RUSSIA: Meat firm Cherkizovo sees "extremely challenging" Q1

By Katy Askew | 24 May 2013

  •  Sales up 8%
  •  EBITDA down 54%
  •  Net losses total US$0.6m
Profits drop in Q1

Profits drop in Q1

Russian meat manufacturer Cherkizovo Group has seen operating profit halve during the first quarter as margins were hit by "historically high" grain costs and declining pork prices.

Cherkizovo said this morning (24 May) adjusted EBITDA fell 54% in the three months to the end of March, dropping to US$28.4m. Operating margin slid to 7.4%, down from 17.5% in the comparable period of last year.

Margins were hit by high grain prices, which peaked in February, the company said. This came at a time of declining pork prices which forced "even the most efficient" pork producers in Russia to sell hogs at below the cost of production.

Nevertheless, the company was able to book an 8% increase in turnover, which grew to $385m on higher volumes.

The group racked up a net loss of $0.6m, down from an income of $39.8m last year.

Show the press release

 

Financial results for the First Quarter Ended 31 March 2013 24.05.2013 Financial results for the First Quarter Ended 31 March 2013

Moscow, 24 May 2013 - Cherkizovo Group (LSE: CHE), Russia’s leading integrated and diversified meat producer, today announces quarterly results for the period ended 31 March 2013.

Highlights

Revenue increased by 8% to $385.0 million for 1Q 13 from $357.3 million in the first quarter of 2012
Adjusted EBITDA* decreased by 54% to $28.4 million for 1Q 13 from $62.5 million in the first quarter of 2012 Adjusted EBITDA* margin decreased to 7.4% from 17.5% in the first quarter of 2012 Gross Profit decreased by 34% to $63.3 million for 1Q13 from $96.0 million in the first quarter of 2012 Group’s gross margin decreased to 16.4% from 26.9% in the first quarter of 2012 The company showed Net Loss of $0.6 million compared to Net Income of $39.8 million in the first quarter of 2012 Net Debt**** was $846.8 million at the end of the first quarter of 2013 The effective cost of debt was 2.6% (1Q12: 1.9%) Net Loss per share was at $0.01
Operating Cash Flow was at $30.7 million
Business Developments

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. 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.
Renovation of a slaughterhouse at the Penza Meat Processing Plant got under way.
Commenting on the results from the first quarter, Sergei Mikhailov, Cherkizovo CEO, stated:

The first quarter was extremely challenging for all meat manufacturers in Russia, our company included. Grain prices reached historic highs with a peak in February and pork prices continued to decline throughout the quarter. Even the most efficient industrial pork manufacturers, including Cherkizovo, were forced to sell hogs below production cost.

In these trying circumstances, the Cherkizovo Group demonstrated that its unique diversified structure enables the Company to mitigate inevitable market risks. While the pork segment suffered from depressed prices, the meat processing segment helped to capture some margin lost in pork. Our new grain segment also demonstrated strong growth.

From this point forward, we expect the situation to significantly improve. As we surmised, pork prices began growing with the start of the summer barbeque season, and, as a result of the market deficit caused by decreased imports and less efficient producers exiting the market, in early May live hog prices rebounded by more than 10%. Grain prices started to decline in anticipation of a good harvest.

We welcome the government’s decision to increase its support for the agricultural sector. It is expected that direct subsidies will amount to 9 rubles per kilogram for pork and 3.5 rubles per kilogram for poultry. These subsidies will be distributed based on Q4 2012 production volumes, so the Cherkizovo Group should receive approximately 600 million RUR in subsidies.

Over the last seven years we have built a strong and sustainable business model and the strongest management team in the industry. Given that fact, Cherkizovo is pursuing the right strategy and is on the right track for long term growth.

About Cherkizovo Group

Cherkizovo Group (LSE:CHE) is the largest meat manufacturer in Russia and one of the top three companies serving Russia’s poultry, pork and meat processing markets. The company is also Russia’s largest producer of fodder.

The Group includes 7 full cycle poultry production facilities, with a total capacity of 400,000 tonnes live weight p.a.; 14 modern pork production facilities with a total capacity of 180,000 tonnes live weight p.a.; 6 meat processing plants with a total capacity of 190,000 tonnes p.a.; 6 fodder plants with a total capacity of 1.4 million tons p.a.; grain storage facilities with a total storage capacity exceeding 500,000 tonnes; and a land bank exceeding 100,000 hectares. In 2012, Cherkizovo produced more than half a million tons of meat and processed meat products.

Due to its vertically integrated structure, which includes agricultural land, grain storage facilities, feed production, livestock breeding, growing and slaughtering as well as meat processing and integrated distribution, Cherkizovo has consistently delivered sustainable revenue and profit growth. In 2012, Cherkizovo’s US GAAP consolidated revenue exceeded $1,5 billion, and net profit amounted to $ 225 million.

Within the last five years alone, Cherkizovo has invested more than $ 1 billion into the development of Russia’s agriculture sector. In addition to existing production facilities, the Group is also investing in a 20 billion ruble high technology agro-industrial production complex in Elets, Lipetsk region.

Cherkizovo’s strategy includes both organic growth and investment in new projects, driving the consolidation of the Russian meat market. Cherkizovo shares are quoted on LSE and RTS/MICEX.

 

Original source: Cherkizovo Group

Sectors: Emerging markets, Financials, Meat & poultry

Companies: Cherkizovo

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