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Cherkizovo Pork, Poultry Sales Volume Up in 2011 Q4

by 5m Editor
15 March 2012, at 7:25a.m.

RUSSIA - Sales volumes in Cherkizovo's poultry and pork divisions increased by 34 per cent and 4 per cent respectively.

Poultry Division

Sales volumes in the Poultry division in 2011 increased by 34 per cent to approximately 260,200 tonnes of sellable weight compared to 194,100 tonnes in 2010, reflecting organic volumes added in the Bryansk and Penza clusters and the inclusion of sales by Mosselprom, acquired in May 2011.

Prices in rouble terms increased by 1 per cent from 71.89 roubles per kg in 2010 to 72.79 roubles per kg in 2011 (excluding VAT). Compared to the third quarter of 2011, the price in the fourth quarter stayed almost flat at 73.74 roubles per kg.

Prices for poultry sales in dollar terms increased by 5 per cent from $2.37 per kg in 2010 to $2.48 per kg in 2011 (excluding VAT). Compared to the third quarter of 2011, the price in the fourth quarter decreased 7 per cent to $2.36 per kg.

Total sales in the Poultry division increased by 38 per cent to US$691.5 million (2010: US$501.0 million). Gross Profit increased by 10 per cent to US$160.4 million (2010: US$146.2 million), divisional Gross margin decreased to 23 per cent (2010: 29 per cent) mostly due to increasing raw materials, utility and labour costs. And also due to the fact that In the second quarter, the segment also accounted for approximately 405.0 million roubles or US$13.8 million of direct subsidies which offset the cost of sales.

In the fourth quarter uncollectable fodder subsidies in the amount of $2.9 million were written-off which decreased both the gross and operating profits for the segment. This write-off represents a one-off non-cash item and consequently division’s EBITDA was adjusted for it.

Operating expenses as a percentage of sales went down from 13 per cent in 2010 to 12 per cent. Operating Income of the division decreased by 8 per cent to US$75.4 million (2010: US$81.5 million), and Operating margin was 11 per cent. Profit in the Poultry division decreased by 3 per cent to US$72.4 million (2010: US$74.6 million).

Adjusted EBITDA increased 5 per cent to US$110.9 million (2010: US$105.6 million), while Adjusted EBITDA margin in 2011 in the Poultry division was 16 per cent.

Pork Division

Sales volumes in the Pork division in 2011 increased 4 per cent to approximately 91,400 tonnes of live weight, compared to 87,650 tonnes in 2010.

Prices in rouble terms increased by 11 per cent from 71.95 roubles per kg in 2010 to 80.04 roubles per kg in 2011 (excluding VAT). Compared to the third quarter of 2011, the price in the fourth quarter increased by 2 per cent to 82.97 roubles per kg.

Prices for pork sales in dollar terms increased by 15 per cent from $2.37 per kg of live weight in 2010 to $2.72 per kg of live weight in 2011 (excluding VAT). Compared to the third quarter of 2011, the price in the fourth quarter decreased 5 per cent to $2.66 per kg.

Total sales in the Pork division increased by 22 per cent to US$270.5 million (2010: US$222.2 million). Gross Profit increased 20 per cent to US$107.6 million (2010: US$90.0 million) while divisional Gross margin decreased to 40 per cent (2010: 41 per cent) due to input cost increases and amortization and labour cost increases resulting from the launch of new assets into operation. In the second quarter, the segment also accounted for approximately 176.4 million RUR or US$6.0 million of direct subsidies which offset the cost of sales.

In the fourth quarter uncollectable fodder subsidies in the amount of $2.0 million were written-off which decreased both the gross and operating profits for the segment. This write-off represents a one-off non-cash item and consequently division’s EBITDA was adjusted for it.

Operating Expenses as a percentage of sales went up from 7 per cent in 2010 to 8 per cent. The division generated Operating Income of US$86.8 million (2010: US$74.4 million), while Operating margin was 32 per cent (2010: 34 per cent). Profit in the Pork division increased by 19 per cent to US$82.6 million (2010: US$69.4 million).

