September 16, 2010

Russia's Cherkizovo posts strong financial H1 results

Cherkizovo Group has published its financial results for the six months ended June 30, 2010, stating that organic growth had been strong across all its business segments.

Among the highlights are that there has been strong organic volume growth across all segments, delivering a solid financial performance. Revenues increased 26% to US$579.9 million from US$459.3 million for the first half of 2009, and increased 15% on a rouble currency basis.

Adjusted EBITDA increased 36% to US$109.0 million from US$80.4 million for the first half of 2009, and increased 23% on a rouble currency basis. Adjusted EBITDA margin was 19%, increasing from 18% for the first half of 2009.

Gross profit increased 24% to US$159.5 million from US$128.3 million for the first half of 2009, and increased 13% on a rouble currency basis. The group's gross margin was a robust 28%. Net income increased 42% to US$71.4 million from US$50.3 million for the first half of 2009, and increased 29% on a rouble currency basis.

As of June 30, 2010, net debt decreased 13% to US$386.7 million. The effective cost of debt remained at 4%.

Meanwhile, Cherkizovo Group has signed a Memorandum of Understanding (MoU) 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%. The deal was approved by independent members of the Board of Directors.

The company has commenced construction of two new greenfield pork farms in the Tambov and Voronezh regions with a combined capacity of 25,000 live-weight tonnes. The new multi-site complexes will become operational during 2011 and full capacity is expected to be reached by the end of 2012, which will bring the group's overall capacity to an estimated 140,000 tonnes a year.

In addition, Cherkizovo Group chief executive officer Sergey Mikhailov expects to launch new poultry production sites in the Bryansk cluster at the beginning of the fourth quarter of this year.

Mikhailov said 2009 was characterised by unusually high pricing trends in the poultry division, and profitability is returning to historical trend levels. The division achieved a 30% gross margin and a 22% adjusted EBITDA margin.