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TRANSCRIPT
2
By attending this presentation, you agree to be bound by the foregoing limitations.
This presentation has been prepared by PJSC Cherkizovo Group (the "Company") solely for use in connection with the presentation to investors of the Company’s annual financial and production results and is not made in contemplation of any
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or investment decision in relation thereto.
The information contained in this presentation has not been independently verified. The information included in this presentation is subject to updating, completion, revision and amendment and such information may change materially. No person,
including the Company, is under any obligation to update or keep current the information contained in the presentation and any opinions expressed in relation thereto are subject to change without notice. Accordingly, no representation or warranty
or undertaking, express or implied, is given by or on behalf of the Company or any of its respective members, directors, officers or employees or any other person as to, and no reliance should be placed on, the accuracy, completeness or fairness of
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from any use of this presentation or otherwise arising in connection therewith.
3
This presentation includes forward-looking statements that reflect the Company's intentions, beliefs or current expectations. Forward-looking statements involve all matters that are not historical fact. The Company has tried to identify those forward-
looking statements by using the words "may", "will", "would", "should", "expect", "intend", "estimate", "anticipate", "project", "believe", "seek", "plan", "predict", "continue" and similar expressions or their negatives. None of the future projections,
expectations, estimates or prospects in this presentation should be taken as forecasts or promises nor should they be taken as implying any indication, assurance or guarantee that the assumptions on which such future projections, expectations,
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actual results, changes in assumptions or changes in factors affecting these statements.
These forward-looking statements are subject to risks, uncertainties and assumptions and other factors that could cause the Company's actual results of operations, financial condition, liquidity, performance, prospects or opportunities, as well as
those of the markets it serves or intends to serve, to differ materially from those expressed in, or suggested by, these forward-looking statements. Important factors that could cause those differences include, but are not limited to: changing business
or other market conditions, general economic conditions in Russia, the European Union, the United States and elsewhere, and the Company's ability to respond to trends in its industry. Additional factors could cause actual results, performance or
achievements of the Company to differ materially. The Company and each of its directors, officers, employees and advisors assume no obligation or undertaking to release any update of or revisions to any forward-looking statements in this
presentation and any change in the Company’s expectations or any change in events, conditions or circumstances on which these forward-looking statements are based, except as required by applicable law or regulation.
This presentation is made to and directed only at persons in Member States of the European Economic Area who are qualified investors within the meaning of Article 2(1)(e) of the Prospectus Directive (2003/7/EC) ("Qualified Investors"). In
addition, this presentation is made to and directed at (i) persons outside the United Kingdom, (ii) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the "Order"), (iii)
high net worth individuals, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (such persons, "Relevant Persons"). Any person who is not a Relevant Person should not act or rely on this
presentation or any of its contents.
This presentation is not an offer of securities for sale in the United States. The Company has not registered and does not intend to register any of its securities in the United States or to conduct a public offering of any securities in the United
States. Any of the Company’s securities may not be offered or sold in the United States absent registration or pursuant to an exemption from, or transaction not subject to, the registration requirements of the Securities Act of 1933 (the "Securities
Act"). You understand that this presentation is not directed at persons located in the United States other than “qualified institutional buyers” (“QIBs”) as defined in Rule 144A (“Rule 144A”) under the Securities Act. You acknowledge that you are a
QIB in the United States or that you are not located in the United States.
Neither this presentation nor any copy of it may be taken or transmitted into Australia, Canada or Japan or to any persons or to any securities analyst or other person in any of those jurisdictions. Any failure to comply with this restriction may
constitute a violation of Australian, Canadian or Japanese securities law. The distribution of this presentation in other jurisdictions may be restricted by law and persons into whose possession this presentation comes should inform themselves
about, and observe, any such restrictions. The Company has not registered and does not intend to register any of its securities under the applicable securities laws of Australia, Canada or Japan, and, subject to certain exceptions, none of the
Company’s securities may be offered or sold within Australia, Canada, or Japan or to any national, resident or citizen of Australia, Canada or Japan.
Abbreviations: mln stands for million; bln stands for billion, t stands for tonne (1000kg); kt stands for 1,000 tonnes; ha stands for hectare.
All figures in graphs are rounded to whole numbers.
