Cherkizovo Sees Profits Slide

RUSSIA - Integrated meat and food producer, Cherkizovo, has seen its revenue rise by five per cent to US$779.6 million in the first half of 2013 from $746 million in the first half of 2012.
calendar icon 3 September 2013
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However, revenue for the second quarter fell by three per cent to $396.4 million compared to $410.5 million for the same period in 2012.

Gross profit fell by 29 per cent to $150.6 million for the half year from $212.6 million in the first half of 2012.

In the second quarter of the year gross profit fell by 30 per cent to $85.8 million in from $121.7 million for the second quarter of 2012.

The group’s gross margin decreased to 19.3 per cent from 28.5 per cent in the first half of 2012 and in the second quarter of 2013 gross margin decreased to 21.6 per cent from 29.7 per cent in 2012.

Adjusted EBITDA fell by 53 per cent to $69.3 million in the half year from $148.5 million in the first half of 2012. Adjusted EBITDA also fell by 55 per cent to $40.7 million in the second quarter of the year from $90.2 million for the same period of 2012.

The company said there was a net profit decrease of 91 per cent to $9 million in the first half of 2013 compared to $95.5 million in the first half of 2012.

Net profit fell by 84per cent to $9.4 million in the second quarter of 2013 from $58.3 million in 2012.

Sergei Mikhailov, Cherkizovo CEO, said: “We faced a very challenging environment in the first half of 2013. Grain prices reached all-time highs in February and pork prices were very low in the first quarter, these factors having an impact on Cherkizovo’s profitability in Q1 and Q2.

“However, thanks to its diversified, vertically integrated structure, the Company was able to profit off the meat processing division, where margins reached historic highs.

"The market environment began to improve significantly in the second quarter. While poultry prices remained relatively depressed, pork prices started to rebound at the beginning of the BBQ season in early May. Due to the market deficit caused by import restrictions and the spread of African Swine Fever in many Russian regions, pork prices continued to increase throughout the summer, reaching more than 70 RUR/kg. At the same time, grain prices started to decline due to the new harvest, dropping by more than half. However, it is clear that the much more favourable combination of low grain and relatively healthy pork prices will take some time to show up in our financial statements.

“Despite the very volatile market environment, Cherkizovo Group continues to grow and deliver strong operational results.

“We were able to increase our production capacity by 50 per cent in the pork division, we are well on our way with our new turkey division thanks to the start of construction on a facility in Tambov Region, and the grain segment is demonstrating very strong yields this year.

“By increasing its operational land bank and building new silos, the Group is improving its vertical integration for greater efficiency.

“Government policy remains favourable for agricultural manufacturers in Russia, with the first tranches of direct subsidies aimed at mitigating the impact of extremely high grain prices distributed this summer.

“The Group accrued almost 800 million rubles of direct compensational subsidies this year, which will help to cover some of our losses. We expect that towards the end of the year the Company will be able to return to its normal profitability figures, which are among the highest in the global meat industry.”

The company has seen three new pork complexes in the Lipetsk, Tambov and Voronezh regions, launched in 2012, go fully operational and working at full capacity, resulting in a significant increase in pork production volumes and higher production efficiency.

Renovation of a semi-cooked meat products facility began at the Cherkizovsky Meat Processing Plant in Moscow. The new facility will produce semi-cooked meat products under the popular Cherkizovsky brand. The launch is expected this autumn," said Mr Mikhailov.

Renovation of a slaughterhouse at the Penza Meat Processing Plant got under way.

Renovation started at Ozherelie feed mill in the Moscow region; Renovation at Kamenka feed mill in the Penza region to be completed in autumn 2013.

Operational land bank of the Grain Division was increased to 40 000 hectares compared to approximately 35,000 hectares in 2012. By the date, the Group harvested more than 110,000 tonnes of grain, demonstrating strong yields of 5.1 tonnes per hectare for wheat and 3.3 tonnes per hectare for barley.

Construction started of the Tambov Turkey farm, a joint-venture between Cherkizovo Group and Grupo Fuertes (Spain). The farm will be operational in 2015.

Cherkizovo Group acquired Dankov meat processing plant in the Lipetsk region.

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