Cherkizovo OJSC, Russia's leading integrated and diversified meat producer, has announced its third quarter and nine months unaudited financial results for the period ended 30 September 2012.

Revenues increased 15 per cent in roubles (RUB) and increased six per cent in dollar terms to US$1,145.4 million for the nine months of 2012 from US$1,079.4 million for the nine months of 2011. For the third quarter of 2012, revenues increased 11 per cent in RUB and increased three per cent in dollar terms to US$394.5 million as compared to US$384.6 million in the third quarter of 2011.

Gross profit increased 33 per cent in RUB and increased 23 per cent in dollar terms to US$333.4 million for the nine months of 2012 from US$271.4 million for the nine months of 2011. In the third quarter of 2012, gross profit increased 32 per cent in RUB and increased 22 per cent in dollar terms to US$121.2 million as compared to US$99.8 million in the third quarter of 2011.

Group gross margin was a robust 29 per cent for the nine months and 31 per cent for the third quarter.

Adjusted EBITDA increased 45 per cent in RUB and increased 34 per cent in dollar terms to US$239.1 million for the nine months of 2012 from US$178.7 million for the nine months of 2011. For the third quarter of 2012 Adjusted EBITDA increased 38 per cent in RUB and increased 26 per cent in dollar terms to US$90.3 million as compared to US$71.4 million in the third quarter of 2011.

Adjusted EBITDA margin for the nine months of 2012 was 21 per cent versus 17 per cent in the nine months of 2011. Adjusted EBITDA margin in the third quarter of 2012 increased to 23 per cent, compared to 19 per cent for the same period of 2011, reflecting a healthy profitability level.

Net income increased by 64 per cent in RUB and 51 per cent in dollar terms to US$158.7 million for the nine months of 2012 from US$105.0 million for the nine months of 2011. In the third quarter of 2012, net income increased 79 per cent in RUB and increased 64 per cent in dollar terms to US$62.8 million as compared to US$38.2 million in the third quarter of 2011.

As of 30 September 2012, net debt was US$822.4 million (RUB25,426.0 million). The effective cost of debt decreased from 2.3 per cent to 2.1 per cent for the nine months of 2012. Net income per share increased 51 per cent to US$3.69. Cash conversion rate (CCR) was 135 per cent (9M2011: 170 per cent).

Business developments

Construction was completed of greenfield pork farms in Tambov, Voronezh and Lipetsk; all facilities now fully stocked with sows.

There has been continued development of the Elets integrated poultry production facility. Construction has started on a new elevator; sourcing is underway for the 120-tonnes-per-hour feed mill supplier; and equipment has been purchased for the 240 million egg incubation hatchery.

The first line of the poultry breeding facility, Pervomayskaya, was opened 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 one million broilers.

An additional 21 bird houses were built at the poultry breeding facility, Vostochnaya, which is part of the Penza cluster, increasing capacity to one million birds.

An agreement to set up a turkey meat production joint venture with Spain's Grupo Fuertes was signed. The new plant, due to be operational in 2014, will be in the Tambov region of Russia, with more than €100 million invested in development of the project. The annual capacity is expected to be 25,000 to 30,000 tonnes of turkey meat, and may be increased to 50,000 tonnes in the medium term.

Agreement was reached 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 (total capacity exceeding 200,000 tonnes); a feed mill (under construction), and a land bank of approximately 30,000 hectares in the Voronezh region.

A renovated feed mill at the Penza cluster was opened, with a total annual capacity of 300,000 tonnes.

The number of Non-Executive Directors on Cherkizovo’s Board of Directors has been increased to four, reflecting an increased emphasis on corporate governance and transparency.

CEO's comments

Sergey Mikhailov, Chief Executive Officer of Cherkizovo Group, said: "I am pleased to be announcing good nine months results, with a strong third quarter performance. It is pleasing to see our nine months revenues pass the one billion dollar mark, as active management and a supportive trading environment combined to produce solid growth. We have improved profitability in the poultry and meat processing segments and invested in our pork segment to provide long term, sustainable growth beyond 2013.

"The strong poultry results reflect the infrastructure investments Cherkizovo has already made, with impressive volume and revenue growth reflecting strong organic growth and good incremental sales from Mosselprom. Meanwhile the segment’s substantial improvement in operational efficiency has produced better profitability.

"In the pork segment, major operational changes were made in 2012 to ensure the segment is well placed for future growth. A strong macro environment in the middle of the year enabled the segment to carry out a sow replacement programme, without reducing volumes or profitability. The pork segment has now reached installed capacity of 180,000 tonnes per annum and we are well placed to deliver strong volume growth in 2013.

"The meat processing segment has produced a record profit, as the Group's strategy to focus on high margin, value-added produce started to positively impact the segment's financial performance. Recent examples of this strategy include the tripling of productivity at the Kaliningrad plant, which is now well placed for further growth.

"This year, the grain segment became a strong contributor to the Company's performance for the first time. Cherkizovo has developed its vertical integration, harvesting more than 100,000 tonnes of grain, and we continue to seek opportunities to enhance the productivity of the Group's land-bank. Currently, only 35 000 hectares of the land-bank are active, but as this increases we anticipate significant further growth.

"Looking ahead, the operational environment in the medium term looks more challenging but Cherkizovo is well prepared, with significantly increased grain storage capacity, enabling the Group to benefit from flexible grain procurement. The Company's diversified operations ensure that we are well placed to benefit from high meat prices at the poultry and pork segments, or low meat prices at the meat processing segment."