Podravka d.d. — Interim / Quarterly Report 2012

Oct 30, 2012

PODRAVKA GROUP BUSINESS RESULTS FOR THE PERIOD JANUARY – SEPTEMBER 2012

Main business characteristics

• 1. The total sales of the Podravka Group in the first nine months of the year 2012 amounted to HRK 2,691.0 million, which almost equals the level of the same period last year. Sales of the Strategic Business Area (SBA) Food and Beverages totalled HRK 2,109.2 million, which represented a sales drop of 1%, while sales of the SBA Pharmaceuticals were HRK 581.8 million, which is a 4% sales increase.
• 1. The operating profit (EBIT) of the Podravka Group amounted to HRK 121.6 million, while the operating margin (EBIT margin) is 4.5%.
• 1. The realized net profit of the Podravka Group is HRK 61.5 million, while the net margin is 2.3%.

Significant events in the third quarter of the year 2012

• 1. The General Assembly of Podravka d.d. was held on 6 July 2012 in Koprivnica at which Milan Stojanović and Ivana Matovina were appointed to the Supervisory Board for a four year term of office and Nikola Gregur was recalled. Apart from this, the Management Board members of Podravka d.d were discharged, and their work in managing the company in the business year 2011 thus approved. The Supervisory Board members of Podravka d.d. were also discharged, and their work and performed supervision over business activities thus approved, accordingly. The General Assembly of Podravka d.d. determined in its decision that the realized loss of Podravka d.d. for the business year 2011 amounting to HRK 9,534,378.44 is to be transferred to the following period. The authorized auditor KPMG Croatia d.o.o. was appointed for the audit of the financial statements of the parent company Podravka d.d. and its related companies as well as for the audit of consolidated financial statements of the Podravka Group for the business year 2012.
• 1. At the end of August, 288 employees of the Podravka Group accepted the redundancy programme of incentive severance payments in the net amount of HRK 4,000 for each year of work at the Podravka Group.
• 1. During September, Podravka completed its own programme of employing highly educated trainees "SHAPE", for which 800 candidates from all over Croatia applied, and on the grounds of which 28 trainees of various professions have been employed at Podravka.

Notes

On the sales of the Podravka Group we report as follows:

SBA "Food and Beverages"

1. Business program Podravka food

• Podravka brands
• Fruit and vegetable products, side dishes and other (Fruit and vegetable products, Side dishes, Mill and bakery products and other)
• Baby food, sweets and snack
• Fish and fishery products
• Other

2. Business program dishes and food seasonings

• Podravka brands
• -Food seasonings
• -Podravka dishes
• Other

3. Business program meat

• Podravka brands
• Other
• 4. Business program beverages
• Podravka brands
• Other

SBA "Pharmaceuticals"

Disclaimer

This release contains certain forward looking statements with respect to the financial condition, results of operations and business of the Podravka Group. These forward looking statements represent the Company's expectations or beliefs concerning future events and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements.

Sales revenue per Strategic Business Area

					In millionsHRK
Item		Jan – Sep 2012		Jan – Sep 2011		Indeks
no.	SBA	Amount	%	Amount	%	2:4
0	1	2	3	4	5	6
1	Food and Beverages	2,109.2	78.4	2,132.2	79.3	99
2	Pharmaceuticals	581.8	21.6	558.1	20.7	104
	Total	2,691.0	100.0	2,690.3	100.0	100

Sales revenue of the Podravka Group totalled HRK 2,691.0 million and is HRK 0.7 million higher compared to the same period of the year 2011.

Sales of the SBA Food and Beverages totalled HRK 2,109.2 million, which is a 1% drop of sales compared to the same period of the year 2011. This somewhat lower level of sales results from the drop of sales of the relevant SBA on both the domestic market (-1%) and the market of Central Europe (-8%). At the same time other foreign markets have recorded an increase of sales in the SBA Food and Beverages with the market of South-East Europe recording a growth of 3% and the highest contribution coming from the markets of Macedonia, Kosovo and Bosnia and Herzegovina. Furthermore, the markets of Western Europe, overseas countries and the Orient grew 3%, with the highest contribution from the markets of Australia and the USA, while the market of East Europe grew 1%, where Russia recorded the most significant sales increase.

