Strong Performance from Cherkizovo Group

RUSSIA - Russian meat integrated meat and poultry processor Cherkizovo has seen revenues increased by 14 per cent in rubles, and increased by seven per cent on a US Dollar basis to $1,581.7 million in 2012 from $1,472.6 million for 2011.
calendar icon 15 March 2013
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Revenues increased by 11 per cent to $436.3 million in the fourth quarter of 2012 from $393.3 million for the fourth quarter of 2011, and increased by 11 per cent on a rouble currency basis.

Profits rose by 37 per cent in rubles, and increased by 29 per cent on a US Dollar basis to $314.6 million from $243.4 million for 2011 with EBITDA in the fourth quarter of 2012 increasing by 17 per cent to $75.4 million from $64.6 million in the fourth quarter of 2011, an increase of 17 per cent on a ruble currency basis.

Gross profit increased by 30 per cent in rubles, and increased by 23 per cent on a US Dollar basis to $452.1 million from $367.0 million for 2011. Gross profit in the fourth quarter increased 24 per cent to $118.6 million from $95.7 million in the fourth quarter of 2011, and increased 24 per cent on a ruble currency basis.

Group gross margin was 29 per cent for 2012 and 27 per cent for the fourth quarter.

Net income increased by 75 per cent in roubles and increased by 66 per cent on a US Dollar basis to $225.2 million from $135.9 million for 2011. Net income in the fourth quarter more than doubled (+115 per cent) to $66.5 million from $ 31.0 million, and more than doubled (+112 per cent) on a rouble currency basis.

Business Developments

Construction has been completed of greenfield pork farms in Tambov, Voronezh and Lipetsk and all the facilities are now fully stocked with sows.

The completed capacity in the projects in the Bryansk cluster saw a rise from 45,000 tonnes to 85,000 tonnes a year and at the Penza cluster the capacity is almost complete rising from 60,000 tonnes to 135,000 tonnes a year.

There is continued development of the Elets integrated poultry production facility.

Construction has started on new elevator and sourcing is underway for the 120,000 per hour feed mill supplier and equipment has been purchased for the 240 million egg incubation hatchery.

An agreement to set up a turkey meat production joint venture with Spain’s Grupo Fuertes was signed during the year.

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 25,000-30,000 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 with a total capacity exceeding 200,000 tonnes, a feed mill which is under construction and a land bank of approximately 30,000 ha in the Voronezh region.

A second line at Kaliningrad meat processing plant has been launched, tripling the production capacity of the facility.

The group’s grain storage facilities reached a 500,000 tonnes and the company successfully launched a Grain division that reported a harvest of approximately 115,000 tonnes of grain products.

The company has relaunched Petelinka, Russia’s number one chilled poultry brand.

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. The Board has elected a Corporate Secretary to ensure the corporate governance procedures are followed.

Sergey Mikhailov, Chief Executive Officer of Cherkizovo Group, said: "Cherkizovo Group has delivered a very solid performance in 2012. Being the largest meat company in Russia, we achieved significant new milestones: more than $1.5 billion in revenue, more than half a million tonnes in output and EBITDA of over $300 million. We were able to achieve outstanding results, again validating the key elements of our strategy: business diversification, vertical integration and a combination of organic growth and strategically important acquisitions. Over many years Cherkizovo Group has invested in growth and development, and in 2012 we saw considerable “harvest” from earlier investments.

"The Poultry division displayed impressive results: sales increased by 22 per cent, and EBITDA in the division increased by 57 per cent. The Poultry division supplied half the revenue and more than half the profit of the Group. The full integration of Mosselprom, which was acquired in 2011, and the expanded capacities in the Penza and Bryansk clusters positively affected 2012’s earnings as well as strong pricing environment. In early 2013 we completed plans for doubling production capacity in the Penza and Bryansk clusters, reaching installed capacity of 390 thousand tonnes p.a. live weight, and we are planning double-digit growth this year.

"For the future development of the Pork division, we have brought in a team of international experts with extensive experience working on the international markets. In 2012 the new Pork division team created a set of vital operational changes directed at increasing productivity and at sustainable growth. In 2012, volume grew 14 per cent, but most important, despite the changes, we maintained a decent level of EBITDA profitability. We completed the construction of three pork complexes in the Lipetsk, Tambov and Voronezh regions, reaching full installed capacity of 180 000 tonnes p.a.. Cherkizovo also acquired a swine nucleus unit. So, we are poised for future volume growth.

"Meat Processing division continued to change its products portfolio towards value-added products. The segment also benefited from lower input costs, that enabled it to achieve a record 9 per cent EBITDA profitability. During 2012, we closed an inefficient slaughtering facility in southern Russia, and invested in the plant in the Kaliningrad region’s free-trade zone, where production capacity tripled.

"Vertical integration is the continuing focus for the Company. Being the largest fodder manufacturer in the country, in 2012 we produced more than a million tonnes of fodder, ensuring self-sufficiency of our operations. We have invested in grain storage facilities, and now our total storage capacities exceed 500 thousand tonnes. In 2012 for the first time we asserted ourselves as a grain producer, having gathered a harvest of more than 115 thousand tonnes from our land. Vertical integration and the availability of storage capacities allow Cherkizovo Group to confidently operate in the grain market’s highly volatile environment. As grain price rose in 2012, we significantly benefited from the acquisition of agricultural assets of Voronezhmyasoprom.

"After accession to the WTO, the government implemented a series of initiatives aimed at supporting agriculture. This included maintaining in perpetuity zero tax rate on profits for agricultural enterprises.Further, the interest rate subsidy on bank credits has been preserved. The government is currently considering the issue of providing direct grants to agricultural enterprises that are suffering from higher grain prices. We are sure that both existing and planned support measures will benefit the domestic agriculture sector.

"2013 looks very challenging as grain prices are currently at historical highs and pork prices are at historical lows. This combination will negatively impact the Company’s performance in 2013. Still, Cherkizovo Group’s management is optimistic about the Group’s business prospects. Our diversified business structure, including not only pork and poultry but also grain production and meat processing, creates a solid platform that enables us to mitigate any negative market factors."

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