Moscow, August 28, 2014 - Cherkizovo Group (LSE: CHE; MOEX:GCHE), Russia’s leading integrated and diversified meat producer, announces its financial results for the period ending 30 June 2014.
- Revenue increased by 12% to $872.3 million for 1H14 from $779.6 million in 1H13
- Gross Profit increased by 69% to $255.1 million for 1H14 from $150.6 million in 1H13
- Gross margin increased to 29% from 19% in 1H13
- Adjusted EBITDA* more than doubled to $176.3 million for 1H14 from $69.3 million in 1H13, indicating that the Group returned to its more normal profitability, with Adjusted EBITDA* margin amounting to 20%
- After a very challenging 1H13, the Group achieved a Net Profit of $115.2 million in 1H14
- Net Debt** was $791.6 million at the end of the first half of 2014
- The effective cost of debt was 3% (2013: 3%)
- EPS was at $2.67
- CCR (Cash Conversion Ratio) was 119%
- CAPEX amounted to $80 million (not including acquisition of Lisko Broiler)
- Cherkizovo Group acquired LISKO Broiler, one of the country’s largest poultry producers, in Voronezh region. The deal is based on the enterprise value of approximately RUB 5 billion. As a result of the acquisition, Cherkizovo increased its market share by 2 p.p. to 13%, making an important step to the poultry market leadership;
- Operational land bank of the Grain Division was increased to 58 000 hectares as compared with 40 000 hectares in 2013. The Group invested in modern high-tech agricultural equipment in order to promote the efficiency of the grain segment and expects a harvest of approximately 250 thousand tonnes of grain in 2014;
- Cherkizovo Group launched case-ready production line at Cherkizovsky Meat Processing Plant in Moscow. The line allows for 100 tonnes of ready-to-cook meat products to be produced per day;
- The Company continued to invest its profits into long-term investment projects, such as Eletsprom (Lipetsk region) and Mosselprom (Moscow region)
- Tambov Turkey project is well under way. Cherkizovo Group and its partner, Grupo Fuertes, continued the construction of production facilities in Pervomaisky District of the Tambov region
Commenting on the results, Sergei Mikhailov, Cherkizovo CEO, stated:
“After a very challenging 1H 2013, when the Group was on the verge of losses, Cherkizovo returned to its normal profitability figures in 1H14. The favorable market environment allowed us to compensate for the significant losses in the pork division we had last year due to expensive grain and a plunge in pork prices, and thus to get back to implementing the investment projects we had to freeze. In 1H14 we invested RUB 2.8 billion into CAPEX projects and also made a major investment and an important step toward poultry market leadership with the RUB 5 billion acquisition of Lisko Broiler. By now, we have almost fully integrated Lisko into our production, logistics and sales infrastructure. Focusing on marketing and distribution, we recently relaunched our core meat processing brand, changing its name to Cherkizovo. This was a well-timed action, as the situation on sausage market looks difficult due to very expensive raw meat. We believe that our diversified business model will allow us to partially offset losses in meat processing with the profits from our livestock breeding divisions. It is also worth mentioning that although the Debt/EBITDA ratio has returned to a level that is comfortable for shareholders, we are seeing an increase in the cost of money and delays in interest reimbursement subsidies. These factors may negatively affect the Group’s business development.
About Cherkizovo Group
Cherkizovo Group (LSE:CHE; MOEX:GCHE) is the largest meat and feed producer in Russia and one of the top three companies serving Russia’s poultry, pork and sausages markets. The Company’s brands include Cherkizovsky, Petelinka, Kurinoe Tsarstvo and Mosselprom. CEO Sergei Mikhailov and his family control 63% of Cherkizovo Group, and free float on LSE and MICEX amounts to 37%.
