Cherkizovo Group Announces Financial Results for the Third Quarter and Nine Months of 2017

November 15, 2017

Moscow, Russia – 15 November 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 September 2017.

Third quarter financial highlights

9months financial highlights

Key corporate highlights for the 3Q

Key corporate highlights after reporting period

Sergei Mikhailov, CEO of Cherkizovo, commented:

”The Group’s performance this year to date has demonstrated the strength of the recovery of our business and our domestic and export markets beginning in late 2016. We saw stable financial and operational results in the third quarter, and year-to-date, the Group delivered solid top-line and robust bottom-line growth, despite increased competition from higher levels of domestic production. For the first nine months of the year, net profit jumped 158% reflecting continued internal operating improvements, the ongoing recovery of the Russian consumer sector and currency gains.

We are very encouraged to have generated strong growth and profitability across all business segments. The pork and poultry segments made sizable contributions to EBITDA growth in the first nine months of the year. Meanwhile, the Winter Harvest was a record one for the Group, following the acquisition of NAPKO, which, as planned, has boosted our self-sufficiency in grain.

During the last quarter, we advanced investment plans to increase the output of pork products in Voronezh and Lipetsk regions. In addition, our Tambov Turkey joint venture has now reached its target production capacity.

To sustain and augment our market leadership in a competitive environment, we continue to increase our focus on higher value-added products, including ready-to-eat and processed meat products. To enhance our strong market share, we are currently building a state-of-the-art processed meat sausage factory in Kashira, Moscow region, which will be the largest of its kind in Europe.

In the third quarter, we started to observe some downward trends in the pork and poultry markets. We expect weakening of prices will affect our profitability in the short run; however, this trend is due primarily to seasonal factors. Nevertheless, our overall outlook remains positive.”

Financial summary

  9M 2017
mln RUB
9M 2016
mln RUB
year change
3Q 2017
mln RUB
2Q 2017
mln RUB
Quarter- on
-quarter change
Revenue 66 129 59 226 12% 22 780 22 378 2%
Gross profit 17 808 13 034 37% 4 927 7 240 -32%
Operating expenses (9 527) (9 455) 1% (3 428) (3 071) 12%
EBITDA, adjusted 11 698 5 346 119% 3 654 4 313 -15%
EBITDA margin, adjusted 17,7% 9,0% 16,0% 19,3%
Operating profit 8 122 3 579 127% 1 499 4 169 -64%
Income before tax 5 711 2 273 151% 690 3 142 -78%
Profit 5 650 2 192 158% 543 3 172 -83%
Net operating cash flow 9 839 5 062 94% 3 372 4 353 -23%
Net debt 47 214 36 949 28% 47 214 43 192 9%

1 as of December 31, 2016


Net sales increased by 12% y-o-y to RUB 66.1 billion, compared to RUB 59.2 billion in 9M 2016. Our pork, poultry and meat processing segments all delivered significant growth, with respective y-o-y rises in revenue in the first nine months of 21%, 3% and 7%. On a quarterly basis, sales growth was -10%, -1% and 8%. Average prices grew modestly y-o-y and were flat to negative q-o-q.

Gross profit

Gross profit increased by 37% y-o-y to RUB 17.8 billion from RUB 13.0 billion in 9M 2016. The strong year-on-year performance came on the back of a recovery in the consumer sector and a stronger rouble, translating into higher sales and lower feed costs, the latter being largely denominated in foreign currency. For 9M 2017, the rouble maintained multi-year highs last seen in 2015. The combination of lower costs and higher sales lifted gross margin to 26.9% in 9M 2017. At the same time gross profit decreased on a quarterly basis by 32%.

Operating expenses

Operating expenses were flat y-o-y and stood at RUB 9.5 billion but increased in the third quarter by 12% q-o-q. Operating expenses as a percentage of sales decreased to 14.4% in 9M 2017.

Adjusted EBITDA

In 9M 2017, adjusted EBITDA reached RUB 11.7 billion, which is almost double the figure reported for 9M 2016. The adjusted EBITDA margin jumped to 17.7% (9M 2016: 9.0%). The adjusted EBITDA margin for the third quarter of 2017 was 16.0%, versus 12.8% for the corresponding period of 2016.

Interest expense

Net interest expense for 9M 2017 was RUB 2.4 billion, up 23% from the 9M 2016 level of RUB 1.9 billion due to cuts in state subsidies and increase of total debt.

Net profit

Net profit for the Group grew 158% y-o-y to RUB 5.6 billion in 9M 2017, compared to RUB 2.2 billion in 9M 2016. The net profit margin in 9M 2017 strengthened to 8.5%, compared to 3.7% for the corresponding period of 2016.

Cash flow

Operating cash flow for 9M 2017 was RUB 9.8 billion compared to RUB 5.1 billion in 9M 2016. This was primarily the result of an increase in operating income.

