RG BRANDS LLP (Kazakhstan): brief characteristics

/IRBIS, Feb 6, 01/ - Following is brief characteristics of RG BRANDS LLP (company), prepared on the basis of the materials of the Listing commission of the Kazakhstan Stock Exchange (KASE). The characteristics is published due to the entering the second issue bonds of RG BRANDS LLP into official list of the KASE securities under category "A". The management of RG BRANDS LLP is fully liable for the reliability of the information presented to the Listing commission of the KASE. PRIMARY ACTIVITIES, MEMBERSHIPS Primary activities of the company, based on its charter, are the production and sales of natural juices and beverages, offering marketing services. Main products of the company are all natural juices with well-known trade marks in Kazakhstan such as "Da-Da!" and "Dandy". There is no much legislative problems the for the activities of the RG BRANDS LLP. The company's activities are not subject to licensing and are not controlled by the antimonopoly committee. The company is a member of "Kazakhstani investors" association. GENERAL INFORMATION The date of initial state registration - June 22, 98. Legal status - limited liability partnership. Ownership - private. Legal and actual address of the head office - 212b, Raimbek Ave., 480034, Almaty, Kazakhstan. The company was established in order to organize import substitution production in Kazakhstan. The idea of producing natural juices and nectars came as a result of an analysis of the situation in this segment of the market. In 1998 more than 60% of the market belonged to the importers, with transportation costs reaching 20% of the total cost, causing the price of the product to be high as well. The market of juices and nectars was demonstrating a growth of consumption and the absence of clear seasonal factors in the sales relative to other beverages. In February 1998 the contract was signed with Tetra Pak (Switzerland) on the supply of the equipment on production and packaging of natural juices and nectars. The production of all natural juices started in December 1999. Until that time the company found a place for the workshop (on the territory of the Almaty "Porshen" plant), made the recipe of the juices and designed the packaging, as well as the equipment was installed. The number of employees of RG BRANDS LLP equaled 32 as of October 1, 2000. All technical personnel had a training conducted by the specialists of Tetra Pak (Switzerland) and Dohler (Germany) with the equipment of Tetra Pak. CAPITAL AND FOUNDERS As of Jan 1, 01 announced and paid authorized capital of the RG BRANDS LLP equaled KZT705 mln. The only founder of the company is the Resmi Group Ltd. LLP (Almaty, wholesale trade of various goods, retail trades of perfume and cosmetics, restaurants and bars, transportation and logistics services, industry). CHARACTERISTICS OF THE ACTIVITIES As it has been noted above, the RG BRANDS LLP specializes on production of all natural juices under the "Da-Da!" and "Dandy" trade marks. Also the production of the beverage called "Nektar Solnechnyi" (Sun nectar) is planned. The difference of this brand from basic "Da-Da!" and "Dandy" brands are the flavor and the consumer orientation. The process started with the production of 12 varieties of natural juices in two types of packaging at 1.0 and 0.25 liters under "Da-Da!" and "Dandy" trade marks: orange, apple, peach, two multivitamin (orange-mango and orange-apricot) and tomato. In mid 2000 the assortment of "Da-Da!" juice was expanded to 11 varieties by adding new flavors: apricot, grape, cherry, mango and multivitamins in order to expand the market. After that the introduction of the third brand, "Nektar Solnechnyi" began, which is oriented towards the consumers with low income level. Thus, there are 11 varieties of "Da-Da!" and 6 varieties of "Dandy" juices now. Supply of raw materials. The following are defined as the suppliers of raw materials: Dohler (Germany), Merco (Turkey), Dinter (Germany) and Asya (Turkey), which, in the opinion of the RG BRANDS LLP management, are the leaders in the world market of concentrated juices, offer affordable prices and flexible payment terms for their products. Besides, the suppliers are the "blenders", that is, they are liable for the quality of the concentrate and its flavor no matter who is the producer of the initial product. The major suppliers of the concentrate is Dohler Euro Citrus (Germany). The Dohler Euro Citrus guarantees the quality irrespective of the season and has more than 300 varieties of juices and nectars. The delivery term of the container is 25-30 days, payment term is irrevocable letter of credit with payment deferral term of 120 days. The supplier of packaging is Tetra Pak. The payment term is irrevocable letter of credit with 75 day payment deferral term. The main distinctive feature of this packaging is the possibility of storing the finished goods in normal room temperatures for a one year. The supplier of other consumable materials (sugar, water etc) are private Kazakhstani companies, which is very important in import substitution of the cost component of the goods. The supplier of corrugated packaging is Sweetex (20 day payment deferral), sugar - ED & F Man Sugar Kazakhstan (20 day payment deferral), diesel fuel - Sonar. The cost structure of the product looks as follows: consumable materials - 8%, concentrate and its delivery - 50%, packaging - 39%, corrugated packaging - 3%. The structure of the product: "Dandy" juice (1 liter) - 7%, "Dandy" (250 ml) - 3%, "Da-Da!" juice (1 liter)- 67%, "Da-Da!" (250 ml) - 23%. Production and material-technical base. The company has a finished production infrastructure located in Almaty on the territory of "Porshen" plant, which includes industrial workshop of 400 square meter area, administrative two-storey building with 800 