Cherkizovo Group Announces Financial Results for the First Half of 2017

August 23, 2017

Moscow, Russia – 23 August 2017 – PJSC Cherkizovo Group (LSE: CHE; MOEX: GCHE), the largest vertically integrated meat and feed producer in Russia, today announces its unaudited consolidated IFRS results for the period ending 30 June 2017.

Second quarter financial highlights

First half financial highlights

Key corporate highlights for the reporting period

Key corporate highlights after reporting period

Sergei Mikhailov, CEO of Cherkizovo, commented:

“We continued to see a stronger financial performance during the second quarter, following an excellent set of results in the previous quarter, buoyed by a stronger ruble. The Group’s gross profit experienced a double-digit increase, while EBITDA growth was nearly three times that of the same period last year and exceeding expectations.

We were very pleased to see progress broadly across the whole business. The pork segment made a significant contribution to growth, delivering year-on-year EBITDA growth of 148%, driven by an increase in volumes and average price. We also made major progress in the poultry segment during the first half adding capacity and improving margins. In the meat-processing segment, we continued to gain share, despite a shrinking market. In grain, the acquisition of NAPKO will allow us to boost self-sufficiency in grain to over 60% in the coming years, compared to 30% at the end of 2016, which should reduce volatility of grain and feed prices and ensure stable supply.

Tambov Turkey plans to add an additional 50,000 tonnes of live weight production, providing major opportunities in the local and export markets. We are in the process of acquiring a license to export to the EU, which we believe will be a step-change for our business.

On the corporate governance front, we made important strides during the first half, with a new board and chairman elected. We boosted the power of our independent directors to improve oversight and transparency. In addition, we believe the acquisition of Prosperity Capital’s stake provides us valuable flexibility and more options in our capital markets strategy and supports our commitment to deliver value for shareholders.”

Financial summary

  1H 17
mln RUB
1H 16
mln RUB
year change
2Q 17
mln RUB
1Q 17
mln RUB
Quarter- on
-quarter change
Revenue 43 349 38 835 12% 22 378 20 971 7%
Gross profit 12 881 8 144 58% 7 240 5 640 28%
Operating expenses (6 257) (6 371) (2%) (3 071) (3 186) (4%)
EBITDA, adjusted 8 043 2 728 195% 4 313 3 730 16%
EBITDA margin, adjusted 19% 7% 19% 18%
Operating profit 6 624 1 773 274% 4 169 2 455 70%
Profit before tax 5 020 946 430% 3 142 1 878 67%
Profit 5 106 949 438% 3 172 1 934 64%
Net operating cash flow 6 467 1 074 502% 4 353 2 144 106%
Net debt 43 192 36 949 17% 43 192 40 417 7%

1 as of December 31, 2016


Net sales increased by 12% y-o-y to RUB 43.3 billion, compared to RUB 38.8 billion in 1H 2016. The pork and meat processing segments were the most significant growth drivers, with a y-o-y rise in production volumes in the first half of 13% and 4%, respectively. On a quarterly basis, sales growth was 29% and 10%. The pork segment’s performance was also boosted by a 13% y-o-y rise in prices.

Gross profit

Gross profit increased by 58% y-o-y to RUB 12.9 billion from RUB 8.1 billion in 1H 2016. The strong performance came on the back of higher sales and lower feed costs, which are largely denominated in foreign currency. During 1H 2017, the ruble reached its highest level compared to global currencies since July 2015. The combination of lower costs and higher sales lifted the gross margin to 29.7% in 1H 2017, from 21.0% in the same period in 2016. At the same time, on a quarterly basis, gross profit demonstrated q-o-q growth of 28%.

Operating expenses

Operating expenses decreased by 2% y-o-y to RUB 6.3 billion, compared to RUB 6.4 billion in 1H 2016, as a result of lower payroll and other selling expenses. In the second quarter, operating expenses decreased by 4% q-o-q. Operating expenses as percentage of sales decreased to 14.4% in 1H 2017 from 16.4% in 1H 2016.

Adjusted EBITDA

In 1H 2017, adjusted EBITDA reached RUB 8.0 billion, which is nearly three times the figure reported in 1H 2016. The adjusted EBITDA margin jumped to 18.6% (1H 2016: 7.0%). The adjusted EBITDA margin for the second quarter of 2017 came in at 19.3%, compared to 17.8% in 1Q 2017.

Interest expense

Interest expense was 25% lower y-o-y, reaching RUB 1.8 billion in 1H of 2017. The main drivers behind this decrease included a change from short term to longer term loans and a decrease in interest rates, although total borrowings increased by 18% y-o-y to RUB 45.4 billion (2016: RUB 38.6 billion). Net interest expense for 1H 2017 was RUB 1.5 billion, up 14% from the 1H2016 level of RUB 1.3 billion. The Group accrued RUB 0.3 billion of subsidies in 1H 2017 which is included in the net interest expense above, a y-o-y decrease of 76%

Net profit

Net profit for the Group grew five-fold to RUB 5.1 billion in 1H 2017, compared to RUB 0.9 billion in 1H 2016. Net profit margin in 1H 2017 strengthened to 11.8%, compared to 2.4% in the corresponding period of 2016, maintaining higher level from the first quarter of 2017.

