Meaty mission
Nowaczyk, Pozmeat's supervisory board president and a major shareholder, believes the plant will give him a leg up on the competition and help his company burst into Western export markets.
"I can say that this is the best meat plant in Europe," Nowaczyk said of the still-under-construction, 20,000 square meter facility. "It seems to me that we are building something that is perfect."
In a production sense, perhaps. But the timing for such a move would seem anything but perfect.
Since last summer's Russian crisis, meat producers have been hammered by falling prices and an oversupply on the market. Many companies found that their Eastern export markets had disappeared almost overnight and so turned en masse to the domestic market.
Pozmeat was not reliant on exports, which accounted for less than 10% of sales. But competition has now stiffened in the domestic market and the company has seen margins and profits fall as a result.
This has led competitors such as Morliny to seek strategic partnerships. In addition, companies have found that to maintain market share they need to spend not on production, but advertising.
Nowaczyk and Pozmeat are determined, at least for the moment, to go it alone. Nowaczyk added that salvation for his company will rest in the ability of the new plant, located 10 kilometers outside of Poznan, to help boost the company's cost-efficiency by replacing three existing city-center facilities. Even if that proves true, many in the industry wonder whether Nowaczyk's timing and strategy will pay off.
"I don't know if it wouldn't have been better for him to buy an existing factory," said Tomasz Mazurczak, an analyst at BRE Bank Investment House. "It might have turned out cheaper. For sure it is a different calculation."
Last year was a bad one for meat processing companies, and 1999 isn't looking any brighter. "The Russian market offered (Polish) factories protection and now that is gone," said Maria Morawska, an analyst at Bank Slaski. "Exports have been decisively limited and now those products have to be located on the domestic market."
It will be a while before the situation changes. "This is a very hard market," said Grzegorz Kusina, an analyst at BGZ BM brokerage house. "No one is counting on an improvement before the end of the year. This year was harder than last year, and no one knows what will happen in the future."
With only 5-10% of Pozmeat's production sold to Russia, Nowaczyk said his company was not dealt a killer blow by the events of last August. As the dominant player in the Wielkopolska region, Pozmeat has been concentrating on holding onto that position until it can build Western export markets.
"The main goal of our strategy was taking care of our regional market," Nowaczyk said. "This is our main strategic direction, and it turned out to be very accurate.
"However, indirectly, as a result of the situation in Russia, a situation that every company faces, the domestic market has become really crowded," he added.
That competition has hit Pozmeat hard this year, even if the company had and still does pursue a regional rather than export strategy. In the first quarter of this year, Pozmeat saw sales drop to zl. 20.1 million ($5 million) compared to zl. 33.5 million ($9.5 million) during the same period in 1998. The company's net result was a loss of zl. 1.9 million ($475,000), compared to a net profit of zl. 373,000 in the first quarter of 1998.
At the same time, Pozmeat's share price on the parallel market of the Warsaw Stock Exchange (WSE) has plummeted. At the start of July 1998, the shares traded at zl. 54. By early September 1998 they had dropped to zl. 27.90 and have largely hovered between zl. 22 and zl. 30 since then.
Building out
Even before the Russian crisis, Nowaczyk knew that he would have to do something to update and consolidate his production facilities. With two factories in the center of Poznan and one in the more remote Sroda Wielkopolska area, transporting goods and organizing efficient and cost-effective production was nearly impossible.
"When we open the new factory, these problems are going to be solved," Nowaczyk said. "This type of industrial activity does not have the right to exist in the center of the city, sooner or later it had to come to moving."
Before breaking ground last August, Nowaczyk set off on a fact-finding mission of Europe's largest meat factories. What's being erected on the 18 hectares of farmland 10 kilometers from Poznan's center represents the lessons from this voyage.
The trip resulted in a 20,000 square meter facility that can slaughter 300 pigs an hour or 2,500 per shift. In the same amount of time, half that number can be sectioned and readied for processing. Under the same roof, the processing plant itself can crank out 150 tons of packaged meat delicacies ready for distribution and sale daily. The accompanying sewage treatment plant is large enough to serve a town of 10,000 inhabitants.
That's a lot of meat and a lot of plant for a company that is essentially a small player on the national market. Mazurczak, of BRE Bank Investment House, whose parent BRE Bank owns 24.8% of Pozmeat, estimates that the company holds a maximum 1% market share. Nowaczyk counters that Pozmeat is bigger than that, adding that there is not a clear division in the market. "None of these figures is reliable," he said. "Among the companies that count on the market, we are somewhere in the middle range."