Business segments

Divisions Sales volume
9M 2017,
Sales volume
9M 2016,
9M 2017,
RUB# mln
9M 2016,
RUB# mln
Share of
Poultry 385,4 372,1 4% 35 472 34 453 3% 49%
Pork 148,7 131,6 13% 13 532 11 171 21% 18%
Meat processing 167,3 158,6 5% 24 438 22 818 7% 33%

#revenue for both years includes intersegment sales

Poultry Division

Sales volumes for 9M 2017 increased by 4% y-o-y to 385,373 tonnes of sellable weight (9M 2016: 372,070 tonnes). The stable growth was mostly attributable to growth in production, translating into enhanced sales. In the corresponding period in 2016, management had decided to sell excess inventory due to market volatility, which boosted sales volumes but depressed prices.

The average price during 9M 2017 rose by 1% y-o-y to 90.13 RUB/kg, as branded products and HoReCa sales represented a larger share of sales in line with the Group’s strategy. On a quarterly basis, the average price decreased by 2% to 88.14 RUB/kg during 3Q 2017, due to overall price decreases on the market.

Year-on-year, revenue for the division grew by 3% y-o-y to RUB 35.5 billion (9M 2016: RUB 34.5 billion). This growth was a result of the rise in the average price as brand name and value-added products continued to account for a higher share of sales.

Gross profit grew 65% y-o-y to RUB 8.1 billion, from RUB 4.9 billion in 9M 2016. Enhanced profitability was mainly attributable to the stronger rouble and lower feed costs. The gross margin stood at 23.0%, compared to 14.3% in 9M 2016.

Operating expenses as a percentage of sales decreased to 10.8%, from 10.9% in 9M 2016, due to lower repairs & maintenance, payroll and advertising & marketing expenses.

Operating income for 9M 2017 grew y-o-y to RUB to 4.3 billion. The operating margin for 9M 2017 stood at 12.2%. On a quarterly basis, operating margin decreased to 8.8% in 3Q 2017 from 15.6% in 2Q 2017, as a result of the decline in the average selling price.

Net profit for the division jumped to RUB 3.5 billion, compared to a profit of RUB 0.3 billion in 9M 2016. This was mainly due to efficiency increases.

Adjusted EBITDA jumped 163% to RUB 5.7 billion (9M 2016: RUB 2.2 billion), while the adjusted EBITDA margin stood at 16.2%. In quarterly terms, the EBITDA margin decreased to 14.1% in 3Q 2017 from 17.3% in the prior quarter.

Pork Division

Production volumes in 9M 2017 increased by 13% y-o-y to 148,722 tonnes (9M 2016: 131,581 tonnes). The increase was attributable to higher production levels following the launch of two new wean-to-finish sites in Voronezh in 2016, and three in Lipetsk in 2017, as well as the Group’s ongoing genetics improvement strategy launched in 2014.

The average price rose by 8% y-o-y to 93.74 RUB/kg (9M 2016: 86.59 RUB/kg). This increase was driven by growing pork consumption in Russia, which has been partly due to increased promotional activity by Russian retail chains, along with the continued stability in the purchasing power of consumers.

Total sales in the pork division grew 21% y-o-y to RUB 13.5 billion (9M 2016: RUB 11.2 billion). Strong sales growth was expected as both volume and average price increased y-o-y. On a quarterly basis, sales decreased by 10% compared to 2Q 2017, accompanied by a price decline of 4% q-o-q.

Gross profit for 9M 2017 increased by 54% to RUB 5.1 billion, (9M 2016: RUB 3.3 billion), with the increase mainly attributable to lower costs for feed and medications due to the strength of the rouble against the US dollar. The pork segment’s gross profit fell 58% between the second and third quarter of this year.

Operating expenses as a percentage of sales decreased in 9M 2016 and stood at 2.9% (9M 2016: 4.9%).

Operating income grew robustly y-o-y to RUB 4.8 billion from RUB 2.8 billion in 9M 2016. The operating margin jumped to 35.1%, compared to 24.9% for the first nine months of 2016.

Net profit grew 87% y-o-y to RUB 4.5 billion (9M 2016: RUB 2.4 billion).

Adjusted EBITDA more than doubled y-o-y and amounted to RUB 5.1 billion (9M 2016: RUB 2.5 billion). The adjusted EBITDA margin grew to 37.6% in 9M 2017 from 22.1% in 9M 2016. On a q-o-q basis, adjusted EBITDA fell by 14%.

Meat Processing Division

Sales volumes increased by 5% y-o-y to 167,346 tonnes from 158,647 tonnes in 9M 2016. This was due to sustained growth in the segment’s product assortment in the modern retail channel and geographical diversification into the Urals and North-West regions since 2016.

During the reporting period, the average price grew 3% y-o-y to 150.19 RUB/kg in 9M 2017 due to raising sales of value added products. On a q-o-q basis, the average price increased by 1% to 150.34RUB/kg (2Q 2017: 148.92 RUB/kg).

