Cherkizovo Group Announces Financial Results for the fourth quarter and full year 2017

February 15, 2018

Moscow, Russia – 15 February 2018 – PJSC Cherkizovo Group (MOEX: GCHE), the largest vertically integrated meat producer in Russia, today announces its audited consolidated IFRS results for the fourth quarter and full year ending December 31, 2017.

Fourth quarter financial highlights

  • Revenue increased by 5% year-on-year (y-o-y) and 7% quarter-on-quarter (q-o- q) and amounted to RUB 24.3 billion
  • Gross profit increased by 19% y-o-y and 17% q-o-q to RUB 5.8 billion
  • Gross profit margin improved by 2.8 percentage points (p.p.) y-o-y to 23.6%, with sequential rise by 2 p.p. q-o-q.
  • Adjusted EBITDA* decreased by 26% y-o-y and was flat q-o-q to RUB 3.6 billion
  • Adjusted EBITDA* margin of 15.0%

Full Year 2017 financial highlights

  • Revenue increased by 10% year-on-year (y-o-y) to RUB 90.5 billion from RUB 82.4 billion in 2016
  • Gross profit jumped 32% y-o-y to RUB 23.6 billion from RUB 17.9 billion in 2016
  • Gross profit margin surged to 26.0%, compared to 21.7% in 2016
  • Operating expenses increased to RUB 13.8 billion, including Share of loss of a joint venture in the amount of 0.2 billion
  • Adjusted EBITDA* increased to RUB 15.3 billion, compared to RUB 10.3 billion in 2016
  • Adjusted EBITDA* margin jumped to 17.0% compared to 12.5% in 2016
  • Net profit for the period grew 202% y-o-y to RUB 5.8 billion, versus RUB 1.9 billion in 2016
  • Net operating cash flow was RUB 13.0 billion for 2017
  • Net debt** was RUB 48.7 billion as of December 31, 2017
  • Earnings per share (EPS) reached RUB 135.6 ( 2016: EPS was RUB 43.8)

Key corporate highlights for 2017

  • In April, Cherkizovo Group acquired NAPKO, one of Russia’s leading grain producers with 147,000 hectares of land located in Lipetsk, Tambov and Penza regions, which are strategically important areas for Cherkizovo Group. Following the acquisition,
  • In July, the Group launched new pork fattening sites in Lipetsk and Voronezh regions, with total production capacity of more than 126,000 live market hogs annually.
  • In August, the controlling shareholder of Cherkizovo Group, together with its affiliates, completed the acquisition of 21.05% of the Group's ordinary shares and GDRs from funds and portfolios under the management of Prosperity Capital Management, for a total consideration of RUB 12.0 billion.
  • In October, the Tambov Turkey project, a 50-50 joint venture between Cherkizovo Group and Grupo Fuertes, Spain’s leading agricultural producer, reached total installed capacity of 45,000 tonnes per annum and its Pava-Pava brand is already visible on the shelves of the federal modern retail trade.

Key corporate events after reporting period

  • On February 14 2018, Group GDRs were delisted from London Stock Exchange. Our current intention is that the GDR programme will remain operative for a limited period with a view that it may be terminated in the near future. Having considered the limited trading liquidity of its GDRs on the London Stock Exchange, the company has decided to consolidate the free-float and trading of its ordinary shares on the Moscow Exchange. In the context of its new capital markets strategy the company is also evaluating a range of alternatives available to it, including a potential equity offering of ordinary shares on the Moscow Exchange.

Sergei Mikhailov, CEO of Cherkizovo, commented:

“We are pleased to report the Company’s solid sales growth and improved profitability for 2017, as our focus on implementing strategic initiatives delivered value to shareholders and positioned us for a favourable medium-term outlook.

In 2017 our revenues rose by 10% and reached RUB 90.5 billion. Strict cost control, focus on efficiency, and benefits from our vertically integrated business model lifted our adjusted EBITDA to RUB 15.3 billion, a growth of 49% y-o-y, while adjusted EBITDA margin improved to 17%.”

Our overall strong operational performance during 2017 was offset in part by softening of domestic prices for pork and poultry in 4Q 2017; however, prices stabilized in December 2017.

In order to sustain and extend our leadership positions in the Russian meat sector, we ramped up production across all segments, bringing overall production to c.1 mn tons of meat products, and moving us up to #2 in the ranking of domestic pork producers.

