Annual report
2019
Cherkizovo
today
Cherkizovo Group is Russia’s largest meat
producer and ranks in the Top 3 in the following
categories: chicken, turkey, pork and sausages. We are
a consumer-oriented company committed to quality and
product excellence.
ABOUT THE COMPANY
Cherkizovo Group has come a long
The Company's success rests firmly
way to build a highly successful and
on our ability to cater to consumer
efficient business. We started with
preferences. We carefully monitor market
a single meat processing plant –
trends as we seek to meet and anticipate
to grow into the country’s largest meat
our customers’ needs. For several years
manufacturer controlling the entire
we have been expanding our healthy diet
production chain from growing and
offering by developing new product lines.
producing crops to delivering the
end-product.
key achievements
For more information visit our
Corporate website:
www.cherkizovo.com
No.1
Top-ranking Russian
meat producer *
No.1
Leading poultry
producer in 2019 **
No.2
Among the largest pork
producers in Russia
in 2019 ***
Our values
Producing delicious and safe
meat products is our priority
We are responsible for the results of our
work to the consumers, employees and
partners. Our focus rests precisely on
By developing our business,
we contribute to the
agricultural potential of the
nation
We apply state-of-the-art technologies in
We are open
to innovation
We are committed to developing new ideas,
solutions, technologies and recipes, and
adopting best global practices, innovations
consumer needs and the highest meat
agriculture, engage highly qualified experts,
and scientific findings.
quality for our products.
and develop both our existing employees
2
and young talent.
* According to the rating following the results of 2018 prepared by the Agroinvestor magazine.
** According to the Russian Union of Poultry Producers.
*** According to the ranking by the National Union of Swine Breeders.
2 Annual report 2019
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUP Contents
CHERKIZOVO TODAY
About the Company
About the Report
Year in Numbers
Segment Overview
Key Brands
Core Strengths
Location of Operations
Key Events
2
2
3
4
8
32
33
34
36
ABOUT THE REPORT
The annual report contains information
It also covers the key results of the
MESSAGE FROM THE CHAIRMAN 38
on the activities of Public Joint Stock
Company’s corporate social responsibility
Company “Cherkizovo Group” (“Cherkizovo
performance.
MESSAGE FROM THE CEO
Group”, “Cherkizovo”, the Group, the
Company) for the period from 1 January
The report has been prepared with
STRATEGIC REPORT
to 31 December of 2019.
reference to GRI Sustainability Reporting
Market Overview
The report discloses financial and
non-financial performance, details on
the Group’s strategy, and information
on the corporate governance framework.
Standards.
For further details on the report and
GRI Standards compliance, see page 233.
No.2
In the ranking
of turkey producers *
MOODY’S RATING B1
EXPERT RA RATING ruA
The Group’s shares are quoted
on the Moscow Exchange (MOEX)
(MOEX ticker: GCHE).
The Group is a member of the National
Health, Safety and the Environment
Union of Poultry Farmers, National
Community Relations
Union of Swine Breeders, National Meat
Association, Association of Bona Fide
Agricultural Producers, and Russian
Union of Industrialists and Entrepreneurs.
We are passionate
about what we do
We seek to maintain our success
We are a team of experts
in meat processing
We employ specialists with a high
by building on our strengths, achieve
level of professionalism and expertise
excellence in what we do, and deliver
in their fields.
quality meat products to our consumers.
* According to the ranking by Agrifood Strategies.
www.cherkizovo.com
CORPORATE GOVERNANCE
SHAREHOLDER AND INVESTOR
HIGHLIGHTS
CONSOLIDATED
FINANCIAL STATEMENTS
APPENDIX
Appendix 1. About the Report
Appendix 2. GRI Content Index
Appendix 3. Glossary
Appendix 4. Supplementary Information
on Staff
Contact Information
Strategy
Business Model
Supply Chain
Investment Program
Quality Management System
Poultry
Pork
Meat Processing
Grain and Feed
Turkey
Product Strategy
FINANCIAL RESULTS
SUSTAINABLE DEVELOPMENT
Our Employees
42
50
48
50
54
58
60
61
64
68
72
76
80
84
90
112
114
119
124
126
146
148
232
232
233
237
239
240
3
CHERKIZOVO GROUPCherkizovo unites
Year in numbers
Sales
POULTRY SALES,
’000 tonnes
PORK SALES,
’000 tonnes
MEAT PROCESSING SALES,
’000 tonnes
663 275 246
2019
2018
2017
+21.8%
663.0
544.2
523.5
2019
2018
2017
+15.9%
274.6
236.9
200.3
2019
2018
2017
+7.0%
245.6
229.5
204.2
TURKEY SALES * ,
’000 tonnes
GRAIN SALES,
’000 tonnes
SAMSON – FOOD PRODUCTS ** ,
’000 tonnes
39
524
22.7
+0.3%
39.4
39.3
26.3
2019
2018
2017
(24.7%)
524.0
696.1
453.3
* Turkey data represents sales of turkey
meat produced by Tambov Turkey JV through
the Group’s distribution network.
** Data in this section denotes to the company
Samson – Food Products, associate of the Group,
where Cherkizovo Group owns 75%
of the capital.
2 Annual report 2019
2019
2018
2017
4
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUP Financial highlights
RUB million / %
Revenue
Gross profit
Operating expenses
Adjusted EBITDA
Adjusted EBITDA margin
Adjusted operating profit
Profit before tax
Adjusted net profit
Net operating cash flow
Net debt
REVENUE,
RUB billion
2017
90,465
23,559
(13,612)
14,643
16.2%
8,943
5,956
5,066
13,016
48,669
2018
100,422
29,182
(13,570)
20,415
20.3%
13,509
11,793
9,958
14,178
58,559
2019
120,109
27,863
(17,551)
20,617
17.2%
12,397
6,697
8,958
16,056
61,206
Year-on-year, %
19.6%
(4.5%)
29.3%
1.0%
(3.2 p.p.)
(8.2%)
(43.2%)
(10.0%)
13.3%
4.5%
ADJUSTED EBITDA, RUB billion
ADJUSTED NET PROFIT,
RUB billion
120 20.6
9
2019
2018
2017
+19.6%
120
100
90
2019
2018
2017
1.0%
20.6
20.4
14.6
2019
2018
2017
(10.0%)
9.0
10.0
5.8
Non-financial highlights
HEADCOUNT,
‘000 employees
28
2019
2018
2017
LTIFR
1.7
19.6%
28.1
23.5
23.2
2019
2018
2017
(14%)
1.71
1.99
1.50
www.cherkizovo.com
5
CHERKIZOVO GROUPCherkizovo unites A line of halal products launched under
the Dajajti brand to tap into the export
markets of Islamic countries. the products
have been certified by the UAE’s Authority for
Standardization and Metrology (ESMA).
6
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUP Cherkizovo exports its meat
products to the Middle and
Far East, Africa, and the CIS.
We have been actively expanding
our footprint in the FSU and non-
FSU markets and plan to increase
exports across all our product
categories.
As authorized exporters, our
facilities are compliant with
international trade requirements,
and our products are certified
under the FSSC and ISO 9001
standards.
5.7
RUB billion
in export revenue
+78% y-o-y
14
thousand tonnes
Chicken supplies
to China launched
in 2019
www.cherkizovo.com
7
CHERKIZOVO GROUPCherkizovo unites
Segment
overview
REVENUE BY SEGMENT,
RUB billion
MEAT SALES BY SEGMENT,
%
POULTRY
2019
2018
PORK
2019
2018
MEAT PROCESSING
2019
2018
TURKEY
**
2019
2018
GRAIN
2019
2018
FEED
2019
2018
3%
2%
20%
53%
22%
1,245.3
thousand tonnes
Poultry
Pork
Meat Processing
Samson – Food Products *
Turkey **
thousand
tonnes
663.0
274.6
245.6
22.7
39.4
70.3
52.7
24.5
23.3
40.1
38.8
6.7
5.8
5.8
6.9
40.3
31.2
The bulk of the products are sold through
retail chains to HoReCa customers and
also exported. The Group’s centralized
logistics infrastructure guarantees
delivery within the shortest time possible.
At Cherkizovo, we keep a close watch on
consumer preferences by conducting
regular marketing surveys, reviewing
feedback, and testing our key and new
products. This fuels market demand for
Cherkizovo products.
The vertically integrated business model covers the entire
production chain from growing grain and feed production to end
products, which guarantees the highest quality standards.
Please see the Business
Model section on
page 54 for details
* Data in this section denotes to the company Samson – Food Products, associate of the Group, where Cherkizovo Group owns 75%
of the capital.
** Turkey represents operations related to purchase and subsequent resale of turkey meat produced by Tambov Turkey JV through the Group’s distribution
network. Turkey is not an operating segment of the Group.
8
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUP
Segment
overview
CHERKIZOVO
GROUP:
No.1
Top-ranking Russian
meat producer
No.1
Leading poultry
producer in 2019
The Group is structured into the product segments of Poultry, Pork, Meat Processing, Grain, and Feed.
We also make turkey meat products as part of our joint venture with Grupo Fuertes.
poultry
pork
meat processing
grain
turkey
www.cherkizovo.com
9
CHERKIZOVO GROUPCherkizovo unites poultry
The Poultry segment focuses on chicken products and by-products,
as well as an extended mix of branded products.
We also have a separate HoReCa product line.
Core product categories
Chicken products: whole chickens and cuts, chilled and frozen meat,
ready-to-cook products, and by-products.
For further details, see page 64
10
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUP
What sets us apart
Year’s highlights
• HACCP system
• FSSC 22000 quality standard
• 24 hours from farm to fork
• Advanced cooling and
temperature compliance
system
• Acquisition of Rovensky Broiler
• Relaunch and ramp-up of Belaya Ptitsa
• Start of Petelinka sales in Siberia
• Launch of poultry exports to China
REVENUE, RUB billion
2019
2018
+33.4%
70.3
52.7
663
thousand tonnes
Sales
+22% y-o-y
KEY FACILITIES
• Petelinskaya poultry farm, Moscow region
• Vasilyevskaya poultry farm, Penza region
• Lisko Broiler, Voronezh region
• Kurinoe Tsarstvo, Bryansk, Lipetsk and
Moscow regions
• Altaisky Broiler, Altai Territory
• Belaya Ptitsa 1, Belgorod and Kursk regions
• Rovensky Broiler, Belgorod region
1
Is currently operated by the Group pursuant to a lease agreement.
www.cherkizovo.com
11
CHERKIZOVO GROUPCherkizovo unites Chicken BBQ –
Indian curry wings
Chicken dishes are found in all national cuisines. From the fillet you get
low-fat dietary dishes that are useful for children and athletes, lovers of
homemade fast food grill wings in breadcrumbs, and from the thigh you
can cook a delicious broth – the one that treats colds so well.
12
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUP Indian
curry
wings
1
COOKING
Prepare your poultry farms well, add
chickens and leave them fatten on
homemade feeds under the supervision
of a qualified team. Do not forget about
2
3
biosafety.
SECRET SAUCE
To bring out all nuances of taste, you will
need to make your production facilities
meet the requirements of international fast
food chains. Humane animal treatment
practices are the best choice for this
purpose.
SERVING
The end products are served in stores as
chopped or minced chicken, patties and
ready-to-roast meals. the most popular are
those under the Petelinka brand.
YOU WILL NEED
Poultry farms
Hens
Homemade feeds
Qualified team
www.cherkizovo.com
13
CHERKIZOVO GROUPCherkizovo unites pork
The Pork segment embraces breeding of market hogs
and their sale to both the Group companies and third parties.
In 2019, 86% of market hogs was sold to the Meat Processing
segment to make end products, with the rest shipped
to third parties.
Core product category:
Market hogs.
For further details, see page 68
14
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUP What sets us apart
• HACCP system
• Highest biosecurity status
of pig farms
• Needle free injections
Year's highlight
• a new pig farm was launched
in the Penza Region
REVENUE, RUB billion
2019
2018
+5.2%
24.5
23.3
284.2
thousand tonnes
Production
+15% y-o-y
CORE GEOGRAPHIES
• Penza region
• Lipetsk region
• Voronezh region
• Tambov region
• Orel region
www.cherkizovo.com
15
CHERKIZOVO GROUPCherkizovo unites Traditional Russian Dumplings –
Chinese Jiaozi Dumplings
Different countries use their unique recipes
for making dumplings. But an integral
ingredient of this dish around the world
is high-quality minced pork.
16
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUP Chinese Dumplings
jiaozi
1
DOUGH
Take a bowl and mix in full pork production
complexes, pig sites with combined
nursery and finisher sites, and sow farms,
give them a good whisk. Add the team of
professionals to the resulting batter and
let it rise.
2
3
4
FILLING
Pick only the best-bred sows that have
proven to be highly effective, surround
them with care from expert staff. Don't
forget to sprinkle in high biosafety and
animal welfare standards.
COOKING
Roll the dough out evenly between Penza,
Lipetsk, Voronezh, Tambov and Orel
regions, add the filling. Well done!
SERVING
Send in your creation to Cherkizovo
Group's meat processing plants and let
them do their magic.
YOU WILL NEED
Full pork production
complexes
Pig complexes with
combined nursery
and finisher sites
Sow farms
A team of
professionals
Strict biosafety
standards
www.cherkizovo.com
17
CHERKIZOVO GROUPCherkizovo unites meat
processing
The Meat Processing segment manufactures sausages and other
products from pork, chicken meat and turkey. Our products are sold under
several brands across different price categories.
Core product categories:
– Higher value added products: a variety of sausages, smoked meat,
deli meats, and cold cuts;
– Lower value added products: raw meat, ready-to-cook foods and minced meat,
– Сooked meats products: hot dogs.
For further details, see page 72
18
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUP What sets us apart
• Large mix of high-quality
sausages, deli meats and ready-
to-cook products
• Certified to GOST R ISO 9001 –
2008 (ISO 9001)
• Lean manufacturing system
• FSSC 22000 quality standard
Year’s highlights
• Cherkizovo brand revamp
• Launch of a bacon slicing
line at Cherkizovsky Meat
Processing Plant
REVENUE, RUB billion
2019
2018
+3.4%
40.1
38.8
245.6
thousand tonnes
Sales
+7% y-o-y
KEY FACILITIES
• Slaughter facilities: Dankov
and Penza
• Meat processing plants:
Cherkizovsky Meat Processing
Plant in Moscow and its offshoots
in Penza, Ulyanovsk, Kaliningrad
and Kashira (Moscow region)
www.cherkizovo.com
19
CHERKIZOVO GROUPCherkizovo unites Sandwiches for breakfast –
English sandwich
The appearance of a sandwich in its modern form can be roughly
attributed to Europe of the XVII century. The very idea of wrapping in
bread or putting other ingredients on it appeared long before that
in various cultures.
