RUSSIA: Meat group Cherkizovo books higher H1 profits
By Dean Best | 12 September 2012
- H1 profits jump
- Earnings from all businesses increase
Profits were up across all of Cherkizovo's businesses
Russian meat processor Cherkizovo has reported a jump in first-half earnings as profits from each of its three businesses increased.
Net income was up 56% to RUB2.95bn (US$94.4m) for the period to the end of June. Operating income increased 52% to RUB3.3bn.
Earnings from poultry, pork and meat processing all increased. Profits from poultry doubled. In meat processing, Cherkizovo's second-largest unit, earnings jumped by 50% despite lower volumes as the company focused on "value-added" products like smoked sausage. Pork profits were boosted by higher sales.
Group sales increased 16% to RUB23bn. Shares in Cherkizovo were up 2.82% at 11.68p at 11:07 BST this morning.
Cherkizovo Group OJSC
(“Cherkizovo” or “the Group” or “the Company”)
Financial results for the Second Quarter and Six Months Ended 30 June 2012
Cherkizovo Group (LSE:CHE), Russia’s leading integrated and diversified meat producer, today announces second quarter and first half unaudited financial results for the period ended 30 June 2012.
· Revenues increased 16% on a rouble currency basis and increased 9% to $749.3 million in dollar terms from $689.1 million for the first half of 2011. Revenues increased 13% on a rouble currency basis and 2% to $391.1 million in dollar terms in the second quarter of 2012 from $382.5 million for the second quarter of 2011.
· Gross profit increased 31% on a rouble currency basis and increased 23% to $208.6 million in dollar terms from $170.2 million for the first half of 2011. Gross profit in the second quarter increased 19% on a rouble currency basis and 8% to $114.7 million in dollar terms from $106.5 million for the second quarter of 2011.
· Group gross margin was 28% for the half-year and 29% for the second quarter.
· Adjusted EBITDA* increased 47% on a rouble currency basis and increased 38% to $146.4 million in dollar terms from $106.3 million for the first half of 2011. Adjusted EBITDA* in the second quarter of 2012 increased 31% on a rouble currency basis and increased 18% to $85.3 million in dollar terms from $72.2 million in the second quarter of 2011.
· Adjusted EBITDA* margin was 20% as compared to 15% in the first half of 2011. Adjusted EBITDA* margin in the second quarter was 22% as compared to 19% in the second quarter of 2011, reflecting a strong improvement from the first quarter of 2012 and a healthy profitability level.
· Net income increased 56% on a rouble currency basis and increased 46% to $96.3 million in dollar terms from $66.2 million for the first half of 2011. Net income in the second quarter increased 30% on a rouble currency basis and increased 17% to $56.9 million from $48.5 million.
· As of 30 June 2012 Net debt** was $664.3 million (RUR 21,799 million).
· The effective cost of debt was flat at 2%.
· Net income per share increased 45% to $2.24.
- Cash conversion rate (CCR)*** was 153% (1H2011: 136%).
- Cherkizovo opened the first line of its poultry breeding facility, “Pervomayskaya”, at the Bryansk cluster. The facility, which was built as part of Cherkizovo’s ongoing poultry capacity increase project, consists of 28 bird houses, with a combined capacity of almost 1 million broilers.
- Cherkizovo built 21 additional bird houses at the poultry breeding facility “Vostochnaya” part of the Penza cluster. Previously, this facility consisted of 4 bird houses with a capacity of 246,000 broilers, but with the new bird houses, this has increased to 1 million heads.
· Cherkizovo signed an agreement to set up a turkey meat production joint venture with Spain’s Grupo Fuertes. The new plant, due to be operational in 2014, will be in the Tambov region of Russia, with more than EUR 100 million invested in development of the project. The annual capacity is expected to be 25-30,000 tonnes of turkey meat, and may be increased to 50,000 tonnes in the medium term.
- Cherkizovo reached an agreement to acquire agricultural assets located in Central Russia, comprising a swine nucleus unit in the Voronezh region; grain storage facilities in the Voronezh and Penza regions with a total capacity exceeding 200,000 tonnes; a feed mill (under construction); and a land bank of approximately 30,000 ha in the Voronezh region.
- Cherkizovo opened a renovated feed mill at the Penza cluster, the total annual capacity is 300,000 tonnes.
Sergey Mikhailov, Chief Executive Officer of Cherkizovo, said:
“I am pleased to report that Cherkizovo, Russia’s largest meat products and fodder manufacturer, has again demonstrated the effectiveness of its corporate strategy. In the first half of 2012, the Group produced more than 250 thousand tonnes of high quality meat and meat products, and increased its net profit in rubles by almost one half, when compared to the same period in 2011. In rouble terms, adjusted EBITDA* grew 1.5 times, with an EBITDA* margin of 20%.
Cherkizovo’s poultry segment produced very impressive results. Sales have grown by one third, and the divisional profit doubled. This success was achieved by both organic sales and the contribution of Mosselprom, which was acquired in May 2011 and is now fully integrated. Post integration, Cherkizovo has been able to substantially improve Mosselprom’s profitability and operating efficiency. Both low prices for grain at the beginning of the year and the Group’s flexible purchasing strategy helped to decrease the cost of goods. As Cherkizovo continues to grow, the Group benefits from the dilution of SG&A expenses. Looking ahead, we see growing demand for poultry meat and anticipate higher prices than previously expected. This year the Group anticipates producing more than 300,000 tonnes of poultry, and finalizing our previously announced capacity increase project in the Bryansk cluster.
In the pork segment, we are finalizing the construction of three greenfield complexes in Lipetsk, Tambov and Voronezh this year; once completed in 2013, they will have a capacity of 180, 000 tons – these complexes are already being filled with livestock. We continue to benefit from high pork prices, caused by the deficit from African Swine Flu in some regions of Russia and a veterinary ban on imports of live pigs. We expect prices to remain relatively high for the remainder of the year.
As a result of the effective restructuring of our meat processing segment and a shift to higher margin processed products, the Group achieved improved margins in this segment compared to the first half of 2011, albeit on lower sales volumes. We have focused on sales of more profitable value added products, like smoked sausages, and have reduced low-margin products like raw meat. As a result, the net profit of the meat processing segment has grown by one half, while the average price has increased faster than inflation. The Kaliningrad meat processing plant, acquired in 2010, reached full capacity in 2011, and this has helped to improve segmental profits. By the end of the year, more production lines will be launched in Kaliningrad, supporting further profit growth for the segment.
In terms of the general outlook for the agricultural sector, we are broadly optimistic about Government actions aimed to support the industry. Following WTO accession, the Government is considering prolonging the zero profit tax rate for an unlimited period of time for agricultural manufacturers. Meanwhile the subsidies on interest rates are being maintained. Such measures will help agricultural businesses achieve their long term development goals, while consumers will benefit from high quality, domestic produce.”
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 tons live weight p.a.; 14 modern pork production facilities with a total capacity of 180,000 tons live weight p.a.; 6 meat processing plants with a total capacity of 190,000 tons 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 tons; and a land bank exceeding 100,000 hectares. In 2012, Cherkizovo expects to produce 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 2011, Cherkizovo’s US GAAP consolidated revenue increased 24% to USD 1,479 million, and net profit amounted to USD 147.8 million.
Within the last five years alone, Cherkizovo has invested more than USD 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 rouble hi-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.
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Original source: Cherkizovo
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