ADRIS GRUPA D. D. At today's session, the General Assembly of Adris grupa has granted approval on the Agreement on the purchase of shares of company TDR d.o.o., shares of company iNovine d.d. and shares of company Tisak d.d. and related supplements (Agreement on the transfer of business share in the company TDR d.o.o., Agreement on the transfer of shares of company iNovine d.d., Agreement on the transfer of shares of the company Tisak d.d., two Agreements on special obligations of the Buyer, Transition agreement). This agreement will safeguard production and jobs at Kanfanar. Funds acquired from the transaction will be used for further financial strengthening and the increase of Adris grupa's value.
Reminding that in January this year the General Assembly instructed TDR's Management Board to review strategic options for TDR's long-term sustainability, including sale, the President of the Management Board of Adris grupa Ante Vlahovic, M. Sc. said: 'This transaction enabled us to maintain production and safeguard jobs at Kanfanar. Funds acquired from the transaction will enable Adris to make further investments (more than HRK 4 billion by 2017!), thereby uniquely completing the transformation of the company. We incorporated the value of one business, to which we were no longer able to add value, into new sustainable operations where we've already achieved notable results. This is the best guarantee that, in a rational and economic sense, and for the future of new generations of our employees and the community as a whole, we should support this transaction. Any other solution which would not benefit the shareholders, the workers, local and wider community would be unacceptable to me, as a businessman and a human being.'
Explaining last year's business results and the business plan for this year, he pointed out that the macroeconomic environment in which Adris grupa operates is still extremely unfavourable. We can see that the crisis has entered its sixth year: Croatia is undergoing the Excessive Deficit Procedure, the GDP is down 13 per cent compared to 2008, retail is down 20 per cent, while industrial production is down 18 per cent. The unemployment rate has hit a record 20 per cent, putting Croatia in third place in the EU, behind Greece and Spain. The unemployment rate of young people is at an alarming 50 per cent, which means that the economy is unable to absorb the most vital segment of the population. There are no signs of improvement. There are no new inestments because of a small market, a low level of optimism among domestic consumers and a lack of investment security. Adris grupa's companies are, thus, forced to increase their focus on foreign markets. In its manufacture and tourism segments, Adris has earned 53 per cent of its revenue from the supply of goods and services on foreign markets, approximately 60 per cent of which is generated on the demanding EU market. In the last six years, in spite of the financial crisis, Adris has achieved an average annual export growth rate of almost seven percent. In 2014 the company has generated a total revenue of HRK 5.48 billion, while the group's operating revenue amounted to HRK 4.89 billion. Revenue from the sales of goods and services amounted to HRK 4.46 billion. HRK 2.75 billion was generated on the domestic market; HRK 1.71 billion on foreign markets. Earnings before taxes amount to HRK 402 million, while the net profit was HRK 351 million. The consolidated figures also included Croatia osiguranje's negative result of HRK 138 million, which was due to high restructuring costs.
Continued investments in tourism
As the General Assembly continued, Vlahovic also commented on Adris grupa's tourism, aquaculture and insurance business units. For example, he pointed out that the business operation of the Adris grupa's tourism SBU was, among other events, marked by the acquisition of the Hilton Imperial hotel in Dubrovnik. A deal was closed in September by which Maistra became owner of an 81.6 per cent share of the Hilton Imperial hotel. That acquisition is a continuation of the Group's business growth and development strategy in the hospitality segment, and represents a step outside of Rovinj into Dubrovnik, Croatia's prestigious tourist destination. In 2014 Maistra also continued with investments in renovation and quality improvement of its existing products in the amount of HRK 150 million. The most significant single investment was the renovation of the promenade and beach at Lona bay. In addition to investing into the quality of its own services, Maistra remains focused on improving the recognisability and the tourism offering of the whole Rovinj - Vrsar destination. In 2005, Vlahovic reminded, Adris began a strong investment cycle and has invested almost almost HRK 3 billion in its tourism SBU by 2014, HRK 1.8 billion of which was invested in permanent structures, hotels and resorts. In the upcoming period, Adris will additionally invest HRK 1.4 billion in new products in the highest price segment. This will complete an investment cycle worth over HRK 4 billion and upon its completion 95 per cent of hotels will have four- and five-star ratings.
The Group's tourism SBU recorded 2.97 million bed nights, a result on par with the previous year. The prices of bed nights were increased by five per cent. This is a result of the new and recognizable offering in the higher price segment that contributed to recognisability and desirability of the destination, which directly affects the prices. In 2014, total revenues of Maistra amounted to HRK 803 million, which represents a 12% increase compared to the previous year, with sales revenue increasing by 8%. Operating profit amounted to HRK 99 million.