Disclaimer
The Largest Meat and Feed Producer in Russia
3
2016 Sales: RUB 82bln
2016 EBITDA: RUB 10bln
Production volume: 903kt
Sausages, salami,
continental meats,
ready-to-cook products
#3 in Russia
Live pigs
15 farms
#2 in Russia
Poultry 49% of Group revenue
41% of Group EBITDA
Chilled / frozen poultry
8 clusters
Feed n/a
100% self-sufficiency
Wheat, corn,
sunflower, bean
cultures
6 plants
Grain 3% of Group revenue
2% of Group EBITDA
37% self-sufficiency
Land bank of
approximately
140,000ha
Operational land bank
of 95,000ha (Lipetsk,
Orel, Tambov &
Voronezh regions)
#1 in Russia
Finished feed
9 plants
12 grain elevators
600,000t 200,000t 226,000t
2,530,800t (feed)
858,700t (storage
capacity)
#1 in Russia
Pork 16% of Group revenue
35% of Group EBITDA
Meat Processing 32% of Group revenue
22% of Group EBITDA
Market
Position
Products
Brands
Facilities
Total
Capacity
Key Highlights & Group Performance
5
P&L, RUB mln 2015 2016 % change
Revenue 77,033 82,417 7%
COGS (57,884) (64,562) 12%
Gross profit 19,149 17,855 -7%
Gross margin 25% 22%
Operating expenses (11,615) (12,798) 10%
Operating income 7,534 5,056 -33%
Operating margin 10% 6%
Net income 6,007 1,919 -68%
Net margin 8% 2%
EBITDA 12,630 10,282 -19%
EBITDA margin 16% 12%
2016 – Challenging beginning leading to a strong ending
Challenging market conditions. Volatility in local currency and falling disposable
income
Volatility in pork and poultry prices in the first half of 2016
We wrote off RUB 1.3 bn of unrecoverable interest subsidies and RUB 0.3 bn
related to ASF expenses from 2015
Meat Processing segment demonstrated growth amid an overall declining market
Operational efficiency improved across all segments
Tambov Turkey project became operational, its income is included as JV income
Construction of hatchery has been completed and production at the new breeder
farm in Elets began. By end of 2017 we will be self-sufficient in hatching eggs
New pork farms in Voronezh and Lipetsk regions are under construction. Once
completed, our production capacity will reach 290,000 tons in live weight
Construction of the Kashira meat processing plant began. Project will go live in
2018 boosting annual production by 30,000 tons
Sales Volume, 2010-2016, kt 2016 EBITDA and EBITDA margin quarterly performance
194260
319 343417 470 50088
91104
158
170164
185
142
145127
135
144
191218
0
100
200
300
400
500
600
700
800
900
1000
2010 2011 2012 2013 2014 2015 2016
Poultry Pork Meat Processing
Source: Management estimates, Company reports
903
825
731
636
550 496
424
CAGR + 13%
Poultry Division
6
KEY ACHIEVEMENTS
Live production increased by 24.4 ths tn up to 582 ths tn vs. 2015. Sales volume increased by 2.9% up to 500 ths tn.
Broiler livability improved by 1.19% vs. 2015, we reached record 95.32% since Dec’12. EPEF is 332 (+12 vs. 2015).
On declining market Petelinka sales remained at 2015 level, increase in HoReCa sales by 61% vs. 2015 (6.6 ths tn), extended distribution to St. Petersburg
Export sales five times higher vs. 2015 (16.2 ths tn) as we started export to Egypt and Tanzania
Successful launch of SAP in TH Petelino in Apr’16 and 1C Logistics on all sites, Clover project launched on 4 sites
Unification of organizational structure; launch of S&OP process
Construction of hatchery has been completed and production at the new breeder farm in Elets began. By end of 2017 we will be self-sufficient in hatching eggs
24 new poultry houses launched at Mosselprom production facility boosting annual production by 12,000 tons
Quarterly Gross profit, RUB/kg* Segment’s KPIs
* Management accounts
P&L, RUB mln 2015 2016 % change
Sales volume (kt, sellable) 470 500 6%
Revenue 44,590 47,724 7%
COGS (36,185) (40,337) 11%
Gross profit 8,405 7,387 -12%
Gross margin 19% 16%
Operating expenses (5,062) (5,036) -0.5%
Operating income 3,343 2,351 -30%
Operating margin 8% 5%
Net income 3,510 1,159 -67%
Net margin 8% 2%
EBITDA 5,495 4,624 -16%
EBITDA margin 12% 10%
Avg. gross price, RUB/kg 94.52 94.94 0.4%
Gross profit, RUB/kg 17.88 14.77 -17%
86,0
89,0
94,2
99,7
79,2
76,4 77,2 74,6
1Q16 2Q16 3Q16 4Q16
Net price, RUR/kg COGS, RUR/kg
6.8 12.7 17.0 25.0
2015 2016
Actual Actual
Parent flock
Chicks / Hen housed, units 105.4 108.6
Hatchability, % 75.3% 77.4%
Hatchability (hatchery), % 76.3% 77.7%
Broilers
Days on feed 37.2 36.7
Feed conversion rate (FCR) 1.69 1.66
Yield, % 83.9% 84.5%
Livability, % 93.4% 94.6%
Live weight, gr 2,152 2.146
Density, heads/sq.m. 20.6 20.7
Efficiency index (EPEF) 320 332
Pork Division
7
KEY ACHIEVEMENTS
Record year in terms of volumes.