Tambov Turkey, Russia-Spanish joint venture facility reached its target capacity, which is quickly gaining consumer appreciation for the quality of turkey product. In the pork division, the newest addition of the fattening capacity coupled with genetics improvements allowed us to expand production by 15% to 212 thousand tons. Both initiatives allowed us to further diversify our sales mix across meat types. The only major investment project left, to complete our current investment cycle, is our state- of-the-art processed sausage meat factory in Kashira, Moscow region, which will be the largest of its kind in Europe, and which is expected to be launched by the middle of 2018.

With heightened attention to our customers, and to better serve evolving consumer preferences, we focused on expanding our branded, value-added offering, including fresh processed poultry, pork and ready-to-eat products. We also broadened our distribution network to new regions, and our poultry products are now available in St Petersburg, and our processed meat products have entered the Urals and North-West Federal regions.”

Financial summary

mln RUB
mln RUB
year change
4Q 2017
mln RUB
3Q 2017
mln RUB
Quarter- on
-quarter change
Revenue 90 465 82 417 10% 24 336 22 780 7%
Gross profit 23 559 17 855 32% 5 752 4 927 17%
Operating expenses (13 833) (12 798) 8% (4 148) (3 428) 21%
EBITDA, adjusted 15 338 10 282 49% 3 641 3 645 -
EBITDA margin, adjusted 17% 13% 15% 16%
Operating profit 9 726 5 056 92% 1 603 1 499 7%
Profit before tax 5 956 1 960 204% 245 690 -65%
Profit 5 800 1 919 202% 151 543 -72%
Net operating cash flow 13 016 9 369 39% 3 177 3 372 -6%
Net debt 48 669 36 949 32% 48 669 47 214 3%


Net sales increased by 10% y-o-y to RUB 90.5 billion, compared to RUB 82.4 billion in 2016. Our pork and meat processing segments all delivered significant growth, with respective y-o-y rises in revenue during the year of 17% and 7% respectively. Poultry segment sales had slightly decreased by 1% during the year. Sales increase in the pork and meat processing segments was 9% and 8% in 4Q2017 as compared to 4Q 2016. At the same time sales declined by 10% in the poultry segment in respective period. Average prices were flat to moderately low y-o-y, and were flat to negative q- o-q.

Gross profit

Gross profit increased by 32% y-o-y to RUB 23.6 billion from RUB 17.9 billion in 2016. Strong year-on-year performance was driven by higher level of production across all divisions, coupled with favourable price environment for key feed inputs, predominantly grains, and operational efficiency gains in poultry and pork divisions. The combination of lower costs and higher sales lifted gross margin to 26.0% in 2017.

Operating expenses

Operating expenses increased by 8% y-o-y to RUB 13.8 billion, compared to RUB 12.8 billion in 2016, as a result of higher selling expenses. In the fourth quarter, operating expenses increased by 21% q-o-q. Operating expenses as percentage of sales decreased to 15.3% in 2017 from 15.5% in 2016.

Adjusted EBITDA

In 2017, adjusted EBITDA reached RUB 15.3 billion, a 49% increase compared to 2016. Adjusted EBITDA margin jumped to 17.0% (2016: 12.5%). Adjusted EBITDA margin for the 4Q 2017 stood at 15.0%, compared to 21.3% 4Q 2016.

Interest expense

Although total borrowings increased by 30% y-o-y to RUB 50.0 billion (2016: RUB 38.6 billion), net interest expense for 2017 was flat and amounted to RUB 3.7 billion due to lower interest rates on debt. The Group accrued RUB 6 million of subsidies in 2017 which is included in the net interest expense.

Net profit

Net profit for the Group increased three-fold to RUB 5.8 billion in 2017, compared to RUB 1.9 billion in 2016. Net profit margin in 2017 amounted to 6.4%, compared to 2.3% in 2016.

Cash flow

Operating cash flow for 2017 was RUB 13.0 billion compared to RUB 9.4 billion in 2016, primarily due to the increase in operating income.