The SBA Pharmaceuticals achieved sales in the amount of HRK 581.8 million, which is 4% higher compared to the same period of the year 2011 with the highest contribution from foreign markets (8%) of which Russia, Serbia, Bosnia and Herzegovina are the most prominent. Sales on the domestic market is also increasing and in the observed period reached 2%. If the structure of sales is analysed according to the ATC¹ classification, the most significant growth was realized by dermatics (10%) and drugs for heart disease and cardiovascular conditions (2%).

¹ Anatomical Therapeutic Chemical System of Drug Classification

Eva tuna in tomato sauce consists of carefully selected tuna pieces with the addition of Mediterranean seasoning perfectly blended with delicious tomato sauce. Tomato sauce gives specific juiciness to tuna pieces and Mediterranean seasoning rounds up the taste and aroma of this ready-made dish that will thrill you with every bite. Use as an independent meal or for preparing more complex dishes.

Pikant sausage contains a special mix of spices, red and green hot peppers and fresh black peppercorns which provide a piquant taste.

Lero multivitamin nectar is produced from a variety of fruit and is rich in vitamins A, B, C and E. The content of fruit is at minimum 50%, and apart from this flavour, Lero nectars offer: orange, apple, apricot-apple, black currant, pineapple, cranberry and peach.

Sales revenue per product group

					in millions HRK
Item		Jan – Sep 2012		Jan – Sep 2011		Index
no.	PRODUCT GROUP	Amount	%	Amount	%	2:4
0	1	2	3	4	5	6
1	BP PODRAVKA FOOD	970.9	36.1	963.6	35.8	101
	Podravka brands	735.7	27.3	731.7	27.2	101
	- Fruit and vegetable products, side dishes and other	354.6	13.1	360.6	13.4	98
	- Baby food, sweets and snack	287.4	10.7	277.6	10.3	104
	- Fish and fishery products	93.7	3.5	93.5	3.5	100
	Other	235.2	8.8	231.9	8.6	101
2	BP DISHES AND FOOD SEASONINGS	697.8	25.9	703.3	26.2	99
	Podravka brands	672.7	25.0	680.0	25.3	99
	- Food seasonings	485.6	18.0	502.5	18.7	97
	- Podravka dishes	187.1	7.0	177.5	6.6	105
	Other	25.1	0.9	23.3	0.9	108
3	BP MEAT	296.7	11.1	310.1	11.5	96
	Podravka brands	263.0	9.8	281.7	10.5	93
	Other	33.7	1.3	28.4	1.0	119
4	BP BEVERAGES	143.8	5.3	155.2	5.8	93
	Podravka brands	140.3	5.2	141.6	5.3	99
	Other	3.5	0.1	13.6	0.5	26
5	Pharmaceuticals	581.8	21.6	558.1	20.7	104
	Total	2,691.0	100.0	2,690.3	100.0	100

The BP Podravka food achieved sales growth of 1% compared to the same period of the year 2011. The highest contribution to this sales growth came from the product group Baby food, sweets and snack (4%), with the most prominent support from the markets of Australia, Croatia and Slovenia. Fruit and vegetable products, side dishes and other recorded a 2% drop of sales caused by a lower level of sales on the markets of both Poland and Croatia. The product group Fish and fishery products had a slight increase of sales with respectable results recorded on the markets of Croatia, Slovenia and Slovakia.

Sales of the BP Dishes and food seasonings are 1% lower with the Food seasonings dropping 3% and Podravka dishes increasing 5% as a result of higher sales on the markets of Serbia, Kosovo and Macedonia.