Successfully eradicated APP out of a Commercial Sow Farm and the Nursery
(Penza).
Top tier genetic Gilts had a born alive of 12.2 that is out-performing our base
Sow Herd.
Record year in the nurseries with nursery mortality dropping to 3.6%
Record year in Sow Production in almost every KPI.
Botovo farm was closed
Successfully promoted 2 Top Level Russian Business Leaders that are now in
charge of Genetic Services and Commercial Sows
New pork farms in Voronezh and Lipetsk regions are under construction. Once
completed, our production capacity will reach 290,000 tons in live weight
Quarterly Gross profit, RUB/kg* Segment’s KPIs
* Management accounts
P&L, RUB mln 2015 2016 % change
Production volume (kt,) 164 185 13%
Revenue 16,579 15,920 -4%
COGS (11,916) (11,321) -5%
Gross profit 4,663 4,599 -1
Gross margin 28% 29%
Operating expenses (662) (782) 18%
Operating income 4,001 3,817 -5%
Operating margin 24% 24%
Net income 3,571 2,563 -28%
Net margin 22% 16%
EBITDA 6,287 3,968 -37%
EBITDA margin 38% 25%
Avg. gross price, RUB/kg 99.57 88.28 -11%
Gross profit, RUB/kg 28.43 24.86 -13%
2015 2016
Actual Actual
Productive females, heads 77,808 71,148
Pre wean mortality, % 15.1% 11.4%
Pigs Weaned/Sow/Crate/Year 115.9 119.0
Nursery loss, % 6.3% 3.7%
Finisher loss, % 8.0% 8.3%
Average weight, kg 121.4 119.0
KG sold / productive sow 2,138 2,597
Feed conv. rate, finisher 2.61 2.66
14.1 15.5 22.5
26.7
Meat Processing Division
8
Quarterly Gross profit, RUB/kg* Segment’s KPIs
* Management accounts
KEY ACHIEVEMENTS
Segment demonstrated growth amid an overall declining market
Increase in deboning volumes in Moscow up to 240 tn/day (48.5% vs.2015 ).
Preparation of Dankov plant for export sales: 439 tn of byproducts, 10-25% higher sales price vs. local market
Launch of Bikom: increase in sausages and B2C shipping from CMPP, decrease in short shipments at peak days and promotional activities
Lean technologies: decrease in wastages by 1.5% on average, improvement of labor efficiency by 2-3 times on separate stages
HR management: implementation of distant education system and electronic learning programs for production staff, assessment of production managers.
Increase in sausage sales volume by 4.7% vs. 2015 at the declining market, total sales volume growth is 9.6% vs. 2015.
Development of production control system: implementation of production audit program (norms, technology), headcount management, production analytics.