Business segments

Divisions Sales volume
Sales volume
RUB# mln
RUB# mln
Share of
Poultry 522,5 500,3 4% 47 401 44 724 -1% 46%
Pork 211,8 184,8 15% 18 688 15 920 17% 18%
Meat processing 236,6 218,1 9% 34 020 31 667 7% 33%

*Revenue for both years includes intersegment sales

Poultry Division

Sales volumes in 2017 increased by 4% and amounted to 522,500 tonnes compared to 500,321 tonnes in 2016, with similar growth dynamics in 4Q 2017 compared to 3Q 2017 – up 5% q-o-q to 137,123 tonnes. The growth was driven by improvement in a number of operational metrics across core assets of the division.

In 2017 the average selling price weakened by 4% y-o-y to 88.84 RUB/kg mostly due to the higher base effect of 2016 and low summer season. In 4Q 2017 average selling price decreased by 3% q-o-q to 85.20 RUB/kg.

Revenue for the division decreased by 1% y-o-y to RUB 47.4 billion (2016: RUB 47.7 billion), mostly driven by deterioration of the average selling price, a result of elevated level of production across all producers, and despite our efforts to increase the share of branded value-added products. While prices remained under pressure during 4Q 2017, revenue remained flat compared to 3Q 2017, due to higher sales volumes.

Gross profit increased by 42% y-o-y to RUB 10.5 billion, from RUB 7.4 billion in 2016. Profitability uplift is predominantly attributed to the higher share of Petelinka products in the sales mix, lower cost for the feed inputs, and the Group’s ongoing efforts to improve feed composition. Gross margin for 2017 reached 22.1%, compared to 15.5% in 2016. Segment’s gross profit declined by 3% in 4Q 2017 as compared to 3Q 2017, with gross profit margin decreasing to 19.4% from 20.4% respectively.

Operating expenses as a percentage of sales amounted to 11.3%, an increase from 10.6% in 2016.

Operating income for 2017 almost doubled and stood at RUB 5.1 billion, compared to RUB 2.4 billion in 2016, with a decrease of 24% in 4Q2017 as compared to 3Q 2017. Operating margin in 2017 increased to 10.8% from 4.9% in 2016, while in 4Q 2017 margin deteriorated to 6.6% from 8.8% in 3Q 2017.

Net profit for the division came in at RUB 4.0 billion, compared to RUB 1.2 billion in 2016.

Adjusted EBITDA grew 54% y-o-y and amounted to RUB 7.1 billion (2016: RUB 4.6 billion), while adjusted EBITDA margin expanded to 15.0% from 9.7% in 2016. Quarterly Adjusted EBITDA margin weakened to 11.6% in 4Q 2017 from 14.1% in 3Q 2017.

Pork Division

Production volumes in 2017 increased by 15% y-o-y to 211,750 tonnes (2016: 184,766 tonnes), while 4Q17 production volumes were up 25% q-o-q and amounted to 63,028 tonnes compared to 50,353 tonnes in 3Q17.Positive dynamics both on y-o-y and q-o-q basis is attributed to the launch of new fattening facilities that the Group completed and populated over the course of the last two years.

Sales volume in 2017 increased by 13% and amounted to 200,308 tonnes, compared to 177,153 tonnes in 2016. In 2017 the average selling price rose by 4% y-o-y to 92.12 RUB/kg mostly due to the higher purchasing power of domestic consumers. In 4Q17 average selling price declined by 10% q-o-q to 84.74 RUB/kg.

Total sales in the pork division grew 17% y-o-y to RUB 18.7 billion (2016: RUB 15.9 billion). Sales growth is attributed to both volume and average price increase y-o-y. Sales rose by 14% in 4Q2017 as compared to 3Q 2017.

Gross profit for 2017 increased by 51% y-o-y to RUB 6.9 billion (2016: RUB 4.6 billion) due to higher sales volumes, lower feed costs, and ongoing improvement of our operational metrics driven by long term genetics improvement and animal health programs launched in prior years. The segment’s gross margin soared to 37.1% in 2017 from 28.9% in 2016. The pork segment’s gross profit grew 55% between the third and fourth quarter of the year.

Operating expenses as a percentage of sales amounted to 3.4%, compared to 4.9% in 2016.

Operating income grew 65% y-o-y to RUB 6.3 billion from RUB 3.8 billion in 2016. The segment’s operating margin increased to 33.8% from 24.0% in the previous year.

Net profit doubled y-o-y to RUB 5.6 billion (2016: RUB 2.6 billion).

