AGROKOR

Corporate bonds High Yield Research Consumer Non-Cyclical 1 June 2011 Recommendations:
Strong BUY: 10% 2016

Improvement across the board

We maintain our Strong BUY recommendation for Agrokor on excellent results
Agrokor has presented its results for the first quarter 2011. Total revenue was up 4.3% to HRK 5,718m (+4.9% adjusted for exchange-rate effects). The rise in revenue covers a rise of 5.9% within Retail and a rise of 11.3% within Food Manufacturing. Agrokor has scaled down its commodities trade significantly to minimise the risk involved in increased price volatility and accordingly revenue within the business area Other Business fell by 32%. Operating earnings rose by a total of 12.7% to HRK 467m, which results in an excellent rise of the EBITDA margin from 7.6% to 8.2%. Within Retail the EBITDA margin rose from 4.7% in Q1 2010 to 5.1% in Q1 2011. Over the quarter, Agrokor refinanced a major part of the companys short-term bank debt by issuing another EUR 150m under the companys bond issue 10% 2016 and has thereby extended its debt profile further. The refinancing and further investment over the quarter cause total debt to rise to HRK 10,436m and consequently the financial leverage rose from 3.8x to 3.9x. The cash position is still strong with HRK 800m in cash and cash equivalents. Agrokor mentions that it is in the process of divesting its billboard company. The transaction is expected to be finalised in 2011 and will strengthen the cash position further. All in all, excellent quarterly results from Agrokor, and we maintain our Strong BUY recommendation for Agrokor 10% 2016 with an expected holding-period return of 11.1%.

This is a case recommendation. The company will be included in our research universe as long as it holds price potential justifying a BUY recommendation. Basically we shall discontinue our coverage of the company if our recommendation changes to SELL.

Publisher: Jyske Markets Vestergade 8 -16 DK - 8600 Silkeborg Alex Hauge Andersen +45 89 89 76 88 alex@jyskebank.dk

Market leader in the food sector in Croatia and the Balkans. Translation: Extensive distribution network. Translation Services Strong track record in takeovers. Per capita consumption in Croatia is well below the EU average. Potential of market growth due to Croatias expected entry into the EU. The main markets are not very sensitive to Read more corporate bond changing economic trends. research reports at www.jyskemarkets.com

Investment case

Price / spread chart

Issue

10% 2016

Disclaimer: Please see the last page.

Recommendation Risk Bid / Offer Yield Spread Spread target Price target Expected 12 months returm Moodys S&P B-Code

Strong BUY Medium 106,25/107,25 8,05% 583 450 109,125 11,1% B2 (Positive) B (Stable) B05258

See the following pages for further information on the structure and the covenants.

AGROKOR
Corporate bonds High Yield Research Consumer Non-Cyclical 1 June 2010 Overview Company profile Revenue by segment Agrokor is the largest food producer and retail chain in Croatia. The company operates mainly in Croatia but is 19% market leader in the Balkans. Agrokor has two primary areas of business: Retail is the companys largest business area and includes the retail business in the Balkans. The business area Food & Beverage Production includes a number of activities in food production.
5%

76%

Retail Business Food & Beverage Production Other Business

Earnings by segment (EBITDA)

3%

Net debt and net leverage

5,0 4,5 4,0 3,5 3,0 2,5 2,0 1,5 1,0 0,5 0,0 2004R 2005R 2006R 2007R 2008R 2009R 2010R Net debt Net leverage 10.000.000 9.000.000 8.000.000 7.000.000 6.000.000 5.000.000 4.000.000 3.000.000 2.000.000 1.000.000 0