Construction of the Kashira meat processing plant began. Project will go live in 2018 boosting annual production by 30,000 tons
P&L, RUB mln 2015 2016 % change
Sales volume (kt, sellable) 191 218 14%
Revenue 29,150 31,667 9%
COGS (24,836) (26,141) 5%
Gross profit 4,314 5,526 28%
Gross margin 15% 17%
Operating expenses (3,061) (3,743) 22%
Operating income 1,253 1,782 42%
Operating margin 4% 6%
Net income 887 1,744 97%
Net margin 3% 6%
EBITDA 1,752 2,427 39%
EBITDA margin 6% 8%
Avg. gross price, RUB/kg 172.31 167.84 -3%
Gross profit, RUB/kg 22.59 25.35 12%
2015 2016
Actual Actual
Live pigs supply, ths heads 968 1,223
Pork yield, % 72.9% 71.8%
Pork dissection, ths tn 52.1 79.5
Sales of main products, ths tn
Sausage 105.2 110.1
B2B/B2C 29.2 46.0
Bone-in-meat 31.6 25.9
Total 166.0 182.0
35.1 37.4 38.8 35.4
Grain Division
9
Operational Results Operational land bank and harvest 2012-2016
* Management accounts
KEY ACHIEVEMENTS
5,174 ha of fallow land have been implemented into crop rotation in Tambov
Grain dryer complex with capacity of 120 tones/hour was completed and put into operation for postharvest cleaning and drying of grain
200,000 tons of organic fertilizers were applied (chicken litter)
160,000 tons of lime material were applied for 12,000 ha
KEY PROBLEMS
Cultivated area was decreased by 9,133 ha due to rainy spring
As a result of moving planting timelines of spring cultures, delay in development late spring cultures took place that led to delay of harvest and increase of moisture
Wheat harvesting was accompanied by rainy weather resulting in sprouted wheat volume of 60,000 tons. Sprouted wheat sales reduced EBITDA by RUB 117 million
Decrease of purchase prices for grain led to decrease in EBITDA by RUB 1.2 billion
P&L, RUB mln 2015 2016 % change
Sales volume (kt, sellable) 267 339 27%
Revenue 2,581 3,056 18%
COGS (1,501) (3,351) 123%
Gross profit 1,080 (295) -
Gross margin 42% -10%
Operating expenses (242) (268) 11%
Operating income 838 (563) -
Operating margin 33% -18%
Net income 839 (653) -
Net margin 33% -21%
EBITDA 711 210 -70%
EBITDA margin 28% 7%
Full feed self-sufficiency
1,571kt of feed was produced in 2016
30% grain self-sufficiency in 2016
832kt grain storage capacity
81k ha were sown in 2016 35 40 60 85 95
115
174
242
332
468
0
50
100
150
200
250
300
350
400
450
500
0
10
20
30
40
50
60
70
80
90
100
2012 2013 2014 2015 2016
cropped land, '000ha harvest, kt
Cash Flow and Debt
10
Operational Results
* Management accounts
2015 2016
RUB mln Actual Actual
Net income 6,976 2,097
Depreciation 3,989 4,914
Other non cash income/expenses - (2,424)
Change in working capital (5,287) 4,191
Cash flow from operations 5,678 8,778
Capex (9,794) (9,102)
Loans, short term and long term (299) (210)
Free cash flow (4,415) (535)
Cash flows from financing activities 12,501 (3,023)
Proceeds from long-term loans 3,536 3,051
Repayment of long-term loans (5,443) (4,219)
Change in short-term loans 9,408 (7,532)
Refinance from ST into LT - 8,178
Bonds 5,000 (2,500)
Dividends paid (3,401) (1,000)
Net cash flow 4,685 (4,557)
Cash at the beginning of the period 891 5,576
Cash at the end of the period 5,576 1,019
2016 PERFORMANCE
Improvement of working capital as a result of optimization activities (payment policy implementation, prepayments control in place, inventory management, liabilities audits, tax refund activities and using of bank guarantees) by RUB 4.2 billion (vs. 2015 of RUB (5.3) billion
RUB 1.3 billion related to write off of unrecoverable interest subsidies
Non-cash items: mainly accrued reserves and write offs related to previous years results
Credit Portfolio, RUB mln
39%
63%
61% 37%
2015 2016
ST borrowings LT borrowings
41,211 38,354
Debt KPIs
2015 2016
Actual Actual
Gross Debt 41,211 38,354
Net Debt 35,543 37,108
Gross Debt/EBITDA 3.28 3.74
Net Debt/EBITDA 2.83 3.62
Gross rate 12.5% 11.2%
Effective rate 4.6% 7.8%
Interest Coverage 9.2 2.3
Capital Expenditures 2014 – 2017**
RUB mln 2014 2015 2016 2017F
Maintenance capex 1,051 1,678 1,569 1,904
Development capex 5,670 9,292 8,302 9,163
Total capex 6,721 10,970 9,871 11,067
** IFRS
The Tambov Turkey Project
12
JV project with Grupo Fuertes, a major Spanish agricultural company
Russian turkey market – double digit growth y-o-y
with ready import substitution
Project Highlights
Greenfield project in the Tambov region on a 10,000 ha land plot
Full cycle production from feed to package
International expertise of Europe’s leading turkey producer
Lowest cost of sales on the market