Adjusted EBITDA increased by 72% y-o-y and amounted to RUB 6.8 billion (2016: RUB 4.0 billion). Adjusted EBITDA margin increased to 36.4% in 2017 from 24.9% in 2016. Adjusted EBITDA margin declined from 37.8% in 3Q2017 to 33.2% in 4Q 2017.

Meat Processing Division

Sales volumes in 2017 rose by 9% y-o-y to 236,638 tonnes from 218,085 tonnes in 2016, in 4Q17 volumes increased by 15% q-o-q to 69,293 tonnes, driven by growth of our branded offering of sausages and pork meat products.

In 2017 the average selling price remained flat compared to previous year and amounted to 147.65 RUB/kg. Average price was supported by our efforts to increase value added products in the sales mix. In the 4Q17 average selling price declined by 6% q-o-q to 141.51 RUB/kg.

In 2017 total sales increased by 7% and reached RUB 34.0 billion (2016: RUB 31.7 billion). Sales growth was driven by unchanged average price and higher volume of sales. Sales grew 9% in 4Q2017 as compared to 3Q 2017.

Gross profit for the reporting year rose by 8% y-o-y to RUB 6.0 billion, compared to RUB 5.5 billion in 2016. The gross margin increased to 17.5% from 17.4% in 2016. Gross profit increased by 21% in 4Q2017 as compared to 3Q 2017.

In 2017, operating expenses as a percentage of sales amounted to 12.5%, as compared to 11.8% in 2016.

Operating income decreased by 4% y-o-y to RUB 1.7 billion from RUB 1.8 billion in 2016. The operating margin decreased to 5.0% from 5.6% in 2016.

During the reporting period, the meat processing segment generated net profit of RUB 1.4 billion, a decrease of 18% y-o-y.

In 2017, adjusted EBITDA was flat and amounted to RUB 2.4 billion. Adjusted EBITDA decreased by 15% on a q-o-q basis. The adjusted EBITDA margin decreased to 7.1% in 2017 (2016: 7.7%).

Grain Division

In 2017 total sales increased by 6% and reached RUB 3.2 billion (2016: RUB 3.1 billion). Sales volumes in the segment were positively impacted by NAPKO consolidation, while average sales price declined by 21% y-o-y to 7.01 RUB/kg reflecting elevated levels of supply on the domestic market. The segment was loss making for the year.

Financial Position

The Group’s capital expenditure on property, plant, equipment and maintenance amounted to RUB 12.3 billion in 2017, a y-o-y increase of 27%. RUB 5.1 billion was invested in the construction of new pork finisher complexes in Lipetsk region, the development of sites in Voronezh region and the building of two wean-to-finish sites in Penza region. RUB 1.5 billion was invested into the poultry division. The meat processing division received RUB 4.8 billion of investments for the construction of the Kashira meat processing plant in Moscow region. In the grain division, RUB 0.4 billion was invested into the construction of a new grain drying facility.

As of 31 December 2017, net debt** amounted to RUB 48.7 billion, compared to RUB 36.9 billion at the end of 2016. Total debt increased to RUB 50.0 billion as of 31 December 2017 compared to the level of total debt of 38.6 billion at the end of 2016. As of 31 December 2017, long-term debt represented 61% of the debt portfolio and was RUB 30.6 billion. Short-term debt stood at RUB 19.4 billion, or 39% of the portfolio. The effective cost of debt was 7.3% in 2017 (2016: 9.7%). Subsidised loans and credit lines made up 35% of the debt portfolio in 2017 (2016: 35%). Cash and cash equivalents totalled RUB 0.7 billion as of 31 December 2017.


IIn 2017, the Group accrued subsidies for interest reimbursement of RUB 6 million, which offset interest expense (2016: RUB 0.7 billion). The Group received RUB 541 million of subsidies in 2017, compared to RUB 1.4 billion in 2016. During 2017 the Group wrote-off 571 million of subsidies, adjusting for the change in legislation that prohibits the use of 2018 funds for settlement of 2016 liabilities.


The macroeconomic outlook for Russia continues its improvement: GDP is growing, Rouble remains stable, inflation has been reduced to historically low levels and gradual easing of monetary policy by the Central bank is expected to continue; taken together, the factors should have a positive effect on consumer Russian spending in 2018 and beyond.

We anticipate that pricing pressure experienced in the poultry market in the latter part of 2017 will subside going forward, as overproduction should be absorbed by improving demand.

