Grain business and export boost Cherkizovo’s performance

04-12-2020 | | |
A large share of Cherkizovo s profit growth came from its grain business, where volume growth was driven by yield improvements. Photo: Henk Riswick
A large share of Cherkizovo s profit growth came from its grain business, where volume growth was driven by yield improvements. Photo: Henk Riswick

In the third quarter of 2020, Cherkizovo, Russia’s biggest poultry producer, managed to nearly triple its net profit.

The company poultry producer profited from the strong grain production business and growing export sales. Cherkizovo earned Rub3.7 billion (US$ 50 million) in the third quarter of 2020, compared to Rub1.2 billion (US$ 18 million) in the third quarter of the previous year, the company said in a statement on 19 November. The company’s net profit climbed by 93.3% to Rub12.8 billion (US$ 180 million) during the first 9 months of 2020, Cherkizovo reported. In 2020, Cherkizovo saw growth in revenues and profits despite numerous challenges, including the Russian economic recession, Rouble volatility, rising costs, staff shortages, pressures on consumer’s available income and shifting consumer preferences, Sergey Mikhailov, general director of Cherkizovo, said in the statement.

Strong grain production

According to Mikhailov, the company is pushing through the coronavirus-induced crisis rather successfully by relying on its own grain production. “A large share of our profit growth came from our grain business, where volume growth was driven by yield improvements – the result of investment in modern agronomy practices. Grain profit performance also benefited from an extremely favourable pricing environment for major crops,” Mikhailov said.

Russian poultry farmers have recently appealed to the Russian government complaining about the high grain prices on the domestic poultry market. Cherkizovo is likely to experience the negative impact of the high grain prices too, eventually. “However, higher grain prices, together with huge inflation in other main feed components and impact of Rouble weakening, will ultimately lead to much higher feed costs for our animal breeding operations. This will put significant pressure on margins as early as the fourth quarter, with continued impact into 2021,” Mikhailov said.

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Export growth

This year, Cherkizovo also takes advantage of growing export sales. “Growth of exports, which now accounts for 8% of our consolidated sales, partly serves as a natural hedge from FX volatility, and it is our intention to grow export sales further,” Mikhailov said. In 2020, Russia is forecast to export 215,000 tonnes of poultry meat. Russia exported 111,439 tonnes of chicken meat in January-June 2020, which is 58.8% higher than the same months of 2019, USDA estimated.

Acquisitions continue

Cherkizovo’s strategy includes selectively pursuing consolidation opportunities in the domestic market. According to Mikhailov, Cherkizovo continues looking for new assets to invest in. “In October, we acquired a small chicken processing plant that enhances our value-added product portfolio for quick-service restaurants. While the current demand for QSR and foodservice generally is depressed due to Covid-19, our medium- and long-term view on foodservice is very favourable, and we managed to make the acquisition that we believe is the right strategic fit for us going forward,” Mikhailov said.

Vladislav Vorotnikov Eastern European correspondent