RUSSIA - Russian meat producer Cherkizovo has reported revenue up by eight per cent yet profit (EBITDA) and gross profit were sharply down from last year, following what the CEO described as a challenging year for the Russian meat industry.
Cherkizovo Group, Russia’s largest integrated and diversified meat producer, has announced full-year audited financial results for the period ending 31 December 2013.
Revenues increased by eight per cent in roubles (RUB), and by five per cent on a US$ basis to $1,654.9 million in 2013 from $1,570.3 million in 2012. Revenues increased by six per cent to $460.0 million in the fourth quarter of 2013 from $433.0 million for the fourth quarter of 2012, and increased by 11 per cent on a rouble currency basis.
EBITDA decreased by 41 per cent in roubles, and declined by 43 per cent on a US$ basis to $180.6 million in 2013 from $314.6 million in 2012. EBITDA in the fourth quarter of 2013 decreased by 14 per cent to $65.1 million from $75.4 million in the fourth quarter of 2012, and decreased by 10 per cent on a rouble currency basis.
EBITDA margin was at 11 per cent in 2013, down from 20 per cent in 2012. EBITDA margin in the fourth quarter of 2013 decreased to 14 per cent from 17 per cent in 2012.
Gross profit decreased by 19 per cent in roubles, and decreased by 21 per cent on a US$ basis to $358.4 million in 2013 from $452.8 million for 2012. Gross profit in the fourth quarter of 2013 decreased by one per cent to $118.2 million from $119.3 million in the fourth quarter of 2012, and increased by four per cent on a rouble currency basis.
Group gross margin was at 22 per cent in 2013 and 26 per cent for the fourth quarter.
Net income decreased by 70 per cent in roubles and declined by 71 per cent on a US$ basis to $64.5 million from $225.2 million in 2012. Net income in the fourth quarter of 2013 decreased by 38 per cent to $41.4 million from $ 66.5 million in fourth quarter of 2012, and declined by 35 per cent on a rouble currency basis.
As of 31 December 2013, net debt was RUB24,746.5 million ($756.1 million). The effective cost of debt increased to three per cent from two per cent for 2012.
Net income per share decreased by 72 per cent to $1.47. Cash conversion rate (CCR) was 277 per cent (103 per cent for 2012).
Large-scale projects aimed to double capacity at the Bryansk and Penza clusters were completed. As a result of these RUB7.5-billion investments, Bryansk cluster capacity increased from 35,000 to 85,000 tonnes per year, Penza cluster capacity increased from 60,000 to 125,000 tonnes per annum (liveweight)
Construction is underway of new broiler farms in the Moscow and Lipetsk regions. These farms will become operational in 2014.
Construction is underway of feed plant in the Bryansk region, hatchery for 240 million eggs per year and grain storage facility of 215,000 tonnes in the Lipetsk region,
Petelinka brand was recognised as 'The Product of the Year'; new marketing campaigns and branding initiatives helped to increase the share of branded poultry products in sales.
All new pork complexes are fully stocked with sows and fully operational. The company had increased number of piglets born by 500,000 with the same number of sows as in 2012.
Cherkizovo became Russia’s second largest pork producer, increasing its sales of live hogs by 50 per cent.
The company installed a new semi-cooked products line 'Cherkizovo Express' worth US$20 million at its Moscow CHMPZ plant
The company reconstructed the slaughtering facility at Penza plant, increasing its meat storage capacity three-fold and doubling its livestock storing capacity.
Cherkizovo acquired the Dankov meat processing plant and slaughter house in the Lipetsk region.
The 2013 grain harvest increased by 50 per cent as compared to 2012, and the Company demonstrated very strong yields.
Commenting on the financial performance, Cherkizovo Group CEO, Sergei Mikhailo, said: "The year 2013 was challenging for the entire Russian meat industry, including Cherkizovo Group. In the first half of the year, the pricing environment for the pork and grain markets was unfavourable. Live pigs prices reached record lows, while in contrast, prices on grain reached a historic high for the last decade. Under these conditions, even the most efficient manufacturers, such as our company, experienced constant losses. However, starting from the second quarter, the situation began to improve.
"The first and most important event was the grain price drop to the level of longstanding trends. Due to the decrease of imports and to production at private farms, the pork supply declined, and by the middle of the third quarter, pig prices returned to acceptable figures. In addition, the government allocated one-time compensatory subsidies to producers, and this partly mitigated the consequences of the price shock.
"During this difficult period, Cherkizovo Group once again demonstrated that its business model, which combines vertical integration and diversification, enables the company to operate confidently, even in the most unfavourable conditions. Cherkizovo Group’s revenues rose, surpassing RUB50 billion for the first time in the company’s history, and we increased production and sales in all divisions.
"In 2013, the company produced approximately 640,000 tonnes of meat products and around 1.5 million tonnes of feed, confirming its status as the country’s largest meat and fodder manufacturer. Despite the fact that profitability indexes dropped substantially due to the unfavourable market environment, we are satisfied with the results of the work done in 2013.
"In the poultry division, we completed projects to double production capacity in Penza and Bryansk poultry clusters, achieving the specified capacity of 450,000 tonnes live weight per year. The company focused on marketing and sales in order to achieve sufficient profitability on the stagnating market. We increased the share of our branded products by seven percentage points, to almost 60 per cent, and Petelinka, our top brand, was recognised as The Product of the Year.
"The previously implemented investment programme in pig production enabled Cherkizovo Group to sharply expand production and performance and to become, based on the year’s results, Russia’s second largest pork producer. We increased sales by more than 50 per cent. Obviously, the low pork prices in the first half of the year did not make it possible to obtain in 2013 a full financial yield from growth in pig production, but after prices recover, we expect that this division will again become one of the most profitable business sectors.
"Meat processing emerged as a stabilising factor for the business. The price decline on meat, which hurt pig production, helped the meat processing division to increase its profitability to double digits. The higher profitability was also supported by improvement in sales structure and an increase in the share of high-margin products. During the year we reconstructed the Moscow and Penza facilities, raising their operating efficiency and preparing for the release of new lines of ready-to-cook products.
"The grain division returned outstanding results. Compared to 2012, yield was up by 50 per cent from practically the same cultivated area. Moreover, the grain yield at Cherkizovo Group facilities substantially exceeds the countrywide average. In order to make the grain division even more efficient, we are continuing to invest in modern agricultural machinery and grain storage.
"Cherkizovo Group has entered 2014 with facilities that are operating at full capacity, and this will make it possible to produce and sell considerable volumes of meat products this year, while the favourable pricing environment that we are currently observing on the markets will help to regain our business profitability longstanding trend," said Mr Mikhailov.
TheMeatSite News Desk