Cherkizovo Group net profits plummet 86% in 9M
MOSCOW. Nov 28 (Interfax) - Cherkizovo Group , one of the leading producers of meat and meat products in Russia, made $23.1 million in net profits in January-September, which was 86% down year-on-year, a company press release says.
Revenue increased by 5% to $1.195 billion, gross profit fell 28% to $240.2 million, the gross margin decreased to 20% from 29% in 9M 2012, adjusted Earnings before taxes, depreciation and amortization (EBITDA) decreased by 51% to $116.1 million and the adjusted EBITDA* margin decreased to 10% from 21% in 9M 2012.
Net debt was $813.3 million as of September 30, 2013 and the effective cost of debt was 2.7%, up from 2.1% in 9M 2012.
"In the third quarter we saw the market environment improving after very challenging first and second quarters. While poultry prices remain flat, pork prices rebounded by 40% between May and October, and the new harvest grain is trading at half the level of February. Market environment improvements are positively affecting the company's performance in the third quarter and going forward. Cherkizovo Group remains on a growth path, delivering increased volumes in all segments. Our revenue crossed the billion-dollar milestone in the nine months of 2013, positioning the company among Russia's leading food producers, and the company achieved a 10% EBITDA margin despite a very challenging market environment," said Sergei Mikhailov, Cherkizovo CEO.
Cherkizovo financial highlights to IFRS in 9M and Q3 2013 ($ mln):
| 9M13 | 9M12 | Change | 3Q13 | 3Q12 | Change | |
| Sales | 1 195.0 | 1 137.3 | 5% | 415.4 | 390.9 | 6% |
| Gross Profit | 240.2 | 333.6 | (28%) | 89.6 | 120.6 | (26%) |
| Gross margin | 20% | 29% | 22% | 31% | ||
| Operating expenses | (191.9) | (153.5) | 25% | (66.4) | (50.2) | 32% |
| Operating Income | 48.4 | 180.1 | (73%) | 23.3 | 70.4 | (67%) |
| Operating margin | 4% | 16% | 6% | 18% | ||
| Net Income | 23.1 | 158.7 | (86%) | 14.1 | 62.8 | (78%) |
| Adjusted EBITDA* | 116.1 | 239.1 | (51%) | 46.8 | 90.2 | (48%) |
| EBITDA margin | 10% | 21% | 11% | 23% |
*Adjusted EBITDA represents income before income tax and non-controlling interests adjusted for interest, depreciation and amortization and certain other items.
The group's capex fell 24.6% year-on-year in 9M 2013 to $115.2 million, of which $60.8 million was invested into the Poultry division, mainly into the capacity increase in Penza, Bryansk and Moscow clusters as well as into the Elets Project. The Pork division received $20.6 million of investments, Meat Processing division received $23.3 million of investments and the Grain division received $10.5 million of investments.
Regarding the outlook, Cherkizovo said the situation on the meat market had improved significantly since summer. Pork prices have rebounded by 40% and remain at a healthy level above 70 rubles/kg net of VAT. The 2013 harvest is reported above 90 million tons, which is a long-term average result for Russia, preventing grain prices from increasing. The situation with Government subsidy payments remains quite stressful but is steadily improving. As a result of import restrictions imposed in the first and second quarters, imports on the pork market significantly decreased. As large domestic pork producers refrain from further investments during periods of volatility, this also helps to stabilize the market.
"When combined, these factors form a favorable growth platform for the balance of 2013 and 2014, enabling large, diversified and vertically integrated companies to achieve decent profitability," the company said.
Cherkizovo Group is the largest meat manufacturer in Russia and one of the top three companies serving Russia's poultry, pork and meat processing markets. The company is also Russia's largest producer of fodder.
The group includes seven full cycle poultry production facilities, with a total capacity of 425,000 tonnes live weight per year; 14 modern pork production facilities with a total capacity of 180,000 tonnes live weight; six meat processing plants with a total capacity of about 160,000 tonnes.; six fodder plants with a total capacity of 1.4 million tonnes; grain storage facilities with a total storage capacity exceeding 500,000 tonnes; and a land bank exceeding 100,000 hectares. In 2012, Cherkizovo produced more than 500,000 tonnes of meat and processed meat products.