Cherkizovo OJSC (LSE: CHE), one of Russia's leading integrated and diversified meat producers, today issues a trading update ahead of its results for the year ended 31 December 2010, which will be reported in March 2011.
Sales volumes in the Poultry division in 2010 increased by 5% to approximately 194,100 tonnes of slaughter weight compared to 184,300 tonnes in 2009.
Prices for poultry sales in dollar terms increased by 1% from $2.34 per kg in 2009 to $2.37 per kg in 2010 (excluding VAT)*. Prices in rouble terms decreased by 3% from 74.33 roubles per kg in 2009 to 71.89 roubles per kg in 2010 (excluding VAT). The pricing environment for poultry products at the end of 2010 was affected by a large share of imports entering Russia in the fourth quarter. This led to higher inventory stocks and put pressure on prices during the first quarter of 2011. However, given the considerable reduction in poultry import quotas, together with expected meat price inflation resulting from rising input costs, we expect upward trends in poultry prices from the second quarter of the year.
In 2010, Cherkizovo’s own state-of-the-art pork farms in Lipetsk and Tambov operated at near to full capacity. Production at the existing farms came to approximately 76,200 tonnes of live weight. Together with the acquisition of two new farms in Lipetsk and Penza which produced approximately 11,450 tonnes, sales volumes in the Pork division in 2010 increased by 63% to approximately 87,650 tonnes of live weight, compared to approximately 53,800 tonnes in 2009. This ranked Cherkizovo Group as the third largest producer in Russia, as the Group has increased its market share to 5% in this still highly fragmented market**.
In dollar terms, prices for pork sales increased by 4% from $2.27 per kg of live weight in 2009 to $2.37 per kg of live weight in 2010 (excluding VAT)*. Prices in rouble terms were almost flat, slightly decreasing from 72.12 roubles per kg in 2009 to 71.95 roubles per kg in 2010 (excluding VAT). The pricing environment for pork products in Russia in the second half of 2010 was affected by a larger than usual reduction of livestock by smaller and less efficient producers and households as a result of a sharp increase in input costs.
Meat Processing Division
In 2010, consumption recovered to pre-crisis levels, and sales volumes in the Meat Processing segment increased by 9% to approximately 141,560 tonnes.
Prices in dollar terms increased by 8% from $3.59 per kg in 2009 to $3.89 per kg in 2010 (excluding VAT)*. Prices in rouble terms increased by 4% from 113.80 roubles in 2009 to 118.21 roubles per kg in 2010 (excluding VAT).
Commenting on the performance, Sergei Mikhailov, CEO of Cherkizovo Group said: "Despite the tough operating environment in 2010, we have continued investing in production growth. These investments have focused on large-scale projects to increase poultry capacity, and provide significantly higher output from 2011. The first site was completed and launched in Bryansk at the end of 2010. The Pork division has continued to deliver its volume growth in line with Management’s expectations, supported by the accretive acquisition of two farms completed in 2010. Accordingly, the Group’s Management is satisfied with the Company's overall performance and anticipates the Group will report strong 2010 results, despite the impact of rising input costs and less favourable pricing trends.
In 2011 we anticipate solid volume growth across our Pork and Poultry divisions, as the Pork operations begin to operate at full capacity and we start increasing poultry volumes at our Bryansk and Penza poultry clusters. Continued growth in the Meat Processing division will be supported by consumption growth. The Group expects the pricing environment for our products to recover towards the second half of the year supported by reduced imports and rising costs resulting from grain price increases, as well as by a shortage of supply driven by the reduction of stock. Management is confident that the Group will continue to focus on providing efficiency increases and delivering against our strategy."
* For price calculation in dollar terms the Company used the average exchange rate for 2010 of 30.37 roubles per 1 US Dollar, for 2009 the average rate was 31.72 roubles per 1 US dollar.
** Source: National Pork Union of Russia.