Due to its vertically integrated structure, which includes agricultural land, grain storage facilities, feed production, livestock breeding, growing and slaughtering as well as meat processing and distribution, Cherkizovo has consistently delivered sustainable revenue and profit growth. In 2013, Cherkizovo’s US GAAP consolidated revenue exceeded $1.6 billion, and the Group produced more than half a million tonnes of meat and processed meat products.
Cherkizovo’s strategy includes both organic growth and consolidation of the Russian meat market. Within the last decade, Cherkizovo has invested more than $1.5 billion into the development of Russia’s agriculture sector.
Alexander Kostikov, Head of IR/Communications
+7 495 788 3232 ext 15019
On a reported currency basis sales for 1H14 increased by 12% to $872.3 million (1H13: $779.6 million). Gross profit increased by 69% to $255.1 million (1H13: $150.6 million). Operating expenses as a percentage of sales decreased to 14.2% compared to 16.1% in the first half of 2013, due mostly to the RUB weakening. Net income increased to $115.2 million in the first half of 2014 compared to $9.0 million in 1H13.
Adjusted EBITDA* increased by 154% to $176.3 million (1H13: $69.3 million). Adjusted EBITDA margin* increased to 20% for 1H14 vs 9% in 1H13.
|Gross margin. %||29%||19%||32%||22%|
|Operating margin. %||15%||3%||19%||5%|
|Adjusted EBITDA margin* %||20%||9%||24%||10%|
The table below summarizes the Group’s performance on a rouble currency basis in the first half and in the second quarter of 2014:
|Sales||30 513.5||24 179.6||26%||17 348.3||12 531.8||38%|
|Gross Profit||8 924.9||4 671.4||91%||5 600.8||2 712.9||107%|
|Gross margin. %||29%||19%||32%||22%|
|Operating expenses||(4 346.6)||(3 892.2)||12%||(2 236.2)||(2 111.3)||6%|
|Operating Income||4 578.2||779.2||488%||3 364.6||601.6||459%|
|Operating margin. %||15%||3%||19%||5%|
|Net Income||4 031.8||280.0||1365%||3 158.1||297.0||963%|
|Adjusted EBITDA*||6 167.9||2 150.3||187%||4 202.2||1 286.5||227%|
|Adjusted EBITDA margin* %||20%||9%||24%||10%|
Sales volume in the Poultry Division for the first half of 2014 increased by 25% to
205,775 tonnes of sellable weight, including 22,562 tonnes of sellable weight produced by LISKO Broiler since acquired by Cherkizovo Group (1H13: 165,114 tonnes).
The average selling price in roubles increased by 6% from 76.62 RUB/kg in the first half of 2013 to 81.53 RUB/kg in the first half of 2014 (all prices hereinafter are net of VAT). The price in the second quarter of 2014 increased by 8% compared to the price of 77.93 RUB/kg in the first quarter of 2014.
The average selling price in dollars decreased by 6% from $2.47/kg in the first half of 2013 to $2.33/kg in the first half of 2014, due to weakening of the rouble against the USD. The price in the second quarter of 2014 increased by 8% compared to the price of $2.23/kg in the first quarter of 2014.
Total sales in the Poultry division increased by 14% to $478.3million (1H13: $419.9 million). Gross Profit increased by 69% to $121.3million (1H13: $71.6 million), Gross margin increased to 25% (1H13: 17%).
Operating expenses as a percentage of sales decreased to 12.3% from 12.7%. Operating Income of the division significantly increased to $62.3 million (1H13: $18.5 million), and Operating margin was at 13% (1H13: 4%). Profit in the Poultry division was $62.4 million (1H13: $20.3. million).
Adjusted EBITDA* increased by 112% to $85.9 million (1H13: $40.6 million), and Adjusted EBITDA* margin increased to 18% in 1H14 vs 10% in 1H13.
Sales volume in the Pork Division in the first half of 2014 increased by 16% to 81,318 tonnes (live weight), compared to 70,078 tonnes in the first half of 2013.
