Avangard has emerged as the second largest egg producer in the world. With 22 million hens in production, the company dominates in its native Ukraine and the EU and is second only to giant Cal-Maine Foods of the US with 29 million hens.
By Dr. Simon M. Shane, Durham, NC USA
The Avangard Company has attained its current position due to the vision and efforts of Oleg Bakhmatyuk the founder and principal shareholder who developed the enterprise through a series of strategic acquisitions and most recently by organic expansion. Avangard success is embodied in the mission statement of the company which is: to improve the quality of life of the Ukrainian population by offering high quality nutritious eggs packed at an affordable price.
Avangard has consistently applied the most modern technology and management programmes to achieve optimal performance from both parent and commercial level flocks and in the further processing of eggs. Through a dedicated management team the company strives to maintain world standards of quality, maintain their reputation as a reliable supplier and adopt socially acceptable and environmentally responsible business practices.
Determined growth strategy In 2003 Avangard established a commercial egg production unit in Ivano-Frankivsk in Western Ukraine near the border with Poland. Following a determined growth strategy, a series of independent egg production units were acquired in diverse areas of Ukraine. In 2008 a 5-year loan of $26 million was raised mainly to fund expansion and erection of new facilities. In 2009 the company acquired the Imperovo Egg Processing plant in Ivano-Frankivsk which was then extensively refurbished with the most modern available Sanovo installations for breaking, pasteurisation and drying.
In 2010 Avangard raised $200 million through an initial public offering on the London Stock Exchange, now trading as Avangardco Investment Public Limited (AVGR). In addition, the company with the assistance of TD Securities and J P Morgan International has successfully placed a 5-year Eurobond of $200 million carrying a 10% coupon.
Competitive position At the present time Avangard operates 17 egg production units with packing plants, eight pullet rearing installations, three parent complexes with hatcheries, five feed mills and an egg processing plant producing both liquid and dried egg products. The company access to long-term financing from Western sources allows it to enter into favorable contracts with Ukranian farmers and to pre-pay large portions of harvest costs during cultivation. The balance is paid at harvest and the grain is stored in third-party facilities to be used by Avangard feed mills throughout the year. The bountiful production of maize and oilseeds in the Ukraine assures the company of a competitive position in the world market.
Avangard represents 50% of commercial production of shell eggs in Ukraine and 80% of industrial output of dried egg products. Over half of all shell eggs produced are exported to the Middle East and Asia with the anticipation of establishing a strong customer base in neighbouring Russia and possibly the European Union.
Export demand is increasing and the size and scope of the company and the quality of the products which conform to the highest international standards is establishing strong customer loyalty in the areas where Avangard products have been introduced.
On the domestic market in Ukraine, Avangard has steadily increased penetration of the supermarket segment of distribution with a 30% share of retail chains. The company has initiated a programme of branding with Kvochka (“Mother Hen”) as a recognised consumer product.
Strong performance As of the first half of fiscal year 2011, ending June 30th Avangard recorded total assets of $1.13 billion with long term debt and bonds of $215 million. The company posted net income of $67 million over revenue of $224 million for the first half of FY 2011. The most recent data reflecting the first three quarters of fiscal 2011 documented production of 4.4 billion eggs compared to 3 billion during the corresponding period of FY 2010. Approximately 18% of shell eggs produced were further-processed mainly to dry-egg products for export.
In her statement accompanying the Q3 report Nataliya Vasylyuk the CEO of Avangard commented “I am very pleased that Avangard has continued to perform well in the period. In the third quarter we have already benefited by the receipt of cash, from the launch of the first stage of the Avis Egg Production Complex” she added “Looking ahead I am confident that we will achieve our year-end target of 6 billion shell eggs given the positive dynamics in export, largely to Iraq, Turkey and other countries in the Middle East and North Africa”.
Ensuring a regular supply of grain is critical to the operation and profitability of Avangard which requires over 900,000 tonnes of feed annually. Vasylyuk indicated in the quarterly statement that “We have already purchased our raw material requirements for 2012 and are effectively hedged”.
Project implementation Two large projects currently under construction are the Avis and Chornobaivske complexes. Each will consist of 13 houses with a total hen capacity of 2.5 million. The units will operate in-line and feed mills with a capacity of 60 tons per hour will be erected for each unit. In consistency with the need for integration and efficiency, each of these complexes will have in-line egg processing and in the future incorporate electrical generation from waste.
The first hens have been housed at the Avis complex and it is anticipated that the entire unit will be completed in 2013. The respective rearing sites to supply the laying complexes were completed in 2010 and are currently in field operation. When the Avis and Chornobaivske complexes are fully operational, Avangard will rank as the leading world producer with 29 million hens and an output of 8.3 billion eggs annually.
Avis uses equipment from manufacturers such as Facco of Italy, Big Dutchman and Salmet of Germany and Moba of the Netherlands. They are placing stock from Hy-line International.
The bottom line Through entrepreneurship, application of modern technology, modern management and control systems, Avangard has enjoyed phenomenal growth and profitability. Complete integration, efficiency and the relatively low cost of grains will contribute to profitability. This in turn will continue to fuel expansion of the company which is able to leverage these advantages in supplying both the domestic and international markets. While the emphasis over the past eight years has involved finance and expansion of production capacity, the company will now initiate a program of aggressive marketing.
This will involve satisfying the needs of international clients and developing a range of specialty eggs and products. Avangard is committed to a greater emphasis on branding which presupposes improvements in quality and presentation.