But the top and middle of the market is changing quickly. In the aftermath of the Russian crisis, companies are looking for new alliances. Among the most visible moves, was the recent purchase of 67% of Animex by Smithfield Foods. As the nations largest meat importer and exporter, Animex has a 12% market share. Currently the company is restructuring and beefing up its sales and marketing structures in an effort to increase its slice of the business.
Morliny, which is also traded on the WSE, also got a boost through the purchase of 77.4 % of its shares by Spain's Campofrio Alimentacion, which is partly owned by U.S-based Hormel Foods Corp. Another large consolidation took place formally at the beginning of January between Polish producers Sokolow and Kolo. Farm Foods, also listed on the WSE, formed a partnership with the non-profit Swedish Lantbrukarnas Ekonomii-Aktiebolag. But Farm Foods sale of 15% of the company was not just about money. "It wasn't about a cash injection," said BGZ's Kusina. "Farm Foods is counting on finding new markets and making new contacts abroad."
Pozmeat has chosen to go it alone. When the company went public in 1997, Animex and Hormel each had a 13% stake. But they both left. Nowaczyk said Hornel sold because it couldn't get a controlling share of the company. Today, Nowaczyk, holds about 11% and the largest shareholder is BRE Bank. But he's confident that the company doesn't need a strategic partner.
"I don't see dangers," Nowaczyk said. " In comparison to Animex, Morliny or Farm Foods Group who have old plants, we will have the most modern plant in Europe."
At the same time, Nowaczyk does not rule out the possibility for some kind of strategic alliance in the future. "We are open to any proposals from the outside," Nowaczyk said. "(But) our basic strategy is to get our activities under one roof."
Marketing meat
Under that roof, Pozmeat hopes to have a processing facility that will have high quality and sanitary standards. Nowaczyk believes this will be key to building exports to Western Europe and beyond. "Our factory will be certified to (export) to the United States, as one of the first in Poland we got the (required) certification," Nowaczyk said.
But without a strategic investor, getting into those markets might not be possible with only health certificates in hand. "Entrance on the European Union market is not that easy," said Maria Morawska, a financial analyst for Bank Slaski's brokerage. One of the reasons why Animex joined with Smithfield was to get access to the sales and distribution networks long forged out by the international giant. "A strategic investor brings in not only capital, but also personal know-how and sales and distribution channels," said Krzysztof Koziol, a spokesman for Animex. "That's the competitive edge."
In addition to access, any producer needs marketing muscle. "I believe marketing is extremely important right now," Morawska said. As proof, she cites Morliny's recent, aggressive ad campaign. "That allowed them to somehow create the necessary demand," she said. Nowaczyk acknowledges the need for a strong marketing campaign and a beefed up sales network. He added that to do so he is trying to expand Pozmeat's presence in supermarket chains and expects improvements to the company's distribution network to bear fruit later this year.
But advertising and distribution cost money. And for the moment, the main thrust of Pozmeat's spending is the new plant. Almost half the cost of the new factory is being funded by a $15 million loan and the remainder is from the company's own resources. However, some wonder if this is the right time to be spending, not alone going into debt, for capital expenditures.
"This is not the best time to pay off high credits in Poland," said Animex's Koziol. "Prices fell significantly last year, and there are lower margins as well."
But Nowaczyk is sanguine about the debt. When Pozmeat clears out of its existing sites, it will be leaving behind property that Nowaczyk said is worth more than the cost of the current investment. "These will be part of the company's assets," he added.
Perhaps another safety valve lies in the market itself. One half of the Polish meat market is dominated by small local and regional producers. While their hold on the hearts of local consumers may be firm, many of these companies do not meet the sanitary and hygiene requirements of veterinary laws put on the books last year, let alone international regulations that will dominate as Poland moves closer to the EU.
Right now those laws are not strictly enforced, but once they are half the market may be up for grabs by Pozmeat and other players with clean production facilities. "One has to at least consider that if a large majority of these (companies) fall out (of the market), there will be a certain niche to be filled," BGZ's Kusina said. The key will be seeing it through to that consolidation phase.
"If Pozmeat does survive this difficult moment, with a new factory it can look forward to high profitability and low costs," Koziol said. "Modern plants are very profitable, they just have to survive right now."
