Cherkizovo Group Announces First Quarter 2018 Financial Results

May 17, 2018

Moscow, Russia – May 17 2018 – PJSC Cherkizovo Group (MOEX: GCHE), the largest vertically integrated meat producer in Russia, today announces its unaudited consolidated IFRS results for the quarter ending March 31, 2018

First quarter financial highlights

First quarter key corporate highlights

Sergei Mikhailov, CEO of Cherkizovo, commented:

““Our sales in the first quarter of the year increased across all segments and reached Rub 21.9 bn. Poultry sales volumes were up almost 10%, though we anticipate full year volumes in this segment to be roughly in line with the previous year. We continue ramping up sales volumes and net sales of our pork segment, which delivered 29% and 15.6% increases respectively, y-o-y. Higher pork volumes contributed additional profits and also enabled the increase in sales in our meat processing segment. Our Tambov Turkey JV is on track to produce its capacity of 45 thousand tonnes in 2018. Our operational performance was undermined by seasonal weakness in prices, which already recovered in the beginning of the second quarter as we approach the active summer season.

We continued to increase the share of our production sold as branded value-added products at higher margin, e.g. sales of Petelinka grew 30% compared to the first quarter of previous year. We also expanded our distribution to modern retail trade and HoReCa channels and achieved a modest lift in market share in the North-West of Russia, predominantly in Saint Petersburg.

We increased sales and marketing expenses to support our sales effort generally and to bolster the Company’s strong brand positions going forward. At the same time, we continued our cost optimization programme, which led to a decline of live production costs in poultry and pork segments. However, the efficiencies were not sufficient to overcome the weak pricing environment and EBITDA for the period declined by 25.9% to RUB 2.7 billion.”

Financial summary

  1Q 2018 1Q 2017 Y-o- y %
Revenue 21 935 20 971 4.6%
Gross profit 7 532 5 640 33.5%
Operating expenses and share of JV results 3 937 3 186 23.6%
Adjusted EBITDA 2 680 3 675 -27.1%
EBITDA margin, adjusted 12.2% 17.5%
Operating profit 3 595 2 455 46.5%
Profit before tax 2 938 1 878 56.5%
Profit 2 865 1 848 55.1%
Net operating cash flow 1 022 2 114 -51.7%
Net debt 49 727 48 6691 2.2%


Net sales increased to RUB 21.9 billion, up 4.6% y-o-y (1Q17: RUB 21.0 billion), with meat processing and turkey revenues the major drivers of the increase (up 11.0% and 109.6% y-o-y respectively). Poultry segment sales declined by 2.6% compared to 1Q17 and amounted to RUB 11.5 billion. In the first quarter of 2018 sales volumes increased across all segments, while the pricing environment remained weak, compared to relatively high levels a year ago.

Gross profit

Gross profit increased by 33.5% y-o-y to RUB 7.5 billion, (1Q17: RUB 5.6 billion). Gross profit margin increased to 34.3% (1Q17: 26.9%). However, when gross profit was adjusted for the RUB 2.9 billion change in fair value of biological assets and agricultural produce, our adjusted gross profit declined by 17.1% y-o-y to RUB 4.6 billion. The year-on-year performance was the net result of a number of competing factors, driven by including lower average selling prices, a higher level of production across all segments, offset by lower feed costs in poultry and pork segments, and operational efficiency gains across all segments which led to lower costs per KG across all segments.

Operating expenses

Operating expenses increased by 23.6% y-o-y to RUB 3.9 billion, (1Q17: RUB 3.2 billion), because of higher volumes sold and associated logistics costs, increased marketing spend, and increased volumes of turkey sales. Operating expenses as percentage of sales increased to 17.9% in 1Q18 (1Q17: 15.2%).

Adjusted EBITDA

Adjusted EBITDA totalled RUB 2.7 billion, a 27.1% decline y-o-y. Adjusted EBITDA margin amounted to 12.2% (1Q17: 17.5%) due to lower profitability in the poultry and meat processing segments, partially offset by better results in the pork segment. Results of the poultry and meat processing segment were hurt by weak prices.

Starting in 2018 the Group has changed the approach for Adjusted EBITDA calculation for unsold harvest of the current year. Adjusted EBITDA now includes the unrealised gain / (loss) on mark-to-market revaluation of the current year harvest, which remained unsold at the year-end, plus the deprecation accumulated within the cost of production of the harvest less the realised effect of prior year harvest sold during the current period. The main reason for the change was to align reported calendar year Adjusted EBITDA of the Grain segment with agricultural year Adjusted EBITDA, to more accurately assess the performance of the segment. Furthermore, the crops produced by the Group are grain commodities and therefore can be easily sold at a market price and the price is readily available, therefore, for reporting purposes the Group adds to the Grain segment results the estimated Adjusted EBITDA of the unsold harvest.

