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Skip Navigation LinksHome :: Back Issues :: Wimm Bill Dann serves an ace in juice game

March 2002

Wimm Bill Dann serves an ace in juice game


RUSSIA




       
WBD's New York IPO attracted
remarkable liquidity
It is not every company that can use the fact that its biggest shareholder served nine years in a labour camp for "violent crime" as proof of its commitment to boosting shareholder value. Wimm Bill Dann (WBD), Russia's biggest dairy and juice producer, did just that when it raised $200 million from US investors in the middle of February.
WBD floated a quarter of its stock on the New York Stock Exchange in Russia's fourth-ever US IPO. It is the first Russian consumer goods company to float abroad - the others were all telecoms companies: VimpelCom, Rostelecom and Moscow TeleSystems.
The company was one of the first successful companies to set up after the fall of the Soviet Union and is regarded as one of Russia's best run.
Founded in 1992 to sell juice under its flagship J-7 brand, the decision to launch at that time was either foolhardy or incredibly brave. The Russian economy was still in the throes of hyperinflation, Boris Yeltsin's bombardment of the White House was a year away and a bloody gangland war for commodities quotas was in full swing.
Virtually all companies setting up at this time operated outside the law, simply because there wasn't any. As most of the fighting was over the lucrative oil and metal export quotas, a consumer goods company had the marketplace virtually to itself.
WBD decided to open the cupboard and put its skeletons on display to head off any problems in the future. It banked on the fact that investors who know a little about Russia during the early 1990s would hardly be surprised.
It makes the company's prospectus an unusually sexy read.
WBD admits that some of its shareholders are also the owners of the Trinity group, which has interests in automobile distribution, financial services, security services, construction, advertising, and engineering, as well as Moscow's notorious Metalitsa casino.
"The Trinity group has been the subject of speculation in the Russian press, including with respect to possible links with organized crime. However, no charges have been brought by governmental authorities against any of our shareholders or directors and, to the best of our knowledge, none has been threatened," says the prospectus.
The prospectus goes on to admit that Gavriil Yushvayev, "our largest shareholder, who is not a member of our board of directors, was convicted of a violent crime in 1980 under the Soviet system and served nine years in a labour camp".
Management has made a deliberate decision to come clean. Spokeswomen Julia Belova says: "The NYSE requires that we fully disclose our shareholders and this is one of the reasons why we chose NYSE. We don't have anything to hide. If people are going to invest in the company they should be reassured that we are completely transparent and serious. We don't want the past to influence our future development."
The management has added four independent directors to its nine-person board and nominated a fifth - Mark Mobius, the high-profile emerging markets investor and managing director at fund managers Templeton.
Russia's consumer goods companies are booming on the back of growing domestic consumption since the crisis but the few that struggled through the pre-crisis chaos are reaping the rewards of having established brand names.
And it is its attention to marketing that has made WBD the market leader, with 36% of the juice business and the biggest single chunk of the more lucrative dairy market.
The name of the company indicates not just the founder's love of tennis - say Wim Bill Dann fast and think of the grass-court game. In the first years after the collapse of the Soviet Union the Russian consumer indulged in an orgy of consumption, as the average man tried all the goods that had been unavailable under 70 years of the communist yoke. The J-7 name was chosen as there is no "J" in the Cyrillic alphabet.
By 1994 Russians had become disillusioned with western goods, which they found overpriced, and turned en masse to domestically made products. WBD saw the backlash coming and launched its "Domnik v Derevnya" line of milk about this time, pioneering the "Russian goods are natural" marketing line, which has proved so successful since.
This was the same year that Pepsi - which has been in Russia since the 1970s - decided to change its logo back to Latin letters to remind consumers of its US origins and promptly lost its market lead to Coca-Cola.
Since the devaluation of the rouble priced imports out of the market the domestic producers have been having a field day. The food-processing sector has done particularly well as investments needed to turn a plant round are small and the pay-back rapid: food processing has doubled its share of GDP since 1997 to 14% at the end of last year.
WBD needs the money to continue its expansion. The company has already bought up 14 food-processing enterprises across the CIS and has over 450 different products to fill out the various market niches. But like nearly every other enterprise in Russia the company has been frustrated. Thanks to the dysfunctional banking system, it makes investments out of retained earnings, which limits growth.
The timing of the issue is perfect. The economy has grown by an average 6% a year for the past three years and per capita incomes just passed $2,000 a head for the first time since the fall of the Iron Curtain. Russian stocks are being re-rated on the back of a constant stream of good news and the leading RTS index broke the psychologically important 300 barrier for the first time since the crisis in January.
Banking on investors' refound enthusiasm for Russia, WBD got a good price for its shares. The stock was issued at $19.50 a share before trading up to $22.60 at the end of the first day.
The issue price gives the company a P/E ratio of just under 20, which is on a par with such consumer goods companies as Unilever and Procter&Gamble. Most Russian companies in the same sector trade on the domestic market with P/E ratios closer to 10.
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