By Alex Sazonov
MOSCOW — In 1993, Alexander Lutsenko abandoned a fledgling military career in the Russian army to test an economic adage he learned while studying at the Political College of Arms in Minsk. Even in the most difficult times, the saying went, a well-managed agriculture business is always profitable.
Lutsenko founded a trading company that became Luxembourg-based Sodrugestvo Group, Russia's largest soybean meal producer, and encountered plenty of opportunities to see whether the theory would hold.
When the Russian ruble crashed in 1998, he drew upon the company's U.S. dollar cash reserves to pay his most important foreign creditors first. A decade later, as competitors scaled back amid the global recession, he expanded, investing in new factories, sea terminals and railroads.
"Our company has always grown in crises," Lutsenko said in a November interview at his office in the city of Svetliy in Russia's Kaliningrad region, located on the Baltic Sea. "We have cast-iron discipline."
That discipline helped the 50-year-old and his wife, Natalia, amass a 10-figure fortune, according to the Bloomberg Billionaires Index. Sodrugestvo generated about $1.7 billion in revenue last year — double its sales in 2008 — and controls 33 percent of the Russian market for soybean meal, an additive used in animal feed. Lutsenko has never appeared on an international wealth ranking.
In July, the company announced that Tokyo-based Mitsui, Japan's second-largest trading house by market value, had acquired a 10 percent stake in Sodrugestvo. The alliance will bring Mitsui's marketing and distribution resources to Sodrugestvo's grain operations, while providing Mitsui access to the company's livestock feed business in Russia and the former Soviet republics.
Mitsui's investment gave Sodrugestvo an enterprise value — equity value plus total debt minus cash — of $2.2 billion, Sodrugestvo said in a news release. An agro-business industry analyst in Russia familiar with Sodrugestvo's financial performance who asked not to be identified because the company is closely held said it has about $250 million in net debt, giving the company an equity value of $1.95 billion.
According to data compiled by Bloomberg, Sodrugestvo has an equity value of at least $1.3 billion, based on the average enterprise value-to-earnings before interest, taxes, depreciation and amortization and price-to-earnings multiples of two publicly traded peers: Singapore-based Wilmar International, the world's biggest palm-oil processor, and Warsaw-based Kernel Holding, a diversified agro-business company operating in Ukraine.
The value of Lutsenko's company has surged during the last decade, as government farm subsidies led to increased output by Russian poultry and pork producers, the largest buyers of soybean meal. From 2004 to 2011, Russian poultry output doubled while its pork output increased 53 percent, according to the Moscow-based National Meat Association.
Those increases boosted Russia's soybean business. According to the U.S. Department of Agriculture, Russia's soybean meal output is expected to reach 2 million tons in 2012, 69 percent more than in 2009. In 2011, Sodrugestvo produced 825,000 tons of soybean meal and 200,000 tons of soybean oil, making up 70 percent of its revenue.
The company operates 2,225 rail cars, making it Russia's second-largest operator of grain hoppers, and owns almost 20 miles of train tracks that can hold as many as 580 cars. It also controls a marine deep-water terminal, and a network of storage facilities in Brazil and Russia that can hold as much as 950,000 tons of grain.
Mitsui "sees potential for growth," Lutsenko said. "We want to become the first Russian agricultural company to become a global player on the international soft commodities market."
Lutsenko was born in East Berlin in 1962. In the early 1980s, after studying Soviet army propaganda as an 18-year-old cadet, Lutsenko embarked on a military career. Discouraged after the fall of the Soviet Union, when officers of the new Russian army were forced to take wage cuts, he left the service to become an entrepreneur.
In 1994, he opened his first business, a trading company that sold fish meal and other additives to suppliers of pork and poultry feed. By the end of its third year, Lutsenko's operation included 42 warehouses throughout the Commonwealth of Independent States that stored the feed additives. By 1998, annual sales reached $150 million.
"We worked with any client, no matter if he bought one kilogram of feed additives or 10 tons," Lutsenko said. "We were one of the biggest traders in the region."
Lutsenko also kept to his military roots. Many Sodrugestvo executives are former army officers, a hiring strategy that he implemented to help bring operational focus to his company — something he said was lacking in many companies that emerged out of the former Soviet Union.
In 1998, when the ruble lost more than three times its value against the U.S. dollar and Russian customers faltered, Lutsenko made sure his suppliers in western Europe were paid first, a strategy that brought him credibility from additives producers who had grown leery of dealing with Russian businesses. Sodrugestvo soon became one of the biggest feed additive traders in Russia.
In 2004, he began building a deep-water terminal near Svetliy and two soybean crushing plants to reduce his dependence on local and foreign suppliers. During the next three years, he invested about $400 million in the assets, and is now spending another $450 million on a third crushing plant and a warehouse terminal in the Kaliningrad region.
"Sodrugestvo was the first company that saw the potential of the soybean meal market," said Andrey Sizov, managing director of Moscow-based market research firm SovEcon. "They occupied this niche quickly and have since grown so fast that there is not a lot of space left for another big player."
A new crisis could loom for Lutsenko if demand for soybean meal falters, or if it fails to match Sodrugestvo's increased capacity, Sizov said. Russia has agreed to eliminate import duty on soybean meal in 2014 as part of its bid to join the World Trade Organization, which could result in greater soymeal imports into the country.
In June 2012, Fitch Ratings placed a negative outlook on Sodrugestvo, rating it a B in its first report on the company. According to Pablo Mazzini, senior director of EMEA Corporates at Fitch, the company has had an "aggressive" capital expenditure expansion that brings possible "execution risk in the use of the new capacity."
Lutsenko is expanding his operation in Brazil which, along with Argentina, provides Russia with most of its soybean imports. The new operations will increase the company's production, storage and distribution capacity in South America. In 2010, Sodrugestvo established a joint venture with CAROL, one of the country's biggest farm cooperatives and, a year later, acquired Lider Armazens Gerais, Brazil's largest closely held provider of trans-shipment and storage of grain.
"We decided to develop our presence in Brazil both for the origination and processing of soybeans and other commodities, and to achieve access to one of the most dynamic markets in the world," said Stephane Frappat, Sodrugestvo's chief executive officer in a company statement released in December 2010.
Lutsenko said he expects the Brazil businesses will soon be outperforming his domestic business.
"We don't have the aim to grow impetuously in Russia," Lutsenko said. "We want to try our hand in other countries."