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Cherkizovo Group / Half-yearly Results
Cherkizovo Group: Announces Financial Results for the First Half of 2017
23-Aug-2017 / 13:01 CET/CEST
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Cherkizovo Group Announces Financial Results
for the First Half of 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
- Revenue increased by 7% quarter-on-quarter (q-o-q) to RUB 22.4 billion from RUB 21.0 billion in
1Q 2017
- Gross profit grew by 28% q-o-q to RUB 7.2 billion from RUB 5.6 billion in 1Q 2017
- Gross profit margin stood at 32.4% compared to 26.9% in 1Q 2017
- Adjusted EBITDA* rose by 16% to RUB 4.3 billion, compared to RUB 3.7 billion in 1Q 2017
- Adjusted EBITDA* margin of 19.3% compared to 17.8% in 1Q 2017
First half financial highlights
- Revenue increased by 12% year-on-year (y-o-y) to RUB 43.3 billion from
RUB 38.8 billion in 1H 2016
- Gross profit jumped 58% y-o-y to RUB 12.9 billion from RUB 8.1 billion in 1H 2016
- Gross profit margin surged to 29.7%, compared to 21.0% in 1H 2016
- Operating expenses decreased 2% y-o-y to RUB 6.3 billion, compared to RUB 6.4 billion in 1H 2016
- Adjusted EBITDA* tripled y-o-y and reached RUB 8.0 billion, compared to
RUB 2.7 billion in 1H 2016
- Adjusted EBITDA* margin reached 18.6% compared to 7.0% in 1H 2016
- Net profit for the period grew five-fold y-o-y, reaching
RUB 5.1 billion, versus RUB 0.9 billion in 1H 2016
- Net operating cash flow was RUB 6.5 billion for 1H 2017
- Net debt** was RUB 43.2 billion as at June 30, 2017
- Effective cost of debt stood at 8.6% (2016: 9.7%)
- Earnings per share (EPS) reached RUB 116.4 (1H 2016: EPS was RUB 21.6).
Key corporate highlights for the reporting period
- 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.
- The Tambov Turkey project, a joint venture between Cherkizovo Group and Grupo Fuertes, Spain's
leading agricultural producer, is well on the way towards reaching its total installed capacity of
50,000 tonnes of live weight per annum. Favourable market conditions have placed us in the top
three turkey producers in Russia, with the new Pava-Pava brand already on the shelves of the large
retail chains. Certification with international food safety management standards will allow Tambov
Turkey to export top-quality meat to European markets. European certification will be a further
testament to the highest quality of meat being produced at this new, state-of-the-art plant.
- The Group launched three new pork fattening sites in Lipetsk and Voronezh regions, with total
production capacity of more than 126,000 live market hogs annually.
Key corporate highlights after reporting period
- On 2 August 2017, the controlling shareholder of Cherkizovo Group, together with its affiliates,
completed the acquisition of 21.05% of the Group's ordinary shares and GDRs from funds and
portfolios under the management of Prosperity Capital Management, for a total consideration of RUB
12.0 billion.
- Cherkizovo Group announced its intention to expand in Voronezh region, with construction begun on
two pork-fattening plants and plans under consideration to build a number of poultry houses.
Voronezh region is expected to be one of the key geographic regions for Cherkizovo Group over the
next decade. The Group also outlined expansion plans for Lipetsk and Penza regions.
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
RUB mln 1H 2017 1H 2016 y-o-y, % 2Q 2017 1Q 2017 q-o-q, %
Revenue 43,349 38,835 12% 22,378 20,971 7%
Gross profit 12,881 8,144 58% 7,240 5,640 28%
Operating (6,257) (6,371) (2%) (3,071) (3,186) (4%)
expenses
EBITDA, 8,043 2,728 195% 4,313 3,730 16%
adjusted
EBITDA 19% 7% 19% 18%
margin,
adjusted
Operating 6,624 1,773 274% 4,169 2,455 70%
profit
Profit 5,020 946 430% 3,142 1,878 67%
before tax
Profit 5,106 949 438% 3,172 1,934 64%
Net 6,467 1,074 502% 4,353 2,114 106%
operating
cash flow
Net debt 43,192 36,949* 17% 43,192 40,417 7%
* As of December 31, 2016
Revenue
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
Divisio Sales volume Change Revenue Change Share
ns y-o-y, y-o-y, of
% % Group
reven
ue, %
1H 2017, 1H 2016, 1H 1H 2016,
k tonnes k tonnes 2017, RUB mln*
RUB
mln*
Poultry 254.9 252.4 1% 23,721 22,857 4% 49%
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