World meat industry news

According to the forecast of the Expert RA rating agency, by the end of 2023 the industry's debt burden may increase. As follows from the materials of the agency, it assesses the forecast for the agro-industrial complex for this year as developing, which means the possibility of two development options - stabilization or decline in financial indicators.

The crop production sector was negatively affected by the deterioration in the price environment for Russian grain both in the domestic and international markets, analysts noted. However, support for the agro-industrial complex is still a priority for the state, and tendencies are being created to change its measures towards the intensive development of the sector. In the second half of 2023, experts expect the price environment to recover and sales markets to expand, which will support industry representatives.

The rating agency analyzed crop and livestock companies with revenues of more than 300 million rubles. and the ratio of debt to operating profit in the range from 0 to 30. EBITDA of companies in the agency's portfolio at the end of 2022 decreased by an average of 3% due to rising costs, while revenue increased by 22%. EBITDA margin decreased by 4 percentage points. This is due to an increase in the cost of fixed assets and logistics costs. In 2023, further pressure on the financial performance of companies due to the devaluation of the ruble is expected. Under such conditions, an increase in M&A activity is expected, including the acquisition of less stable companies by large players in the 2023/24 season.

The debt burden of companies in the agricultural sector in 2023 may increase due to an increase in production costs and an increase in the cost of imports, experts say. However, the system of concessional lending to the industry provides comfortable levels of interest burden to EBITDA. The liquidity of the rated companies is assessed at a moderate level, with a sufficient amount of undrawn credit lines and projected operating cash flow. The share of short-term borrowings in the loan portfolio of agro-industrial complex is up to 60%, therefore, a tendency is expected to lengthen payment terms when making settlements with suppliers.

From the point of view of operating profit, the agribusiness sector is affected by the dynamics of world food prices, showing a correction in 2023 against the backdrop of a high base last year, said Anna Builakova, an analyst at Finam. Cost inflation is also noted due to the devaluation of the ruble, the rise in the cost of logistics. “At the same time, investment activity in the current year may be activated due to the establishment of new commercial ties. We can see the consolidation of assets around major players, following the example of the purchase of NMZhK Group by Rusagro agricultural holding, ”she believes.

Thus, the debt burden may be affected by both a slight deterioration in the operating margin of the segment and an increase in investment activity, Builakova continues. In her opinion, investment activity in the second half of 2023 could be put under pressure by an increase in the lending rate, especially considering that the amount of funds to subsidize concessional lending to the agro-industrial complex this year was reduced to 157.9 billion rubles. (177 billion rubles in 2022). In some cases, there will be a decrease in the debt burden, the analyst believes. In particular, Rusagro expects Net Debt/EBITDA to decline (2.6x in 2Q 2023) due to the normalization of EBITDA, which has come under pressure over the past 12 months, including due to the postponement of grain sales, Builakova adds.