30 Nov 2010 10:38

Cherkizovo Group boosts US GAAP earnings 26% to $104 mln in 9M

MOSCOW. Nov 30 (Interfax) - Russia's Cherkizovo meat group boosted net profit to US GAAP 26% year-on-year in January-September 2010 to $104.4 million, the company said in an earnings report.

Sales revenue grew 20% to $877.7 million.

"Strong organic volume growth across all segments" delivered a "solid financial performance," the company said.

Adjusted Earnings before taxes, depreciation and amortization (EBITDA) increased 21% to $159.5 million. The adjusted EBITDA margin was flat at 18%

Gross profit increased 16% to $235.9 million. The gross margin was a "robust" 27%, Cherkizovo said.

As of September 30, 2010 net debt decreased 6%, to $417 million. The effective cost of debt decreased to 3%. Total Debt was at $470.6 million or RUR14,308.4 million. Of Total Debt, long-term debt was approximately $356.0 million or 76% of the debt portfolio. Short-term debt was $114.6 million, or 24% of the portfolio. The portion of subsidized debt in the portfolio was 90%, improving from 86% as of December 31 2009. Cash and cash equivalents totaled $53.6 million at September 30, 2010.

The Group's Capital Expenditure on property, plant and equipment and maintenance amounted to $104.1 million for the first nine months of 2010. Of that, $60.5 million was invested into the Poultry division, primarily into the capacity increase projects at the Bryansk and Penza clusters; $37.7 million was invested into the Pork division, and $2.8 million was invested into the Meat Processing division.

Cherkizovo said it had made "solid progress in the first nine months of 2010 in its operational and financial results, though performance was affected by a tighter pricing environment compared to last year and unusual weather conditions which have somewhat affected operational results and costs."

"For the remaining period of 2010, we have a positive view on Russian consumption trends as positive volume-wise, although the pricing environment has been and remains tight, despite rising input costs. The rising grain prices and shortage in grain supply are expected to continue until visibility on 2011 harvest, and we may reasonably expect meat price inflation in 2011, as producers will seek to transfer cost increases on to the consumer, which has not yet happened in the third quarter of 2010. Cherkizovo also welcomes the significant reduction in imports, as this presents excellent opportunities for Cherkizovo as the leading domestic producer. The Company will continue to benefit from investments already made to increase production capacity, particularly in our higher margin Pork and Poultry businesses, and from recovery trends in Meat Processing. Overall, we remain confident that the Group will continue to enhance value and deliver against its strategy going forward," the company said.

"During the first nine months of 2010 we have delivered a solid performance, with a 20% increase in revenue and growth in Adjusted EBITDA of 21%. This has resulted in a healthy 18% Adjusted EBITDA margin. However, our results were affected by the tighter pricing environment in the poultry and pork divisions, particularly towards the end of the third quarter, and we expect pricing trends to remain challenging throughout the fourth quarter of 2010 and rolling over into the first quarter of 2011," said Sergey Mikhailov, Chief Executive Officer.

"In the poultry division, profitability was at record level of 30% Gross Margin, and a 22% Adjusted EBITDA margin. We have made solid progress at our two step capacity-increase projects in Bryansk and Penza and our recent acquisition of the Zarechnaya facility in the Penza region will enable us to achieve targeted production volumes ahead of plan. "

"The pork division has enjoyed significant growth and we anticipate this will be further supported in the fourth quarter by the integration of the two new farms. Moreover, we are pleased that construction has commenced on three greenfield complexes in the Tambov, Voronezh and Lipetsk regions which are expected to become operational during 2011 and 2012, adding some 37,500 tonnes of capacity. By the end of 2012 our production volumes will have grown to approximately 153,000 tonnes, further strengthening our market leadership in this high-margin business and positively affecting our overall performance"

"Meat processing continues to see rising demand as consumer confidence improves. We have seen some very positive results, with an increase in sales volumes and sustained profitability."

"Going forward, we anticipate a rather challenging year in terms of grain supplies globally, particularly in Russia. At the Group level, we have already secured approximately half of our grain stock needs for 2011, and are actively continuing to secure further grain supplies. This year, inflation for meat products in Russia has been relatively low compared to other consumer food products, despite the sharp increase in grain costs. We are now witnessing a slight oversupply of meat in the market, as less efficient producers and individual households are slaughtering livestock due to grain shortage. Combined with an increased share of poultry imports in the second half of this year, this puts a downward pressure on selling prices, especially for poultry sales. This may continue into the beginning of 2011, as producers will accumulate stocks. In the medium term reduction of livestock will potentially lead to more aggressive meat price inflation in 2011. "

"As a recent development, we welcome the Government's recent announcement to decrease import quotas for 2011. However, with the anticipated growth in domestic production, the market is expected to reach self-sufficiently levels towards the end of 2011 and further quota reductions may be required."

Cherkizovo Group OJSC is one of the largest Russian meat producers. Its business is organized in three segments: poultry production (four full-cycle poultry production clusters), pork production (five pork production complexes), and meat processing (seven meat processing plants). Also, the Group produces its own fodder (2 fodder mills), and sells its products through its own three trading houses. Cherkizovo Group enjoys dominant market positions, and its brand portfolio includes leading brands, such as Petelinka, Chicken Kingdom, Cherkizovsky, and Five Stars.