The comparative financial information for 2017 and three months ended 31 March 2017 has been retrospectively adjusted to reflect the change in the segment profit measure. Adjusted EBITDA before the change of calculation amounted to RUB 15.3 billion in 2017 and RUB 3.7 billion in 1Q17 respectively. After the change of approach, Adjusted EBITDA was RUB 14.6 billion in 2017 and RUB 3.7 billion in 1Q17.

Interest expense

Net interest expense in 1Q18 remained flat y-o-y and totalled RUB 0.7 billion.

Net profit

Net profit for the Group totalled RUB 2.9 billion in 1Q18, up 55.1% compared to RUB 1.8 billion in 1Q17. Net profit margin improved to 13.1% from 8.8% in 1Q17. Net profit increase was positively affected by RUB 2.9 billion change in fair value of biological assets and agricultural produce.

Cash flow

Operating cash flow was RUB 1.0 billion (1Q17: RUB 2.1 billion), a decline of 51.7% primarily due to the decline in operating income, partially offset by an improvement in working capital.

Capital expenditure and debt

The Group’s capital expenditure on property, plant, equipment and maintenance amounted to RUB 2.0 billion in the first quarter of 2018, an increase of 8.1% y-o-y. The meat processing segment received RUB 0.7 billion for the construction of the Kashira meat processing plant in the Moscow region. Another RUB 0.9 billion was invested into the pork segment, in new wean-to-finish facilities in the Penza region.

As of March 31, 2018, net debt** was RUB 49.7 billion, compared to RUB 48.7 billion at the end of 2017. Total debt increased to RUB 52.5 billion as of March 31, 2018 compared to 50.0 billion at the end 2017. At the end of 1Q18 long-term debt accounted for 65% of the debt portfolio and amounted to RUB 34.2 billion, while short-term debt totalled RUB 18.3 billion, or 35% of the portfolio. The effective cost of debt was 7.0% in 1Q18 (1Q17: 9.5%). Subsidised loans and credit facilities made up 29% of the debt portfolio in 1Q18 (1Q17: 34%). Cash and cash equivalents totalled RUB 2.1 billion as of March 31, 2018.


The Group accrued direct subsidies of RUB 80.9 million in 1Q18 (1Q17: RUB 53.4 million). The Group accrued subsidies for interest reimbursement of RUB 138.2 million in 1Q18 (1Q17: RUB 138.7 million).

Business segments

Divisions Sales volume
1Q 18,
k tonnes
Sales volume
1Q 17,
k tonnes
1Q 18,
RUB# mln
1Q 17,
RUB# mln
Chicken 137.55 125.55 9.6% 11 525 11 832 -2.6%
Turkey 9.74 3.34 191.6% 1 130 539 109.6%
Pork 54.84 42.61 28.7% 4 544 3 930 15.6%
Meat processing 53.06 43.52 21.9% 8 253 7 435 11.0%

Volume and revenue reported in turkey section represent sales of the Trading Company “Cherkizovo”.
Revenue includes intersegment sales

Poultry Division

Sales volumes in 1Q18 increased by 9.6% and amounted to 137.55 thousand tonnes (1Q17: 125.55 thousand tonnes). The average selling price weakened by 11% y-o-y to 82.07 RUB/kg mostly due to the higher base effect of the previous year.

The segment’s revenue declined by 2.6% y-o-y to RUB 11.5 billion (1Q17: RUB 11.8 billion): higher sales volumes were negatively affected by the decline of the average selling price, despite an increased share of value-added branded products in the sales mix.

Gross profit declined by 18.4% y-o-y to RUB 2.1 billion, (1Q17: RUB 2.6 billion in 1Q17, due to lower prices. Gross margin was 18.6%, vs. 22.2% in 1Q17.

Operating expenses as a percentage of sales amounted to 12.3%, an increase from 10.0% in 1Q17. Operating income decreased 49.2% y-o-y to RUB 729 million (1Q17: RUB 1.4 billion). Operating margin fell to 6.3% in 1Q18 from 12.1% in 1Q17.

The segment’s net profit amounted to RUB 590 million (1Q17: RUB 1.2 billion).

