial loans is manly related to the
preparation for the upcoming tourist season.
NOTE 3
CONTINGENCIES
The Group is involved in normal commercial litigation relating to the collection of outstanding amounts
from debtors of HRK 350,802 thousand and disputes with creditors over amounts of HRK
50,057 thousand. In addition, proceedings are ongoing in relation to other short-term receivables of
HRK 64,301 thousand and other short-term liabilities of HRK 109,212 thousand.
F-13
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4
BORROWINGS
31.03.2012
31.12.2011
(in thousands of HRK)
(audited)
Long-term borrowings
Bank loans . . . . . . . . .
Bonds . . . . . . . . . . . .
Non-bank loans . . . . .
Finance leases . . . . . .
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4,724,373
4,060,724
11,920
13,836
4,385,473
4,071,301
16,036
17,046
Total long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,810,853
8,489,856
Current portion of long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . .
(867,017)
(935,208)
Short-term borrowings
Bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,490,315
91,260
2,619,531
156,296
Total short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,581,575
2,775,827
TOTAL BORROWINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,392,428
11,265,683
On March 20th, 2012 Agrokor signed a Club Loan Agreement in the amount of EUR 75m with a
renowned club of banking institutions; BNP Paribas, J.P. Morgan Limited and Zagrebačka banka d.d.,
Unicredit Bank Austria. The loan was granted with a 3-year tenor, with 5.5 per cent margin and
guaranteed by several subsidiaries of the Group. The proceeds are used to refinance part of Agrokor’s
existing financial liabilities.
NOTE 5
OTHER CURRENT LIABILITIES
31.03.2012
31.12.2011
(in thousands of HRK)
(audited)
Sales and employment taxes . . . . . . . .
Amounts due to employees . . . . . . . . .
Advance payments . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . .
Accrued expenses and deferred income
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F-14
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143,483
157,108
271,327
214,900
117,670
164,592
155,701
276,172
245,858
87,831
904,488
930,154
AGROKOR GROUP
INDEPENDENT AUDITOR’S REPORT
To the Management Board and the Shareholders of Agrokor d.d
We have audited the consolidated financial statements of Agrokor d.d. (the Company) and its
subsidiaries (together, the Group), which comprise the consolidated statement of financial position as
at 31st December 2011 and the consolidated statement of income, consolidated statement of
comprehensive income, consolidated statement of changes in equity and consolidated statement of cash
flows for the year then ended, and a summary of significant accounting policies and other explanatory
information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with International Financial Reporting Standards, and for such internal
control as management determines is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our
audit. We conducted our audit in accordance with International Standards on Auditing. Those
standards require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the consolidated financial statements. The procedures selected depend on the auditor’s judgement,
including the assessment of the risk of material misstatement of the consolidated financial statements,
whether due to the fraud or error. In making those risk assessments, the auditor considers internal
control relevant to the entity’s preparation and fair presentation of the consolidated financial
statements in order to design audit procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also
includes evaluating the appropriateness of accounting policies used and the reasonableness of
accounting estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide basis for
our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly in all material respects, the financial
position of the Group as at 31st December 2011 and of the results of its operations and its cash flows
for the year then ended in accordance with International Financial Reporting Standards.
Emphasis of matter
Without qualifying our opinion we draw attention to Note 27 to the consolidated financial statements
which describes uncertainty related to the decision adopted by the Croatian Financial Services
Supervisory Agency (CFSSA) on 6th October 2011 related to the obligation of Agrokor d.d. to launch a
mandatory takeover bid for all of the shares of the Belje d.d. and related court proceedings. The
Group has not recognised any adjustments to its assets or liabilities in respect to this matter due to
uncertainty of its outcome and its impact on the consolidated financial statements.
Baker Tilly Discordia d.o.o.
Nevenka Dujić
Certified auditor
Bruna Discordia
Member of the Board
Zagreb, 11th April 2012
F-15
AGROKOR GROUP
CONSOLIDATED STATEMENT OF INCOME
For the years ended 31 December 2011 and 2010
(in thousands of HRK)
Notes
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
4
5
6
OPERATING PROFIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess of fair value of net assets over the cost of acquisition,
net of written off goodwill . . . . . . . . . . . . . . . . . . . . . . . . . .
Share of gain/loss of associates . . . . . . . . . . . . . . . . . . . . . .
Impairment of financial assets . . . . . . . . . . . . . . . . . . . . . . .
Dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sale of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sale of properties, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net foreign exchange (loss) . . . . . . . . . . . . . . . . . . . . . . . . .
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.
7
8
PROFIT BEFORE TAXATION . . . . . . . . . . . . . . . . . . . . . . . . .
2011
2010
29,053,395
(20,403,812)
(2,445,841)
26,506,235
(18,536,941)
(2,305,898)
6,203,742
5,663,396
334,553
(4,733,038)
491,589
(4,520,217)
1,805,257
1,634,768
(84,546)
11
(3,931)
68
(46,347)
(23,034)
128,079
(1,090,077)
(267,417)
(69,719)
(2,563)
(13,256)
278
—
21,745
86,319
(951,984)
(340,347)
418,063
365,241
(222,914)
(205,148)
NET PROFIT FOR THE YEAR . . . . . . . . . . . . . . . . . . . . . . . . .
195,149
160,093
ATTRIBUTABLE TO:
Equity holders of the parent . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-controlling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21,120
174,029
32,935
127,158
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26
The accompanying notes form an integral part of these consolidated financial statements.
F-16
AGROKOR GROUP
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the years ended 31 December 2011 and 2010
(in thousands of HRK)
2011
2010
Profit for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
195,149
160,093
Other comprehensive income
Exchange differences on translation of foreign operations
Revaluation of land . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income for the year, net of tax . . . .
46,296
517,959
(70,869)
493,386
(41,326)
—
—
(41,326)
Total comprehensive income for the year, net of tax . . . . . . . . . . . . . . . . . .
688,535
118,767
Attributable to:
Equity holders of the parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-controlling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
369,323
319,212
2,539
116,228
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.
.
The accompanying notes form an integral part of these consolidated financial statements.
F-17
AGROKOR GROUP
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2011 and 2010
(in thousands of HRK)
Notes
2011
2010
14,495,162
1,503,264
379,080
9,697
1,060,091
13,796,904
1,246,032
313,600
120,699
822,448
17,447,294
16,299,683
4,869,906
546,445
350,769
721,416
4,003,630
315,107
909,637
4,148,720
460,281
258,047
451,459
3,735,184
293,232
875,997
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,716,910
10,222,920
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29,164,204
26,522,603
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment
Intangible assets . . . . . . . . . . .
Biological assets . . . . . . . . . . .
Investments in associates . . . . .
Other non-current investments
.
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.
.
11
9
13
10
10
TOTAL NON-CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . . . .
CURRENT ASSETS
Inventories . . . . . . . . . . . .
Live stock and crops . . . . .
Other assets held for sale .
Loans and deposits . . . . . .
Accounts receivable . . . . .
Other current assets . . . . .
Cash and cash equivalents .
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12
13
14
15
16
17
18
The accompanying notes form an integral part of these consolidated financial statements.
F-18
AGROKOR GROUP
CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Continued)
As at 31 December 2011 and 2010
(in thousands of HRK)
Notes
EQUITY AND LIABILITIES
EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE
PARENT
Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010
161,591
3,535,052
161,591
3,306,015
3,696,643
2,918,391
3,467,606
2,642,497
6,615,034
6,110,103
7,554,648
67,321
432,006
48,221
60,313
6,994,394
62,194
364,250
47,897
181,751
8,162,509
7,650,486
9,674,006
—
71,466
935,208
2,619,531
156,296
930,154
8,372,966
598
51,106
796,907
2,316,406
26,102
1,197,929
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . .
14,386,661
12,762,014
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22,549,170
20,412,500
TOTAL EQUITY AND LIABILITIES . . . . . . . . . . . . . . . . . . . . . . .
29,164,204
26,522,603
NON-CONTROLLING INTERESTS . . . . . . . . . . . . . . . . . . . . . . .
19
2011
20
TOTAL EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LIABILITIES
LONG-TERM LIABILITIES
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for employee benefits . . . . . . . . . . . .
Deferred tax liability related to land revaluation
Other deferred taxation . . . . . . . . . . . . . . . . .
Other long term liabilities . . . . . . . . . . . . . . . .
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22
23
26
26
TOTAL LONG-TERM LIABILITIES . . . . . . . . . . . . . . . . . . . . . . .
CURRENT LIABILITIES
Accounts payable . . . . . . . . . . . . . . . . . . .
Liabilities due to other assets held for sale .
Income tax payable . . . . . . . . . . . . . . . . . .
Current portion of long-term borrowings . .
Bank borrowings . . . . . . . . . . . . . . . . . . . .
Non-bank borrowings . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . .
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24
22
22
22
25
Approved by the Management Board of Agrokor d.d.
Ivica Todorić, President
18NOV200918465747
Zagreb, 11 April 2012
The accompanying notes form an integral part of these consolidated financial statements.
F-19
AGROKOR GROUP
CONSOLIDATED STATEMENT OF CASH FLOWS
For the years ended 31 December 2011 and 2010
(in thousands of HRK)
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net earnings to net cash provided by operating
activities
Depreciation and amortisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess of fair value of net assets over the cost of acquisition, net of written
off goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of financial assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Gain)/loss on sale of properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Gain) on sale of financial assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Value adjustment of receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011
2010
.
418,063
365,241
.
866,243
779,487
.
.
.
.
.
.
.
.
84,546
(128,079)
3,931
23,034
(14,437)
68,762
(80)
1,090,077
69,719
(86,319)
13,256
(21,745)
(261,212)
84,583
(278)
951,984
Net cash flows from operating activities before changes in working capital .
2,412,060
(Increase) in receivables . . . . . . . . . . .
(Increase) in inventories . . . . . . . . . . .
Increase of liabilities towards creditors .
(Increase) of other short term assets . .
(Decrease)/Increase in other short term
(277,234)
(807,349)
1,193,789
(4,073)
(435,661)
.......
.......
.......
.......
liabilities
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.
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.
.
.
.
.
.
.
.
Net cash inflow from operating activities before interest and taxes . . . . . . .
2,081,532
Income tax paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(196,992)
(1,064,026)
Net cash provided from operating activities . . . . . . . . . . . . . . . . . . . . . . . .
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of subsidiaries, net of cash acquired . .
Additions to properties and intangible assets . . . .
Increase in long term investments . . . . . . . . . . . .
Increase in short term investments . . . . . . . . . . . .
Proceeds from sale of properties . . . . . . . . . . . . .
Proceeds from sale of financial assets . . . . . . . . . .
Interest received . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends received . . . . . . . . . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
(1,860,305)
(1,901,396)
1,495,462
(796,907)
303,126
130,194
(58,444)
2,010,897
(914,240)
23,731
(4,693)
(63,509)
Net cash from financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,073,431
1,052,186
NET INCREASE/DECREASE IN CASH AND CASH EQUIVALENTS . . . . .
33,640
(19,800)
CASH AND CASH EQUIVALENTS, BEGINNING OF THE YEAR . . . . . . .
875,997
895,797
CASH AND CASH EQUIVALENTS, END OF YEAR . . . . . . . . . . . . . . . . .
909,637
875,997
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.
829,410
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
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.
.
.
.
.
.
.
.
.
.
.
(236,134)
(900,355)
(507,237)
(1,985,296)
(279,106)
(198,979)
420,903
595,810
52,231
278
.
.
.
.
.
.
.
.
.
.
.
.
.
1,965,899
(353.961)
(1,332,910)
(313,779)
(269,956)
162,170
179,947
68,104
80
.
.
.
.
.
.
.
.
.
.
.
.
.
(5,902)
(532,073)
661,150
(89,556)
37,564
.
.
.
.
.
.
.
.
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt . . . . . . . . . . . . . . . . .
Repayments of long-term debt . . . . . . . . . . . . . . . . .
Proceeds from short-term debt . . . . . . . . . . . . . . . .
Proceeds/(Repayments) of short-term non-bank debt .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
820,514
1,894,716
.
.
.
.
.
.
.
.
.
.
The accompanying notes form an integral part of these consolidated financial statements.
F-20
AGROKOR GROUP
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the years ended 31 December 2011 and 2010
(in thousands of HRK)
Attributable to equity of the parent
Notes
Balance at 01 January 2010 . . . .
Revaluation
surplus
Share
premium
Retained
earnings
Total
Total
equity
870,271
Net income for 2010 . . . . . . . . .
Other comprehensive income . . .
—
—
—
—
—
(126)
32,935
(30,270)
32,935
(30,396)
127,158
(10,930)
160,093
(41,326)
Total comprehensive income .
Depreciation and sale of
revalued assets . . . . . . . . .
Acquisition of subsidiaries . . .
Acquisition of non-controlling
interest . . . . . . . . . . . . . .
Transfer to reserves . . . . . . .
Dividends distributed for the
year . . . . . . . . . . . . . . . .
..
—
—
(126)
2,665
2,539
116,228
118,767
..
..
—
—
(1,599)
—
—
4,364
—
48,803
(1,599)
53,167
(1,485)
176,899
(3,084)
230,066
..
..
—
—
(35,490)
(13,892)
—
—
(17,552)
13,892
(53,042)
—
53,042
—
..
—
—
—
(60,725)
(60,725)
(5,921)
161,591
819,290
789,739 1,696,986 3,467,606
161,591
—
—
819,290
—
312,167
789,739 1,696,986 3,467,606 2,642,497 6,110,103
—
21,120
21,120
174,029 195,149
—
36,036 348,203
145,183 493,386
..
..
—
—
312,167
—
..
..
—
—
..
—
Balance at 01 January 2011 . . . .
Net income for 2011 . . . . . . . . .
Other comprehensive income . . .
Total comprehensive income .
Acquisition of subsidiaries . . .
Acquisition of non-controlling
interest . . . . . . . . . . . . . .
Transfer to reserves . . . . . . .
Dividends distributed for the
year . . . . . . . . . . . . . . . .
Balance at 31 December 2011 . .
19
—
(8,121)
—
161,591 1,123,366
785,501 1,709,903 3,527,266
Noncontrolling
interest
161,591
Balance at 31 December 2010 . .
