RU

6 December 2022

Cherkizovo acquires Bashkortostan’s largest agricultural holding

Ufa, Russia — December 6 – Cherkizovo Group (MOEX: GCHE), Russia’s largest meat producer, has won the auction for the sale of Russian Grain Ufa's poultry, crop, and fodder production businesses. The acquisition will strengthen the Company's position in the poultry market in the Urals and neighboring regions.

2 December 2022

Cherkizovo Group launches a 3D advertising campaign

Moscow, Russia — December 2 – Cherkizovo Group, Russia’s largest meat producer, launched an outdoor 3D advertising campaign to promote its Salchichon premium sausages in anticipation of the New Year holiday season. The Company became one of Russia’s first food producers to introduce this technology in its promotional activities.

2 December 2022

National indexes of meat supply (IMS), October 2022

Cherkizovo Group publishes industrial meat supply indexes for October 2022. The indexes describe dynamics of meat supply — poultry, pork and beef — in Russia.

Cherkizovo Group Announces first half 2022 Financial Results

August 22, 2022

Moscow, Russia — August 22, 2022– PJSC Cherkizovo Group (MOEX: GCHE), the largest vertically integrated meat producer in Russia, today announces its unaudited consolidated IFRS results for the first half of 2022.

First half financial highlights

·        Revenue increased by 20.1 % year-on-year (y-o-y) to RUB 88.9 billion.

·        Gross profit of RUB 19.2 billion declined by 20.6 % compared to a year ago result.

·       Adjusted EBITDA* increased by 12.1 % y-o-y to RUB 12.4 billion. Adjusted EBITDA margin contracted to 13.9 %, from 14.9 % in 1H21.

·       The Group's net profit RUB of 6.9 billion, declined by 48.9 % compared to 1H21. Adjusted net profit** totaled RUB 6.3 billion, up 17.5 % from 1H21.

First half corporate highlights

·                 On June 3rd, Expert RA has affirmed company’s credit rating at ruA+ and revised its outlook from stable to positive.

Key corporate highlights after the reporting period

·        On August 11th, Cherkizovo launched its own oil extraction plant, Russia’s largest high-protein oilseed processing facility with a capacity of about 1 million tonnes of soybeans per year (2,500 tonnes per day).

Financial summary

RUB mln

1H 2022

1H 2021

y-o-y, %

Revenue

88 919

74 032

20.1 %

Net change in fair value of biological assets

752

8 395

-91.0 %

Net revaluation of harvested crops in stock

(2 078)

(2 263)

-8.2 %

Gross profit

19 153

24 128

-20.6 %

Gross margin

21.5 %

32.6 %

-11.1 p.p.

Operating expenses, net

(11 265)

(8 964)

25.7 %

Share of adjusted EBITDA of a joint venture and associates

141

196

-28.1 %

Adjusted operating profit 1

7 253

6 692

8.4 %

Adjusted operating margin

8.2 %

9.0 %

-0.8 p.p.

Adjusted EBITDA 1

12 362

11 030

12.1 %

Adjusted EBITDA margin

13.9 %

14.9 %

-1.0 p.p.

Profit before income tax

7 105

13 498

-47.4 %

Net profit

6 877

13 447

-48.9 %

Adjusted Net profit 1

6 285

5 350

17.5 %

Net operating cash flow

(1 205)

8 543

n.a.

Net debt 1

94 373

71 785

1 In line with the Group’s management accounting practices and described herein (*,**,***,****) in more detail, Adjusted operating profit, EBITDA and Adjusted Net profit don’t include the net change in fair value of biological assets and certain other items.

Revenue

In the first half of the year revenue increased by 20.1 % y-o-y to RUB 88.9 billion (1H21: RUB 74.0 billion). Revenue growth is attributed to better results of the chicken and RTE meat processing segments, as well as number of acquisitions that positively affected revenues in the reported period.

Gross profit

Gross profit declined by 20.6 % y-o-y to RUB 19.2 billion, (1H21: RUB 24.1 billion). Lower gross profit was driven by better revenues across segments in the first half of 2022, offset by higher costs for raw materials, and lower net change in fair value of biological assets. Gross profit margin declined to 21.5 % (1H21: 32.6 %).

Operating expenses

Operating expenses increased by 25.7 % y-o-y to RUB 11.3 billion from RUB 9.0 billion a year ago, fuelled by higher personnel and transportation costs, coupled by inflation in material costs. Operating expenses as a percentage of sales increased from a year ago result and amounted to 12.7 % (1H21: 12.1 %).

