Russian meat giant reports strong results

Russian meat giant reports strong results

Russian meat producer, the Cherkizovo Group (LSE:CHE) has reported an increase in revenue of 13% on a rouble currency basis and 2% to $391.1 million in dollar terms in the second quarter of 2012 from $382.5 million for the second quarter of 2011.

Cherkizovo has continued its construction of its greenfield pork farms in Tambov, Voronezh and Lipetsk by launching rearing facilities at all three complexes.

It also opened the first line of its poultry breeding facility, Pervomayskaya, at the Bryansk cluster. The facility, which was built as part of Cherkizovo’s ongoing poultry capacity increase project, consists of 28 bird houses, with a combined capacity of almost 1 million broilers. It built 21 additional bird houses at the poultry breeding facility Vostochnaya, part of the Penza cluster. Previously, this facility consisted of four bird houses with a capacity of 246,000 broilers, but with the new bird houses, this has increased to one million heads.

Cherkizovo also signed an agreement to set up a turkey meat production joint venture with Spain’s Grupo Fuertes. The new plant, due to be operational in 2014, will be in the Tambov region of Russia, with more than EUR 100 million invested in development of the project. The annual capacity is expected to be 25-30,000 tonnes of turkey meat, and may be increased to 50,000 tonnes in the medium term.

Sergey Mikhailov, chief executive officer of Cherkizovo, said: “In the first half of 2012, the Group produced more than 250 thousand tonnes of high quality meat and meat products, and increased its net profit in rubles by almost one half, when compared to the same period in 2011.

“Looking ahead, we see growing demand for poultry meat and anticipate higher prices than previously expected. This year the Group anticipates producing more than 300,000 tonnes of poultry, and finalizing our previously announced capacity increase project in the Bryansk cluster.

“In the pork segment, we are finalizing the construction of three greenfield complexes in Lipetsk, Tambov and Voronezh this year; once completed in 2013, they will have a capacity of 180, 000 tons – these complexes are already being filled with livestock. We continue to benefit from high pork prices, caused by the deficit from African swine flu in some regions of Russia and a veterinary ban on imports of live pigs. We expect prices to remain relatively high for the remainder of the year.

“As a result of the effective restructuring of our meat processing segment and a shift to higher margin processed products, the Group achieved improved margins in this segment compared to the first half of 2011, albeit on lower sales volumes. We have focused on sales of more profitable value added products, like smoked sausages, and have reduced low-margin products like raw meat. As a result, the net profit of the meat processing segment has grown by one half, while the average price has increased faster than inflation. The Kaliningrad meat processing plant, acquired in 2010, reached full capacity in 2011, and this has helped to improve segmental profits. By the end of the year, more production lines will be launched in Kaliningrad, supporting further profit growth for the segment.

“In terms of the general outlook for the agricultural sector, we are broadly optimistic about Government actions aimed to support the industry. Following WTO accession, the Government is considering prolonging the zero profit tax rate for an unlimited period of time for agricultural manufacturers. Meanwhile the subsidies on interest rates are being maintained. Such measures will help agricultural businesses achieve their long term development goals, while consumers will benefit from high quality, domestic produce.”

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