19
Share
capital
2,303,734 5,831,000
(66,646)
2,642,497 6,110,103
—
—
57,156
(84,853)
369,323
(84,853)
—
—
(4,218)
8,121
(4,218)
—
(9,175)
—
(13,393)
—
—
(51,215)
(51,215)
(7,237)
(58,452)
789,739 1,621,977 3,696,643
319,212 688,535
(26,906) (111,759)
2,918,391 6,615,034
The accompanying notes form an integral part of these consolidated financial statements.
F-21
—
—
AGROKOR GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at 31 December 2011 and 2010
General
Agrokor d.d. (the Company) is a joint stock company which is incorporated in the Republic of Croatia.
Majority owner of the Company is Mr. Ivica Todorić with a share of 91.67%.
The Company’s registered main office is located at Trg Dražena Petrovića 3, Zagreb.
The principal activities of the Company and its subsidiaries (the Group) are consumer retailing,
manufacturing and distribution of food products.
At 31 December 2011 the Group employed 35,652 employees (31 December 2010: 33,724 employees).
NOTE 1.
1.1
SIGNIFICANT ACCOUNTING POLICIES
Basis of Preparation
The consolidated financial statements have been prepared on a historical cost basis, except for certain
property, plant and equipment and long-term investments which are included at valuation, as described
in the following accounting policy notes.
The accounting policies have been consistently applied by the Group and are consistent with those of
the previous year, except as described in the note 1.28.
The Group’s consolidated financial statements are presented in Croatian Kuna (HRK) which is the
functional currency of the Company and the presentation currency for the consolidated financial
statements. The effective exchange rate of the Croatian currency (expressed in HRK) at 31 December
2011 was HRK 5.82 per United States Dollar (USD) (2010: HRK 5.57) and HRK 7.53 per Euro (2010:
HRK 7.39). All amounts disclosed in the financial statements are rounded to the nearest thousand of
HRK, except when otherwise indicated.
Statement of compliance
The consolidated financial statements of the Group have been prepared in accordance with
International Financial Reporting Standards (IFRS) as issued by the International Accounting
Standards Board (IASB).
1.2
Principles of Consolidation
The consolidated financial statements comprise the accounts of the Company and its subsidiaries after
the elimination of all material inter-company transactions. A subsidiary is an entity that is controlled by
the Company through direct or indirect ownership of more than 50 percent of that entity’s voting rights
or through management control.
Subsidiaries are consolidated from the date on which effective control is transferred to the Group and
are no longer consolidated from the date of disposal.
Acquisitions of subsidiaries are accounted for using the acquisition method. The financial statements of
subsidiaries are prepared for the same reporting period as the Company, using consistent accounting
policies. Adjustments are made to align any dissimilar material accounting policies that may exist.
A listing of the Group’s subsidiaries and a summary of the financial effect of the acquisition of
subsidiaries during the year is set out in note 2.
Non-controlling interests in the equity and the results of the entities that are controlled by the
Company are shown separately in the consolidated financial statements.
1.3
Business Combinations and Goodwill
Business combinations are accounted for using the acquisition method. The cost of an acquisition is
measured as the aggregate of the consideration transferred, measured at acquisition date fair value and
the amount of any non-controlling interest in the acquiree. For each business combination, the acquirer
F-22
AGROKOR GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at 31 December 2011 and 2010
NOTE 1.
SIGNIFICANT ACCOUNTING POLICIES (Continued)
measures the non-controlling interests in the acquiree either at fair value or at the proportionate share
of the acquiree’s identifiable net assets. Acquisition related costs incurred are expensed. When the
Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate
classification and designation in accordance with the contractual terms, economic circumstances and
pertinent conditions as at the acquisition date.
If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s
previously held equity interest in the acquiree is remeasured to fair value as at the acquisition date.
Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the
acquisition date. Subsequent changes to the fair value of the contingent consideration will be
recognised in profit or loss.
Goodwill and Excess of fair value of net assets over the cost of acquisition represent the difference
between the cost of acquisition and the acquirer’s interest in the fair value of the identifiable net assets
at the date of acquisition.
Goodwill is subject to impairment test at each reporting date, as described in the accounting policy
1.8 Impairment of assets. Excess of fair value of net assets over the cost of acquisition is reported as a
gain through the Income Statement in the year of acquisition.
1.4
Investments in Associates
Investments in associates over which the Company has significant influence (those that are 20-50%
owned) are accounted for under the equity method of accounting. Under the equity method, the
investment in the associate is carried in the statement of financial position at cost plus post acquisition
changes in the Group’s share of net assets of the associate. Goodwill relating to the associate is
included in the carrying amount of the investment and is neither amortised nor individually tested for
impairments. The consolidated income statement reflects the share of the results of operations of the
associate.
The financial statements of the associates are prepared for the same reporting period as for the Group.
Where necessary, adjustments are made to bring the accounting policies in line with those of the
Group.
The Group determines at each reporting date whether there is any objective evidence that the
investment in the associate is impaired. If this is the case the Group calculates the amount of
impairment as the difference between the recoverable amount of the associate and its carrying value
and recognises the amount in income statement.
1.5
Financial assets and liabilities
All financial assets and liabilities are initially recognised at cost, being the fair value of the
consideration given or received and including acquisition charges associated with the instrument.
After initial recognition, investments which are classified as financial assets at the fair value through
profit or loss are measured at fair value. Gains or losses on investments, which are classified as
financial assets at the fair value through profit or loss, are recognised in the income statement. Gains
or losses on available-for-sale investments are recognised in the statement of comprehensive income
until the investment is sold, collected or otherwise disposed of, or until the investment is determined to
be impaired, at which time the cumulative gain or loss previously reported in comprehensive income is
included in income.
Other financial assets that are intended to be held-to maturity as well as financial liabilities, such as
loans and advances given and received as well as issued bonds, are subsequently measured at amortised
cost using the effective interest rate method. Amortised cost is calculated by taking into account any
discount or premium on acquisition, over the period to maturity. For investments carried at amortised
F-23
AGROKOR GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at 31 December 2011 and 2010
NOTE 1.
SIGNIFICANT ACCOUNTING POLICIES (Continued)
cost, gains and losses are recognised in income when the investment is derecognised or impaired, as
well as through the amortisation process.
Transactions in financial instruments are accounted for at the date when they are transferred
(settlement date). Under settlement date accounting, while the underlying asset is not recognised until
the settlement date, changes in value on the underlying asset are recognised.
1.6
Intangible Assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible
assts acquired in a business combination is its fair value as at the date of acquisition. Following initial
recognition, intangible assets are carried at cost less any accumulated amortisation and any
accumulated impairment losses. Internally generated intangible assets, excluding capitalised
development costs, are not capitalised and expenditure is reflected in the income statement in the year
in which the expenditure is incurred.
The useful lives of intangible assets are assessed as either finite or indefinite.
Intangible assets with finite useful lives are amortized over the useful economic life and assessed for
impairment whenever there is an indication that the intangible asset may be impaired, as described in
the accounting policy 1.8 Impairment of assets. Intangible assets with finite useful lives are amortized
on a straight-line basis over their expected useful lives, which do not exceed ten years. The
amortization period and the amortization method for an intangible asset with a finite useful life are
reviewed at least at each financial year-end. Changes in the expected useful life or pattern of
consumption of future economic benefits embodied in the asset is accounted for by changing the
amortization period or method, as appropriate, and are treated as changes in accounting estimates.
Intangible assets with indefinite useful lives are not amortized, but are tested for impairment annually,
either individually or at the cash generating unit level. The assessment of indefinite useful life is
reviewed annually to determine whether the indefinite life continues to be supportable. If not, the
change in useful life from indefinite to finite is made on a prospective basis.
Gains or losses arising from de-recognition of intangible assets are measured as the difference between
the net disposal proceeds and the carrying amount of the asset and are recognised in the income
statement when the asset is derecognised.
Research and development costs
Research costs are expensed as incurred. An internally-generated intangible asset arising from
development is recognised if, and only if, all of the following have been demonstrated:
•
The technical feasibility of completing the intangible asset so that it will be available for use or
sale;
•
The intention to complete the intangible asset and use or sell it;
•
The ability to use or sell the intangible asset;
•
How the intangible asset will generate probable future economic benefits;
•
The availability of adequate technical, financial and other resources to complete the development
and to use or sell the intangible asset; and
•
The ability to measure reliably the expenditure attributable to the intangible asset during its
development.
The amount initially recognised for internally-generated intangible assets is the sum of the expenditure
incurred from the date when the intangible asset first meets the recognition criteria listed above.
F-24
AGROKOR GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at 31 December 2011 and 2010
NOTE 1.
SIGNIFICANT ACCOUNTING POLICIES (Continued)
Subsequent to initial recognition, internally-generated intangible assets are reported at cost less
accumulated amortisation and accumulated impairment losses, over the period of expected useful life
not exceeding a maximum period of five years.
1.7
Property, Plant and Equipment
Property, plant and equipment, with the exception of land, are carried at cost less accumulated
depreciation and/or impairment losses. In 1993 fixed assets were revalued at year end in accordance
with IAS 29, Financial Reporting in Hyperinflationary Economies. The revaluation effect was allocated
to income. Hyperinflation accounting was discontinued in 1993. Subsequent revaluations relate only to
land and have been based upon valuations performed by independent appraisers, in a period not longer
than three years. The latest revaluation took place in 2011. The basis used in appraisals is comparable
market prices. When an asset is revalued, any increase in the carrying value is credited directly to a
revaluation surplus within equity or appropriate obligations for deferred taxation, if applicable.
The relevant portion of the revaluation surplus realised in respect of a previous valuation is released
from the asset valuation surplus directly to retained earnings upon the disposal of the revalued asset
and through depreciation as the asset is used.
Items of property, plant and equipment that are retired or otherwise disposed of are eliminated from
the statement of financial position, along with the corresponding accumulated depreciation. Any gain or
loss arising from derecognising of assets (calculated as the difference between net sales receipts and the
carrying value of the asset at the time of disposal) is taken to the income statement in the year of
derecognition.
Expenditures incurred in the repair or maintenance of property, plant and equipment to restore or
maintain future economic benefits is recognised as an expense when incurred.
Depreciation is recorded by a charge to income computed on a straight-line basis over the estimated
useful life of the asset, as follows:
Buildings . . . . . . . . . . . . . . . . . .
Plant, Machinery and Equipment
Leasehold improvements . . . . . . .
Other fixed assets . . . . . . . . . . . .
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5 to 55 years
4 to 15 years
5 to 10 years
to 5 years
The useful life, depreciation method and residual values are reviewed at each financial year-end and if
expectations differ from previous estimates, any changes are accounted for as a change in an
accounting estimate.
1.8
Impairment of Assets
The Group assesses at each financial year-end whether there is an indication that an asset may be
impaired. If any such indication exists, or when annual impairment testing for an asset is required, the
Group makes an estimate of the asset’s recoverable amount.
The recoverable amount is estimated as the higher of an assets or cash-generating unit’s (CGU) fair
value less costs to sell and value in use. The fair value less costs to sell is the amount obtainable from
the sale of an asset in an arm’s length transaction less the costs of disposal while value in use is the
present value of estimated future cash flows expected to arise from the continuing use of an asset and
from its disposal at the end of its useful life. Recoverable amounts are estimated for individual assets
or, if this is not possible, for the cash-generating unit to which the asset belongs. Cash-generating units
are primarily identified at entity level. Where carrying values exceed this estimated recoverable amount
the assets are written down to their recoverable value.
F-25
AGROKOR GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at 31 December 2011 and 2010
NOTE 1.
SIGNIFICANT ACCOUNTING POLICIES (Continued)
The following criteria are also applied in assessing impairment of specific assets:
Goodwill
Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances
indicate that the carrying value may be impaired.
Impairment is determined for goodwill by assessing the recoverable amount of each cash-generating
unit (or group of cash-generating units) to which the goodwill relates. Where the recoverable amount
of the cash-generating unit is less than their carrying amount an impairment loss is recognised.
Impairment losses relating to goodwill cannot be reversed in future periods.
Intangible assets
Intangible assets with indefinite useful lives are tested for impairment annually either individually or at
the cash-generating unit level, as appropriate and when the circumstances indicate that the carrying
value may be impaired.
1.9
Leased Assets
The determination of whether an arrangement is, or contains, a lease is based on the substance of the
arrangement at inception date; whether fulfilment of the arrangement is dependent on use of a specific
asset or the arrangement conveys a right to use the asset.
1.9.1 Group as a lessee
Finance leases, which effectively transfer to the Group substantially all the risk and benefits incidental
to ownership of the leased item, are capitalised at the lower of the fair value of the leased property or
present value of the minimum lease payments at the inception of the lease term and disclosed as leased
property, plant and equipment. Lease payments are apportioned between the finance charges and
reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of
the liability. Finance charges are recognised in finance costs in the income statement.
Capitalised leased assets are depreciated over the shorter of leased term and its useful life.
Leases where the lessor effectively retains substantially all the risks and benefits of ownership of the
leased item are classified as operating leases. Operating lease payments are recognised as an expense in
the income statement on a straight-line basis over the lease term.
The accounting treatment of a sale and leaseback transaction depends upon the type of lease involved.
If a sale and leaseback transaction results in a finance lease, any excess of sales proceeds over the
carrying amount is deferred and amortised over the lease term. If a sale and leaseback transaction
results in an operating lease, and the transaction is established at fair value, any profit or loss is
recognised immediately.
1.9.2 Group as a lessor
Leases where the Group does not transfer substantially all the risks and benefits of ownership of the
asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are
added to the carrying amount of the leased asset and recognised over the lease term on the same basis
as rental income. Contingent rents are recognised as revenue in the period in which they are earned.
1.10
Non-current assets held for sale
Non-current assets and disposal groups classified as held for sale are measured at the lower of carrying
amount and fair value less costs to sell. Non-current assets and disposal groups are classified as held
for sale if their carrying amounts will be recovered principally through a sale transaction rather than
through continuing use. This condition is regarded as met only when the sale is highly probable and the
F-26
AGROKOR GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at 31 December 2011 and 2010
NOTE 1.
SIGNIFICANT ACCOUNTING POLICIES (Continued)
asset or disposal group is available for immediate sale in its present condition. Management must be
committed to the sale, which should be expected to qualify for recognition as a completed sale within
one year from the date of classification.
