Marion says Doux can benefit from "colossal" demand in Middle East

Marion says Doux can benefit from "colossal" demand in Middle East

In the second part of a two-part interview with just-food, Groupe Doux CEO Arnaud Marion highlights the move to a new business model, away from one heavily-dependent on EU subsidies, the company's efforts to diversify the business and the outlook for the French poultry processor.

In June 2012, when Groupe Doux entered administration with EUR450m (US$563.1m) in debts, the administrators appointed turnaround specialist Arnaud Marion to oversee the restructuring of the poultry processor and its strategy.

Speaking to just-food earlier this month, a year since Doux emerged from administration, Marion says his abiding memory of the start of the period under court protection was the upheaval triggered by the anticipated loss of EU subsidies. Last year, Brussels ended subsidies for poultry processors in the bloc that were paid to support exports outside the EU.

"It's no exaggeration to say that for many, many years, the subsidies were part of Doux's business DNA. When the process began to remove them it amounted to something of a culture shock inside the firm. It's also important to point out that without these subsidies, Doux was chronically in the red to the tune of EUR30m-EUR70m annually."

Marion said people inside the firm and in the poultry exports industry generally had expressed serious doubts that Doux could survive without subsidies.

However, in the early months in administration, Marion and his team worked on reshaping the business to get the company into a position where it could proceed without the payments.

"Having gone into administration in June 2012, from February 2013 onwards we were no longer subsidy-dependent with the implementation of a restructuring programme, designed to effect a fundamental change in the way the business was set up, starting to pay off," he says.

A series of measures were taken. Doux's fresh poultry activities were shut down, plants were closed and sold off and production rationalised.

"A competitiveness plan, involving 40 senior managers, identified 70 key points where we could improve our performance in order to generate economies of between EUR15m and EUR20m," Marion explains.

Upstream activties - farms, feedstock providers and breeders - were integrated and the 'French origin' label, used to emphasise food quality, was brought to the fore, backed by a total traceability of products from the farm gate to the consumer’s plate. 

Elsewhere, Doux moved to diversify its operations. It focused on the development of its pre-pack product activities, principally in France, under the Père Dodu brand name  - including a breaded chicken range, nuggets and burgers, but also marketed on the international front, notably in the Middle East. 

Marion describes Père Dodu as "a very-coveted part of our business" and "an iconic brand, making high-quality products and enjoying a 40% share of the French market".

Of Doux's estimated turnover of close to EUR500m in 2014, pre-pack products will account for EUR130-140m. Marion describes that side of Doux's business as "an important cash-generator which helps offset the cyclical nature of our core business - frozen whole chicken exports".

Marion says the challenges of exporting frozen whole chickens was borne out between September 2013 and June this year, when market conditions were arguably the worst Doux had ever experienced.

"The euro was very strong against the dollar and market prices very low, impacting our revenue," he says. "Coupled with the high price of soya and the end of EU subsidies, we could have been taken to the brink. But with sizeable cash reserves, built up largely from our pre-pack products business, we were able to cushion the impact and emerge from the storm in reasonable shape."

Turning to Doux's 2014 performance, after a difficult first half of the year, the third quarter brought welcome relief with lower commodity prices and the euro falling against the dollar making Doux's exports more competitive, Marion adds. 

Its processing plants are currently operating at near-full capacity and Doux is investing at a rate of EUR1m per month to improve performance and efficiency. October and November have been strong months, yielding positive EBITDA of EUR2.5m and EUR1.8m respectively. 

"These figures are higher than the artificial profitability Doux was posting two or three years ago, when it was benefiting from a EUR5-6m EU subsidy each month," Marion reflects.

However, in keeping with forecasts, the company will be in the red for 2014 as a whole, although Marion would not be drawn on the scale of the losses.

Poultry exports, mostly in the form of frozen whole chickens, remains Doux's core business - it ships 185m annually and Marion insists the company is tapping "colossal" demand in the Middle East and North Africa region.

"All lights are green for this region - rising living standards and reasonably-priced, protein-filled chicken which can be consumed by everybody and is not subject to religious prohibition," he says.

And Doux is seeing its a local pre-pack business grow. Doux generates a turnover of EUR360m in the MENA region of which EUR35m is accounted for by a burgeoning business in pre-pack products similar to the Père Dodu range but adapted to local markets. "Annual sales have risen three-fold over the past two years," Marion says.

A major market for Doux is Saudi Arabia, where shareholder Almunajem is based. "We supply one-quarter of chickens and one-half of the sausages sold in Saudi Arabia and have market shares in other countries in the Middle East ranging from 5 to 25%. We are particularly strong in Yemen and the UAE - where we are also developing our pre-pack range - and in Jordan too. This year, markets have opened up in Egypt, Iraq and Libya and Iran is set to follow," he says.

"Over the past couple of years, our export business has been affected by fluctuations in sales prices and production costs which have tended to cancel each other out, leaving turnover largely stable. But a constant has been the strong growth in volumes. Today, such is the strength of demand that we are sometimes hard-pressed to be able to supply all that is being asked of us."

And after the problems Doux has faced in recent months, that is, perhaps, not such a bad problem to have.

Click here for part one of the our interview with Marion.