Adjusted EBITDA generated by the division increased 22 per cent to US$109.5 million (2010: US$90.0 million), and Adjusted EBITDA margin in 2011 in the Pork division was flat at 41 per cent.

Meat Processing Division

In 2011, consumption recovered to pre-crisis levels, and sales volumes in the Meat Processing segment increased by 3 per cent to approximately 145,270 tonnes compared to 141,550 tonnes in 2010.

Prices in rouble terms increased by 13 per cent from 118.21 roubles in 2010 to 133.65 roubles per kg in 2011 (excluding VAT). Compared to the third quarter of 2011, the price in the fourth quarter of 2011 increased by 6 per cent to 142.74 roubles per kg.

Prices in dollar terms increased by 17 per cent from $3.89 per kg in 2010 to $4.55 per kg in 2011 (excluding VAT). Compared to the third quarter of 2011, the price in the fourth quarter decreased 2 per cent to $4.57 per kg.

Total sales in the Meat Processing division increased 20 per cent to US$635.4 million (2010: US$529.4 million). Divisional Gross Profit increased 20 per cent to US$104.8 million (2010: US$87.5 million), while divisional Gross margin was flat at 17 per cent.

Operating Expenses as a percentage of sales were flat at 12 per cent. The division generated Operating Income of US$25.9 million (2010: US$25.7 million), while Operating margin decreased to 4 per cent (2010: 5 per cent). Operating income in the Meat Processing division was negatively impacted by the impairment of a non-significant subsidiary, in the amount of US$3.4 million. Profit in the Meat Processing division decreased by 16 per cent to US$15.3 million (2010: 18.3 million).

Adjusted EBITDA for the division increased by 13 per cent to US$41.7 million (2010: $36.9 million), and Adjusted EBITDA margin in the Meat Processing division was flat at 7 per cent. EBITDA figure for Meat Processing Division was adjusted for a non-cash one-off item - the impairment of a non-significant subsidiary in the amount of US$3.4 million.

Sergey Mikhailov, Chief Executive Officer of Cherkizovo Group, said: “We are pleased to report a solid performance across all segments in 2011, in line with our targets. The Group achieved a 24 per cent increase in revenue and growth in Adjusted EBITDA* of 12 per cent, to deliver a healthy 17 per cent Adjusted EBITDA margin.

These results have been achieved despite a very challenging operating environment at the start of the year, where extreme weather conditions had resulted in lost harvests and a steep increase in grain prices. The Company benefited from important and timely government measures in 2011 to support poultry and pork producers through subsidies and action in the grain market.

We have confirmed our status as the most active operator in the Russian meat sector through the acquisition and integration of Mosselprom, one of Russia’s best known poultry producers. We have also started construction of the country’s largest poultry production complex in Elets in the Lipetsk region. In addition to opening two large poultry production facilities in our Bryansk and Penza clusters, we have also launched two incubation facilities, which are amongst the largest not just in Russia, but across Europe.

Our results in the pork segment demonstrate that we have successfully overcome the adverse consequences of last year’s weather conditions, and are now witnessing production growth. In the course of the year, we have launched three breeding facilities at our greenfield pork farms in Tambov, Voronezh and Lipetsk. We have also integrated our new asset “Orelselprom”, which was acquired through the Mosselprom transaction.

In the meat processing segment we have built upon the 2010 purchase of the “Otechestvenniy Product” meat-processing plant in the Kaliningrad region, to take further steps towards increased efficiency and extending the division’s resource base. During the year, we built a state-of-the-art production line for smoked sausages at the plant.

In terms of outlook, there are many uncertainties in the current operating environment. However, despite the challenges noted, management is confident that the Group is taking the appropriate measures in terms of investing for growth and efficiency to deliver performance in line with its strategic expectation in 2012.”