May 26, 2010

Cherkizovo Group (LSE: CHE), one of Russia’s leading integrated and diversified meat producers, today announces quarterly results for the period ended 31 March 2010.   


• Cherkizovo Group is moving to quarterly financial reporting in order to further enhance transparency and corporate governance 

• Revenues increased 14% on a rouble currency basis, and increased 29% to $268.0 million from $208.1 million for the first quarter of 2009  

• Adjusted EBITDA* increased 13% on a rouble currency basis, and 28% to $48.1 million from $37.5 million for the first quarter of 2009 

• Adjusted EBITDA* margin was flat at 18%  

• Gross profit increased 2% on a rouble currency basis, and increased 16% to $72.1 million from $62.2 million for the first quarter of 2009 

• Group gross margin was a robust 27% 

• Net income increased 17% on a rouble currency basis, and increased 33% to $31.0 million from $23.4 million for the first quarter of 2009 

• For the first quarter 2010 Net debt** decreased 2% on a rouble currency basis, and was almost flat at $450.7 million. 

• The effective cost of debt remained at 4%. 

Business Developments 

• Cherkizovo Group has signed a Memorandum of Understanding to acquire a controlling interest in two greenfield pork production farms located in the Penza and Lipetsk regions of Central Russia, which upon completion is expected to increase the Group's current production capacity in the high-margin pork business by almost 30%.
• Cherkizovo shares were transferred to quotation list ‘A’ on MICEX as the Group has passed all necessary tests and met all applicable requirements of MICEX.
• In the second quarter of 2010 the Group was assigned the following ratings from Moody’s: (i) National scale credit:; (ii) Corporate family: B2; and (iii) Probability of default: B2.
Sergey Mikhailov, Chief Executive Officer of Cherkizovo Group, said:  

“The move to quarterly financial reporting is in line with our ongoing commitment to improve transparency and corporate governance in the Group and to increase the Company’s visibility within the financial audience. 

In the first quarter of 2010 we were able to demonstrate strong performance, as we showed a 29% increase in revenue and increased Adjusted EBITDA by 28% while still maintaining a healthy 18% Adjusted EBITDA margin. Nevertheless, our results were affected by seasonal factors, as well as by the tighter pricing environment, in particular, in the Poultry and Pork businesses. Poultry prices reduced in the first quarter of the year due to higher inventory stocking by producers in the fourth quarter of 2009, which was driven by an increased share of imports in the second half of the year. However, towards the end of the quarter poultry and pork prices recovered strongly, and this trend has continued in the second quarter. 

The Poultry division started to see returns from the large-scale capacity increase projects we initiated last year. In line with our expectations, the Pork division has achieved impressive growth reflecting the completion of the investment cycle and the division moving into a volume growth phase. In our Meat Processing division, for the first time in recent years, we saw a significant recovery as demand for meat products started to improve.  

In the Poultry division we saw profitability returning to historical levels, as 2009 was characterized by unusually high pricing trends. Accordingly, we have achieved a 29% Gross Margin, and a 20% Adjusted EBITDA margin. We accelerated the pace of investment in the division; progressing on two projects at our Bryansk and Penza clusters, which are expected to increase the Group’s poultry capacity by 40% once the sites are fully operational in 2012. 

The Pork division experienced an exceptional 79% growth in production volumes and we expect further volume growth in the course of the year. We have started pre-integration of the two  new farms we intend to acquire this year into our distribution chain, and have started selling volumes from the two farms through our trading house, which has somewhat affected our margin in the segment, which will improve once the acquisition is complete. 

In Meat Processing, we have seen some very positive results, as we saw a 9% increase in sales volumes and as a result of implementation of efficiency measures in previous periods the division is returning to profitability. 

For the current year we remain broadly positive on Russian consumption, and we expect the pricing environment to improve towards the second half of the year, remaining broadly favorable thereafter. The Company will continue to leverage the benefits from investment in efficiency and capacity, particularly in our higher margin Pork and Poultry businesses. We continue to look for value enhancing opportunities in the market and M&A opportunities, and we remain confident that we will continue to deliver against our strategy in the course of the financial year.”