20
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUP English
sandwich
1
2
3
PREPARING
This recipe is a perfect combination
of tested traditions and advanced trends
in meat processing. An ideally balanced
taste is achieved by mixing the time-
proven expertise of Cherkizovsky Meat
Processing Plant and the latest solutions
from the Kashira plant. Before cooking, do
not forget to add a full range of Industry
4.0 techniques to the plant in Kashira.
COOKING
After you have prepared the meat
processing plants, begin deliveries
of in-house produced pork, chicken and
turkey. Do not forget using natural spices
only. Mix the above ingredients and
make sausages or cold cuts. Send them
to stores when ready.
SERVING
Cherkizovo-branded sausages and cold
cuts serve to bring the entire family
to the table. Especially popular are
Salchichón, Salami Extra and Doktorskaya
Po-Cherkizovsky.
YOU WILL NEED
Chilled
pork
Chilled chicken
and turkey
Several meat
processing plants
Advanced meat
processing
technology
www.cherkizovo.com
21
CHERKIZOVO GROUPCherkizovo unites
grain
The Grain segment grows crops that the Group uses
to produce feed at in-house mills or sells them to third parties.
Core product categories:
– Crops (wheat, soy, sunflower, corn, and barley)
– Feeds.
For further details, see page 76
22
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUP What sets us apart
• Most fertile Central Black Earth
regions
• Know-how backed by global
expertise
• Amelioration program
Year's highlights
• Land bank increased
by 13 thousand hectares
to 300 thousand hectares
• Soil improvement and balanced
plant nutrition program
continued
REVENUE, RUB billion
2019
2018
(15.9%)
5.8
6.9
593.0
thousand tonnes
Harvest
+24% y-o-y
CORE GEOGRAPHIES
• Voronezh region
• Lipetsk region
• Moscow region
• Orel region
• Penza region
• Bryansk region
• Tambov region
www.cherkizovo.com
23
CHERKIZOVO GROUPCherkizovo unites turkey
Cherkizovo makes turkey products at Tambov Turkey, its joint venture
with Grupo Fuertes. The full-cycle process covers the entire production
chain – feed production, breeding, slaughtering and processing.
Core product categories:
– Turkey meat (fillet, diced meat, steaks, thighs, and wings)
– Ready-to-cook products
– By-products.
For further details, see page 80
24
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUP What sets us apart
Year’s highlight
• One of Russia’s most pristine
• Cherkizovo Group started
areas
• Certified to ISO 22000:2005
• FSSC 22000 quality standard
implementing the second stage
of Tambov Turkey
REVENUE, RUB billion
2019
2018
+15.5%
6.7
5.8
39.4
thousand tonnes
Sales
CORE FACILITY
Tambov Turkey,
Tambov region
www.cherkizovo.com
25
CHERKIZOVO GROUPCherkizovo unites New Year's Turkey –
Thanksgiving Turkey in America
Characteristic of Russian cuisine is the preparation of poultry
and game whole carcasses. In American cuisine, baked turkey is
also a national Thanksgiving dish.
26
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUP American
thanksgiving
turkey
1
COOKING
To cook it the right way, you may need
some business partners from Spain.
Before cooking, take a turkey production
plant and put in Tambov region, Russia's
greenest area. Have it certified to ISO
22000:2005 and FSSC 22000. Mix a team
of professionals with some Spanish
expertise and add them to the plant. Do
not forget to put in place a HACCP plan
to monitor turkey health. Use homemade
100% grain feeds for the turkey to gain
weight fast, then send it for processing in
around 118 days.
2
SERVING
Serve the turkey in stores as Pava-Pava
branded fillet, minced meat or ready-to-
roast meals in oven bags. the pickiest
of eaters will delight in schnitzels, wieners
or patties.
YOU WILL NEED
100%
grain feeds
Hybrid Grade
Maker turkey
Tambov Turkey
joint venture
A pack
of experts
ISO 22000:2005
and FSSC 22000
standards
HACCP
program
www.cherkizovo.com
27
CHERKIZOVO GROUPCherkizovo unites 45 years
and running
Today, Cherkizovo Group is not only the country’s largest
Our plans are just as far-reaching as our achievements, seeking
manufacturer of meat products, with facilities spanning from
to introduce more advanced meat processing technologies, ramp
Kaliningrad to Altai, but also the industry’s technological leader.
up production, and expand sales geography in Russia and beyond.
1974
1995
1998
Cherkizovsky Meat
Processing Plant opens
in Moscow
Cherkizovo Group
taps into the pork market
by acquiring the
Kuznetsovsky pig farm
The Group enters the poultry
market after acquiring
the Petelinskaya poultry
production facilities
TODAY
8
meat
processing
plants
246
21
combined nursery
and finisher sites
275
thousand tonnes
annual meat products sales
thousand tonnes
annual pork sales
9
poultry farms
663
thousand tonnes
annual poultry sales
No.1
in Russia
meat production
28
No.2
in Russia
pork production
No.1
in Russia
the Group operates
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUP In 2019, Cherkizovo turned 45.
It was back in 1974 when Cherkizovsky Meat
Processing Plant, now the beating heart
of the Group and a flagship meat processor
in Russia, was opened.
2012
2016
2018
Cherkizovo taps into
the crop farming
market
Cherkizovo Group
launches export
operations
Tambov Turkey reaches
full production capacity
Exports its products
to markets across
the CIS
and South-East
Asia
39
thousand tonnes
turkey sales
No.2
in Russia
turkey sales
9
feed mills
300
thousand hectares
of land
524
thousand tonnes
the Company owns
www.cherkizovo.com
29
CHERKIZOVO GROUPCherkizovo unites tonnes
of pepperoni
for Dodo Pizza
tonnes
of pepperoni for
Domino's Pizza
Our facilities comply
with the rigorous
standards of global
chains.
30
CHERKIZOVO GROUP
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governance tonnes
of strips
for Burger King
billion
in food service revenue
+81% y-o-y
Cherkizovo Group provides
restaurants with an
impressive selection
of chilled and frozen chicken,
turkey and pork products,
all of which boast great taste,
structural properties and shelf
lives thanks to the Group’s
reliance on its own feedstock
and innovative production
technologies.
We are looking for partnerships
driven by mutual benefits
and work with restaurants
to create specialty products
made to customers’ original
recipes and specifications. Our
production capacities enable
us to cater to both major chains
sourcing tonnes of finished
products and smaller players
looking for small batches.
www.cherkizovo.com
31
CHERKIZOVO GROUPCherkizovo unites Key
brands
No.1
on the poultry
product market
No.2
on the turkey market
1
51.2%
Brand awareness
1*
75.0%
Brand awareness
* For Pava-Pava, brand awareness is based on Moscow and St. Petersburg data.
One
of industry
leaders
1
73.9%
Brand awareness
1
According to Ipsos study.
32
Quality
Guarantee 2019
Product of the
Year
Quality
Guarantee 2019
Product of the
Year
Consumer Rights
and Service
Quality Award
German
Design Award
Quality
Guarantee 2019
Taste Experience
Consumer Rights
and Service
Quality Award
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUP Core
strengths
VERTICALLY INTEGRATED
COMBINATION OF ORGANIC
TECHNOLOGY
BUSINESS MODEL
GROWTH AND M&AS
AND INNOVATION
Cherkizovo Group boasts a strong vertically
The Group pursues a strategy that combines
All of our production sites were designed
integrated business model and has evolved
organic growth, driven by investments in new
to meet the latest efficiency and veterinary
into a diversified protein producer for
production capacities, and acquisition
safety requirements. The plant in Kashira
a sustainable and resilient future.
of operating businesses well suited for
fully complies with the Industry 4.0 vision.
For further details, see page 54
integration into the Group's business model.
Relying on our in-house R&D expertise,
In 2019, the Company launched 5 new pig
we make sure all Cherkizovo products are
farms in the Penza region. Work started
covered by comprehensive food quality
ROBUST GROWTH AND
to implement the second stage of Tambov
and safety control. We also have a large-
SOLID FINANCIAL POSITION
Turkey.
scale research program in place.
In 2019, the Group’s revenue rose by 19.6%
to RUB 120.1 billion, and EBITDA by 1.0%
to RUB 20.6 billion, while adjusted net profit
decreased by 10.0% to RUB 9.0 billion. Lower
pork prices in 2H 2019 put pressure on the
For further details, see page 50
For further details, see page 75
STRONG
BRANDS
DISTRIBUTION
AND LOGISTICS
Group's performance in the Pork and Meat
Cherkizovo Group continues to strengthen
The company controls all elements of
Processing segments, but new acquisitions
its brand portfolio, which includes highly
the value chain, which enables synergies
in the Poultry segment helped maintain
recognizable and popular brands of
in production and logistics, reduces costs,
a stable financial position.
Cherkizovo, Petelinka and Pava-Pava.
and enhances quality control across the
For further details, see page 90
The Company continues improving
production chain. A well-developed logistics
designs and recipes of its products to keep
system allows Cherkizovo to guarantee
QUALITY
EXCELLENCE
consumers engaged.
For further details, see page 32
The Group continues to put quality, safety
and taste first. We implement stringent
OUR
TEAM
quality assurance and biosafety standards
to ensure a consistently high product quality
Our people are our key competitive
for our consumers. Cherkizovo develops
advantage. At Cherkizovo Group,
its product offering in line with consumer
we have a strong team led by outstanding
prompt delivery of refrigerated products to
consumers across the regions where the
Company operates. The Group continues
to solidify its competitive edge in logistics,
in particular by developing the supply chain
and centralizing its logistics operations.
For further details, see page 58
preferences and latest market trends.
For further details, see page 61
industry professionals. The Company's
executives have impressive track record
working in major Russian and international
companies and have been repeatedly ranked
among the Top 1,000 Russian Managers.
For further details, see page 114
www.cherkizovo.com
33
CHERKIZOVO GROUPCherkizovo unites Location
of operations
KALININGRAD
ST. PETERSBURG
BRYANSK
MOSCOW
TULA
OREL
LIPETSK
KURSK
BELGOROD
TAMBOV
VORONEZH
PENZA
ULYANOVSK
ROSTOV-ON-DON
SAMARA
34
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUP Cherkizovo Group’s production assets are located in the most densely
populated part of Russia – Central Federal District, which is also characterized
by the highest purchasing power in the country. The Company has also
expanded into the Siberian Federal District. The geography of our production
sites enables us to cater to over 80%# of Russia’s population.
13
21
pork
production complexes
combined nursery
and finisher sites
2
sow farms
9
poultry farms *
8
meat processing and
slaughter facilities **
9
feed mills
1
turkey JV
12
grain elevators
300
thousand hectares
total land bank
* Including Belaya Ptitsa poultry processing facility
operated by the Group under the lease agreement.
** Including the meat processing plant operated
by associated company Samson – Food Products.
19
own and 11 leased
warehouses
BARNAUL
www.cherkizovo.com
35
CHERKIZOVO GROUPCherkizovo unites Key
events
New capacity
New associations
In February,
Cherkizovo initiates the
foundation of the National
Union of Poultry Farmers.
In August,
Cherkizovo Group joined the
Russian Union of Industrialists
and Entrepreneurs.
In July,
Cherkizovo took charge of
the Ministry of Industry and
Trade's working subgroup on
import substitution in food
machinery.
In December,
the Cherkizovsky Meat
Processing Plant joined
the National Union of Meat
Processors.
During the year,
Cherkizovo Group
launched 5 new pig farms
in the Penza region.
In October,
the Company purchased
Rovensky Broiler.
The land bank grew
by 13,000 hectares to
300
thousand hectares.
36
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUP Exports
Food service
Events after
the reporting date
Sales in the HoReCa
segment doubled
year-on-year.
In June,
Cherkizovo signed a
8
USD million contract for
poultry deliveries to China.
Emin Mammadov was
appointed Deputy CEO
and his director status
changed from independent
to executive.
The Board of Directors
recommends that the
Annual General Meeting
of Shareholders vote for
allocating and paying
RUB 60.92 per share
in dividends for 2019.
www.cherkizovo.com
37
CHERKIZOVO GROUPCherkizovo unites Message
from Chairman
120.1
RUB billion
Revenue
+20% y-o-y
9
RUB billion
Adjusted Net profit
in 2019
38
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUP In 2019, Cherkizovo Group demonstrated
excellent operational and financial results.
Despite challenging market environment, we managed
to increase our revenue by almost 20% to RUB 120 billion.
GDP growth over the past year
decreased to 1.3%, while real disposable
IMPLEMENTING STRATEGY
At the present time, the Group is one
the Group's most recognized brands,
such as Cherkizovo, Petelinka and Pava-
income was up 0.8%. Household final
of country’s major meat producers and
Pava, have already gained widespread
consumption expenditure rose by 2.5%, in
the leading producer of poultry. Our future
popularity amongst consumers and
comparison with last year’s figure of 2.2%.
growth will largely be determined by
occupy a leading position in their
the VAT increase, taking it to 20%, had
the ability to deliver quality and taste,
respective markets.
a considerable impact on the consumer
rather than by higher production volumes.
market. In addition, production costs for
Cherkizovo’s strategy is focused around
To keep up with the current trends
meat products grew on higher prices for key
the Group's sustainable development, its
in the meat product market, we now
feed components and logistics. These rises
financial growth and securing its position as
devote special attention to our ready-to-
were passed on to the consumers, with
the meat market leader.
retail prices for pork and broilers increasing
cook and ready-to-eat product ranges.
We are trying to do everything in our
by 4% and 10% respectively. the Group
The Group considers the development
power to ensure that our products
mitigated the lack of consumption growth
of its product ranges and increasing its
meet the healthy lifestyle needs.
by tapping into new markets.
offering of high value-added products to be
Our specialists make sure that our
its number one priority. We are constantly
products contain no artificial additives
investing in our production technology,
or flavour enhancers, thus protecting
as well as ensuring we consolidate
our well known and loved original taste.
the position of our key brands.
the Group offers a range of low calorie
chicken and turkey, which help contribute
In 2019, our large scale investment in
to a healthy diet.
construction reached its conclusion.
