OREANDA-NEWS. Cherkizovo Group (LSE:CHE; MOEX: GCHE), Russia’s leading integrated and diversified meat and feed producer, announces full-year audited financial results (US GAAP) for the year ending 31 December 2014.

Highlights 

·     Cherkizovo Group produced more than 800 thousand tonnes of meat products and 1.4 million tonnes of feed, reconfirming its position as a leading meat and feed producer in Russia.  

·     Revenue increased by 9% to \$1 795.6 million for 2014 from \$1 654.9 million in 2013. Revenue in RUB terms increased by 30% to RUB 68.7 billion (2013: RUB 52.8 billion). Revenue decreased by 8% to \$421.9 million in 4Q14 (4Q13: \$460.0 million) as a result of RUB devaluation in 4Q. Revenue in RUB terms in 4Q14 increased by 34% to RUB 20 billion.  

·     Gross profit increased by 66% to \$594.1 million for 2014 from \$358.4 million in 2013. Gross profit in RUB terms doubled to RUB 22.9 billion (2013: RUB 11.5 billion). An impressive growth is due mostly to “low base” effect after a challenging 2013.  

·     Gross profit increased by 32% to \$156.1 million in the 4Q14 from \$118.2 million in 4Q13. 

·       Gross margin increased to 33% from 22% in 2013. In 4Q14 gross margin increased to 37% from 26% in 4Q13. 

·     Adjusted EBITDA* increased by 143% to \$438.7 million for 2014 from \$180.6 million in 2013. Adjusted EBITDA* in RUB terms almost tripled to RUB 17.0 billion for 2014 from RUB 5.8 billion in 2013. Adjusted EBITDA* increased by 79% to \$116.4 million in 4Q14 from \$65.1 million in 4Q13. An impressive growth is due mostly to “low base” effect after a challenging 2013.  

·       Adjusted EBITDA* margin increased to 24% from 11% in 2013. In the 4Q14 adjusted EBITDA* margin increased to 28% from 14% in 4Q13. 

·     After a very challenging 2013, net profit for 2014 amounted to \$345.7 million. Net profit in RUB terms increased more than 6 times to RUB 13.3 billion (2013: RUB 2.1 billion). Net profit was \$122.0 million in the 4Q14 (4Q13: \$41.4 million). An impressive growth is due mostly to “low base” effect after a challenging 2013.  

·       Net Debt**, all of which is denominated in RUB, was \$463.5 million as of December 31, 2014 

·       The effective cost of debt in RUB was 3.5% (2013: 2.9%)  

·       EPS increased five times to \$7.88 vs \$1.47 in 2013  

·       CCR (Cash Conversion Ratio) was 87% 

·       CAPEX amounted to \$175.0 million (not including acquisition of Lisko Broiler)            

Business Developments 

?  Cherkizovo Group acquired Lisko Broiler, one of the country’s largest poultry producers, in Voronezh region. The deal is based on the enterprise value of approximately RUB 5 billion. As a result of the acquisition, Cherkizovo increased its market share by 2 p.p., making an important step to the poultry market leadership;  Cherkizovo’s production capacity in poultry exceeded half a million tonnes of live weight;      

·         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; 

·         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;  

·         The Company continued to invest its profits into long-term investment projects, such as Eletsprom (Lipetsk region) and Mosselprom (Moscow region); 

·         Tambov Turkey project is well under way. Cherkizovo Group and its partner, Grupo Fuertes, continued the construction of production facilities in Pervomaisky District of the Tambov region;  Sberbank of Russia provided Cherkizovo Group the first tranche of the line of credit; 

·         Cherkizovo Group’s flagship brand in meat processing received an updated name and logo “Cherkizovo”; 

·         Cherkizovo Group's Global Depositary Receipts have been admitted to trading on Moscow Exchange (MOEX) under the ticker "CHEG"; 

·         New grain storage facilities in Kamensky District, Penza Region, with overall capacity of 100,000 tonnes was launched; 

·         The first poultry production facility of the Eletsprom project “Novonikolskaya” was launched in November 2014 (capacity: 30 000 t p.a.);  

·         Cherkizovo increased grain harvest by almost 40% compared to previous year; yields are significantly higher than average for Russia;  

·          During 2014, Cherkizovo launched several advertising campaigns of “Petelinka” and “Cherkizovo”  brands;  

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

“2014 was a very strong year for Cherkizovo Group. We reaped the benefits from our strategy of long term investments in pork, made major steps towards solidifying leadership in poultry and further increased our vertical integration and profit margins. The Group not only completely recovered following a very challenging 2013, but was able to build a solid foundation for 2015, that will help us to cope with the very difficult macroeconomic environment we face now.  

In 1Q 2014 we acquired Lisko Broiler, part of our strategy to pursue market consolidation through M&A while strengthening our position as a leading branded poultry meat manufacturer. This deal added 90 k tonnes to our capacities, reaching an impressive half-a-million tonnes live weight.    

High pork prices following the veterinary import ban in March allowed us to compensate for losses in the pork division in 2013 and achieve record high profitability. The fact that we have our own raw pork meat production helped to stabilize activities of the meat processing division as well. Many sausage manufacturers had to freeze their production due a shortage of raw meat, but Cherkizovo’s meat processing plants were fully supplied with chilled meat from our farms. We have built a sustainable production chain, with almost 40% of the pigs from our farms delivered to our own slaughtering facilities, and plan to increase this vertical integration further.  

The company continued to increase the level of its vertical integration in grain as well. Our grain harvest increased by almost 40%, as the grain division had record high yields and high margins. 

Despite the difficult geopolitical environment, we continued to develop our Russian-Spanish Tambov Turkey project that enjoyed support from the Ministry of Agriculture. Construction is well underway, and we plan to launch production at the end of 2015. As for the Eletsprom project, we launched the first poultry production facility in Lipetsk Region and are preparing to launch a grain storage facility and hatchery. We have also started full renovation of the Dankov Meat Processing Plant in Lipetsk Region, which will be converted into a modern slaughterhouse.  

Following a strong year, we are pleased to have shared our success with shareholders. The company paid out RUB 1.5 billion in dividends, the first dividend in its history. Our intensions are to  continue to grow for the benefit of our customers and shareholders.”