RUSSIA - Cherkizovo Group demonstrated strong nine-month and third quarter results, according to the company's CEO, despite market and currency volatility. A new acquisition has increased its market share in poultry meat by two percentage points, while high pork prices boosted sales for its pork business. The meat processing division made a loss but the grain division reported a harvest up by more than one-third.
Cherkizovo Group, Russia’s leading integrated and diversified meat producer, has announced its financial results for the period ending 30 September 2014.
The company reports revenue increased by 15 per cent to US$1,373.5 million for the first nine months of 2014 (9M14) from $1,195.0 million in 9M13. Revenue increased by 21 per cent to $501.2 million in 3Q14; in 3Q13, the figure was $415.4 million.
Gross profit increased by 83 per cent to $440.0 million for 9M14 from $240.2 million in 9M13, while gross profit was up 106 per cent to $184.8 million in the 3Q14 from $89.6 million for 3Q13.
The Group’s gross margin rose to 32 per cent from 20 per cent in 9M13.
In the third quarter of 2014, gross margin increased to 37 per cent from 22 per cent in 3Q13.
Adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) grew by 178 per cent to $322.9 million for 9M14 from $116.1 million in 9M13 and by 214 per cent to $146.6 million in 3Q14 from $46.8 million for 3Q13.
Adjusted EBITDA margin increased to 24 per cent from 10 per cent in 9M13. In the third quarter of 2014 adjusted EBITDA margin increased to 29 per cent from 11 per cent in 3Q13.
After a very challenging nine months of trading, net profit for 9M14 amounted to $228.1 million. Net profit was $112.8 million in the 3Q14, which compares with $14.1 million in 3Q13.
Net Debt was $615.1 million as of 30 September 2014, while the effective cost of that debt was 3.8 per cent - up from 2.7 per cent for 9M13.
Earning per share (EPS) was at $5.20. Cash Conversion Ratio was 111 per cent, and capital expenditure (CAPEX) amounted to $121.0 million (excluding the acquisition of Lisko Broiler).
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.
Cherkizovo Group launched a 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).
The 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.
Sberbank of Russia provided Cherkizovo Group the first tranche as part of the line of credit for the construction of a turkey meat production plant.
Cherkizovo Group’s flagship brand in the meat processing received an updated name and logo 'Cherkizovo'.
Cherkizovo Group's Global Depositary Receipts have been admitted to trading on Moscow Exchange (MOEX) under the ticker 'CHEG'.
Finally, a new grain storage facility was launched in the Kamensky district of Penza region, with overall capacity of 100,000 tonnes.
Commenting on the results, Sergei Mikhailov, Cherkizovo CEO, stated: "Despite the increasing volatility on both meat/grain and currency markets, Cherkizovo Group demonstrated strong nine-month and third quarter results. The Company continues to develop through the combination of organic growth, investing into new projects and improving the efficiency of existing ones, and strategic acquisitions, such as acquisition of Lisko-Broiler in the first quarter.
"Meat prices in the period were quite strong, which made it possible to achieve high profitability in the poultry and pork segments but at the same time, the meat processing division was under pressure and its profitability decreased significantly. Now, pork prices returned to the level seen at the beginning of the year after reaching historical highs.
"Looking forward, the macro situation looks difficult in general. Sharp devaluation of the local currency that influences direct and indirect costs, predicted consumption slowdown and growth of interest rates for loans will be limitation factors for the future growth. However, we are confident that a well-balanced, vertically integrated business model of our Company will allow us to cope with negative trends and achieve maximum benefits out of positive trends."
Results by Division
Sales volume in the Poultry division for the nine months of 2014 increased by 24 per cent year-on-year to 310,663 tonnes of sellable weight (9M 2013: 251,429 tonnes) including 40,735 tonnes of sellable weight produced by LISCO Broiler since the day of the acquisition of this company by Cherkizovo on 24 March 2014.
Prices in ruble terms increased by 14 per cent year-on-year from RUB76.78 per kg for the nine months of 2013 to RUB87.23 per kg for the nine months of 2014. Compared to the price of RUB84.34 per kg in the second quarter of 2014, the price in the third quarter of 2014 increased by 17 per cent to RUB98.43 per kg.
Prices for poultry in US dollar terms increased by two per cent year-on-year from $2.43 per kg for the nine months of 2013 to $2.46 for the nine months of 2014. Compared to the price of $2.41 per kg in the second quarter of 2014, the price in the third quarter of 2014 increased by 13 per cent to $2.72.
