Russian meat firm sees profits drop away
The company said adjusted EBITDA plummeted 54% to US$28.4m in the three months ended 21 March 2013, while gross profit fell by 34% to US$63.3m, compared to US$96m in the first quarter of 2012.
As a result, it made a net loss of US$0.6m in the first quarter of 2013, compared with a $39.8m net profit in the same period last year. Nebt debt amounted to US$846.8m.
The company’s pig production segment took the biggest hit, with sales up 58% year-on-year in the first quarter of 2013, but adjusted EBITDA down to minus US$2.2m, compared to a profit of US$25.6m in the same period last year.
Its poultry segment also suffered, with gross profit down 32% year-on-year to US$32.3m.
Cherkizovo CEO Sergey Mikhailov. blamed the poor performance on tough conditions on the Russian meat market, including high feed costs and a fall in pork and poultry prices following Russia’s accession to the World Trade Organization (WTO).
"Large producers of pork, even the most effective, including Cherkizovo, were forced to sell their products below cost," he said.
However, Mikhailov said the quarter had demonstrated the company’s ability to mitigate market risks, pointing out that while its pork and poultry segments suffered from falling prices, its meat processing segment benefited. Gross profit in the segment was up 46% year-on-year to US$31.9m in the first quarter of 2013.
He also predicted that the situation for pork and poultry would improve "dramatically" over the next year.
"As we expected, the price of pork has started to rise since the start of the summer season. Due to the shortage in the market, caused by the decline in imports and the departure of inefficient producers, in early May, the price of liveweight pork increased by more than 10%. At the same time, grain prices began to decline in anticipation of a good harvest."
He added that a recent government decision to increase support to the agricultural sector would provide a further boost the profitability of Cherkizovo’s pork and poultry segments.
"It is expected that direct payments will amount to RUB9 per kilogram of pork and RUB3.5 per kilogram of poultry. These grants will be distributed on the basis of production in the fourth quarter of 2012 Thus, Cherkizovo Group can get as a subsidy of about RUB600m," he said.