Production capacity: 50,000 tonnes (live weight) / 40,000 tonnes (sellable
weight)
Potential of doubling capacity to meet future demand
Modern equipment, machinery and state-of-the-art technology
Operational Update
Project is subsidised by the Ministry of Agriculture
Construction began in 2015; project went live in 2016; fully operational in 2017
New Pava-Pava brand is launched to promote Cherkizovo’s turkey products
First shipments to retail chains will start in 1Q 2017
Product quality meets highest European standards
Total investment = RUB 10bn
When the JV reaches full capacity, Cherkizovo Group
will be one of Russia’s top turkey producers
109 137 150
185 230
549 470
262 244 250
2013 2014 2015 2016 2017FProduction Import
(k tons) -54%
+111%
The Dankov Meat Processing Plant
13
Operational Highlights
Located in Lipetsk region - total area 2.9 hectares
Cherkizovo Group acquired the plant in April 2013
The facility was launched in 2015 after undergoing a major renovation
Slaughter line capacity of 124,000 tonnes/year
The Group now not only slaughters 80% of pigs at its own facilities – 2X the number before Dankov acquisition but also does further processing and packs fresh pork
Currently the most technologically advanced facility in Lipetsk region conforming to the highest standards
Total investment to date = RUB 1.5bn
Successful operation of the facility helped the Group’s meat processing segment deliver solid growth despite a stagnating market in 2016
Strong operational performance Double-digit revenue growth expected in 2017
1 20
68 82
2014 2015 2016 2017F
Production volume (k tons)
56 718
8 406 10 365
2014 2015 2016 2017F
Revenue (RUB m)
18 25 32 3423
14 1115
2423
2934
2014
18
1714
13
121214
2020F
76
2015
69
2010
66
2005
51
2000
37
1995
46
1990
72 poultry pork beef
Meat consumption* in Russia, kg per capita
Sausages production in Russia, kg per capita
16171714
7915
2020F 2015 2010 2005 2000 1995 1990
• Exports so far failed to ease the overproduction
pressure.
• Poultry meat currently dominates meat
consumption due to low retail prices.
Production growth is slowing.
• Beef consumption decreases for same reason
- high retail prices on beef.
• Pork production is still on the rise. But ASF
poses significant risks even for well protected
producers.
• Sausages consumption is decreasing. Falling
income, competition from fresh meat “on the
shelf” and demonization in some mass media
are among the main reasons.
*Consumption= (production + import – export)/population; incl. Crimea
1990 1995 2000 2005 2010 2015 2020
11,8 11,3 10,7 8,9
6,5 5,9
9,6
Real GDP per capita in 2010 US dollars, 000 USD
Market overview - Russian meat supply is growing, exerting pressure on prices
14
7076
8074
106110
101
2 3312 428
2 5602 781
2 9063 060
3 3463 547 3 528
3 7233 872
30,37 29,38 31,09 31,8537,97
60,6667,03
24 25 25 2623 23 24 25
1127 11671086 997
425300 260 230 265 304 304
-20
0
20
40
60
80
100
120
0
500
1 000
1 500
2 000
2 500
3 000
3 500
4 000
4 500
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Pork production in RF Pork import Consumption per capita RUR/USD Avg. price, RUR
• With the help of government support domestic
poultry and pork production has been on the
rise since 2009.
• We expect production growth to continue as
new export markets are opening up and
domestic consumption is gradually increasing.
• Russian anti-sanctions gave domestic meat
producers extra growth potential as food
imports from US and EU have been banned.
• Devaluation of the local currency made imports
unviable for the majority of foreign competitors.
Market overview – Effect of sanctions on the Russian meat market
15
72 73
79
74
94 9599
2 847
3 204
3 6253 856
4 119
4 525 4 620 4 712 4 788 4 901 4 999
30,37 29,38 31,09 31,85
37,97
60,66
67,03
25 2629 31 32 32 33 33
688493
528 549 470262 244 250 300 328 360
0
10
20
30
40
50
60
70
80
90
100
0
1 000
2 000
3 000
4 000
5 000
6 000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Poultry production in RF Poultry import Consumption per capita RUR/USD Avg. price, RUR
Poultry
Pork
Soybean meal world price USD/т
Sources: USDA WASDE (May 2016), IMF price forecast (February 2016)
* Wheat and coarse grain total. Coarse grains include corn, sorghum, barley, oats, rye, millet, and mixed grains
Russia wheat balance, mln mt
Russia coarse grain balance
• According to USDA WASDE Russian grain*
production reached 114 mln. t (+15% YOY)
• Export is on the rise (38 mln.t, +19% YOY) but
available resources clearly exceed demand.
