Balkan Food Makers Tighten Belts to Avoid Fate of Fallen Rival

(Bloomberg) -- Western Balkan food producers are cutting debt, resisting the lure of cheap financing after the largest private employer in the former Yugoslav region nearly succumbed under its pile of obligations.

The crisis of Agrokor dd, now known as Fortenova Grupa dd, threatened the existence of thousands of partners and suppliers. Companies such as Croatia’s Podravka dd, famous for its blend of spices, are facing challenges of their own including slowing growth, altering demand patterns, labor shortages and climate change. Topping that are concerns over their debt.

“All the incentives are on having too much debt and if you are a company in this region you can get swept away and over-leveraged,” said Stuart Trow, a credit strategist at the European Bank for Reconstruction and Development.

Balkan economies, both in and outside the European Union, depend on the bloc’s powerhouse Germany and slow-growing Italy. The food industry accounts for almost a tenth of economic output in countries such as Croatia and Serbia, with many more manufacturing jobs in related sectors.

Low-Leveraged

Following several challenging years, Podravka is now growing and repaying debt at the same time. It’s planning to expand to new markets, in the footsteps of many of its consumers who have found work in richer parts of Europe.

“We are a low-leveraged company and have all the conditions for a major step forward,” Chief Executive Officer Marin Pucar said at a conference in Belgrade. “Our consumers are leaving for Western countries and that’s where we see our chance -- to find them there and to fill the shelves of other retail chains with our products.”

Serbia’s Nectar Group, which sells fruit juices and ketchup, has a strategy of reinvesting most of its profit in product development and acquisitions. The company plans to sell some non-core assets to cut debt, free up funds and be better prepared for growth, Chief Executive Officer Mihailo Jankovic said.

Atlantic Grupa, which sells Cockta, a popular beverage dubbed “the drink of our youth” and instant vitamin drink Cedevita, says the industry is “expecting a new cycle of investments, acquisitions and further market consolidation,” according to Vladimir Cupic, the head of its Belgrade office.

“Everyone is preparing by cleaning up their balance sheets and reducing the level of debt,” Cupic said.

To contact the reporters on this story: Gordana Filipovic in Belgrade at gfilipovic@bloomberg.net;Jan Bratanic in Ljubljana at jbratanic@bloomberg.net

To contact the editors responsible for this story: Andrea Dudik at adudik@bloomberg.net, Maciej Onoszko, Andras Gergely

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