Total sales grew by 7% in 9M 2017 to RUB 24.4 billion (9M 2016: RUB 22.8 billion). The increase was a result of sales volume and average price growth. In 3Q 2017, sales grew by 8% q-o-q.

Gross profit for 9M 2017 increased 8% y-o-y to RUB 4.2 billion, compared to RUB 3.9 billion in 9M 2016. Gross margin reached 17.2% for 9M 2017 versus 17.1% in 9M 2016. Gross profit grew q-o-q by 9%.

Operating income increased by 14% y-o-y to RUB 1.3 billion from RUB 1.2 billion in 9M 2016. The operating margin increased to 5.5% from 5.1% in 9M 2016, resulting from an increase in the margins of sausage products, as well as lower marketing and selling expenses.

During 9M 2017 the meat processing segment generated net profit of RUB 1.1 billion.

In 9M 2017, adjusted EBITDA stood at RUB 1.9 billion (9M 2016: RUB 1.6 billion). Adjusted EBITDA grew by 18% on a q-o-q basis. The adjusted EBITDA margin of 7.6% in 9M 2017, exceeded the 9M 2016 figure of 7.2%.

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 yield rates in our budget and year to date Cherkizovo Group harvested almost 264,000 tonnes of winter wheat, nearly doubling the amount of last year’s harvest of 140,000 tonnes.

Grain prices to date in 2017 have been lower than budgeted and lower than in 2016. Due to the seasonality of our business, the results of the Grain segment are reported annually to better reflect business performance and provide an appropriate basis for comparison.

Financial Position

The Group’s capital expenditure on property, plant, equipment and maintenance amounted to RUB 9.5 billion in 9M 2017, a y-o-y increase of 28%. RUB 1.0 billion was invested in the poultry segment. RUB 3.6 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. The meat processing segment made RUB 4.1 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.

Cherkizovo Group acquired NAPKO from a related party. NAPKO is 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. In 2016, NAPKO produced 250,000 tonnes of grain. Following the acquisition, Cherkizovo Group’s total operating land bank reached 287 000 hectares. As part of the transaction, the Group also acquired the supporting production infrastructure to cultivate the land and store the grain.

As of 30 September 2017, net debt** amounted to RUB 47.2 billion, compared to RUB 36.9 billion at the end of 2016. Total debt increased to RUB 50.4 billion as of 30 September 2017, compared to the level of total debt of 38.6 billion at the end of 2016. As of 30 September 2017, long-term debt represented 67% of the debt portfolio and was RUB 34.0 billion. Short-term debt stood at RUB 16.4 billion, or 33% of the portfolio. The effective cost of debt was 8.3% in 9M 2017 (12M 2016: 9.7%). Subsidised loans and credit lines made up 31% of the debt portfolio in 9M 2017 (12M 2016: 35%). Cash and cash equivalents totalled RUB 2.5 billion as at 30 September 2017.

In August 2017, the controlling shareholder of Cherkizovo Group, together with subsidiaries of the Company, completed the acquisition of 21.05% of its ordinary shares and GDRs from the funds and portfolios under the management of Prosperity Capital Management at a price of RUB 1,300 per ordinary share (or the then dollar equivalent per GDR), for a total consideration of RUB 12.0 billion.

Subsequently, in October 2017, Cherkizovo Group announced the completion of a Share Buyback Offer, a mandatory offer to all shareholders. An aggregate of 73,407 shares and 503,293 GDRs, corresponding to 0.93% of the Group’s share capital, were purchased for the total amount of around RUB 532 million. Following the offer, the controlling shareholder of Cherkizovo Group, together with its affiliates, controlled 89.62% of the Group’s equity.


In 9M 2017, the Group accrued subsidies for interest reimbursement of RUB 0.4 billion, which offset interest expense (9M 2016: RUB 1.5 billion). The Group received RUB 0.6 billion of subsidies in 9M 2017, compared to RUB 1.1 billion in 9M 2016.


The Group maintains a cautious outlook for the remainder of 2017, due to key pricing elements. First, poultry and pork prices have weakened due, in part, to seasonal factors. In addition, while grain yields and harvest have risen, it appears this will not offset lower commodity prices. The latter factor is linked in part to the relative strength of the rouble compared to the US dollar.

Despite these real challenges, the Group maintains positive expectations for 2018. The Russian macroeconomic outlook is positive and stable. The stronger rouble compared to major foreign currencies continues to be a net positive for the Group over the longer term, at it drives lower input costs and contributes to enhancing internal efficiencies. Assuming unexpected risks do not emerge over this period, management expects that these positive factors, coupled with an ongoing recovery in Russian consumer spending power, should support continued solid Group profitability.

For more information please visit or contact Anatoliy Vereschagin
Progress Communications Agency
Managing Partner
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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 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.