Learning the local flavours
Ter Beke NV, a Belgian fresh food group with operations across Western Europe, is preparing to take its boldest step yet. In September it will open a greenfield production site in southern Poland as part of its new joint venture, Pasta Food Company, that will market its products in CEE.
The plant will serve the various CEE countries, but with an initial focus on Poland, CzechRepublic, Slovakia and Hungary. This will enable the Euronext-listed company to develop its vision to be a truly continental player, with a strong market position.
Pasta Food Company is a 50/50 tie up between the company and French chilled pasta ready-meal maker Stefano Toselli. A CEE presence is a logical move for Ter Beke as it searches for growth opportunities outside its traditional markets in Western Europe. It had considered operations in the region as early as 2000, but had not found the underlying consumer trends it needed to support the business until now.
“The CEE region has been fast growing for some time, but the consumers weren’t ready. They were focusing on other types of products,” explains Ter Beke CFO René Stevens. “Today we see more favourable trends; an increasing demand for convenience foods as families find less time to cook, and a strong interest in pasta meals that are familiar to them. We believe the market is about to take off.”
Ter Beke began talking to its venture partners, which already sold some products in the region, and hatched the idea to combine forces in order to share the risk and prevent overcapacity in a new market. The initial deal between both JV partners was based on principles and was agreed rather quickly. We then took a bit more time to really agree on the various details of the project, and we are now happy with the outcome.”
The company also took time to examine the different markets across CEE and found them to be at various stages of growth and readiness for their products. They eventually shortlisted Poland, Czech Republic, Hungary and Slovakia, which already presented the required trends and consumption patterns. In addition, they offered the best local availability of technical skills and materials, access to talent, and industrial knowledge.
“We had a long list of potential locations to consider, over 50. There were other possibilities elsewhere in CEE, but we had to start somewhere.” says Stevens. “Once the best markets were identified, we went through an exhaustive process to make sure the site location was suitable from a technical and logistical point of view, because we need roads and infrastructure that are good enough to support our business plan.”
They eventually settled on an economic zone under development in southern Poland that offered excellent utilities services (water, drainage and electricity) that are vital to the plant’s operation. Equally important was the proactive advice they received from local authorities who went out of their way to show them what they had to do and helped them understand local regulations.
“The assistance we got locally was very important,” Stevens recalls. “Even after you’ve done the research and compared the various places, you need that local knowledge and the ongoing support. The CEE region is not a replica of Western Europe and you cannot just copy and paste your business model into it. You will encounter differences and a steep learning curve, even if the market is showing the rights trends.”
The company also got to know other Western European companies operating in Poland and sought to learn from their experiences. ING Belgium, which has serviced the company since 1983, assisted them in this task by providing access to knowledge on doing business there and inviting them to relevant events such as a lunch co-hosted by the Belgian-Polish Chamber of Commerce and a CEE business roundtable.
The plant, which is now close to completion, will initially be supplied by existing West European contractors. “Once we are up and running we will look at local sourcing, but we don’t want to go out there and assume that we’ll find things in the same way as here,” says Stevens. “We’ve set out to use the supply sources that we already know and trust. Over time, of course, we will look for opportunities to source locally, providing it does not compromise our quality.”
Financing the creation of the Pasta Food Company as a greenfield site presented additional challenges for the company. While Ter Beke has enjoyed a long and fruitful relationship with ING Belgium, which has included financing for a number of acquisitions in Belgium and Holland, the joint venture is a new company that required loans against a business that does not yet exist.
“Financing what is in effect a new company without any sales presents a number of risks,” explains David Piot, Senior Relationship Manager at ING Belgium. “We knew we had to present them with a creative deal structure, while acting as one bank in Poland and Belgium. Our proposal was to split the financing part in two parts. The first is a long-term credit facility to cover the start-up phase, which was offered out of ING BE, where we have the long standing relationship. The second is a short-term loan coming from Poland, used mainly for working capital purposes. Through this structure we were able to offer them a cocktail of securities and pricing that could not be met by our competitors.”
Ter Beke invited four of its relationship banks to tender for the deal, but wanted to work with just one bank, which it would reward with subsequent business emerging from the transaction. Stevens believes ING’s creative deal structure and proactive approach were the elements won them the mandate. “The really listened to our needs from the start and looked for a solution,” he says. “The price of financing was also competitive, but it was the proactive approach of ING Belgium and the attention from their bank in Poland, providing all the ongoing services, that made the real difference.”