Sales of the BP Meat dropped 4% as a result of a lower level of sales on the domestic market based on a decline in the sales of fresh meat, which characterized by low profit margins. Sales on foreign markets are higher than in the same period of the year 2011 with the highest contribution from the product group Liver paste and Canned ready-made meals.

The sales level of the BP Beverages is 7% lower compared to the same period of the year 2011, but due to a good summer season the sales during summer months was higher than last year which edged off the fall back of sales realized in the previous two quarters. Sales analysis per particular product group shows that the product groups Mineral water and Syrups have increased their sales.

Sales revenue of the Podravka Group per market²

					In millions HRK
Item	MARKETS	Jan – Sep 2012		Jan – Sep 2011		Index
no.		Amount	%	Amount	%	2:4
0	1	2	3	4	5	6
1	Croatia	1,278.7	47.5	1,288.6	47.9	99
2	South-East Europe	662.8	24.6	645.6	24.0	103
3	Central Europe	356.7	13.3	383.0	14.2	93
4	Western Europe, overseas countries and Orient	225.5	8.4	219.8	8.2	103
5	Eastern Europe	167.3	6.2	153.3	5.7	109
	Total	2,691.0	100.0	2,690.3	100.0	100

The market of Croatia realized sales in the amount of HRK 1,278.7 million, which represents 47.5% of the total sales of the Podravka Group. Total sales on the domestic market are 1% lower based on a higher level of sales of the SBA Pharmaceuticals of 2%, while the SBA Food and beverages dropped 1%. Sales on foreign markets reached HRK 1,412.3 million, which is a growth of 1%. The market of South-East Europe had the highest absolute sales increase with the main contribution coming from the markets of Bosnia and Herzegovina (2%), Kosovo (20%) and Macedonia (7%). The market of Central Europe also recorded considerable growth based on a higher level of sales in Russia (12%). The market of Western Europe, overseas countries and Orient also recorded reputable sales results with the highest contribution coming from the markets of Australia (13%) and the USA (10%). On the other hand, the market of Central Europe realized a 7% lower level of sales in the observed period.

² South-East Europe – Albania, Bosnia and Herzegovina, Montenegro, Kosovo, Macedonia, Slovenia, Serbia Central Europe – Czech Republic, Hungary, Poland, Slovakia Western Europe, overseas countries and the Orient – Austria, Australia, Benelux, France, Canada, Germany, USA,

Scandinavia, Switzerland, Turkey, Great Britain and other overseas countries and Western European countries Eastern Europe – Baltic countries, Romania, Russia, Ukraine, Bulgaria,and other Eastern European countries

Structure of operating costs/expenses

					In millions HRK
Item		Jan - Sep 2012		Jan - Sep 2011		Index
no.	COSTS / EXPENSES	Amount	%	Amount	%	2:4
0	1	2	3	4	5	6
1	Cost of goods sold	1,658.5	64.4	1,623.1	64.3	102
2	Selling and distribution costs	380.6	14.8	393.0	15.5	97
3	Marketing expenses	292.0	11.3	312.6	12.4	93
4	General and administrative expenses	244.7	9.5	196.5	7.8	125
	Total	2,575.8	100.0	2,525.2	100.0	102

The total costs/expenses of the Podravka Group amounted to HRK 2,575.8 million and are 2% higher compared to the same period of the year 2011. The aforesaid increase was largely influenced by the growth of General and administrative expenses with the disclosure of severance payment expenses, as the Podravka Group paid severance payments to 288 employees in the total amount of HRK 37.6 million. A part of these funds will be compensated through lower staff costs in the amount of HRK 10.1 million by the year end, of which HRK 2.3 million has already been incorporated in the September results and is evident in the results of the observed period. Apart from this, Cost of goods sold increased 2% in the first nine months. The SBA Pharmaceuticals made a substantial reduction of costs/expenses compared to the year before due to the reclassification of Selling and distribution costs (reclassification effect is HRK 13 million). Marketing expenses are HRK 20.6 million lesser than in the same period of the year before mainly as a result of changes in the dynamics of marketing investments.