In the consolidated income statement of the reporting period, and of the comparable period of the
previous year, income and expenses from discontinued operations are reported separate from income
and expenses from continuing activities, down to the level of profit after taxes, even when the Group
retains a non-controlling interest in the subsidiary after the sale. The resulting profit or loss (after
taxes) is reported separately in the income statement.
Property, plant and equipment and intangible assets once classified held for sale is not depreciated or
amortised.
1.11
Inventories
Inventories are valued at the lower of cost and net realisable value.
Costs incurred in bringing each product to its present location and condition is accounted for as
follows:
Raw materials—purchase cost on a weighted average basis.
Finished goods and work-in-progress—cost of direct materials and labour and a proportion of
manufacturing overheads based on normal operating capacity.
Merchandise—lower of purchase costs or net realisable value. Cost formula is determined at weighted
average basis.
Net realisable value is the estimated selling price in the ordinary course of business, less estimated
costs of completion and the estimated costs necessary to make the sale.
1.12
Agriculture
The Group recognises a biological asset or agricultural produce, such as live stock and crops, when
there is control over the asset as a result of past events; it is probable that future economic benefits
associated with the asset will flow to the entity and the fair value or cost of the asset can be measured
reliably.
A biological asset is measured on initial recognition and at each balance sheet date at its fair value less
costs to sell, except when the fair value cannot be measured reliably. Agricultural produce harvested
from an entity’s biological assets is measured at its fair value less costs to sell at the point of harvest.
For biological assets valued at cost, depreciation is recorded by a charge to income computed on a
straight-line basis over the estimated useful life of the asset, as follows:
Vineyards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Apple orchards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Olive groves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10-20 years
10 years
20 years
The useful life, depreciation method and residual values are reviewed at each financial year-end and if
expectations differ from previous estimates, any changes are accounted for as a change in accounting
estimate.
1.13
Trade and other receivables
Trade receivables, which generally have 30-90 days terms are recognised and carried at original invoice
amount less an allowance for any uncollectible amounts. An estimate for doubtful debts is made when
collection of the full amount is no longer probable. Bad debts are written off when identified.
F-27
AGROKOR GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at 31 December 2011 and 2010
NOTE 1.
1.14
SIGNIFICANT ACCOUNTING POLICIES (Continued)
Cash and Cash Equivalents
Cash and cash equivalents are defined as cash on hand, balances with banks, demand deposits, deposits
with contractual maturity of less than 3 months.
1.15
Taxation
Corporate taxation is based on the accounting profit for the year adjusted for permanent and
temporary differences between taxable and accounting income.
Corporate taxation is provided for in accordance with fiscal regulations in the countries where the
Group entities are located. Companies’ income tax returns are subject to examination by the Tax
Authorities. Since the application of tax laws and regulations to several types of transactions is
susceptible to varying interpretations, amounts reported in the financial statements could be changed at
a later date upon final determination by the Tax Authorities.
Deferred income tax is calculated, using the liability method, on all temporary differences at the
reporting date due to differences in treatment of certain items for taxation and for accounting purposes
within the consolidated financial statements. Deferred tax assets and liabilities are measured using the
tax rates expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled.
Deferred tax assets are recognised when it is probable that sufficient taxable profits will be available
against which the deferred tax assets can be utilised. At each reporting date, the Group re-assess
unrecognised deferred tax assets and the appropriateness of carrying amount of the tax assets.
1.16
Foreign Currencies
The individual financial statements of each Group entity are presented in the currency of the primary
economic environment in which the entity operates (its functional currency). For the purpose of the
consolidated financial statements, the results and financial position of each Group entity are expressed
in Croatian Kuna (HRK) which is the functional currency of the Company and the presentation
currency for the consolidated financial statements.
Transactions and balances:
Transactions in foreign currencies are initially recorded by the Group entities at their respective
functional currency rates prevailing at the date of the transaction.
Monetary assets and liabilities denominated in a foreign currency are translated into the reporting
currency using the reporting period closing exchange rate. Non-monetary items that are measured in
terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the
initial transactions. Non monetary items measured at fair value in a foreign currency are translated
using the exchange rates at the date when the fair value is determined.
Exchange differences arising on foreign currency transactions and the translation of monetary and
non-monetary assets and liabilities are recognised in the consolidated income statement in the period in
which they arise.
Group companies:
The assets and liabilities of foreign subsidiaries are translated into the reporting currency using the
Croatian National Bank middle exchange rate at the balance sheet date. Revenues and expenses are
translated at the average exchange rate for the year. The effects of translating these items are included
in other comprehensive income.
Any goodwill and fair value adjustments arising on the acquisition of a foreign subsidiary are treated as
assets and liabilities of that foreign subsidiary and are translated at the closing rate.
F-28
AGROKOR GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at 31 December 2011 and 2010
NOTE 1.
1.17
SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the
Group and the revenue can be reliably measured. Revenue is measured at the fair value of the
consideration received, excluding discounts, rebates and sale taxes. The Group assesses its revenue
arrangements against specific criteria in order to determine if it is acting as a principal or agent. The
Group has concluded that it is acting as a principal in all of its revenue arrangements. The following
recognition criteria must also be met before the revenue is recognised:
In relation to the sale of goods, revenue is recognised when the significant risks and rewards of
ownership have been transferred to the buyer and no significant uncertainties remain regarding the
derivation of consideration, associated costs or the possible return of goods.
In relation to the rendering of services, revenue is recognised by reference to the stage of completion
of the transaction, when no significant uncertainties remain concerning the derivation of consideration
or associated costs.
Interest income arising from the use by others of the Group’s resources is recognised when it is
probable that the economic benefits associated with the transaction will flow to the Group and the
revenue can be measured reliably. Interest income is recognised as it accrues (taking into account the
effective yield on the asset) unless collection is in doubt.
Dividends revenue is recognised when the Group’s right to receive the payment is established.
1.18
Definition of operating profit
Operating profit consists of sales revenues, cost of sales, other revenues (income from sales of financial
assets, collected written-off receivables, inventory surpluses and other revenues) and other expenses
(depreciation and amortisation, wages and salaries, taxes, social insurance and pension costs, write off
of bad debts and other short-term assets, research and development costs and other expenses).
1.19
Borrowing Costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset that
necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as
part of the cost of the respective assets. All other borrowing costs are expensed in the period they
occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the
borrowing of funds.
1.20
Operating segment information
For management purposes, the Group is organised into business units based on their products and
services and has four reportable operating segments as follows:
•
Agrokor Holding—parent company for management of the Group
•
Food, Manufacturing and Distribution—production of food (ice-cream and frozen food, edible oils
and margarines, waters and drinks, meet and meet products, agriculture products) and distribution
of the products to customers
•
Retail and Wholesale—retail store chain and related businesses
•
Other Businesses—commodities brokerage
No operating segments have been aggregated to form the above reportable operations.
Management monitors the operating results of its business units separately for the purpose of making
decisions about resource allocation and performance assessment. Segment performance is evaluated
based on operating profit or loss and is measured consistently with operating profit or loss in the
F-29
AGROKOR GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at 31 December 2011 and 2010
NOTE 1.
SIGNIFICANT ACCOUNTING POLICIES (Continued)
consolidated financial statements. However, Group financing (including finance cost and finance
income) are managed on a group basis and are not allocated to operating segments.
Segment results include revenue and expenses directly attributable to a segment and the relevant
portion of Group revenue and expenses that can be allocated on a reasonable basis to a segment,
whether from external transactions or from transactions with other segments of the Group.
Segment assets and liabilities comprise those operating assets and liabilities that are directly
attributable to the segment or can be allocated to the segment on a reasonable basis, as well as finance
liabilities which are allocated to segments based on the segment allocation of the subsidiary being the
original debtor. Segment assets are determined after deducting related allowances that are reported as
direct offsets in the Group’s statement of financial position. Segment assets and liabilities do not
include income tax items.
Segment results are determined before any adjustments for non-controlling interest.
Capital expenditure represents the total cost incurred during the period to acquire segment assets that
are expected to be used during more than one period.
1.21
Pensions and employee benefits
The Group, in the normal course of business, makes fixed contributions into the State mandatory
pension funds on behalf of its employees. The Group does not operate any other pension scheme or
post retirement benefit plan, and consequently, has no legal or constructive obligation to make further
contributions if the funds do not hold sufficient assets to pay all employee benefits relating to employee
service in the current and prior periods.
The Company makes payments to employees that include one-off retirement and jubilee benefits. The
obligation and costs of these benefits are determined using a projected unit credit method. The
projected unit credit method considers each period of service as giving rise to an additional unit of
benefit entitlement and measures each unit separately to build up the final obligation.
Past service costs are recognised on a straight-line basis over the average period until the amended
benefits become vested. Gains or losses on the curtailment or settlement of pension benefits are
recognised when the curtailment or settlement occurs. The pension obligation is measured at the
present value of estimated future cash flows using a discount rate that is similar to the interest rate on
government bonds where the currency and terms of the government bonds are consistent with the
currency and estimated terms of the defined benefit obligation.
1.22
Provisions
Provisions are recognised when the Group has a present (legal or constructive) obligation as a result of
past events, it is probable that an outflow of resources embodying economic benefits will be required to
settle the obligation, and a reliable estimate of the amount of the obligation can be made.
1.23
Contingencies
Contingent liabilities are not recognised in the financial statements. They are disclosed unless the
possibility of an outflow of resources embodying economic benefits is remote.
A contingent asset is not recognised in the financial statements but disclosed when an inflow of
economic benefits is probable.
F-30
AGROKOR GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at 31 December 2011 and 2010
NOTE 1.
1.24
SIGNIFICANT ACCOUNTING POLICIES (Continued)
Subsequent Events
Post year-end events that provide additional information about a Group’s position at the reporting date
(adjusting events) are reflected in the financial statements. Post year-end events that are not adjusting
events are disclosed in the notes when material.
1.25
Estimates
The preparation of financial statements in conformity with IFRS requires the use of estimates and
assumptions that affect the amounts reported in the financial statements and notes thereto. Although
these estimates are based on management’s best knowledge of current events and actions, actual results
may differ from those estimates.
The key assumptions concerning the future and other key sources of estimation uncertainty at the
reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year, are discussed below.
Impairment of Goodwill
The Group determines whether goodwill is impaired at least on an annual basis. This requires an
estimation of the value in use of the cash-generating units to which the goodwill is allocated.
Estimating the value in use requires the Group to make an estimate of the expected future cash flows
from the cash-generating unit and also to choose a suitable discount rate in order to calculate the
present value of those cash flows.
Purchase price allocations
Significant estimates are used in purchase price allocation process and mainly relate to assessments of
fair value of land, impairment of plant and equipment, valuation of allowances and doubtful debts,
provisions for employee benefits, legal claims as well as value of any separable intangible assets existing
at the acquisition date.
Furthermore, in the Group’s normal course of business, estimates are used for, but not limited to:
assessments of value of land, depreciable lives and residual values of property, plant and equipment
and intangible assets, allowances for inventories and doubtful debts and provisions for employee
benefits, legal claims and taxes. Future events and their effects cannot be perceived with certainty.
Details of estimates and related amounts are disclosed in the respective accounting policies and notes
to the financial statements.
1.26
Judgements
In the process of applying the Group’s accounting policies, the management made the following
judgements, apart from those involving estimations, which have the most significant effect on the
amounts recognised in the financial statements:
Operating Lease Commitments—Group as Lessee
The Group has entered into significant operating lease arrangements as a lessee. The Group has
determined that the lessor retains all the significant risks and rewards of ownership of properties which
are leased by the Group as operating leases.
Sale and leaseback transactions
The Group has entered into significant sale and lease back transactions. The Group has determined
that the lessor retains all the significant risks and rewards of ownership of properties which are leased
by the Group as operating leases and transactions are established at fair values.
F-31
AGROKOR GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at 31 December 2011 and 2010
NOTE 1.
1.27
SIGNIFICANT ACCOUNTING POLICIES (Continued)
Government grants
Government grants are recognised where there is reasonable assurance that the grant will be received
and all attaching conditions will be complied with. When the grant relates to an expense item, it is
recognised as income over the period necessary to match the grant on a systematic basis to the costs
that it is intended to compensate. Where the grant relates to an asset, it is recognised as deferred
income account and is released to the income statement in equal amounts over the expected useful life
of the relevant asset.
1.28
Changes in accounting policies
The Group has adopted the following new and amended IFRS and IFRIC interpretations during the
year:
IAS 24 Related Party Disclosures (effective for financial years beginning on or after 1 January 2011)
IAS 32 Financial Instruments: Presentation (effective for financial years beginning on or after
1 February 2010)
IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments (effective for annual periods
beginning on or after 1 July 2010)
Improvements to IFRSs (issued in May 2010 with effective days either 1 July 2010 or 1 January 2011)
When the adoption of the standard or interpretation is deemed to have an impact on the financial
statements or performance of the Group, its impact is described below:
IAS 24 Related Party Disclosures
Adopted amendments simplify the definition of a related party, clarifying its intended meaning and
eliminating inconsistencies from the definition. They also provide a partial exemption from the
disclosure requirements for government-related entities. The implementation of these amendments did
not have an impact on financial position or performance of the Group.
IAS 32 Financial Instruments: Presentation
Adopted amendment changes the definition of a financial liability to exclude certain rights, options and
warrants. The implementation of this amendment did not have an impact on financial position or
performance of the Group.
IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments
The IASB issued IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments which clarifies
the requirements of IFRS when an entity renegotiates the terms of a financial liability with its creditor
and the creditor agrees to accept the entity’s shares or other equity instruments to settle the financial
liability fully or partially. The adoption of this implementation did not have an impact on financial
position or performance of the Group.
Improvements to IFRSs (issued in May 2010)
In May 2010, the IASB issued omnibus of amendments to its standards. The Group adopted all
amendments, effective from 1 January 2011. Adoption of those amendments resulted in changes in
accounting policies of the Group, but it did not have an impact on financial position or performance of
the Group.
•
IFRS 3 Business Combinations: The measurement options available for non-controlling interest
(NCI) have been amended. Only components of NCI that constitute a present ownership interest
that entitles their holder to a proportionate share of the entity’s net assets in the event of
F-32
AGROKOR GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at 31 December 2011 and 2010
NOTE 1.
