OREANDA-NEWS. May 27, 2013. Cherkizovo Group (LSE: CHE), Russia’s leading integrated and diversified meat producer, today announces quarterly results for the period ended 31 March 2013.  

Highlights

Revenue increased by 8% to USD 385.0 million for 1Q 13 from USD 357.3 million in the first quarter of 2012 

Adjusted EBITDA decreased by 54% to USD 28.4 million for 1Q 13 from USD 62.5 million in the first quarter of 2012

Adjusted EBITDA margin decreased to 7.4% from 17.5% in the first quarter of 2012

Gross Profit decreased by 34% to USD 63.3 million for 1Q13 from USD 96.0 million in the first quarter of 2012

Group’s gross margin decreased to 16.4% from 26.9% in the first quarter of 2012

The company showed Net Loss of USD 0.6 million compared to Net Income of USD 39.8 million in the first quarter of 2012

Net Debt was USD 846.8 million at the end of the first quarter of 2013

The effective cost of debt was 2.6% (1Q12: 1.9%)

 Net Loss per share was at USD 0.01  

Operating Cash Flow was at USD 30.7 million                                                                                                             
Business Developments
Three new pork complexes in the Lipetsk, Tambov and Voronezh regions, launched in 2012, are fully operational and working at full capacity, resulting in a significant increase in pork production volumes.

Renovation of a semi-cooked meat products facility began at the Cherkizovsky Meat Processing Plant in Moscow. The new facility will produce semi-cooked meat products   under the popular Cherkizovsky brand. 

Renovation of a slaughterhouse at the Penza Meat Processing Plant got under way. 

Commenting on the results from the first quarter, Sergei Mikhailov, Cherkizovo CEO, stated: 

The first quarter was extremely challenging for all meat manufacturers in Russia, our company included. Grain prices reached historic highs with a peak in February and pork prices continued to decline throughout the quarter. Even the most efficient industrial pork manufacturers, including Cherkizovo, were forced to sell hogs below production cost.  

In these trying circumstances, the Cherkizovo Group demonstrated that its unique diversified structure enables the Company to mitigate inevitable market risks. While the pork segment suffered from depressed prices, the meat processing segment helped to capture some margin lost in pork. Our new grain segment also demonstrated strong growth. 

From this point forward, we expect the situation to significantly improve. As we surmised, pork prices began growing with the start of the summer barbeque season, and, as a result of the market deficit caused by decreased imports and less efficient producers exiting the market, in early May live hog prices rebounded by more than 10%. Grain prices started to decline in anticipation of a good harvest. 

We welcome the government’s decision to increase its support for the agricultural sector. It is expected that direct subsidies will amount to 9 rubles per kilogram for pork and 3.5 rubles per kilogram for poultry. These subsidies will be distributed based on Q4 2012 production volumes, so the Cherkizovo Group should receive approximately 600 million RUR in subsidies. 

Over the last seven years we have built a strong and sustainable business model and the strongest management team in the industry. Given that fact, Cherkizovo is pursuing the right strategy and is on the right track for long term growth.