						In millions HRK
	REPORTED RESULTS			CORRECTED RESULTS*
Podravka Group	Jan – Sep 2012	Jan – Sep 2011	Jan – Sep 2012*	Jan – Sep 2011*	change (2/3)	change (4/5)
1	2	3	4	5	6	7
Sales revenue	2,691.0	2,690.3	2,691.0	2,690.3	0%	0%
Gross profit	1,032.4	1,067.2	1,032.4	1,067.2	-3%	-3%
EBITDA**	242.3	311.5	290.5	298.5	-22%	-3%
EBIT	121.6	193.5	169.8	180.5	-37%	-6%
Net profit	61.5	100.4	109.7	92.3	-39%	19%
Profit margins %
Gross margin	38.4	39.7	38.4	39.7	-130bp	-130bp
EBITDA margin	9.0	11.6	10.8	11.1	-260bp	-30bp
EBIT margin	4.5	7.2	6.3	6.7	-270bp	-40bp
Net margin	2.3	3.7	4.1	3.4	-140bp	70bp

Profitability of the Podravka Group

* without non-recurrent items

** EBITDA is calculated in the manner that EBIT is increased by amortization and adjustments of tangible and intangible assets

The Podravka Group achieved a slight increase of sales revenue (by HRK 0.7 million), while at the same time Cost of goods sold recorded a considerable increase with negative impact on the gross profit, which recorded a 3% drop. As a result of this, the gross margin is 130bp less and is 38.4%.

The EBITDA is HRK 242.3 million, while the operating profit is HRK 121.6 million, which represents a drop of 37% and the EBIT margin is at the level of 4.5%. The realized net profit of the Podravka Group is HRK 61.5 million, which is 39% less than in the same period of last year, and the net margin is 2.3%.

Severance payments were recorded as extraordinary items in the amount of HRK 48.2 million in the observed period. As already mentioned, the Podravka Group carried out a redundancy programme through incentive severance payments in the total amount of HRK 37.6 million. It is expected that the redundancy programme will contribute to the rationalisation of business operations of the Podravka Group in order to align business with the increasingly demanding economic conditions on the market.

The profitability analysis at the level of EBITDA and EBIT without non-recurrent items shows a slight drop compared to the reported results. Its should be noted that a very conservative approach in recording outstanding debt risks in retail was applied so that the expense of the corrected value of receivables compared to the same period of last year has increased HRK 5.7 million.

The corrected net profit for the observed period is HRK 109.7 million and has improved 19% compared to the same period of last year.

Corrections for the following negative non-recurrent items were made in the same period of last year: bond value adjustments in the amount of HRK 3.7 million, severance payments in the amount of HRK 6.5 million and fund investment adjustments in the amount of HRK 0.5 million. At the same time, a return of insurance funds in the amount of HRK 23.7 million was recorded which represents a positive nonrecurrent item.

Profitability of the SBA Food and beverages

						In millions HRK
	REPORTED RESULTS		CORRECTED RESULTS*
SBA Food & beverages	Jan – Sep	Jan – Sep	Jan – Sep	Jan – Sep	change	change
	2012	2011	2012*	2011*	(2/3)	(4/5)
1	2	3	4	5	6	7
Sales revenue	2,109.2	2,132.2	2,109.2	2,132.2	-1%	-1%
Gross profit	719.1	764.6	719.1	764.6	-6%	-6%
EBITDA**	128.3	180.8	170.3	191.4	-29%	-11%
EBIT	42.3	96.2	84.3	106.8	-56%	-21%
Net profit	10.8	36.4	52.8	47.0	-70%	12%
Profit margins %
Gross margin	34.1	35.9	34.1	35.9	-180bp	-180bp
EBITDA margin	6.1	8.5	8.1	9.0	-240bp	-90bp
EBIT margin	2.0	4.5	4.0	5.0	-250bp	-100bp
Net margin	0.5	1.7	2.5	2.2	-120bp	30bp

* without non-recurrent items

**EBITDA is calculated in the manner that EBIT is increased by amortization and adjustments of tangible and intangible assets

Sales of the SBA Food and Beverages are 1% lower but taken that the Cost of goods sold has increased the gross profit dropped 6% and the gross margin is 34.1%. The operating profit is HRK 42.3 million, while the EBIT margin is 2% and the net profit amounts to HRK 10.8 million.