47%

50%

Retail Business Food & Beverage Production Other Business

Fundamental valuation Investment case Agrokor has an attractive valuation relative to Western Market leader in the food sector in Croatia and the European retail chains. Balkans. Extensive distribution network. Strong track record in takeovers. Per capita consumption in Croatia is below EU average. Potential of market growth due to Croatias expected entry into the EU. The main markets are not very sensitive to changing economic trends. Price triggers Risk factors Exit strategy via a listing may become a potential price Geographically limited to the Balkans and South-Eastern trigger for the bonds. Europe. Upgrades by rating agencies. Exposure to emerging economies in the Balkans which are more sensitive to changing economic trends. Relatively high share of short-term debt. Expansion strategy, which means a high investment level. Entry of major international retail chains into its key markets.
2

AGROKOR
Corporate bonds High Yield Research Consumer Non-Cyclical 1 June 2010
Capital structure ( '000 HRK)
Secured Sr. Secured Other debt Senior unsec. Senior unsub. Subordineret Junior sub. Total debt Liquidity Net debt

Q1-11
6.438.955 3.997.015 10.435.970 799.941 9.636.029

Net leverage
2,3x 2,3x 2,3x 3,9x 3,9x 3,9x 3,9x
5.000.000 4.500.000 4.000.000 3.500.000 3.000.000 2.500.000 2.000.000 1.500.000 1.000.000

Debt maturity profile Q1-11

Liquidity ( '000 HRK)

Liquidity Undrawn Commited Revolver Undrawn Uncommited Revolver Total liquidity Short-term debt Source: Jyske Bank & Agrokor D.D.

Q1-11
799.941 159.881 0 959.822 2.456.504

500.000 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Bank debt Bonds

Corporate structure
Ivica Todori EBRD

91,67% Senior facility

8,33%

Agrokor d.d. Croatia (Issuer)

EBRD facilities Short-term bilateral facilities

550 m Senior Unsecured Notes (10% 2016 Notes)

IFC facilities

100%

80,44% Jamnica d.d. Croatia (Guarantor)

71,62% Konzum d.d. Croatia (Guarantor)

78,85% Ledo d.d. Croatia (Guarantor)

51,84% Zvijezda d.d. Croatia (Guarantor)

70,87% PIK Vinkovci d.d. Croatia (Guarantor)

Non-Guarantor Subsidiaries
Long-term bilateral facilities

Agrokor Trgovina d.d. Croatia (Guarantor)

)Subsidiaries
96,54% Sarajeviski Kiseljak d.d. Bosnia and Herzegovina (Guarantor) 100% Ledo itluk d.o.o. Bosnia and Herzegovina (Guarantor)

Short-term bilateral facilities

Comments:

AGROKOR
Corporate bonds High Yield Research Consumer Non-Cyclical 1 June 2010
Issues
ISIN Issuer Amt. outstanding Priority Rating (S&P/Moody's) Next Call Make Whole Equity Claw Change of Control Negative Pledge Limit of Indebtedness Restricted Payments Restrictions on Sales of Assets Agrokor 10% 2016 XS0471612076 AGROKOR D.D 550 m Senior unsecured B/B2 07-12-2013 @ 105 Yes @ 50 bp. Yes - 35% @ 110 prior to 07-12-2013 Yes @ 101 Yes Yes Yes Yes

AGROKOR
Corporate bonds High Yield Research Consumer Non-Cyclical 1 June 2010
Income statement ( '000 HRK)
Revenue EBITDA EBIT Net finance costs Net income

2008R
27.662.914 1.929.478 1.315.765 809.642 241.718

2009R
26.476.657 2.185.308 1.461.527 1.010.940 236.512

2010R
26.506.235 2.414.255 1.634.768 1.269.527 160.093

2011E
28.096.609 2.471.717 1.657.700 919.955 590.196

2012E
29.220.473 2.613.619 1.753.228 902.658 680.456

Balance Sheet ( '000 HRK)

Short term debt Log term debt Total debt Liquidity Net debt Tangible assets Intangible assets Equity Share of equity Total assets

