Cherkizovo Group announces financial results for the fourth quarter and full year 2016

March 1, 2017

Moscow, Russia — March 1, 2017 – Cherkizovo Group (LSE: CHE; MOEX: GCHE) (hereinafter “Cherkizovo”, “the Group” or “the Company”), the largest vertically integrated meat and feed producer in Russia, today announces its audited consolidated IFRS results for the fourth quarter and period ending December 31, 2016.

Fourth Quarter financial highlights

Full Year 2016 financial highlights

Key corporate highlights for 2016

Sergei Mikhailov, the CEO of Cherkizovo Group, commented:

“2016 was a milestone year for Cherkizovo Group. We reclaimed our status as Russia’s top meat producer after increasing total meat product sales by 9% year-on-year to 903,000 tonnes.

“We completed a number of landmark projects during 2016 and achieved significant progress on our strategic initiatives, particularly around building our export portfolio. The Tambov Turkey Project, a joint venture between Cherkizovo Group and Fuertes, Europe’s leading turkey producer, became operational in 2016, which boosts our live weight production capacity by approximately 50,000 tons per year. We also launched our new state-of-the-art, in-house laboratory, which is unique to the Russian agricultural sector and is critical for the company to maintain and improve its quality and innovation leadership. 

“Financially, the year was mixed. Following a particularly challenging market environment with unusually low prices in early 2016, market conditions gradually improved throughout the year. Despite a disappointing first part of the year, we were able to deliver a strong set of operating results across all business divisions. Group revenue stood at RUB 82.4 billion, a year-on-year increase of 7%, which was largely driven by the poultry and meat processing segments. The latter performed particularly strongly and saw sales rise by 14% year-on-year to 218,085 tons in 2016.

“Our focus on enhanced operational efficiency across all segments has already helped to deliver an uptick in EBITDA, with an 83% year-on-year increase in fourth quarter EBITDA. We are confident that our continued efforts, combined with the anticipated improvement in Russia’s macroeconomic situation, will help us perform well in the year ahead.”

Financial summary

mln RUB
mln RUB
4Q 16
mln RUB
4Q 15
mln RUB
Revenue 82 417,2 77 032,6 7% 23 191,2 21 013,8 10%
Gross profit 17 854,8 19 148,7 (7%) 4 820,8 4 705,7 2%
Operating expenses (12 798,3) (11 614,7) 10% (3 343,7) (3 647,1) (8%)
Adjusted EBITDA 10 282,5 12 630,4 (19%) 4 936,9 2 700,3 83%
Adjusted EBITDA margin 12,5% 16,4% 21,3% 12,9%
Operating profit / (loss) 5 056,5 7 534,0 (33%) 1 477,1 1 407,5 5%
Income / (Loss) before tax 1 960,4 5 871,7 (67%) (312,9) 700,7 (145%)
Profit / (loss) 1 919,2 6 007,5 (68%) (272,5) 881,2 (131%)
Net operating cash flow 9 368,5 4 992,3 88% 4 302,9 (429,7)
Net debt 36 949,1 35 009,6 6% 36 949,1 35 009,6 6%


Net sales increased by 7% year-on-year to RUB 82.4 billion, compared to RUB 77.0 billion in 2015. The main drivers behind this growth were the poultry and meat processing segments. We were able to achieve strong volume growth but experienced a challenging pricing environment in the first half of the year. In the fourth quarter, sales increased by 10% year-on-year to RUB 23.2 billion from RUB 21.0 billion in the corresponding period of 2015.

Gross Profit

Gross profit fell by 7% year-on-year to RUB 17.9 billion from RUB 19.1 billion in 2015. The majority of this decrease can be attributed to the poultry and pork segments, where a significant share of expenses is pegged to foreign currency. As a result of higher costs, the gross margin consequently fell to 21.7% in 2016 from 24.9% in 2015. In the fourth quarter of 2016, gross profit demonstrated year-on-year growth of 2% and reached RUB 4.8 billion, compared to RUB 4.7 billion in the fourth quarter of 2015.

Operating Expenses

Operating expenses increased by 10% year-on-year to RUB 12.8 billion, compared to RUB 11.6 billion in 2015, as a result of higher payroll, taxes (transportation, property) and other selling expenses. In the fourth quarter of 2016, operating expenses fell by 8% year-on-year to RUB 3.3 billion from RUB 3.6 billion in the fourth quarter of 2015. Operating expenses as percentage of sales increased to 15.5% in 2016 from 15.1% in 2015.