Adjusted operating profit

Adjusted operating profit of RUB 7.3 billion increased by 8.4 % y-o-y from RUB 6.7 billion a year ago. Adjusted operating profit excludes net change in fair value of biological assets of the Group's segments of RUB 0.8 billion and JV result of negative RUB 0.2 billion.

Adjusted EBITDA

Adjusted EBITDA of RUB 12.4 billion, up by 12.1 % compared with a year ago result of RUB 11.0 billion. Adjusted EBITDA margin declined to 13.9 % (1H21: 14.9 %) as higher profitability of the chicken and RTE meat processing segments were offset by lower results in the pork and grain segments.

Interest expense                                                                                          

Net interest expense of RUB 2.4 billion increased by 54.0 % compared to a year ago results, as increase of both the gross debt, and market interest rates.

Net profit

Net profit for the Group totaled RUB 6.9 billion in 1H22, a decline of 48.9 % compared to RUB 13.5 billion in 1H21. Net profit margin amounted to 7.7 %, compared to 18.2 % a year ago.

Adjusted net profit was up by 17.5 % y-o-y to RUB 6.3 billion, from RUB 5.4 billion a year ago. Adjusted net profit margin declined to 7.1 % from 7.2 % a year ago.

Cash flow

Operating cash flow turned to negative RUB 1.2 billion (1H21: RUB 8.5 billion), driven by lower profitability and working capital investments.

Capital expenditure and debt

The Group’s capital expenditure on property, plant, equipment and maintenance amounted to RUB 8.3 billion during first half of 2022 on the back of the acquisitions and our investments in construction of the oil-extracting plant.

As of June 30, 2022, net debt**** was RUB 94.4 billion, compared to RUB 71.8 billion a year ago. Gross debt increased to RUB 98.3 billion as of June 30, 2022, compared to RUB 81.3 billion a year ago. At the end of 1H22, long-term debt accounted for 39.0 % of the debt portfolio and amounted to RUB 38.3 billion. The effective cost of debt***** was 4.1 % as of June 30, 2022. Subsidized loans and credit facilities made up 52 % of the debt portfolio in 2022.

Net change in fair value of biological assets

Net change in fair value of biological assets is explained mainly lower valuation of the biological assets in the Chicken and Pork segments.

Business segments

Segments

Sales volume

Change y-o-y, %

Revenue 2

Change y-o-y, %

1H22, k ton

1H21, k ton

6M22, RUB mln

6M21, RUB mln

Chicken

354.7

359.7

-1.4 %

51 608

46 418

11.2 %

Turkey

38.0

23.73

60.4 %

7 845

4 276

83.5 %

Pork

65.8

64.9

1.4 %

12 348

10 911

13.2 %

RTE Meat Processing

62.6

60.4

3.6 %

17 053

12 441

37.1 %

2 Revenue denotes external sales

3 Sales volume of Turkey in 1H21 represent volumes sold via Trading vehicle of Cherkizovo, before the segment was formed in 2022

Chicken Segment 

Sales volumes in 1H22 declined by 1.4% to 354.7 thousand tonnes (1H21:359.7 thousand tonnes) and the average selling price increased by 11.8 % y-o-y to 144.9 RUB/kg, with foodservice and exports sales growing double digit compared to the first half of 2021. As a result, the segment's revenue increased by 11.2 % and amounted to RUB 51.6 billion (1H21: RUB 46.4 billion).

Net change in fair value of biological assets amounted to negative RUB 2.2 billion, compared to a negative number of RUB 1 million in 1H21.

Gross profit declined by 1.2 % y-o-y and totaled RUB 10.8 billion (1H21: RUB 11.0 billion) driven by sales growth which was offset by inflation of feed costs and other input components. Gross margin declined to 20.5 %, from 23.2 % in 1H21.

Operating expenses as a percentage of sales increased to 9.0 % compared to 8.1 % a year ago. Operating profit declined to RUB 6.1 billion (1H21: RUB 7.1 billion). Operating profit margin declined to 11.5 % from 15.1 % in 1H21.

Adjusted EBITDA of RUB 10.4 billion increased by 16.4 % y-o-y (1H21: RUB 9.0 billion), while Adjusted EBITDA margin strengthened to 19.7 %, a 75 basis point increase from a year ago result.

