Cherkizovo to increase Russian market share
“The representatives of Cherkizovo believe that consolidation of the meat production industry in Russia is a matter of years [away], and mergers and acquisitions (M&A) deals are now the most attractive option for increasing the scale of operations and strengthening the competitive position of the large company,” noted the review. For M&A deals, a company can attract funds both from the debt market and through an additional issue (follow-on offering).
Cherkizovo’s share in the Russian pork market was 5.4% by the end of 2011, and 10.1% in the poultry market. At a recent meeting with market analysts, management confirmed its plans already announced for 2012-2013, including the implementation of a large project for the production and processing of poultry meat in Elets city (Lipetsk region), which will remain the main focus of investment in the years ahead. It will provide 80% of the company’s growth in the poultry sector between 2011 and 2015.
Capital commitments in the pork and meat processing sectors will be moderate, while the volume of pork production is projected to double in 2013 compared to 2011, as a number of complexes currently under construction will reach full operational capacity by that time. At the same time, according to Cherkizovo, the negative effects of Russia joining the World Trade Organization (WTO) are significantly overestimated by the market.
“Currently, in the poultry segment, imports do not play a big role and the quota system will be maintained. In the pork production segment, the reduction of import duties on live pigs from 40% to 5% will reduce the company’s EBITDA margin in the business to 30-35% from a current level of 40-42%. However, taking into account the planned levels of self-sufficiency in Russian meat production, the industry should receive state support in order to protect the growth of imports,” added the company’s financial director Ludmila Mikhailova, in a statement.
Cherkizovo representatives also said that the recent ban on livestock imports from Europe was a protection measure for the national market. “From 20 March, the import of pigs from Europe to Russia has been banned by veterinary services, and this ban will most likely be extended. In addition, we are discussing other measures of support [for the national meat industry], including maintaining a zero income tax and subsidising of interest rates on bank loans,” the BCS report noted.