Roshen buyers will be offered the sweetest assets

Photo: PHL

Today the Russian factory of the Roshen Corporation will be shut down. «Production will be suspended for two weeks. There is a stock of candy in our warehouses in Lipetsk exactly for this period of time. The terms of resumption of production will depend on demand,» said Senior Manager for Public Relations at the Roshen LLC in Lipetsk Irina Vakhonina in an interview for Interfax Russia Agency.

Informal bans

Ukrainian goods are thoroughly inspected by supervisory authorities, so their supply is intermittent, says General Director of the Russian company INFOLine-Analitika Mikhail Burmistrov. This is confirmed by Director of the Ukrainian Association of Retail Suppliers Oleksiy Doroshenko. «Russian governors are exerting undue influence on retailers, as they received informal permission to remove Ukrainian products from local store shelves,» he assured.

The Ukrainian corporation Roshen and its office in Lipetsk did not respond to Capital’s inquiries. Deputy Director General of Roshen’s factory in Lipetsk Oleg Kazakov told Interfax Russia that the demand for the company’s products in Russia fell by 30% due to the political situation.

Roshen Ukrainian-style

The Lipetsk factory is the second one to be shut down by the Roshen Corporation since the beginning of the year. As a reminder, in the summer of 2013 Russia banned the supply of its sweets, which had a direct impact on the company’s financial performance. Only two divisions finished last year with a net profit: the Roshen Confectionery Factory in Kyiv (UAH 17.22 mn, which is by 4.5 times more than in 2012) and the Vinnytsya Confectionery Factory (an increase of 62.4% — up to UAH 109.98 mn).

Roshen factories in Mariupol and Kremenchuk had net loss: UAH 2.76 mn compared to net profit of UAH 927,000 in 2012 and UAH 17.78 mn compared to net profit of UAH 11.37 mn in 2012, respectively. In February, the corporation was forced to shut down the Mariupol Confectionery Factory. There were plans to resume production, but the armed conflict in the east of the country frustrated these plans.

Counting on Ukraine

Under the Russia’s embargo, Roshen Corporation was able to increase sales of sweets in Ukraine, says Associate Director at EY in Ukraine Oleksandr Romanyshyn. «The fact is that the number of supermarkets in Ukraine increased by more than 20% in 2013, which is one of the main driving forces of the growth in sales, in particular of confectionery products,» he explains.

Roshen’s own chain of stores, the number of which is growing is one of the most active retail sales channels. Based on the information on the company’s website there are 18 stores in Kyiv, which is 38.46% more than a year ago.

Co-owner of the Tavria-V and Kosmos retail chains Borys Muzalev says there are no problems with the supply of Roshen’s products. «We receive the full range of ordered goods on time,» confirms General Director at Pakko Holding (Pakko, Vopak chains) Oleh Merchenko.

Choosing the tastiest

The corporation should try to stay afloat seeing as it is currently up for sale, industry experts say. As a reminder, selling Roshen is one of Poroshenko’s commitments after being elected president. The Rothschild Corporation is preparing the company for a change of ownership in a consortium with the Ukrainian investment group ICU. Major international confectionery giants, such as Hershey, Mars, Mondelez, Nestle and Ulker, might be interested in the Ukrainian sweet assets, says Romanyshyn. However, it will be quite difficult to sell the entire corporation. «Most likely, the buyer will be interested only in those factories that are most resistant to the current situation,» he says.

Burmistrov admits that the Lipetsk factory may be sold to Russian investors. Analyst at the Eavex Capital Investment Company Ivan Dzvinka says the corporation is currently valued at approximately US $1.6 bn. This estimate is based on a multiplier calculated on financial performance of the corporation in previous periods. «Roshen’s unadjusted cost is US $2.6 bn. But if you apply the discounts on the volume of business, the value of the Roshen Corporation is US $1.6 bn. In the event of stabilization of the situation in the Donbas region, the company could be sold for US $2.1 bn,» the expert added.

Romanyshyn believes that the price of Poroshenko’s company will be based on the financial performance of those assets that will be included in the structure of the transaction. He notes that application of the discount is a matter of negotiations. «The sale of any asset, particularly a larger asset, is a 100-meter sprint run; it is rather a marathon,» said the interlocutor. «Therefore, it is likely that at the time of sale the economy will show positive upward trends».