When I took over the leading Croatian food and drug producer, Podravka Group, in 2012, the company faced many hurdles. Under my leadership, the company has embarked on an ambitious and very successful restructuring program. Here are the key executive leadership lessons I learned from it:
1. Don't be afraid to be bearish
Any CEO of any company in any industry will always face ups and downs. Regardless of cause, such volatility is an inevitable part of doing business. While rough times are never fun, they can also present opportunities to revisit the fundamentals of your company.
When Podravka faced economic trouble a few years back, our response was to cut costs, tighten spending and refocus on our core segments. An ambitious restructuring program and firm commitment to building a modern company based on core principles has allowed for growth by reducing operating costs and boosting innovation and competitiveness in our core business areas.
In 2012, we started a thorough overhaul and convergence of operational performance metrics towards the best-in-class industrial benchmarks. During the process, the board made a painful decision, in co-ordination with the worker's union, to cut the number of employees by more than 20 percent. All these restructuring and operational improvement measures yielded operating savings of approximately EUR 10 million annually and an increase in run-rate EBITDA by more than 20 percent. Because all of that, our company weathered well through the recent financial crisis and is now favorably positioned for taking advantage of the expected global economic recovery in the upcoming years.
2. Know your strengths and weaknesses
Every company has its own unique strengths and weakness. It is crucial to understand which these are even if it's hard to do anything about them in the short-term.
Under my leadership, Podravka has cut a significant part of our portfolio. The reason was simple - the company had too many unprofitable products. By getting rid of unprofitable ones and by focusing on those products that are delivering satisfactory results, we were able to grow our profits. In 2014, the company achieved 39 percent in net profit growth, in spite of stagnating overall sales revenues due to portfolio downsizing. This positive trend in profitability increase continues also throughout 2015.
3. Don't hesitate to make bold bets when you're ready
No company can grow long-term without taking risks, sometimes even the substantial ones. Even in times of intense restructuring our company had a clear vision: it would start raising capital as soon as a lucrative opportunity presented itself. Podravka has longed eyed for an inorganic expansion in Central Eastern Europe, but shunned from it because timing wasn't right and heavy internal restructuring was under way, at least until recently.
We are currently undertaking a major regional acquisition in the food sector. In April 2015, Podravka signed a EUR 33 million deal for the acquisition of the 51.6% stake in the leading Slovenian food producer Zito. By acquiring Zito, Podravka has consolidated its footprint in the Slovenian market, setting the stage for further expansion in Central Eastern Europe. The Zito acquisition will increase our annual revenues to EUR 600 million, while Slovenian market will become the second largest single market for Podravka.
To support us further in our recent ambitions, Podravka's shareholders currently approved a capital increase aimed at raising up to EUR 68 million. The company will also be reinvesting around EUR 15 million of its 2014 earnings. These capital increase plans have one goal - maintaining a sound capital structure and further strengthening our balance sheet for planned expansion into new businesses and markets.
The important takeaways here are: Be willing to take risks, but only when the situation allows for it and you have done your homework first. Be patient and wait until an alluring and risk-worthy opportunity appears to do so.
4. Stay true to your roots
Any company - from small mom-and-pop stores to multinational corporations - belong to a community. Companies do not exist in the absence of the communities where they originated in and operate from.
For Podravka, this acknowledgement has been a key source of our success. We have maintained strong ties to our local community and our workers. As a result, many of our workers are multigenerational. This, on the one hand creates a strong sense of loyalty on behalf of the workers towards Podravka. On the other, it also creates a strong sense of responsibility for us as a company to return something back to our community. We are currently doing so, for instance, through a workers' shareholder program that we recently launched, offering 18 percent of new equity (1.7 million of new regular shares at a favorable share price of HRK 300) whereby up to 813,000 of such new shares will first be offered to current employees of Podravka group.
5. Bet on the next generation
Without attracting "fresh blood", even the best organizations will eventually fall behind constantly evolving business, technological and social trends. Investing in bringing the next generation on board on all levels is, accordingly, a key ingredient for sustainable long-term growth.
Podravka believes strongly in this and has proven that it can "walk the talk". For example, our company is in the process of establishing an incubator in our hometown Koprivnica to allow young people to bring fresh ideas and start new projects. Also, we supported the foundation of a local university in Koprivnica and are constantly partnering with other local universities on R&D.
We consider our R&D department an organizational tradition - it is the company's competitive advantage. We take great pride in the fact that Podravka is connected with Croatian and international universities, institutes, small and mid-size entrepreneurs, suppliers and consumers. On May 22, Podravka and the Zagreb University signed an Agreement on Cooperation for training professionals and international cooperation on development and research projects. Projects such as these add to our platform for open innovations for development of new and competitive products. This vision has provided a feeling of trust and safety to our consumers for over 60 years. Through such efforts, the seeds of new successful products are being planted. These are important investments into our and our society's future.