square meters area and warehouses. There is a railroad branch and paved road, centralized power supply and telephone communication. The base has its own boiler. Besides, there is a power substation at the plant and deep well with drinking water, which market the production completely autonomous. Marketing. By the information of RG BRANDS LLP, its price policy is directly linked to the penetration into the market and expansion of sales volumes. It sets one price for all the sales points in the country. The prices of "Dandy" juices depend on the demand of the consumers. The juice "Dandy" costs 15- 20% more than the base juice "Da-Da!", which is due to the difference in the recipes. The expansion of the production and the assortment of the products, which correspond to the world standards, is to be made based on real available own resources, as well as attraction of borrowed funds. The most of the investments in coming 5 years will be directed into the marketing in order to expand the market segment in Kazakhstan and getting into regional markets. Distribution. The juices are produced based on placed orders of exclusive distributors on 2+2 principle: 2 months - solid order, 2 months - forecasted order. This principle allows the company to minimize the remaining volume of finished products at the warehouse, support optimal stocks of raw materials and inventory, as well as effectively use the company's financial resources. The juices are sold through 3 exclusive juices: - Uni Commerce LLP - exclusive distributor of the products in Kazakhstan with developed network and the representatives in each city. The term is perpetual contract, payment deferral is 30 days. The proportion of products purchased from RG BRANDS LLP - 90%. - Express Company LLC - exclusive distributor of the products in Kyrgyzstan with developed network and the representatives in major regional cities. The term is perpetual contract, payment deferral is 60 days. The proportion of products purchased from RG BRANDS LLP - 8%. - Top Trade 21 LLC - exclusive distributor of the products in Russia with developed network and the representatives in major regional cities. The term is perpetual contract, payment deferral is 90 days. The proportion of products purchased from RG BRANDS LLP - 2%. Competitors. The major competitors of the RG BRANDS LLP are the producers of the juices in Tetra Pak packaging. The most serious ones in Kazakhstan are "Raimbek Bottlers" (Almaty; juices and nectars under "Juicy" and "Palma" trade marks; active work with regions through distributors, own trade team in Almaty); "Food Master" (Issyk, Almaty region; initially elite juices and fruit beverages under "Piko" trade mark, however, due to sales problems the pricing was changed); "Kosmis- Kazakhstan" JV (Kostanai city milk factory and Turkish Mis company, "Fresco" juices). Among the importers the RG BRANDS LLP puts emphasis on: SIO Eckes KFT (Hungary; "Sio" juices, Kazakhstani distributor - Green House); Wimm- Bill-Dann (Russia; "Chudo-Yagoda" juices, "Domik v Derevne" milks, "DJ" beverages - more than 100 items, Novosibirsk branch has a network of dealers in the regions of Kazakhstan; in Almaty the distributor is Meta). The volume of juices market in Kazakhstan is estimate in 2000 at 35.0 mln liters. The market shares of the companies were as follows in August- September 2000: RG BRANDS LLP - 15%, Raimbek Bottlers - 35%, Food Master - 8%, Kosmis-Kazakhstan JV - 7%,Wimm-Bill-Dann - 7%, SIO Eckes KFT - 6%, others - 22%. After a year of production of juices the RG BRANDS LLP was able to conquer 24% of the Kazakhstani juice market. In early 2000 this figure was equal to 8%, and average for the year - 15%. The company's products are in 18 major cities of Kazakhstan and their suburbs, as well as in Kyrgyzstan (Bishkek, Osh), where it accounts for 20% of the market. Based on the data of ACNielsen research company and Uni Commerce LLP, the products of RG BRANDS LLP are sold in 42% of sales points in Kazakhstan. Financial activities. The RG BRANDS LLP has invested 4.2 mln U.S. dollars into the opening of the natural juice plant based on the technology of Tetra Pak. The project started in February 1999. This amount includes the company's own funds, the lease of Tetra Pak, borrowed funds from the bond issue on the stock market, as well as the loans of financial organizations. In October 1999 the RG BRANDS LLP borrowed 500 th. U.S. dollars on domestic stock market by issuing bonds in two tranches at 250 th. U.S. dollars each with 17% coupon. Issue registration date is Oct 29, 99, maturity is Jan 26, 00 (1 tranche) and June 24, 00 (2 tranche). Based on the documents presented to the KASE, this issue has been completely repaid with the simultaneous repayment of the coupon. The lease term of the Tetra Pak Export Ltd. equipment is 5 years. The value of the contract, which was signed on February 10, 99, is $2,780,100. Advance payments of the company totaled $1,112,040. The lease payments are made quarterly - 19 successive payments at $167,768 each. Since the advance payment had been already made, 1/19th of the advance payment ($58,528) is deducted from each lease payment. As a result, net amount of quarterly payments is $109,240. On December 13, 1999 the RG BRANDS LLP received $1.2 mln loan from the American Fund for Entrepreneurship Support in Central Asia to purchase the equipment and concentrate juices. This loan was granted till November 2, 2003 at 18% APR. On April 3, 2000 the authorized capital of the RG BRANDS LLP was increased from KZT640 th. to KZT705 mln. In the fall of 2000 the company made a decision to conduct the second issue of bonds. The attraction of additional funds will allow the company to restore working capital and introduce "Nektar Solnechnyi" brand into the market, develop a new design for "Da-Da!" juices and marketing support to these products.