Cromaris exports almost 70 per cent of its production
Talking about Cromaris, the leading Croatian and the world's tenth largest European gilt-head and European seabass farming company, Vlahovic underlined that the sales volume in 2014 was 5,629 tonnes, with an increase in sales volume of 49 per cent, an increase in prices of 10 per cent and an increase in revenue of 64 per cent compared to 2013. Cromaris exports 69 per cent of its production. Operating profit is positive and amounts to HRK 16.4 million, while the net profit is positive for the first time, amounting to HRK 1.2 million. In addition to investments in production capacity and operating capital, a strong marketing and sales organisation was established. The next step will be to improve recognisability on the international markets, especially in Italy. Marketing differentiation and premiumisation, i.e. the re-positioning into the higher price segment, are the best ways of establishing oneself on the demanding European market. For instance, in the last four years Cromaris has succeeded in increasing the average retail price of fresh fish by 34 per cent and as much as 41 per cent in export. The sales target of 5,000 tonnes per year was achieved one year earlier than it was defined in the company's strategic plan when it was founded. Once the sales volume reaches 10,000 tonnes, full effects of the volume economy will be achieved, both in terms of costs, as well as in terms of sales and marketing. Once investments in a new hatchery and pre-growing system, worth almost HRK 150 million, are completed, they will ensure the stability of supply. Additionally, the production cycle and the survival rate will increase, which will have a direct impact on the lowering of manufacturing costs. In this way, Cromaris will evolve from a 'home craft' into a technologically advanced and vertically-integrated company.
Making Croatia osiguranje the leading regional insurance company
Commenting on Adris grupa's newest business - insurance, Vlahovic reminded that Croatia osiguranje is the oldest insurance company in Croatia, founded in 1884. The company is the leading insurance company on the Croatian market with a market share of 29 per cent and it is also present on the neighbouring regional markets, in Bosnia and Herzegovina, Serbia, Kosovo and FYR Macedonia. After the acquisition of 39 per cent of shares and the General Meeting held in April 2014, in September Adris completed a capital increase in the amount of HRK 840 million, thus increasing its ownership share to 66 per cent. Having acquired the ownership share and taken control of company management, we have confirmed some facts which we already knew: a constant decline of market share and premiums, a lack of transparency in business operations, a high rate of insurance pay-outs and an inefficient sales structure. For instance, only 23 per cent of all employees were employed in sales. In successful insurance companies, about three quarters of employees are employed in sales. The company's organisation consisted of a large number of individual subsidiaries, almost independent from the parent company. This led to a high degree of organisational redundancy and inefficiency in sales. The company was strongly focused on the corporate sector with a small market share in the retail segment. Significant write-offs for the 'clean up' the balance sheet and the anticipated high costs of restructuring were necessary in 2014. Consequently, Grupa Croatia osiguranje's loss in 2014 amounted to HRK 466 million, which is why Adris grupa's consolidated results were HRK 138 million lower. The company will face many challenges in 2015. A large number of projects will have to to be launched in order to improve upon existing products and establish a systematic approach to product development. The sales network has to be strengthened through selection and education of new experts, as well as the establishment of a reward and motivation system. The emphasis in the retail segment is on new retail channels, especially the banks. Additionally, there is a need for a systematic approach to debt collection, centralisation of claims management and other support functions, and a reduction of the oversized administration with the goal of having 70 per cent of employees in sales in the next three years. A clean up of the investment portfolio and improvement of the management of subsidiaries, combined with the utilization of synergies on the level of the entire CO group are also necessary. Following the revitalisation of the parent company's business operations, we expect strong regional expansion with the aim of achieving sustainable operation of Croatia osiguranje.
Dividend of HRK 10 per share, possibility of extraordinary dividend payment
In accordance with to the published Agenda, after the General Assembly accepted the annual reports for the year 2014, the decision on profit utilization for the year 2014 was passed. Total profits after taxes for the year 2014 amount to HRK 675 million and will be allocated to the Statutory Reserves of the Company. From unallocated retained profits, the amount of HRK 164 million will be allocated for dividend payment, which amounts to HRK 10.00 per share. The dividend will be paid out on July 28, 2015 to the shareholders' accounts, according to the state and account statement of shareholders issued by the Central Depository and Clearing Company (Središnje klirinško depozitarno društvo) on July 21, 2015. The amount of dividend paid on account of Company's own shares will be retained in unallocated profits. Discussing the dividend policy, Vlahovic said the the average annual yield since 1994 has been 27 per cent per share, announcing the possibility of an extraordinary dividend payment in the following years. He also said that he personally intends to invest in the company's shares because he 'believes in the sustainability of Adris grupa and its financial strengthening and increase of value.'
The Management Board has informed the General Assembly on the results of the Employee stock ownership programme, continuing the unique and beneficial tradition of employee participation in the ownership of the company. 25 years after the privatisation of TDR, Adris grupa will enable the current generation of employees to participate in the ownership of the company. The programme continues the very useful experience that gives employees who generate value the possibility of participating in the making of decisions about this value.
The shareholders were informed that Adris grupa began concluding Share purchase agreements with the employees of the company and affiliated companies. Adris will release, in total, 451,413 of own shares of class ADRS-R-A, which constitutes 4.69 per cent of all shares of that class and 26,891 of own shares of class ADRS-P-A, which constitutes 0.39 of all shares of that class, or a total of 2.91 per cent of the Company's share capital.
Finally, the Assembly issued a letter of release to the Members of the Management and Supervisory Boards.
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