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Strong Results at Cherkizovo Despite Challenges

by 5m Editor
14 September 2011, at 9:44am

RUSSIA - Despite the challenging operating environment at the beginning of this year, we have delivered a strong set of results across all segments in the first half of 2011, says the CEO of Cherkizovo Group in the company's latest financial results.

Cherkizovo Group, one of Russia's leading integrated and diversified meat producers, has announced its second quarter and first half unaudited financial results for the period ended 30 June 2011.

The company reports strong organic volume growth and solid financial performance.

Revenues increased 20 per cent to US$689.1 million from $572.8 million for the first half of 2010, and increased 15 per cent on a rouble currency basis. Revenues increased 24 per cent to $382.5 million in the second quarter of 2011 from $307.6 million for the second quarter of 2010, and increased 15 per cent on a rouble currency basis for the same period.

Adjusted EBITDA decreased six per cent to $105.7 million from $113.0 million for the first half of 2010, and decreased 11 per cent on a rouble currency basis. Adjusted EBITDA increased 12 per cent to $71.6 million from $63.4 million in the second quarter of 2010, and increased four per cent on a rouble currency basis.

Adjusted EBITDA margin was 15 per cent, down from 20 per cent for the first half of 2010. Adjusted EBITDA margin in the second quarter was 19 per cent as compared to 21 per cent in the second quarter of 2010, reflecting a strong improvement from the first quarter of 2011 and a healthy profitability level.

Gross profit increased four per cent to $169.7 million from $163.6 million for the first half of 2010, and decreased one per cent on a rouble currency basis. Gross profit in the second quarter increased 18 per cent to $106.1 million from $90.0 million, and increased nine per cent on a rouble currency basis.

Group gross margin was a robust 25 per cent for the half-year and 28 per cent for the second quarter.

Net income decreased 11 per cent to $66.0 million from $74.1 million for the first half of 2010, and decreased 15 per cent on a rouble currency basis. Net income in the second quarter increased 15 per cent to $48.3 million from $42.1 million, and increased 6 per cent on a rouble currency basis.

As of 30 June 2011, net debt was $835.6 million. The effective cost of debt decreased to two per cent from three per cent for the first half of 2010.

Net income per share decreased 11 per cent to $1.53.

Business developments

Cherkizovo has opened the poultry breeding facility, Komarovka, at its Penza cluster. The facility, which was built as part of Cherkizovo's ongoing poultry capacity increase project in Penza, consists of 34 bird houses, with a combined capacity of almost 1.1 million broilers.

Cherkizovo has opened a second line at the poultry breeding facility in its Bryansk cluster. It consists of 26 bird houses, with a combined capacity of almost 880,000 broilers. The bird houses will be populated using the Group's own hatcheries, and equipped with state-of-the-art technologies that reflect the latest innovations and best practices in poultry keeping.

Cherkizovo has completed an acquisition of 100 per cent of Mosselprom – a diversified vertically integrated agro-industrial group. Mosselprom's production activities include the following: poultry, pork, feed production and grain businesses.

Cherkizovo has started construction of the Elets agroindustrial complex in the Lipetsk region, which is a unique integrated poultry production facility where production is set to start in 2013.

CEO's comment

Sergey Mikhailov, Chief Executive Officer of Cherkizovo Group, said: "Despite the challenging operating environment at the beginning of this year, we have delivered a strong set of results across all segments in the first half of 2011, significantly improving our performance in the second quarter driven by an improving pricing environment, rising demand and continued cost efficiencies. Accordingly, we showed Group revenues of $689.1 million, adjusted EBITDA of $105.7 million and a robust adjusted EBITDA margin of 15 per cent. Moreover, we have confirmed our status as the most active player on the Russian meat market through the acquisition of Mosselprom, one of Russia's best-known poultry producers. Furthermore, we have started construction of the country’s largest poultry production complex in the Lipetsk region.

"We are now in the process of integrating Mosselprom within the Group's production structure. Achieving synergies will help us to increase operational efficiency in our poultry segment, where we continue to deliver against our large scale capacity increase projects. Already this year we opened two large poultry production facilities in our Bryansk and Penza clusters and an incubation site in Bryansk, while we plan to launch a processing facility and another incubation facility in Penza which will be amongst the largest not just in Russia, but across Europe.

"Our production results in the pork segment were affected by the extreme weather conditions that we witnessed last summer, however now we see this segment begin to stabilise. We have also begun integrating our new asset, Orelselprom, which was acquired through the Mosselprom transaction.

"In the meat processing segment, we see a steady increase in demand for our meat products and we continue to work on increasing the efficiency and improving the resource base of this segment. In May, we announced the launch of the meat processing plant in Kaliningrad that we bought last year.

"We also welcome the Government's recent decision to offer direct subsidies to offset sharp cost increases, and allow domestic producers to continue developing quality local products, despite the difficult trading conditions. Moreover, the current grain harvest is turning out to be favourable for Russia, which, we expect, is set to further stabilise input costs.

"Overall, we expect that in the second half of the year we will return to normalised profitability levels, which we already demonstrated in the second quarter, and this will offset the negative impact of the performance in the first quarter. Accordingly, management is optimistic that we are on track to meet expectations for the full year," concluded Mr Mikhailov.

Further Reading

- You can view the full report by clicking here.