The process of reaching a settlement under the extraordinary administration procedure of Agrokor is one of the most complex in Croatia and in Europe due to the complexities of Agrokor as a business and the total amount of the debt as well as the large number of creditors, 5.700 of them. This section contains all the news on the process of reaching of a settlement for all the key stakeholders, as well as the latest details and developments.

Beginning of Preparations for Settlement Plan Implementation and Continued Positive Trends

Operating profits of the Agrokor Group for I-VII/18 exceed budget by HRK 20.7m, the driver of the increase being Konzum with EBITDA in August of more than HRK 330m

Agrokor Monthly Report August 2018

Agrokor’s Extraordinary Administration published its monthly report for the period from 11 August to 10 September, 2018. The goal of the report is to monitor the development of the economic and financial situation within the Agrokor Group over the period and outline the realization of the Extraordinary Administration’s operating activities and the overall business operations of Agrokor d.d. and some of its major subsidiaries.

The report includes the results of 16 companies from three business segments: Retail & Wholesale, Food and Agriculture, which in the period under review outperformed the budgeted operating profits and generated HRK 1.1bn in total, although unconsolidated revenues at Agrokor Group level were six per cent lower than budgeted at HRK 13.459bn. The increase in EBITDA was mostly accounted for by the increase in retail profitability against the plans set, given that the Retail and Wholesale sector have recorded improvements in business results from month to month. Cumulative operating profits in Retail amounted to HRK 223.5m, while cumulative revenues for the period were six per cent lower than budgeted at HRK 7.534bn.

The driver of the good retail results is Konzum, having generated more than five billion kunas of revenue in seven months and exceeded budget by 0.4%. Revenue in July outperformed the budget by two per cent. The positive trend continued in August, when Konzum increased its turnover by three per cent compared to last year’s August, online sales improved by more than 20 per cent while due to the restored customer and supplier confidence the basket grew by four per cent and employee productivity by over 10 per cent. At the end of August Konzum realized operating profits of around HRK 330m and thus achieved an EBITDA margin in line with global standards, of more than 5 per cent.

Unfavorable weather conditions affected the result of the Food sector, with the total cumulative revenue of this sector lower by slightly less than HRK 200m at HRK 4.733bn. The lower revenue realization was mostly affected by the Drinks and Frozen Food segments, where seasonality is high and the impact of weather conditions significant. However, the cumulative operating profit of the sector exceeded budget by over HRK 40m and amounted to HRK 792.5m for the period from January to July.

The Agriculture sector saw a drop in revenues against budget in July, due to the continuing trend of declining pork prices on the European commodity exchange and the continued drop in prices of semi-hard cheese. Intensified other activities successfully set off the impact of the price drop on cumulative operating revenues which amounted to HRK 1.193m, but the decline in operating profits against budget is still present. Given the good natural indicators in primary production for the forthcoming period the impact of the price drop on European commodity exchanges is expected to be reduced.

On 4 September, 2018 Agrokor submitted its response to the appeals lodged against the Ruling confirming the Settlement Plan dated 6 July, 2018 to the Zagreb Commercial Court. In keeping with the efficiency principle and striving to avoid unnecessary repetition, Agrokor decided to respond to all 92 appeals by way of one submission, published at the Court’s bulletin board: In its submission Agrokor holds that the first instance Court accurately and completely established all facts relevant to the decision making and duly applied the substantive law to the matters of fact thus established, that the ruling was valid and explained in full and that no procedural error had preceded its passing. In pursuance thereof, Agrokor holds the first instance ruling to be correct and legitimate.

In the US, a Chapter 15 recognition hearing was held before Judge Martin Glenn in the Southern District of New York on 27 August 2018. Counsel for the Extraordinary Commissioner updated the Bankruptcy Court on the status of the various recognition proceedings in Europe and made detailed submissions in support of the application. The Extraordinary Commissioner attended the hearing by telephone. At the conclusion of the hearing Judge Glenn granted Chapter 15 recognition of the Extraordinary Administration proceedings and Settlement Plan.

The Agrokor Group is in the process of preparations for the Settlement Plan implementation, which has been formalized and intensified immediately upon adoption of the Settlement Plan. The exceptionally complex process includes the transfer of business operations to the new group and the implementation process itself has to provide for a smooth transfer of operations without negative effects on the Group’s business. The Settlement Plan implementation includes, amongst other matters, the establishment of a new group and the finalization of the legal aspects of the Settlement Plan as well as the transfer of business operations to the new group (the so-called ‘Go-live’ of the new group) and the post-Go-Live implementation support.

The two stages of the implementation project include the process of planning and the process of putting the plan into effect. In the first stage the plan is initially prepared for two pilot companies (Ledo and Konzum) and will then be implemented for the other insolvent companies under extraordinary administration.