CHE24 May 2011 08:56
Sergey Mikhailov, Chief Executive Officer of Cherkizovo Group, said:
"The first quarter of 2011 was a very challenging period for all domestic producers including ourselves. This was due to a combination of especially low prices for our products caused by an increased level of imports late last year, and sharply rising input costs, as the full effect of increased grain costs impacted our Poultry segment. However, while the majority of industry producers were operating at breakeven levels, Cherkizovo did manage to report $308.2 million in Group revenue and an Adjusted EBITDA of $34.9 million, while maintaining an 11% Adjusted EBITDA margin. Towards the end of the first quarter and going into the second quarter, poultry prices recovered, and this trend is continuing.
We are making solid progress in our large-scale projects to increase poultry capacity. This is already reflected in our sales volumes for the Poultry division, and we are on track to provide significantly higher output from 2011, which is also supported by our recent launch of the poultry sites in Bryansk and Penza. The Pork division is delivering volume growth including operations at acquired farms, while demand for our meat processing products has also remained strong.
Elsewhere, we have recently announced the start of a transformational project - the construction of a unique complex in the Lipetsk region, which will allow us to significantly increase production by 2016 and set industry trends in efficiency and product quality.
We have also completed the strategic acquisition of Mosselprom, a large, diversified vertically-integrated agro-industrial holding company that comprises poultry production and feed production, as well as land cultivation and cropping, and we expect strong production volume growth in poultry and pork, with significant synergies that will further enhance our performance.
We remain broadly positive on Russian consumption, and, as the pricing environment improves, we expect consumption to remain generally favorable. This trend will be supported by growing consumer confidence, reduced imports and increased costs from rising grain prices.
We also welcome the Government's recent decision to offer producers direct subsidies to offset sharp cost increases, and to distribute grain from the intervention fund directly to regions that have suffered most. These measures combined will stabilise the market environment and allow domestic producers to continue developing quality local products, despite the difficult trading conditions. Moreover, the current grain harvest outlook is positive for Russia, which, we expect, will further stabilise input costs.
Overall, we expect that in the second half of the year we will return to normalized profitability levels, as cost pressures decrease; this will offset the negative impact of the performance in the first quarter. Accordingly, management is optimistic that we are on track to m
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