Russia's leading seafood importer evaluates risks towards USD250 million sales target. Part 1.

June 27, 2008 16:35

Russia's leading seafood importer OOO Agama Trade (ltd) has been evaluating potential risks on the Russian market in its strive to boost sales on the domestic market and to raise its turnover to 250 million USD (+50%) in 2008, according to the company.

Agama Trade has been showing stable growth and it has not incurred any negative risks. Its positive development has been achieved thanks to the financial and marketing strategy, development of distribution network and logistics.

In January 2008 Agama opened a new office in Istra, Moscow Region, and the facility unites a coldstore and an administrative centre.

Plans

The company's development strategy provides for promoting own labels in the frozen seafood sector and boosting its profitability at the expense of increasing the share of own labels and exclusive labels.

Agama's plans for the current year 2008 include raising of its turnover by 50% to 250 million USD, increasing the share of own labels (Agama, Bukhta Izobilia, DiMare, Viva la Crema) up to 65%, and together with exclusive labels (Fazenda - convenience chicken products, Matreko - berries, Schwann - pizza, Chali - ravioli) up to 75%.

The company hopes to achieve the above mention growth via meeting the following targets:

  • winning a dominating share in the shrimp category by means of boosting its sales of Vannamei shrimp, Pandalus shrimp and southern shrimps from Bangladezh;
  • creating own SKUs (stock-keeping units) with high profitability and large sales volumes and applying promotion methods. Localization of the SKUs in the production of the raw material shall be one of the means to raise efficiency;
  • creating excellent consumers' value via differentiation;
  • development of national distribution, use of all the In Store promotion methods (layout, network promo, consultants, etc.).

In the near future the company does not plan construction of new production facilities, expansion or reduction of its existing production facilities, development of new products, modernization and reconstruction of its fixed assets; neither plans it to change the focus of its business activity. Agama's future profit will be sourced from the proceeds from sales of its products.

Towards boosting the proceeds Agama highlights its relations with customers, consumers and suppliers in the following way:

  • 1. Customers: Agama has developed special programs aimed at strengthening loyalty of its customers, for instance, production under customer's own labels, certification according to the customer's needs.
  • 2. Consumers: Agama's market analysts study consumer preferences via polls and group focus. According to the results of such studies, the company prepares advertising campaigns, develops new packaging and launches new products.
  • 3. Suppliers: Russia's veterinary policy is one of the uncertain factors. Closure of countries due to political or economical reasons may considerably decrease product shipments. In order to minimize the negative effect for key products Agama has to find at least two suppliers from different countries.

Risks

Shareholders' major risks associated with Agama's activities can be divided into four groups: industry risks, country-specific and region-specific risks, financial risks and legal risks.

The company sticks to a system approach in risk management. Main elements of its policy in the sphere of risk management in each of the above mentioned groups are as follows:

  • Risk identification;
  • Method of risk evaluation;
  • Development and implementation of risk management mechanisms;
  • Continuous monitoring of risks.

Industry risks

OOO Agama Trade (ltd) is a member of Agama Group and it is the group's major operational company contributing up to 80% to its total turnover.

Agama Group majors in frozen food distribution involving purchases, coldstorage and delivery to the customer. The Group also works in the segment of import of premium frozen products and realisation via chain customers. Agama Group trades only on the domestic market.

The Group owns three seafood labels, they are Agama, Bukhta Izobilia and Di Mare and one ice cream label of Adriano. Fazenda is an exclusive label in the sector of convenience products. Production under own labels is carried out in Asia (Thailand, Bangladesh, Vietnam, China) and in Europe (Denmark, Germany).

The Group's main product range includes deep frozen products, such as seafood (shrimps, fish, marine delicatessen), confectionery, frozen meat, ready-to-eat products, berries, mushrooms, vegetables and vegetable mixes, bakery products and convenient items.

Agama's largest customers are super and hypermarket chains such as METRO Cash and Carry, Ramstor, Sedmoy Kontinent, Universam Paterson (Omega-97), Perekrestok, Ashan, Real-hypermarket, Mosmart, Kopeika, Spar-Retail, Elekskor, Billa, IKEA MOS, Gorodskoy Supermarket, Kroteks (TK Tvoi Dom), etc.

At present, Russia's seafood market, which is Agama's only market, has been showing a clear switch from consumption of low quality products to consumption of medium and high quality products.

Growing welfare of the population is one the main reasons behind that. Therefore the main risk is decreasing welfare which is estimated as highly unlikely event and it can be a result of economic and political crisis. This risk has been protected by winning the dominating share on the market in 2007 and offering low-end products.

Medium and high quality seafood is produced mostly beyond Russia, therefore the nation's veterinary and import policy is an important risk. In case of large restrictions of import shipments the group can switch to the Russian products. In 2007 it launched new projects for shipments of high quality seafood from the Russian Far East, crabs and shrimps namely.

A substantial change of prices of raw fish (purchased products) is not regarded to be a great risk as the world market features strong competition meaning a large number of suppliers without any leaders.

The risks connected with a potential change of the Group's product prices are estimated on the background of strengthening demand for deep frozen products. In general, decreasing prices of the Group's products will cause smaller proceeds from its core business and a corresponding decrease of the company's profitability.

In case of negative development of the situation in the industry the Group plans to change the product range in order to maximize the profit and change its price policy.

The forecasted strong demand for the Group's products considerably decreases the industry risks and discharge of stock obligations.

Country-specific and region-specific risks

The main factors behind political risks are as follows:

  • imperfection of legislation regulating economic relations;
  • poor efficiency of judiciary system;
  • instability of local governments of Russia's regions.

OOO Agama Trade (ltd) is registered as a taxpayer in the city of Moscow and it carries out its activity on the territory of the Russian Federation. Thus, all the main country risks for the company are those typical for the Russian Federation which is its only market.

The central region of Russia is the nation's financial centre and a place where the national and foreign financial institutions are concentrated. That is a positive factor for the company's development and helps raise its capacities for discharge of obligations. The central region which is now characterized by stable social and economic situation is the nation's leader in a number of economic indices such as the level of industrial development.

Moscow province is one of the most economically and politically stable regions not bordering any zones of military conflicts and other regions featuring high possibility of introducing emergency state and strikes.

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