We remain confident in our strategy to grow sales and improve margins through our continued focus on value-added products and operational efficiency across our production supply chain and distribution network. Given the strong harvest in Russia in 2017, we anticipate prices for grains – a key component in our cost structure, will remain at current low levels at least until the new harvest campaign. Moreover, as we reach completion of a major capex cycle in the first half of 2018, our cash generation should be further strengthened for the medium term.

We intend to increase targeted marketing efforts to reach the end consumer, strengthen relations with leading modern retail chains, further penetrate HoReCa clients, and selectively open new regions in Russia and abroad. We also expect to selectively explore M&A opportunities, which support our business strategy and offer attractive return on investment.

For more information please visit or contact Anatoliy Vereschagin
Progress Communications Agency
Managing Partner
+7 965 334 34 34


About Cherkizovo Group

Cherkizovo Group is the largest meat and feed producer in Russia. The Group is a top- 3 producer in each of the Russian poultry, pork and processed meat markets.

Cherkizovo Group encompasses eight full cycle poultry production facilities, 16 modern pork production facilities, six meat processing plants, eight feed mills and 287,000 hectares of agricultural land. The Group also includes Tambov Turkey facility, a joint Russian-Spanish venture. In 2017, Cherkizovo Group produced c. 1 mn tonnes of meat and meat products.

Thanks to its vertically integrated structure, which includes grain growing and storage, feed production, livestock breeding, fattening and slaughtering, and meat processing, alongside a distribution system, the Group has delivered long-term sales growth and profitability. The Group’s consolidated revenue was RUB 90.5 billion in 2017.

Cherkizovo Group shares are traded on the Moscow Exchange (MOEX).

Some figures in this press-release are rounded for the reader’s convenience.

Some of the information in this press release may contain projections or other forward-looking statements regarding future events or the future financial performance of Cherkizovo Group. You can identify forward looking statements by terms such as “expect,” “believe,” “anticipate,” “estimate,” “intend,” “will,” “could,” “may” or “might” the negative of such terms or other similar expressions. We wish to caution you that these statements are only predictions and that actual events or results may differ materially. We do not intend to update these statements to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. Many factors could cause the actual results to differ materially from those contained in our projections or forward-looking statements, including, among others, general economic conditions, our competitive environment, risks associated with operating in Russia, rapid technological and market change in our industry, as well as many other risks specifically related to Cherkizovo Group and its operations.

*Non-IFRS financial measures. This press release includes financial information prepared in accordance with international financial reporting standards, or IFRS, as well as other financial measures referred to as non-IFRS. The non-IFRS financial measures should be considered in addition to, but not as a substitute for, the information prepared in accordance with IFRS.

Adjusted Earnings before Interest, Income Tax, Depreciation and Amortization (“Adjusted EBITDA”). Adjusted EBITDA is defined as profit for the period before income tax expense/benefit, interest income and interest expense, net, foreign exchange loss/gain, depreciation and amortisation expense, net change in fair value of biological assets and agricultural produce, write-off of receivables from insurance company, share of loss of a joint venture, and loss on disposal of subsidiaries plus adjusted EBITDA of a joint venture as shown in the reconciliation in Appendix 1.

Adjusted EBITDA margin is defined as Adjusted EBITDA as a percentage of our net revenues. Our adjusted EBITDA may not be similar to adjusted EBITDA measures of other companies; is not a measurement under IFRS accounting principles and should be considered in addition to, but not as a substitute for, the information contained in our consolidated statement of operations. We believe that adjusted EBITDA provides useful information to investors because it is an indicator of the strength and performance of our ongoing business operations, including our ability to fund discretionary spending such as capital expenditures, acquisitions and other investments and our ability to incur and service debt. While depreciation and amortization are considered operating costs under generally accepted accounting principles, these expenses primarily represent the non-cash current period allocation of costs associated with long-lived assets acquired or constructed in prior periods. Our adjusted EBITDA calculation is commonly used as one of the bases for investors, analysts and credit rating agencies to evaluate and compare the periodic and future operating performance and value of companies within our industry. Adjusted EBITDA is reconciled to our consolidated statements of operations in Appendix 1.

** Net debt is calculated as total debt minus cash and cash equivalents, short-term bank deposits and long-term bank deposits.