Going East and growing strong

As evidence of its resolve the firm has just announced a 20-percent growth in revenue and a 76-percent growth in net profit, year-on-year. Having raised its yearly prognosis, Duda looks lean and ready for new challenges.

For the first three quarters of this year the PKM Duda capital group posted revenues of zł.757 million, compared to the zł.630 million it earned in the corresponding period of 2005.

The firm's net profits jumped from zł.21.1 million after Q3 2005, to zł.37.2 million in the same period of this year. The results have inspired the company's management to raise its annual prognosis. Initially the financial forecasts projected revenues of between zł.950 million and zł.1 billion, with net profit at around zł.43-45 million. Now, the figures stand at zł.1 billion and zł.48-50 million, respectively. The final numbers could exceed this.

"The prognosis is very cautious. We are sure that the results will be even better," the company's president, Maciej Duda, said. He based his statement on the belief that the last quarter of the year, driven by Christmas demand, will be much better than the good Q3.

Beating expectations
Analysts share his optimism. "Looking at the Q3 results, surpassing the prognosis is realistic," said Dom Maklerski PKO BP's analyst Dorota Puchlew. The market also appreciated the company's results, a fact reflected in the prices of its shares. These jumped from an opening level of zł.16.90 last Monday to zł.18.36 last Tuesday - the highest rating in 52 weeks.

The company's dynamic growth is a reflection of its ambitions. "We want to be number one in the meat industry," Duda declared last month, adding that with investors' support the company could achieve that goal in two to three years. The company will soon issue 48.2 million G-series shares, from which it hopes to raise zł.150 million, which will be devoted partly to financing the firm's ambitious investment programs, worth between zł.260-380 million. The largest part of the funds (between zł.60-130 million) will be devoted to acquiring companies in Poland with a similar profile to Duda's. As the company's president explained, news of the first transaction will be made public this month. A second acquisition is to follow soon.

"The building of a strong capital group is the way to reach the number-one position for the company," BM BPH's analyst Jacek Buczyński said.

PKM Duda also plans to acquire production farms and develop its distribution network. According to the company's strategy, the first investment is to cost it zł.45-50 million, while the second will amount to zł.50-60 million. At the end of the year the company will get 15 percent of its livestock from its own farms, but plans to raise that number to 40 percent in the long term. Also in the long run, Duda plans to have 25 distribution centers in Poland's largest cities.

"The development of the distribution network and the stabilization of stock supplies are important factors in strengthening the company's position on the market," Buczyński said.

Foreign expansion
Exports and foreign activities are also vital fodder for the company. Revenue from exports reached zł.140 million after Q3 2006, growing by 57 percent year-on-year. Foreign sales currently amount to 17 percent of the group's revenue. According to its strategy, PKM Duda wants a quarter of its revenue to come from exports.

The company exports meat to the high-margin Far East markets and, through its 2003 acquisition of Hunter Wild, it is targeting the profitable venison markets of Western Europe.

However, it is Ukraine that is at the center of the company's attention.

"We see a possibility of building a second Duda there in a much shorter time than we did in Poland," the company's vice president, Roman Miler, said.

According to PKO BP's Puchlew, the growth potential of meat consumption in Ukraine is much higher than in Poland. Miler sees the importance of creating Duda's own stock supplies in the country. "It is the key to success," he underlines. PKM Duda has already bought a pig farm called Swinokompleks Zoria and plans to buy a further five or six farms that, in two years, would supply the company with 250,000 porkers annually. The Polish company's production level in Ukraine currently stands at 25,000.

Ukrainian operations
The company sees acquisitions as the key to success in Ukraine. By the end of Q1 2007, Duda should finalize the acquisition of one of the largest meat producers on the Ukrainian market, though it is reluctant as yet to disclose the name of the firm.

"We want it to become the market leader," Duda said. He added that the concern is holding talks with other companies in the country. According to the firm's strategy, up to zł.100 million could be spent on acquisitions in Ukraine - in both supply and production segments.

Will expansion on both the Polish and Ukrainian markets, as well as market consolidation, help Duda reach the number-one position on the meat market? Piotr Wiśniewski from Dom Maklerski Amerbrokers points out that the two largest players on the market - Animex and Sokołów - are clearly ahead of Duda. On the other hand, he notes that Duda has been growing very well since it entered the stock exchange. "There are no reasons not to believe their plans," he says. Buczyński is not sure if Duda will overtake Sokołów and Animex. "But for sure it will be one of the market leaders and it will strengthen its position," BM BPH's analyst claims.

PKM Duda

CEO: Maciej Duda

Strengths:
-Upcoming acquisitions in both Poland and Ukraine
-Presence in all segments of the meat industry

Weaknesses:
-Strong competition on the Polish market
 Russian food ban