Cherkizovo Group Profits Normalise

RUSSIA - After experiencing difficult trading conditions in the first six months of last year, meat and grain giant, Cherkizovo Group, has reported net profits for the first half of 2014 at US$115 million.
calendar icon 29 August 2014
clock icon 3 minute read

Cherkizovo Group, Russia’s leading integrated and diversified meat producer, announces its financial results for the period ending 30 June 2014.

Among the highlights reported are that revenue increased by 12 per cent to US872.3 million for the first half of 2014 (1H14) from $779.6 million in the first half of 2013 (1H13).

Gross profit increased by 69 per cent to $255.1 million for 1H14 from $150.6 million in 1H13, while gross margin increased to 29 per cent from 19 per cent in 1H13.

Adjusted EBITDA more than doubled to $176.3 million for 1H14 from $69.3 million in 1H13, indicating that the Group returned to its more normal profitability, with Adjusted EBITDA margin amounting to 20 per cent.

After a very challenging 1H13, the Group achieved a net profit of $115.2 million in 1H14. Net debt was $791.6 million at the end of the first half of 2014, and the effective cost of debt was three per cent (2013: three per cent).

Earnings per share (EPS) was at $2.67. Cash Conversion Ratio was 119 per cent.

CAPEX amounted to $80 million (excluding the acquisition of Lisko Broiler).

Business Developments

Cherkizovo Group acquired LISKO Broiler, one of the country’s largest poultry producers, in Voronezh region. 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 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 launched 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.

The Company continued to invest its profits into long-term investment projects, such as Eletsprom (Lipetsk region) and Mosselprom (Moscow region).

Its Tambov Turkey project is well under way. Cherkizovo Group and its partner, Grupo Fuertes, continued the construction of production facilities in Pervomaisky District of the Tambov region.

CEO's Comments

Commenting on the results, Sergei Mikhailov (pictured above), CEP of Cherkizovo, said: “After a very challenging first 1H13, when the Group was on the verge of losses, Cherkizovo returned to its normal profitability figures in 1H14.

“The favourable market environment allowed us to compensate for the significant losses in the pork division we had last year due to expensive grain and a plunge in pork prices, and thus to get back to implementing the investment projects we had to freeze.

“In 1H14, we invested RUB2.8 billion into CAPEX projects and also made a major investment and an important step toward poultry market leadership with the RUB5 billion acquisition of Lisko Broiler. By now, we have almost fully integrated Lisko into our production, logistics and sales infrastructure.

“Focusing on marketing and distribution, we recently relaunched our core meat processing brand, changing its name to Cherkizovo. This was a well-timed action, as the situation on sausage market looks difficult due to very expensive raw meat.

“We believe that our diversified business model will allow us to partially offset losses in meat processing with the profits from our livestock breeding divisions.

“It is also worth mentioning that although the Debt/EBITDA ratio has returned to a level that is comfortable for shareholders, we are seeing an increase in the cost of money and delays in interest reimbursement subsidies. These factors may negatively affect the Group’s business development," added Mr Mikhailov.

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