Franck Group Self-Amortized Most of the Cost Impacts During 2022

In 2022, Franck Group achieved sales revenue of 812.1 million kuna, which is 13% higher than the previous year. Due to a significant increase in raw material prices, especially raw coffee, which is at its highest levels in the last 11 years, as well as other materials such as packaging and logistics costs and energy, the price increase would have had an even more negative effect without the intervention of the Government of the Republic of Croatia. Franck recorded a 12.7 percentage point decrease in gross margin in 2022 according to unaudited data. Normalized EBITDA amounted to 61.6 million kuna, which is 37% less than last year, while the EBITDA margin was 7.6%, a decrease of 6.1 percentage points compared to the previous year.

Negative trends that led to a drastic increase in raw coffee prices as early as the beginning of 2021 continued to affect the global market in 2022, combined with rising prices of mineral fertilizers and labor, which account for 80% of the cost structure of coffee growers. Other factors affecting the price of raw coffee include increased shipping costs (freight for ‘food-grade’ containers) along with logistical challenges and disruptions in supply chains.

The situation with raw coffee is also specific due to uncertainties related to weather conditions that are unfavorable for the harvest. On a global level, a deficit of raw coffee relative to demand is again expected for the 2023/2024 season, which would be the second consecutive season with a shortage of raw coffee relative to the needs of the global market, thus adding additional pressure on producers. Pressures on all other input prices continue. Contracts signed during 2022 with suppliers will now have a full annual effect on increased input prices, unlike the partial effect in the previous year. From all of the above, it is evident that the largest impact of price increases has passed, but it is by no means over, and we expect it to carry over into this year. Without adapting to extremely demanding circumstances, as Franck has shown, it is impossible to maintain uninterrupted business and investment activities and respond to challenges in the labor market.

Despite the rise in these costs, Franck has sought to minimize the effect of market disruptions on end consumers. The majority of the cost impact was self-amortized by Franck Group, primarily through the optimization of internal resources, including adjustments to the number of employees.

– Considering the price increases of food products faced by our consumers and the consequent decline in purchasing power, we consciously opted to reduce our profit margins, thereby ensuring a stable market position in both sales channels. Although a minor price correction of our products in 2022 was necessary, it did not significantly cover the rise in all input costs. Namely, the majority of the costs were self-amortized through the optimization of internal resources, which ultimately reflected in a decline in our profitability. Despite these challenges, our strategic decision is to maintain high product quality, as well as a guarantee of top-notch service and full support for our partners. At the same time, as a full member of the International Coffee Partners, Franck continues to actively contribute to development projects aimed at the sustainable transformation of the coffee sector and support for small farmers facing the negative consequences of climate change on coffee yields,” emphasized Ivan Artuković, director of Franck.