This led to a 20% drop in capital
The fastfood market is also
expenditure, down to RUB 8 billion in
an increasingly important avenue for
comparison to the previous year. Our key
the Company. We are eagerly trying
projects focus on Moscow, the Altai
to increase our share of this steadily
Territory, and the Moscow, Lipetsk, Penza,
growing market. We already work
and Tambov regions. a considerable share
with a large number of restaurants,
of the investment was directed towards
including the market leaders. We are
launching the production of new high value-
open to cooperation and are adapting
added products and increasing the quality
our production to the recipes and
and convenience of our existing products.
requirements of our partners.
According to our estimates, the food
The Group's marketing strategy is aimed
service will soon account for 20%
at building brands, which will become clear
leaders in their particular market segment.
of the Group’s sales.
We are constantly
investing in our
production technology,
as well as ensuring we
consolidate the position
of our key brands
www.cherkizovo.com
39
CHERKIZOVO GROUPCherkizovo unites Message from Chairman
of the Board of Directors
SUSTAINABLE DEVELOPMENT
We pride ourselves on fulfilling our
СORPORATE GOVERNANCE
AND ENGAGING STAKEHOLDERS
Cherkizovo Group places a special
consumer's wishes. We carefully analyse all
our customer reviews, both those on social
DEVELOPMENT
Cherkizovo’s corporate governance
emphasis on sustainable development.
media sites and those left through our
framework has been constructed
Cherkizovo’s priorities are, as always,
official channel. These reviews, as well as
in accordance with the best global
the health and well-being of its
our monitoring of general consumer trends,
practices, taking into account
employees, environmental protection
help us to finalize our products. Our ready-
the integrated structure of the Company.
and the development of the regions
to-cook chicken, turkey and sausage
2019 saw us continue refining
where we operate.
ranges enjoy the most popularity amongst
our approach to governance and
Last year, we focused on educating
consumers.
best practices. the Company put
a particular emphasis on strengthening
our employees on production safety
The Group’s key partners are federal retail
the Management Board’s competencies
standards. As a result, we have
chains and restaurants. Our production
with the addition of new members that
witnessed a drop in both the quantity
has been accredited by major international
include both the Company’s talent
and severity of workplace accidents.
fast food chains, confirming the excellent
pool members and internationally
We aim to continue this work throughout
quality of our products. Cherkizovo is one
experienced major industry experts.
the coming year.
of the few Russian producers to have
implemented international standards
Cherkizovo contributes to the
regarding the humane treatment of animals.
development of the regions where
DIVIDENDS
We seek to attract new investment and
find new opportunities to work alongside
we operate. We create well paid job
The Group is developing partnerships with
stock market players. Our dividend
opportunities, attract new investment,
suppliers. We are devoting special attention
policy is based on the principle
and take an active part in community
to our partnerships with local producers,
of rational distribution of profits and
activities. We are building new assets
providing them with advice on how to reach
takes into account both the interests
across all segments, taking into account,
our high standards. All of the Group’s
of shareholders, and the Group’s need for
of course, our ecological responsibilities.
suppliers adhere to the principles
investment.
We are constantly searching for ways
of openness and fair business practices.
to reduce the impact we have on
2019 dividend per ordinary share
the environment.
In the future, Cherkizovo will continue
amounted to RUB 109.71. This is made
to comply with the principles of sustainable
up of a RUB 48.79 semi-annual interim
First and foremost, Cherkizovo's success
development and increase stakeholder
dividend and a RUB 60.92 full-year
depends on our customer satisfaction.
engagement.
Therefore, it is vitally important that we
cooperate with stakeholders, including
suppliers, distributors, shareholders,
employees and, of course, consumers.
dividend, as recommended by the Board
of Directors. the full-year dividends will be
approved at the Annual General Meeting
of Shareholders in 2020.
40
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUP 109.71
RUB
dividend per ordinary share
I would like to express my gratitude
to the members of the Board of Directors,
the management and finally, the employees
of the Company. Year after year, their
contributions allow us to meet our strategic
objectives. Only through our mutual cooperation
can we continue to develop the Company and
secure its position as the food market leader.
Evgeny Mikhailov
Chairman
of the Board of Directors
www.cherkizovo.com
41
CHERKIZOVO GROUPCherkizovo unites Message
from CEO
Annual sales were mainly driven
During the year, we further streamlined our
by higher exports and a broader
occupational health and safety processes,
OUR PERFORMANCE
In 2019, Cherkizovo Group’s revenue
presence in the HoReCa segment.
resulting in a 14% decrease LTIFR and zero
rose by 20% to RUB 120.1 billion. In terms
Regarding exports, a pivotal moment
fatal accidents.
was the opening of the Chinese market
of average sales prices, only the Poultry
segment saw gains, while the other
for Russian poultry products, enabling
Cherkizovo Group invested over
segments came under pressure amid
us to increase chicken meat sales.
RUB 160 million in environmental
a weaker pork pricing environment.
Strengthening our partnerships with
performance enhancement, cutting
Adjusted EBITDA totaled RUB 20.6 billion,
major fast food restaurant chains, such
the number of administrative violations
flat year-on-year.
as McDonald’s, Burger King and KFC,
by 13% year-on-year.
we were able to more than double
The Company will pay RUB 60.92 per
share in dividends for 2019, cutting
revenues in the HoReCa channel,
As a socially responsible company,
payouts in line with a lower full-year net
which is set to remain a top priority.
Cherkizovo continued to provide charitable
income.
aid across its footprint in 2019. For
The Group, as Russia’s largest
example, we bought school kits and
vertically integrated meat producer,
organized New Year celebrations for
POULTRY SEGMENT
In 2019, the Poultry division increased
is committed to offering consumers
children from low-income families Having
sales by 22% to 663 thousand tonnes,
a wide range of products in different
embarked on a mission to support regional
while the average sales price rose
price brackets. With customer needs
sports, we became a sponsor of a youth
9% to RUB 106 per kg mostly driven
persistently evolving, one of our key
football club in Kashira, Moscow Region,
by a successful integration of assets
priorities remains predicting changes
and a men’s volleyball club from Voronezh.
acquired in late 2018. Petelinka,
in consumer sentiment in a correct and
The Group also co-sponsored a charity
Cherkizovo’s flagship poultry brand,
timely manner, amid tight competition
race held by SAP in Moscow to help
saw a 13% increase in sales. Poultry
in all markets where we are present.
children in orphanages.
exports and HoReCa sales grew 131%
and 95%, respectively. As a result,
Currently, technology is key to any
In 2019, we established a partnership with
the segment’s revenue soared by 33%
business that seeks to remain ahead
WWF Russia and supported the Earth Hour,
to RUB 70.3 billion.
of competition. In 2019, Cherkizovo
its international environmental campaign.
Group invested about RUB 1 billion
Cherkizovo Group continued to lead
in IT as we continued to improve
Importantly, Cherkizovo joined
in chicken meat production for
electronic document management,
the Russian Union of Industrialists and
the second straight year. In 2019,
Big Data, machine vision technology
Entrepreneurs last year. As a union
we produced 766 thousand tonnes
and online individual productivity
member, the Company works closely
of live weight, up by 145 thousand tonnes,
tracking. With these IT solutions
with government agencies, business
lengthening the lead over our closest
in place, Cherkizovo Group is one
of the most innovative companies not
partners, NGO experts and a broader
industry community on a wide range
competitor almost twenty-fold year-on-
year to 121 thousand tonnes.
only in its sector, but also in the Russian
of matters, including environmental and
economy as a whole.
agricultural regulation. Also, we became
For Petelinka, 2019 marked
involved in a government-sponsored
the launch of production at the
regulatory guillotine project for animal
Altaisky Broiler facility, which the
and crop farming.
Group acquired in late 2018.
42
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUP In 2019, Cherkizovo Group continued to boost sales with their total
volume increasing by 20% to 1.2 million tonnes. Specifically, the Poultry
segment grew by 22%, the Pork segment by 16%, and the Meat Processing
segment by 7%. the Group continued to strengthen its position in the Russian meat
market, significantly lengthening its lead over its closest competitor, while also
maintaining first place in chicken meat production for the second straight year.
Furthermore, we became the second largest turkey producer in Russia.
This meant the country’s most popular chicken brand could be rolled
out in the Siberian Federal District. the launch of Petelinka at Altaisky
Broiler followed a complete upgrade of the facility, bringing it up
to Cherkizovo standards.
In 2019, we boosted poultry sales in the Black Earth region and the south
of Russia as we fully ramped up Kurinoe Tsarstvo Kursk, an asset formerly
owned by Belaya Ptitsa, launching an incubator, populating growth
sites and starting up a poultry-processing plant. Total investment in
the upgrade was RUB 500 million.
A pivotal moment of the year was the opening of the Chinese market
for Russian poultry. In 2019, Cherkizovo Group signed several major
chicken meat supply contracts with big Chinese retailers and restaurant
chain operators as end consumers. During the year, the Company
shipped 14 thousand tonnes of products to China. Given a favorable
market environment, we predict a 10-fold upside potential in poultry
exports. In value terms, we initially estimated Chinese export potential
at USD 100 million, but we might well exceed this target already next year.
PORK SEGMENT
In 2019, Cherkizovo Group's pork sales rose by 16% to 274.6 thousand
tonnes driven by the launch of new nursery and finisher sites.
However, the average sale price came in at RUB 89.1 per kg, down
9% year-on-year, under pressure from domestic oversupply. Revenue
increased by 5% to RUB 24.5 billion.
Towards the end of 2019 our pork production facilities were working
close to their maximum total capacity of 300,000 tonnes in live weight.
In 2019, we completed the construction of a pig farming cluster
in the Penza Region.
This year and over the coming years, we are going to ramp up pork
capacities, launching state-of-the-art pig farms in different parts
of the Black Earth region, in line with our plans to boost exports
of Russian pork products. Russian swine breeders are looking forward
to tapping into the Chinese market. We also see great export potential
in other Southeast Asian markets.
www.cherkizovo.com
43
CHERKIZOVO GROUPCherkizovo unites Message
from CEO
MEAT PROCESSING SEGMENT
In Meat Processing, sales rose 7%,
CROP PRODUCTION SEGMENT
In 2019, harvest volumes soared by 24%
TURKEY
In 2019, Tambov Turkey, a joint venture
drawing support from a higher output
to 593 thousand tonnes, while sales
between Cherkizovo Group and Spain’s
of pork carcasses. Meanwhile, sausage
decreased by 25% to 524 thousand tonnes.
Grupo Fuertes, became the second largest
sales were unchanged from 2018.
Harvest gains were attributed to higher
turkey producer in Russia, with the output up
Although sausage prices advanced,
wheat and corn growing efficiency.
by 9% to 41 thousand tonnes in live weight,
the average sales price for the segment
Currently, Cherkizovo Group provides about
while sales remained little changed year-on-
decreased by 4% to RUB 163 per kg
one-third of its own wheat and corn needs.
year at 34.9 thousand tonnes. As a result,
due to weaker pork carcass sales.
revenue came in at RUB 6.7 billion, up 16%.
As a result, the segment’s revenue
Our land bank grew further and reached
came in at RUB 40.1 billion, down
300 thousand hectares by the end
Tambov Turkey’s Pava-Pava products
3% year-on-year.
of the year. At the same time, we remain
continued to win over consumers in 2019,
focused on soil quality and continue to use
delivering significant gains in popularity in
The Cherkizovo brand revamp
organic fertilizers. This helps us shift
Moscow and St Petersburg.
was one of the key developments
the crop rotation towards corn and soy,
in 2019. We upgraded the design
improving self-sufficiency in grain.
Given further sales upside potential in
of our sausages, improved the recipe
the Russian turkey market, the Company
and the product range. We expect
The highlight of the year was
and its Spanish partner are investing in
consumers to view these changes
the Company’s decision to build its own
production growth. In 2019, Cherkizovo
positively, leading to an increase in
soybean processing plant in the Lipetsk
Group and the Tambov region signed an
sausage sales, with the impact to be
Region. the facility is expected to cost
investment agreement aimed at boosting
seen by the end of Q1 2020.
RUB 7.2 billion (including VAT) and become
Tambov Turkey’s capacity by 50%
operational in 2022, its capacity should
to 82 thousand tonnes per year. We expect
In 2019, our state-of-the-art plant in
reach about 2.5 tonnes per day. With its
to launch the second stage of Tambov
Kashira reached design capacity. It is
own oilseed processing plant in place,
Turkey in 2021.
the most advanced smoked sausage
the Company will be able to procure
production facility in Russia and Europe,
cheaper poultry feed.
running a completely automated system
from raw material input to finished
product shipment. Going forward, we
plan to establish a meat processing
cluster in Kashira. Preparations are
under way to build a second plant
'Kashira 2' which will produce cooked
sausages. When the cluster is in place,
Cherkizovo Group will move most
of its sausage facilities to Kashira.
the implementation depends on our
sales growth trajectory and a broader
market environment.
44
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUP 1
RUB billion
in IT as we continued
to improve electronic
document management
160
RUB million
in environmental
performance enhancement
14%
decrease in LTIFR
and zero fatal accidents.
QUALITY ASSURANCE
At every stage of the production cycle,
OUTLOOK
We believe that Cherkizovo Group’s
Cherkizovo Group’s plans call for both
organic growth and M&A activity.
we are strongly committed to quality and
sales will be primarily driven by exports
biosafety. Cherkizovo Group maintains
in 2020. We may have a huge window
Our key competitive edge is still
rigorous biosecurity standards and seeks
of opportunity for overseas shipments
secured by vertical integration,
to improve its quality assurance system
if Russian pork is cleared for exports
diversified production, recognizable
in line with global best practices. In 2019,
to China. We are also interested in tapping
brands and consumer confidence.
we established a Quality Directorate that
into new markets in the Southeast Asia,
Moreover, the Group is a technology
brought together quality management
the Middle East and Africa. In early
leader in the Russian food industry.
functions across all divisions. the new
2020, we launched poultry shipments
We have been working hard to solidify
directorate will be the core of a centralized
to the United Arab Emirates for HoReCa
our lead and are confident that we will
quality management system, responsible
customers. Looking ahead, we expect
reach our long-term strategic goals.
for developing and implementing
to establish regular supplies of our halal-
improvement programs.
certified products to Saudi Arabia and
Looking back on the year, I would
Our production facilities meet the stringent
other Gulf countries.
like to acknowledge the contribution
of all Cherkizovo employees, from
standards and requirements of major
As regards the Russian market, we see
support staff to senior management.
global fast food chains. Two facilities have
upside potential in the growing demand
Our achievements result from the hard
been certified for compliance with Animal
for ready-to-cook and ready-to-eat
work of many people. I am sure even
Welfare standards that regulate humane
products. We are focusing on increasing
more far-reaching and high-potential
husbandry practices. Only five factories
sales of value-added products such as
initiatives lie ahead of us.
across Russia have been awarded
marinated ready-to-cook products, smoked
certification of this level.
sausages and ready-to-serve foods. Our
strategy calls not only for leadership in key
We apply cutting-edge technology in
meat categories, but also in high-margin
quality assurance processes. In 2019,
food segments.
