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Sokolow banks on Polish ex-pats for future growth

14-Sep-2004

HK Ruokatalo and Danish Crown, the new majority owners of Polish meat proccessor Sokolów, say that they are aiming to increase sales by focusing on the export of traditional processed meat products to Polish communities in both Western Europe and the US.

"We aim to grow the proportion of total sales from exports by 20 per cent to 40 per cent within the next two to three years," said HK Ruokatalo CEO Simo Palokangas. "The Polish market for processed meats is currently very competitive, which makes it difficult to make any gains under the present conditions. Furthermore we anticipate that for the foreseeable future there will be no significant upturn in demand for processed meats in the domestic market, which is why we are planning to focus on the export market."

The competitive environment Palokangas refers to is reflected by overcrowding in the market, with overcapacity now a constant problem. Prior to 1998 much of this capacity was devoted to the exportation of meats to the Russian market. However after that country's economic crisis, the market completely collapsed and has never recovered. Instead the attentions of the main meat exporting business, which also include Smithfield-owned Animex, have been centred on the European Union markets.

 

The predictions of a stagnant domestic market come during a bumper year for Sokolów. So far Palokangas says that the company's sales are up by 30 per cent, mainly on the strength of a strong rise in exports to the rest of the European Union following Poland's accession to Europe in May this year.

 

"This rise in sales is going to prove the exception," said Palokangas. "In the coming years we can expect to increase sales by a maximum of 20 - 30 per cent each year - growth that will be largely derived by exports."

 

The driving force behind this growth is Polish ex-pat communities in both Western Europe and the US, who are missing a taste of home. Currently there are particularly large communities in both Germany and the UK, which in turn have become the major destinations for exports in Europe. But the US is the home to the biggest ex-pat community, with an estimated 10 million Poles now living there. Although transport costs limit sales potential, the sheer size of this market gives it enormous potential.

 

Palokagas says that these ex-pat communities are demanding traditional processed Polish meats, including a selection of meat cuts, canned hams and a range of speciality sausages. Many of these products are unique to Poland and it is almost impossible to buy them outside the country.

 

Sokolów is considered to be a prime investment in the Polish meat sector as it is the only player with complete national market coverage. It has a strong focus on pork production, but is also strong in both the poultry and beef sectors. Currently annual turnover amounts to €233 million and it employs 3,400 people. Its biggest rival, Animex is expecting a turnover of around €500 million.

 

This week the EU gave the final nod of approval for the deal to go through, which followed on from the green light given by the Polish Securities and Exchange Commission last week. After meat processing giant Danish Crown took a 10 per cent share in Finland-based HK Ruokatalo, the authorities have now allowed the companies to go ahead and make a bid for a 50 per cent controlling stake in Sokolów.

 

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