Elaboration of Hungerit’s strategy on

new products development and

expansion to neighboring markets

SUSPICIOUS MINDS

Baida Anna

Tatianina Iuliia

Begerska Kristina

Iakovleva Kateryna

Budayev Artem

Corporate SWOT-analysis

Product portfolio

diversification

Evaluation of the new value-added facility

financing

Identification of new market

outlets

Conclusions

Structure of presentation

Strengthens Weaknesses

• Vertically integrated business• Economy of scale• Broad business portfolio (bird raising, hatchery,three processing and packaging plants, R&Ddepartment)• Access to EU programs, aimed at support ofagricultural producers + free trade regime• Direct relationships with local retailers• Diversified product portfolio• 6 factory shops

• Low share of high value-added products• No direct relationships with international retailers• Lack of own fodder production facilities• Low Hungerits’ product availability in the Russian market• Low margin for fresh products that generate majority of sales• Low feed conversion rates

Opportunities Threats

• Introduction of closed-production cycle• Launch of fodder output• Dung procession for biogas output to reduce dependence on gas supply• Entering the international markets• Diversification of product portfolio• Development of “private labels”• Introduction of non-waste production (including, selling of geese down and tendons for pharmaceutical industries)

• Tough competition and high probability of international companies, entering Hungarian market• Forint exchange rate fluctuations• Aggressive promotion of private labels by top-European retailers• High saturation of European markets with own products• Low-cost foreign poultry import• Growing share of bird production in corporate business portfolio

SWOT-analysis

Hungerit

Product portfolio diversification

(elaboration of new high value-ended products)

Target

audience“earliers”*

Children and teenagers up

to 16 years old

Women with children,

adults with an average

family income of EUR

7000

Product

Set of chicken bits au gratin

with vegetables. Ready

meal for preheating in

microwave

Chicken bits au gratin in the

shape of animals

Cool chicken or geese

fillet, packed in natural

package (craft paper)

Key benefits

- Time saving

- No efforts for cooking

- Ease of use

Emotional component “joy”

and “happiness”

- Natural

- Healthy

- Sense of value

Features

Sales: domestic market +

neighboring markets,

through existing distribution

channels

Sales: domestic market +

neighboring markets,

through existing distribution

channels

Sales: Western Europe,

through organic products

shops, product boutiques,

and premium

supermarkets

* - customers’ segment including consumers older 16 years old to the age they have own children, based on the segmentation methodology by Paul Garrison

“Exponential Marketing”.

Integrated marketing communications

Sales promotion

Sponsorship marketing

Advertisement

Promo actions

Hidden marketing

POS materials

Hungerit communications

• Happy hours in Factory stores(fresh and environmental friendlyproducts sale with 15% discountafter 20.00 everyday.)

• Discount coupons in retail storescatalogs

• Sponsoring TV Program

• Culinary shows for amateurs

• Sampling

• Creation of discussionon culinary forums andweb-sites with makingwith an emphasis on TMHungerit

• Product placement in local soap operas

• Print advertising in female magazines

• Culinary recipes competition

Charity and Sponsorships

as a way to make a world a better place for everyone

A year of free poultry for orphanages

• Randomly chosen orphanages will get a fully paid all year delivery of fresh poultry for their needs.

Sponsorship for a children football club

• Children’s sport development must be invested in as a part of the promotion of new environmentally friendly products

Every 50 cents of each product to be sold will be given to Hungarian

orphanages

Sponsorship of the new children’s center

• New centers create a positive attitude and awareness of the brand.

Goal of receiving additional funding in the amount of 3,5 mln. €: to built up a plant in Russia and modernize national equipment

Evaluation of the new value-added facility

Financial alternatives /

terms of financingEBRD crediting Shares issuing

Letter of credit with

post-import financing

(instrument to buy new

equipment from

Germany)

Type of financinglong- and medium-term

(7 years)long-term

long-term financing (up

to 7 years)

Cost of financingEuribor +4% = 8,4%

depends on the price

share of company on

the stock market

Euribor +3% = 7,4%

Repayment schedule once a year none twice a year

Advantages

no additional expenses

except credit

percentage rate

publicly registered

company can cost

more than it is worth

easier procedure than

other alternatives of

getting financing;

minimizing risks

Disadvantages

complicated

procedure of receiving

funding; heavy

financial burden

because of repayments

once a year

time-consuming and

expensive process;

reduction in company’s

control by present

shareholders

almost the same credit

procedure as receiving

bank’s credits

Hungerit forecast financials

2008 2009 2010 2011 2012 2013 2014 2015

Total

revenue141,2 151,7 162,9 174,9 187,9 201,8 216,7 232,8

Ebitda 9,3 10,0 10,8 13,1 14,1 15,1 17,3 18,6

Interest

Expences0,3 0,3 0,2 0,2 0,1 0,1 0,0

EBITDA-To-

Interest

Coverage

Ratio

34,0 42,7 62,5 83,9 120,1 206,4 443,4

EUR ths

Interest coverage ratio greater than 1 indicates that the company has morethan enough interest coverage to pay off its interest expenses.

Hungerit’s management should choose to receive funding by getting EBRDcrediting to build up a plant in Russia in order to retain influence over thecompany; and to use instrument of financing as import letter of credit withpost-import financing in order to minimize risks of international trade and getsecond financing to buy new modernized equipment from Germany (the best

producer of equipment).

Identification of new market outlets

Medium-term strategy Long-term strategy

Target market outletsPoland, Romania, Serbia,

and Moldova

The Russian Federation

(Hungerit builds a plant using a

borrowed resources in a little

town of Smolensk region), and

related markets (Belarus,

Latvia, Lithuania, Estonia)

Market entry period 2-3 years 7 years

Advantages

- low entry costs and

barriers

- poor foodstuffs’ quality

of national competitors

- untapped potential

- low market saturation

- low labor costs

- closeness to state border

- low costs of production,

transportation, and logistics

1. Following world-wide trends for time saving and upsurge in consumptionof organic products, Hungerit’s corporate product portfolio should bediversified with the following high-value added products: set of chicken

pits au gratin with vegetables (TM Hungerit Box), small chicken pits augratin in shape of animals (TM Little Hungerit), and cool chicken or geesefillet, packed in craft paper (TM Valdor).

2. We recommend Hungerit’s management to receive additional funding

by getting EBRD crediting to build up a plant in Russia in order to retaininfluence over the company; and to use instrument of financing asimport letter of credit with post-import financing in order to minimize risksof international trade and get second financing to buy new modernized

equipment from Germany (the best producer of equipment).

3. Aiming at expansion of its business activities and export sales, we haveidentified two potential regions for expansion:

• Medium term: Central and Eastern Europe (Poland, Romania, Serbia,

and Moldova)• Long term: the CIS region (the Russian Federation and related markets

(Belarus, Latvia, Lithuania, Estonia).

CONCLUSIONS

Thank you for your attention!