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Sorgenti Emiliane Modena: going to the source at the Stock Exchange

Landing in the Star segment in July will be the Modena-based company, SEM, the first bottling company on the list. “We want to make new acquisitions,” says vice president Aldo Balugani.

Sorgenti Emiliane Modena: going to the source at the Stock Exchange

This is Italy Team


Water will be flooding into the Stock Exchange in July, but it's not the great deluge. It is the mineral water of the SEM group (Sorgenti Emiliane Modena), owned by the Balugani family, which is preparing to list on the Milan exchange in the Star segment dedicated to medium-sized enterprises. This company, an Italian leader in the bottling, production and distribution of mineral water, soft drinks and bottled water, has initiated the process for public quotation in Italy and a simultaneous institutional placing for eligible investors from Italy and abroad.

The company seems to have everything in order to make this leap: revenues of 45.6 million euros in 2010, and EBITDA of 8.9 million euros, operating results of 4.4 million euros and 120 employees. A mineral water first, as strange as it may seem that such an "old economy" product has yet to be quoted on the exchange. "We believe that our entry into the Milan Stock Exchange," Aldo Balugani, vice president of SEM, tells Panorama Economy, "will help to accelerate growth for the group's external lines through acquisition of other companies. These are activities that must be complementary to our own and which must be integrated into our industrial framework. We thought that the most logical way to find the financial resources required for this was to go public. Last year we registered a slight drop due to the crisis, but our company has all its accounts in order and we didn't want to proceed with debt hanging over us. Plus, I want to stress that our family has absolutely no intention of getting out of this sector. In fact, we are increasing the capital and we are not selling our shares."

So, it's not an operation to raise cash, but a strategy to support the company's "acquisition campaign" whose distinctive characteristic lies in the concept of a short supply chain. It is no accident that the geographical proximity of the natural springs, compared to the distribution market, is one of SEM's obsessions. For the last decade, it has embraced the philosophy of doing business in their own backyard because, they are passionately convinced, "in the end, everyone wins"?"the producer who saves on transport costs, the retailer who can offer lower prices, the consumer who spends less and, last but not least, the environment.

"We have never made an acquisition simply for the sake of it," Balugani adds. "We have always looked for companies with precise characteristics: significant production and water source exploitation capacity, geographical location which falls within the concept of a local supply chain and a desire to embrace our project. This sector is moving towards a process of integration and we want to be among those that control this trend."

This is a business which, in Italy alone, is worth over 2 billion euros per year. The Italian market of producers involves approximately 167 bottling companies (2009 figures), most of which are small, family-run local companies, and a few large multinationals which control the best-known brands. Italians are the no. 1 consumers of mineral water in Europe and no. 3 in the world, with over 190 liters per person per year. A level of consumption dictated by historic reasons (condition of aqueducts and water quality), as well as simply a question of price: mineral water in Italy is very cheap.

Another reason behind the proliferation of small companies with permits to gather water from their respective springs. SEM owns four of these and has an equal number of processing plants and 25 logistical centers. But how does one go about obtaining a mineral water source exploitation permit? The first step is to apply to the province or region involved, then have the waters approved by the Ministry of Health (approval includes four seasonal analyses and accompanying hydro-geological report) and finally, obtain from local authorities permission to sell the water. A water source exploitation permit can be valid for between 15 and 20 years, and more established ones even as long as 30. When the permit expires, it must be renewed. A fixed amount is paid per hectare of land (a few thousand euros), plus a regional tax per liter or cubic meter of water drawn (a few cents per liter of drawn or bottled water) which varies from region to region. The overall investment, including the purchase of the land, plant (with a bottling and bottle-forming line for 10,000 bottles/hour), tests and bureaucratic paperwork, can cost over 2 million euros.

SEM was founded in 1984 and four years later began bottling and packaging still mineral water in glass bottles. In 1997 it concluded a major contract with Coop Italia supermarkets and introduced 50, 150 and 200 cl. PET bottles. In the meantime, it became part of the Cremonini group, whose president was Aldo Balugani, who in 1998 decided to leave the big Modena-based meat-processing company to take over the small SEM company. Together with his brother Vittorio, now president of the group, they immediately began an acquisition program in various phases. First BPM and Water Time (bottled water and refrigerators), then the Nocera Umbra company and, finally, in 2007, New Samicer of Reggio Emilia. The company is currently held by the Balugani (67%) and Brandoli (33%) families who are counting on the Stock Exchange to obtain new financial resources for growth investment.

Francesco Signor

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