Adjusted EBITDA

In 2016, adjusted EBITDA fell by 19% year-on-year to RUB 10.3 billion from RUB 12.6 billion in 2015. The adjusted EBITDA margin fell to 12.5% in 2016. Nonetheless, in the fourth quarter of 2016, EBITDA demonstrated growth of 83% and reached RUB 4.9 billion (4Q 2015: RUB 2.7 billion).

Interest Expense

Interest expense was up 14% year-on-year to RUB 4.5 billion in 2016. The Group’s loan portfolio decreased by 6% to RUB 38.6 billion (2015: RUB 41.2 billion). Net interest expense for 2016 was RUB 3.7 billion, up 174% from the 2015 level of RUB 1.4. The Group accrued RUB 0.7 billion of subsidies in 2016 included in the net interest expense above, a year-on-year decrease of 71% due to the change in the management estimate regarding subsidy recognition and related write-off of subsidies receivable that are not expected to be recovered. In the fourth quarter of 2016 the Russian Government announced a new policy on subsidy assignment to agricultural producers - starting from 1 January 2017 accredited banks will provide loans to agricultural producers at reduced rates not exceeding 5% per annum on RUR-denominated loans. The Government will then provide a subsidy to the banks compensating the difference between market and actual rates. Considering the uncertainty regarding collectability of subsidies accrued under the previous policy, management determined that only subsidies on qualifying loans that are confirmed by Ministry of Agriculture shall be recognized. The change in estimate resulted in decrease of subsidies receivable balance and increase in interest expense for RUB 1.3 billion.

Net Profit

Net profit for the Group came in at RUB 1.9 billion, a decrease of 68% year-on-year from RUB 6.0 billion in 2015. As a result of write off of RUB 1.3 billion of interest subsidies that are not expected to be recovered and RUB 0.3 billion of receivables from insurance company on ASF compensation, the net profit margin fell to 2.3% from 7.8% in 2015.

Cash Flow

Net operating cash flow for 2016 was RUB 9.4 billion, up materially compared with RUB 5.0 billion in 2015 as a result of improvement in working capital (revision of payment terms with suppliers and inventory management).

Business segments

Divisions Sales volume
Sales volume
RUB# mln
RUB# mln
Share of
Poultry 500,3 470,4 6% 47 724,0 344 590,2 7% 49%
Pork 184,8 169,6 9% 15 920,1 16 579,2 (4%) 16%
Meat processing 218,1 191,2 14% 31 667,4 29 150,3 9% 32%
Grain Farming 338,8 267,4 27% 3 055,8 2 580,7 18% 3%

#ncludes intersegment sales

Poultry Division

In 2016, sales volume increased by 6% year-on-year to 500,321 tons of sellable weight, from 470,432 in 2015. This growth was driven by higher production levels, which were a result of improvements in efficiency and the launch of new poultry houses at the Mosselprom production facility. On a quarter-on-quarter basis, sales volume increased by 7% to 128,250 tons of sellable weight. This growth was due to higher sales of branded, deep processing and ready-to-cook products, which were aided by the diversification of the geographies these products are sold in.

The average price during 2016 was flat compared to the previous year and stood at 94.94 RUB/kg1. In the fourth quarter, the average price grew by 6% quarter-on-quarter to 102.72 RUB/kg from 96.89 RUB/kg in the third quarter.

Total sales for the division increased 7% year-on-year to RUB 47.7 billion (2015: RUB 44.6 billion). Sales increased 6% in the fourth quarter of the year and reached RUB 13.3 billion (4Q 2015: RUB 12.5 billion)

Gross profit fell by 12% year-on-year to RUB 7.4 billion from RUB 8.4 billion in 2015 as costs for feed components, hatching eggs and veterinary supplies are denominated in foreign currency. The negative effect was mostly evident in the first quarter of the year when the Russian ruble hit a new record low. The currency situation has since stabilised, although the average real exchange rate for 2016 was still 10% lower year-on-year. The gross margin for 2016 decreased to 15.5% from 18.9% in 2015. The segment’s gross profit delivered growth of 4% in the fourth quarter compared with the corresponding period of 2015 (4Q 2015: RUB 2.3 billion).

Operating expenses as a percentage of sales were slightly lower at 10.6%, compared to 11.4% in 2015.

