Russians love fish – it’s one of the few distinctly Asian traits of its otherwise European culture. When the first fast food eateries began to appear in the 1990s following the fall of the Soviet Union, Planet Sushi took the market by storm and can now be found across the country and in the other countries of the Commonwealth of Independent States (CIS). Some long-term residents of Moscow refer to the 1990s as “the sushi years”.

And salmon, known in Russian simply as “red fish”, is the king of fish. It’s inconceivable for a celebration or party not to have piles of red fish “buterbrot” on the table. At opera houses across the CIS glasses of sweet champagne and the same red fish buterbroti are universally on offer as a default snack in between acts.

Salmon is as Russian as bears. The rivers that wind across Siberia, Yakutiya and Karelia are full of the fish that also spawn in the fiords around the northwest port of Murmansk and on the Pacific coast in the east. Since Soviet times the locals have collected huge plastic buckets of the “red caviar” that is sold everywhere and is more widely eaten than the harder-to-find black variety.

But Russia is a net importer of salmon. Today it produces less than half the total demand for the fish and the companies that catch it in the wild typically export it for the higher prices it commands overseas.

That has created an opening for Russian Aquaculture, the leading domestic producer of salmon that SPO’ed on the Moscow Exchange in 2017 and plans to double its production by 2025.

The SPO has piqued the interest of investors, which are increasingly looking for mid-cap companies in apolitical sectors with a strong growth story. And Russia Aquaculture is so far very profitable with ebitda of RUB2.6bn ($46.3mn) and a EBITDA margin of 47%.

The margins have been helped a lot by an exemption from profit tax as the Russian government is throwing everything it can at promoting the domestic development of the agricultural business thanks to its tit-for-tat sanctions stand-off with the West over the fate of Ukraine.

“Russians have been eating salmon for 100 years and there is a lot of wild salmon throughout the north of Russia. It's a fish with a very long tradition indeed. Eating salmon is hardwired into Russian genes,” Ilya Sosnov, CEO of Russian Aquaculture, told bne IntelliNews in an exclusive interview in the company’s headquarters on the edge of Moscow.

Getting to see the company’s salmon farms on the northern coast proved to be impossible for this correspondent, as the fjords where Russia Aquaculture raise most of its fish are off limits to foreigners.

Salmon are very particular about where they will spawn. They are an anadromous fish, which can live in both sweet and salt water, but spend most of their lives in the sea. That significantly limits the places where salmon can flourish and it turns out that the best place on earth for the fish to live and breed is the two Russian coasts.

Scandinavia is actually a giant salmon fish farm. The Gulf Stream hits the Scandinavian coast of Norway and flows round the top on to Murmansk before petering out as it flows into the icy waters of the Barents Sea. The fjords that crinkle the entire Scandinavian coast therefore make a perfect location for fish farms.

There are literally hundreds of them along the entire Scandinavian coast producing some 1.3mn tonnes of salmon a year, which accounts for just over a tenth of the entire EU per annum fish consumption.

“The water doesn't freeze in the fjords. It is 5-10C all year – exactly what the salmon need,” says Sosnov, an energetic organiser who made his career working for some of Russia’s biggest industrial concerns as CEO and CFO, including the oil major Yukos and petrochemical company Sibur, where he ran the tyre business.

Norway is the world leader in salmon production and the country has already almost reached the maximum that it can produce; there is no spare water left to open new fish farms. Russia, on the other hand, is only now setting out to build up its aquaculture industry, but Russia Aquaculture faces a uniquely Russian problem: as the only ice free port is on Russia’s western coast, the fjords are also home to the Russian navy.

Murmansk was used in the Second World War to supply Stalin with Allied materiel under the Lend-Lease programme. It was the scene of brutal fighting and subject to constant Nazi submarine and bomber attacks. It is even home to a cemetery for the British soldiers that died there defending the port. Today the coast is dotted with naval facilities and many of the fjords are simply off limits as they are home to secret submarine bases and other naval facilities.

“The fjords around Murmansk are occupied by the navy as they like the same conditions as the fish,” quips Sosnov, adding that the entire area is closed to foreigners.

It is an unusual barrier to entry into the industry as it means that Russian Aquaculture spends a lot of time talking to the Ministry of Defence to get permits that allow the company to set up the 27m deep cages in 21 sites and moor a feed-ship nearby that it uses to raise salmon. But with only three harvests under its belt, the company is already the largest player in the Russian fish business, with a 22% market share as of the middle of 2017.

The company has had three seasons so far but already one disaster. In 2015 a outbreak of mycobacteriosis, a disease that often affects cultivated fish, led to massive death of fish and a plunge in ebitda, although revenues remained positive at RUB514mn ($9.1mn). As the aquaculture industry is still young it remains more prone to biological threats than some of the more mature animal husbandry businesses.

