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Ceva grows despite the global downturn

How is the current economic crisis and its attendant currency fluctuations affecting the privately-owned French animal health company Ceva Sante Animale Animal Pharm’s France correspondent Nathalie Caplet interviewed Ceva chairman and CEO Marc Prikazsky and vice-president – finance Pierre Revel Mouroz to review the current issues and challenges faced by the company. In the first half of 2009, Ceva's sales grew by 4% denominated in euros, equivalent to an increase to 6% at constant perimeter and exchange rates. The company says that the first three months trading was particularly difficult but that sales had improved in the second trimester. In the 2008 financial year, the Ceva Group recorded sales of euro377m, a 7% increase compared to 2007. At constant perimeter and exchange rates the growth was just over 8%, with an increase of 11% at operational level. “The 2008 results were in line with our objectives," comments Mr Prikazsky. "It was a good year, and would have been an exceptional one without the currency effects.” The most successful regions in sales terms included Latin America, in particular Brazil. “We were very happy with our result in the pig and poultry sectors," notes Mr Prikazsky, "while our presence in the pet and ruminant sectors was reinforced with the acquisition of Vetbrands in 2007.” Other regions with positive results were Europe and North America. Asia was stable, while the contribution of the zone comprising Africa, the Middle East and Turkey shrank, especially in the ruminant and poultry sectors. “The price of poultry feed went up and the number of ruminants contracted by 30% in Turkey,” explained Mr Prikazsky. Most animal sectors around the world suffered in 2008. Sales of production animal products were affected, particularly in the poultry sector which reacts very quickly to crises, because of its short production cycle, commented Mr Prikazsky. “In the US, restaurants were deserted at the end of 2008 due to the effect of the financial crisis on the general public. Therefore, even though the price of feed had gone down again, a lack of demand caused the poultry market to fall as well.” The market weakness meant that in some cases, Ceva had to make prudent choices, only delivering to those clients which had the financial strength to handle the current difficult situation. At other times, Ceva was happy to stick by some of its major and loyal clients in challenging circumstances, stresses Mr Prikazsky. The ruminant sector was also affected by the crisis, in particular the sheep industry in Turkey. But, the most unusual consequence was the effect of the credit crunch on sales of pet products, a sector which had been very strong over the past few years. There was a major impact on companion animal product sales in the US and in Europe, Ceva confirms. “We hadn’t been used to that in the pet sector.” Consumer confidence eroded, with expenditure on companion animals sometimes put on hold. These market trends have continued into 2009, says Mr Prikazsky. “The poultry sector now seems to be picking up, from what we can see in the US and Brazil, but the pet markets are still very much affected.” Despite the difficult circumstances, Ceva still kept to its strategic plan during 2008, investing in R&D (around 8% of sales) and in its infrastructure. “Ceva's capital Investments have averaged around euro 10 to 12 million annually over previous years. However, in 2008 we invested about euro20m in our four major production sites - Libourne and Loudéac in France, Biomune in the US and Phylaxia in Hungary.” July 2008 also saw the acquisition and integration of the Australian pet product specialist Delvet. For Ceva, this move marked an entry into the significant Pacific Rim market, one of the few remaining parts of the world where the company was not directly represented up to that time, notes Mr Prikazsky. Although Ceva has not made any major acquisitions yet this year, Me Prikazsky insists that the company is still in a position to do so, and acquisition remains a key part of its business strategy. “We used to make acquisitions to gain territories, but now the reason is more to extend our portfolio," he says. "There are a range of opportunities at the moment, as the market will continue to consolidate. At present the three groups that lead the global animal health market are way ahead of the rest of the companies in the market, so the others will have to make acquisitions in order to increase their revenues,” Mr Prikazsky observes. Losing euro6m to the crisis For Ceva, the 2008 crisis became apparent from September-October onwards. It was characterized by negative variances in the currencies of emerging countries, explains Mr Revel Mouroz. This had a major impact on the Ceva Group, as 87% of its sales are made outside of France. “So far the crisis has cost Ceva euro6m” he estimates. " “We consolidate in euros, but we sell in local currency,” he continues. Ceva had had to deal with both the effect of the difference in currency values, as well as greater delays in payments from its subsidiaries. The currency effect was noticed in Eastern Europe first, especially in Poland and the Ukraine, and then the British pound weakened drastically. “For the first time, the currency effect had an impact within Europe itself. The UK currency effect alone accounted for some euro1m of our general losses in 2008. Another strong impact was seen in South Africa, where the currency effect accounted for losses of euro1.5 to 2m for Ceva,” reports Mr Revel Mouroz. “In 2007, the US dollar was very weak, but other currencies were strong," he continues. "There was an increase in the cost of energy and raw goods, but it was compensated by the weak dollar. Ceva is present in some emerging countries, where the currencies have really suffered in 2008 in an irrational way. For example, Brazil’s economy was said to be quite strong after it managed to get out of debt, but the currency collapsed nonetheless.” Ceva says it was able to react quickly to implement action plans to preserve profitability in these emerging country markets where the extreme currency fluctuations potentially exposed the group to great risk. It says it is supporting subsidiaries businesses in these challenging markets, but without sacrificing its decentralized organization. “The heads of our subsidiaries are real entrepreneurs, and we want to keep it this way,” comments Mr Prikazsky. “They are the people who can act at ground level when necessary.” However Ceva, which employs over 2,000 people in 44 countries, recently felt the need to strengthen its central structure, in order to give more coherence across the range of group activities. One of the visible consequences is the appointment of a group communications director. Martin Michell, previously Ceva's regional director in Africa and the Pacific, has taken up the position. The company has also reinforced its central marketing teams. Despite Ceva’s recent growth, Mr Prikazsky believes the group has kept its values of proximity and openness between managers. “We talk to each other," he stresses. "There are no political or power tensions. Our size, the company culture, and the fact that we are management owned, are attractive features for our managers, even those coming from larger companies. And for Ceva, acquiring a good senior manager is like making the acquisition of a good company. It helps us to have strong ambitions and to grow faster,” Mr Prikazsky concluded.


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