Rusagro has adjusted its strategy in the dairy business, and may sell it if it fails
‘We believe that our initial approach in this segment is no longer relevant. First, the cheese market in Russia will not grow significantly, and the profitability of this business will not be high enough. That is, even if we become the third player in this segment, the size of this business will still not be the same as the strategy of the group requires. It will make much more sense for management to continue developing in the four areas where we are successful. The second reason is excessive investment in this market,’ said CEO of Rusagro Maxim Basov on a conference call on Friday.
‘So now we have a different strategy, it is based on the production of products with vegetable substitutes for milk fat and milk protein. We will wait for 12-18 months and see if our hypothesis is confirmed. If not, management has several options. This may be a merger with another division, the acquisition of a large company and a merger with it, or the sale of this asset,’ Basov said.
At the same time, the performance of the dairy division is insignificant across the group – ‘now it is more of an experiment,’ he added. In the first half of 2020, the revenue of the dairy products division decreased by 13% to 1.819 billion rubles (total revenue of Rusagro - 71.236 billion rubles). The negative EBITDA of the division was 18 million rubles, compared to a positive result of 1 million rubles a year earlier.
Rusagro group created a division for the production of dairy products in 2018. At that time, the company did not have its own facilities - it leased the Koshkinsky butter and cheese factory in Samara region and the Zavolzhsky dairy plant in Ulyanovsk region.
The dairy division of Rusagro produces cheeses, cheese products, butter and spreads, and milk-containing dry mixtures, according to the company's website. At the end of 2019, Rusagro ranked 13th in terms of cheese and cheese products production in the Russian Federation with a market share of 2%.
Rusagro is a major producer of sugar, pork, mayonnaise, butter and margarine. The group includes more than 35 agricultural enterprises, 9 sugar factories, an oil extraction plant and a fat plant. At the end of 2018, the company acquired the debt of the oil and fat holding Solnechnye producty and integrated part of its assets.
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