Cherkizovo Group launched a far-reaching
digital platform designed to assess product
Increasingly more Russian consumers
quality in stores. Going forward, we will
eat out or order food from cafes and
continue to roll out the project based on
restaurants, according to recent research.
machine vision technology.
So we intend to strengthen our foothold
in the HoReCa segment by stepping up
cooperation with our existing partners and
new restaurant chain operators.
Sergey Mikhailov
CEO
www.cherkizovo.com
45
CHERKIZOVO GROUPCherkizovo unites
Market
environment
SUPPLY TRENDS
Every month Cherkizovo Group prepares
During 2019, the IMS Index increased by 2%. The main drivers were:
its Industrial Meat Supply (IMS) Index,
1. Growth in production costs
4. Opening of the Chinese market
based on statistics from Russia’s Federal
Pig and poultry production costs rose
State Statistic Service (Rosstat) and
primarily due to a 23% increase in the
for Russian poultry
After the first poultry shipment was
Federal Customs Service and the Eurasian
price of feed wheat. The concurrent
sent to China in late February 2019,
Economic Commission.
8% drop in the price of soybean meal
supplies began to gradually increase.
PRICES FOR GRAIN AND SOYBEAN
MEAL, RUB/t
2. Growth in pork production
turned positive year-on-year, and
in December, export volumes grew
could not offset this factor.
In June 2019, the export trend
Despite more ASF outbreaks, pork
1.5 times, reaching record values.
production in Russia (including farm
Throughout the year, shipments
households) grew by 5% in 2019, almost
increased by 28% (excluding chicken
maintaining the previous year's rate.
feet), which reduced pressure on
export positions (wings and thighs)
3. Changes in the structure of meat
in the domestic market.
imports by country
On 1 December 2017, the
5. Record wholesale prices
Federal Service for Veterinary and
Phytosanitary Surveillance of Russia
at the end of 2018
From late 2018 to early 2019, prices
(Rosselkhoznadzor) banned shipments
were at record highs in both wholesale
of pork and beef from Brazil due to
and retail channels. This and
the use of ractopamine (a blacklisted
a stagnation in real disposable income
growth promoter and a possible
among the population contributed
carcinogen) by Brazilian producers.
to a decrease in demand from end
In November 2018, the ban was
customers. The sustainedly high
lifted, and a positive trend for non-
prices led to a reduction in meat sales
n
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SOYBEAN MEAL
CIS imports was already observed
in volume terms, according to panel
in February 2019. In 2019, imports
research by GfK.
14,000
12 000
10,000
8 000
6,000
41.000
37 500
34,000
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27,000
2019
2018
Source: Institute for Agricultural Market Studies (IKAR)
from non-CIS countries rose by 41%,
boosting supply and pushing down
prices in the domestic market in the
first half of the year.
46
2 Annual report 2019
CHERKIZOVO GROUPAbout the Company Strategic ReportFinancial ResultsSustainable development Corporate governance The IMS Index describes the dynamics of supply trends and
meat consumption in Russia. The composite measure includes
individual poultry, pork and beef supply indices. It provides an
operational summary on the industry and is an indicator for
predicting future market developments.
COMPOSITE INDUSTRIAL MEAT
SUPPLY INDEX
CHANGES IN THE COMPOSITE
INDUSTRIAL MEAT SUPPLY INDEX
IN 2019 VS. 2018, %
800
750
700
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THE INDUSTRIAL MEAT SUPPLY
INDEX
CHANGES IN THE INDUSTRIAL
SUPPLY INDEX OF IN 2019 VS. 2018, %
420
400
380
360
325
300
275
250
100
80
60
POULTRY
4%
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e
D
PORK
18%
12%
6%
0%
n
a
J
b
e
F
r
a
M
r
p
A
y
a
M
n
u
J
l
u
J
g
u
A
p
e
S
t
c
O
v
o
N
c
e
D
n
a
J
b
e
F
r
a
M
r
p
A
y
a
M
n
u
J
l
u
J
g
u
A
p
e
S
t
c
O
v
o
N
c
e
D
BEEF
8%
0%
-8%
-16%
n
a
J
b
e
F
r
a
M
r
p
A
y
a
M
n
u
J
l
u
J
g
u
A
p
e
S
t
c
O
v
o
N
c
e
D
n
a
J
b
e
F
r
a
M
r
p
A
y
a
M
n
u
J
l
u
J
g
u
A
p
e
S
t
c
O
v
o
N
c
e
D
Source: Rosstat, FCS, EEC
In 2019, the Industrial Meat Supply
Index of poultry was flat compared
with 2018. The measure includes
both turkey and chicken. According to
Cherkizovo's estimates, turkey production
grew slightly due to the increased production
at Damate, while chicken meat volumes
remained at the same level as in 2018.
Another reason for supply stagnation was the
active export of wings and quarters to China
in the second half of the year.
In 2019, the Industrial Meat Supply
Index of pork grew by 7%. The trend
had been maintained since 2018. The main
driver of pork supply throughout the year was
growing production among farm businesses
(up 7%). The difference between production
and supply can be explained by a decline
in imports and an increase in exports.
According to our estimates, in 2020 the Index
will continue to grow as large companies eye
more production gains.
In 2019, the Industrial Meat Supply
Index of beef lost 4% compared with
2018. Despite the fact that beef production
increased by 0.8% over the year, supply
shrank due to a fall in imports from non-CIS
countries and Belarus. The reduction of
shipments from Belarus was associated with
the Rosselkhoznadzor ban on the import
of bone-in beef to Russia from countries
that do not have official disease status from
the World Organization for Animal Health,
(effective from April to November 2019).
www.cherkizovo.com
47
CHERKIZOVO GROUPCherkizovo unites №1
Cherkizovo in the
Russian market
of meat products
REAL DISPOSABLE INCOME, %
CHANGES IN FOOD PRICES IN 2019,
%
10
0
-10
-20
2Q’18
3Q’18
4Q’18
2Q’19
3Q’19
4Q’19
Source: Rosstat
Market
environment
DEMAND TRENDS
In 2019, for the first time in a long period,
real disposable income increased slightly
(up 0.8%). According to Bloomberg, GDP
grew by 1.3%, and household consumption
added 2.5%. Retail prices for pork and
chicken meat gained 4% and 10%,
respectively.
In 2019, many food products went
up in price, particularly due to the increase
in VAT from 18% to 20%. The upswing
in chicken meat prices for consumers can
be explained by the high level of wholesale
prices for whole chickens since the end
of 2018, which contributed to higher
purchase prices for retail chains.
CHANGE IN GDP AND IN REAL INCOME OF THE POPULATION Y-O-Y, %
4
2
0
-2
1Q’19
2Q’19
3Q’19
4Q’19
4
2
0
-2
2015
2016
2017
2018
2019
GDP
REAL INCOME OF THE POPULATION
RETAIL PRICES FOR PORK AND CHICKEN MEAT, RUB/kg (incl. VAT)
280
270
260
250
n
a
J
b
e
F
r
a
M
r
p
A
y
a
M
n
u
J
l
u
J
g
u
A
p
e
S
t
c
O
v
o
N
c
e
D
160
140
120
n
a
J
b
e
F
r
a
M
r
p
A
y
a
M
n
u
J
l
u
J
g
u
A
p
e
S
t
c
O
v
o
N
c
e
D
PORK
CHICKEN MEAT
2019
2018
Source: Rosstat
2019
2018
48
Prices for certain types
of products, y-o-y
Chickens
(chilled and frozen)
Pasta
Tomatoes
Cheese
Chicken quarters
Bread
Chicken eggs,
10 pack
Bananas
Boiled sausages
Canned meat, 350 g
Fish
(fresh and chilled)
Hot dogs,
Wiener sausages
Milk
Cucumbers
Beef
(excl. boneless meat)
Buckwheat
Pork
(excl. boneless meat)
Ground meat
Sunflower oil
2019 vs. 2018
10%
10%
10%
9%
9%
9%
8%
8%
7%
7%
7%
7%
6%
6%
5%
4%
4%
4%
0%
-1%
-1%
Potatoes
Apples
2 Annual report 2019
CHERKIZOVO GROUPAbout the Company Strategic ReportFinancial ResultsSustainable development Corporate governance
CHERKIZOVO GROUP'S RANKING
RUSSIAN MARKET IN 2019
IN INDUSTRY RATINGS
Cherkizovo Group is the leading
meat producer in Russia, with
a share of 6.8% * . In 2019, the
Company strengthened its leading
position in broiler production,
increasing its share in total output
by 2.3 p.p. to 12.4%. The growth was
attributable to the newly acquired
Altaisky Broiler and Belaya Ptitsa's
assets in the Kursk Region.
Cherkizovo Group remained Russia’s
second largest pork producer.
The launch of new pig production
facilities in the Penza Region allowed
Cherkizovo to narrow the gap with
the leader of the ranking and increase
its share by 0.4 p.p. to 6.5%.
The Group moved into
second place in the
ranking of turkey
producers, having
secured a 14.2%
share of total
output. The main
driver was Eurodon's
exit from the market.
POULTRY
59.7%
12.4%
10.4%
7.3%
5.6%
4.6%
PORK
66,4%
9,8%
6,6%
6,1%
5,6%
5,5%
thousand tonnes
thousand tonnes
Cherkizovo
Resource
Prioskolie
Tkachev Agrocomplex
BEZRK-Belgrankorm
Other
766
645
452
346
287
3,702
Miratorg
Cherkizovo
Velikoluksky
Rusagro
Agrarnaya Gruppa
Other
427
286
267
243
242
2,897
TURKEY **
PROCESSED MEAT
22.2%
45.5%
4.2%
6.6%
7.3%
14.2%
288
thousand tonnes
54.7%
14.4%
11.2%
7.9%
6.4%
5.4%
Damate
Cherkizovo
Krasnobor
Morozovskaya
Eurodon
Other
thousand tonnes
131
41
21
19
12
64
Share in 2019
14.4
11.2
7.9
6.4
5.4
Ostankino
ABI GROUP
Talina
Cherkizovo
Velikoluksky
Other
Change
0.4 p.p.
2.2 p.p.
(0.7) p.p.
(0.8) p.p.
1.2 p.p.
(2.3) p.p.
* Based on Rosstat's cattle, poultry and pork production data (incl. farm households) for 2018, as well as on the Agroinvestor ranking for 2018.
** Slaughter weight.
www.cherkizovo.com
49
6,198 thousand tonnes4,362 thousand tonnesCHERKIZOVO GROUPCherkizovo unites
Our Strategy
Strategic Factors
COMPANY
SOCIETY'S EXPECTATIONS
Cherkizovo Group is the
largest vertically
integrated consumer-
driven meat producer
in Russia. The Company
produces high quality and
healthy products, focusing
primarily on fulfilling the
customers' demands and
high expectations.
We use the most advanced
technologies in production
and process management.
The Group ensures that
its facilities follow the lean
manufacturing standards
and that they comply with
all necessary regulations
regarding biosecurity.
Food security program and export
development
Cherkizovo invests heavily in the
Changing patterns of consumption
The new generations of young people tend
to spend less time cooking at home than
their older counterparts. This has led to a
growth in the popularity of ready-to-cook
development of the agriculture, providing
and ready-to-serve meals. In comparison
food security for the Russian people.
with the older generation, young people
After achieving self-sufficiency in terms
place more emphasis on the convenience
of producing different types of meat,
and quality of these products. Another
the next step in developing Russia’s
increasingly important criterion that young
agricultural industry was increasing its
people consider when choosing their
exports. The Company began scaling
products is “sustainability”. This category
up exports to countries in The Middle
includes: a responsible production
East, Asia and CIS.
process, no violations in the supply chain,
environmental footprint, etc...
A healthy way of life
Nowadays, more and more people are
Cherkizovo Group understands these new
becoming interested in living a healthy
consumption patterns and, in response,
life. The majority of Russian consumers
is developing ranges of ready-to-cook
are now thinking about what they eat and
and ready-to-serve meals. The use of
drink and the impact it has on their health.
smaller, more convenient packaging
According to research conducted by
RIA-Rating * , citizens of Moscow and Saint-
Petersburg are now paying more attention
will lead to an increase in consumption
waste. The Company sees this challenge
and, together with partners, is working
to their lifestyle choices than in the
to resolve it.
previous year. Given the increasing trend
towards healthy living, Cherkizovo Group
has been developing its range of healthy
Humane treatment of animals
Across the entire world, there is a growing
eating products. Special labels enable
interest in animal welfare. This is reflected
customers to pick up the Company’s
in Russia, where more and more consumers
products that have special dietary
are paying attention to the conditions
characteristics and contain no artificial
in which animals are kept. Cherkizovo
additives.
is committed to ensuring the humane
treatment of animals across all of its sites.
Company staff even received training
in the animal welfare program.
* RIA-Rating published its 2018 survey, demonstrating
which regions of Russia are more committed
to living a healthy lifestylehttps://riarating.ru/
infografika/20191001/630135852.html.
50
2 Annual report 2019
CHERKIZOVO GROUPAbout the Company Strategic ReportFinancial ResultsSustainable development Corporate governance Challenges and Opportunities
Meat exports
Exports represent a potentially promising
area of development for Cherkizovo
Group. In 2019, the Company managed
to dramatically increase its exports,
with poultry exports specifically rising
by 131%. One of the main factors for
such a drastic increase in exports was
the expansion into the Chinese market
in 2019. In addition to this, Cherkizovo
continues to supply halal products
to countries in the Middle East.
In the future, the Company will continue
to ramp up exports and expand its range
of exported goods. The sanctioning of
pork exports from Russia to China will
present a remarkable opportunity for the
Group, if ongoing negotiations between
the two governments reach a desired
conclusion.
Climate change
Climate change could aggravate
unpredictable weather patterns and,
in particular, lead to more frequent
extreme weather conditions. This will
cause crop cultivation and harvest
to become more unpredictable, having
a negative impact on the cost of
production and price of animal feed.
