Cherkizovo's Profit Jumps 24 Per Cent This Half-Year

RUSSIA - Cherkizovo Group has published its financial results for the six months ended 30 June 2010, stating that organic growth had been strong across all its business segments.
calendar icon 15 September 2010
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Cherkizovo Group OJSC, one of Russia's leading integrated and diversified meat producers, today announces first half financial results for the period ended 30 June 2010.

Among the highlights are that there has been strong organic volume growth across all segments, delivering a solid financial performance. Revenues increased 26 per cent to US$579.9 million from $459.3 million for the first half of 2009, and increased 15 per cent on a rouble currency basis.

Adjusted EBITDA increased 36 per cent to $109.0 million from $80.4 million for the first half of 2009, and increased 23 per cent on a rouble currency basis. Adjusted EBITDA margin was 19 per cent, increasing from 18 per cent for the first half of 2009.

Gross profit increased 24 per cent to $159.5 million from $128.3 million for the first half of 2009, and increased 13 per cent on a rouble currency basis. Group gross margin was a robust 28 per cent. Net income increased 42 per cent to $71.4 million from $50.3 million for the first half of 2009, and increased 29 per cent on a rouble currency basis.

As of 30 June 2010, net debt decreased 13 per cent to $386.7 million. The effective cost of debt remained at four per cent.

Business developments

Cherkizovo Group has signed a Memorandum of Understanding to acquire a controlling interest in two greenfield pork production farms located in the Penza and Lipetsk regions of Central Russia, which upon completion is expected to increase the Group's current production capacity in the high-margin pork business by almost 30 per cent. The deal was approved by independent members of the Board of Directors.

The company has commenced construction of two new greenfield pork farms in the Tambov and Voronezh regions with a combined capacity of 25,000 live-weight tonnes. The new multi-site complexes will become operational during 2011 and full capacity is expected to be reached by the end of 2012, which will bring the Group's overall capacity to an estimated 140,000 tonnes a year.

The Group was assigned the following ratings from Moody's: (i) National scale credit:; (ii) Corporate family: B2; and (iii) Probability of default: B2.

Sergey Mikhailov, Chief Executive Officer of Cherkizovo Group, commented: "In the first half of 2010, we were able to deliver a strong performance, with a 26 per cent increase in revenue and growth in Adjusted EBITDA of 36 per cent, resulting in a healthy 19 per cent adjusted EBITDA margin. While our results were somewhat affected by the tighter pricing environment with poultry and pork prices coming off from the unusually high levels of last year, prices are now recovering and we expect a positive pricing environment throughout the remainder of the year.

"In the poultry division, we are seeing the benefits from our ongoing projects to increase capacity, and we expect to launch new production sites in the Bryansk cluster at the beginning of the fourth quarter of this year. 2009 was characterised by unusually high pricing trends in this division, and profitability is returning to historical trend levels. Accordingly, we have achieved a 30 per cent gross margin and a 22 per cent adjusted EBITDA margin.

"As expected, the Pork division has enjoyed significant growth which should be further supported by the upcoming integration of the two new farms. Moreover, we are pleased to announce that construction has commenced on two state-of-the-art greenfield complexes in the Tambov and Voronezh regions, which are expected to become operational during 2011 and which will add 25,000 tonnes of capacity. This will take our production volumes to 140,000 tonnes by the end of 2012, further strengthening our market leadership in this high-margin business and positively affecting our overall performance.

"Meat processing continues to see rising demand as consumer confidence improves. We have seen some very positive results, with an increase in sales volumes and sustained profitability.

"While the unusual weather conditions in Central Russia have produced a worse than expected grain harvest and we anticipate a rather challenging year in terms of grain supplies globally, we welcome the measures taken by the Government to mitigate the impact. In particular, the ban on grain exports, the expected sale of grain from the intervention fund and the potential decrease in railway tariffs to help transfer grain to regions that have suffered most, should lead to a stabilization of prices in the domestic market, where there has been considerable speculative activity. At the Group level, we intend to secure grain stock for 2011 in the course of this year, and are currently implementing this strategy. At the same time, grain price increases from an operations perspective will predominantly affect the fourth quarter of this year and may lead to domestic meat price inflation."

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