Extraordinary items in the observed period burden the SBA Food and Beverages in the amount of HRK 42 million and refer to severance payments.

Profitability of the	SBA Pharmaceuticals

						In millions HRK
	REPORTED RESULTS		CORRECTED RESULTS*
SBA Pharmaceuticals	Jan – Sep	Jan – Sep	Jan – Sep	Jan – Sep	change	change
	2012	2011	2012*	2011*	(2/3)	(4/5)
1	2	3	4	5	6	7
Sales revenue	581.8	558.1	581.8	558.1	4%	4%
Gross profit	313.3	302.7	313.3	302.7	4%	4%
EBITDA	114.0	130.7	120.2	107.1	-13%	12%
EBIT	79.4	97.4	85.6	73.8	-18%	16%
Net profit	50.7	64.0	56.9	45.3	-21%	26%
Profit margins %
Gross margin	53.9	54.2	53.9	54.2	-30bp	-30bp
EBITDA margin	19.6	23.4	20.7	19.2	-380bp	150bp
EBIT margin	13.6	17.5	14.7	13.2	-390bp	150bp
Net margin	8.7	11.5	9.8	8.1	-280bp	170bp

* without non-recurrent items

Sales of the SBA Pharmaceuticals grew 4%, mainly resulting from the increase of sales on foreign markets (8%), but the domestic market also achieved a growth of 2%. In reality the profitability grew at all levels as last year there was a return of insurance funds in the amount of HRK 23.7 million, which had positive impact on the reported result. Severance payments in the amount of HRK 6.2 million have been recorded in this period as extraordinary items and results have been corrected in this amount, accordingly.

CONSOLIDATED STATEMENT OF INCOME

	Jan - Sep 2012	Jan - Sep 2011
Sales	2,690,955	2,690,290
Cost of goods sold	(1,658,548)	(1,623,841)
Gross profit	1,032,407	1,066,449
Investment revenue	6,681	7,822
Other (losses) / gains, net	1,005	21,698
General and administrative expenses	(244,699)	(206,953)
Selling and distribution costs	(380,585)	(379,752)
Marketing expenses	(291,997)	(314,610)
Other expenses	(1,169)	(1,118)
Profit from operations	121,643	193,536
Finance costs	(44,815)	(74,986)
Profit before tax	76,828	118,550
Income tax expenses	(17,516)	(18,382)
Net profit	59,312	100,168
Profit for the period attributable:
To the equity holders of the parent	61,506	100,430
Non-controlling interests	(2,194)	(262)

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

	30 September 2012	31 December 2011
ASSETS
Non-current assets
Property, plant and equipment	1,479,520	1,519,649
Goodwill	41,129	41,129
Intangible assets	265,737	270,798
Deferred tax assets	57,996	56,022
Other financial assets	2,422	4,323
Total non-current assets	1,846,803	1,891,921
Current assets
Inventories	710,451	700,583
Trade and other receivables	1,124,984	1,058,040
Financial assets at fair value through profit or loss	1,801	559
Cash and cash equivalents	86,229	145,960
	1,923,465	1,905,142
Non-current assets held for sale	57,879	57,657
Total current assets	1,981,344	1,962,799
TOTAL ASSETS	3,828,147	3,854,720
EQUITY AND LIABILITIES
Shareholders' equity
Share capital	1,582,966	1,582,966
Reserves	132,861	119,646
Retained earnings / Accumulated loss	15,357	(41,611)
Attributable to the equity holders of the parent	1,731,184	1,661,000
Non-controlling interests	30,979	34,787
Total shareholders' equity	1,762,163	1,695,787
Non-current liabilities
Long-term debt	753,249	897,616
Provisions	37,371	34,326
Deferred tax liability	6,452	6,997
Total non-current liabilities	797,071	938,939
Current liabilities
Trade and other payables	784,411	710,789
Short-term borrowings	475,258	485,733
Provisions	9,244	23,472
Total current liabilities	1,268,913	1,219,994
Total liabilities	2,065,984	2,158,933
TOTAL EQUITY AND LIABILITIES	3,828,147	3,854,720

