March 31, 2010

Cherkizovo Group (LSE: CHE), one of Russia’s leading integrated and diversified meat producers, today announces full year results for the year ended 31 December 2009.   


• Outstanding financial performance and margin improvement despite the challenging economic environment and lower consumer spending throughout the year 

• Net income increased 96% on a rouble currency basis, and increased 54% to $120.2 million from $78.1 million for 2008 

• Adjusted EBITDA* increased 52% on a rouble currency basis, and 19% to $181.5 million from $152.3 million for 2008 

• Adjusted EBITDA* margin improved significantly to 18% from 13% in 2008  

• Gross profit increased 29% on a rouble currency basis, and increased 1% to $281.3 million for the year  

• Significant improvement in Group gross margin to 28% from 24% in 2008 

• Revenues increased 12% on a rouble currency basis year-on-year, and decreased 12% to $1,022.5 million from $1,166.4 million in 2008 driven by a 28% devaluation of the rouble 

• Net debt decreased 11% on a rouble currency basis, and decreased 13% to $445.2 million. 

• Net Debt/EBITDA ratio improved from 3.4 for 2008 to 2.5 for 2009 

• Cost of Debt remained flat at 4%. 

Business Developments 

• Launch of two large-scale capacity increase projects at Bryansk and Penza poultry clusters – capacity is expected to increase by approximately 40% in 2012
• Completion of Vertunovka parent stock facility at Penza production cluster 

Sergey Mikhailov, Chief Executive Officer of Cherkizovo Group, said:  

“Our outstanding performance makes 2009 Cherkizovo’s most profitable year to date, despite the particularly challenging macroeconomic environment. In constant currency terms, the Group almost doubled its Net Income, materially increased Adjusted EBITDA by 52% and improved EBITDA margin to 18%. Though there was a significant translation impact on the reported numbers owing to the dramatic depreciation of the rouble against the US dollar, the Group was still capable of demonstrating growth in reporting currency in EBITDA and Net Income. Moreover, our solid financial position enabled us to meet all of the Group’s financial obligations during the year, including the repayment of our outstanding bond issue in June 2009. 

Our successes in the Poultry division contributed significantly to the Company’s overall Adjusted EBITDA margin improvement. The division achieved a record 35% Gross Margin and 26% Adjusted EBITDA Margin as the segment enjoyed a stable pricing environment and particularly low grain prices, as well as the continuing scale benefits from the integration of Chicken Kingdom. During 2009, Cherkizovo continued to invest for future growth in the sector; commencing two large investment 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. 

Our Pork division experienced an exceptional 38% growth in production volumes as our new farms neared full capacity in 2009. Moreover, the additional scale and stable pricing environment enabled us to sustain robust divisional margins for the third consecutive year. The efficiency and lower-cost production achieved at new farms positively influenced the overall Group profitability and we expect further improvements as we see accelerated volume growth this year. 

In Meat Processing, we lowered our operating expenses by focusing efforts on operational restructuring. The year 2009 brought pressure on sales volumes in lower-priced, lower-margin products and we saw reduced consumption in some regions where the economy was more negatively impacted. However, during the course of the fourth quarter, we saw a stabilization in sales volumes in the division. 

In 2009, the Company’s vertically-integrated business model proved its strength and enabled Cherkizovo to achieve impressive performance in the face of a highly challenging operating environment. Our strong focus on operating efficiencies has driven significant margin improvement this year and strengthened our competitive position in the domestic market and looking ahead, we intend to capitalize on the momentum we achieved last year. Since the year end, we have already reached another milestone for the Group, with the proposed acquisition of two greenfield pork farms in the Penza and Lipetsk regions. We expect this acquisition, which continues our work in consolidating Russia’s meat industry, to increase the Group’s current capacity in the high-margin Pork division by almost 30% by 2012.  

For the current year, we remain cautious about the effects of continuing pressure on Russian consumption, however, we expect the pricing environment to remain broadly favorable for Cherkizovo’s products throughout the year. Russia still remains the biggest importer of meat in the world and the Russian government is targeting a substantial reduction in imports by 2012, which presents significant opportunities for Cherkizovo as the leading domestic producer. The Company will continue to leverage the benefits of improving efficiency and increasing capacity, particularly in our higher margin Pork and Poultry businesses, to take advantage of the 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.”