State-of-the-art pig farm to be built in Hungary: the goal is up to 500,000 fattening pigs a year
Feed producers have been steadily cutting prices this year, however, the market does not expect further changes in commodity prices, Péter Horváth, CEO of UBM Group, the only classic agricultural company on BSE, told Portfolio. One of Hungary’s leading feed producers and one of the largest feed material traders is also making significant investments in the field of livestock production, after acquiring an ownership stake in Mangal Ilona Sertéshizlalda Kft., founded by András Moldován this summer: By 2026, they will build one of the most modern and sustainable pig farms in Europe. At the same time, they continue to expand internationally, and their growth rate reaches 24 per cent.
According to last month’s report from the Hungarian Central Statistical Office, most sectors of the national economy contracted year-on-year in the second quarter of this year, while agriculture expanded by almost 68 per cent compared to the same period last year. How did UBM’s results develop in parallel in the financial year 2022/2023?
In the first quarter of this year, our projections for UBM’s revenue and EBITDA are both expected to grow by up to 20 per cent, so that the former could optimally reach HUF 240 billion and the latter could rise to over HUF 8 billion in our 2022/2023 financial year ending 30 June. Unfortunately, I cannot provide exact figures yet, but I can reveal that our consolidated revenue was around the HUF 240 billion target, but EBITDA was well above even our expectations at the beginning of the year. Our annual report is expected to be published at the end of October when all our financial indicators will be made public.
How has the feed sector been affected by the significant drop in crop prices? In principle, the cost of raw materials is reduced, but over how long and to what extent does this translate into profitability for producers?
Feed producers, even if they had more expensive stocks, have been steadily cutting prices since the first quarter of this year. The increase is between 30 and 40 per cent compared to December last year, depending on the variety of feed. Large-scale reductions were already in place before the cereals were harvested, and the process continues after the maize is harvested, albeit very marginally, as we do not anticipate any further changes in the price of raw materials.
The biggest advantage of this trend – for us – is that, even with the same production volume, the financing requirement is almost 40 per cent lower due to the price of raw materials, thus offering the possibility to increase volumes on a large scale and, in the current interest rate environment, to incur much lower financing costs. As our sector is characterised by long payment terms, the impact will be felt from the third quarter onwards, which in our case could mean billions in reduced financing costs on an annual basis.
How would you describe the market of feed raw materials? How much of a problem is the presence of toxins from plant diseases and the fact that often the other quality characteristics are also lower than previously expected?
As the beginning of summer was also rainy this year, the presence of toxins was also noticeable in the cereals. The situation will be similar for maize, but overall, there will be nowhere near the levels of toxin contamination this year that we saw last year.
It is also good news that the quantity of milling output is sufficient to meet the needs of the domestic milling industry, and there is also enough for export.
// IN ADDITION, UNLIKE IN PREVIOUS YEARS, A RELATIVELY LARGE STOCK OF 600-700 THOUSAND TONNES, MAINLY OF MILL QUALITY, HAS BEEN CARRIED OVER FROM THE HARVEST OF 2022.
There is currently a strong supply market for the feed raw materials market. However, it is important to ensure that there is continuous, strict control of the raw materials used to produce quality feed. This involves considerable extra costs, but it is the only way to ensure quality food production.
One of UBM’s big announcements this year was the acquisition of a 24.9 per cent stake in Mangal Ilona Sertéshizlalda Kft., founded by András Moldován, thus entering the field of livestock farming. For years it has been said that the costs for pig farmers have increased dramatically, while purchase prices have not risen, moreover, it has recently been reported that Hungarian producers and distributors are also facing difficulties due to the appearance of cheap German meat products on the shelves of Hungarian shops. Why is it worth entering this area amidst these market conditions?
The industry forecasts global poultry and pork consumption to grow by around 10 per cent globally in the coming years, moreover, in parallel, the focus of livestock production will gradually shift from Western Europe to Central and Eastern Europe. And UBM wants to play a leading role in this trend, in a way that our group will also make significant investments in the field of livestock farming: by 2026, e.g., we will build one of the most modern and sustainable pig farms in Europe.
We also want to take advantage of the market benefits of economies of scale – we aim to produce 350-500 thousand fattening pigs a year.
Not only did they announce a further expansion of their operating vertical this summer, but the group also expanded geographically: they announced their expansion first in Romania and then the establishment of a subsidiary in Italy. What are your objectives in these markets?
In Romania, our local subsidiary UBM Agri Trade SRL purchased a 104,000 square metre warehouse. According to our plans, the acquisition will also contribute to the further growth of UBM Agri Trade SRL’s turnover, which reached nearly HUF 20 billion in the previous financial year. And as you mentioned, we have also recently announced that after Austria, we will continue our expansion westwards: our newly established subsidiary is expected to sell 100,000 tonnes of feed raw materials in the Italian market this financial year and 180,000 tonnes next year, further expanding our continental trading activities.
Between 2020 and 2023, the group’s growth rate will reach 24 per cent. What are your expectations for future results?
Today, the group is one of the largest agricultural companies in Hungary, a leading producer of animal feed and one of the largest traders of feed raw materials. We plan to serve all markets within a roughly 2,000-kilometre radius of Hungary within two years, and our revenue is expected to grow at an average annual rate of 9-15 per cent between 2023 and 2025 – reaching HUF 350 billion by the end of this period, assuming the current price environment.
Thanks to what has been said so far, the name UBM is already well known in agriculture, however, it is still less known that the group’s shares are available to anyone at the Budapest Stock Exchange. Do you intend to expand the range of ownership?
The only agro-industrial company currently listed on BSE is UBM, which is also the 7th largest player on BSE in terms of turnover, not including the financial sector. To implement our plans outlined above and to raise funds, we would make use of the domestic capital market, while at the same time offering stock market investors the opportunity to share in the long-term success of domestic agriculture. Institutional investors have already taken notice of the group and many of them have joined our shareholder base, but we have a clear ambition to add 2-5 thousand private investors to the group’s shareholder base in the next year.
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