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS´ EQUITY

	Share capital	Reserves	Accumulated loss / Retained earnings	Total	Non controlling interest	Total
Balance at 31 December 2011	1,582,966	119,646	(41,611)	1,661,000	34,787	1,695,787
Net profit for the year	-	-	61,506	61,506	(2,194)	59,312
Exchange differences	-	8,677	-	8,677	(179)	8,498
Total comprehensive profit	-	8,677	61,506	70,183	(2.373)	67,810
Purchase of treasury shares	-	-	-	-	-	-
Sale of treasury shares	-	-	-	-	-	-
Options exercised	-	-	-	-	-	-
Fair value of share options	-	-	-	-	-	-
Transfer from other and legal reserves	-	4,538	(4,538)	-	-	-
Other changes in capital	-	-	-	-	(1,435)	(1,435)
Balance at 30 September 2012	1,582,966	132,861	15,357	1,731,184	30,979	1,762,163

CONSOLIDATED STATEMENT OF CASH FLOWS

	2012	2011
Net profit - To the equity holders of the parent	61,506	100,431
Income tax	17,516	18,382
Depreciation and amortization	114,842	117,962
Losses / (gains) on disposal of non-current assets	5,026	(681)
Value adjustment of liabilities at fair value through profit or loss	-	3,632
Unrealised losses / (gains) per swap contract	234	(914)
Value adjustment of current assets, investments and assets for sale	17,696	8,973
Decrease / (increase) in long-term and short-term provisions	(11,728)	455
Interest received	(4,172)	(5,147)
Interest paid	54,852	63,212
Value adjustment of receivables for loans	-	290
Effect of changes in foreign exchange rates	(5,795)	10,651
Other items not affecting cash	(4,433)	269
Non-controlling interest	(2,194)	(262)
Changes in working capital
(Increase) in inventories	(12,988)	(72,939)
(Increase) in trade receivables	(73,508)	(29,987)
(Increase) / decrease in other current assets	(7,898)	2,013
Increase in trade payables	31,796	38,081
Increase in other liabilities	55,525	13,311
Net cash from operations	236,278	267,732

CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)

2012 2011 Cash flows from operating activities Cash from operations 236,278 267,732 Income taxes paid (27,368) (15,089) Interest paid (57,098) (73,756) Net cash from operating activities 151,812 178,886 Cash flows from investing activities - (4,561) Acquisition of subsidiaries, net of cash acquired Payments made for property, plant and equipment, and intangible (72,329) (68,476) assets Sale of tangible and intangible assets 1,220 2,448 Long-term loans given and deposits given - (14) Repayment of long-term loans given and deposits given 1,898 2,421 Purchase of trading securities (87,217) (77,543) Sale of trading securities 85,894 86,896 Short-term loans and deposits given (89) (286) Recovery of short-term loans and deposits given 69 45 Collected interest 4,172 5,147 Net cash used in investing activities (66,381) (53,923) Net cash flows from financing activities Proceeds from long-term borrowings 27,509 566,209 Repayment of long-term borrowings (178,561) (556,705) Proceeds from short-term borrowings 84,213 40,498 Repayment of short-term borrowings (78,323) (203,529) Net cash used in financing activities (145,162) (153,527) Net (decrease) in cash and cash equivalents (59,731) (28,564) Cash and cash equivalents at beginning the period 145,960 152,363 Cash and cash equivalents at the end of the perod 86,229 123,799	Jan - Sep	Jan - Sep

Podravka d.d. Investor Relations

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