OREANDA-NEWS. December 03, 2010.

Highlights
Strong organic volume growth across all segments, delivering a solid financial performance

Revenues increased 20% to USD 877.7 million from USD 730.1 million for the nine months of 2009, and increased 12% on a rouble currency basis

Adjusted EBITDA increased 21% to USD 159.5 million from USD 132.1 million for the nine months of 2009, and increased 12% on a rouble currency basis

Adjusted EBITDA margin was flat at 18%

Gross profit increased 16% to USD 235.9 million from USD 202.5 million for the nine months of 2009, and increased 8% on a rouble currency basis

Group gross margin was a robust 27%

Net income increased 26% to USD 104.4 million from USD 82.9 million for the nine months of 2009, and increased 17% on a rouble currency basis

As of 30 September 2010 Net debt decreased 6%, to USD 417.0 million.

The effective cost of debt decreased to 3%.

Business Developments
Cherkizovo Group commenced construction of three new greenfield pork farms in the Tambov, Voronezh and Lipetsk regions with a combined capacity of 37,500 live-weight tonnes. The new multi-site complexes will become operational during 2011 and 2012 and full capacity is expected to be reached by the end of 2012. This will increase the Group’s overall capacity to an estimated 153,000 tonnes a year.

Cherkizovo Group acquired a meat processing plant, located in the Kaliningrad region for USD 4.1 million. It will focus on delicacy products and serve as a resource base for the Group’s meat processing segment. The plant’s location entitles it to preferential customs status.

Cherkizovo Group acquired a 100% controlling interest in the Zarechnaya poultry facility for a total consideration of USD 5.2 million. The site, located in the Penza region, will be integrated into the existing Penza capacity increase project, thereby further increasing capacity at the cluster.

Subsequently, Cherkizovo Group completed the acquisition of a controlling interest in two greenfield pork production farms located in the Penza and Lipetsk regions of Central Russia. Since these acquisitions are transactions between entities under common control, their financial and operational results will be combined into Group operations in a manner similar to a pooling of interest for the full year 2010. Cherkizovo Group’s historical financial information will also be restated to include the acquired entities for all periods presented.

• On 10 November 2010 Cherkizovo Group successfully placed 3 billion roubles in 3-year bonds with a coupon rate of 8.25%. The funds will be allocated to refinance short-term loans, fund capital expenditure and to other investment needs.

Sergey Mikhailov, Chief Executive Officer of Cherkizovo Group, said:
“During the first nine months of 2010 we have delivered a solid performance, with a 20% increase in revenue and growth in Adjusted EBITDA of 21%. This has resulted in a healthy 18% Adjusted EBITDA margin. However, our results were affected by the tighter pricing environment in the poultry and pork divisions, particularly towards the end of the third quarter, and we expect pricing trends to remain challenging throughout the fourth quarter of 2010 and rolling over into the first quarter of 2011.

In the poultry division, profitability was at record level of 30% Gross Margin, and a 22% Adjusted EBITDA margin. We have made solid progress at our two step capacity-increase projects in Bryansk and Penza and our recent acquisition of the Zarechnaya facility in the Penza region will enable us to achieve targeted production volumes ahead of plan.

The pork division has enjoyed significant growth and we anticipate this will be further supported in the fourth quarter by the integration of the two new farms. Moreover, we are pleased that construction has commenced on three greenfield complexes in the Tambov, Voronezh and Lipetsk regions which are expected to become operational during 2011and 2012, adding some 37,500 tonnes of capacity. By the end of 2012 our production volumes will have grown to approximately 153,000 tonnes, further strengthening our market leadership in this high-margin business and positively affecting our overall performance.

Meat processing continues to see rising demand as consumer confidence improves. We have seen some very positive results, with an increase in sales volumes and sustained profitability.

Going forward, we anticipate a rather challenging year in terms of grain supplies globally, particularly in Russia. At the Group level, we have already secured approximately half of our grain stock needs for 2011, and are actively continuing to secure further grain supplies. This year, inflation for meat products in Russia has been relatively low compared to other consumer food products, despite the sharp increase in grain costs. We are now witnessing a slight oversupply of meat in the market, as less efficient producers and individual households are slaughtering livestock due to grain shortage. Combined with an increased share of poultry imports in the second half of this year, this puts a downward pressure on selling prices, especially for poultry sales. This may continue into the beginning of 2011, as producers will accumulate stocks. In the medium term reduction of livestock will potentially lead to more aggressive meat price inflation in 2011.

As a recent development, we welcome the Government’s recent announcement to decrease import quotas for 2011. However, with the anticipated growth in domestic production, the market is expected to reach self-sufficiently levels towards the end of 2011 and further quota reductions may be required.”

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Cherkizovo Group OJSC is one of the largest Russian meat producers. Its business is organized in three segments: poultry production (four full-cycle poultry production clusters), pork production (five pork production complexes), and meat processing (seven meat processing plants). Also, the Group produces its own fodder (2 fodder mills), and sells its products through its own three trading houses. Cherkizovo Group enjoys dominant market positions, and its brand portfolio includes leading brands, such as Petelinka, Chicken Kingdom, Cherkizovsky, and Five Stars.