Agros Holding SA: Building a food conglomerate
Despite a brief foray into the building materials industry (disposed of earlier this year), Agros is planning to stick to its core food and agricultural specializations, says group managing director Zofia Gaber.
The group will concentrate on three main areas of business, namely, international trade, processing and distribution of food. A fourth area of Agros' business, the leasing of agricultural machinery, remains a sideline activity at this stage. Due to its rapid expansion, however, Gaber does not exclude that it could assume a higher profile in the future.
Expansion plans
Agros Holding SA sits at the center of a complicated web of production and trade companies. Agros Trading, with a 1994 turnover of over zl. 500 million ($208 million), concentrates on Agros' original international trading business. Agros Market, with turnover last year of over zl. 100 million ($42 million), operates a food wholesale network and a small number of retail outlets. Agros' production units include five fruit and vegetable processing plants, a confectionery company and an alcoholic beverage bottling plant.
The plan is to transfer all direct commercial operations to subsidiaries, leaving Agros Holding to concentrate exclusively on the finance and marketing of the group. This "clean picture," as Gaber describes it, will probably be realized next year, when the two remaining fruit and vegetable plants directly held by Agros Holding (in Lowicz and Terespol) are established as independent entities.
The most rapidly expanding part of the Agros group is processed foods. Agros Holding and its subsidiaries produce a wide range of foods and drinks, including fruit juices, jams, concentrates and frozen produces. The best known brands are the "Fortuna" fruit juices, which command a 40% share of the Polish juice market, and Krakus, a brand name for a variety of food products.
In the future, Agros Holding plans to expand the product range to include edible oils, dairy products and wheat processing. Agros' most recent acquisition is a mill bought from the municipal authorities in Leszno.
Agros' most ambitious plans concern a large-scale expansion of Agros Market's currently loss-making retail distribution network. Retail distribution remains very undeveloped in Poland and, consequently, is promising. However, it requires substantial investment and specialist know-how. For this reason, Agros is hoping to form a joint venture with an experienced domestic or international distributor. Gaber expects the venture to begin next year.
Control of the subsidiaries is based on monthly financial statements and regular contact with the head office, says Gaber. As of next year, however, all subsidiaries will be linked to the head office by computer network to provide an on-line information service.
Capital structure
worries investors
Equity analysts are generally positive about Agros' prospects. As Bob Creamer of Raiffeisen Capital and Investment says, "Agros has the products and brands which Poles will only consume more of."
Pawel Grzyb, of Creditanstalt Securities, is similarly optimistic. He believes that Agros is on line to make net profits of zl. 40 million ($16.7 million) this year. Moreover, profit growth, derived mainly from food processing, is sustainable due to limited competition. Other domestic food producers tend to be small and saddled with financial problems. Tariff barriers, on the other hand, curtail foreign entry into the food retail market.
Despite these positive assessments, some investors have their misgivings about the stock. Agros' share performance has been poor, lacking even by the dismal standards of the Warsaw Stock Exchange.
Maciej Radziwill, of Credit Suisse First Boston, explains this as largely a reaction to the "lack of visibility" of the capital structure.
Although Agros Holding is a public company, the major shareholder is a co-operative of company employees called TIGA (Towarzystwo Inwestycyjne Grupy Agros). TIGA shares are preference shares which carry five votes, giving it an overwhelming majority of 81% of the total number of shareholder votes. To add to the complexity, Agros Holding owns a 37% cross-holding in TIGA.
Gaber stresses that TIGA is a passive investor, noting that TIGA did not participate in the voting on the payment of dividends at the last AGM. TIGA's share will in any case decline with time, she says.
Possible bond issue
In 1994, Agros financed its expansion program with a private placement of its equity. The issue was taken up by 40 investors, the largest of which was the Quantum Emerging Growth Partners fund managed by George Soros.
In view of Agros' ambitious plans, and in particular the development of a retail distribution network, more capital will be required. At present, further equity issues are ruled out as existing shareholders do not want to see their stakes diluted. An additional reason, no doubt, is that additional supply of Agros shares would further depress the share price. Instead, Agros is considering a number of options for raising capital, including a bond issue or selling a portion of the equity of subsidiaries.
