Interview with Ph.D. Ivan Herak, member of the Management Board of ACI d.d. for finance, corporate law and human resources, for the Croatian edition of The Economist, World in 2023, we are broadcasting in its entirety.
The main prerequisite for the further development of ACI is the achievement of an extended term of concessions for all marinas in the system, which is currently a priority to which we are committed. I would like to mention in particular that with the accession to the EU, the circumstances regarding the extension of concessions have also changed significantly, considering that in this segment the directives of the European Commission must be respected.
ACI d.d. is, with 22 marinas and one anchorage, from Umag to Dubrovnik, the largest chain of nautical marinas in the Mediterranean. ACI has 6111 berths, of which 5435 are in the sea. The main activity is the provision of services of annual, monthly and daily connections in ports of nautical tourism. Other activities, such as catering, trade, charter, etc., are performed by other natural and legal persons based on business cooperation agreements. Marinas and anchorages operate in concession areas, for which the Company pays concession fees, which have their fixed and variable components.
The Company’s ordinary shares are listed on the Zagreb Stock Exchange, and the market capitalization as of September 30, 2022 is HRK 838.5 million. ACI d.d. it is owned by 667 shareholders, 78.58% of the shares are owned by the Republic of Croatia. The second largest shareholder is OTP Banka with an 8.37% stake. As of September 30, 2022, ACI has 311 full-time employees and 53 part-time employees. The annual revenues of the Company in the last few years range between HRK 220 and 240 million.
These technical data were offered to us as a kind of personal card of the company by Dr.sc. Ivan Herak, member of the ACI Management Board for finance, corporate law and human resources, as part of the conversation about the present moment, but also the future of the largest chain of nautical marinas in the Mediterranean.
Since you are in charge of finance, can you tell us first-hand how ACI performed in the first nine months of this year? What is the balance sheet of the company?
In the first nine months of this year, ACI achieved the highest revenues in the amount of HRK 194.7 million, the highest EBITDA of HRK 95.4 million and the highest gross profit of HRK 44.7 million in its almost forty-year history. The aforementioned results were influenced by the improvement of the quality of services, the stabilization of the epidemiological situation, as well as the well-thought-out pricing policy that partially compensated for the effects of the pandemic and the Russian-Ukrainian crisis.
The company’s balance sheet is more than exemplary, considering that more than 90% of assets are own funds. The Company’s credit obligations, in addition to having a small share in the structure of liabilities, have a favorable maturity structure. Likewise, all the main financial indicators of the Company’s operations are positive. The cash-flow is also favorable, and the Company is able to pay its due obligations at any time.
The main prerequisite for the further development of ACI is the achievement of an extended term of concessions for all marinas in the system, which is currently a priority to which we are committed
The results are excellent, but do you think they correspond to the overall potential of the company?
The results still do not correspond to the Company’s potential. Namely, the problem of little added value accumulated by the seasonal tourist offer that we have formed in attractive Adriatic localities is the key problem of Croatian tourism, including nautical tourism as its essential component. In addition, ACI has for many years been exposed to a series of problems that represent an objective obstacle to faster development, such as limitations arising from valid spatial planning documentation, then the duration of concessions for the commercial use of nautical tourism ports – marinas, and the issue of registration of maritime property and legalization of built objects. Furthermore, the Company has an inadequate structure and quality of moorings as well as facilities on land. An additional problem is human resources, primarily the age structure of employees. In conclusion, the state of the product is not satisfactory, which is indisputably visible from the structure of ACI’s income, which is dominated by the income from the rental of moorings.
All marinas in the ACI system will have their concessions expire in 2030, which actually represents a key challenge at the moment, not to mention the problem of ACI?
The duration of the concession is the factor that most limits the development potential of ACI. Namely, after the initial growth and takeoff in the 80s of the last century, there followed a period of war and many years of loss-making business, due to which the infrastructure and facilities of the marina were largely neglected. Since 2007, more than HRK 750 million have been invested in the system, far more than the 200 million HRK planned at the time, in order to bring the marinas to an acceptable level of arrangement that the specific clientele is looking for. However, in order for ACI to be able to compete with the marinas on the Mediterranean and the Adriatic in terms of quality and range of services, in order to be able to meet all standards of environmental protection and insurance at the desired level of security, it is necessary to make considerable investments, the profitability of which is extremely questionable under the existing conditions of the remaining “duration” of the concession. therefore, the main prerequisite for the further development of ACI is the achievement of an extended term of concessions for all marinas in the system, which is currently a priority to which we are committed. I would like to mention in particular that with the accession to the EU, the circumstances regarding the extension of concessions have also changed significantly, considering that in this segment the directives of the European Commission must be respected.
For ACI, the Law on Sea Ports and Maritime Property, which will soon go to the Parliament, is extremely important. What is the position of ACI in relation to the working versions of the mentioned Law?