2008R
4.212.397 4.140.314 8.352.711 706.157 7.646.554 12.474.504 1.058.920 3.585.534 15,4% 23.224.160

2009R
3.237.710 5.780.404 9.018.114 895.797 8.122.317 12.397.038 1.329.408 3.527.266 14,5% 24.379.350

2010R
3.139.415 6.994.394 10.133.809 875.997 9.257.812 14.110.504 1.246.032 3.467.606 13,1% 26.522.603

2011E
3.139.415 7.041.167 10.180.582 782.992 9.397.590 14.896.487 1.246.032 4.057.802 14,6% 27.733.826

2012E
3.139.415 7.117.061 10.256.476 739.312 9.517.164 15.736.096 1.246.032 4.738.258 16,4% 28.895.982

Cash Flow ( '000 HRK)

Funds From Operations (FFO) Cash flow from operations (CFO) CAPEX Free cash flow b efore interests expenses (FCF) Net finance costs Free cash flow after net finance costs Redemption/amortization of debt

2008R
1.755.588 2.097.550 2.158.159 -60.609 572.888 -633.497 0

2009R
2.015.720 1.993.881 1.263.827 730.054 675.487 54.567 0

2010R
1.894.716 1.965.899 1.564.393 401.506 865.665 -464.159 0

2011E
2.321.452 2.377.460 1.600.000 777.460 917.239 -139.778 547.300

2012E
2.440.679 2.480.259 1.700.000 780.259 899.832 -119.574 688.300

Credit metrics
EBITDA-Margin Adjusted EBITDA-Margin EBIT-Margin Adjusted EBIT-margin EBITDA/Financial expenses Adjusted EBITDA/Financial expenses CFO/Financial expenses Adjusted CFO/Financial expenses FCF/Financial expenses Total debt/EBITDA Net debt/EBITDA Adjusted net debt/EBITDA CFO/Total debt Adjusted CFO/Total debt FCF/Total debt Net debt/Equity CFO/Revenue FCF/Revenue Capex/Revenue

2008R
7,0% 8,3% 4,8% 5,2% 3,4 4,0 3,7 4,3 -0,1 4,3 4,0 3,9 24,9% 29,3% -0,7% 2,1 7,6% -0,2% 7,8%

2009R
8,3% 9,6% 5,5% 5,9% 3,2 3,8 3,0 3,5 1,1 4,1 3,7 3,7 22,0% 26,2% 8,1% 2,3 7,5% 2,8% 4,8%

2010R
9,1% 10,8% 6,2% 6,8% 2,8 3,3 2,3 2,8 0,5 4,2 3,8 3,9 19,3% 23,8% 4,0% 2,7 7,4% 1,5% 5,9%

2011E
8,8% 10,4% 5,9% 6,5% 2,7 3,2 2,6 3,1 0,8 4,1 3,8 3,9 23,2% 27,7% 7,6% 2,3 8,5% 2,8% 5,7%

2012E
8,9% 10,5% 6,0% 6,6% 2,9 3,4 2,8 3,2 0,9 3,9 3,6 3,7 24,0% 28,5% 7,6% 2,0 8,5% 2,7% 5,8%

Quarterly expectations
Revenue EBITDA Net debt EBITDA-margin Net leverage Source: Jyske Bank & Agrokor D.D.

Q2-10R
6.721.664 584.240 8.566.526 8,7% 3,7x

Q2-11E
7.047.180 635.713 9.592.348 9,0% 3,8x

Change (%)
4,8% 8,8% 12,0% 33 bp. 0,1x

AGROKOR
Corporate bonds High Yield Research Consumer Non-Cyclical 1 June 2010 Charts

Price/spread - 10% - 2016

900 850 800 750 700 650 600 550 500 110 107 104 101 98 95

Spread (l-hs)

Price (r-hs)