Changes to the epizootic environment
Changes to either the international
or domestic epizootic environment can
dramatically affect the production and
cost of meat products. Cherkizovo Group
carefully maintains rigorous biosecurity
standards across all its facilities and
provides the maximum level of protection
against the spread of disease.
SUSTAINABLE DEVELOPMENT
Cherkizovo group recognises its
responsibilities to a wide range
of stakeholders, including consumers,
employees, local communities, investors
and many more. The Group is working
on sustainable business development
by building relationships and partnerships
with all stakeholders.
Our Mission
Food production
is not just our
business – making
the best meat
products in the country
is our passion
and mission.
www.cherkizovo.com
51
CHERKIZOVO GROUPCherkizovo unites Our Strategy
STRATEGIC PILLARS
Cherkizovo Group’s
strategy is focused around
the sustainable business
development, maintaining
its financial growth and
securing its position
as the meat market leader.
The Company is nearing the
completion of its investment
phase, and will turn its focus
to R&D, developing consumer
brands, expanding its range
of ready-to-cook and ready-
to-serve meals, boosting
exports and its food service
channel.
STRATEGIC GOALS
Segments
Strategic
goals
grain
turkey
pork
poultry
meat Processing
•
Increasing grain yields
• Becoming one of the two main players
•
Increasing productivity
• Becoming the Russian poultry
• Developing Cherkizovo brand
• Providing
40-60%
of own animal feed
in the turkey market
• Developing the Pava-Pava brand
• Growing the business by expanding
production capabilities
2019
investment
• Fulfilled the 2019 land amelioration
• Began the construction of the second
programme
phase of Tambov Turkey.
• Constructed five new nursery and
• Began selling Petelinka
finisher sites in the Penza Region
in the Siberian Federal District
•
Increased the share of soy and corn
used in crop rotation
• Released four new high value-added
products.
2020
and medium
term plans
• A project to improve productivity will
be piloted in 2020. Based on its results,
a decision will be taken regarding
its roll-out
• Ensuring the second phase of Tambov
turkey is operational by 2021 and
increasing output by
• Corn and soy will become
the main crops
• The construction of an oil
extraction plant
50%
• Releasing new high value-added
products, in particular, in the food
service segment
• Further expansion of production
capacities
Expected
results
• The boost in productivity and new oil
extraction plant will reduce the cost
of animal feed, mitigate FX risks and
decrease the cost of production
• An increase in production will allow
us to expand our sales into new
regions and increase our market
share
• New sites and more productive
• By expanding our production
• The expansion of sales will allow us
breeds will allow us to increase
capacities, we can increase our
to increase our market share and
the amount we produce
sales in the Siberian Federal District.
consolidate our brand
• Launching two new nursery and
• Ramped up production at Altaisky
• Achieving a higher level of profitability
finisher sites in the Penza Region
Broiler to
than the industry average
• Developing the Petelinka and Kurinoe
of meat production
• Technological leadership in terms
market leader
Tsarstvo brands
• Growth driven by M&A deals
•
Increased exports
• Acquired Rovensky Broiler
• 2019 saw the installation of new
production equipment, such as
a bacon slicing line and a sausage
packaging machine, allowing us
to produce new types of products.
• Ensuring our fully automated Kashira-1
is running at full capacity.
100 000
tonnes
segment
• Development of the food service
• Extending our key product range.
• Developing new product categories
•
Increasing exports to the Middle East,
CIS and China
•
Increasing exports.
• Expanding sales across Russia.
• Developing the food service segment
• Developing new product categories.
Atlaisky Broiler will become the most
suitable site for exports to China.
• By taking the Company into new
areas and increasing exports, we can
diversify our business and mitigate
the FX risks.
52
2 Annual report 2019
CHERKIZOVO GROUPAbout the Company Strategic ReportFinancial ResultsSustainable development Corporate governance Key Elements of Cherkizovo’s Strategy
1
Strengthening its
leadership in the
meat market
2
Strengthen
leadership as a
supplier of branded
meat products to
Russian retailers
3
4
Development
of new sales
channels – food
service and export
Increase the
share of sales
of high value-added
products up to 80%.
5
6
Development
of core brands
Sustainable
financial growth
Segments
Strategic
goals
grain
turkey
pork
poultry
meat Processing
•
Increasing grain yields
• Becoming one of the two main players
•
Increasing productivity
• Becoming the Russian poultry
• Developing Cherkizovo brand
• Providing
40-60%
of own animal feed
in the turkey market
• Developing the Pava-Pava brand
• Growing the business by expanding
production capabilities
market leader
• Technological leadership in terms
• Developing the Petelinka and Kurinoe
of meat production
Tsarstvo brands
• Growth driven by M&A deals
2019
investment
programme
• Fulfilled the 2019 land amelioration
• Began the construction of the second
phase of Tambov Turkey.
• Constructed five new nursery and
finisher sites in the Penza Region
• Began selling Petelinka
in the Siberian Federal District
•
Increased the share of soy and corn
• Released four new high value-added
used in crop rotation
products.
•
Increased exports
• Acquired Rovensky Broiler
• 2019 saw the installation of new
production equipment, such as
a bacon slicing line and a sausage
packaging machine, allowing us
to produce new types of products.
2020
and medium
term plans
• A project to improve productivity will
• Ensuring the second phase of Tambov
be piloted in 2020. Based on its results,
turkey is operational by 2021 and
a decision will be taken regarding
increasing output by
• Launching two new nursery and
finisher sites in the Penza Region
its roll-out
• Corn and soy will become
the main crops
• The construction of an oil
extraction plant
50%
• Releasing new high value-added
products, in particular, in the food
service segment
• Further expansion of production
capacities
Expected
results
• The boost in productivity and new oil
• An increase in production will allow
extraction plant will reduce the cost
us to expand our sales into new
of animal feed, mitigate FX risks and
regions and increase our market
decrease the cost of production
share
• New sites and more productive
breeds will allow us to increase
the amount we produce
• Ramped up production at Altaisky
• Achieving a higher level of profitability
Broiler to
100 000
tonnes
• Development of the food service
segment
• Developing new product categories
than the industry average
• Ensuring our fully automated Kashira-1
is running at full capacity.
• Extending our key product range.
• Expanding sales across Russia.
• Developing the food service segment
•
Increasing exports to the Middle East,
CIS and China
•
Increasing exports.
• Developing new product categories.
• The expansion of sales will allow us
to increase our market share and
consolidate our brand
• By expanding our production
capacities, we can increase our
sales in the Siberian Federal District.
Atlaisky Broiler will become the most
suitable site for exports to China.
• By taking the Company into new
areas and increasing exports, we can
diversify our business and mitigate
the FX risks.
www.cherkizovo.com
53
CHERKIZOVO GROUPCherkizovo unites Business
model
Operating chart
grain
593
thousand tonnes
Grain
300
thousand ha
Total land bank
feed
2,2
mln tonnes
Feed
9
feed mills
meat production
poultry
pork
turkey
Fertilizers
663
thousand tonnes
9
poultry farms
275
thousand tonnes
21
combined
nursery and finisher
sites
39
thousand tonnes
1
turkey JV
54
54
2 Annual report 2019
CHERKIZOVO GROUPAbout the Company Strategic ReportFinancial ResultsSustainable development Corporate governance Cherkizovo Group uses
a vertically integrated
business model.
Our vertically integrated business model offers
the following advantages:
• control throughout the production cycle,
• adaptability to market conditions,
• economies of scale,
• quality excellence.
RETAIL
HORECA
EXPORT
63%
5%
share of sales
share of sales
EXTERNAL SALES
meat Processing
5%
share of sales
246
thousand tonnes
8
plants
www.cherkizovo.com
55
55
CHERKIZOVO GROUPCherkizovo unites Business
model
Resources
Investment in expansion and
modernization of production
facilities
8,6
RUB billion
of CAPEX in 2019
5
new production facilities
launched in 2019
Performance
Key acquisitions in 2019:
International certificates
Efficient logistics
Highly qualified employees
Procurement
R&D:
Quality control system
Rovensky Broiler
+13
thousand ha
land bank
HACCP
GOST R ISO 9001 –
2008 (ISO 9001)
Food Safety System
Certification
170
thousand orders
shipped every month
28
thousand
employees
52
RUB billion
worth of products
was procured in 2019,
96% - from the local
suppliers
Own R&D center
1,500
sq m of unique laboratory
>500
employees
|facilities
in a quality control system
1,000 complex tests
Sustainable growth underpinned
by strong financial position
Marketing research, consumer
opinion polls
High-quality, tasty
and healthy foods
Dividends
Youth programs
Environmental impact
Benefits for local communities
120.1
RUB billion
Revenue
20.6
RUB billion
EBITDA
17.2%
EBITDA margin
2.97
Net debt / EBITDA
56
56
High level of key brand
awareness in Russia:
51%
Petelinka
74%
Cherkizovo
75%
Pava-Pava *
* For Pava-Pava, brand awareness
is shown for Moscow and
St. Petersburg.
32
new chicken products
4
new turkey products
Rebranding Cherkizovo
Recognition of high-quality
products, including the
certification of Petelinka and
Pava-Pava with the Russian
quality mark
Total dividends per share based
on the 2019 results:
109.71
RUB
including:
• RUB 48.79 per share
of interim dividends
announced in August 2019
• RUB 60.92 per share
of dividends for 2019
recommended by the Board
of Directors for approval
by the General Meeting
of Shareholders.
2 Annual report 2019
Dual education programs at
protection projects
projects to support vulnerable social groups:
Invested in environmental
The Group regularly runs various sponsorship and charitable
4
universities
512.4
RUB million
12.8
RUB million
spent on charitable projects
119
students are covered
since 2017
7.4
million tonnes
of waste generated,
of which 48% recycled
CHERKIZOVO GROUPAbout the Company Strategic ReportFinancial ResultsSustainable development Corporate governance
In 2019, our business model proved
its resilience and efficiency.
Despite lower pork prices in 2H 2019,
the Group delivered a strong performance.
Key acquisitions in 2019:
International certificates
Efficient logistics
Highly qualified employees
Procurement
R&D:
Quality control system
Rovensky Broiler
+13
thousand ha
land bank
HACCP
GOST R ISO 9001 –
2008 (ISO 9001)
Food Safety System
Certification
170
thousand orders
shipped every month
28
thousand
employees
52
RUB billion
worth of products
was procured in 2019,
96% - from the local
suppliers
Own R&D center
1,500
sq m of unique laboratory
|facilities
1,000 complex tests
>500
employees
in a quality control system
Sustainable growth underpinned
Marketing research, consumer
High-quality, tasty
Dividends
Youth programs
Environmental impact
Benefits for local communities
by strong financial position
opinion polls
and healthy foods
High level of key brand
awareness in Russia:
Dual education programs at
Invested in environmental
protection projects
The Group regularly runs various sponsorship and charitable
projects to support vulnerable social groups:
4
universities
119
students are covered
since 2017
512.4
RUB million
12.8
RUB million
spent on charitable projects
7.4
million tonnes
of waste generated,
of which 48% recycled
32
new chicken products
4
new turkey products
Rebranding Cherkizovo
Total dividends per share based
on the 2019 results:
109.71
RUB
including:
• RUB 48.79 per share
of interim dividends
announced in August 2019
• RUB 60.92 per share
of dividends for 2019
recommended by the Board
of Directors for approval
by the General Meeting
Recognition of high-quality
of Shareholders.
products, including the
certification of Petelinka and
Pava-Pava with the Russian
quality mark
* For Pava-Pava, brand awareness
is shown for Moscow and
St. Petersburg.
www.cherkizovo.com
57
57
Investment in expansion and
modernization of production
facilities
8,6
RUB billion
of CAPEX in 2019
5
new production facilities
launched in 2019
120.1
RUB billion
Revenue
20.6
RUB billion
EBITDA
17.2%
EBITDA margin
2.97
Net debt / EBITDA
CHERKIZOVO GROUPCherkizovo unites
Supply
chain
PROCUREMENT
Cherkizovo Group carries out purchases
The requirements of the Charter
extend to all of the Group's suppliers.
LOGISTICS
Cherkizovo uses an efficient logistics
in accordance with all relevant Russian
If it becomes known that a supplier has
system to move animals and animal feed
legislation. In addition, the Company
stopped complying with the necessary
between the Group's facilities and to
participates in industry initiatives
requirements, the Company ceases to
deliver products to customers. On average,
aimed at increasing transparency in
work with them.
the agricultural market. The Company
711 trucks are involved in delivery per day,
20% of which are owned by the Company.
is a member of the Association of Bona Fide
To ensure the transparency and
The Group operates 30 warehouses, 16 of
Agricultural Producers and is a signatory to
competitiveness of its procurement
which are owned by Cherkizovo. The Group
the Agricultural Charter regulating the trade
procedures, Cherkizovo Group has
processes about 170 thousand orders
in agricultural products.
switched its procurement activities to the
monthly, which corresponds to more than
TABLE SUPPLIER STRUCTURE, %
Tender.pro electronic trading platform.
100 thousand tonnes of transported cargo.
In 2019, all sectors of the Group started
GRAINS
using the platform for procurement. During
Together with its partners, the Group is
100
0
100
0
100
0
99
1
94
6
89
11
100
0
VEGETABLE PROTEIN SUPPLEMENTS
OILS & FATS
VETERINARY
PACKAGING
FINISHED GOODS INGREDIENTS
(MEAT, SPICES, ETC)
SEEDS, CROP PROTECTION
AND FERTILIZERS
Russian
Non-Russian
58
the last year, the Company held more than
working to optimize transportation costs.
7 thousand tenders, a 2.5 times increase
In particular, large containers are used for
compared to the previous year.
transportation internally within the Group,
which reduces the use of packaging
Cherkizovo Group has a centralized
materials and the environmental impact.
procurement function in place. This
is a complementary system where
procurement is broken down by category
Grain segment
The Group’s vertically integrated supply
and geographical location. The company
chain starts with the Grain segment.
seeks to work with local suppliers, small
The Group purchases seeds, fertilizers and
and medium businesses. Specifically,
crop protection products in accordance
the Group has established a system for
with its production plans. The majority
purchasing grain from regional producers.
of the harvest is used for the production
Cherkizovo's specialists find local
of feed for the Group's livestock farms.
suppliers, assess the quality of goods
and organize deliveries to the Company's
Our mills source feed ingredients both
facilities. In 2019, 35% of all grain was
within the Group and from third-party
purchased in this way.
suppliers. The purchases mostly include
All suppliers of the
Group are checked for
compliance with the
requirements of the
Agricultural Charter.
soybean meal, grain and oils.