• Feed prices are supported by relatively
expensive soy meal.
736159
52
16141313
29252319
2013/14 2015/16 2016/17 2014/15
Production Exports Use for feed
41374036
21212119
9897
2015/16 2016/17 2014/2015 2013/2014
341348350353
-1%
2016 2015 2018 2017
336351347
295
2018Q3 2017Q1 2017Q3 2018Q1
373
2015Q1
369
2015Q3 2016Q1
370
2016Q3
Projections
Market overview - Russian meat supply is growing, exerting pressure on prices
16
World corn and wheat prices USD/t • Cheap corn abroad (and appreciating
RUB) are serious hurdles for Russian grain
exporters.
• Grain is abundant and not expensive in
Russia. Situation is favorable for meat
producers as feed price is going down.
• Next season may be different as probability
of “thin year” (unfavorable weather) is
increasing with each passing “good year”.
If Russia increases production in 2017/18 it
will be statistically exceptional.
Russian corn and wheat prices, RUR/т, VAT incl
9 000
15 000
9 290
9 000
8 190
10 290
8 500
Nov
17
Sep
17
Jul
17
7 900
May
17
Mar
17
Jan
17
Nov
16
Sep
16
7 980
Jul
16
11 450
May
16
Mar
16
Jan
16
wheat (base forecast)
forage corn (base forecast)
163
142
131
163
205
176
164156
174
2018Q3 2018Q1 2017Q3 2017Q1 2016Q3
153
128
2016Q1 2015Q3
169
179
2015Q1
Corn Wheat
157140143
186
2018 2017 2016 2015
Sources: IMF price forecasts (February 2016); IKAR, Belgorod ex-storage
Projections
175162159
170
Wheat
Corn
Projections
-11%
2017
8 400
2016
9 400
2015
9 230
Wheat
8 560
9 900
8 480
-14% Corn
Market overview - Grain is cheap abroad and it weights on Russian market
17
10 23310 083
10 400 10 400
10 400
10 425
10 925 10 200
9 100 9 180 9 200
9 200 9 320
9 533
8 8409 160 9 250
9 4609 875
11 325
13 380 13 500
12 180
9 600
8 933 8 680
Dec-15 Mar-16 Jun-16 Sep-16 Dec-16
Milling wheat 4 gr., RUB/t Corn, Russia, RUB/t
56,24
69,66
62,15
49,67
63,72
57,02
69,95
70,27
83,59
68,27
64,33
66,65
63,65 62,81
66,03
60,40
30,00
40,00
50,00
60,00
70,00
80,00
90,00
Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16
Macroeconomic data
Real GDP Growth (%) Real Disposable Income Growth (%)
RUB/USD rate
Source: ProZerno - average prices, EXW European Russia, with VAT
Forecast - Management estimates
Price dynamics of wheat and corn
Source: Goskomstat; *forecast Source: Rosstat, Forecast data – World Bank
Source: CBR RF
2015 – Avg. 61,3
1,9% 2,1%
5,1%
0,4%
4,6% 4,0%
-1,0%
-4,0%
-5,9%
2008 2009 2010 2011 2012 2013 2014 2015 2016
5,6%
-7,8%
4,0% 4,3% 3,4%
1,3% 0,6%
-3,7%
-0,2% 2008 2009 2010 2011 2012 2013 2014 2015 2016
2016 – Avg. 66,8
19
Meat Consumption
Source: National Pork Union of Russia
Drop in per capita meat consumption in 2015 driven by
• Rouble devaluation / high prices
• Double digit inflation
• Shrinking real income
20
The Russian meat market
21
11% Miratorg
5% RusAgro 5%
Cherkizovo
5% Agro-Belogorye
4% Velikoluksky Meat
70% Others
Number two in Poultry Number three in Pork
Source: Russian Poultry Union Source: National Pork Union of Russia
Meat Processing Poultry Pork (industrial production)
Top 3 producers in the US account for
approx. 54% of the market
Top 3 producers in the US account for
approx. 46% of the market
Top 3 producers in the US account for
approx. 50% of the market
Source: Company estimates
Number one in Meat Processing
11% Prioskolye
10% Cherkizovo
6% Resurs
5% Belgrankorm
5% Severnaya
63% Others
Well positioned to drive industry consolidation
Poultry Meat Processing
Local National National