Operating income fell by 30% year-on-year to RUB 2.4 billion from RUB 3.3 billion in 2015, while the operating margin fell to 4.9% from 7.5% in the corresponding period of last year. Net profit for the division came in at RUB 1.2 billion, a year-on-year drop of 67%. This was mainly a result of the costs of feed components and other direct materials being pegged to foreign currencies.

Adjusted EBITDA dropped 16% year-on-year to RUB 4.6 billion (2015: RUB 5.5 billion), while the adjusted EBITDA margin fell to 9.7% from 12.3% in 2015. However, in the fourth quarter of 2016, the segment’s EBITDA almost doubled compared with the corresponding period of 2015 and grew by 83.5% to RUB 2.4 billion (4Q 2015: RUB 1.3 billion).

Pork Division

For the full year of 2016, sales volume in the pork division increased by 9% year-on-year to 184,766 tons. This was primarily due to a new genetics improvement strategy launched by the management at the beginning of the year to improve pigs’ health status and efficiency by increasing livability and weekly farrows. The launch of two new wean-to-finish sites in the Voronezh region also helped to boost sales. On a quarter-on-quarter basis, sales volume grew by 19% to 53,184 tons and was driven by higher production levels, which the Group started to see in the fourth quarter of 2015, and additional market hog sales from new wean-to-finish sites in September and October 2016.

In 2016, the average price decreased by 10% year-on-year to 88.28 RUB/kg; on a quarter-on-quarter basis, it fell by 1% to 92.46 RUB/kg. This drop was a result of Russian consumers’ lower purchasing power and an overall increase in pork production across the country.

Total sales in the pork division fell 4% year-on-year to RUB 15.9 billion (2015: RUB 16.6 billion). This dip in sales was expected as the average price fell by 10% year-on-year. In the fourth quarter of the year, sales increased by 22% and reached RUB 4.7 billion, compared with RUB 3.9 billion in the corresponding period of 2015.

Gross profit in 2016 stood at RUB 4.6 billion, a decrease of 1% from 2015 (2015: RUB 4.7 billion). The segment’s gross margin rose to 28.9% from 28.1% in 2015. The segment’s gross profit increased by 60% in the fourth quarter to RUB 1.3 billion compared to the 4Q 2015 level of RUB 0.8 billion.

Operating expenses as a percentage of sales in 2016 were slightly higher compared to 2015 and stood at 4.9% (2015: 4.0%). Transportation tax was the main driver of the expense growth.

Operating income fell by 5% year-on-year to RUB 3.8 billion from RUB 4.0 billion in 2015. The operating margin decreased to 24.0% from 24.1% in the previous year. Net profit decreased by 28% year-on-year to RUB 2.6 billion (2015: RUB 3.6 billion).

Adjusted EBITDA decreased to RUB 4.0 billion, a year-on-year decrease of 37%. The adjusted EBITDA margin fell to 24.9% in 2016 from 37.9% in 2015. On a quarter-on-quarter basis, adjusted EBITDA demonstrated growth of 66%.

Meat Processing Division

During 2016, sales volume in the meat processing division grew by 14% year-on-year to 218,085 tons from 191,200 tons in 2015. This increase was a result of production growth of non-sausage products. In the fourth quarter, sales volume increased by 7% year-on-year to 59,438 tons.

In 2016, the average price fell by 3% year-on-year to 167.84 RUB/kg due to non-sausage products representing a greater share of sales. The average price decreased by 1% quarter-on-quarter to 170.33 RUB/kg due to sausages and B2B/B2C products representing a lower share of the product mix in the fourth quarter.

Total sales were 9% higher in 2016 and reached RUB 31.7 billion (2015: RUB 29.2 billion). In the fourth quarter of the year, sales grew by 7% and reached RUB 8.8 billion (4Q 2015: RUB 8.3 billion).

Gross profit increased by 28% year-on-year to RUB 5.5 billion, compared to RUB 4.3 billion in 2015. The gross margin rose to 17.4% in 2016 from 14.8% in 2015. In the fourth quarter, gross profit grew by 25% year-on-year to RUB 1.6 billion (4Q 2015: RUB 1.3 billion).

In 2016, operating expenses as a percentage of sales grew to 11.8%, compared to 10.5% in 2015. This was a result of higher transportation and payroll expenses.

Operating income increased by 42% year-on-year to RUB 1.8 billion from RUB 1.3 billion in 2015. The operating margin rose to 5.6% from 4.3% in 2015. In 2016, the meat processing segment generated net profit of RUB 1.7 billion, an increase of 96% from 2015 (2015: RUB 0.9 billion).

