Hype over Hoop

One of Poland's most successful beverage

producers is planning to list itself on the WSE. The company's strategy for a successful IPO is to find the right mix of sound financial policy and positive media exposure, reports Timothy Sifert.

It's a welcome event to have an initial public offering floated on the Warsaw Stock Exchange - especially as so few companies have dared to do so in the recent past, much to the consternation of local investors.

Drinks producer Hoop, whose business is profitable and growing, plans to raise as much as €27.2 million (zł. 120 million) via a WSE offering by the beginning of July, which would make it the first company to list since meat-packing plant ZM Duda launched an IPO at the end of last year. And to do so, Hoop has injected equal parts of marketing and financial savvy.

The company has primped up its image among consumers by launching TV campaigns and employing the image of supermodel Cindy Crawford; for investors it has streamlined its capital structure and scripted an aggressive investment plan for IPO proceeds.

But for Robert Niczewski, adviser to the management in charge of public relations, finance and marketing are one and the same. "I have been cooperating with all of the (financial institutions)," he said. "The (IPO) road show is in conjunction with the media road show. It's all going simultaneously."

A new issue in itself would constitute a "special event" on the WSE, said Marek Święton, analyst at ING BSK. He declined to comment on Hoop's prospects for making its case in front of investment-starved pension funds and other institutions, citing company policy on new issue promotion. But he did allow some explanation as to why Hoop's is a positive move.

"I think that there is a big problem of so few new issues on our stock exchange," Świętoń said. "There have been almost no new issues; so each new company (going public) is good."

Dariusz Wojdyga, president, pitched Hoop's qualities to local institutional investors last week, a process management plans to further undertake also in Frankfurt and London.

"The major task as far as the management board is concerned is simply to sell the company, its prospects for the future and its direction," Wojdyga said of his task as he met with investors.

He boasted that one of the reasons Hoop stands up well to investors' scrutiny is its intended use of IPO proceeds. "We do not need to finance current operations," Wojdyga said. He noted that cash - however much it's able to raise - will be employed for expansion. In addition, it "will be very quickly transferred into investments."

Management opted to take Hoop to market by next month because it had finally consolidated its capital structure and because the soft drinks market is ready for consolidation - and if it doesn't act today, with the country on the European Union's doorstep, other larger international players will.

In September 2002 Wojdyga and Marek Jutkiewicz, chief operating officer, bought out the company from private equity investors Polish PRE IPO Fund and Polish PRE IPO LP, owners of 60 percent and 40 percent of Hoop, respectively. They then trimmed their positions slightly in February this year, floating a minor amount of shares on the over-the-counter CeTO market.

Thus the capital structure was simpler and more ideal for institutional investors, Niczewski said.

Hoop also expects to play a more key role in the drinks sector, in which it includes its two main businesses, soft drinks and mineral water, but also the pure juice sector, in which it is at present deliberating over whether to acquire a company or develop a brand in house. The company is also considering expanding its borders.

"Hoop would like to take advantage of the consolidation in the industry," said Niczewski. "We need to combine to be fully (competitive). We're looking at not only smaller players in Poland, but also in Russia, the Czech Republic, Slovakia and probably Germany."

ING's Świętoń said there are plenty of companies in the country with robust financials, which in another country might have a better chance of entering a public exchange. "But due to the low prices of comparable companies (on the WSE) their owners are not planning (IPOs)."

Often when buyers and sellers valuate a pre-IPO company, they refer to similar companies, or comparables, already listed on the WSE. On the WSE prices are down, so pre-IPO valuations are as well.

"I hope that this will change," Święton added.

Hoop's Niczewski said that the marketing strategy dovetails with the company's financial direction. In particular Hoop has pushed two products, Hoop Cola and Arctic mineral water.

Executives wanted to give Arctic an international feel, even though it's a local brand.

"Last year we came up with the idea of engaging with an international star," he said, referring to the company's recent commercials. "Cindy Crawford was exactly the star who reflected (Arctic)." He said she is more or less fitness personified - the exact message Hoop wanted to get across.

"Hoop had an image as a good company, but the company was not well-known to the large spectrum of the (market)."

It set out to change that image among consumers and financiers. Niczewski believes this will translate into a successful IPO.