Premium
Medium
Low
# 1 in the Moscow
region
Powerful flagship brands
Petelinka accounts for almost all of the
Group’s chilled poultry sales
High brand awareness
Petelinka – #1 brand in Moscow and the
Moscow region in 2014 and 2015, enjoying
customer loyalty of 86%
Chicken Kingdom – #1 regional brand in the
frozen and chilled poultry categories
Strong portfolio of national brands covering the entire price spectrum
Pork
National
22
Leading portfolio of brands
Land and Grain
Feed Production *** ()* **
Farm ownership
Pork/Poultry Breeding / / / / /*** ()* / /** /
Meat Processing
Centralised distribution
Degree of vertical
integration 4 6 4 4
Land and Grain Distribution
Quality control and
cost optimisation
Fodder Pork and Poultry Processing
Quality and
biological safety
Lower dependence on
imports and suppliers
Capture margins from
value-added products
Note: Degree of integration of different players based on Cherkizovo’s assessment
* Cattle activities ** Former Sadia operations *** Attributable to Pilgrim’s Pride acquisition
Fully Owned Farms as a Key Differentiating Factor
5 4 6 4
23
Vertically integrated structure
Access to an operational land bank of
approx. 95,000 ha Significant strategic benefits
Cherkizovo Group’s operational land bank consists of the following
(figures approximate):
27,000ha in Voronezh Region
21,000ha in Orel
25,000ha in Lipetsk Region
21,000ha in Tambov Region
1,000ha in Moscow Region
Access to quality land – the Black Earth Region is considered to be
some of the best land in the world
Conveniently located close to pork facilities
Securing feedstock on a long-term basis at a controllable cost
Option to use manure as a highly efficient and natural fertiliser
Land is a strategic asset that provides a hedge against increases in grain prices
Opportunity to secure reliable feedstock
Vertically integrated structure – agricultural land
24
Low cost production assets enabling high profit margins
Moscow
92 13
122
100
Tambov Penza
108 51
Ulyanovsk
16
Annual production capacity
Meat processing (tpa)
Poultry (lwt)
Pork (lwt)
Vologda
8
Bryansk
90
Incl. slaughter facilities .
tpa – ‘000 tons per annum
lwt – ‘000 live weight tonnes
26
Greenfield pork facilities enable us to achieve
industry leading margins as efficiency indicators
are 50-70% higher compared to old pork farms
State-of-the-art broiler and breeder farms and
processing plants use the finest breeds and
latest technologies
Quality is controlled throughout the production
chain
Our pork has received the Ecological Product
certification, a marker of quality 38
100
Orel 12
Kursk
12
Voronezh
32
76
Lip etsk
Tula 22
Kaliningrad
23
97
25
Well invested production assets
LOW COST OF DEBT
MARKET PROTECTION
STRICT VETERINARY RULES
Zero profit tax for agricultural enterprises for perpetuity approved by
V. Putin in 2012 – applicable to Cherkizovo’s poultry, pork and grain
segments
Agricultural enterprises may apply for interest reimbursement for bank
loans for production development. Cherkizovo’s debt cost 9.7% in
RUB in 2016
Veterinary authorities have the right to ban meat imports.
2012: ban on imports of live pigs from the EU
2013: ban on imports of meat from the US and Brazil
2015: ban on imports of pork from the EU (countersanctions)
2016: restrictions on meat imports from Belarus
Annual import quota of 360kt for poultry meat and 430kt for pork
meat. High import duties for out-of-quota imports.