SIGNIFICANT ACCOUNTING POLICIES (Continued)
liquidation shall be measured at either fair value or at the present ownership instruments’
proportionate share of the acquirer’s identifiable net assets. All other components are to be
measured at their acquisition date fair value.
•
IFRS 7 Financial Instruments—Disclosures: The amendment was intended to simplify the
disclosures provided by reducing the volume of disclosures around collateral held and improving
disclosures by requiring qualitative information to put the quantitative information in context.
•
IAS 1 Presentation of Financial Statements: The amendment clarifies that an option to present an
analysis of each component of other comprehensive income may be included either in the
statement of changes in equity or in the notes to financial statements
Standards, amendments and interpretations to existing standards that are not yet effective and have not
been early adopted by the Group
The following standards and amendments to existing standards and interpretations have been published
and are mandatory for the Group’s accounting periods beginning on or after 1 January 2012 or later
periods, but the Group has not early adopted them:
IFRS 7
In October 2010, the IASB issued Disclosures—Transfers of Financial Assets (Amendments to IFRS 7).
Entities are required to apply the amendments for annual periods beginning on or after 1 July 2011.
The Group expects IFRS 7 to have an impact on the disclosures in the financial statements. The Group
plans to adopt this amendment on its effective date.
Amendments to IFRS 1 First Time Adoption: Fixed Dates and Hyperinflation
These amendments, that are effective for annual periods beginning on or after 1 July 2011, include two
changes: the first replaces references to a fixed date of 1 January 2004 with ‘‘the date of transition to
IFRS’s’’, thus eliminating the need for entities adopting IFRS for the first time to restate
de-recognition transactions that occurred before the date of transition to IFRS. The second amendment
provides guidance on how an entity should resume presenting financial statements in accordance with
IFRS after a period when the entity was unable to comply with IFRS because its functional currency
was subject to severe hyperinflation. The amendments will not have any impact on the financial
position or performance of the Group, as the Group is not first time adopter.
IAS 12 Income Taxes (effective annual periods beginning on or after 1 January 2012)
Amended IAS 12 includes a rebuttable presumption that deferred tax on investment property measured
using the fair value model in IAS 40 should be determined on the basis that its carrying amount will be
recovered trough sale and a requirement that deferred tax on non-depreciable assets, measured using
the revaluation model in IAS 16, should always be measured on a sale basis. The amended standard is
applicable for annual periods beginning on or after 1 January 2012 with earlier application permitted.
The Group plans to adopt the amendment from its effective date.
Amendment to IAS 1 Financial Statement Presentation Regarding Other Comprehensive Income (effective
for annual periods beginning on or after 1 July 2012)
The main change resulting from these amendments is a requirement for entities to group items
presented in Other Comprehensive Income (OCI) on the basis of whether they are potentially
reclassifiable to profit or loss subsequently (reclassification adjustments). The amendments do not
address which items are presented in OCI. The amendment affects presentation only and therefore is
not expected to have an impact on the financial position or performance of the Group.
F-33
AGROKOR GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at 31 December 2011 and 2010
NOTE 1.
SIGNIFICANT ACCOUNTING POLICIES (Continued)
Amendment to IAS 19 Employee Benefits (effective for annual periods beginning on or after 1 January
2013)
The IASB has issued numerous amendments to IAS 19. These range from fundamental changes such as
removing the corridor mechanism and the concept of expected returns on plan assets to simple
clarifications and re-wording. The Group is currently assessing the full impact of the amendments on its
financial position and performance. The amendment becomes effective for annual periods beginning on
or after 1 January 2013.
IAS 27 (as revised in 2011) Separate Financial Statements (effective for annual periods beginning on or
after 1 January 2013)
As a consequence of the new IFRS 10 and IFRS 12, what remains of IAS 27 is limited to accounting
for subsidiaries, jointly controlled entities, and associates in separate financial statements. The Group is
currently assessing the impact of IAS 27 on financial statements. The Group plans to adopt this new
standard on its effective date.
IAS 28 (as revised in 2011) Associates and Joint Ventures (effective for annual periods beginning on or after
1 January 2013)
As a consequence of new IFRS 11 and IFRS 12, IAS 28 includes the requirement for joint ventures, as
well as associates, to be equity accounted following the issue of IFRS 11. The Group is currently
assessing the impact of IAS 28 on financial statements. The Group plans to adopt this new standard on
its effective date.
Amendments to IAS 32 Offsetting Financial Assets and Financial Liabilities (issued in December 2011 and
effective for annual periods beginning on or after 1 January 2014)
The amendment added application guidance to IAS 32 to address inconsistencies identified in applying
some of the offsetting criteria. This includes clarifying the meaning of ‘‘currently has a legally
enforceable right of set-off’’ and the some gross settlement systems may be considered equivalent to
net settlement. The Group is considering the implications of the amendment and the impact on the
Group.
Amendments to IFRS 7 Disclosures—Offsetting Financial Assets and Financial Liabilities (issued in
December 2011 and effective for annual periods beginning on or after 1 January 2013)
The amendment requires disclosures that will enable users of financial statements to evaluate the effect
or potential effect of netting arrangements, including rights of set-off. The amendment will have an
impact on disclosures but will have no effect on measurement and recognition of financial instruments.
IFRS 9 Financial Instruments
On 12 November 2009, the IASB issued IFRS 9 Financial Instruments as the first step in its project to
replace IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 introduces new
requirements for classifying and measuring financial assets that must be applied from 1 January 2013,
with early adoption permitted. On 28 October 2010 the IASB issued amendments to IFRS 9 to address
the requirements for classifying and measuring financial liabilities. Most of the requirements were
carried forward unchanged from IAS 39. However, some changes were made to the fair value option
for financial liabilities to address the problem of own credit risk. This completed the first phase of the
Board’s project to replace IAS 39. In December 2011 the IASB issued amendments to IFRS 9. These
amendments require entities to apply IFRS 9 for annual periods beginning on or after 1 January 2015
instead on or after 1 January 2013, with permitted early application. The amendments also modified
the relief from restating prior periods. The Group plans to adopt this standard on its effective date.
F-34
AGROKOR GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at 31 December 2011 and 2010
NOTE 1.
SIGNIFICANT ACCOUNTING POLICIES (Continued)
IFRS 10 Consolidated Financial Statements (effective for annual periods beginning on or after 1 January
2013)
IFRS 10 replaces the portion of IAS 27 Consolidated and Separate Financial Statements that addresses
the accounting for consolidated financial statements. It also includes the issues raised in SIC 12
Consolidation—Special Purpose Entities. IFRS 10 establishes a single control model that applies to all
entities including special purpose entities. The changes introduced by IFRS 10 will require management
to exercise significant judgment to determine which entities are controlled, and therefore, are required
to be consolidated by a parent, compared with the requirements that were in IAS 27. The Group is
currently assessing the impact that IFRS 10 will have on financial statements. The Group plans to
adopt this new standard on its effective date.
IFRS 11 Joint Arrangements (effective for annual periods beginning on or after 1 January 2013)
IFRS 11 replaces IAS 31 Interests in Joint Ventures and SIC 13 Jointly-controlled Entities—
Non-monetary Contributions by Ventureres. The focus of IFRS 11 is on the rights and obligations of
the arrangement rather than its legal form. There are two types of joint arrangement: joint operations
and joint ventures. Joint operations arise where a joint operator has rights to the assets and obligations
relating to the arrangement and hence accounts for its interest in assets, liabilities, revenue and
expenses. Joint ventures arise where the joint operator has rights to the net assets of the arrangement
and hence equity accounts for its interest. Proportional consolidation of joint ventures is no longer
allowed. It is not expected that the application of this standard will have the impact on financial
position or performance of the Group. The Group plans to adopt this new standard on its effective
date.
IFRS 12 Disclosures of Interests in Other Entities (effective for annual periods beginning on or after
1 January 2013)
IFRS 12 includes all of the disclosures that were previously in IAS 27 related to consolidated financial
statements, as well as all of the disclosures that were previously included in IAS 31 and IAS 28. These
disclosures relate to an entity’s interests in subsidiaries, joint arrangements, associates and structured
entities. A number of new disclosures are also required. This standard becomes effective for annual
periods beginning on or after 1 January 2013.
IFRS 13 Fair Value Measurement (effective for annual periods beginning on or after 1 January 2013)
IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13
does not change when an entity is required to use fair value, but rather provides guidance on how to
measure fair value under IFRS when fair value is required or permitted. The Group is currently
assessing the impact that this standard will have on the financial position and performance. The Group
plans to adopt this standard on its effective date.
IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine (issued in October 2011 and effective
for annual periods beginning on or after 1 January 2013)
The interpretation clarifies that benefits from the stripping activity are accounted for in accordance
with the principles of IAS 2 Inventories to the extent that they are realised in the form of inventory
produced. To the extent the benefits represent improved access to ore; the entity should recognise these
costs as a stripping activity asset within non-current assets, subject to certain criteria being met. This
amendment is not relevant to the operations of the Group.
The Group has not early adopted any IFRS standards where adoption is not mandatory at the balance
sheet date. Where transition provisions in IFRS adopted give an entity a choice whether to apply the
new standards prospectively or retrospectively the Group has elected to apply the standard
prospectively from the date of transition.
F-35
AGROKOR GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at 31 December 2011 and 2010
NOTE 2.
2.1
GROUP STRUCTURE
Acquisition of subsidiaries
Slobodna Dalmacija Trgovina d.o.o.
During 2011, the Group acquired management control of Slobodna Dalmacija Trgovina d.o.o., through
the purchase of 100,00% ownership of Slobodna Dalmacija Trgovina d.o.o. by Tisak d.d. for
HRK 118,504 thousand, paid entirely in cash. The main business activity of Slobodna Dalmacija
Trgovina d.o.o. is retail
Assets and liabilities of Slobodna Dalmacija Trgovina d.o.o. as of 30 April 2011 (acquisition date) are
summarised below (thousands of HRK):
Recognised on
acquisition
Property, plant and equipment
Non-current financial assets . . .
Inventories . . . . . . . . . . . . . . .
Accounts receivable . . . . . . . .
Other current assets . . . . . . . .
Cash and cash equivalents . . . .
.
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49,625
165
7,905
17,306
718
2,557
46,662
165
9,318
17,306
718
2,557
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
78,276
76,726
Long-term liabilities . . . . . . . . . . . . . . . . .
Long-term provisions for employee benefits
Deferred taxes . . . . . . . . . . . . . . . . . . . . .
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . .
.
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.
11,780
1,267
593
1,736
730
71,805
3,921
11,780
1,267
—
1,736
730
71,805
3,921
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
91,832
91,239
Fair value of net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(13,556)
(14,513)
Acquired . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . .
Consideration paid . . . . . . . . . . . . . .
Net cash acquired with the subsidiary .
Net cash outflow on acquisition . . . . .
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Carrying value
(in Slobodna
Dalmacija
Trgovina d.o.o.)
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Total payment on acquisitions of the subsidiaries, net of cash acquired .
(7,341)
(125,845)
118,504
2,557
115,947
115,947
From the date of acquisition, Slobodna Dalmacija Trgovina d.o.o. in 2011 decreased the net profit of
the Group by HRK 1,127 thousand.
Acro d.o.o.
During 2011, the Group acquired management control of Acro d.o.o., through the purchase of 100,00%
ownership of Acro d.o.o. by Agrokor d.d. for HRK 171,425 thousand, paid entirely in cash. The main
business activity of Acro d.o.o. is development of real estate projects.
F-36
AGROKOR GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at 31 December 2011 and 2010
NOTE 2.
GROUP STRUCTURE (Continued)
Assets and liabilities of Acro d.o.o. as of 31 December 2011 (acquisition date) are summarised below
(thousands of HRK):
Recognised
on
acquisition
Non-current financial assets .
Inventories . . . . . . . . . . . . .
Accounts receivable . . . . . .
Other current assets . . . . . .
Cash and cash equivalents . .
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.
152,549
10
4,057
2
2,199
152,549
10
4,057
2
2,199
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
158,817
158,817
Long-term provisions for employee benefits . . . . . . . . . . . . . . . . . . . . . . . .
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9
35,267
35,672
9
35,267
35,672
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
70,948
70,948
Fair value of net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
87,869
87,869
Acquired . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . .
Consideration paid . . . . . . . . . . . . . .
Net cash acquired with the subsidiary .
Net cash outflow on acquisition . . . . .
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Carrying
value (in
Acro d.o.o.)
.
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.
Total payment on acquisitions of the subsidiaries, net of cash acquired . . . . .
2.2
87,869
(83,556)
171,425
2,199
169,226
169,226
Acquisitions during 2010
During 2010, the Group acquired management control over the following companies:
•
Vupik d.d. through the purchase of 55.77% ownership of Vupik d.d. by Agrokor d.d. for
HRK 117,564 thousand, paid entirely in cash. The main business activity of Vupik d.d. is crop
husbandry (except rice) pulse and oilseed.
•
Dijamant agrar a.d. trough the purchase of 61.85% ownership of Dijamant agrar a.d. by Dijamant
a.d. for HRK 114,292 thousand, paid entirely in cash. The main business activity of Dijamant agrar
a.d. I crop husbandry, fruit seedling production and live stock farming.
•
Jadrankomerc d.d. trough the purchase of 96.30% ownership of Jadrankomerc d.d. by Konzum d.d.
for HRK 45,901 thousand, paid entirely in cash. The main business activity of Jadrankomerc d.d. is
retail.
2.3 Investments in Subsidiaries
31 December 2011
Acro d.o.o. . . . . . . . . . . .
Agrofructus d.o.o. . . . . . .
Agrofructus d.o.o. Čapljina
Agrokor AG . . . . . . . . . .
Agrokor energija d.o.o. . . .
Agrokor kft. . . . . . . . . . .
Agrokor—trgovina d.d. . . .
Agrokor vina d.o.o. . . . . .
Agrokor—Zagreb d.o.o. . .
Country
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Serbia
Croatia
Bosnia and Herzegovina
Switzerland
Croatia
Hungary
Croatia
Croatia
Bosnia and Herzegovina
F-37
Ownership
Interest of
Agrokor d.d.