Total sales in the Poultry division increased by 23 per cent to $765.4 million (9M13: $622.7 million). Gross Profit increased by 117 per cent to $225.0 million (9M13: $103.5 million), while gross margin increased to 29 per cent (9M13: 17 per cent).
Operating expenses as a percentage of sales decreased to 12 per cent from 13 per cent in 9M13. Operating Income increased to $136.5 million (9M13: $23.5 million), and operating margin was 18 per cent (9M13: 4 per cent). Profit in the division increased by 489 per cent to $140.2 million (9M13: $23.8 million).
Adjusted EBITDA increased by 208 per cent to $172.9 million (9M13: $56.1 million), and adjusted EBITDA margin increased to 23 per cent in 9M14, compared with 9.0 per cent in 9M13.
Sales volume in the Pork division for the nine months of 2014 increased by seven per cent year-on-year to 119,198 tonnes of live weight, compared to 111,689 tonnes for the nine months of 2013.
Prices in ruble terms increased by 51 per cent year-on-year from RUB63.36 per kg for the nine months of 2013 to RUB95.97 for the nine months of 2014. Compared to the price of RUB103.67 per kg in the second quarter of 2014, the price in the third quarter of 2014 increased by eight per cent to RUB111.52.
In US dollar terms, price for pork increased by 35 per cent year-on-year from $2.00 per kg for the nine months of 2013 to $2.71 for the nine months of 2014 (live weight). Compared to the price of $2.96 per kg in the second quarter of 2014, the price in the third quarter of 2014 increased by four per cent to $3.08.
Total sales in the Pork division increased by 44 per cent to $330.5 million (9M13: $230.1 million). Gross profit increased by 491 per cent to $154.5 million in 9M14 from $26.1 million in 9M13, while gross margin was at 47 per cent (9M13: 11 per cent)
Operating Expenses as a percentage of sales decreased to four per cent in 9M14 compared to 10 per cent in 9M13. Operating income increased to $141.2 million (9M13: $2.8 million), and operating margin was 43 per cent (9M13: 1 per cent).
Profit in the division was at $130.3 million (9M13: loss of $6.7 million).
Adjusted EBITDA increased to $162.1 million, compared with $28.4 million in 9M13. Adjusted EBITDA margin was 49 per cent (9M13: 12 per cent).
Meat Processing Division
Sales volume in the Meat Processing division increased by three per cent year-on-year to 102,107 tonnes for the nine months of 2014 from 99,431 tonnes for the nine months of 2013.
Price in ruble terms increased by 13 per cent year-on-year to RUB164.47 per kg for the nine months of 2014 from RUB146.12 for the nine months of 2013. Compared to the price of RUB67.95 per kg in the second quarter of 2014, the price in the third quarter of 2014 increased by two per cent to RUB170.64.
Prices in US dollar terms increased by one per cent year-on-year to $4.65 per kg for the nine months of 2014 compared to $4.62 for the nine months of 2013. Compared to the price of $4.80 per kilo in the second quarter of 2014, the price in the third quarter of 2014 decreased by two per cent to $4.72.
Total sales in the Meat Processing division increased by three per cent to $430.7 million in 9M14; for 9M13, the figure was $417.1 million. Gross profit decreased by 41 per cent to $61.7 million (9M13: $104.9 million), and gross margin was 14 per cent (9M13: 25 per cent).
Operating Expenses as a percentage of sales decreased to 13 per cent from 15 per cent in 9M13. The division generated operating income of $6.0 million (9M13: $40.6 million). Operating margin decreased to 1.4 per cent (9M13: 10 per cent). Loss in the Meat Processing division was $1.3 million in 9M14; for 9M13, the profit $32.5 million.
Adjusted EBITDA decreased by 70 per cent to $14.4 million (9M13: $48.3 million), and adjusted EBITDA margin was three per cent for 9M14 (9M13: 12 per cent).
In November, Cherkizovo completed harvesting in the regions of Voronezh, Lipetsk, Moscow and Orel. The Company harvested approximately 242,263 tonnes of grain, which is 38 per cent more than in the fiscal year 2013 harvest, which was 175,000 tonnes. In this agricultural season, the Company sowed approximately 28,600 hectares of winter crops.
Due to seasonality of this business, the Company decided to report the financial results of this segment annually to reflect better the business performance and provide the appropriate basis for comparison.
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