Morliny increases stake in Ostroleka, further consolidating meat sector
While analysts called the zl. 8.5 million ($2.2 million) acquisition a sign of further consolidation within the meat industry, Morliny downplayed the purchase.
Prior to the share acquisition, Morliny already had a 43% stake in Ostroleka. The additional 33% means that Morliny, along with its international partner Campofrio from Spain, can move ahead with restructuring and other strategic maneuvers away from potentially prying eyes.
"Hetman was an outside company that had access to information that we might not want to get out," said Tomasz Mocarski, a spokesman for Morliny. "Now that we have a majority share, we have more psychological comfort to restructure the company and move forward with our plans. We don't want information about (those plans) to get to the competition."
Although Morliny now controls Ostroleka, the company has not said it plans to merge the smaller concern. Analysts said, though, that this is a likely next step.
"Maybe it's not a question of the next half year or year, but in the perspective of time it will have to happen," said Maria Morawska, an analyst at Bank Slaski's brokerage house. "I think that it's about consolidation of the meat industry, which has been underway for a long time."
For Morliny, the acquisition allows the company to extend its market share by acquiring not only Ostroleka's production potential, but also its distribution network.
"I think it's about increasing market share," Morawska said. "Like Morliny, Ostroleka is also a profitable company, with its own distribution channels and its own customers. With a majority share, Morliny will also get to these customers."
Pegged as an economy products maker, Ostroleka fills in the lower levels of Morliny's sales portfolio. Morliny's products are marketed as upper-tier goods, while Ostroleka products are targeted toward lower budget spenders. "That does not mean that the quality is worse," Mocarski added.
Together, the two companies command a market share of slightly more than 5% of the meat industry, more than half of which comes from Morliny's sales.
This year, Morliny announced ambitious plans to increase sales by 25% by the end of the year. Despite the difficulties on the meat market since the Russia crisis, analysts think the company can meet this goal. "Morliny has been expansive on the market, so I think the plans are realistic," Morawska said.
"In the range of a year it will be possible to achieve," Mocarski said. "The beginning of the year was hard for the meat segment. The second half of the year will be better for us."
Despite the hard start, the second quarter result shows that sales in the first half compared against the same period last year were up about 6.5% to zl. 158.9 million ($39.7 million). While sales were up, profits took a beating because of falling prices and increased competition on the domestic market. Net profit in the first half fell nearly 65% to zl. 1.9 million ($475,000).
"Production is a lot less profitable," Mocarski said. "We are selling goods at a lot lower price so that we don't lose customers. Generally, companies are building their distribution networks and nobody can afford to lose customers. We are selling cheaper and we're waiting for the time when we get a strong position." To reach its year-end sales goal, the company has embarked on a $1 million national advertising campaign.
For Ostroleka, the takeover means further modernization and restructuring. Morliny announced that it will spend several million zloty for restructuring and modernization, funding this through its own resources and bank debt, Morawska said.
Morliny is scant on details about the restructuring. However, some details include staff cuts and improving Ostroleka's production equipment, Mocarski said. The zl. 8.5 million purchasing price was footed by Campofrio, the Spanish company that holds a 98% stake in Morliny. The next move analysts expect the Spanish company to make is a delisting of Morliny from the Warsaw Stock Exchange (WSE).
"The Spaniards deny that they intend to take the company off the market," Morawska said. "However, liquidity of shares on the market is practically nil at this time."
Mums the word from Morliny. "Campofrio has not backed off from its verbal commitment to the securities commission to stay on the market," Mocarski said.
Prior to the share acquisition, Morliny already had a 43% stake in Ostroleka. The additional 33% means that Morliny, along with its international partner Campofrio from Spain, can move ahead with restructuring and other strategic maneuvers away from potentially prying eyes.
"Hetman was an outside company that had access to information that we might not want to get out," said Tomasz Mocarski, a spokesman for Morliny. "Now that we have a majority share, we have more psychological comfort to restructure the company and move forward with our plans. We don't want information about (those plans) to get to the competition."
Although Morliny now controls Ostroleka, the company has not said it plans to merge the smaller concern. Analysts said, though, that this is a likely next step.
"Maybe it's not a question of the next half year or year, but in the perspective of time it will have to happen," said Maria Morawska, an analyst at Bank Slaski's brokerage house. "I think that it's about consolidation of the meat industry, which has been underway for a long time."
For Morliny, the acquisition allows the company to extend its market share by acquiring not only Ostroleka's production potential, but also its distribution network.
"I think it's about increasing market share," Morawska said. "Like Morliny, Ostroleka is also a profitable company, with its own distribution channels and its own customers. With a majority share, Morliny will also get to these customers."
Pegged as an economy products maker, Ostroleka fills in the lower levels of Morliny's sales portfolio. Morliny's products are marketed as upper-tier goods, while Ostroleka products are targeted toward lower budget spenders. "That does not mean that the quality is worse," Mocarski added.
Together, the two companies command a market share of slightly more than 5% of the meat industry, more than half of which comes from Morliny's sales.
This year, Morliny announced ambitious plans to increase sales by 25% by the end of the year. Despite the difficulties on the meat market since the Russia crisis, analysts think the company can meet this goal. "Morliny has been expansive on the market, so I think the plans are realistic," Morawska said.
"In the range of a year it will be possible to achieve," Mocarski said. "The beginning of the year was hard for the meat segment. The second half of the year will be better for us."
Despite the hard start, the second quarter result shows that sales in the first half compared against the same period last year were up about 6.5% to zl. 158.9 million ($39.7 million). While sales were up, profits took a beating because of falling prices and increased competition on the domestic market. Net profit in the first half fell nearly 65% to zl. 1.9 million ($475,000).
"Production is a lot less profitable," Mocarski said. "We are selling goods at a lot lower price so that we don't lose customers. Generally, companies are building their distribution networks and nobody can afford to lose customers. We are selling cheaper and we're waiting for the time when we get a strong position." To reach its year-end sales goal, the company has embarked on a $1 million national advertising campaign.
For Ostroleka, the takeover means further modernization and restructuring. Morliny announced that it will spend several million zloty for restructuring and modernization, funding this through its own resources and bank debt, Morawska said.
Morliny is scant on details about the restructuring. However, some details include staff cuts and improving Ostroleka's production equipment, Mocarski said. The zl. 8.5 million purchasing price was footed by Campofrio, the Spanish company that holds a 98% stake in Morliny. The next move analysts expect the Spanish company to make is a delisting of Morliny from the Warsaw Stock Exchange (WSE).
"The Spaniards deny that they intend to take the company off the market," Morawska said. "However, liquidity of shares on the market is practically nil at this time."
Mums the word from Morliny. "Campofrio has not backed off from its verbal commitment to the securities commission to stay on the market," Mocarski said.
