А1 Goes Berry Picking. Alfa Group Invests in a New Line of Business.Kommersant Newspaper No.172 23.09.2019
A cut in the VAT on fruit and berry products to 10% and the growth of output have attracted large investors to that market. So, А1 — an investment subdivision of Alfa Group — acquired 51% in Rusbioalliance Group of Companies, which can produce about 50 thous. tonnes of berry and vegetable products a year. А1 is willing to invest RUB 1 bln in the company and create a systemic player in the industry that is still poorly consolidated.
А1, the investment subdivision of Alfa Group of Mikhail Fridman (ranking 7th on the Forbes list with the assets of $15 bln) and German Khan (ranking 13th, $9.7 bln), bought control of Rusbioalliance Group of Companies. A representative of А1 informed Kommersant about it. Rusbioalliance was set up in 2017 as a successor of enterprises in Kareliya and Vologda Region. It includes production of frozen berries (bilberries, lingonberries, cloudberries, etc.) with an annual capacity of over 12 thous. tonnes, production of preserves, jams and fillers of 14 thous. tonnes as well as a quick-frozen vegetables, mushrooms, etc. plant with a capacity of over 21 thous. tonnes a year. It produces products under the Vologodskaya Yagoda (Vologda Berry), Karelskiy Produkt and Prosto Zdorovo brands as well as under own trademarks of retail chains.
А1 bought out the participatory interest of Sergey Pomelov, the founder and CEO of the Group of Companies, who became its partner and retained the managerial position, just like the key managers did, the investment company representative says. According to the Unified State Register of Legal Entities and the Cypriot register, Trivonia Ltd from Cyprus, an entity of А1, became the owner of Severno-Zapadnaya Proizvodstvenno-Torgovaya Gruppa (North-Western Production and Sales Group) LLC (the former owner was Mr. Pomelov), which owns 51% of Rusbioalliance Group of Companies and 50% of RBA Group of Companies LLC. Other participatory interests are owned through Magnit GRSP LLC by Vadim Lukin, an entrepreneur from St. Petersburg. The representative of А1 did not disclose the terms of the transaction.
Narek Avakyan, Head of the Investment Department at BCS Broker, estimated the approximate value of the business of Rusbioalliance as RUB 8 bln, without disclosing the consolidated financial performance of the Group of Companies. The employees of Rusbioalliance itself did not answer the questions of Kommersant. Vadim Lukin was unavailable for providing immediate comment for Kommersant.
Dmitry Pavlov, Partner of А1, states that the berry and fruit products market in Russia is appealing due to the stable rates of growth — from 5% to 10% a year. In addition, he indicates that small regional companies are dominant there. Before the end of 2019, А1 is going to invest up to RUB 1 bln in the business development and intends to make Rusbioalliance a systemic player, based on which the industry is to be consolidated, including by acquiring less big companies, Mr. Pavlov says.
Today is the most convenient time to enter the berry production and processing market, German Shekhovtsev, partner of the Strategy and Operational Efficiency Practice at Althaus Group, points out. From 1 October 2019, a reduced VAT rate of 10% will be applied to berries and fruit, which will free the surplus of turnover and create added incentives for the increase in production, he states. Igor Mukhanin, President of the Association of Gardeners of Russia, says that in some cases the berry production profitability may exceed 150%. In the next five years, the Ministry of Agriculture plans to increase the production of fruit and berry products more than twofold — up to 2.4 mln tonnes, which will lead to the growth of average revenues of the players by 15%, Aleksandr Osin, Analyst of the Russian Stock Market Transactions Office at Freedom Finance Investment Company, adds.
Aleksey Popovichev, Executive Director at Rusbrand, notes that one of the advantages of Rusbioalliance consists in its presence in various lines of business: supply of products both for the producers of fruit and vegetable products, public catering chains and for consumers through retail chains. This allows decreasing dependence on the demand seasonality: in summer, for example, retail consumption of frozen berries goes down, while the product demand on the part of the ice cream producers goes up, he explains. According to Mr. Popovichev, the products of Rusbioalliance also have export potential: Russia is perceived in the European Union as a country with pristine nature, which will be a plus in promoting northern berries. German Shekhovtsev estimates a potential annual profit of Rusbioalliance as RUB 5.3 bln.
A1 is one of the leading investment businesses in Russia and the CIS. It focuses on investments in companies facing financial difficulties and engaged in corporate conflicts. Alfa-Bank (Russia), TNK, VimpelCom, Perekrestok (part of X5 Retail Group) and Rosvodokanal Group were originally A1 projects that later became strategic businesses for Alfa Group as well as core companies for the wider Russian economy.