Cherkizovo Group sees IFRS net profit more than double to $39.3 mln in Q1, beats forecasts

May 23, 2012

OJSC Cherkizovo Group (RTS: GCHE) net profit to international financial reporting standards (IFRS) increased by 114% year-on-year to $39.3 million in the first quarter, the company said in a statement.

This result was above an earlier consensus forecast compiled by Interfax that anticipated $37.6 million in net profit.

Sales revenues were up 16% year-on-year at $357.8 million (consensus forecast: $361.7 million). EBITDA (earnings before interest, taxes, depreciation, and amortization) leapt 74% to $60.8 million ($61.5 million). The EBITDA margin increased to 17% from 11% in Q1 2011. Gross profits were up 45% at $93.7 million and the gross profit margin was 26% (21% in Q1 2011). Operating profits amounted to $42.2 million (up 98%) and the operating profit margin was 12% (7% in Q1 2011).

Operating expenses were $51.5 million versus $43.2 million a year earlier. And the group’s net debt amounted to $775 million for the quarter.

«In the first quarter of 2012 we delivered an excellent performance, in line with our targets, Cherkizovo Group’s General Director Sergei Mikhailov is quoted in the statement as saying. «Net income showed a record 114% growth, driven by strong performance in the poultry segment, high pork prices, the efficient restructuring of the meat processing division and the decrease in grain prices. The group achieved a 16% increase in revenue and growth in adjusted EBITDA of 74%, resulting in a healthy 17% adjusted EBITDA margin," he said.

The group’s poultry division sales volumes «for the first quarter of 2012 increased by 42% to approximately 75,860 tonnes of sellable weight compared to approximately 53,570 tonnes for the first quarter of 2011, reflecting the contribution from the newly launched sites at Bryansk and sales by Mosselprom, acquired in May 2011," the statement says.

Poultry division sales revenues were up 36% at $189.3 million, gross profits 82% at $47.8 million, and the gross profit margin rose to 25% from 19% in Q1 2011. Operating costs amounted to 13% of sales, about the same as last year.

Operating income for the division soared 209% to $23.6 million, the operating margin to 12% from 5% in Q1 2011. Poultry division profit increased 219% to $20.1 million, EBITDA 139% to $33.9 million, and the EBITDA margin rose to 18% from 10% a year earlier.

«As for the pricing environment, we see that poultry prices are growing very slowly and do not expect significant price growth in 2012; we remain confident about the future of the poultry market and continue to invest in poultry production," Mikhailov said.

Pork division production increased 12% year-on-year in Q1 to 22,660 tonnes of pork (live weight). «Prices were at historically high levels, supporting healthy margins for the group," the general director said.

«Total sales in the pork division increased 7% to $62.1 million (Q1 2011: $58.0 million). Gross profit increased 32% to $24.6 million (Q1 2011: $18.6 million), while gross margin increased to 40% (Q1 2011: 32%). Operating expenses as a percentage of sales increased to 10% from 7% in the first quarter of 2011. Operating Income of the division increased 28% to $18.6 million (Q1 2011: $14.6 million), while operating margin was 30% (Q1 2011: 25%). Profits in the pork division increased 28% to $18.1 million (Q1 2011: $14.1 million). Adjusted EBITDA generated by the division increased 29% to $23.9 million (Q1 2011: $18.6 million), and adjusted EBITDA margin increased to 38% (Q1 2011: 32%)," the report says.

In the meat-processing division, January-March 2012 sales dropped 12% to 29,115 tonnes. This was attributable to «the closure of a high-cost slaughtering facility in southern Russia (Labinsk)," the report says.

«The meat processing segment delivered positive pricing and profitability trends while volumes were slightly lower. Our recently acquired Kaliningrad meat processing plant is now operating at full capacity and adding to the margins of the segment," Mikhailov said.

This division’s gross profits increased 10% to $21.9 million and its gross profit margin rose to 17% from 14% in Q1 last year. Operating costs as a percentage of division sales revenues increased to 14% from 12% a year earlier. Profits here were up 221% at $1.3 million, EBITDA 11% at $6.1 million, and the EBITDA margin rose to 5% from 4% in Q1 2011.

The group’s net income in rubles for the quarter was up 121% year-on-year at 1.188 billion rubles. EBITDA increased 80% to 1.839 billion rubles, gross profits 50% to 2.835 billion rubles, operating income 104% to 1.276 billion rubles, and sales increased 20% to 10.827 billion rubles. «In the first quarter of 2012, the group received direct subsidies in the amount of 14 million rubles ($ 0.47 million). The group accrued subsidies for interest reimbursement of $15.7 million, which offset interest expense (Q1 2011: $11.9 million)," Cherkizovo said.

«In the second half of the year, we still expect many uncertainties related to Russia’s admission to the WTO and a possible decline in pork prices. We believe that the Government will announce some protective measures that will support the pork industry, which has attracted strong investment in recent years. Our future pork investments, in addition to those already committed will depend on the situation after Russia’s WTO admission. So far we see positive outlook on grain prices, but the future crop depends on the weather conditions in the coming months. Cherkizovo will continue to focus on both parts of its strategy, strong organic growth along with investing into production, asset development and considering possible acquisitions," the report says.

The Cherkizovo Group includes seven meat processing plants (in the Moscow, Penza, Ulyanovsk and Rostov regions, and Krasnodar Territory), seven pig farming complexes, two poultry farming complexes, and a formula feed plant. The group, which is controlled by Igor Babayev and members of his family, raised $251 million with an IPO on the London Stock Exchange in May 2006.

Cherkizovo Group increased consolidated revenue by 24% to $1.473 billion in 2011 from $1.188 billion in 2010. EBITDA rose 12% to $245.5 million from $218.5 million, and net profit rose 2% to $147.8 million in 2011.