Ownership
Interest of
Subsidiary
100.00%
100.00%
100.00%(10)
100.00%
100.00%(12)
100.00%
100.00%
100.00%
100.00%
Group
Voting
Rights
Group
Ownership
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
AGROKOR GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at 31 December 2011 and 2010
NOTE 2.
GROUP STRUCTURE (Continued)
31 December 2011
Agrolaguna d.d. . . . . .
Agroprerada d.d. . . . .
Belje d.d. . . . . . . . . .
Bootleggers d.o.o. . . .
Dijamant a.d. . . . . . .
Dijamant agrar a.d. . .
eLog d.o.o. . . . . . . . .
Euroviba d.o.o. . . . . .
Frikom a.d. . . . . . . . .
Fonyodi kft. . . . . . . .
Idea d.o.o. . . . . . . . .
Irida d.o.o. . . . . . . . .
Jadrankomerc d.d. . . .
Jamnica d.d. . . . . . . .
Jamnica d.o.o. Beograd
Jamnica d.o.o. Maribor
Kikindski mlin a.d. . . .
Country
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Konzum d.d. . . . . . . . . . . . .
Konzum d.o.o. Sarajevo . . . . .
Krka d.o.o. . . . . . . . . . . . . .
Ledo d.d. . . . . . . . . . . . . . .
Ledo Čitluk d.o.o. . . . . . . . .
Ledo d.o.o. . . . . . . . . . . . . .
Ledo kft. . . . . . . . . . . . . . .
Ledo d.o.o. . . . . . . . . . . . . .
Ledo d.o.o. Podgorica . . . . . .
Lovno gospodarstvo Moslavina
Mladina d.d. . . . . . . . . . . . .
mStart telekomunikacije d.o.o.
Multiplus card d.o.o. . . . . . .
Nova Sloga a.d. . . . . . . . . . .
PIK Vinkovci d.d. . . . . . . . .
PIK Vrbovec d.d. . . . . . . . . .
Plodovi fructus d.o.o.* . . . . . .
Sarajevski kiseljak d.d. . . . . .
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Croatia
Croatia
Croatia
Serbia
Serbia
Serbia
Croatia
Croatia
Serbia
Hungary
Serbia
Croatia
Croatia
Croatia
Serbia
Slovenia
Serbia
.....
.....
.....
.....
.....
.....
.....
.....
.....
d.o.o.
.....
.....
.....
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.....
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Croatia
Bosnia and Herzegovina
Croatia
Croatia
Bosnia and Herzegovina
Kosovo
Hungary
Slovenia
Montenegro
Croatia
Croatia
Croatia
Croatia
Serbia
Croatia
Croatia
Croatia
Bosnia and Herzegovina
.
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Croatia
Croatia
Croatia
Croatia
Bosnia and Herzegovina
Croatia
Croatia
Croatia
Slovenia
Bosnia and Herzegovina
Croatia
Slobodna Dalmacija—trgovina d.o.o.
Sojara d.d. . . . . . . . . . . . . . . . . .
Solana Pag d.d. . . . . . . . . . . . . . .
Tisak d.d. . . . . . . . . . . . . . . . . . .
TPDC Sarajevo d.d. . . . . . . . . . . .
Unex MPG d.o.o.* . . . . . . . . . . . .
Vupik d.d. . . . . . . . . . . . . . . . . .
Zvijezda d.d. . . . . . . . . . . . . . . . .
Zvijezda d.o.o. Ljubljana . . . . . . . .
Zvijezda d.o.o. Sarajevo . . . . . . . . .
Žitnjak d.d. . . . . . . . . . . . . . . . . .
(1)
held by Jamnica d.d.;
(2)
held by Ledo d.d.;
(3)
held by Zvijezda d.d.;
.
.
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.
Ownership
Interest of
Agrokor d.d.
85.22%
67.92%
73.08%
95.83%
100.00%
80.44%
F-38
71.62%
78.85%
100.00%
100.00%
100.00%
70.87%
99.99%
96.49%
54.15%
51.00%
50.00%
55.76%
51.84%
Ownership
Interest of
Subsidiary
Group
Voting
Rights
85.22%
100.00%(11) 100.00%
67.92%
100.00%(8) 100.00%
73.08%
61.85%(6) 61.85%
100.00%(4) 100.00%
93.45%(4) 93.45%
95.83%
100.00%(1) 100.00%
100.00%
100.00%(2) 100.00%
96.37%(4) 96.37%
80.44%
100.00%(1) 100.00%
100.00%(1) 100.00%
72.28%(6) 96.25%
23.97%(7)
11.10%(1) 82.72%
100.00%(4) 100.00%
82.41%(4) 82.41%
78.85%
100.00%(2) 100.00%
100.00%(2) 100.00%
100.00%(2) 100.00%
100.00%(2) 100.00%
100.00%
100.00%
60.89%(1) 60.89%
100.00%
75.00%(4) 75.00%
100.00%(7) 100.00%
70.87%
99.99%
50.00%(10) 50.00%
96.56%(1) 99.86%
3.30%(5)
100.00%(9) 100.00%
100.00%(3) 100.00%
96.49%
54.15%
51.00%
50.00%
55.76%
51.84%
100.00%(3) 100.00%
100.00%(3) 100.00%
89.43%(4) 89.43%
Group
Ownership
85.22%
67.92%
67.92%
100.00%
73.08%
45.20%
80.55%
75.27%
95.83%
80.44%
100.00%
78.85%
77.63%
80.44%
80.44%
80.44%
75.79%
80.55%
80.55%
66.38%
78.85%
78.85%
78.85%
78.85%
78.85%
100.00%
100.00%
48.98%
100.00%
60.41%
95.83%
70.87%
99.99%
50.00%
80.98%
54.15%
51.84%
96.49%
54.15%
51.00%
50.00%
55.76%
51.84%
51.84%
51.84%
72.03%
AGROKOR GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at 31 December 2011 and 2010
NOTE 2.
GROUP STRUCTURE (Continued)
(4)
held by Konzum d.d.;
(5)
held by Agrokor-Zagreb d.o.o. Grude;
(6)
held by Dijamant a.d.;
(7)
held by Frikom a.d.;
(8)
held by Idea d.o.o.;
(9)
held by Tisak d.d.;
(10) held by Agrofructus d.o.o.;
(11) held by Belje d.d.;
(12) held by Agrokor Trgovina d.d.
*
Management control is exercised by the Group.
31 December 2010
Agrofructus d.o.o. . . . .
Agrokor AG . . . . . . . .
Agrokor kft. . . . . . . . .
Agrokor—trgovina d.d. .
Agrokor vina d.o.o. . . .
Agrokor—Zagreb d.o.o.
Agrolaguna d.d. . . . . . .
Agroprerada d.d. . . . . .
Belje d.d. . . . . . . . . . .
Bootleggers d.o.o. . . . .
Centropromet d.d. . . . .
Ciglane Zagreb d.d. . . .
Dijamant a.d. . . . . . . .
Dijamant agrar a.d.* . . .
Duhan trgovina d.o.o. . .
Euroviba d.o.o. . . . . . .
Frikom a.d. . . . . . . . . .
Fonyodi kft. . . . . . . . .
Idea d.o.o. . . . . . . . . .
Irida d.o.o. . . . . . . . . .
Jadrankomerc d.d. . . . .
Jamnica d.d. . . . . . . . .
Jamnica d.o.o. Maribor .
Japetić d.d. . . . . . . . . .
Kikindski mlin a.d. . . . .
Country
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Konzum d.d. . . . . . . . . . . . .
Konzum d.o.o. Sarajevo . . . . .
Krka d.o.o. . . . . . . . . . . . . .
Ledo d.d. . . . . . . . . . . . . . .
Ledo Čitluk d.o.o. . . . . . . . .
Ledo d.o.o. . . . . . . . . . . . . .
Ledo kft. . . . . . . . . . . . . . .
Ledo d.o.o. . . . . . . . . . . . . .
Ledo d.o.o. Podgorica . . . . . .
Lovno gospodarstvo Moslavina
Media d.o.o. . . . . . . . . . . . .
Mladina d.d. . . . . . . . . . . . .
mStart telekomunikacije d.o.o.
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Croatia
Switzerland
Hungary
Croatia
Croatia
Bosnia and Herzegovina
Croatia
Croatia
Croatia
Serbia
Croatia
Croatia
Serbia
Serbia
Croatia
Croatia
Serbia
Hungary
Serbia
Croatia
Croatia
Croatia
Slovenia
Croatia
Serbia
.....
.....
.....
.....
.....
.....
.....
.....
.....
d.o.o.
.....
.....
.....
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.
Croatia
Bosnia and Herzegovina
Croatia
Croatia
Bosnia and Herzegovina
Kosovo
Hungary
Slovenia
Montenegro
Croatia
Croatia
Croatia
Croatia
F-39
Ownership
Interest of
Agrokor d.d.
Ownership
Interest of
Subsidiary
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
85.22%
100.00%(11)
67.92%
100.00%(8)
100.00%(4)
99.32%
73.08%
61.85%(6)
100.00%(9)
93.45%(4)
95.83%
100.00%(1)
100.00%
100.00%(2)
96.30%(4)
80.44%
71.62%
78.85%
100.00%
100.00%
100.00%
100.00%
Group
Voting
Rights
Group
Ownership
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
85.22%
100.00%
67.92%
100.00%
100.00%
99.32%
73.08%
61.85%
100.00%
93.45%
95.83%
100.00%
100.00%
100.00%
96.30%
80.44%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
85.22%
67.92%
67.92%
100.00%
80.55%
99.32%
73.08%
45.20%
54.15%
75.27%
95.83%
80.44%
100.00%
78.85%
77.57%
80.44%
80.44%
80.55%
78.74%
100.00%(1)
100.00%(4)
75.10%(6)
24.90%(7)
11.10%(1) 82.72%
100.00%(4) 100.00%
82.41%(4) 82.41%
78.85%
100.00%(2) 100.00%
100.00%(2) 100.00%
100.00%(2) 100.00%
100.00%(2) 100.00%
100.00%
100.00%
100.00%
60.89%(1) 60.89%
100.00%
80.55%
80.55%
66.38%
78.85%
78.85%
78.85%
78.85%
78.85%
100.00%
100.00%
100.00%
48.98%
100.00%
AGROKOR GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at 31 December 2011 and 2010
NOTE 2.
GROUP STRUCTURE (Continued)
31 December 2010
Nova Sloga a.d. . . . . .
PIK Vinkovci d.d. . . .
PIK Vrbovec d.d. . . . .
Plodovi fructus d.o.o.* .
Sarajevski kiseljak d.d.
Country
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Serbia
Croatia
Croatia
Croatia
Bosnia and Herzegovina
Sojara d.d. . . . . . . . . .
Solana Pag d.d. . . . . . .
Tisak d.d. . . . . . . . . . .
TPDC Sarajevo d.d. . . .
Unex MPG d.o.o.* . . . .
Vupik d.d. . . . . . . . . .
Zvijezda d.d. . . . . . . . .
Zvijezda d.o.o. Ljubljana
Zvijezda d.o.o. Sarajevo .
Žitnjak d.d. . . . . . . . . .
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Croatia
Croatia
Croatia
Bosnia and Herzegovina
Croatia
Croatia
Croatia
Slovenia
Bosnia and Herzegovina
Croatia
(1)
held by Jamnica d.d.;
(2)
held by Ledo d.d.;
(3)
held by Zvijezda d.d.;
(4)
held byKonzumd.d.;
(5)
held by Agrokor-Zagreb d.o.o. Grude;
(6)
held by Dijamant a.d.;
(7)
held by Frikom a.d.;
(8)
held by Idea d.o.o.;
(9)
held by Tisak d.d.
Ownership
Interest of
Agrokor d.d.
70.87%
99.78%
91.93%
54.15%
51.00%
50.00%
55.77%
51.84%
Ownership
Interest of
Subsidiary
Group
Voting
Rights
100.00%(7) 100.00%
70.87%
99.78%
50.00%(10) 50.00%
96.56%(1) 99.86%
3.30%(5)
100.00%(3) 100.00%
91.93%
54.15%
51.00%
50.00%
55.77%
51.84%
100.00%(3) 100.00%
100.00%(3) 100.00%
86.83%(4) 86.83%
Group
Ownership
95.83%
70.87%
99.78%
50.00%
80.98%
51.84%
91.93%
54.15%
51.00%
50.00%
55.77%
51.84%
51.84%
51.84%
69.94%
(10) held by Agrofructus d.o.o.;
(11) held by Beljed.d.
*
Management control is exercised by the Group.
The ownership of the Group represents the shares of the parent company in the capital stock of a
subsidiary, while the voting rights of the Group represents the number of votes at the disposition of the
parent company represented at the General Assembly of a subsidiary.
Under International Financial Reporting Standards, subsequent acquisitions of non-controlling interests
in subsidiaries do not represent business combinations. Consequently, the assets and liabilities of the
subsidiary are not remeasured to reflect their fair values at the date of the transaction. The Group
accounts for subsequent acquisitions of non-controlling interest using entity concept method of
accounting whereby any difference between acquisition cost of additional share and book value of
non-controlling interest acquired is recognised directly in equity.
F-40
AGROKOR GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at 31 December 2011 and 2010
NOTE 3.
SEGMENTAL ANALYSIS
Business segments
Agrokor
Holding
2011
Food,
Manufacturing
and
Distribution
Retailing and
Wholesale
Other
Businesses
Intersegment
sales
Consolidated
(in thousands of HRK)
SALES
Sales to external customers . . . .
Inter-segment sales . . . . . . . . .
106,627
391,526
5,866,410
5,483,866
21,930,317
925,525
1,150,040
1,078,455
(7,879,371)
Total sales . . . . . . . . . . . . . . .
498,153
11,350,276
22,855,842
2,228,495
(7,879,371)
OPERATING PROFIT . . . . . . .
(243,166)
1,064,305
899,885
84,233
Excess of fair value of net assets
over the cost of acquisition,
net of written off goodwill . . .
Sale of properties, net . . . . . . .
Financial expenses . . . . . . . . . .
Impairment of financial assets . .
Sale of subsidiaries . . . . . . . . . .
Financial income . . . . . . . . . . .
Income before taxation . . . . . . .
Taxation . . . . . . . . . . . . . . . . .