52
RUB billion
worth of products
procured in 2019
2 Annual report 2019
CHERKIZOVO GROUPAbout the Company Strategic ReportFinancial ResultsSustainable development Corporate governance The Cherkizovo Group has built an efficient
supply chain in line with international best
practice that enables us to deliver our products
to the shop shelves as quickly as possible. Its
smooth operation is ensured by a team of highly
qualified experts with extensive experience
working in leading international FMCG companies.
Poultry and Pork segments and
the Tambov Turkey joint venture
We use our own vehicle fleet to transport
animals and products between the
Company's facilities. This is an important
Our poultry and pork facilities procure
factor in ensuring biosafety. In 2019,
feed and other resources necessary for
the Group owned 1,466 vehicles.
animal breeding.
Transportation is closely monitored
The Company sells its farmed pigs
and controlled by veterinarians, which
in the form of livestock (in 2019, this
eliminates the risk of biological threats
share was 15%). In the Pork segment,
spreading along the supply chain.
animals are first delivered to slaughter
In addition, the Company makes sure that
facilities in Penza and Dankov. A part
the transportation of animals is humane,
of pork carcasses is then sold to third
so that they do not suffer injuries during
parties, while the remaining portion
transportation.
is shipped to the Group's meat
processing plants. The Group seeks
to increase the share of pork supplied
SALES
Cherkizovo Group is a leading market
to in-house production facilities.
player selling chicken, turkey and
In 2019, Cherkizovo
Group successfully
integrated Altaisky
Broiler into its
procurement and logistics
system. All the business’
grain is purchased from
local suppliers. All other
supplies were sourced
from proven Cherkizovo
suppliers.
processed meat products to customers
SUPPLY CHAIN
In the Poultry segment, including the
across Russia. For major orders, we
Tambov Turkey joint venture, birds are
make direct deliveries straight from our
delivered to slaughter facilities, where
meat processing plants. Smaller orders
they are processed and then sold to
are packed in the BICOM distribution
retailers. The company balances seasonal
centre in Moscow and in the Company's
fluctuations in demand for its products
subsidiaries in St. Petersburg, Krasnodar,
using its freezing facilities.
Yekaterinburg, Ulyanovsk and Penza.
Meat Processing segment
The Meat Processing segment is the
In 2019, the Company implemented
shipments based on the SAP system in
final element of our supply chain.
all warehouses, and also implemented
It involves the production of finished
system SAP EWM (Extended Warehouse
products, including sausages and ready-
Management).
to-cook items, from the components
produced by our animal breeding
segments. The meat processing
products are supplied to retailers (mainly
nationwide chains) and other customers.
OUR VEHICLE FLEET
For more sales information see page 84.
DEVELOPMENT PLANS
Cherkizovo Group continues to
improve the logistics function and
supply chain processes through
better planning and automation.
The Company reduces logistics costs
by organizing joint shipments for its
segments, by improving transport
utilization and leveraging advanced
warehouse management systems.
As always, the function's primary
focus is on ensuring on-shelf product
availability, optimized costs, food safety,
including cold chain management, and
workforce safety and security.
The Company also plans to increase
procurement from local suppliers.
In particular, we aim to increase the
share of grain purchased from local
producers to 50% of total procurement
volume.
www.cherkizovo.com
59
CHERKIZOVO GROUPCherkizovo unites
Investment
Program
Cherkizovo Group is continuing to run its
Apart from production facilities, the Group
major investment program for business
invests in company-wide IT and personnel
SHARE OF INVESTMENTS
IN MAIN SEGMENTS, %
development, including projects to build
development projects. In 2019, the
new production capacities, improve
Company rolled out SAP HR software at
operational performance, and ensure
six of the Group’s companies. The rest are
proper biosafety and high product quality.
scheduled to receive it in 2020. With SAP
HR, we are seeking to ensure centralized
Our key projects focus on Moscow,
human capital management throughout
the Altai Territory, and the Moscow,
the Group and store information on all
Lipetsk, Penza, and Tambov regions.
employees a shared database. In another
The program’s top priority is to increase
major project, we deployed SAP Extended
the output of branded and high value-
Warehouse Management (SAP EWM)
added products, and boost operational
for better warehouse forecasting,
efficiency.
streamlined product delivery, and supply
volume optimization.
The automated meat processing plant
in Kashira marks a milestone for the
The Company is investing heavily in
Group and Russia’s meat industry
its vehicle fleet, including leasing new
as a whole.
and replacing old vehicles. In 2019, we
purchased new agricultural machinery,
In 2019, the Group's investment cycle
feed trucks, and animal transporters.
for the new production facilities was at
Around RUB 0.6 billion was invested.
its final stage, thus reducing the total
spending from RUB 10.6 billion to RUB
Our investment program relies on the
8.6 billion.
Group’s own resources and borrowings.
8.6
RUB billion
total volume
investments
9.0%
21.6%
12.9%
8.4%
15.5%
32.5%
Poultry
Meat processing
Pork
Feed
Grain
Other
%
21.6
15.5
32.5
8.4
12.9
9.0
2019 HIGHLIGHTS
Pork
Four nursery and finisher sites built in the Penza Region, marking
the end of another production ramp-up cycle in the Pork segment
Tambov Turkey
JV
An expansion project launched to ramp up the capacity by 50%
to 82 thousand tonnes from 2021
Meat processing
New bacon and sausage slicing and hot-dog packaging lines
commissioned
Poultry
Investments in the acquired assets.
60
Investments in production projects by
segment are described in the operating
results sections on page 64.
Information on personnel development
projects is provided on page 114.
2 Annual report 2019
CHERKIZOVO GROUPAbout the Company Strategic ReportFinancial ResultsSustainable development Corporate governance
Quality
Management System
Cherkizovo Group is committed to
delivering high-quality, competitive
products on par with the best international
standards to meet the highest requirements
2019 HIGHLIGHTS
and expectations of our customers and
consumers and ensure achievement of
Quality Management System
In 2019, Cherkizovo Group developed
Animal Welfare
The Company underwent production
the Company’s strategic goals. In 2019, we
a comprehensive quality management
certification according to McDonald’s
established a centralized Quality Directorate
KPI framework covering the Company’s
standards and became one of Russia’s first
to oversee compliance with the Group’s
operations from farm to fork across all
meat producers to be certified against the
quality policy. It has brought together
segments. We enhanced our supplier
Animal Welfare standards. Currently, only
the quality management functions of the
management system in line with the
five production facilities in Russia, including
following departments:
best global practices by introducing
two owned by Cherkizovo, are Animal
a risk-oriented approach. The Company
Welfare-certified. Designed to improve
• pork slaughtering and processing,
launched a process to handle supply
meat quality, these standards cover animal
inadequacies in the Meat Processing
treatment practices at every stage from
• poultry and turkey slaughtering
segment and at Tambov Turkey. Starting
farm to processing. The certification is
and processing,
from Q1 2020, it will be extended to the
mandatory for major global companies and
•
feed mills and grain elevators,
our risk-oriented approach to introduce
Poultry segment. In 2020, we plan to use
fast food chains.
• centralized certification
and standardisation.
quality control for incoming supplies.
Our employees received extensive training
in Animal Welfare and completed the Bristol
In 2019, we started a project to improve
Animal Welfare Assurance Program. The
the quality of our logistic processes.
courses were attended by 100 employees
The Directorate is also responsible for
During the first stage, we introduced
and managers from the Poultry segment.
drafting methodologies and creating
centralized temperature monitoring in
a centralized quality management system,
warehouse logistics and invested further
as well as developing and implementing
to enhance our cold chain.
quality improvement programs.
Cherkizovo Lab is also involved in the
In the reporting year, Cherkizovo also
Directorate's activities.
launched a large-scale project to assess
product quality in stores with the help of
The Directorate’s management
the Chicago digital platform. In 2020, we
framework capitalizes on the expertise
plan to pilot machine vision for quality
of international majors while also paying
control at production lines.
attention to the business structure and
legacy of Cherkizovo Group.
.
≈100
employees and managers
from the Poultry segment
received training
under the standard
Animal Welfare
www.cherkizovo.com
61
CHERKIZOVO GROUPCherkizovo unites
Quality
Management
System
Laboratories
Following the creation of the centralized
Certificates
Our main achievement in the reporting
Personnel
Our employees are key to delivering
Quality Directorate, the Company
year was successful certification by
superior product quality. At Cherkizovo
relaunched its network of local
food industry giants – KFC, McDonald’s,
Group, each employee is responsible
laboratories under the auspices of
Burger King, and Cargill – which have very
for ensuring product quality and
Cherkizovo Lab. This will expand the list
stringent requirements for all production
safety while also playing an active role
of available tests in 2020 and significantly
processes, including the humane
in supporting and continuously improving
reduce the associated costs, as well as
treatment of animals.
the waiting time for test results. Moreover,
the Company’s quality and food safety
management systems. In 2020, we
local laboratories can now also contribute
All of the Poultry segments and Tambov
plan to continue enhancing our quality
actively to projects aimed at improving
Turkey's slaughterhouses are certified
management system. We are looking
cultivation and processing across the
against FSSC 22000:2011.
to further reorganize and strengthen our
Company’s assets. Cherkizovsky Meat
team and improve the expertise of our
Processing Plant’s laboratory confirmed
In 2019, new Group assets were certified
existing personnel. The Company will
its certification under GOST R / ISO
to the standard, including the facilities
place major emphasis on promoting
17025. The lab’s equipment and staff
in Belgorod and Kursk, as well as the
a production quality culture and
competence received high marks from
automated plant in Kashira. On top of
employee training. Our continued
external auditors
that, all of our meat processing plants
focus on enhancing the safety and
are certified under GOST R ISO 9001 –
quality assurance system should take
2008 (ISO 9001).
the Company to the next level.
The Vasilyevskaya poultry farm has
In November 2019, the Group held its
been repeatedly confirming its halal
first Quality Day, with events taking place
certification.
at 19 sites across 10 regions, as well as
the Company’s offices. Over 2,000 people
took part in the Quality Day.
>500
people
work in the Quality Assurance
ranging from supervisors and lab assistants
to managers аs at the end of 2019
62
2 Annual report 2019
CHERKIZOVO GROUPAbout the Company Strategic ReportFinancial ResultsSustainable development Corporate governance Elements of the Quality Management System
Element
Description
Hazard Analysis and Critical
Control Points (HACCP)
Good Manufacturing
Practice (GMP)
Food Safety System
Certification (FSSC)
HACCP is a systematic preventive approach to ensuring food safety
and addressing biological, chemical and physical hazards in production
processes. It has been implemented across the Group’s production
facilities.
Our production processes comply with good manufacturing practices.
Our effective management structure provides for development of robust
food safety systems as part of the overall effort to ensure product quality
and food safety.
Animal Welfare (Humane
Husbandry)
These standards require compliance with five principles of humane
treatment of farm animals and birds throughout their life, helping reduce
loss rates and meet the requirements of global FMCG companies.
Mercury, a government
system for electronic
certification of animal
products
Laboratory control
Cherkizovo Group has successfully implemented the system across its
supply chain.
All stages of the production process feature laboratory studies on an
ongoing basis to ensure regulatory compliance. In addition to mandatory
control procedures, the Company uses voluntary product control
methods, including at Cherkizovo Lab.
Employee training
The Company offers its employees regular in-person and online training
sessions in food safety and quality standards.
Requirements for suppliers
Consumer feedback
All new and current suppliers are required to undergo regular evaluation
for regulatory compliance and ability to supply products meeting the
quality and food safety requirements.
We have implemented an efficient consumer feedback management
system. All complaints and requests are promptly reviewed by the quality
management functions at our production facilities. We regularly monitor
actions taken to address consumer complaints.
Quality culture
We make sure that employees realize the importance of quality assurance
in their work. Quality is everyone’s responsibility.
www.cherkizovo.com
63
CHERKIZOVO GROUPCherkizovo unites MEAT PROCESSING
POULTRY
PORK
TURKEY
GRAIN
FEED
Poultry
2019 PERFORMANCE
The Poultry segment showed robust
EFFICIENCY IMPROVEMENT
Ensuring uninterrupted business was
FINISHED PRODUCT SALES,
thousand tonnes
growth in 2019, with sales gaining 22%
a key efficiency priority for Cherkizovo in
to reach 663 thousand tonnes vs. 544
2019. Around 80% of our reproduction
thousand tonnes in 2018 thanks to the
and rearing facilities received backup
assets acquired late into the year and
power sources, with the remaining 20%
2019
2018
2017
efficiency improvement initiatives.
to follow suit in 2020.
The average sales price increased by 9%
Automated outage notifications are now
to RUB 105.98 per kg, driven by a larger
available throughout the segment thanks
share of higher value-added products.
to the newly installed control systems.
REVENUE FROM FINISHED
PRODUCT SALES, RUB bln
In the reporting year, the Company
continued standardizing technology
processes across its sites. Standard
operating procedures were outlined fully
for the Poultry segment, and a distance
learning system was made available for
its on-site employees.
2019
2018
2017
AVERAGE SALES PRICE, RUB/kg
The Group continued concentrating
its efforts on high product quality,
with the Poultry segment focusing on
poultry weight improvement, production
efficiency, and genetic changes in
crossbreds.
2019
2018
2017
106.0
96.9
88.8
OPERATIONAL PERFORMANCE, t
Indicator
Сhicks per hen housed
Hatchability, %
Broilers days on feed
Feed conversion rate (FCR)
Yield, %
Livability, %
Live weight, gr
64
64
2017
118
2018
111
2019
19/18, %
117
3.6%
78.0%
79.1%
79.5%
0.4 p.p.
37.4
1.63
38.3
1.66
38.4
1.61
0.3%
-2.8%
85.4%
85.8%
86.4%
0.7 p.p.
95.4%
95.2%
94.6% -0.7 p.p.
2,267
2,323
2,401
3.3%
Thanks to the measures taken, the segment
set all-time records for the feed conversion
rate and average daily weight gains.
2 Annual report 2019
663
544
523
70.3
52.7
46.4
CHERKIZOVO GROUPAbout the Company Strategic ReportFinancial ResultsSustainable development Corporate governance poultry farms
thousand tonnes
Sales volume
RUB/kg
Average sales price
70.3
RUB billion
Revenue
Revenue CAGR
Sales and brand development
At Сherkizovo Group, we seek to increase the
share of higher value-added products in our
total output. In 2019, revenues from Petelinka
and Kurinoe Tsarstvo grew by 13% and 3%,
respectively.
