Cherkizovo reports jump in profits

Russian integrated meat company, Cherkizovo Group, has reported dramatic increases in profit for the second quarter and the first half of 2018 on the back of more than 5 percent higher revenues.

Phongphan |
Phongphan |

For the second quarter (ended June 30, 2018), a 5.5 percent increase year-on-year pushed total revenue of the Cherkizovo Group to RUB23.6 billion (US$345 million). The same measure for the half-year was up 5.1 percent at RUB45.5 billion.

The firm attributed these increases to volume growth across all its business segments, but the major drivers were its Pork and Meat Processing divisions, which were up by 11.6 and 12.7 percent, respectively. Although relatively small, Turkey revenue was up more than 71 percent, while Poultry was up by just 1 percent at RUB24.0 billion.

Gains in operational efficiency in the poultry and pork segments, reduced feeding costs, and a net change in the valuation of the Group’s biological assets and produce contributed to a 39.1 percent rise in gross profit to RUB17.9 billion for the first six months of 2018 compared with a year earlier. For the second quarter, this measure was RUB10.4 billion, which is 43.5 percent higher than the same period in 2017.

To achieve the improvements in revenue, Cherkizovo broadened its distribution network during the first six months of 2018, which pushed up its operating expenses by 19 percent. As a result, adjusted Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) was down by 3.1 percent for the quarter, and 14.0 percent to the half-year.

EBITDA margin was reported at 18.1 percent for April-June 2018, and 15.3 percent for the first six months of the year. These compare with 19.7 percent and 18.7 percent for 2017, respectively. The firm commented that the lower profitability of its Poultry business overshadowed improvements its Pork division.

Divisional performance

All of the group’s business divisions registered higher volumes and revenues in the last half-year than in the corresponding periods of 2017.

For the Chicken division, production volume for the period was up by 5.3 percent to 268,530 metric tons (mt), and revenue was 1.0 percent higher at almost RUB23.96 billion.

Sales of turkey meat through the Cherkizovo Trading Company were almost 115 percent higher in volume at 20,290 mt, and achieved 71.2 percent more in revenue at RUB2.55 billion.

At 109,830 mt, production by the firm’s Pork division was up by 17.7 percent, and its revenue rose by 11.6 percent to RUB10.03 billion.

Output by the Meat Processing segment was 19.6 percent higher than in the same period of 2017 at 110,530 mt, and its value was up 12.7 percent at just under RUB17.61 billion.

Commenting on the results, Cherkizovo CEO, Sergei Mikhailov focused on a number of positive developments during the first six months of 2018.

“The previous years’ investments in production expansion, cost optimization and customer acquisition are being rewarded by the favorable market conditions and inspire confidence as we move into the second half of the year and beyond,” he said.

Among other business developments during the first half of 2018, Cherkizovo Group completed two wean-to-finish pork facilities (in Lipetsk and Voronezh), and agreed a further investment in its meat processing complex at Kashira in Moscow region.

On June 22, the firm announced an outbreaks of highly pathogenic avian influenza (HPAI) at one of its poultry facilities. The disease was confined to a single location, and insurance will limit financial losses to RUB100 million, according to Cherkizovo.

Since the end of the latest fiscal reporting period, Cherkizovo Group has signed a letter of intent to buy Altaisky Broiler, a vertically integrated poultry company with an annual capacity of 67,000mt of chicken meat products, and officially opened the first phase of its Kashira meat processing plant.

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