Net profit for the year . . . . . . .
Other information
Segment assets . . . . . . . . . .
Investments in associates . . . .
Total segment assets . . . . . .
Total segment liabilities . . . .
Capital expenditures . . . . . . .
Depreciation and amortisation
.
.
.
.
.
.
.
.
.
.
.
.
29,053,395
1,805,257
(84,546)
(23,034)
(1,357,494)
(3,852)
(46,347)
128,079
418,063
(222,914)
195,149
2,857,865
—
2,857,865
(8,894,553)
5,056
7,069
13,460,005
9,697
13,469,702
(3,905,514)
709,125
434,704
F-41
11,495,007
—
11,495,007
(8,918,470)
587,093
398,372
1,341,630
—
1,341,630
(830,633)
31,636
26,097
29,154,507
9,697
29,164,204
(22,549,170)
1,332,910
866,243
AGROKOR GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at 31 December 2011 and 2010
NOTE 3.
SEGMENTAL ANALYSIS (Continued)
Business segments
Agrokor
Holding
2010
Food,
Manufacturing
and
Distribution
Retailing and
Wholesale
Other
Businesses
Intersegment
sales
Consolidated
(in thousands of HRK)
SALES
Sales to external customers . . . .
Inter-segment sales . . . . . . . . .
25,578
387,909
5,135,552
4,669,669
20,019,473
825,351
1,325,632
789,239
(6,672,168)
Total sales . . . . . . . . . . . . . . .
413,487
9,805,221
20,844,824
2,114,871
(6,672,168)
OPERATING PROFIT . . . . . . .
(248,959)
885,529
935,029
63,169
1,634,768
Excess of fair value of net assets
over the cost of acquisition,
net of written off goodwill . . .
Sale of properties, net . . . . . . .
Financial expenses . . . . . . . . . .
Impairment of financial assets . .
Sale of subsidiaries . . . . . . . . . .
Financial income . . . . . . . . . . .
Income before taxation . . . . . . .
Taxation . . . . . . . . . . . . . . . . .
Net profit for the year . . . . . . .
Other information
Segment assets . . . . . . . . . .
Investments in associates . . . .
Total segment assets . . . . . .
Total segment liabilities . . . .
Capital expenditures . . . . . . .
Depreciation and amortisation
.
.
.
.
.
.
.
.
.
.
.
.
26,506,235
(69,719)
21,745
(1,292,331)
(15,541)
—
86,319
365,241
(205,148)
160,093
2,321,591
4,883
2,326,474
(8,006,021)
29,039
20,916
12,139,877
—
12,139,877
(3,944,908)
780,555
409,330
10,855,540
115,816
10,971,356
(8,114,920)
1,146,991
333,036
1,084,896
—
1,084,896
(346,651)
28,711
16,205
26,401,904
120,699
26,522,603
(20,412,500)
1,985,296
779,487
Geographic information
Revenues from external customers
2011
Sales
Capital
Assets
Expenditure
(in thousands of HRK)
Croatia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20,592,114
8,461,281
22,946,812
6,217,392
1,079,861
253,049
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29,053,395
29,164,204
1,332,910
2010
Sales
Capital
Assets
Expenditure
(in thousands of HRK)
Croatia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19,149,673
7,356,562
20,945,476
5,577,127
1,687,593
297,703
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26,506,235
26,522,603
1,985,296
Out of total sales income HRK 557,117 thousand relate to income from services (2010:
HRK 527,537 thousand).
F-42
AGROKOR GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at 31 December 2011 and 2010
NOTE 4.
COST OF MATERIALS
2011
2010
(in thousands of HRK)
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NOTE 5.
20,834,942
(431,130)
18,834,081
(297,140)
20,403,812
18,536,941
OTHER INCOME
2011
2010
(in thousands of HRK)
Gain on sale of securities . . . . . .
Government grants . . . . . . . . . . .
Reversal of provision for litigation
Collected receivables written off .
Other revenues . . . . . . . . . . . . . .
Value adjustment of receivables . .
.
.
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Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NOTE 6.
55,064
146,669
114,999
18,979
17,821
(18,979)
263,450
173,130
130
27,788
54,878
(27,787)
334,553
491,589
OTHER EXPENSES
2011
2010
(in thousands of HRK)
Wages and salaries . . . . . . . . . . . . . . . .
Taxes, social insurance and pension costs
Depreciation and amortisation . . . . . . . .
Research and development costs . . . . . .
Write off of bad debts, net . . . . . . . . . .
Other expenses . . . . . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
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.
.
1,741,366
1,235,963
866,243
10,386
49,783
829,297
1,663,803
1,147,729
779,487
9,124
56,795
863,279
4,733,038
4,520,217
Management board compensation:
2011
2010
(in thousands of HRK)
Salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes, social insurance and pension costs . . . . . . . . . . . . . . . . . . . . . . . . . .
Severance pay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NOTE 7.
26,175
27,987
783
26,106
29,781
1,541
54,945
57,428
EXCESS OF FAIR VALUE OF NET ASSETS OVER THE COST OF ACQUISITION, NET
OF WRITTEN OFF GOODWILL
2011
2010
(in thousands of HRK)
Excess of fair value of net assets over the cost of acquisition . . . . . . . . . . . .
Written off goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
(84,546)
29,447
(99,166)
(84,546)
(69,719)
Written off goodwill relates to Acro d.o.o. Goodwill was impaired due to future plans and expectations
that remaining goodwill will not be recoverable in future periods.
F-43
AGROKOR GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at 31 December 2011 and 2010
NOTE 8.
SALE OF SUBSIDIARIES
During 2011 the Group has sold Znanje d.o.o, which main business activity is publishing and printing,
for total amount of HRK 71,840 thousand and had a loss on sale in total amount of
HRK 46,347 thousand.
NOTE 9.
INTANGIBLE ASSETS
Concession
rights
At 31 December 2009
Other
Intangibles
Goodwill
(in thousands of HRK)
Total
Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated amortization . . . . . . . . . . . . . . . . .
20,428
(17,041)
525,382
(196,215)
996,854
—
1,542,664
(213,256)
Net book amount . . . . . . . . . . . . . . . . . . . . . . .
3,387
329,167
996,854
1,329,408
At 01 January 2010
Opening net book amount . . . . . . . . . .
Acquisition (new subsidiaries) . . . . . . .
Additions . . . . . . . . . . . . . . . . . . . . . .
Transfer . . . . . . . . . . . . . . . . . . . . . . .
Disposals . . . . . . . . . . . . . . . . . . . . . .
Write-off . . . . . . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . .
Advance payments for intangible assets
Foreign exchange differences . . . . . . . .
3,387
—
—
—
—
—
(203)
—
34
329,167
69
63,166
—
(146,842)
—
(48,360)
(546)
(992)
996,854
149,464
—
—
—
(99,166)
—
—
—
1,329,408
149,533
63,166
—
(146,842)
(99,166)
(48,563)
(546)
(958)
Net book amount . . . . . . . . . . . . . . . . . . . . . . .
3,218
195,662
1,047,152
1,246,032
At 31 December 2010
Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated amortization . . . . . . . . . . . . . . . . .
20,472
(17,254)
333,225
(137,563)
1,047,152
—
1,400,849
(154,817)
Net book amount . . . . . . . . . . . . . . . . . . . . . . .
3,218
195,662
1,047,152
1,246,032
At 01 January 2011
Opening net book amount . . . . . . . . . .
Acquisition (new subsidiaries) . . . . . . .
Additions . . . . . . . . . . . . . . . . . . . . . .
Transfer . . . . . . . . . . . . . . . . . . . . . . .
Disposals . . . . . . . . . . . . . . . . . . . . . .
Write-off . . . . . . . . . . . . . . . . . . . . . .
Transfer from other category . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . .
Advance payments for intangible assets
Foreign exchange differences . . . . . . . .
3,218
—
—
—
—
—
—
(207)
—
61
195,662
6,034
108,919
—
(8,674)
—
146,099
(44,952)
(743)
2,173
1,047,152
209,401
—
—
(23,984)
(136,895)
—
—
—
—
1,246,032
215,435
108,919
—
(32,658)
(136,895)
146,099
(45,159)
(743)
2,234
Net book amount . . . . . . . . . . . . . . . . . . . . . . .
3,072
404,518
1,095,674
1,503,264
At 31 December 2011
Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated amortization . . . . . . . . . . . . . . . . .
20,553
(17,481)
675,942
(271,424)
1,095,674
—
1,792,169
(288,905)
Net book amount . . . . . . . . . . . . . . . . . . . . . . .
3,072
404,518
1,095,674
1,503,264
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Concession rights relate to the concession for extraction of the mineral water granted to Jamnica d.d.
and Sarajevski kiseljak d.d.. The concession is amortised according to the accounting policy (note 1.6.).
F-44
AGROKOR GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at 31 December 2011 and 2010
NOTE 9.
INTANGIBLE ASSETS (Continued)
Other intangible assets relates to software and similar intangible assets, as well as investments in
intangibles and advances for purchase of intangible assets. During 2011 the Group invested mainly in
software relating to SAP and Oracle.
As at 31 December 2011 the goodwill relates to the following companies: Frikom a.d. in the amount of
HRK 85,921 thousand, which was acquired in 2003, Sarajevski kiseljak d.d. in the amount of
HRK 12,002 thousand acquired in 2001, Dijamant a.d. in the amount of HRK 140,366 thousand,
Idea d.o.o. in the amount of HRK 5,673 thousand, acquired in 2005, Euroviba d.o.o. in the amount of
HRK 31,219 thousand, Duhan trgovina d.o.o. in the amount of HRK 8,980 thousand, Krka d.o.o. in the
amount of HRK 27,551 thousand, Plodovi fructus d.o.o. in the amount of HRK 3,241 thousand, and
Tisak d.d. in the amount of HRK 232,558 thousand, acquired in 2007, PIK Vinkovci d.d. in the amount
of HRK 4,029 thousand, and Bootleggers d.o.o. in the amount of HRK 121,959 thousand, Konzum d.d.
in the amount of HRK 216,222 thousand, Nova Sloga a.d. in the amount of HRK 27,756 thousand,
acquired in 2009, Dijamant agrar a.d. in the amount of HRK 35,294 thousand, and Jadrankomerc d.d.
in the amount of HRK 17,058 thousand, acquired in 2010, Slobodna Dalmacija trgovina d.o.o. in the
amount of HRK 125,845 thousand, acquired in 2011.
As all the entities represent single cash generating units, goodwill impairment testing was performed on
an entity basis.
The recoverable amounts of cash generating units have been determined based on a value in use
calculation using cash flow projections based on financial plans covering a five-year period. The
discount rate applied to cash flow projections ranges from 11 to 20 percent, while the cash flows
beyond the 5-year period were extrapolated using a no growth assumption (0.5% growth rate). The
basis used to determine the value assigned to the budgeted gross margins is the average gross margins
achieved in the year immediately before the budgeted year, increased for expected any applicable
efficiency improvements.
NOTE 10.
INVESTMENTS
2011
2010
(in thousands of HRK)
Investments in associates
Balance at 1 January . . . . . . .
Sale/transfer of shares . . . . . . .
Acquisitions . . . . . . . . . . . . . .
Share of gain/loss of associates
.
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.
.
.
.
.
.
.
120,699
(120,699)
9,686
11
59,510
—
63,752
(2,563)
Balance at 31 December . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,697
120,699
Other non-current investments
Investment securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
232,570
397,379
430,142
263,142
235,955
323,351
Balance at 31 December . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,060,091
822,448
Acquisition in the amount of HRK 9,685 thousand relates to investment in Eko Biograd d.o.o. The
group has 34.73% ownership of Eko Biograd d.o.o.
F-45
AGROKOR GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at 31 December 2011 and 2010
NOTE 10.
INVESTMENTS (Continued)
Summarized financial information of associates
Eko Biograd d.o.o.
2011
(in thousands
of HRK)
Current assets . . . . . .
Non-current assets . . .
Current liabilities . . . .
Non-current liabilities
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131
5,257
(5,362)
—
Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Profit/(Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27
23
Long term deposits mainly relate to deposits per leasing which bear no interest and are due at the day
of repayment of contractual liabilities. Other long term deposits bear a interest of 2% to 6.5% and are
due from 2 to 10 years.
Investment securities available for sale
Adriatica net d.o.o. . . . . . . . . . . .
RTL d.o.o. . . . . . . . . . . . . . . . . . .
Investco vrijednosnice d.o.o. . . . . .
Nexus private equity partneri d.o.o.
Questus . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . .
2011
2010
(in thousands of HRK)
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Loans given
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2011
(in thousands
of HRK)
Housing employee loans . . . . . . . . . . . .
Kozmo d.o.o. . . . . . . . . . . . . . . . . . . .
Investco vrijednosnice d.o.o. . . . . . . . .
TransEuropean properties IV d.o.o. . . .
Brza produkcija d.o.o. . . . . . . . . . . . . .
M.O.F. Immobilien AG . . . . . . . . . . . .
M.O.F. Razvoj trgovačkih centara d.o.o.
Other . . . . . . . . . . . . . . . . . . . . . . . . .
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213,394
75,304
35,928
18,650
14,000
15,061
11,063
13,979
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
397,379
Loans given
Housing employee loans . . . . . . . . .
Kozmo d.o.o. . . . . . . . . . . . . . . . .
Investco vrijednosnice d.o.o. . . . . .
TransEuropean properties IV d.o.o.
Other . . . . . . . . . . . . . . . . . . . . . .
2010
(in thousands
of HRK)
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114,565
73,852
16,564
18,290
12,684
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
235,955
F-46
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102,932
—
13,500
31,808
17,431
66,899
102,932
35,042
13,500
30,383
18,312
62,973
232,570
263,142
Maturity
3–20
5
2
6
3
7
7
within 3
years
years
years
years
years
years
years
years
Maturity
3–20
5
2
6
within 3
years
years
years
years
years
Interest
4.5–6%
8%
4%
9%
7%
5%
4%
4.5–6%
Interest
4.5–6%
8%
4%
9%
4.5–6%
AGROKOR GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at 31 December 2011 and 2010
NOTE 11.