Modern trade remained our primary sales
channel, accounting for 45% of products sold.
HoReCa and exports are also high on the
Company's agenda.
In the HoReCa segment, we have been
working with some of the largest fast food
companies, including KFC, Burger King,
McDonald’s, and pizza chains. In 2019,
HoReCa sales rose by 95%, reaching 7% of
the Poultry segment's total revenue. We are
one of the few Russian companies able to
comply with the most stringent requirements
set by leading foreign players in the fast
food universe * – and the Group looks to
strengthen its relationships with these
customers.
In 2019, exports added 131% to account
for 5% of the segment's sales as the Group’s
companies were cleared to sell in China.
Looking ahead, we plan to grow our exports,
with higher value-added products as one of
the drivers.
Cherkizovo Group seeks to improve
the quality of its premium brands
while also gaining a stronger
foothold in export and HoReCa
markets. New technologies allow us
to comply with the higher production
and quality requirements set by new
customers. In 2019, we adopted the
following to this end:
• Animal Welfare principles
• QA metrics for meat
* For further details on how we comply with these
requirements, see the #Quality Management System
section, page 61.
www.cherkizovo.com
65
65
CHERKIZOVO GROUPCherkizovo unites
POULTRY
PORK
MEAT PROCESSING
TURKEY
GRAIN
Poultry
FEED
POULTRY SALES, %
1%
23%
29%
24%
24%
BRAND
2019
Petelinka
Kurinoe Tsarstvo
Other brands
Non-branded products
Other
50%
26%
7%
6%
11%
CHANNELS
2019
Modern Trade
HoReCa
Export
Traditional Trade
Wholesale Trade
66
BIOSECURITY
Cherkizovo Group is committed to
ensuring biosecurity under a dedicated
project covering the entire value chain,
from feed mills, logistics and warehouses
to reproduction, rearing and slaughter
facilities. This project draws on the
world-class poultry expertise of Cargill,
Phytobiotics, Alltech, Kemin, Biomin,
and WIC.
KEY INVESTMENT PROJECTS
We do our best to minimize epizootic
risks and protect the bird population
by ensuring compliance with regulatory
Altaisky Broiler integration
Altaisky Broiler has begun using a new
requirements and modern biosafety
crossbred and implemented new
standards, strict access control, and
technology procedures and practices
thorough disinfection.
in line with the Company's standards.
Beyond upgrades, we shared our
production experience by enhancing
PRODUCTION IMPROVEMENTS
Cherkizovo Group continued improving
the team of managers and technologists,
training staff, and introducing standard
its production capacities in the Poultry
operating procedures. The upgraded
segment, with the Vasilyevskaya and
Altaisky Broiler was able to produce
Petelinskaya farms, Lisko Broiler and
68.3 thousand tonnes of live-weight
Kurinoe Tsarstvo Bryansk, receiving
poultry, beating its 2019 target by
new rearing and processing equipment.
a wide margin.
In particular, Kurinoe Tsarstvo began
producing chicken strips for Burger King.
In 2019, no cases
of avian influenza were
reported at the Group’s
facilities.
2 Annual report 2019
%
23
24
24
29
1
%
50
7
6
11
26
CHERKIZOVO GROUPAbout the Company Strategic ReportFinancial ResultsSustainable development Corporate governance
New assets
In 2019, Cherkizovo Group acquired Rovensky Broiler for RUB 1.7 billion. Located in the Belgorod
Region, this facility is capable of producing 80 million hatching eggs per year, which fully
covers our demand for hatching eggs following acquisitions in 2018.
RUB billion
Investments
in the segment
PLANS
Cherkizovo Group looks to expand
its sales in the Siberian Federal
District and abroad while also
increasing the share of higher
value-added products in its sales
to HoReCa customers.
The two goals are set to be furthered
through a capacity ramp-up at
Altaisky Broiler. Its maximum
annual output is slated to reach
100 thousand tonnes of live-weight
poultry, which represents a roughly
twofold increase in the output.
www.cherkizovo.com
67
CHERKIZOVO GROUPCherkizovo unites Pork
2019 PERFORMANCE
In 2019, Cherkizovo Group’s Pork segment
EFFICIENCY IMPROVEMENT
Cherkizovo has built one of the most
FINISHED PRODUCT SALES, ‘000
tonnes
delivered strong results. Production
efficient pork production systems
grew by 15% to 284.2 thousand tonnes,
globally. In 2019, the Company
and sales * increased by 16% to
delivered all-time high results across
274.6 thousand tonnes. This growth was
most key performance indicators
a result of an increase in mated inventory
highlighted by achieving a 90% farrow
(11%) and increase in herd efficiency (5%).
rate across the entire system which
The difference between production and
includes our multiplication system.
sales is because we run an internal gilt
The commercial system utilizes PCAI
multiplication and development program
(Post Cervical Artificial Insemination)
and animals are retained instead of sold.
that allows us to use less commercial
semen than traditional AI (Artificial
2019
2018
2017
275
237
200
The average sales price decreased by 9%
insemination).
to RUB 89.14 per kg despite a growing cost
REVENUE FROM PRODUCT SALES,
RUB billion
of key feed components. The price drop
The key factor for these results is our
was largely triggered by stiffer competition
commitment to focus on investing in
in the industry, with key players continuing
genetic improvement and creating
to expand their production capacities
a high health system so that our animals
despite stagnant purchasing power and
can achieve their genetic potential so
2019
2018
2017
24.5
23.3
18.7
lack of exports.
we can produce the highest quality
pork possible. It takes years before
seeing the results of genetic services
investments on the shelf, so we feel
confident that we will continue to be the
market leader in providing the highest
OPERATIONAL PERFORMANCE, t
quality pork as we continue to make our
AVERAGE SALES PRICE, RUB/kg
genetic program and health services
strategy as our top priority.
2017
2018
2019
18/19, %
2019
2018
2017
89.14
98.20
92.12
Productive sows, (Mated Inventory)
72,375
72,928
80,799
Piglets born alive per sow per litter
Pigs weaned per sow farrowed
Pigs Marketed per mated female
Average weight, kg
Kg sold per sow
Feed conversion finisher
68
12.5
10.5
24.5
119.5
2,925
2,6
13.1
11.2
27.5
123.2
3,354
2,56
13.4
11.6
27.9
127.1
3,508
2,55
11%
2%
3.5%
1.5%
3%
5%
0%
* Sales to both the Group’s entities and third
parties.
2 Annual report 2019
CHERKIZOVO GROUPAbout the Company Strategic ReportFinancial ResultsSustainable development Corporate governance
13
pork production
complexes
275
thousand tonnes
Sales volume
RUB/kg
Average sales
price
RUB billion
Revenue
Revenue CAGR
21
combined nursery
and finisher sites
2
sow farms
In 2019, Cherkizovo Group
joined Pipestone Applied
Research, the world's most
respected swine research
organization globally.
This decision ensures that we
continue to challenge our own
SOP practices based only on
research and science so that
we are always utilizing best
practices.
www.cherkizovo.com
69
CHERKIZOVO GROUPCherkizovo unites Pork
In 2019, the number of productive sows
The Group is in process of converting
increased by 11% to 80,799. The number
the entire system to be needle free
of live born piglets per sow per litter also
technology by introducing the Pulse
increased to 13.4, up 2% year-on-year.
needle free system to our operations.
At the same time, total pigs marketed per
This investment ensures that we are
mated female increased by 1.5%. Another
extremely accurate when it becomes
solid result was a 5% growth in kg sold
necessary to administer a treatment.
per sow to 3,508 kg.
The Pulse needle free system also
QUALITY AND SAFETY
Cherkizovo's pig farms boast the
increases employee safety and enhances
the groups health services strategy.
highest livestock sanitary status in
Cherkizovo uses only its own vehicle fleet
Russia enabling them to be classified
to transport livestock, which eliminates
as Compartment IV facilities in terms
potential spread of infections from third
of biosafety. We maximize quality and
parties. The Pork segment operates ten
safety at all stages of production, as
truck wash stations, where our vehicles
well as during livestock transportation.
are fully disinfected. Our trucks are
To this end, the Group has developed
properly equipped to transport livestock
KEY INVESTMENT PROJECTS
internal standards for the protection
and their speed and routes are controlled
and improvement of animal health and
by GPS tracking units.
regularly updates them depending on the
current epizootic situation.
The Group's assets are reviewed by
internal and external bio-security audits.
The division has a monthly bio-security
committee meeting that reviews the audit
results and focuses on continuously
improving our bio-security program.
The programs are led by the groups highly
qualified leaders who are regularly asked
to speak at key global events as a result
of Cherkizovo’s success.
For more details on Cherkizovo Group's
quality management system, please see:
Quality Management System, page 61.
Wean to Finish sites in the Penza
Region
In 2019, Cherkizovo Group continued to
develop its pork presence in the Penza
Region. During the year, we built and
commissioned 5 wean to finish sites.
Construction was faster and more efficient
than at previous sites, reducing our
construction costs. In total, the project
consists of 7 sites in the Penza region.
The sites are based on a standard design
maximizing the level of biosafety. Each of
the sites has a capacity of c. 45 thousand
market hogs and 5.8 thousand tonnes
of products.
70
2 Annual report 2019
CHERKIZOVO GROUPAbout the Company Strategic ReportFinancial ResultsSustainable development Corporate governance
RUB billion.
Investments
in the segment *
All of the segment's employees are
tested for the knowledge of the biosafety
standards and standard operating
procedures in the segment.
PLANS
Cherkizovo Group’s mid-term strategy
for the Pork business is to boost
performance by using cutting-edge
production facilities and putting in
place one of world’s best finisher
nutrition programs.
Cherkizovo Group is finishing
production ramp-up cycle in the Pork
segment. In 2020, the Company is
considering building two more wean
to finish sites in Penza Region.
Further improvement of animal
breeding practices during all
production phases is our top priority
in the segment. The Group will
continue maintaining the maximum
possible biosafety level at its assets.
The division will continue to focus
on ensuring our genetic program.
By 2021, the Company plans to
complete our transition to the needle-
free injection system.
* Excluding VAT.
www.cherkizovo.com
71
CHERKIZOVO GROUPCherkizovo unites Meat Processing
CORE PRODUCT TYPES
13.2
93.0
107.7
2019 PERFORMANCE
In 2019, sales in the Meat Processing
segment increased by 7% reaching
245.6 thousand tonnes. The growth can
mostly be attributed to a 32% rise in half-
carcass sales on the back of increased
pork production. The average sales
price * stood at RUB 162.96 per kg, down
4% on the 2018 level of RUB 169.94 per
45.48
134.05
187.87
45.48
kg due to an increase in the sales share of
half-carcasses, which offset the increase
31.8
in the price for sausages and cuts.
PRODUCTION AND SALES OF
FINISHED PRODUCTS
In 2019, Cherkizovo Group maintained
leadership in meat processing, including
in the lucrative dry and smoked sausage
markets. The Group also consolidated
its hold on the hot-dog, boiled sausage,
ham and bacon markets.
SALES, ’000 tonnes
AVERAGE PRICE * , RUB/kg
2019
2019
Sausages
Cuts
Half-carcasses
By-products
Year-on-year, %
Year-on-year, %
1
(21)
32
8
Sausages
Cuts
Half-carcasses
By-products
2
3
(9)
(16)
The Cherkizovo brand revamp was one
PRODUCTION AND SALES OF
In the reporting year, sales of finished
of the Company’s key developments
RAW MEAT AND READY-TO-COOK
products stabilized and once again began
in 2019. While refreshing its brand
to grow. As a result, the total volume
image, the Group also took the time
PRODUCTS
Production of meat and by-products
of sales rose by 1% compared to the
to make its labelling more informative,
increased by 12% to reach
previous year, reaching 107.7 thousand
and its packaging more practical. At the
138.0 thousand tonnes. At the same
tonnes. The average sausage price
core of the brand are two key product
time, sales of cuts dropped by 21%
remained virtually unchanged in 2019,
ranges: ready-to-cook and ready-to-eat.
to 31.8 thousand tonnes, while
rising by only 2% to RUB 187.7 per kg.
These ranges are enjoying a surge in
half-carcass sales grew by 32%
The 2018 acquisition of a 75% stake
of the Company’s plans. Going forward,
sales also witnessed an 8% increase,
in Samson – Food Products has been
Cherkizovo Group will continue to
reaching 13.2 thousand tonnes.
extremely fruitful for the Company
expand and develop its product ranges
popularity, placing them at the forefront
to 93.0 thousand tonnes. By-product
allowing it to consolidate its position
in the St Petersburg and North-Western
regional markets. The newly launched
Samson brand product range has
perfectly complimented Cherkizovo’s
existing ranges.
* Excluding VAT.
72
Before
After
For more details on Cherkizovo Group's
rebranding program, please see: Product
Strategy, page 84.
2 Annual report 2019
CHERKIZOVO GROUPAbout the Company Strategic ReportFinancial ResultsSustainable development Corporate governance
In 2019, the productivity
levels of the Dankov
Meat Processing Plant
greatly increased due to
the measures to optimise
its efficiency. The average
processing speed rose by 20%
to 240 heads per hour, thus
reducing downtime. Employee
working conditions also improved
after the introduction of a new
staff incentive framework.
slaughter
and meat processing plants
thousand tonnes
Sales volume
RUB/kg
Average sales
price
RUB billion
Revenue
Sales growth
www.cherkizovo.com
73
CHERKIZOVO GROUPCherkizovo unites Meat
Processing
SALES IN THE MEAT PROCESSING
SEGMENT BY CHANNEL,
%
SALES IN THE MEAT PROCESSING
SEGMENT BY BRAND,
%
1%
4%
13%
49%
32%
43%
41%
4%
4%
3%
4%
Modern Trade
Wholesale Trade
Traditional Trade
Export
HoReCa
%
49
32
13
4
1
Cherkizovo
Myasnaya Gubernia
Imperiya Vkusa
Other
Private labels
Non-branded products
%
43
4
3
4
4
41
QUALITY ASSURANCE
All of Cherkizovo Group’s meat
processing assets are certified under the
FSSC 22000 scheme, which regulates
food safety standards. This confirms
the Group’s compliance with European
standards in terms of production
processes and employee training.
Cherkivozo Group maintains its high
quality of products by conducting daily
tasting panels, employee training, and
audits of compliance with technological
regulations, and controlling raw materials
and packaging quality. What sets the
Group apart is the availability of own-
produced meat such as pork sourced
from its own farms to guarantee the
highest quality and freshness of
ingredients.