Source: Jyske Bank and Bloomberg

AGROKOR
Corporate bonds High Yield Research Consumer Non-Cyclical 1 June 2010

Disclaimer & Disclosure

Jyske Bank is supervised by the Danish Financial Supervisory Authority. The research report is based on information which Jyske Bank finds reliable, but Jyske Bank does not assume any responsibility for the correctness of the material nor any liability for transactions made on the basis of the information or the estimates of the report. The estimates and recommendations of the research report may be changed without notice. The report is for the personal use of Jyske Bank's customers and may not be copied. This report is an investment research report. Conflicts of interest Jyske Bank has prepared procedures to prevent and preclude conflicts of interest thus ensuring that research reports are being prepared in an objective manner. These procedures have been incorporated in the business procedures covering the research activities of Jyske Markets, a business unit of Jyske Bank. Jyske Bank's corporate-bond analysts may not hold positions in the instruments for which they prepare research reports. If an analyst takes over for the responsible analyst in connection with illness, business travels, etc. this analyst cannot trade in the relevant corporate bond on the day of publication of the research report and the following day. Jyske Bank may, however, hold positions, have interests in or business relations with the companies that are analysed. The research report has not been presented to the company prior to its release. Analysts receive no payment from persons interested in individual research reports. Read more about Jyske bank's policy on conflicts of interest at www.jyskebank.dk/terms.

Jyske Banks corporate bond recommendations current breakdown

Breakdown of recommendations, corporate bonds (number)
20 18 16 14 12 10 8 6 4 2 0 STRONG BUY
Source: Jyske Bank

BUY

HOLD

SELL

AGROKOR
Corporate bonds High Yield Research Consumer Non-Cyclical 1 June 2010
Financial models Jyske Bank models the expected development of the analysed companys income statement and balance sheet. A number of key figures for the company is calculated on the basis of these models, and the key figures are compared with those of comparable companies and the companys past performance. From this we infer the spread at which the bonds will trade for the period ahead. The recommendation and the price target are moreover adjusted for the expected news flow and the market sentiment based on knowledge of the industry and company-specific circumstances. Jyske Banks recommendations take into account the expected development in the corporate-bond market, the various sectors and company-specific circumstances. Risk Investment in this corporate bond is associated with risk. The risk can be measured directly via the spread at which the bond trades relative to a risk free investment with the same maturity. The spread reflects the probability of default, the recovery rate, and the liquidity of the corporate bond. Movements in the credit market, the sector and/or news flows, etc. regarding the company may affect the price of the bond. See the front page of the research report for our view of the risk associated with the corporate bond. The risk on the corporate bond is stated as Very Low, Low, Medium, High or Very High and is relative to the high-yield market for corporate bonds. The risk factors stated and/or calculations of sensitivities in the research report are not to be considered allencompassing. If the corporate bond is denominated in a currency other than the investors base currency, the investor accepts an FX risk. Update of the research report The planned update of the report will be prepared immediately upon the release of the companys financial statements. In addition, there may be prepared research reports on special themes specifically for the company or research reports where the company is part of the special theme. These research reports are published on an ad-hoc basis. See the front page for the initial date of publication of the report. The prices stated are the latest prices quoted by Jyske Bank before the publication of the research report, unless otherwise stated. Recommendation concepts Our recommendations are based on market developments and an assessment of the expected return within the next twelve months. A BUY recommendation or a Strong BUY recommendation is based on expectations that investment in the bond will generate a return above that of the general corporate-bond market. On the other hand, a SELL recommendation implies that we expect investment in the bond to generate a return below that of the general corporate-bond market. Since our recommendations are relative and risk-adjusted, it is possible to compare our recommendations across sectors and risk categories. In addition, the potential is stated in absolute terms via our return target. The future and historical returns estimated in the research report are stated as returns before costs since returns after costs depend on a number of factors relating to individual customer relations, custodian charges, volume of trade as well as market-, currencyand product-specific factors. It is not certain that the bond will yield the stated expected future return/s. The stated expected future returns exclusively express our best assessment.