Croatia’s government to pull out of snacks and cereal-maker Podravka

The Croatian government will invest in leading snacks and sweets producer Podravka to preserve its controlling stake, but then intends to sell its share.

The state controls 25% of the company and plans to invest around HRK110m ($15.99m) to maintain its share.

Economy minister Ivan Vrdoljak said: “After the upcoming share issue, the government plans to sell its stake in Podravka, but in a moment that is favorable for the transaction and at a premium that will result in added revenue for the state budget”.

The government’s July 8 decision was approved after Koprivnica-based Podravka invited all existing shareholders to participate in the share issue, on June 24.

Opportunity for investors           

With the increase of its share capital, Podravka hopes to receive up to HRK510m ($74.11m) in new capital. The company will primarily use these funds to finance its acquisition of a 51.55% stake in Zito, a leading bakery company and chocolate maker in Slovenia, for €33.03m ($36.37m). The funds will also be used to expand Podravka’s business operations in new markets and, partially, for financing the construction of a new production plant for Podravka’s pharmaceutical subsidiary Belupo, said Podravka CEO Zvonimir Mrsic on July 6.

After the government consolidates its stake in Podravka, the state-owned Podravka shares will be offered eventually to other Podravka shareholders or to a strategic investor, who would vouch for the future growth and development of Podravka Group, said the Milanovic government in its decision. The decision does not mention any deadlines for the government pull out from Podravka.

Podravka Inc. was privatized and registered as a joint stock company in 1993 and its shares have been freely traded on the Croatian capital market since 1994. The largest private shareholders in the company are three private pension funds - Erste Plavi OMF (9.50%), AZ OMF (9.41%) and PBZ CO OMF (8.8%) – followed by Zagrebacka Banka (8.04%).

Company undervalued

Around 27% of state-controlled shares in Podravka is currently split among three Croatian public institutions: the State Property Management Administration (DUUDI) that has a 10.18% stake in Podravka, the national pension fund (HZMO) that controls 10.98% and the state-run Kapitalni Fond investment fund that owns a further 6.14%.

All three government-affiliated institutions were instructed by the government of Prime Minister Zoran Milanovic to purchase newly issued Podravka shares in the upcoming share issue, in a relative amount that corresponds to their current ownership stakes of the company. This means that DUUDI will buy 140,976 new shares, HZMO will buy 152,105 shares and Kapitalni Fond 85,038 new shares. The total required investment will amount to HRK113.44m ($16.48m).

In its decision, the government stressed that the price of Podravka shares “is currently undervalued” and that “abstaining from the share issue would not be an economically sound decision”.

Croatian authorities made it clear that that their aim is not to increase their stake in the company but to maintain the current public control over a controlling stake in Podravka. This means that other private investors will be able to purchase slightly more than one million shares in the company in the upcoming share issue that ends this month, having in mind that the government wants to purchase just around 378,119 shares and Podravka employees will be offered 314,640 of the newly issued shares.

Snacks in, bakery out

Podravka’s product portfolio includes snacks, condiments, cereals, children’s food, beverages, flour, muffin and doughnut mixes, among other products. Although Podravka made an exit from its low-profit bakery business in April 2014, the company remains committed to the snacks element of its portfolio.

Reported sales in the snacks, sweets and beverages category totaled HRK261.8m ($38.05m) in 2014, down 12.8% from 2013. Podravka blamed this negative result on a reduced scope of operations in the beverages subcategory, following the company’s 2014 decision to exit the beverages business. Normalized sales revenues in the category (excluding programs under restructuring) totaled HRK171.3m ($24.90m), down just 1.4% from 2013.

In its presentation of 2014 results, Podravka pointed out that growth of sales in the salted snacks and powdered sweets subcategories indicates there is a strong consumer orientation to ‘small pleasures’ product categories.