Page 38 - bne_newspaper_February_02_2018

38 I Cover story bne February 2018
The company has had three seasons so far but already one disaster. In 2015 a outbreak of mycobacteriosis, a disease that often affects cultivated fish, led to massive death of fish and a plunge in ebitda, although revenues remained positive at RUB514mn ($9.1mn). As the aquaculture industry is still young it remains more prone to biological threats than some of the more mature animal husbandry businesses.
Russian Aquaculture also has four trout farms in fresh water lakes in Karelia in northwest Russia, but the main focus
New player
Russian Aquaculture is a relatively new player in the salmon game and aqua- culture is a relatively new agricultural technique for producing the fish.
Sosnov got into the business while still working for Sibur Tires as the owners of the company also had a fish business called Russia Sea and asked him to act as CFO in addition to his other duties in 2012.
Over the next few years Sosnov went back and forth trying to get the business on its feet. Russia Sea had three busi-
was simple: boost production by buying other companies with permits to catch wild fish.
“The system is fixed. You can’t go to sea and just catch more fish. The only way to grow the business is through acquisi- tions,” says Sosnov.
However, the business was not doing well. The main cost in the fish business is buying the raw fish and the margins on the distribution and value added parts of the business are “tiny” says Sosov.
In the meantime new owners had taken over and asked Sosnov to commit more time to it. In 2015 Sosnov sold the distri- bution business and then after he took over as CEO he sold the added value part too. Sosnov and his investors had decided to gamble everything on building up the aquaculture part of the business.
The lax of competition
The world salmon business is dominated by the Scandinavians. Norway produces about 1.3mn tonnes of salmon a year and exports all over the world, while Russia’s technical maximum production capacity is limited to about 40,000 tonnes a year vs a total demand of around 100,000 tonnes, says Sosnov. Russia will always have to import some of its salmon.
In 2017 Russian Aquaculture produced 14,500 tonnes of salmon from which
it generated RUB5.5bn ($98mn) in revenue. But the company is hoping to increase that to 30,000 tonnes by 2025 and quadruple revenues in the process. The rest is competition from imports.
“We are not afraid of international com- petition. Sanctions? We don't care. We have the advantage of our proximity to our domestic customers,” says Sosnov.
While Murmansk may seem out of the way, tucked up in the top western corner of Russia, it is actually close to the huge mar- kets of Moscow and St Petersburg. Both cities can be reached from Murmansk by truck in two days and Karelia is even closer.
“And these cities are where most of Russia’s middle class and rich live,” adds Sosnov.
“The company has had three seasons so far but already one disaster”
remains salmon. The company has a total of 29 fish farms in Russia.
Compared to other protein groups, fish farming is a very efficient way of producing food. Half of the production of pork, poultry and beef go to waste thanks to the inedible meat on the animals, whereas 68% of a fish can be eaten. And from a cost point of view 61kg of edible meat is produced in fish from every 100kg of feed, compared
to 21kg for chicken, 17kg for pork and only 4-10kg for cattle.
ness lines: value-added branding and processing of raw fish, distribution, and aquaculture. The company had permits to catch wild fish, but imported the bulk of its needs from Norway before smoking or processing the raw fish that were then packaged and sold. The aquaculture was more of an experiment the company starting playing with in 2012.
The previous management floated Russia Sea on MICEX (the precursor to Moscow Exchange) in 2010 and raised $90mn for investment capital. Their plan
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