Atria: Post-Acquisition Management Solutions for the Russian Subsidiary

Abstract

The case describes the steps Atria undertook in Russia with a focus at post-acquisition integration of Russian activities in the overall Atria strategy.

This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

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Resources

Exhibit 1. Atria’s Internationalisation Timetable

Year

Countries Entered

1997

Sweden

2003

Lithuania

2004

Estonia

2005

Russia

Source: Company records.

Exhibit 2. North and North-West economic zones of Russia

Figure

Exhibit 3. Some characteristics of the meat-processing industry in Finland and Russia

Finland

Russia

High level of consolidation (CR3 about 80%)

Low level of consolidation (CR3 about 20%)

Small number of meat processing companies (5)

Large number of meat processing companies (about 60)

Low share of imported meat raw materials (about 5%)

High share of imported meat (about 50%)

High level of consolidation of grocery retail (CR3 about 85%)

Growth in centralised retail trade – rapid development of Russian and foreign retail chains

Growth in purchasing power of families

High level of meat consumption (70 kg per capita annually)*

Low level of meat consumption compared to developed countries (50 kg per capita annually)

*In Sweden – 80 kg.

Source: Author’s interviews with market analysts

Exhibit 4. Brief overview of Pit-Product Group

The company was established as a sausage plant in April 1996 in St. Petersburg. In 1998, it started manufacturing conventional and original delicatessens and exclusive products at a new facility. At the same time, a vacuum system for product packaging was introduced. In 1999, Pit-Product introduced modern, ecologically friendly, smoking technology. In 2001, another factory was established with its own slaughterhouse in the village of Sinyavino some 40 kilometres outside St. Petersburg (in the Leningrad Region). In 2002 and 2003, two new workshops started to produce raw smoked products. The company acquired a pig-breeding farm in the Village of Irinovka, Leningrad Region and reconstructed it from the ground up. A bit later, Pit-Product began to use new FLOW-PACK equipment for sausage packaging, a new SHIWA production line to cut sausage products, and two new Sorgo climarooms. All of these innovations allowed the company to increase production volumes and the diversity of its portfolio of dry smoked sausages.

Pit-Product’ products are available in all large retail chains in St. Petersburg as well as in most unchained outlets. As early as in 1999, the company had established a successful partnership with the Pyatyorochka economy class outlets. In summer 2003, the first Pit-Product’s branded outlet opened in St. Petersburg. In 2003, expansion to other parts of Russia continued: the products of Pit-Product began to be delivered to the Republic of Karelia, Tver, Murmansk, Novgorod and Arkhangelsk Regions as well as to the Far East of Russia (see Exhibit 5). In 2004, the company formed strategic alliances with the Lenta chain of hypermarkets, the Dixy discounter and the Ramstore supermarkets.

Pit-Product’s assortment includes 200 different sausages and meat products (of which frankfurters and grilled sausages cover 51% of sales, raw sausages 26%, partly smoked sausages 12%, smoked sausages 5%, and cured sausages and sliced products 6%). The company has grown at a rate of 30–50% in recent years. In 2004, production volume totaled 15.5 thousand ton, and 19 thousand ton are planned to be manufactured in 2005. By the completion of the acquisition deal, Pit-Product was one of St. Petersburg’s largest meat processors. Its share in the St. Petersburg meat product markets in 2004 was approximately 13%; in 2005 its market share for frankfurters and boiled sausages was close to 20%.

Source: Company web-site: http://www.pitproduct.ru/company/history.thtml

Exhibit 5. Top Ten Russian Food Retailers

Ranking (%)

Retailer

Revenues, $ million

Year-on-year growth

1

Pyaterochka

1,425

50

2

Metro

1,059

61

3

Tander

894

45

4

Perekrestok

771

72

5

Auchan

640

61

6

Seventh Continent

600

46

7

Ramstore

550

22

8

Dixy

490

60

9

Lenta

476

55

10

Kopeyka

415

70

Source: Standard & Poor’s, July 29, 2005.

Exhibit 6. Integration plan: critical tasks for each functional team

Figure

Source: company records.

Exhibit 7. Integration plan for the Production, Productivity, Investments functional team

Figure

Source: Company records.

Exhibit 8. Pit-Product Old Organisation Structure

Figure

Source: Company records.

Exhibit 9. The new organisation structure of Pit-Product

Figure

Source: Company records.

Appendix 1. Atria Group – Financial Snapshot, €million

(half-year)

2005

2006

2007

2008

2009

Net sales

976.9

1103.3

1272.2

1356.9

648.1

EBIT

41.5

94.5

38.4

6.8

Profit before tax

37.8

34.6

80.6

16.7

−1.1

Earnings per share

1.24

1.15

2.56

0.42

−0.06

Return on equity

10.0%

8.8%

17.2%

2.5%

Return on investment

10.3%

8.7%

15.2%

5.3%

Equity ratio

43.0%

42.8%

47.6%

38.4

Gross investments

107.3

89.0

284.1

152.6

R&D expenditures

6.7

7.4

8.4

9.9

Dividend per share

€0.42

€0.46

€0.70

€0.20

Dividend yield

3.3%

3.1%

4.0%

1.7%

Source: Company records.

Appendix 2. Atria’s Business Areas: key indicators

(half-year)

2006

2007

2008

2009

Atria Finland

     Net sales, €million

686.1

749.6

797.9

383.6

     Operative EBIT, €million

32.2

39.7

34.4

17.8

     Average personnel

2325

2394

2378

Atria Scandinavia

     Net sales, €million

336.4

457.8

455.2

202.0

     Operative EBIT, €million

7.4

20.5

15.4

1.9

     Average personnel

1206

1768

1691

Atria Russia

     Net sales, €million

74.1

65.6

93.8

54.4

     Operative EBIT, €million

−2.7

4.3

−3.4

−8.9

     Average personnel

1528

1278

1525

Atria Baltic

     Net sales, €million

30.5

26.7

32.3

19.3

     Operative EBIT, €million

−3.4

−3.1

−3.8

−2.5

     Average personnel

681

507

541

Source: Company records.

Appendix 3. Atria’s EBIT by Region, €million

2010e

2006

2007

2008

2009e

Atria Finland

41

33

40

34

41

Atria Scandinavia

22

7

21

14

12

Atria Russia

−3

4

−3

−11

1

Atria Baltic

2

−4.9

−4.4

−3.8

−4.5

Source: Pohjola Bank report

This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

2024 Sage Publications, Inc. All Rights Reserved

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