In essence, we expect that the aforementioned Law will valorize the concessionaire’s investments. Otherwise, if the Law, for example, stipulates that the concession may or may not be extended under the given conditions, a whole series of issues will be opened, such as issues of legal security of the investments made, all in relation to the fact that they are not known criteria by which decisions are made whether someone should be extended a concession or not. No less important is the issue of ensuring the equal position of economic entities on the market, given that it is unacceptable that for the same investments one entity can be granted a concession extension, and another cannot.
Diversification of ACI’s business was also announced. What exactly do you mean by that?
Although the creation of a new sustainable development strategy of ACI d.d. for the period 2023-2027. ongoing, we can already say that the diversification of business is imposed as one of the basic conditions for the stability of business and raising the level of the Company’s income. Namely, the Company itself mainly relies on the provision of services for the use of moorings, lifting and lowering of vessels, parking, washing of vessels and a negligible part of other tourist services. The above resulted in a revenue structure in which the majority share is revenue based on moorings, and the Company itself thus becomes extremely dependent on the movements of the nautical tourism market and underutilizes the economic and tourist potential of the destinations where certain marinas are located. therefore, in the upcoming period, the Company intends to invest part of its resources – financial and human – in the development of catering (hotels) and commercial activities (retail), charter tourism and in the development of service activities.
Does this also lead to the establishment of your own charter fleet?
Croatia is currently the leading charter destination in the world, and charter tourism is the most dynamic Croatian tourism product with constant and stable growth rates for the last 15 years. The development of its own charter fleet, considering the main activity of the Company and the existing market framework, is imposed as a logical choice that will contribute to business diversification.
What is the current situation with the strategic ACI project of the Rijeka nautical tourism port?
The project that we started with the Lürssen group is certainly one of the most important projects in the recent history of Rijeka, not only because of the expected economic benefits and the fact that it will position Rijeka on the nautical map of Croatia, but primarily because it will initiate the transition of the archaic, inherited structure of Rijeka’s economy. I would venture to say that this project represents a kind of litmus test for Croatia, both due to the fact that its implementation was primarily thanks to the Government of the Republic of Croatia, and due to the fact that the stakeholder in the project is ACI, which is 78% owned by the Republic of Croatia. while the other stakeholder in the project is the respectable German company Lürssen, which, in addition to the aforementioned investment and purchase of the majority package of the Liburnija hotel in Opatija, has expressed its intention to invest in other projects in Croatia.
The former Administration advocated the seaplane procurement project. Are you sticking with it?
The ACI AIR project is in nature an extension of the basic activity of ACI to the provision of commercial seaplane passenger transportation services. In relation to the launch of that project, we have a study by KPMG, a decision of the “old” Management Board, NO and the Assembly of ACI, which gave the “green” light to the launch of the project. the above-mentioned purchase of seaplanes was rated as lucrative by the Institute for Tourism of the Republic of Croatia in its study-audit of the project. However, the thinking of the majority of the Company’s Management is in the direction of testing the project through additional primary research in the field.
Are you satisfied with the results of the ACI SAIL project?
ACI Sail was evaluated by the former Management as a project that generates a new offer in the service portfolio of ACI d.d. Namely, at that time it was estimated that within the framework of nautical tourism there is space for a top sailing school and a top crew charter, which is a continuation of the initial vision of ACI, and has a complementary effect on the basic services of the Company. At the meeting of the Company’s Management Board, I was given the obligation to conduct an Audit of ACI Sail’s operations, so I cannot give you an answer to your direct question at this time. In principle, considering the covid circumstances in which the project was started, I can say that an indisputable assessment of the success of the project will be possible and only after the end of the next tourist season.
You mentioned the problem of labor shortage at the beginning of the conversation. Does it also exist in ACI?
For a long time in the world, including in Croatia, there have been local and global trends that generate the problem of the workforce deficit in tourism. The first trend is the growing need for an increasing number of employees in tourism, as a result of the growing share of tourism in GDP. The second trend is the shrinking base of potential employees, which is caused by the decline in the birth rate and the aging of the population, while the third factor represents the great impact of migration as a result of the globalization of the economy. Within such circumstances, in connection with the issue of changing the Collective Agreement for ACI d.d. with the aim of increasing wages and securing better working conditions, the ACI Management has virtually concluded negotiations with the ACI union’s negotiating team. the trade unions presented their proposals and expectations in a correct and well-argued manner, which I do not want to make public at this time. Based on all analyzed parameters, the Management Board will make a decision that it can stand behind and with which, I am convinced, the workers will be satisfied. It is indisputable that salaries should be aligned with market trends and current inflationary pressures, taking care to maintain the Company’s financial stability. I can only say that as a Management Board, we are strongly focused on retaining jobs and ensuring the best possible conditions for our employees. This is one of our priorities in the company’s operations.
We will soon begin the preparation of a study that will examine the spatial-planning, property-legal and economic assumptions of a number of potential ports of nautical tourism
With all the above, do you have room to plan new acquisitions, new locations?
If we want ACI to maintain its competitive ability and share in the nautical tourism market, in addition to business diversification, it must necessarily expand its nautical portfolio. In the aforementioned context, we will soon begin the preparation of a study that will examine the spatial-planning, property-legal and economic assumptions of a number of potential nautical tourism ports.