REGIONAL DEVELOPMENT
PROGRAMMES
Several regions have local agricultural development programmes:
– Penza – poultry
– Bryansk – poultry
– Tambov – turkey
ZERO TAX
26
Favorable regulatory and tax environment
Evgeny Mikhailov
Executive director
Chairman, shareholder
15+ years of experience in the
Russian meat industry
Executive director
CEO and shareholder
Chairman of the
Investment and
Strategic Planning
Committee
15+ years of
experience in the
industry
Non-executive director
Deputy Chairman of
the Board
20+ years of
experience in private
equity and direct
investment in Russia
and the US
Independent director
Chairman of the Audit
Committee
20+ years of
experience in
retail/FMCG in the
USA, UK, Germany
and Russia
Independent director
Chairman of the
Remuneration
Committee
20+ years of
experience in retail and
consumer brand
development in
emerging markets
Independent director
American poultry
expert
20+ years of
experience in the
poultry industry
Non-executive director
Chairman of the Board
of Grupo Fuertes,
partner and
shareholder of
Cherkizovo Group
20+ years of
experience in the
agricultural industry
Richard
Sobel
Emin
Mammadov Elliot
Jones Rafael
Fuertes
Vitaliy
Podolskiy
Sergey
Mikhailov
27
Strong new Board of Directors
Period, RUB mln 2016 2015
Sales 82,417.2 77,032.6
incl. Sales volume discounts (5,886.1) (5,343.2)
incl. Sales returns (952.3) (1,034.2)
Net change in fair value of biological assets and agricultural produce (340.1) (1,163.7)
Cost of sales (64,222.3) (56,720.2)
Gross profit 17,854.8 19,148.7
Gross margin 21.7% 24.9%
Operating expenses (12,798.3) (11,614.7)
Operating profit 5,056.5 7,534.0
Operating margin 6.1% 9.8%
Profit before income tax and minority interest 1,960.4 5,871.7
Net income attributable to Group Cherkizovo 1,919.2 6,007.5
Net profit margin 2.3% 7.8%
Weighted average number of shares outstanding 43,855,590 43,855,590
Earnings per share
Net income attributable to Cherkizovo Group per share – basic and diluted (rubles) 43.8 137.0
Consolidated Adjusted EBITDA reconciliation
Income before income tax and minority interest 1,960.4 5,871.7
Add:
Interest expense, net of subsidies 3,738.3 1,364.8
Interest income (343.7) (285.8)
Foreign exchange loss, net (621.1) 646.8
Depreciation and amortisation 4,660.4 3,826.5
Net change in fair value of biological assets and agricultural produce 340.1 1,163.7
Share of loss of a joint venture 200.2
Write-off of receivables from insurance company 348.0
Loss of disposal of subsidiaries 42.6
Consolidated Adjusted EBITDA 10,282.5 12,630.4
Adjusted EBITDA Margin 12.5% 16.4%
29
Consolidated income statement
Period, RUB mln 30 December, 2016 31 December, 2015
Cash and Cash Equivalents 1,002.2 5,560.8
Trade Accounts Receivable 4,942.9 4,445.0
Inventory 10,602.1 12,258.6
Biological Assets 10,712.5 9,829.7
Other Current Assets 5,554.8 7,964.4
Total Current Assets 32,814.5 40,058.5
Plant, Property and Equipment 64,445.3 60,436.0
Other Non-current Assets 9,077.8 7,216.8
Total Non-current Assets 73,523.1 67,652.8
Total Assets 106,337.6 107,711.3
Trade Accounts Payable 8,608.3 8,461.7
Short-term Debt 14,123.0 25,093.0
Other current liabilities 4,603.3 4,320.4
Total current liabilities 27,334.6 37,875.1
Long-term debt 24,469.7 16,118.7
Other non-current liabilities 492.8 568.4
Total non-current liabilities 24,962.5 16,687.1
Total equity 54,040.4 53,149.1
Total Liabilities and Total Equity 106,337.6 107,711.3
30
Balance sheet
Period, RUB mln 2016 2015
Net Income 1,960.4 5,871.7
Depreciation 4,660.4 3,826.5
Adjustments for Non-Cash Items (5,544.9) 2,480.4
Change in Net Working Capital 2,623.3 (5,728.5)
Net Operating Cash Flow 9,368.5 4,992.3
Purchases of PP&E (8,569.6) (9,645.5)
Other Investing Cash Flow (2,040.7) (670.9)
Net Investing Cash Flow (10,610.3) (10,086.4)
Proceeds from/(Repayment of) Debt (2,769.2) 13,058.1
Dividends paid (998.8) (3,392.8)
Net Financing Cash Flow (3,316.8) 9,647.4
Net Increase in Cash and Equivalent (4,558.6) 4,553.3
31
Consolidated cash flow statement
32
Thank you_
T: +7 495 660 24 40 F: +7 495 660 32 33
E: [email protected] www.cherkizovo.com
5 Lesnaya st. B, Moscow, Russia, 107143
“White Square” Office Center