Cash flow

Operating cash flow for 1H 2017 was RUB 6.5 billion compared to RUB 1.1 billion in 1H 2016. This was primarily the result of the increase in operating income.

Business segments

Divisions Sales volume
1H 2017,
Sales volume
1H 2016,
1H 2017,
RUB# mln
1H 2016,
RUB# mln
Share of
Poultry 254,9 252,4 1% 23 721 22 857 4% 49%
Pork 98,4 86,9 13% 8 992 7 109 26% 19%
Meat processing 107,3 102,9 4% 15 617 14 653 7% 32%

#revenue for both years includes intersegment sales

Poultry Division

First half sales volumes increased 1% y-o-y to 254,911 tonnes of sellable weight (1H 2016: 252,351 tonnes). This modest uptick was due to growth in production, leading to increased output volumes. In the same period in 2016, management decided to sell excess inventory due to market volatility, which boosted sales volumes.

The average price during 1H 2017 increased by 1% y-o-y to 91.15 RUB/kg as branded products and HoReCa sales represented a larger share of sales. On a q-o-q basis, the average price decreased by 3% to 89.93 RUB/kg during 2Q 2017, due to buyers’ market during the season.

Revenue for the division increased 4% y-o-y to RUB 23.7 billion (1H 2016: RUB 22.9 billion). This growth was a result of the rise in the average price as brand name and value- added products took a higher share of sales. However, the decrease in prices during 2Q 2017 led to a slight decrease in revenue of less than 1% q-o-q.

Gross profit grew more than two-fold y-o-y to RUB 5.7 billion, from RUB 2.7 billion in 1H 2016. This was as a result of lower feed costs due to the appreciation of the ruble. The corresponding period of 2016 saw the ruble weaken to a record low relative to the US dollar and Euro, leading to a significant increase in our feed costs. The gross margin for 1H 2017 consequently increased to 24.2%, compared to 11.9% in the same period of 2016. Between the first and second quarters of 2017, the segment’s gross profit grew by 19%, with gross profit margin increasing to 26.3% from 22.2% in 1Q 2017.

Operating expenses as a percentage of sales decreased to 10.4%, from 11.2% in 1H 2016, due to lower repairs & maintenance, payroll and advertising & marketing expenses.

Operating income for 1H 2017 jumped to RUB 3.3 billion, compared to RUB 0.2 billion in 1H 2016, with a quarterly increase of around 29%. The operating margin for 1H 2017 increased to 13.9% from 0.7% in the corresponding period of last year, supported by a 2Q 2017 margin increase to 15.6% from 12.1% during 1Q 2017 as a result of lower feed costs.

Net profit for the division came in at RUB 2.7 billion, compared to a loss of RUB 0.6 billion in 1H 2016. This was mainly a result of the link of the costs of feed components to foreign currencies.

Adjusted EBITDA grew more than four-fold, and amounted to RUB 4.1 billion (1H 2016: RUB 0.9 billion), while the adjusted EBITDA margin grew to 17.2% from 4.1% in 1H 2016. Quarterly EBITDA margin increased to 17.3% in 2Q 2016 from 17.1% in the last quarter.

Pork Division

Production volumes in the first half of the year increased by 13% y-o-y to 98,369 tonnes (1H 2016: 86,902 tonnes). This was due to higher production levels following the launch of two new wean-to-finish sites in Voronezh in 2016, as well as the on-going genetics improvement programme launched in 2014.

The average price rose by 13% y-o-y to 94.02 RUB/kg (1H 2016: 83.20 RUB/kg). This increase was driven by growing consumption in Russia, which has been fuelled by increased promotional activity by Russian retail chains, along with a stabilisation in purchasing power.

Total sales in the pork division grew 26% y-o-y to RUB 9.0 billion (1H 2016: RUB 7.1 billion). This sales growth was expected as both volume and average price increased y-o-y. On a quarterly basis, sales increased by 29%.

Gross profit for 1H 2017 almost doubled to RUB 4.0 billion, (1H 2016: RUB 2.2 billion), because of higher sales volumes and average live hogs price growth, along with the lower cost of feed components and veterinary supplies due to stronger ruble. The segment’s gross margin jumped to 44.2% in the first half of the year from 30.8% in the same period of 2016. The pork segment’s gross profit grew 121% between the first and second quarter of the year.

Operating expenses as a percentage of sales decreased compared to the same period of 2016 and stood at 1.3% (1H 2016: 5.7%).

Operating income doubled y-o-y to RUB 3.9 billion from RUB 1.8 billion in 1H 2016. The operating margin increased to 42.9% from 25.2% in the previous year.

Net profit doubled y-o-y to RUB 3.7 billion (1H 2016: RUB 1.5 billion).

Adjusted EBITDA doubled as well y-o-y and amounted to RUB 3.4 billion (1H 2016: RUB 1.4 billion). The adjusted EBITDA margin grew to 37.6% in 1H 2017 from 19.1% in 1H 2016. On a q-o-q basis, adjusted EBITDA demonstrated robust growth of 43%.

