OREANDA-NEWS. June 02, 2014. Cherkizovo Group (LSE: CHE; MICEX: GCHE), Russia’s largest meat and fodder producer, announces its financial results for the First Quarter ending March 31, 2014.

Highlights
Revenue decreased by 2% to USD 376.6 million from USD 383.0 million in 1Q13 due mostly to the weakening of Russian rouble (RUB) against USD. In RUB, revenue increased by 13%;

Gross Profit increased by 48% to USD 95.1 million from USD 64.4 million in 1Q13. In RUB, Gross Profit up 70%;

Gross Margin increased to 25% from 17% in 1Q13;

Adjusted EBITDA has doubled to USD 56.2 million from USD 28.4 million in 1Q13. In RUB, Adjusted EBITDA increased by an impressive 128%;

Adjusted EBITDA margin increased more than two times to 15% from 7% in 1Q13;

Net Profit in 1Q14 amounted to USD 25.0 million vs Net Loss of (USD 0.6 million) in 1Q13;

Net Margin was at 7%;

Net Debt was USD 808.9 million as of the end of 1Q14;

The effective cost of debt was 3.2% (1Q13: 2.6%);

EPS was at USD 0.57 (1Q13: loss per share of (USD 0.01));

CCR (Cash Conversion Ratio) was 131%;

Business Developments
Cherkizovo Group acquired LISKO Broiler in the Voronezh region, one of the country’s largest poultry producers. The deal is based on the enterprise value of approximately RUR 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;

Commenting on the results, Sergei Mikhailov, Cherkizovo CEO, said:

Cherkizovo demonstrated very strong results in the first quarter. The Company’s revenue increased by 13% in RUB, and Adjusted EBITDA more than doubled. We can definitely say that after a very challenging 2013, the Group returned to a strong profitability.

The market environment was quite favourable throughout the quarter. Grain prices were relatively stable, while poultry meat and pork prices started to increase. Due to a shortage on the pork market and stoppage of imports, growth of live hog prices was very rapid starting in March. As a result, Cherkizovo Group, which completed its long-term investment programme in the pork division last year, could gain a strong financial return from these investments.

Once again, we benefited from the Company’s diversified structure. The rapid growth of profit in the pork division compensated many times over for the inevitable pressure on margins in the meat processing division. While many meat processors are facing difficulties as a result of the shortage on the pork market, Cherkizovo Group is able to supply its meat processing division with high quality raw meat thanks to its high degree of the vertical integration.

The acquisition of Lisko Broiler that we announced in the first quarter was a milestone for our business. Cherkizovo Group continued to consolidate the Russian meat market and made a major step towards market leadership. The transaction was made at a very attractive multiple which is beneficial for our shareholders, and we expect to have a noticeable synergy effect starting this year.