While other companies hunker down, Pozmeat builds, , contributed to this story.
"I can say that this is the best meat plant in Europe," Nowaczyk said of the still-under-construction, 20,000 square meter facility. "It seems to me that we are building something that is perfect."
In a production sense, perhaps. But the timing for such a move would seem anything but perfect.
Since last summer's Russian crisis, meat producers have been hammered by falling prices and an oversupply on the market. Many companies found that their Eastern export markets had disappeared almost overnight and so turned en masse to the domestic market.
Pozmeat was not reliant on exports, which accounted for less than 10% of sales. But competition has now stiffened in the domestic market and the company has seen margins and profits fall as a result.
This has led competitors such as Morliny to seek strategic partnerships. In addition, companies have found that to maintain market share they need to spend not on production, but advertising.
Nowaczyk and Pozmeat are determined, at least for the moment, to go it alone. Nowaczyk added that salvation for his company will rest in the ability of the new plant, located 10 kilometers outside of Poznan, to help boost the company's cost-efficiency by replacing three existing city-center facilities. Even if that proves true, many in the industry wonder whether Nowaczyk's timing and strategy will pay off.
"I don't know if it wouldn't have been better for him to buy an existing factory," said Tomasz Mazurczak, an analyst at BRE Bank Investment House. "It might have turned out cheaper. For sure it is a different calculation."
Last year was a bad one for meat processing companies, and 1999 isn't looking any brighter. "The Russian market offered (Polish) factories protection and now that is gone," said Maria Morawska, an analyst at Bank Slaski. "Exports have been decisively limited and now those products have to be located on the domestic market."
It will be a while before the situation changes. "This is a very hard market," said Grzegorz Kusina, an analyst at BGZ BM brokerage house. "No one is counting on an improvement before the end of the year. This year was harder than last year, and no one knows what will happen in the future."
With only 5-10% of Pozmeat's production sold to Russia, Nowaczyk said his company was not dealt a killer blow by the events of last August. As the dominant player in the Wielkopolska region, Pozmeat has been concentrating on holding onto that position until it can build Western export markets.
"The main goal of our strategy was taking care of our regional market," Nowaczyk said. "This is our main strategic direction, and it turned out to be very accurate.
"However, indirectly, as a result of the situation in Russia, a situation that every company faces, the domestic market has become really crowded," he added.
That competition has hit Pozmeat hard this year, even if the company had and still does pursue a regional rather than export strategy. In the first quarter of this year, Pozmeat saw sales drop to zl. 20.1 million ($5 million) compared to zl. 33.5 million ($9.5 million) during the same period in 1998. The company's net result was a loss of zl. 1.9 million ($475,000), compared to a net profit of zl. 373,000 in the first quarter of 1998.
At the same time, Pozmeat's share price on the parallel market of the Warsaw Stock Exchange (WSE) has plummeted. At the start of July 1998, the shares traded at zl. 54. By early September 1998 they had dropped to zl. 27.90 and have largely hovered between zl. 22 and zl. 30 since then.
Building out
Even before the Russian crisis, Nowaczyk knew that he would have to do something to update and consolidate his production facilities. With two factories in the center of Poznan and one in the more remote Sroda Wielkopolska area, transporting goods and organizing efficient and cost-effective production was nearly impossible.
"When we open the new factory, these problems are going to be solved," Nowaczyk said. "This type of industrial activity does not have the right to exist in the center of the city, sooner or later it had to come to moving."
Before breaking ground last August, Nowaczyk set off on a fact-finding mission of Europe's largest meat factories. What's being erected on the 18 hectares of farmland 10 kilometers from Poznan's center represents the lessons from this voyage.
The trip resulted in a 20,000 square meter facility that can slaughter 300 pigs an hour or 2,500 per shift. In the same amount of time, half that number can be sectioned and readied for processing. Under the same roof, the processing plant itself can crank out 150 tons of packaged meat delicacies ready for distribution and sale daily. The accompanying sewage treatment plant is large enough to serve a town of 10,000 inhabitants.
That's a lot of meat and a lot of plant for a company that is essentially a small player on the national market. Mazurczak, of BRE Bank Investment House, whose parent BRE Bank owns 24.8% of Pozmeat, estimates that the company holds a maximum 1% market share. Nowaczyk counters that Pozmeat is bigger than that, adding that there is not a clear division in the market. "None of these figures is reliable," he said. "Among the companies that count on the market, we are somewhere in the middle range."