The average selling price in roubles increased by 50% from 59.24 RUB/kg in the first half of 2013 to 88.72 RUB/kg in the first half of 2014. The price in the second quarter of 2014 increased by 41% to 103.67 RUB/kg compared to the price of 73.55 RUB/kg in the first quarter of 2014. The rapid price growth is mainly due to the import restrictions on pork in Russia imposed in March of 2014 for veterinary reasons.
The average selling price in dollars increased by 33% from $1.91/kg in the first half of 2013 to $2.54/kg in the first half of 2014 (live weight). The price in the second quarter of 2014 increased by 41% compared to the price of $2.10/ kg in the first quarter of 2014.
Total sales in the Pork division increased by 53% to $210.2 million (1H13: $137.2 million). Gross profit increased to $91.7 million in 1H14 from $9.6 million in 1H13. Gross margin was at 44 % (1H13: 7%).
Operating Expenses as a percentage of sales decreased to 5.0% in 1H14 compared to 11.6% in 1H13. The division generated operating income of $81.1 million (1H13: operating loss of $6.2 million).
Profit in the Pork division was $75.2 million (1H13: Loss $13.0 million).
Adjusted EBITDA* significantly increased to $96.2 million compared to $9.5 million in 1H13. EBITDA margin was 46% (1H13: 7%).
Meat Processing Division
Sales volume in the Meat Processing Division was almost flat at 64,033 tonnes in the first half of 2014 compared to the corresponding period of 2013 (1H 2013: 63,226 tonnes).
The average selling price in roubles increased by 10% from 146.08 RUB/kg in the first half of 2013 to 160.80 RUB/kg in the first half of 2014. The price in the second quarter of 2014 increased by 10% to 167.95 RUB/kg compared to the price of 152.52 RUB/kg in the first quarter of 2014.
The average selling price in dollars decreased by 2% from $4.71/kg in the first half of 2013 to $4.60/kg in the first half of 2014. The price in the second quarter of 2014 increased by 10% compared to the price of $4.36/kg in the first quarter of 2014.
Total sales in the Meat Processing decreased by 2% to $267.4 million in 1H14 (1H13: $272.1 million), Gross Profit decreased by 37% to $43.4 million (1H13: $68.4 million), and Gross margin was at 16% (1H13: 25%).
Operating Expenses as a percentage of sales decreased to 14.0% from 15.3 % in 1H13. The division generated Operating Income of $6.1 million (1H13: $26.8 million). Operating margin significantly decreased to 2% (1H13: 10%). Profit in the Meat Processing division decreased by 93%, reaching $1.6 million in 1H14 (1H13: $21.3 million).
Adjusted EBITDA* for the division decreased by 65% to $11.3 million (1H13: $ 32.3 million), and Adjusted EBITDA* margin in the Meat Processing division decreased to 4 % for 1H14 (1H13: 12%).
Profitability declining in the Meat Processing division was due to high input costs.
As of end of August the Company harvested approx. 176 000 tonnes of grain including 124 200 tonnes of wheat and 28 200 tonnes of barley. For the full year the company plans to harvest approx. 250 000 tonnes of grain.
Due to seasonality of this business the Company decided to report the financial results of this segment annually to better reflect the business performance and provide the appropriate comparison basis.
The Group’s Capital Expenditure on property, plant and equipment and maintenance amounted to $80.3 million in the first half of 2014 (1H13: $81.0 million). Of that, $40.3 million was invested into the Poultry division, mainly into the capacity increase in the Bryansk and Moscow clusters as well as into the Elets Project. The Pork division received $23.3 million of investments and the Meat Processing division received $8.6 million of investments, and Grain division – $6.6 million
Net Debt at the end of the first half of 2014 increased to $791.6 million or RUB 26 621.5 million compared to $756.1 million or RUB 24 746.5 million at the end of 2013. Total debt stood at $869.1 million or RUB 29 229.1 million compared to $841 million or RUB 27 526.4 million at the end of 2013. Of total debt long-term debt was approximately $487.3 million or 56% of the debt portfolio. Short-term debt was approximately $381.8 million, or 44% of the portfolio. Cost of debt for the first half of 2014 was 3% (2013: 3%). The portion of subsidised loans and credit lines in the portfolio was 91%. Cash and cash equivalents totalled $57.6 million at 30 June 2014.