Pork Segment

Sales volumes in 1H22 increased by 1.4 % y-o-y, to 65.8 thousand tonnes (1H21: 64.9 thousand tonnes), mostly due to full consolidation of Samson — Food products since April, 2022 (prior, the results of Samson — Food Products were reported as an associate). The average selling price of the live pork increased by 10 % y-o-y to 111.0 RUB/kg, the average selling price of the carcass remained unchanged at 156.8 RUB/kg, and blended average selling price for B2B/B2C pork products increased by 7 % y-o-y. We also increased sales of pork by-products; as a result, the segment's revenue increased by 13.2 % y-o-y to RUB 12.3 billion (1H21: RUB 10.9 billion).

Net change in fair value of biological assets was negative and amounted to RUB 1.9 billion, compared to positive result of RUB 0.9 billion a year ago.

Gross profit of RUB 0.4 billion declined by 92.3 % compared to RUB 5.1 billion in 1H21, as higher costs and negative net change in fair value of biological assets depressed the results of the segment. The segment's gross margin contracted to 2.3 %, from 31.1 % a year ago.

Operating loss amounted to RUB 0.4 billion, compared to operating profit of RUB 4.3 billion a year ago. The segment's operating margin turned to negative 2.4 % from positive result of 26.7 % a year ago.

Adjusted EBITDA contracted to RUB 2.8 billion compared to a year ago result of RUB 4.6 billion. Adjusted EBITDA margin declined to 15.9 % from 28.6 % in 1H21.

RTE Meat Processing Division

Sales volumes in 1H22 increased by 3.6 % y-o-y to 62.6 thousand tonnes (1H21: 60.4 thousand tonnes). The average selling price increased by 33.0 % y-o-y to 274.3 RUB/kg (1H21: 206.0 RUB/kg), partially due to improvements in the sales mix of the segment, and driving overall revenue up by 37.1 % y-o-y, that reached RUB 17.1 billion (1H21: RUB 12.4 billion).

Gross profit amounted to RUB 3.0 billion (1H21: RUB 0.7 billion) driven by higher sales in the segment. Consequently, gross margin amounted to 17.3 %, compared to 5.8 % a year ago.

Operating expenses increased by 18.2 % y-o-y and amounted to 13.7 % as a percentage of sales (1H21: 16.1 %).

Operating profit totalled RUB 0.6 billion compared to a loss of RUB 1.3 billion in 1H21.

Adjusted EBITDA turned positive and amounted to RUB 1.1 billion compared to a negative result of RUB 0.8 billion in 1H21.

Turkey

Starting with 1H22 financials and following acquisition 50 % of Tambov Turkey, results of the turkey producing assets are now reported in the separate segment “Turkey” consisting of the production of feed for the segment’s internal use, breeding, raising and processing turkey, as well as sales of chilled turkey products.

Sales volumes in 1H22 amounted to 38.0 thousand tonnes, while the average selling price was 203.6 RUB/kg. The sales of the segment were RUB 7.8 billion. Gross profit amounted to RUB 1.1 billion, with gross profit margin of 14.1 %. Operating expenses  were 9.6 % as a percentage of sales, and operating profit totalled RUB 0.4 billion. Adjusted EBITDA of RUB 0.3 billion was affected by RUB 0.6 billion of net change in fair value of biological assets.

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 amortization expense, net change in fair value of biological assets, bonuses to employees under long-term incentive program and share of profit/loss of joint ventures and associates plus share of adjusted EBITDA of joint ventures and associates and depreciation and amortization accumulated in harvested crops in stock 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.

** Adjusted Net profit is defined as profit for the period before net change in fair value of biological assets recognized by the Group as well as by the Group’s joint ventures and associates and non-recurring impairment loss recognized for non-operational items of property, plant and equipment. Adjusted Net profit margin is defined as Adjusted Net profit as a percentage of our net revenues. Our Adjusted Net profit may not be similar to Adjusted Net profit 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 financial statements. We believe that Adjusted Net profit provides useful information to investors in order to estimate dividend payout.

*** Adjusted Operating profit is defined as operating profit for the period before net change in fair value of biological assets recognized by the Group as well as by the Group’s joint ventures and associates and non-recurring impairment loss recognized for non-operational items of property, plant and equipment. Adjusted Operating profit margin is defined as Adjusted Operating profit as a percentage of our net revenues. Our Adjusted Operating profit may not be similar to Adjusted Operating profit 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 Operating profit provides useful information to investors in order to better gauge underlying operating performance of the business.

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

***** Effective cost of debt is calculated as last twelve months interest expense divided over the end of the period gross debt