Adjusted EBITDA declined 48.7% y-o-y and amounted to RUB 1.0 billion (1Q17: RUB 2.0 billion), while adjusted EBITDA margin decreased to 9.0% from 17.1% a year ago.

Pork Division

Sales volumes in the first quarter of 2018 increased by 28.7% y-o-y, to 54.84 thousand tonnes (1Q17: 42.61 thousand tonnes). The average selling price was down by 11% y-o-y to 81.59 RUB/kg compared to 90.23 RUB/kg a year ago.

The segment’s total sales increased by 15.6% y-o-y to RUB 4.5 billion (1Q17: RUB 3.9 billion). The sales growth was attributable to a higher volume of production, though partially offset by the weak average selling price in the reporting period.

Gross profit grew almost three fold y-o-y, to RUB 3.6 billion (1Q17: RUB 1.2 billion) due to higher sales volumes, further improvement in operational KPI’s, lower feed costs, and a non-cash change in the fair value of biological assets in the amount of RUB 2.1 billion (net of the revaluation gross profit increased by 27.0% to RUB 1.5 billion). The segment’s gross margin soared to 79.1% from 31.5% in 1Q17.

Operating expenses as a percentage of sales amounted to 4.8%, compared to 1.8% in 1Q17.

Operating income was up 189% y-o-y, to RUB 3.4 billion from RUB 1.2 billion in 1Q17. The segment’s operating margin increased to 74.3% from 29.7% in the quarter a year ago.

Net profit tripled to RUB 3.3 billion compared to 1Q17 result of RUB 1.1 billion.

Adjusted EBITDA increased by 16.3% y-o-y and amounted to RUB 1.6 billion (1Q17: RUB 1.4 billion). Adjusted EBITDA margin remained virtually unchanged at 35.5% vs. 35.3% in 1Q17.

Meat Processing Division

Sales volumes in 1Q18 were up 21.9% y-o-y, and amounted to 53.06 thousand tonnes (1Q17 43.52 thousand tonnes). The average selling price declined to 155.29 RUB/kg, from 174.80 Rub/kg in a quarter a year ago.

The segment’s total sales increased by 11% and reached RUB 8.3 billion (1Q17: RUB 7.4 billion). The sales growth was driven by an increased share of carcass in the sales mix, on the back of higher volumes of market hogs production in the pork segment.

Gross profit declined by 10.4% y-o-y, to RUB 1.3 billion, (1Q17: RUB 1.4 billion) due to lower average selling price per kilogram driven by the higher carcass sales. The gross margin declined to 15.2% from 18.8% a year ago.

Operating expenses as a percentage of sales amounted to 12.3%, vs. 12.1% in 1Q17.

Operating income decreased by 52.5% y-o-y to RUB 235 million from RUB 495 million in 1Q17. Operating margin decreased to 2.8% from 6.7% in the quarter a year ago.

The segment’s net profit was RUB 154 million, a decrease of 67.3% y-o-y.

Adjusted EBITDA declined to RUB 416 million. Adjusted EBITDA margin decreased to 5.0% (1Q17: 8.7%).

Grain Division

Due to the seasonality of the grain business, results of this segment are reported annually to better reflect the business performance and provide an appropriate basis for comparison.


The macroeconomic environment in Russia remains generally favourable, with inflation near historic lows and GDP, real disposable income and food retail sales all on the rise. A recent increase in FX volatility spurred by the latest round of sanctions appears to be settling down. We are therefore relatively optimistic looking out into the rest of the financial year due to a combination of positive drivers, both externally and internally.

We believe the pricing weakness, common for the first quarter of the year, is largely behind us, with prices moving upwards already in April. We are on track to launch new pork facilities that will increase our production capacity to 300 thousand tonnes by the end of the year, and to launch production at our state of the art meat processing plant in Kashira in the second quarter. The approaching completion and commercialization of these and other large capital projects will substantially complete our current investment cycle and position the company to deliver increased sales, earnings and cash flow in coming years.

Our business strategy is centered around our consumers. We target to increase sales of high margin branded products in the poultry segment, especially Petelinka, and to offer our consumers the best value for money in sausage and pork product categories. We intend to further evolve our portfolio of value-added products in line with consumer demand, strengthen our brands, solidify our market position in high-margin segments and high growth sales channels. To that end, we will strive to sustain our position as the main supplier for nationwide retail chains and HoReCa customers, through product quality, shelf life, service and competitive terms, and to leverage these relationships to gradually expand our regional coverage.

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.