With higher revenue and profitability despite the pandemic, Cherkizovo has achieved outstanding results for the first half of the year, according to the Russian agrifood company’s CEO.
Commenting on the half-year results of Russia’s largest meat company, Cherkizovo Group CEO Sergei Mikhailov described the results as “outstanding.” Although the coronavirus (COVID-19) pandemic significantly altered the entire business environment, he said that it presented opportunities for the company.
Second-quarter and half-year performance summary
For the second quarter (Q2) ended June 30, Cherkizovo reports a 4.9% increase in revenue year-on-year to 30.4 billion rubles (RUB; US$406.8 million).
When compared to the same period of 2019, gross profit in Q2 was up by 42%. Adjusted Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) was 31.5% higher, while adjusted EBITDA margin increased from 14.0% to 17.5%. At RUB5.28 billion, the group achieved a 140% improvement in net profit.
For the first half of the year, the company reported revenue up by 8.8% year-on-year to RUB60.6 billion.
As a result, gross profit and adjusted EBITDA were 32% and 28% higher, respectively, than for the corresponding period of 2019. Net profit was improved by more than 53% year-on-year, and the firm’s adjusted EBITDA margin rose from 14.5% to 17.1%.
Cherkizovo reported higher operating expenses for the half year — by a little over 8%. However, as operating expenses as a proportion of sales remains unchanged, the firm attributes the increased costs to the higher production volume.
While the group’s sales to the HoReCa (hotel, restaurant, and catering) sector were hit by COVID-19 and down by 31%, year-on-year, its retail sales were up by 7%. However, this change had a negligible impact on Cherkizovo’s overall sales as the hospitality sector accounted for just 5% of its sales in 2019.
Furthermore, the company reports a doubling of exports, with China as the main destination, and chicken as the leading traded meat product. While exports accounted for around 5% of the group’s sales last year, the firm recently announced its intention to expand its export business.
All divisions delivered improved revenues, profits
For the first half of the year, all of Cherkizovo’s business segments delivered improved revenues and profit, according to Mikhailov.
For its chicken business, the company transferred sales volumes lost from food-service clients to retail, he said. This resulted in increased sales of the mid-market “Chicken Kingdom” brand. Furthermore, exports were increased.
For the first six months of the year, chicken sales increased 6.2% in volume to 343,000 metric tons (mt), and by 9.0% in revenue to RUB35.91 billion.
Best-performing business in terms of revenue growth was the turkey business, which registered an 18.0% increase to RUB3.46 billion. This was achieved on a 13.7% year-on-year expansion in sales volume to 19,500 mt.
According to Mikhailov, Cherkizovo’s pork business remains in good shape. Despite growing competition from other domestic producers and limited export opportunities, the division maintained a profit margin of more than 32% as Cherkizovo remains focused on low-cost production.
These factors are reflected in the business segment’s half-year results. While sales volume at 148,600 mt was 13.7% higher year-on-year, revenue was improved by less than 2% at RUB12.3 billion.
For the meat processing division, Mikhailov highlighted its on-going turn-around. Its performance benefited from lower input prices as well as adjustments to the product portfolio.
While sales volume for the meat processing division was up by 7.6% in volume to 123,700 mt, revenue was just 2.3% higher at RUB19.4 billion.
Results from joint ventures and associates
Overall EBITDA contributed by Cherkizovo’s joint ventures and associate entities amounted to RUB474 million. This represents an increase of almost 82% year-on-year, and is attributed largely to improvements at Tambov Turkey and Samson – Food Products.
Results were reported for Samson, which achieved a 224% increase in sales revenue to RUB999 million. Sales volume was up by 41% at 13,800 mt.
The Group lists its interest as a 50% share in Tambov Turkey (with its partner Grupo Fuertes), a 75% share in St. Petersburg-based meat processor Samson, and a 50% share in Cobb-Russia.
Recent developments in Cherkizovo’s operations
In July, Cherkizovo announced the opening of the second stage of its Tambov Turkey facility with Grupo Fuertes. This has the capacity to increase annual output by 50% to 85,000 mt liveweight.
To support the group’s growth strategy, Cherkizovo signed an agreement with Cargill to acquire its poultry processing facility in Efremov in the Tula region.
First turkey meat deli products were introduced by the group in June under its Pava-Pava brand. Responding to consumer demand and with other lines in the pipeline, the first products launched were hot dogs, Mramornaya ham, and Nezhnoye fillet, all made from 100% turkey meat.
Earlier this month, Cherkizovo announced that it had become a recognized vendor to the United Nations. Having completed the registration process, the firm can now supply its products to, among others, the World Food Program.
In order for Cherkizovo to enhance cooperation with logistics companies, its BICOM distribution center has recently joined the National Union of Transport and Logistics Experts. The firm hopes the move will also strengthen its stance in negotiations with public authorities.
In May of this year, the firm reported it had broken ground for the construction of an oilseed processing plant. Located at Elets in the Lipetsk region and due to come into operation is 2022, the plant is aimed to further enhance the firm’s vertically integrated business model, as well as to reduce its foreign currency exposure.