PROPERTY, PLANT AND EQUIPMENT
Land and
Buildings
Plant,
Machinery
and
Equipment
Leasehold
improvements
Other Fixed
Assets
Items in
course of
construction
Total
(in thousands of HRK)
At 31 December 2009
Cost . . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation . . . . . . . .
Net book amount . . . . . . . . . . . . .
At 01 January 2010
Opening net book amount . . . . . . .
Acquisition (new subsidiaries) . . . . .
Additions . . . . . . . . . . . . . . . . . . .
Transfer . . . . . . . . . . . . . . . . . . . .
Disposals . . . . . . . . . . . . . . . . . . .
Revaluation during the year . . . . . .
Depreciation . . . . . . . . . . . . . . . . .
Advance payments for tangible assets
Transfer to assets held for sale . . . .
Foreign exchange differences . . . . . .
Other . . . . . . . . . . . . . . . . . . . . .
Net book amount . . . . . . . . . . . . .
At 31 December 2010
Cost . . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation . . . . . . . .
Net book amount . . . . . . . . . . . . .
Net balance at 31 December
at historical cost . . . . . . . . . . . .
at revalued amounts . . . . . . . . . .
At 01 January 2011
Opening net book amount . . . . . . .
Acquisition (new subsidiaries) . . . . .
Additions . . . . . . . . . . . . . . . . . . .
Transfer . . . . . . . . . . . . . . . . . . . .
Disposals . . . . . . . . . . . . . . . . . . .
Transfer to other category . . . . . . . .
Revalorization during the year . . . . .
Depreciation . . . . . . . . . . . . . . . . .
Advance payments for tangible assets
Transfer to assets held for sale . . . .
Foreign exchange differences . . . . . .
Other . . . . . . . . . . . . . . . . . . . . .
Net book amount . . . . . . . . . . . . .
At 31 December 2011
Cost . . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation . . . . . . . .
Net book amount . . . . . . . . . . . . .
Net balance at 31 December
at historical cost . . . . . . . . . . . .
at revalued amounts . . . . . . . . . .
10,388,611
5,287,152
(2,181,900) (3,022,297)
978,258
(303,980)
34,069
—
987,368
—
17,675,458
(5,508,177)
987,368
12,167,281
8,206,711
2,264,855
674,278
34,069
8,206,711
854,696
—
519,873
(113,755)
—
(189,138)
—
—
(82,635)
(300,136)
2,264,855
56,553
—
456,999
(32,643)
—
(423,233)
—
—
(26,706)
106,123
674,278
—
—
113,345
(2,017)
—
(95,917)
—
—
(17,341)
(16,201)
34,069
987,368 12,167,281
20
22,562
933,831
—
1,873,547
1,873,547
— (1,090,217)
—
—
(11,120)
(159,535)
—
—
—
—
—
(708,288)
13,705
—
13,705
—
—
—
(1,710)
(17,295)
(145,687)
—
32,264
(177,950)
8,895,616
2,401,948
656,147
46,084
1,797,109
13,796,904
1,045,693
(389,546)
46,084
—
1,797,109
—
20,175,581
(6,378,677)
11,363,706
5,922,989
(2,468,090) (3,521,041)
8,895,616
2,401,948
656,147
46,084
1,797,109
13,796,904
5,688,787
3,206,829
2,401,948
—
656,147
—
46,084
—
1,797,109
—
10,590,075
3,206,829
8,895,616
2,401,948
656,147
46,084
1,797,109
13,796,904
8,895,616
42,099
—
665,850
(107,659)
—
517,959
(214,005)
—
321
33,031
(16,563)
2,401,948
11,296
—
560,035
(32,416)
(96,581)
—
(465,820)
—
—
15,405
(2,049)
656,147
165
—
247,279
(1,779)
402
—
(113,535)
—
—
6,028
1,466
9,816,649
2,391,818
796,173
29,024
1,461,498
14,495,162
1,291,902
(495,729)
29,024
—
1,461,498
—
21,399,583
(6,904,421)
12,444,797
6,172,362
(2,628,148) (3,780,544)
46,084
1,797,109 13,796,904
—
—
53,560
—
1,151,936
1,151,936
— (1,473,164)
—
—
(10,327)
(152,181)
—
(49,920)
(146,099)
—
—
517,959
—
—
(793,360)
(17,460)
—
(17,460)
—
—
321
400
2,983
57,847
—
42,880
25,734
9,816,649
2,391,818
796,173
29,024
1,461,498
14,495,162
6,167,558
3,649,091
2,391,818
—
796,173
—
29,024
—
1,461,498
—
10,846,071
3,649,091
9,816,649
2,391,818
796,173
29,024
1,461,498
14,495,162
As at 31 December 2011 the group share of revaluation surplus in respect of revalued assets amounts
to HRK 1,123,366 thousand.
F-47
AGROKOR GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at 31 December 2011 and 2010
NOTE 11.
PROPERTY, PLANT AND EQUIPMENT (Continued)
Property, plant and equipment with a book value of HRK 2,344,045 thousand (31 December 2010:
HRK 2,419,821 thousand) has been pledged as collateral.
Revaluation surplus included in the equity with respect to this revaluation is not distributable until
realized.
Leased assets included in property, plant and equipment are as follows:
2011
2010
(in thousands of HRK)
Cost
At 1 January
Acquisitions .
Additions . . .
Disposal . . . .
30,521
162
18,391
(1,981)
34,460
407
455
(4,801)
Cost at 31 December . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
47,093
30,521
Accumulated depreciation at 1 January
Acquisitions . . . . . . . . . . . . . . . . . . . .
Charge for the year . . . . . . . . . . . . . .
Disposal . . . . . . . . . . . . . . . . . . . . . . .
.
.
.
.
12,383
—
8,053
—
10,263
81
4,318
(2,279)
Accumulated depreciation at 31 December . . . . . . . . . . . . . . . . . . . . . . . . .
20,437
12,383
Net balance at 31 December . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26,656
18,138
NOTE 12.
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INVENTORIES
2011
2010
(in thousands of HRK)
Raw materials . .
Work in progress
Merchandise . . . .
Finished goods . .
NOTE 13.
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606,650
1,060,285
2,584,812
618,159
502,623
883,123
2,303,260
459,714
4,869,906
4,148,720
BIOLOGICAL ASSETS
Agricultural production of Agrokor Group is divided into crop husbandry, pig farming, cattle fattening,
dairy farming, vineyards, apple orchards and olive groves.
Biological assets at fair value
(a) Current biological assets
2011
2010
(in thousands of HRK)
Live stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-48
262,425
203,305
262,425
203,305
AGROKOR GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at 31 December 2011 and 2010
NOTE 13.
BIOLOGICAL ASSETS (Continued)
(b) Non current biological assets
2011
2010
(in thousands of HRK)
Biological assets as at 1 January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase due to purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gains arising from changes in fair value less estimated point of sale costs
Decreases due to sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
Biological assets as at 31 December . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
186,802
32,823
55,839
(66,857)
147,036
19,874
51,800
(31,908)
208,607
186,802
Biological assets at cost
Cost as an approximation of the fair value is used for crop husbandry, vineyards, apple orchards and
olive groves valuation due to the fact no active market for those biological assets in its present
condition exists and no reliable estimate of future cash flows is available.
(a) Current biological assets
2011
2010
(in thousands of HRK)
Crops . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
284,020
256,976
284,020
256,976
(b) Non current biological assets
Movement of biological assets during the year
2011
2010
(in thousands of HRK)
Gross book value as at 1 January
Increase due to purchases . . . . . .
Decreases due to sales . . . . . . . .
Foreign exchange differences . . . .
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.
176,305
55,336
(1,651)
254
112,595
63,749
(39)
—
Gross book value as at 31 December
Depreciation as at 1 January . . . . . .
Additions . . . . . . . . . . . . . . . . . . . .
Disposals . . . . . . . . . . . . . . . . . . . .
Foreign exchange differences . . . . . .
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.
230,244
49,507
11,197
(945)
12
176,305
29,874
19,672
(39)
—
Depreciation as at 31 December . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net book value of biological assets as at 1 January . . . . . . . . . . . . . . . . . .
59,771
126,798
49,507
82,721
Net book value of biological assets as at 31 December . . . . . . . . . . . . . . . .
170,473
126,798
The fair value of live stock is determined based on market prices of live stock of similar age, breed,
and genetic merit. The fair value of crops is determined based on market prices in regional area.
Revenues related to biological assets are included in Sales and costs are included in Other expenses.
F-49
AGROKOR GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at 31 December 2011 and 2010
NOTE 13.
BIOLOGICAL ASSETS (Continued)
Total biological assets
2011
2010
(in thousands of HRK)
Non current biological assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Live stock and crops . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
379,080
546,445
313,600
460,281
(c) Government Grants
2011
2010
(in thousands of HRK)
Fattening of live stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Agricultural production (sowing, orchards and vineyards) . . . . . . . . . . . . . .
67,831
78,838
90,560
82,570
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
146,669
173,130
Government grants are unconditional and relate to biological assets measured at its fair value less
estimated point-of-sale costs.
Income is recognised (note 5) when the government grant becomes receivable.
NOTE 14.
NON-CURRENT ASSETS HELD FOR SALE
At 31 December 2011 assets held for sale relate to buildings and land in the amount of
HRK 23,337 thousand and securities in the amount of HRK 327,432 thousand. A disposal is due to be
completed in the one year period and as at 31 December 2011 final negotiations for the sale were in
progress.
NOTE 15.
LOANS AND DEPOSITS
2011
2010
(in thousands of HRK)
Loans granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans granted
2011
(in thousands
of HRK)
Commercial loans to farmers . . . . . . . . . . . . . . . . . . .
Other loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
214,219
339,604
553,823
167,593
451,459
—
721,416
451,459
Maturity
up to 12 months
up to 12 months
Interest
4–8%
4–10%
553,823
Loans granted
2010
(in thousands
of HRK)
Commercial loans to farmers . . . . . . . . . . . . . . . . . . .
Other loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
106,076
345,383
Maturity
up to 12 months
up to 12 months
Interest
4–10%
4–10%
451,459
Deposits relate to bank and other short term placements in the normal course of business which bear
interest at annual rate of 2-4%, with maturity from 3 to 12 months.
F-50
AGROKOR GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at 31 December 2011 and 2010
NOTE 16.
ACCOUNTS RECEIVABLE
2011
2010
(in thousands of HRK)
Trade accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Value adjustment of trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,855,221
577,222
(428,813)
3,480,468
665,757
(411,041)
4,003,630
3,735,184
As at 31 December, the ageing analysis of trade receivables is as follows:
Neither past
due nor
impaired
Total
2011 . . . . . . . . . . . .
2010 . . . . . . . . . . . .
3,426,408
3,069,427
Due
<90 days
1,860,568
1,764,788
90-180 days
994,357
797,346
180-270 days
223,899
171,365
61,142
73,177
>270 days
286,442
262,751
Value adjustment is made for all outstanding domestic receivables older than 360 days and based on
individual assessments. Movements in the provision for impairment of trade receivables were as follows:
2011
2010
(in thousands of HRK)
At 1 January . . . . . . . . . . .
Acquisitions during the year
Charge for the year . . . . . .
Amounts written off . . . . . .
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At 31 December . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NOTE 17.
411,041
1,270
67,894
(51,392)
351,617
55,772
91,196
(87,544)
428,813
411,041
OTHER CURRENT ASSETS
2011
2010
(in thousands of HRK)
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other advance payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NOTE 18.
236,207
78,900
218,536
74,696
315,107
293,232
CASH AND CASH EQUIVALENTS
2011
2010
(in thousands of HRK)
Cash in bank and cash on hand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short term deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short term deposits bear interest up to 5%.
F-51
293,308
616,329
304,366
571,631
909,637
875,997
AGROKOR GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at 31 December 2011 and 2010
NOTE 19.
SHARE CAPITAL AND RESERVES
Number of
shares
AGKR-R-A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AGKR-P-A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nominal
value
296,250
26,932
Value in 000
HRK
500 kn
500 kn
323.182
148,125
13,466
161.591
By decision of the General Assembly of the Company, on 6 July 2006, the share capital was increased
whereby the share structure of Agrokor is as follows:
Share capital amounts to HRK 161,591,000 and constitutes the following:
•
296,250 regular shares in the name of Mr. Ivica Todorić, designated as AGKR-R-A each with a
nominal value of HRK 500
•
26,932 preferred shares in the name of the European Bank for Reconstruction and Development
(EBRD), designated as AGKR-P-A each with a nominal value of HRK 500.
Each preferred share provides the owner with the following rights:
•
1 vote at the General Assembly of the Company
•
Dividend distribution as per the decision of the General Assembly
•
Payment from the remainder after liquidation or insolvency preferred to the holder of regular
shares
•
Transfer of preferred shares into regular in a manner that the preferred shares can at any time be
converted in total or partially into regular shares
•
In the case of an initial public offering, the preferred shares shall automatically be converted into
regular shares
Retained earnings include legal reserves and foreign currency translation reserve. Legal reserves are not
distributable in the amount of HRK 84,235 thousand.
The decision on paying dividends is brought at the General Assembly. After the balance sheet
reporting date until the date of signing of this report such a decision was not made.
NOTE 20.
NON-CONTROLLING INTERESTS
2011
2010
(in thousands of HRK)
Balance at 1 January
Acquisitions . . . . . . .
Dividends paid . . . . .
Result for the year . .
Revalorization . . . . .
Foreign exchange . . .
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Balance at 31 December . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-52
2,642,497
(36,081)
(7,237)
174,029
134,923
10,260
2,303,734
229,941
(5,921)
127,158
(1,485)
(10,930)
2,918,391
2,642,497
AGROKOR GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at 31 December 2011 and 2010
NOTE 21.
LEASE LIABILITIES AND COMMITMENTS
Finance lease liabilities
Assets acquired under finance leases are real estate and transportation equipment.
2011
2010
(in thousands of HRK)
Payable over 5 years . . . . .
Payable in 4 to 5 years . . .
Payable in 3 to 4 years . . .
Payable in 2 to 3 years . . .
Payable in 1 to 2 years . . .
Payable within 1 year . . . .
Less future finance charges
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—
—
50
985
4,430
11,834
(253)
—
—
790
3,156
4,814
5,926
(647)
Included in borrowings (note 22) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less current portion of obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17,046
(11,833)
14,039
(5,926)
Total long-term obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,213
8,113
Operating lease commitments
Operating lease commitments relate primarily to buildings (including leased retail shops), equipment
and motor vehicles.
