Russia's major seafood distributor sets USD250 million sales target as risks dwindle. Full story.

June 30, 2008 16:18

OOO Agama Trade (ltd), Russia's major distributor of seafood produced under own labels in Asia (Thailand, Bangladesh, Vietnam, China) and in Europe (Denmark, Germany), has set an ambitious target to boost its sales on the domestic market to 250 million USD (+50%) in 2008, according to the company's official report dated 12 May 2008.

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.

Moscow's geography is special for the absence of natural disasters (hurricanes, floods, earthquakes, etc.) and it is situated in the country's centre with the best transport communication. Moscow is linked with car, railway and air ways with all the regions of Russia and the world, thus eliminating the risk of potential suspension of transport communication due to the region's remoteness and/or difficulty of access.

Members of Agama Group contribute no less than 10% of its total proceeds from sale of products and services thus Group has no risk to lose such consumers.

In case of negative development of the situation in the country (region), Agama Trade says it will carry out measures aimed at decreasing the negative impact for its activity. The measures would include reduction of costs.

Financial risks

OOO Agama Trade (ltd) neither does nor plans operations connected with currency values. Thus, currency exchange fluctuations do not influence the company's activity.

Growing interest rates on the market may result into the fact that the company will have to attract more expensive funds for financing its current activity, and to decrease the volume of borrowing.

Should the inflation reach a crucial value and the interest rates dramatically change, the largest consequences would be observed in the financial indices of OOO Agama Trade (ltd): profit, accounts receivable, accounts payable.

Financial risks exercise the lowest influence onto the company's profit. The possibility of emergence of the above mentioned risks (inflation, growing interest rates) is estimated as low for the near future. Nevertheless, in case of emergence of such risks the company forecasts a probability of rising product cost price and decreasing profit which may be compensated by falling volumes of attracted bank loans.

For the company's activity the critical value of inflation is 30%. In case of a considerable excess of actual indices of inflation over the Government's forecasts, namely reaching 25-30% per year, the company plans to take measures aimed at limiting growing costs, reducing receivables and their average deadlines.

Legal risks

Legal risks associated with the activity of OOO Agama Trade (ltd) are described only for the domestic market as the company is not engaged in export trade, neither is it engaged in direct importation of goods. In general, risks associated with the company's operations are typical for the majority of businesses working on the territory of the Russian Federation and therefore can be regarded as valid for all the country.

Risks connected with the possibility of changes in the currency regulation are now treated as minimum. Thanks to the policy of liberalization of currency regulation, those risks which are associated with changes of currency legislation are decreasing.

As the activity of Agama Trade is not subject to any special taxation regimes, and also due to the absence of tax debts into the budgets of all the levels, the company's tax risks should be regarded as the lowest for bona fide taxpayers.

Changes in the court practice in the issues connected with the company's activity cannot produce large consequences for its results. At present OOO Agama Trade (ltd) in not involved in any law suits.

General information about OOO Agama Trade

Director Lysenkov I.V.

Chief Accountant Snitko S.V.

TIN (Taxpayer Identification Number): 7717100932

PSRN (Primary State Registration Number): 1027739729742

Individual executive body: Director

Superior management body: General meeting of the company's participants (OOO DMK-Rezerv (ltd) is the company's only participant. In the reported period no changes in the company's membership were observed.)

Auditor: ZAO Agentstvo Ekonomicheskikh I Sotsialnykh Issledovanii (closed JSC, Agency of Economic and Social Studies)

Authorized capital as per 31 December 2007 is RUB350.1 million.

The company majors in wholesale trade in deep frozen food products.

Agama Trade is the main operational company of Agama Group and its main wholesale buyer and distributor. The company delivers its products to regional distributors who sell the stock on the regional markets via their chain customers.

The geography of the Group's operations covers the largest part of the Russian Federation. The products are sold via the Group's regional companies, which are engaged in distribution operations. They are ZAO Agama na Neve (closed JSC), OOO Agama Yug (ltd), OOO Agama Sibir (ltd), OOO Agama Volga (ltd), and OOO Agama Ural (ltd).

Contact details:

OOO Agama Trade; Dom 210, D.Leshkovo, Pavlovo-Slobodskiy Selskiy Okrug, Istrinsky Rayon, Moscow Region, 143581 Russia; tel.: +7 (495) 5807080, fax: +7(495) 5809640; http://www.agama.info/

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