Meat Processing Division

Sales volumes increased by 4% y-o-y to 107,314 tonnes from 102,898 tonnes in 1H 2016. This was due to the growth in the product assortment in modern retail channels and geographical diversification into the Ural and North West regions.

During the reporting period, the average price increase by 5% y-o-y to 150.11 RUB/kg. On a q-o-q basis, the average price decreased by 2% to 148.92 RUB/kg (1Q 2017: 151.46 RUB/kg).

Total sales were 7% higher in 1H 2017 and reached RUB 15.6 billion (1H 2016: RUB 14.7 billion). This sales growth was expected as both volume and average price increased y-o-y. In the second quarter, sales grew by 10% q-o-q.

Gross profit for the first half of the year increased 8% y-o-y to RUB 2.7 billion, compared to RUB 2.5 billion in 1H 2016. The gross margin was up to 17.5% from 17.3% in 1H 2016. Gross profit growth weakened on a q-o-q basis to 4%.

In 1H 2017, operating expenses as a percentage of sales were in line with the last year and amounted to 12.0%, as a result of lower marketing and selling expenses.

Operating income increased by 12% y-o-y to RUB 0.9 billion from RUB 0.8 billion in 1H 2016. The operating margin increased to 5.6% from 5.3% in 1H 2016, resulting from an increase in the profitability of sausages and lower marketing and selling expenses.

During the reporting period, the meat processing segment generated net profit of RUB 0.7 billion, a decrease of 3% y-o-y.

In 1H 2017, adjusted EBITDA increased by 11% to RUB 1.2 billion (1H 2016: RUB 1.1 billion). Adjusted EBITDA decreased by 15% on a q-o-q basis. The adjusted EBITDA margin of 7.7% in 1H 2017 exceeded the last year (1H 2016: 7.4%).

Grain Division

During the reporting period, Cherkizovo started its 2017 harvesting campaign and expects to harvest a total of around 750,000 tonnes of crops this year. Year to date, wheat yields have exceeded the rates built into our budget. We are still in an early stage of the harvest period, and weather and other factors could intervene to affect total yields for the season.

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

Financial Position

The Group’s capital expenditure on property, plant, equipment and maintenance amounted to RUB 4.6 billion in 1H 2017, a y-o-y increase of 4%. RUB 2.0 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 0.7 billion was invested into the poultry division. The meat processing division received RUB 1.4 billion of investments for the construction of the Kashira meat processing plant in Moscow region. In the grain division, RUB 0.3 billion was invested into the construction of a new grain drying facility.

As of 30 June 2017, net debt** amounted to RUB 43.2 billion, compared to RUB 36.9 billion at the end of 2016. Total debt increased to RUB 45.4 billion as of 30 June 2017 compared to the level of total debt of 38.6 billion at the end of 2016. As of 30 June 2017, long-term debt represented 73% of the debt portfolio and was RUB 33.0 billion. Short-term debt stood at RUB 12.4 billion, or 27% of the portfolio. The effective cost of debt was 8.6% in 1H 2017 (2016: 9.7%). Subsidised loans and credit lines made up 33% of the debt portfolio in 1H 2017 (1H 2016: 79%). Cash and cash equivalents totalled RUB 1.6 billion as of 30 June 2017


In 1H 2017, the Group accrued subsidies for interest reimbursement of RUB 0.3 billion, which offset interest expense (1H 2016: RUB 1.1 billion). The Group received RUB 0.1 billion of subsidies in 1H 2017, compared to RUB 1.0 billion in 1H 2016.


The Group maintains a positive outlook for the remainder of 2017, based on progress across all segments of the business and the strong ruble in the year to date. At the same time, the Group maintains a robust risk forecasting and mitigation function.

The acquisition of NAPKO, a long-standing trusted supplier and related party, has expanded the Group’s land bank and self-sufficiency in grain over the long term, strengthening the Group’s business as a whole and reducing exposure to grain market volatility and shortages. Russian wheat harvests are forecasted to reach record levels this year, supported by Cherkizovo Group’s wheat yields exceeding the budget so far.

Despite significant external risks, the Group remains optimistic about the second half of 2017 and prospects for 2018. The macroeconomic outlook is positive. The stronger ruble compared to major foreign currencies continues to drive lower feed prices, keeping meat prices lower. These factors, coupled with an on-going recovery in Russian consumer spending power should support continued solid Group profitability.

For more information please visit or contact

Cherkizovo Group

Dmitry Mironov
Head of Investor Relations
+7 (495) 660 2440 ext. 15962


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 and is the largest feed manufacturer in the country.

Cherkizovo Group encompasses eight full cycle poultry production facilities, 15 modern pork production facilities, six meat processing plants, eight feed mills and more than 287,000 hectares of agricultural land. The Group also includes Tambov Turkey facility, a joint Russian-Spanish venture. In 2016, Cherkizovo Group produced 903,000 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 82.4 billion in 2016.

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

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 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.