2011
2010
(in thousands of HRK)
Payable
Payable
Payable
Payable
over 5 years . .
in 2 to 5 years
in 1 to 2 years
within 1 year .
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850,887
790,923
412,270
503,786
609,795
638,125
365,118
443,239
2,557,866
2,056,277
Average cancellation period in operating lease agreements is between 6–9 months.
Operating lease commitments are not provided for in the financial statements in accordance with
accounting conventions.
CAPITAL COMMITMENTS
Capital commitments at the balance sheet date amount to HRK 146,400 thousand (31 December 2010:
HRK 140,000 thousand).
F-53
AGROKOR GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at 31 December 2011 and 2010
NOTE 22.
BORROWINGS
Long-term borrowings
2011
2010
(in thousands of HRK)
Bank loans . . . .
Bonds . . . . . . .
Non-bank loans
Finance leases .
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4,385,473
4,071,301
16,036
17,046
4,858,938
2,878,057
40,267
14,039
Total long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,489,856
7,791,301
Current portion of long-term borrowings
Bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(907,971)
(15,404)
(11,833)
(772,712)
(18,269)
(5,926)
Total current portion of long-term borrowings . . . . . . . . . . . . . . . . . . . . . .
(935,208)
(796,907)
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings
Bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,554,648
6,994,394
2,619,531
156,296
2,316,406
26,102
Total short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,775,827
2,342,508
TOTAL BORROWINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,265,683
10,133,809
Maturity of long term bank loans and bonds can be analysed as follows:
Bank loans
and bonds
(in thousands
of HRK)
Maturity
2013
2014
2015
2016
2017
2018
.......
.......
.......
.......
.......
and later
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852,220
915,333
1,635,290
4,119,974
7,325
18,661
7,548,803
Currency linkage of long term bank loans can be analysed as follows:
Maturity
2013
2014
2015
2016
2017
2018
.......
.......
.......
.......
.......
and later
EUR
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USD
CHF
(in thousands of HRK)
OTHER
849,895
914,554
1,635,101
4,119,974
7,325
18,661
—
—
—
—
—
—
1,305
—
—
—
—
—
1,020
779
189
—
—
—
7,545,510
—
1,305
1,988
Interest rates of the above loans are mainly variable, linked to EURIBOR, CHF Libor, Libor and are
in the range from 3 to 11% p.a. for loans while bonds bear fixed interest of 10% p.a. The above
mentioned indebtedness included bonds issued during 2009 and tap issue issued during 2011 in the
F-54
AGROKOR GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at 31 December 2011 and 2010
NOTE 22.
BORROWINGS (Continued)
amount of EUR 400,000 thousand and EUR 150,000 thousand, respectively, with maturity in December
2016, bearing a coupon of 10%. According to the terms of the issue, the Agrokor Group is required to
satisfy an incurrence ratio of Consolidated Total Net Debt to EBITDA equal to or less than 4.00:1 and
Fixed Charge Coverage Ratio of not less than 2.00:1.
According to all three Loan Agreements with the International Finance Corporation (IFC), first one
signed in June 2006, the second one signed in June 2008 and the last one signed in June 2009 which
has been amended and restated in December 2010 the ratio of Consolidated Total Net Debt to
EBITDA has to be less than 4.00:1. In addition, the Tangible Net Worth less the aggregate of any
consolidated Off-Balance Sheet Liabilities needs to be at least the equivalent of three hundred million
Euros (A300,000,000).
In accordance to Senior facilities agreement with BNP Paribas, Zagrebačka banka d.d., Unicredit Bank
Austria AG, Erste Group Bank AG, Privredna banka Zagreb d.d., Société Générale-Splitska banka d.d.,
Raiffeisen Zentralbank Österreich AG and Raiffeisenbank Austria d.d., signed in June 2010, the Group
is obliged to maintain the ratio between Consolidated Total Net Debt and EBITDA of not more than
4.00:1, Interest Cover Ratio of not less than 2.75:1 and Fixed Cost Cover ratio of not less than 1.50:1.
The Group is also obliged to maintain the ratio between Consolidated Total Net Debt and EBITDA of
the guarantor group (please see below the guarantors) of not more than the lower of the ratio of the
Group leverage and 3.75:1.
According to the Loan Agreement with the EBRD, signed in October 2008, the Group shall, at all
times, maintain a ratio of Consolidated Total Net Debt to EBITDA of not more than 4.00:1. Following
a second Loan Agreement signed with the EBRD in May 2009, the Group shall, at all times maintain a
ratio of Consolidated Total Net Debt to EBITDA of not more than 4.00:1 and Interest Cover of not
less than 2.75:1.
The Group complies with debt covenants.
Property, plant and equipment with a book value of HRK 2,344,045 thousand (31 December 2010:
HRK 2,419,821 thousand) has been pledged as collateral for HRK 1,664,702 thousand of borrowings
(31 December 2010: HRK 2,287,979 thousand). In addition, all of the shares of Jamnica, Ledo,
Konzum, Zvijezda, Ledo Čitluk, Sarajevski kiseljak, Agrokor trgovina and Pik Vinkovci owned by
Agrokor d.d. are pledged as collateral under the Syndicated facility Agreement. All the shares of
Frikom, Pik Vrbovec and Belje are pledged as collateral under the IFC Agreements. All the shares of
Konzum d.o.o. Sarajevo are pledged as collateral under the EBRD Loan Agreement signed in May
2009.
NOTE 23.
EMPLOYEE BENEFIT OBLIGATIONS
All employees are covered by the State pension fund. Provisions are established for other employee
benefits payable in respect of retirement and jubilee (length of service). Retirement benefits are
dependent on the employees fulfilling the required conditions to enter retirement from the Group and
jubilee benefits are dependent on the number of years of service. The amount of all benefit
entitlements is determined by the respective employee’s monthly remuneration.
The movement in the liability for employee benefits is recognised in the balance sheet as follows:
2011
2010
(in thousands of HRK)
Net liability, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net change recognised in the income statement . . . . . . . . . . . . . . . . . . . . .
Payments made during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
62,194
18,910
(13,783)
58,721
19,951
(16,478)
Net liability, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
67,321
62,194
F-55
AGROKOR GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at 31 December 2011 and 2010
NOTE 23.
EMPLOYEE BENEFIT OBLIGATIONS (Continued)
The principal actuarial assumptions used to determine retirement benefit obligations as of
31 December were as follows:
2011
Discount rate (annually) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wage and salary increases (annually) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.33%
3.00%
2010
4.33%
3.00%
Other long-term employee benefits are determined by using a method of predictable employer liability
per employee. Gains and loses which arise from changes in actuarial assumptions are recognized as
revenue/cost in the period in which they have occurred.
NOTE 24.
ACCOUNTS PAYABLE
2011
2010
(in thousands of HRK)
Accounts payable—domestic . . . . . . . . . . . .
Accounts payable—foreign . . . . . . . . . . . . .
Accruals for goods received and not invoiced
Bills of exchange . . . . . . . . . . . . . . . . . . . .
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5,145,652
903,912
66,523
3,557,919
4,929,164
803,075
62,062
2,578,665
9,674,006
8,372,966
Bills of exchange relate to the liabilities toward suppliers for goods delivered and services provided for
which the bill of exchange was created.
NOTE 25.
OTHER CURRENT LIABILITIES
2011
2010
(in thousands of HRK)
Sales and employment taxes . . . . . . . .
Amounts due to employees . . . . . . . . .
Advance payments . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . .
Accrued expenses and deferred income
NOTE 26.
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164,592
155,701
276,172
245,858
87,831
135,252
150,907
542,836
252,626
116,308
930,154
1,197,929
TAXATION
2011
2010
(in thousands of HRK)
Tax charge for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011
2010
Croatian corporate taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign corporate taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
200,447
22,112
355
190,780
12,455
1,913
222,914
205,148
Income taxes paid during 2011 amounted to HRK 196,992 thousand (2010: HRK 231,134 thousand).
F-56
AGROKOR GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at 31 December 2011 and 2010
NOTE 26.
TAXATION (Continued)
A reconciliation of the statutory tax rate to the effective tax rate applicable to income (before
non-controlling interest) for the years ended 31 December was as follows:
Local statutory rate . . . . . . . . . . . . . . .
Tax disallowable items, net . . . . . . . . . .
Utilisation of tax losses brought forward
Tax relieves . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . .
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Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011
2010
20.00%
32.42%
(2.01%)
(0.12%)
3.00%
20.00%
37.24%
(4.59%)
(0.11%)
3.63%
53.29%
56.17%
In accordance with Croatian tax law, every company within the Group in the Republic of Croatia is
independently liable for corporate tax at a rate of 20% (31 December 2010—20%). Several subsidiaries
have tax losses amounting to HRK 1,913,092 thousand (31 December 2010: HRK 1,844,141 thousand)
which are available to be carried forward against their future taxable income. Due to the uncertainty as
to whether these assets could be utilised in the short to medium term no deferred tax asset has been
recognised. Unutilised tax losses of HRK 100,601 thousand will expire in 2012 and, if not utilised, will
be forfeited by the subsidiaries.
The tax losses carried forward utilised in 2011, amounted to HRK 171,570 thousand (31 December
2010: HRK 238,331 thousand).
The deferred tax liability consists of:
2011
2010
(in thousands of HRK)
Deferred tax liability related to land revaluation . . . . . . . . . . . . . . . . . . . . .
Deferred tax liability related to accelerated depreciation for the tax
purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
432,006
364,250
48,221
47,897
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
480,227
412,147
Movements of deferred tax liability are as follows:
2011
2010
(in thousands of HRK)
Deferred tax liability at 1 January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax arising land revaluation and on acquisition . . . . . . . . . . . . . . .
Profit and loss deferred taxes charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
412,147
67,725
355
545,703
(135,469)
1,913
Deferred tax liability at 31 December . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
480,227
412,147
Deferred taxation obligations for revalued land occurred due to the fact that according to the present
applicable regulations revaluation surplus is taxable in the year of realisation, and not in the year of
conducting the revaluation. The remaining deferred taxation obligations were created due to adjusting
the depreciation charge of some of the subsidiaries to the group policies.
NOTE 27.
CONTINGENCIES
The Group is involved in commercial litigation relating to the collection of outstanding amounts
from debtors of HRK 369,776 thousand and disputes with creditors over amounts of HRK 53,108
thousand. In addition, proceedings are ongoing in relation to other short-term receivables of
HRK 64,244 thousand and other short-term liabilities of HRK 102,870 thousand.
F-57
AGROKOR GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at 31 December 2011 and 2010
NOTE 27.
CONTINGENCIES (Continued)
On October 6, 2011 Croatian Financial Services Supervisory Agency (CFSSA) adopted decision
determining that on September 12th 2007 occurred the obligation for Agrokor d.d. to launch a
mandatory takeover bid for all of the shares of the Belje d.d. Against this decision Agrokor d.d. has
timely brought an action before the Administrative Court of the Republic of Croatia, as well as before
the Constitutional Court of the Republic of Croatia, considering mentioned decision as not founded.
Based on this action, the Constitutional Court of the Republic of Croatia adopted a decision on
January 31, 2012 temporary postponing execution of previously mentioned decision by CFSSA, till
finalisation of court procedures before the Constitutional Court of the Republic of Croatia. Procedures
before the Administrative Court of the Republic of Croatia and before the Constitutional Court of the
Republic of Croatia are still not finalised.
We consider all evidence presented in the court proceedings by Agrokor d.d. strong and legally
founded, and that the Administrative Court will after performed procedures adopt decision on
cancellation of CFSSA decision from October 6th 2011.
NOTE 28.
RELATED PARTY TRANSACTIONS
The volumes of related party transactions (Eko Biograd d.o.o.), outstanding balances at the year-end,
and relating income for the year are as follows:
2011
(in thousands
of HRK)
ACCOUNTS RECEIVABLE
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
1,500
1,500
2011
(in thousands
of HRK)
LIABILITIES
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
2011
(in thousands
of HRK)
INCOME
Sales revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
NOTE 29.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT OBJECTIVES AND
POLICIES
(a) FINANCIAL INSTRUMENTS
The Group has no derivative financial instruments or any financial instruments that potentially subject
the Group to concentrations of credit risk. It is the Group’s policy to enter into financial instruments
F-58
AGROKOR GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at 31 December 2011 and 2010
NOTE 29.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT OBJECTIVES AND
POLICIES (Continued)
with a diversity of creditworthy counterparties. Therefore, the Group does not expect to incur material
credit losses on its risk management or other financial instruments.
Fair values of financial assets and liabilities
Fair value represents the amount for which an asset could be exchanged or a liability settled on an
arm’s length basis. As market prices are not available for a portion of the Group’s financial assets and
liabilities, fair values have been based on management assumptions according to the profile of the
respective assets and liabilities. The Management Board believes that the fair values of assets and
liabilities (unless otherwise disclosed in this note) are not significantly different from book values.
The Group has used the following methods and assumptions when assessing the fair value of financial
instruments:
Amounts Due from Banks
For assets maturing within three months, the carrying amount approximates fair value due to the
relatively short term maturity of these financial instruments. For longer term deposits, the interest rates
applicable approximate market rates and, consequently, the fair value approximate the carrying
amounts.
Loans granted
As practically all loans are short term, the Management Board believes that their fair values are not
significantly different from book values.
Investment securities
Securities available for sale are included in the balance sheet at their fair values. Securities whose fair
value can not be reliably measured as they are not actively traded are included at acquisition cost. The
Management believes that their fair values approximate their carrying amounts.
Loan liabilities
For balances maturing within one year the carrying amount approximates fair value due to the
relatively short term maturity of these financial instruments. Nominal value of Eurobonds issued
amounts to HRK 4,142 million, while their fair value as at 31 December 2011, based on closing prices
on the Stock Exchange, amounted to HRK 3,932 million as they are traded at 94.94% of nominal
value. As a significant portion of other longer term funds received is contracted with variable interest
rates, their fair value approximates the carrying amounts. For longer term funds with fixed interest
rates, the average interest rates applicable approximate market rates and, consequently, the fair value
appro