Russia’s integrated meat company Cherkizovo Group has achieved double-digit increases in revenue for its chicken and turkey businesses, as well as smaller improvements for its pork and meat processing segments in its last financial year just ended.
Compared to the previous 12-month period, Cherkizovo Group increased its total revenue for 2019 by almost 20% to RUB120.1 billion rubles (US$1.875 billion). At RUB20.6 billion, adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA), was in line with previous year, according to the company. Gross profit took a hit of 4.5%, at RUB27.9 billion, while net profit declined to RUB6.8 billion from RUB12.0 billion the previous year.
Fourth-quarter revenue was 10.4% higher than in the same period of 2018, while gross profit of RUB6.9 billion was unchanged from the previous year’s figure. At RUB5.0 billion, adjusted EBITDA was 27% below the 2018 figure. Net profit for the quarter was RUB100 million, which compares with RUB1.7 billion for the last three months of the 2018 financial year.
“In 2019, our diversified vertically integrated business model demonstrated its competitiveness and resilience,” commented Cherkizovo’s CEO Sergei Mikhailov.
New acquisitions drive Poultry segment earnings
“Our poultry segment boosted EBITDA by a staggering 50%, fueled by the successful integration of key acquisitions from late 2018,” said Mikhailov.
Last year, Cherkizovo’s key strategies were the development of partnerships with leading federal retail chains, broadening of its distribution network, and continued work with major foodservice and export clients, according to the CEO.
At 663,000 metric tons (mt), sales by the firm’s Chicken Division were 22% higher in 2019 than in the previous year. Average selling price was 9% above the 2018 average at RUB106 per kilo. As a result, revenue for the segment in 2019 was RUB70.3 billion, an increase of 33.4% year-on-year. The firm reports a 32.3% increase in gross profit for this business for the year, although gross margin declined slightly, and operating expenses as a percentage of sales were higher than in 2018.
The firm attributes these improvements to the successful integration of several companies it acquired during 2018. Sales of its Petelinka branded products developed well, and exports and food-service rose by 131% and 95%, respectively.
Cherkizovo acquired Rovensky Broiler in October 2019 for RUB1.7 billion. Located in Belgorod, Rovensky produces hatching eggs, with an annual capacity of 80 million eggs. Close to Cherkizovo’s existing operations, this makes the firm self-sufficient in hatching eggs again, closing the gap in hatching egg supply that appeared after its 2018 acquisitions.
With annual slaughtering of 397 million birds, Cherkizovo Group is Europe’s third largest poultry producer, according to the Top European Poultry Companies database updated recently in Poultry International.
Looking ahead, Cherkizovo expects growth in volumes, sales and earnings from its chicken business to continue in 2020. The firm aims to extend its market-leading position, particularly in food-service and selected export markets.
Turkey Division: expansion planned
Although sales volume for 2019 was only slightly higher than the previous year at 39,400mt, Cherkizovo’s Turkey Division achieved a 15.5% increase in revenue at more than RUB6.71 billion. These are the figures reported for the “Cherkizovo” trading company.
In October of 2019, Cherkizovo announced the expansion of Tambov Turkey, its joint venture producer of Pava-Pava branded turkey. With an estimated cost of RUB4 billion, the investment aims to increase turkey volumes by 50% to 82,000mt from 2021. The project will be financed by equity from the company, its partner Grupo Corporativo Fuertes, and third-party non-recourse debt.
Cherkizovo expects steady growth in demand for turkey products by Russian consumers. To meet this demand, the firm plans to expand its joint Tambov Turkey operations over time so that it retains its commitment to being one of the two leaders in the Russian turkey market.
Pork Division hit by weak prices
Commenting on the results of Cherkizovo’s Pork and Meat Processing Divisions, Mikhailov highlighted the adverse impacts of price weakness in the pork market in the second half of 2019.
While the Pork Division achieved a year-on-year increase in sales volume of 15.9% at 274,600mt, revenue was up by just 5.2% at almost RUB24.48 billion.
Pork prices may remain weak throughout 2020, according to Cherkizovo’s outlook. However, the firm says its cost leadership and vertical integration into meat processing operations will allow it to generate profits in its pork and meat processing, even under challenging market conditions.
During 2019, the firm launched five wean-to-finish facilities. These raised pork capacity to the annual target level of 300,000mt live weight. In September, Cherkizovo officially opened its sixth pig farm in the Penza region.
Meat Processing Division impacted by pork prices
At 245,600mt, sales volume for the Meat Processing Division in 2019 was 7% higher year-on-year. This rise was driven by increased pork production, which had a negative impact on average prices. Revenue for this segment was just 3.3% above the 2018 level.
The division’s gross profit was 12.2% lower than the previous year, and its gross margin fell to 7.5%. Operating loss for 2019 was RUB2.0 billion, which compared with a loss of RUB500 million in 2018.
Grain Division reports better harvests
“Our grain segment delivered improved harvest with better yields achieved across all cultivated crops, a remarkable performance given poor weather conditions in a few regions of our operations,” commented Mikhailov.
At 593,000mt, overall harvest was 24% higher than the previous season as the result of improved wheat and corn (maize) cultivation. Sales volume was 25% lower at 524,000mt, while revenue was RUB5.8 billion, a decline of 16.5%.
Gross profit for the division was 7.2% lower at RUB1.8 billion, but gross margin improved to 31.0% from 27.9% the previous year.
