Tom?s Fuertes: "Our business will double in 10 years"

October 7, 2014

In his first interview with Russian media, the president and co-owner of Grupo Fuertes — a major European agricultural market player with annual turnover of €1.2 billion — talks about the group’s business, development strategy, and its joint venture with Cherkizovo (the Tambov Turkey project, which intends to become one of three large investors in turkey meat production).

In 60 years, the Spanish company Grupo Fuertes has grown from a small meat processing plant to a diversified holding with annual turnover of more than a billion Euros. The company remains private.

Tomás Fuertes maintains that it was the first company in Europe to start operating according to the “from farm to fork” business model with full control over the meat manufacturing process. The holding plans to grow its business in other countries, and the joint Tambov Turkey venture with Cherkizovo is the first step in this direction. From what Fuertes says, other projects in Russia are also likely.

How it started

How was Grupo Fuertes founded?
— The group’s history began in 1954 with the small sausage factory ElPozo Alimentación. Today, it is the flagship company of our holding, employing more than 3,500 people. We’re a family-owned company founded by my father, Antonio Fuertes. We, his children, helped him. Our father was a simple villager, but was very industrious and had big ambitions, and he always wanted to achieve more. He also opened a small store with my mother’s help.

We started by slaughtering one pig per week, and now we process 10,000 12,000 pigs per day. This was the result of hard work and the philosophy on which the business of all companies in the group is based: work, honesty, reinvesting profits and a focus on technology. This formula has never failed us in 60 years. Quality satisfaction of constantly growing consumer demand is the goal and meaning of our work. This is the holding’s mission. Turnover for ElPozo increased by 8% to €863 million in the last fiscal year. We’re investing in upgrading and expanding production. Last year, for example, we invested €57 million.

What funds did your family use to start the meat business?
— My father got his start-up capital from selling lemons. We started investing the income in buying farmland to increase production. Over time, the reinvestment policy became a permanent part of our business strategy.

What does your agricultural business include?
— We have 52 farms in eastern Spain that are managed by Agrifusa
 — the parent company of our agricultural division. We grow grain — mainly barley and wheat — which we process at feed mills belonging to Cefusa, the group’s livestock breeding unit. Of course, companies in Spain don’t have as much land as Russian producers. Grupo Fuertes owns at least 10,000 ha, but it’s hard to give an exact figure.

Agrifusa has another 500 ha of vineyards, where we grow table grapes, including seedless varieties, and grapes for our winemaking business. We also grow almonds, lemons, oranges, mandarins, pears, and peaches that are sold throughout Europe.

How long has Grupo Fuertes been involved in livestock breeding, and why did you decide to develop this business?
— Cefusa was founded in 1968, because we had to supply raw materials for the ElPozo plant. We’re a vertically integrated holding. We put a lot emphasis on feeding animals, because we understand that meat quality depends on it.

Cefusa has three feed mills in south-eastern Spain. We’re improving the process of keeping and feeding cattle, we control the animals’ entire life cycle, and we work on genetics. We have a technology centre for research on meat product manufacturing. We invest about 1% of our annual profit in this business. Cefusa is the main supplier of pigs and cattle to facilities of ElPozo Alimentaci?n.

What are your competitive advantages?
— Grupo Fuertes was the first company in Europe to implement integrated control of meat production, from raw materials for feed to meat processing, sales of finished products, and consumer research.

We focus on introducing innovations and developing new products based on customer requests. For example, we have a special product line for people who are very careful about their diet. As a result, we hold leading market positions both in Spain and in other European countries. The company exports products to 82 countries. Along with traditional Spanish meat products, we also have recipes adapted to each market.

— What have you imported to Russia?
— There was a good market for fat in Russia, and delicatessen products were also in demand. Now, we have to redirect this output to other countries because of the embargo on food imports. I wouldn’t say we have suffered losses, but the Russian market is obviously very important for us.

Spanish-style Integration

What other companies and businesses are included in Grupo Fuertes?
— Our holding has more than 20 companies in various sectors employing more than 5,500 people. The food industry is our core business. Along with Agrifusa, Cefusa, and ElPozo Alimentaci?n, it also includes Procavi, the largest turkey producer in Spain. We have a 52% share of the [Spanish] market. Sediasa has facilities for meat cutting, manufacturing ready-to-cook products, and packaging. Fripozo makes deep frozen products and ready-made meals that just need to be heated in a microwave or oven. The company’s sales grew by 6% last year, although the ultra-frozen product category lost about 0.5%. We’re constantly working to improve logistics, product quality, and so on.