The group will concentrate on three main areas of business, namely, international trade, processing and distribution of food. A fourth area of Agros' business, the leasing of agricultural machinery, remains a sideline activity at this stage. Due to its rapid expansion, however, Gaber does not exclude that it could assume a higher profile in the future.
Expansion plans
Agros Holding SA sits at the center of a complicated web of production and trade companies. Agros Trading, with a 1994 turnover of over zl. 500 million ($208 million), concentrates on Agros' original international trading business. Agros Market, with turnover last year of over zl. 100 million ($42 million), operates a food wholesale network and a small number of retail outlets. Agros' production units include five fruit and vegetable processing plants, a confectionery company and an alcoholic beverage bottling plant.
The plan is to transfer all direct commercial operations to subsidiaries, leaving Agros Holding to concentrate exclusively on the finance and marketing of the group. This "clean picture," as Gaber describes it, will probably be realized next year, when the two remaining fruit and vegetable plants directly held by Agros Holding (in Lowicz and Terespol) are established as independent entities.
The most rapidly expanding part of the Agros group is processed foods. Agros Holding and its subsidiaries produce a wide range of foods and drinks, including fruit juices, jams, concentrates and frozen produces. The best known brands are the "Fortuna" fruit juices, which command a 40% share of the Polish juice market, and Krakus, a brand name for a variety of food products.
In the future, Agros Holding plans to expand the product range to include edible oils, dairy products and wheat processing. Agros' most recent acquisition is a mill bought from the municipal authorities in Leszno.
Agros' most ambitious plans concern a large-scale expansion of Agros Market's currently loss-making retail distribution network. Retail distribution remains very undeveloped in Poland and, consequently, is promising. However, it requires substantial investment and specialist know-how. For this reason, Agros is hoping to form a joint venture with an experienced domestic or international distributor. Gaber expects the venture to begin next year.
Control of the subsidiaries is based on monthly financial statements and regular contact with the head office, says Gaber. As of next year, however, all subsidiaries will be linked to the head office by computer network to provide an on-line information service.
Capital structure
worries investors
Equity analysts are generally positive about Agros' prospects. As Bob Creamer of Raiffeisen Capital and Investment says, "Agros has the products and brands which Poles will only consume more of."
Pawel Grzyb, of Creditanstalt Securities, is similarly optimistic. He believes that Agros is on line to make net profits of zl. 40 million ($16.7 million) this year. Moreover, profit growth, derived mainly from food processing, is sustainable due to limited competition. Other domestic food producers tend to be small and saddled with financial problems. Tariff barriers, on the other hand, curtail foreign entry into the food retail market.
Despite these positive assessments, some investors have their misgivings about the stock. Agros' share performance has been poor, lacking even by the dismal standards of the Warsaw Stock Exchange.
Maciej Radziwill, of Credit Suisse First Boston, explains this as largely a reaction to the "lack of visibility" of the capital structure.
Although Agros Holding is a public company, the major shareholder is a co-operative of company employees called TIGA (Towarzystwo Inwestycyjne Grupy Agros). TIGA shares are preference shares which carry five votes, giving it an overwhelming majority of 81% of the total number of shareholder votes. To add to the complexity, Agros Holding owns a 37% cross-holding in TIGA.
Gaber stresses that TIGA is a passive investor, noting that TIGA did not participate in the voting on the payment of dividends at the last AGM. TIGA's share will in any case decline with time, she says.
Possible bond issue
In 1994, Agros financed its expansion program with a private placement of its equity. The issue was taken up by 40 investors, the largest of which was the Quantum Emerging Growth Partners fund managed by George Soros.
In view of Agros' ambitious plans, and in particular the development of a retail distribution network, more capital will be required. At present, further equity issues are ruled out as existing shareholders do not want to see their stakes diluted. An additional reason, no doubt, is that additional supply of Agros shares would further depress the share price. Instead, Agros is considering a number of options for raising capital, including a bond issue or selling a portion of the equity of subsidiaries.