But the top and middle of the market is changing quickly. In the aftermath of the Russian crisis, companies are looking for new alliances. Among the most visible moves, was the recent purchase of 67% of Animex by Smithfield Foods. As the nations largest meat importer and exporter, Animex has a 12% market share. Currently the company is restructuring and beefing up its sales and marketing structures in an effort to increase its slice of the business.
Morliny, which is also traded on the WSE, also got a boost through the purchase of 77.4 % of its shares by Spain's Campofrio Alimentacion, which is partly owned by U.S-based Hormel Foods Corp. Another large consolidation took place formally at the beginning of January between Polish producers Sokolow and Kolo. Farm Foods, also listed on the WSE, formed a partnership with the non-profit Swedish Lantbrukarnas Ekonomii-Aktiebolag. But Farm Foods sale of 15% of the company was not just about money. "It wasn't about a cash injection," said BGZ's Kusina. "Farm Foods is counting on finding new markets and making new contacts abroad."
Pozmeat has chosen to go it alone. When the company went public in 1997, Animex and Hormel each had a 13% stake. But they both left. Nowaczyk said Hornel sold because it couldn't get a controlling share of the company. Today, Nowaczyk, holds about 11% and the largest shareholder is BRE Bank. But he's confident that the company doesn't need a strategic partner.
"I don't see dangers," Nowaczyk said. " In comparison to Animex, Morliny or Farm Foods Group who have old plants, we will have the most modern plant in Europe."
At the same time, Nowaczyk does not rule out the possibility for some kind of strategic alliance in the future. "We are open to any proposals from the outside," Nowaczyk said. "(But) our basic strategy is to get our activities under one roof."
Marketing meat
Under that roof, Pozmeat hopes to have a processing facility that will have high quality and sanitary standards. Nowaczyk believes this will be key to building exports to Western Europe and beyond. "Our factory will be certified to (export) to the United States, as one of the first in Poland we got the (required) certification," Nowaczyk said.
But without a strategic investor, getting into those markets might not be possible with only health certificates in hand. "Entrance on the European Union market is not that easy," said Maria Morawska, a financial analyst for Bank Slaski's brokerage. One of the reasons why Animex joined with Smithfield was to get access to the sales and distribution networks long forged out by the international giant. "A strategic investor brings in not only capital, but also personal know-how and sales and distribution channels," said Krzysztof Koziol, a spokesman for Animex. "That's the competitive edge."
In addition to access, any producer needs marketing muscle. "I believe marketing is extremely important right now," Morawska said. As proof, she cites Morliny's recent, aggressive ad campaign. "That allowed them to somehow create the necessary demand," she said. Nowaczyk acknowledges the need for a strong marketing campaign and a beefed up sales network. He added that to do so he is trying to expand Pozmeat's presence in supermarket chains and expects improvements to the company's distribution network to bear fruit later this year.
But advertising and distribution cost money. And for the moment, the main thrust of Pozmeat's spending is the new plant. Almost half the cost of the new factory is being funded by a $15 million loan and the remainder is from the company's own resources. However, some wonder if this is the right time to be spending, not alone going into debt, for capital expenditures.
"This is not the best time to pay off high credits in Poland," said Animex's Koziol. "Prices fell significantly last year, and there are lower margins as well."
But Nowaczyk is sanguine about the debt. When Pozmeat clears out of its existing sites, it will be leaving behind property that Nowaczyk said is worth more than the cost of the current investment. "These will be part of the company's assets," he added.
Perhaps another safety valve lies in the market itself. One half of the Polish meat market is dominated by small local and regional producers. While their hold on the hearts of local consumers may be firm, many of these companies do not meet the sanitary and hygiene requirements of veterinary laws put on the books last year, let alone international regulations that will dominate as Poland moves closer to the EU.
Right now those laws are not strictly enforced, but once they are half the market may be up for grabs by Pozmeat and other players with clean production facilities. "One has to at least consider that if a large majority of these (companies) fall out (of the market), there will be a certain niche to be filled," BGZ's Kusina said. The key will be seeing it through to that consolidation phase.
"If Pozmeat does survive this difficult moment, with a new factory it can look forward to high profitability and low costs," Koziol said. "Modern plants are very profitable, they just have to survive right now."
While other companies hunker down, Pozmeat builds, , contributed to this story.
