Using their noodles
Makarony Polskie, one of Poland's biggest pasta producers, recently debuted on the bourse with a plan to build a strong group and conquer the most attractive segments of the food market. The company wants to become one of the top three players of these segments, and plans to use increased production capacity, better distribution and acquisitions to achieve that goal.
"By the end of 2008 we want to increase our market share from the current 13 percent to 20 percent," says Paweł Nowakowski, president of Makarony Polskie. "This will be possible thanks to a growth of production capability by 130 percent, investments in assembly lines and, eventually, acquisitions," he added
Nowakowski says that Makarony Polskie's own brands, Sorenti and Makaron Staropolski, will account for eight percent of sales in terms of volume by the end of 2008. That increase is expected to contribute to the rise of the company's profitability from 5.4 percent in 2006 to at least eight percent in 2008.
Cooking up convenience
The acquisition of convenience-food producer Stoczek, currently in progress, is also expected to contribute to the rise in profitability. Stoczek boasts a 7.4-percent share of the domestic market and a modernized assembly line. The transaction is worth zł.12.85 million, and Makarony Polskie will invest another zł.6 million in order to increase the company's initial capital.
"After the acquisition we expect to achieve synergy in the sale of our products, the growth of effectiveness and a lower cost of distribution," says Nowakowski.
The acquisition will also allow Makarony Polskie to diversify into the fast-growing convenience-food market. According to market-research firm Data Monitor, the convenience-food market in Poland was worth about zł.200-220 million, with the average Polish consumer spending E2.44 (zł.9.28) on such products per year. The EU average is twice as high and in France, for example, spending on convenience food is four times as high.
"Poles have less and less time to cook and this is how we help ourselves. I believe the market will grow by up to 20 percent within the next couple of years," says Dorota Puchlew, an analyst from DM PKO BP.
IPO al dente
On the day of Rzeszów-based Makarony Polskie's debut, the price for the rights to the pasta producer's shares grew by 31.11 percent, compared to the issue value, and peaked at zł.11.80. By closing, however, the price had fallen back to zł.9.49, just 5.44 percent higher than the issue price.
PKO BP's Puchlew says the phenomenon isn't uncommon. "Only after the company starts to realize its strategy does the price of shares go up. That's what the market is now waiting for," he says.
The company put three million series-C shares up for sale. Out of that, two thirds was designated for institutional investors and the remaining one million shares went to individual buyers.
The company raised zł.27 million from its debut, but Makarony Polskie's strategy estimates its expenditures within the next two years will reach nearly zł.50 million.
Investment ingredients
Some zł.18.5 million will go to investments in new assembly lines and flour containers. Just after the debut, the company bought a developed property in Płock and now plans to construct a warehouse there.
In 2005, almost 60 percent of Makarony Polskie's production in terms of value - including both its own brands and private labels - was sold through modern distribution channels such as hypermarkets. The remaining 40 percent was sold through wholesalers or produced for other pasta producers. The company has also won several tenders to provide pasta for hospitals and military complexes. In 2005 these institutions bought 2.1 tonnes of food products, which constituted some 18 percent of the company's sales. In the first half of 2006, that share grew to almost 21 percent.
Now, Makarony Polskie wants to spend zł.2 million to develop its modern distribution channels. Recently the company signed a contract with supermarket chain Kaufland Polska Markety. The value of the products delivered to Kaufland by the end of the year is estimated to reach zł.2.5 million.
Sticking together
Makarony Polskie's plans are timed well. Grzegorz Polak, president of the Polish Chamber of Pasta (PIM), says the Polish market of pasta producers is very fragmented, and is nearing a period of consolidation. "Currently, there are about 100-130 firms on the market and consolidation is necessary. Eventually, the market will consist of the five largest producers and around 30 regional ones," says Polak.
The company is said to be interested in acquiring Malbork-based Malma, once Poland's biggest producer of pasta, which went bankrupt last year.
"We are interested in the consolidation of the market and in that respect we are interested in Malma. However, as for today, we are not considering an investment in Malma, since in the current legal situation there is no such possibility. We are not excluding our interest when it becomes possible," says Nowakowski. He also doesn't exclude issuing new shares to finance the acquisition strategy. "In the case of any takeover we will consider issuing new shares as a way to finance transactions," says the president.
Moreover, Polak, who is the owner of roll-pasta producer Pol-Mak in addition to being the president of PIM, says that his company and Makarony Polskie have been discussing a possible transaction. "So far we haven't agreed anything but I believe the decision will be made within the next one or two months," he says, although Nowakowski doesn't confirm this.
According Polak, the consumption of pasta in Poland is growing by some four to five percent per annum. "Poles travel abroad and see that people there eat more pasta," he says. "An average Pole eats about 4.5 kg of pasta per year compared to the EU average of 12 kg, not to mention Italians who consume about 28 kg of pasta per year. The [Polish] market must grow," adds Polak.
The company's financial prognosis for 2007 predicts revenues exceeding zł.96 million, and net profit is expected to more than double. "Our consolidated net profit this year will rise to zł.4 million," promises Nowakowski.
