Russian meat group Cherkizovo returns to normal profits

Russia’s largest meat producing company Cherkizovo, has reported a return to profits in its first half results following months of difficult trading conditions.

“After a very challenging 1H 2013, when the Group was on the verge of losses, Cherkizovo returned to its normal profitability figures in 1H14,” said CEO, Sergei Mikhailov, when commenting on the results.

“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.”

Poultry division

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 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 $478.3 million (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).