In the first half of 2014 the Group accrued direct subsidies in the amount of $0.4 million (Direct compensation subsidies were granted by the Government to livestock producers to cover losses caused by high feed price). The Group also accrued subsidies for interest reimbursement of $27.3 million which offset interest expense (1H13: $33.3 million).
A historically high grain harvest of approximately 100 mm tonnes is expected in Russia in 2014. As a result, grain prices should remain at a level allowing us to control costs effectively. At the same, time meat prices, especially pork prices, are quite high due to the veterinary restrictions on EU imports imposed in March. Veterinary authorities are now looking at new supplying countries to increase imports. This means we may expect a price correction in autumn. The launch of new pork production facilities in Russia will also contribute to this.
Some of the information in this press release may contain projections or other forward-looking statements regarding future events or the future financial performance of the Group. You can identify forward looking statements by terms such as “expect,” “believe,” “anticipate,” “estimate,” “intend,” “will,” “could,” “may” or “might” the negative of such terms or other similar expressions. We wish to caution you that these statements are only predictions and that actual events or results may differ materially. We do not intend to update these statements to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. Many factors could cause the actual results to differ materially from those contained in our projections or forward-looking statements, including, among others, general economic conditions, our competitive environment, risks associated with operating in Russia, rapid market change in our industry, as well as many other risks specifically related to the Group and its operations.
$ symbol in this press-release stands for US Dollar. Some figures may be rounded.
*Non-GAAP financial measures. This press release includes financial information prepared in accordance with accounting principles generally accepted in the United States of America, or US GAAP, as well as other financial measures referred to as non-GAAP. The non-GAAP financial measures should be considered in addition to, but not as a substitute for, the information prepared in accordance with US GAAP.
Adjusted Earnings before Interest, Income Tax, Depreciation and Amortization (“Adjusted EBITDA”). Adjusted EBITDA represents income before income tax and non-controlling interests adjusted for interest, depreciation and amortization and foreign exchange differences as shown in the reconciliation in Appendix 1. Adjusted EBITDA margin is defined as Adjusted EBITDA as a percentage of our net revenues. Our adjusted EBITDA may not be similar to adjusted EBITDA measures of other companies; is not a measurement under accounting principles generally accepted in the United States and should be considered in addition to, but not as a substitute for, the information contained in our consolidated statement of operations. We believe that adjusted EBITDA provides useful information to investors because it is an indicator of the strength and performance of our ongoing business operations, including our ability to fund discretionary spending such as capital expenditures, acquisitions and other investments and our ability to incur and service debt. While depreciation and amortization are considered operating costs under generally accepted accounting principles, these expenses primarily represent the non-cash current period allocation of costs associated with long-lived assets acquired or constructed in prior periods. Our adjusted EBITDA calculation is commonly used as one of the bases for investors, analysts and credit rating agencies to evaluate and compare the periodic and future operating performance and value of companies within our industry. Adjusted EBITDA is reconciled to our consolidated statements of operations in Appendix 1.
Cash Conversion rate (CCR) is calculated as Total net cash from operating activities divided by Net income attributable to Group Cherkizovo
** Net debt is calculated as total debt minus cash and cash equivalents, short-term bank deposits and long-term bank deposits.
For price calculation in dollar terms the Company used the average exchange rate for 1H14: 34.9796 RUB/USD, 1H13: 31.0169 RUB/USD, 2Q14: 34.9999 RUB/USD, 2Q13:31.62 RUB/USD; All prices are net of VAT