Russian Aquaculture also has four trout farms in fresh water lakes in Karelia in northwest Russia, but the main focus remains salmon. The company has a total of 29 fish farms in Russia.

Compared to other protein groups, fish farming is a very efficient way of producing food. Half of the production of pork, poultry and beef go to waste thanks to the inedible meat on the animals, whereas 68% of a fish can be eaten. And from a cost point of view 61kg of edible meat is produced in fish from every 100kg of feed, compared to 21kg for chicken, 17kg for pork and only 4-10kg for cattle.

Russian Aquaculture is a relatively new player in the salmon game and aquaculture is a relatively new agricultural technique for producing the fish.

Sosnov got into the business while still working for Sibur Tires as the owners of the company also had a fish business called Russia Sea and asked him to act as CFO in addition to his other duties in 2012.

Over the next few years Sosnov went back and forth trying to get the business on its feet. Russia Sea had three business lines: valued-added branding and processing of raw fish, distribution, and aquaculture. The company had permits to catch wild fish, but imported the bulk of its needs from Norway before smoking or processing the raw fish that were then packaged and sold. The aquaculture was more of an experiment the company starting playing with in 2012.

The previous management floated Russia Sea on MICEX (the precursor to Moscow Exchange) in 2010 and raised $90mn for investment capital. Their plan was simple: boost production by buying other companies with permits to catch wild fish.

“The system is fixed. You can’t go to sea and just catch more fish. The only way to grow the business is through acquisitions,” says Sosnov.

However, the business was not doing well. The main cost in the fish business is buying the raw fish and the margins on the distribution and value added parts of the business are “tiny” says Sosov.

In the meantime new owners had taken over and asked Sosnov to commit more time to it. In 2015 Sosnov sold the distribution business and then after he took over as CEO he sold the added value part too. Sosnov and his investors had decided to gamble everything on building up the aquaculture part of the business.

The world salmon business is dominated by the Scandinavians. Norway produces about 1.3mn tonnes of salmon a year and exports all over the world, while Russia’s technical maximum production capacity is limited to about 40,000 tonnes a year vs a total demand of around 100,000 tonnes, says Sosnov. Russia will always have to import some of its salmon.

In 2017 Russian Aquaculture produced 14,500 tones of salmon from which it generated RUB5.5bn ($98mn) in revenue. But the company is hoping to increase that to 30,000 tones by 2025 and quadruple revenues in the process. The rest is competition from imports.

“We are not afraid of international competition. Sanctions? We don't care. We have the advantage of our proximity to our domestic customers,” says Sosnov.

While Murmansk may seem out of the way, tucked up in the top western corner of Russia, it is actually close to the huge markets of Moscow and St Petersburg. Both cities can be reached from Murmansk by truck in two days and Karelia is even closer.

“And these cities is where most of Russia’s middle class and rich live,” adds Sosnov.

As a perishable product, being able to get the product to market fast is a big advantage even before transport costs are considered.

 “Maintaining your market share is more important than meeting the cost of transport,” says Sosnov. “We have invested in Russian production and so we have to make a lot of effort to get and maintain our market share in Russia.”

The market is fickle, because of the extremely international nature of the business. The Scandinavian countries produce far more fish than they can consume so the entire business is a transit business from the start. That has lead to a commoditisation of prices. Even Russian Aquaculture’s unusual focus on its domestic market is affected, as all its competition is imported.

“When the dollar was appreciating then consumption went down as the price of salmon went up,” says Sosnov.  “Salmon is a soft commodity and so the price is set by the global markets. Even our prices are linked to the global market. The guys who produce salmon in the Faroe Islands have to ship their fish anyway so they look around the world to see where prices are best and send them there. Changes anywhere affect everywhere.”

Russian Aquaculture has ambitious plans and has already tapped the markets twice to raise capital. In the most recent round the company finished an SPO of new ordinary shares on the Moscow Exchange on December 11, placing 8.3mn of new shares to raise a total of RUB1bn ($17mn).

The SPO was carried out at RUB120 per share, making the company's market capitalisation of RUB10.5bn. After the SPO the free float of Russian Aquaculture is 9% of share capital, while the largest shareholder Maxim Vorobyov now owns 47.1%.

As part of its expansion plans, in November the company acquired an option to purchase a 40% equity stake in Tri Ruchya, a primary fish-processing company in the Murmansk region, the company announced on November 17.

Tri Ruchya has modern, high-quality equipment to process up to 25,000 tonnes of red salmon per year, as well as a refrigerated warehouse and developed infrastructure, and is conveniently located on transport routes near the company’s new and existing farms.

Russia Aquaculture has also bought two small plants in Norway that produce the smolt, the baby salmon that grow in fresh water and then are transferred to the cages in Murmansk when they are big enough.

“Ours is a growth story. Russia is one of the single largest fish markets in the world and one of the few with potential for growth as most of the other markets are already saturated,” says Sosnov. “We’ll be growing for many years to come.”