Berry freezing was not a very profitable business for Alfa Group – the company is for sale


Berry freezing was not a very profitable business for Alfa Group – the company is for sale

04/20/2020

Berry business is quite complicated for large investors

Alfa Group’s investment unit, A1, decided to sell the Karelian berry processor Rusbioalliance. Alexander Samokhvalov, Managing Director of Yagoda Karelia, told Kommersant that the asset was offered to several large grocery companies whose names he did not disclose. The source of the newspaper on the market also names Hortex, a Polish producer of frozen vegetables, berries and mushrooms. A1 board member Kirill Babayev says the company is not yet in an active phase of asset sales, but sees interest in it from strategic investors in the industry.

In September last year, A1 announced that it plans to invest up to 1 billion rubles in business development. and make Rusbioalliance a system-forming player, on the basis of which it intends to consolidate the industry, including through the acquisition of smaller players. Tamara Reshetnikova, CEO of Growth Technologies, said that Rusbioalliance was even planning to sell its products abroad, but plans had to be adjusted. This is told by Fruitinfo.

At the end of March, Rusbioalliance, in a letter to the head of the Ministry of Agriculture Dmitry Patrushev, said that the COVID-19 pandemic and the weakening ruble provoked a disruption in the supply chain and an increase in commodity prices, while working capital declined in the industry and there was a shortage of current liquidity. “The company in its appeal noted that it is necessary to help the wild processing industry. But, as far as I know, there was no positive answer, because it would be very strange if they helped a separate and very narrow industry, ”Reshetnikova commented. Obviously, if Rusbioalliance had problems getting help from the state, A1 simply decided that this was not a product that would be in demand in the near future, she adds.

Experts interviewed by Kommersant, among the possible reasons for selling the business, called the negative market situation due to the current crisis, A1 also could not find suitable players for consolidation or did not agree on deals. It is also possible that the company as a whole has changed plans for this area.

According to Reshetnikova, the trend towards consolidation and acquisition of assets by certain large industry players, who are professionally increasing production capacities and trade relations, is growing in Russia. “It is likely that A1 simply decided to leave the industry, because it could not get the level of profitability that it had originally hoped for,” she says.

“The transaction may be associated with strategic plans A1, for example, after the consolidation of assets, the implementation of a particular investor. Given the short period between entry and exit plans, it is unlikely that the sale is associated with an insufficient level of business profitability, ”said Vladimir Shaforostov, partner of NEO Center.

Rusbioalliance does not have enough contracts with networks and producers; moreover, for the third consecutive season, the company buys berries more expensive than it sells, Samokhvalov told Kommersant. A newspaper source on the berry market knows that Rusbioalliance was trying to switch to growing berries, which was supposed to make the business predictable, but it turned out that the project did not guarantee a return on investment.

The product portfolio of Rusbioalliance is fairly balanced, it is possible to produce a wide range of products, and the production itself is new and technologically advanced, says Shaforostov. “A key feature of working with wild plants is to ensure that the population receives sufficient quantities at low prices. Unfortunately, this process is difficult to organize and plan: there are bad seasons, there are no contractual obligations, gray procurement schemes, ”he told Agroinvestor. Plant growing is a good way out of this situation, but this is a different business, other competencies and additional investments, especially taking into account the company’s needs for raw materials, he adds. At the same time, payback periods are lengthening and profitability is falling, but the business is becoming more stable.

A1 estimates the “fair market” value of Rusbioalliance at about 3 billion rubles, Babayev said to Kommersant. According to him, A1’s accumulated investments in the project exceeded 1.3 billion rubles. According to Samokhvalov, A1 will be difficult to find a buyer for the asset: the market of wild plants in Russia is narrow, and the business itself carries high risks with a small margin of 10-15%.

See also: Forecast: in 2020 world trade in fruits and vegetables may decrease by more than 30%

Reshetnikova believes that AFG National may be interested in Rusbioalliance. “The holding has long been in the agro-industrial complex, is well versed not only in production, but also in sales organization, pre-sale preparation. They also have their own berry plantations. The only question is the price of the transaction, and in what condition is the company itself now. This is a difficult question, ”she says. “In addition to Rusbioalliance, there are one or two major players in this market and they are unlikely to be among potential buyers,” Shaforostov said.

Alfa Group’s investment division bought 51% of Rusbioalliance from company founder Sergey Pomelov in September 2019. At the end of 2019, A1 structure of Chicago LLC received the remaining 49% of the shares that belonged to Vadim Lukin, OOO GRSP Magnit, but were pledged. Now “Magnet” in the arbitration court of the Republic of Karelia disputes the conversion of its share into the ownership of structure A1. The trial is ongoing. According to Gabyshev, a potential buyer of Rusbioalliance can wait until the issue is resolved or ask for a discount.

Berry business is quite complicated for large investors. Investments in production and processing are high, the return on investment takes a lot of time. Profit is difficult to predict, since it is influenced by a lot of factors, starting with weather conditions, the almost complete absence of plant protection products that are allowed for use, the lack of seasonal labor resources, ending with a shortage of qualified specialists and the high cost of error of an agronomist, technologist, a representative told Agroinvestor Berry combining.

“State support is negligible, and the restrictions and the need for all kinds of coordination with various departments actually add up to another unpredictable element,” the representative of the union said. As a result, for large investment companies, the attractiveness of entering the berry industry is quite low. “Indeed, for the investor, the most important criterion is the predictability of return on investment for a fairly short period (usually six to eight years), and in the case of berry projects there can be no guarantees,” she adds.

This year will be especially difficult for berry growers, the union said. Small farms lose sales channels due to the closure of markets and fairs. Large farms faced the inability to harvest, as the country’s borders are closed for seasonal workers, traditionally picking berries. Moreover, it is practically impossible to replace these workers with Russian citizens, since farms are usually located away from large cities, and the mobility of the country’s inhabitants is extremely low, the representative of the Berry Union concludes.

Rusbioalliance produces frozen berries, preserves and jams, vegetables, mushrooms, fruit and berry toppings, and more. The company’s website says that the production volume is up to 50 thousand tons of products per year, the company’s brands are “Vologda Berry”, “Karelian Product”, “Zdorovo”.

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