Cherkizovo Group, Russia’s largest meat and feed producer, has announced its financial results for the first quarter ending 31 March 2014.

Highlights

Revenue decreased by two per cent to US$376.6 million from $383.0 million in the first quarter of 2013 (1Q13) due mostly to the weakening of Russian rouble (RUB) against US$. Revenue increased by 13 per cent in RUB terms.

Gross Profit increased by 48 per cent to $95.1 million from $64.4 million in 1Q13. In RUB, Gross Profit increased by 70 per cent.

Gross Margin increased to 25 per cent from 17 per cent in 1Q13.

Adjusted EBITDA has doubled to $56.2 million from $28.4 million in 1Q13. In RUB, Adjusted EBITDA increased by an impressive 128 per cent. Adjusted EBITDA margin more than doubled to 15 per cent from seven per cent in 1Q13.

Net Profit in 1Q14 amounted to $25.0 million compared with a Net Loss of ($0.6 million) in 1Q13.

Net Margin was at seven per cent.

Net Debt was $808.9 million as of the end of 1Q14. The effective cost of debt was 3.2 per cent (1Q13: 2.6 per cent).

Earnings per share (EPS) was $0.57 (1Q13: loss per share of ($0.01)). CCR (Cash Conversion Ratio) was 131 per cent.

Business Developments

Cherkizovo Group acquired LISKO Broiler in the Voronezh region, one of the country’s largest poultry producers. The deal is based on the enterprise value of approximately RUB5 billion. As a result of the acquisition, Cherkizovo increased its market share by two percentage points to 13 per cent, making an important step to the poultry market leadership.

Operational land bank of the Grain Division was increased to 58,000 hectares as compared with 40,000 hectares in 2013. The Group has invested in modern high-tech agricultural equipment in order to promote the efficiency of the grain segment and expects a harvest of approximately 250,000 tonnes of grain in 2014.

Cherkizovo Group has launched a case-ready production line at Cherkizovsky Meat Processing Plant in Moscow. The line allows for 100 tonnes of ready-to-cook meat products to be produced per day.

CEO's Comments

Commenting on the results, Sergei Mikhailov, Cherkizovo CEO, said: "Cherkizovo demonstrated very strong results in the first quarter. The Company’s revenue increased by 13 per cent in RUB, and Adjusted EBITDA more than doubled. We can definitely say that after a very challenging 2013, the Group returned to a strong profitability.

"The market environment was quite favourable throughout the quarter. Grain prices were relatively stable, while poultry meat and pork prices started to increase. Due to a shortage on the pork market and stoppage of imports, growth of live hog prices was very rapid starting in March. As a result, Cherkizovo Group, which completed its long-term investment programme in the pork division last year, could gain a strong financial return from these investments.

"Once again, we benefited from the Company’s diversified structure. The rapid growth of profit in the pork division compensated many times over for the inevitable pressure on margins in the meat processing division. While many meat processors are facing difficulties as a result of the shortage on the pork market, Cherkizovo Group is able to supply its meat processing division with high-quality raw meat thanks to its high degree of the vertical integration.

"The acquisition of Lisko Broiler that we announced in the first quarter was a milestone for our business. Cherkizovo Group continued to consolidate the Russian meat market and made a major step towards market leadership. The transaction was made at a very attractive multiple which is beneficial for our shareholders, and we expect to have a noticeable synergy effect starting this year," said Mr Mikhailov.