RUSSIA: Cherkizovo profit plunges on grain costs
By Katy Askew | 30 August 2013
- H1 net profit down 91%
- Sales up 5%
- Three new production facilities operational
Russian meat company Cherkizovo Group has seen first-half profit plunge in a "very challenging environment" marked by "record high" grain prices.
In a regulatory filing today (30 August) the company said that operating profit dropped 53% to US$69.3m in the first half. Net Profit decreased by 91% to $9m, compared to $95.5m in the first half of 2012.
Cherkizovo said its result was hit by rising input costs and "very low" first quarter pork prices. However, the meat group said the environment improved "significantly" in the second quarter, and while poultry prices remained low, pork prices rebounded somewhat.
First-half sales increased by 5% to $779.6m, as three new pork processing facilities came on line and the company increased its production levels.
Cherkizovo Group OJSC ("Cherkizovo" or "the Group" or "the Company")
Financial results for the First Half Ended June 30, 2013
Moscow, 30 August 2013 - Cherkizovo Group (LSE: CHE), Russia's leading integrated and diversified meat producer, today announces financial results for the period ended 30 June 2013.
· Revenue increased by 5% to $779.6 million for 1H 13 from $746.0 million in the first half of 2012. Revenue decreased by 3% to $396.4 million in 2Q13 (2Q12: $410.5 million).
· Gross Profit decreased by 29% to $150.6 million for 1H13 from $212.6 million in the first half of 2012. Gross profit decreased by 30% to $85.8 million in the 2Q13 from $121.7 million for 2Q12.
· Group's gross margin decreased to 19.3% from 28.5% in the first half of 2012. In the second quarter of 2013 gross margin decreased to 21.6% from 29.7% in 2Q12.
· Adjusted EBITDA* decreased by 53% to $69.3 million for 1H 13 from $148.5 million in the first half of 2012. Adjusted EBITDA* decreased by 55% to $40.7 million in 2Q13 from $90.2 million for 2Q12.
· Adjusted EBITDA* margin decreased to 8.9% from 19.9% in the first half of 2012. In the second quarter of 2013 adjusted EBITDA* margin decreased to 10.3% from 22.0% in 2Q12.
· Net Profit decreased by 91% to $9.0 million in the first half of 2013 compared to $95.5 million in the first half of 2012. Net profit decreased by 84% to $9.4 million in the 2Q13 from $58.3 million for 2Q12.
· Net Debt**** was $823.4 million at the end of the first half of 2013
· The effective cost of debt was 2.7% (1H12: 2.0%)
· EPS was at $0.21
· CCR (Cash Conversion Ratio) was 365%
· Three new pork complexes in the Lipetsk, Tambov and Voronezh regions, launched in 2012, are fully operational and working at full capacity, resulting in a significant increase in pork production volumes and higher production efficiency
· Renovation of a semi-cooked meat products facility began at the Cherkizovsky Meat Processing Plant in Moscow. The new facility will produce semi-cooked meat products under the popular Cherkizovsky brand. The launch is expected this Autumn.
· Renovation of a slaughterhouse at the Penza Meat Processing Plant got under way.
· Renovation started at Ozherelie feed mill in the Moscow region; Renovation at Kamenka feed mill in the Penza region to be completed in Autumn.
· Operational land bank of the Grain Division was increased to 40 000 hectares compared to approximately 35 000 hectares in 2012. By the date, the Group harvested more than 110 thousand tonnes of grain, demonstrating strong yields of 5.1 t/ha for wheat and 3.3t/ha for barley.
· Construction started of "The Tambov Turkey" farm. "The Tambov Turkey" is the joint venture of Cherkizovo Group and Grupo Fuertes (Spain). The farm will be operational in 2015.
· Cherkizovo Group acquired Dankov meat processing plant in the Lipetsk region.
Commenting on the results, Sergei Mikhailov, Cherkizovo CEO, stated:
We faced ? very challenging environment in the first half of 2013. Grain prices reached all-time highs in February and pork prices were very low in the first quarter, these factors having an impact on Cherkizovo's profitability in Q1 and Q2. However, thanks to its diversified, vertically integrated structure, the Company was able to profit off the meat processing division, where margins reached historic highs.
The market environment began to improve significantly in the second quarter. While poultry prices remained relatively depressed, pork prices started to rebound at the beginning of the BBQ season in early May. Due to the market deficit caused by import restrictions and the spread of African Swine Fever in many Russian regions, pork prices continued to increase throughout the summer, reaching more than 70 RUR/kg. At the same time, grain prices started to decline due to the new harvest, dropping by more than half. However, it is clear that the much more favorable combination of low grain and relatively healthy pork prices will take some time to show up in our financial statements.
Despite the very volatile market environment, Cherkizovo Group continues to grow and deliver strong operational results. We were able to increase our production capacity by 50% in the pork division, we are well on our way with our new turkey division thanks to the start of construction on a facility in Tambov Region, and the grain segment is demonstrating very strong yields this year. By increasing its operational land bank and building new silos, the Group is improving its vertical integration for greater efficiency.
Government policy remains favorable for agricultural manufacturers in Russia, with the first tranches of direct subsidies aimed at mitigating the impact of extremely high grain prices distributed this summer. The Group accrued almost 800 million RUR of direct compensational subsidies this year, which will help to cover some of our losses. We expect that towards the end of the year the Company will be able to return to its normal profitability figures, which are among the highest in the global meat industry.
Original source: Cherkizovo Group
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RUSSIA: Cherkizovo profit plunges on grain costs