In 2016, adjusted EBITDA demonstrated growth of 38% and reached RUB 2.4 billion (2015: RUB 1.8 billion). The adjusted EBITDA margin reached 7.7% in 2016, compared to 6.0% in 2015. Adjusted EBITDA increased by 40% in the fourth quarter to RUB 0.8 billion (4Q 2015: RUB 0.6 billion).

Grain Division

Sales in the grain division grew by 27% in 2016 to 338,808 tons of various crops, compared to 267,371 tons in 2015. This positive dynamic was driven by a 41% increase in the Group’s harvest to 467,916 tons, versus 332,866 tons in 2015. The average crop yield of the Group’s cultivated land increased by 47% to 57.5 t/ha, while the Group’s tillable land area grew by 4% year-on-year to 94,814 ha. The average grain price for 2016 fell by 6% year-on-year to 8.83 RUB/kg as a result of a record harvest in the country.

Financial Position

The Group’s capital expenditure on property, plants, equipment and maintenance amounted to RUB 9.9 billion in 2016, a year-on-year decrease of 12%. Of that, RUB 2.9 billion was invested into the poultry division, primarily into the construction of the hatchery and grain storage facility in the Lipetsk region (Eletsprom Project). In the pork division, RUB 3.8 billion was invested into purchasing equipment for the new finisher complexes in the Voronezh region, as well as constructing new finisher complexes in the Lipetsk region. The meat processing division received RUB 1.5 billion of investments for the construction of the Kashira meat processing plant in the Moscow Region. In the grain division, RUB 1.2 billion was invested into the construction of a new grain drying facility. The feed division received RUB 0.2 billion of investments. Cherkizovo Group also invested RUB 1.1 billion into the Tambov Turkey project in 2016.

As of 31 December, 2016, net debt amounted to RUB 36.9 billion, compared to RUB 35.0 billion at the end of 2015. Total debt stood at RUB 38.6 billion as of 31 December 2016, a decrease of 6% from the end of 2015. As of 31 December 2016, long-term debt represented 63% of the debt portfolio and amounted to RUB 24.5 billion. Short-term debt stood at RUB 14.1 billion, or 37% of the portfolio. The effective cost of debt was 9.7% in 2016 (2015: 3.3%). Subsidised loans and credit lines made up 35% of the debt portfolio in 2016 (2015: 81%). Cash and cash equivalents totaled RUB 1.0 billion as of 31 December, 2016.


In 2016, the Group accrued subsidies for interest reimbursement of RUB 0.7 billion, which offset interest expense (2015: RUB 2.6 billion). The Group received RUB 1.4 billion of subsidies in 2016, compared to RUB 2.0 billion in 2015

2017 Outlook

Following signs that the macroeconomic situation in Russia is starting to recover, GDP is expected to return to moderate growth during 2017. Consumer spending is forecast to rise as inflation is forecast to be at a record low level. The investment climate is also improving and foreign direct investment is expected to continue its rebound from pre-recession levels.   It is anticipated that the first quarter of the year will be soft, as is often the case for Cherkizovo’s business. The Company’s first quarter margins tend to be the lowest in the year as a result of the typical post-holiday drop in consumer spending and seasonally low meat consumption at the beginning of the year.

The Company has completed the majority of its capital intensive development phase and is now looking at a more modest capex in 2017. Cherkizovo is shifting its investment focus from development to maintenance, operational efficiency and production of higher-margin value-added products. Cherkizovo Group will continue building on its competitive advantages, adding extra emphasis on the quality and biosafety of its products, as well as capitalising on domestic market consolidation and selectively on international opportunities.


For more information please visit or contact

Cherkizovo Group

Dmitry Yakovlev
IR Manager
+7 (495) 660 2440 ext. 15962

FTI Consulting

Anton Karpov 
+7 (495) 795 0623


About Cherkizovo Group

Cherkizovo Group is the largest meat and feed producer in Russia. The Group is a top-3 producer in the poultry, pork and processed meat markets and is the largest feed manufacturer in the country. Cherkizovo Group encompasses 8 full cycle poultry production facilities, 15 modern pork production facilities, 6 meat processing plants, 9 feed mills and more than 140,000 hectares of agricultural land. In 2016, Cherkizovo Group produced 903,000 tons of 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 consistently delivered stable, long-term sales growth and profitability. The Company’s consolidated revenue reached RUB 82.4 bn in 2016..

Cherkizovo Group shares are traded on the London Stock Exchange (LSE) and on the Moscow Exchange (MOEX).