Another of our companies, Aquadeus, bottles and sells natural mineral water. Bodegas Luz?n is a winery. Grupo Fuertes supplies wine to 30 countries. We produced 8 million litres in 2013, and sales increased by 6% compared to the previous year. We’re investing in increasing the number of wine barrels (the cellar now has room for 5,500 barrels) and implementing a new production technology.

Palancares Alimentaci?n makes cheese (mainly from goat milk) and dairy products in Murcia. This region is the country’s leader in making goat cheese.

The holding also includes businesses that are unrelated to manufacturing products. These are mainly companies in which the group has minority interests and is not involved in management. Annual turnover of Grupo Fuertes is more than €1.2 billion.

How is your turkey production business growing in Spain?
— Procavi has had a double digit production increase in the last two years. Sales in 2013 were €196 million, or 20% higher than in the previous year. The company’s sales have grown from 6,200 tonnes of finished products in 2002 to 85,000 tonnes in 2013. Whereas 12 years ago we raised 1.5 million birds, the figure for last year was 10 million.

Procavi has three feed mills in Seville, Malaga, and Huelva, a hatchery in Malaga, and a plant in Seville that includes a slaughtering facility and cutting, processing, and packaging rooms. We’re planning to invest €15 million to double the capacity of this plant. Procavi owns 15 turkey farms. We’re also partners with 280 companies in Andalusia: we supply them with feed and young birds for fattening. The entire production process is under the control of our technical and veterinary team, so we guarantee high product quality.
Turkey sells well in the U.S. and Europe. We hope that consumption will increase in Russia as well.

Is Grupo Fuertes focused on organic growth or is it expanding through M&A?
— We prefer to develop technologies and improve product quality rather than buying other companies. Our holding is gradually increasing its land bank and has expanded its own production, and we’ve achieved higher sales than we would have by buying smaller players. Grupo Fuertes is ambitious, but our growth plans are reasonable. We’re not trying to grow quickly through mergers, especially if this results in financial liabilities.

The Tambov JV

Where did the idea of a joint venture with Cherkizovo come from?
— We’ve been friends with the family of the holding’s founder, Igor Babaev, for 15 years now. It all started when he first visited us at the ElPozo plant to look at our production. Other Russian companies visited us too, but nothing came of it. The project with Cherkizovo was a joint initiative — we were interested in setting up a facility in Russia and sharing our experience in turkey production. We developed very good relations. Cherkizovo is a strong holding, and we weren’t afraid to enter a new market with it. It’s always better to work with a local partner who knows the market well. Plus, Cherkizovo is a family-owned company just like Grupo Fuertes, although its shares are traded on the exchange.

What stage is the Tambov Turkey project at now?
— The main investment stage is already over. Construction is about 40% completed. Start-up of the complex is planned for the end of 2015, and it will reach full capacity in 2016. The facility will produce 25,000–30,000 tonnes of meat per year at the first stage. In future, we will increase production to 50,000 tonnes/year. This will make the company one of the leaders on the Russian turkey meat market. Turkey production is a fast growing sector with great potential.

How much is Grupo Fuertes investing in this complex?
— The total cost of the complex is €160 million (about 7.3 billion roubles). We’re going fifty-fifty with Cherkizovo in both equity capital of Tambov Turkey and expenses. Along with money, our holding is bringing its knowledge and experience in breeding and raising poultry.

How does your company finance business development?
— We invest both our own funds and take out loans. We have a separate department that estimates the investments we can make and studies business proposals for investment. Of course, debt financing is a lot cheaper in Spain than in Russia. Our rate is 1.5% plus Euribor (a floating rate tied to the Euro — Agroinvestor). The difference between the inflation rate of 1.1% and the cost of money is small.

Were you interested in attracting financing from the market, like holding an IPO, for example?
— In economic terms, we don’t need that today, although, we might place shares on the exchange at a later date.

How does your company see its future growth?
— We’re constantly studying and evaluating new opportunities for business growth and investments. Sixty years ago, we were a very small provincial business, but eventually we reached the national level. Our future lies in internationalizing our products, so we’ll expand our cooperation with other countries. The joint venture with Cherkizovo is the first step in this direction. We plan to double the size of the group in the next 10 years. Today is not the best time for business, but we want to continue to benefit society by creating high-quality jobs and grow sustainably and successfully.

Is there a possibility of developing new projects in other agribusiness sectors in future?
— Right now, we’re concentrating on implementing the Tambov project, which is very large: along with the production complex, we will also build offices, utility infrastructure, warehouses, and housing there for employees, and set up a transportation company and logistics centre. So first we need to start up this facility, and then we’ll see. We haven’t discussed anything yet.

There is enormous potential for developing agriculture in Russia; it has a lot of fertile land and a suitable climate for grain growing. We see good growth prospects in the Russian agricultural sector and will consider new projects in your country.