EFFICIENCY IMPROVEMENT
In 2019, Cherkizovo Group remained
committed to improving production
efficiency and ensured all of its plants have
a lean manufacturing system in place.
At a number of its production facilities,
namely the Cherkizovsky Meat Processing
Plant and the Dankov Meat Processing
Plant, a Total Productive Maintenance
system is in place, allowing the Company
to dramatically reduce the downtime
throughout the entire production chain,
from slaughtering to product packaging.
In 2019, the productivity levels of the Dankov Meat
Processing Plant greatly increased due to the measures
to optimise its efficiency. The average processing speed
rose by 20% to 240 heads per hour, thus reducing downtime.
Employee working conditions also improved after the
introduction of a new staff incentive framework.
For more details on Cherkizovo Group's quality management
system, please see: Quality Management System, page 84.
74
2 Annual report 2019
CHERKIZOVO GROUPAbout the Company Strategic ReportFinancial ResultsSustainable development Corporate governance
1.3
RUB billion.
Investments
in the segment *
KASHIRA PLANT
The Kashira plant fully complies with
the Industry 4.0 vision. Its high level of
automation has significantly increased
productivity and minimized the human
factors, leading to an increase in the
quality and biosafety of the products.
The Company is able to guarantee such
a high level of biosafety by carefully
monitoring the quality of feedstock, either
produced internally or sourced from third-
party suppliers. The RFID system allows
the Company to keep track of each and
every stock unit, tracing the feedstock type,
mass and temperature requirements.
In 2019, the Kashira plant was highly
commended by the SAP Innovation
Awards. This prestigious award is
presented to projects that have achieved
a remarkable technological breakthrough
in their industry.
To lead the market,
we have to make
delicious products.
We cannot
compromise
on taste.
* Investments are shown net of VAT.
www.cherkizovo.com
KEY INVESTMENT PROJECTS
Developing the capacity of the
Cherkizovsky Meat Processing
Plant
In the reporting year, the Cherkizovsky
Meat Processing Plant continued to
implement projects aimed at boosting
production output and increasing
operational efficiency.
In 2019, two slicing lines were installed
at the plant – one for bacon and one for
smoked sausage.
In addition, a sausage packaging machine
was made operational.
2019 also saw the start of Cherkizovo
Group’s packaging equipment upgrade
program. The new equipment will not
only allow for a reduction in production
costs, but also for the shrinking of the
Company’s ecological footprint, due
to the use of less packaging materials.
The project will be completed in the first
half of 2020.
PLANS
The Group’s 2020 priorities remain
the same and include consolidating
its market position and increasing the
share of higher value-added products.
Next year, Cherkizovo Group also
plans to maximize utilization rates at
the Kashira meat processing plant.
75
CHERKIZOVO GROUPCherkizovo unites Grain
and Feed
GRAIN
In 2019, Cherkizovo’s Grain segment
In crop cultivation, the Group leverages
intensive farming technologies, organic
HARVEST VOLUMES,
thousand tonnes
performed strongly, with the Group’s land
and non-organic fertilizers, high-yielding
bank growing to 300 thousand hectares
heirloom and hybrid seeds.
thanks to land purchases in the Lipetsk
and Penza regions, and farmed land
reaching 217 thousand hectares.
2019
2018
TOTAL LAND BANK, ‘000 ha
Gross yield added 24% to reach 593
thousand tonnes. Optimized crop
rotation, higher yield levels, and a slight
expansion of cultivated land resulted
in increased harvests for most crops,
especially wheat and corn.
2019
2018
Sales were down by 25% to 524 thousand
YIELD, t/ha
tonnes, while the average sales price rose
by 11% to RUB 11.02 per kg. The increase
was attributable to a bigger share of the
high-margin sunflower in the sales mix
and a surge in corn prices.
WINTER WHEAT
SPRING WHEAT
consumed internally by the Group's other
segments, and soybean and sunflower
accounting for the bulk of external sales
as high-margin crops. In planning its
annual sowing campaigns, the Group
takes into account both feed demand and
CORN
crop margins.
SOYBEAN
In 2019, we continued to expand
production of all key crops, with crop
areas for wheat, sunflower and soybean
SUNFLOWER
seeing the largest growth by 18%, 57%
and 29%, respectively. At the same time,
the Group stopped growing some of
its non-core crops such as buckwheat,
chickpea and lentil.
GRAIN ELEVATOR CAPACITY,
thousand tonnes
2019
2018
CROP AREA, ‘000 ha
WHEAT
CORN
SUNFLOWER
SOYBEAN
+3%
300
290
4.5
4.2
3.8
3.2
8.2
7.0
1.9
1.5
3.0
2.5
2019
2018
2019
2018
+24%
593
480
977
975
84
78
12
9
33
32
25
22
76
2 Annual report 2019
CHERKIZOVO GROUPAbout the Company Strategic ReportFinancial ResultsSustainable development Corporate governance Cherkizovo's Poultry and
Pork segments fully rely
on feeds produced within
the Group. A third of our
demand for animal feed – grains
and oilseeds – is satisfied from
our own harvests.
8
Feed mill
217
thousand ha
Farmed land
24%
Harvest volumes
growth
593
th tonnes
The gross yield
11.02
per kg
The average sales price
www.cherkizovo.com
77
CHERKIZOVO GROUPCherkizovo unites WINTER WHEAT
SPRING WHEAT
CORN
Grain
and Feed
SOYBEAN
SUNFLOWER
CROP SALES
24.1
6.9
37.9
277.1
83.4
94.6
2.2
mln tonnes
feed production
18%
grew feed production
in 2019
In 2019, Cherkizovo Group continued to
standardize processes across its Grain
assets, completing the roll-out of standard
operating procedures (SOPs) – a set of
step-by-step instructions seeking to help
employees carry out complex routine
operations in the right way. SOPs are
instrumental in securing sustainably high
product quality and strong performance
across all the Group’s assets. We also
kept upgrading and expanding our fleet
of agricultural machinery.
SALES, thousand tonnes
9.02
8.76
17.09
8.62
21.58
22.60
FEED
The Group's feed production capacities
ensure full self-sufficiency for the Poultry
KEY INVESTMENT PROJECTS
Cherkizovo Group continued to further
and Pork segments, with vertical integration
the project focused on making its own
facilitating cost control and helping us make
eco-friendly fertilizers and carried on with
high-quality biosafe products. We monitor
the investment project to revegetate and
feed quality at every stage, from growing
ameliorate lands, delivering on all of its
crops to delivery to breeding farms.
plans and targets for 2019.
The Feed segment is efficient in improving
the feed quality and ensuring well-timed
delivery to production sites in other
segments. This helps keep our animals in
good health and offer great products to our
AVERAGE SALES PRICE, RUB/kg
customers.
Wheat
Corn
Sunflower
Barley
Soybean
Other
OPERATIONAL PERFORMANCE
Feed mills, pcs *
Feed, thousand tonnes
* Excluding mills of Tambov Turkey
78
2018
2019
19/18
8
8
1,830
2,152
18%
2 Annual report 2019
CHERKIZOVO GROUPAbout the Company Strategic ReportFinancial ResultsSustainable development Corporate governance
18%
grew feed production
in 2019
To boost yield levels, the Company relies on a combination of the following:
• using its own organic fertilizers,
• ensuring optimum soil density,
• amelioration,
• improving pH values for soil,
• precision planting.
1.8
RUB billion
RUB billion
Investments
Investments
in the segment
in the segment
PLANS
In 2020, the Group plans to start
building an oilseed processing
plant in the Lipetsk Region. On top
of that, this facility is expected to
make oil. To supply it with feedstock,
we are going to focus on soybean
cultivation and increase the share
of this crop in our mix.
www.cherkizovo.com
79
CHERKIZOVO GROUPCherkizovo unites Turkey
2019 PERFORMANCE
ВIn 2019, Cherkizovo Group continued to
The turkey meat products are sold
SALES, thousand tonnes
under the Pava-Pava brand positioned
gain ground in the Turkey business jointly
as a premium offering made from
with Spain’s Grupo Fuertes.
high-quality meat with no artificial food
additives. Moscow and St. Petersburg are
After reaching its design capacity in 2018,
the biggest contributors to the Pava-Pava
Tambov Turkey kept the pace, selling
sales. In 2019, the Group maintained
39 thousand tonnes of products in the
leadership in these regions, having won
reporting year. The average sales price
42.5% and 37.8% of the Moscow and
increased by 14% to RUB 169.23 per kg
St. Petersburg markets, respectively.
primarily due to lower supply following the
This was driven by effective marketing
2019
2018
2017
39.4
39.3
26.3
shutdown of turkey operations by one of
and brand development.
REVENUE FROM SALES, RUB mln
the Company’s competitors. At the same
time, demand from retailers and hence
With new production capacities to be
consumers remained strong.
launched going forward, the Company
Going forward, Cherkizovo plans to ramp
geography in the Volga and Central
up production capacities and increase
Federal Districts.
plans to gradually expand its sales
2019
2018
2017
output. In line with this vision, we already
started implementing the second stage
of Tambov Turkey in 2019.
6,716
5,815
3,898
OPERATIONAL PERFORMANCE
Indicator
2017
2018
2019
19/18
Meat yield from live weight, %
Feed conversion rate per kg of weight gain
Growing period, days
Average daily weight gain, g
Survival rate, %
73.4
2.44
112
122
92.2
74.0
2.47
116
124
91.8
78.1
2.52
118
115
4.1
2%
2%
-7%
91.03
-0.77 p.p.
In 2019, Cherkizovo Group
ranked second by the
volumes of turkey
produced in Russia.
80
2 Annual report 2019
CHERKIZOVO GROUPAbout the Company Strategic ReportFinancial ResultsSustainable development Corporate governance 1
full cycle production
facility
39
thousand tonnes
Sales volume
169,2
per kg
Average sales price
6,7
RUB billion
Revenue
Revenue CAGR
Healthy food
Turkey is a lean and hypoallergenic meat
containing much less fat compared to
alternatives and offering a wide variety of
useful vitamins and minerals, and so enjoys
increasingly strong demand in Russia and
worldwide amid growing interest in healthy
lifestyles. Pava-Pava products are made
from the special extra lean Hybrid Grade
Maker turkey grown in the Tambov Region,
one of Russia’s most pristine areas.
In 2019, the Pava-Pava brand won
the Product of the Year award
as the best Healthy Food product
in the Turkey Meat category.
www.cherkizovo.com
81
CHERKIZOVO GROUPCherkizovo unites Turkey
EXTENDING THE PRODUCT RANGE
The Pava-Pava product line offers a diverse
range of products, including escalopes,
SAFETY AND EFFICIENCY
IMPROVEMENTS
Tambov Turkey's competitive advantages
thinly cut meat, medallions, steaks, ground
include full-cycle vertical integration
meat, cutlets, sausages, kupati, and chilled
helping us to keep a close eye on the
cuts, as well as ready-to-cook products
quality of products across the production
and packaged products for roasting.
chain – from feed production and bird
breeding to manufacturing.
For a while, products that do not require
much cooking time have been gaining
Pava-Pava products comply with all
traction. In line with this trend, Tambov
applicable quality standards, both in
Turkey continued to expand the range
Russia and globally, with Tambov Turkey
of ready-to-cook turkey products. The
holding ISO 22000:2005 and FSSC 22000
four additions in 2019 were Chicken Kiev
certificates for its food safety management
cutlets, wings for roasting, Bavarian turkey
system. A HACCP program along with
KEY INVESTMENT PROJECTS
Russia’s turkey market has a bright
thighs, and turkey breast schnitzel for
a number of other initiatives are also in
outlook. Albeit rising significantly, per-
roasting. When developing new turkey
place to monitor bird health.
capita turkey consumption in Russia
offerings, the Company relies on traditional
currently amounts to roughly 2 kg –
recipes for other types of meat and draws
Compliance is achieved through the use
considerably lower than, for example,
on the experience of other countries where
of advanced production technologies,
in the EU, where the number stands at
turkey meat is highly popular.
best-in-class European equipment, and
4–6 kg. It means that the Russian market
providing the birds with the highest-quality
is far from being saturated and will
feed and clean artesian water.
continue to grow.
In 2019, Cherkizovo Group started
implementing the second stage of Tambov
Turkey. The project will involve building
one nursery and three finisher sites and
ramping up the incubator, slaughtering
and feed mill capacities by 50%. In 2019,
the Company signed an agreement with
the Tambov Region administration and
started building two of the sites.
The new facilities are expected to be
commissioned in March 2021. Once at
full design capacity, Tambov Turkey will
see its annual live-weight output rise by
29 thousand tonnes to over 80 thousand
tonnes.
82
2 Annual report 2019
CHERKIZOVO GROUPAbout the Company Strategic ReportFinancial ResultsSustainable development Corporate governance Tambov Turkey takes consistent steps
to improve production efficiency. In 2019,
it stayed focused on the following:
• ensuring product safety,
• further improving labor efficiency,
• enhancing profitability,
• Increasing products' shelf life
RUB billion
Investments
in the segment
PLANS
In 2020, our key development
priority for the Turkey business
will be implementing the second
stage of Tambov Turkey (set to be
commissioned in Q1 2021). Additional
production capacities will strengthen
the Company’s foothold in the turkey
market and support our mid-term
expansion into new regions.
Cherkizovo Group will continue to
further expand its turkey offering
focusing on ready-to-cook and
ready-to-eat options and the HoReCa
segment, and will launch eight new
products in 2020.
www.cherkizovo.com
83
CHERKIZOVO GROUPCherkizovo unites Product
strategy
Cherkizovo Group produces pork,
success of trial sales, regular purchase
chicken and turkey products that are
volume, and consumer loyalty. The
suitable for all occasions – from snacks
Company monitors the performance of
to festive meals.
each brand and adapts its development
strategy accordingly.
Given the growing pace of life, we are
actively developing our production of
In 2019, the Group continued to develop its
ready-to-cook and ready-to-eat products.
key brands, promoting them in particular via
For our customers, a healthy lifestyle is
digital channels – bloggers, social media
becoming increasingly important, so we
accounts and targeted advertising. The
are focusing on producing chicken and
year’s main achievement was the relaunch
turkey products befitting of a healthy diet.
of the Cherkizovo brand.
Popular Instagram
bloggers, including
moms, pediatricians and
celebrities, published
photos and videos
on their pages
with delicious and
healthy Pava-Pava
turkey and Petelinka
chicken recipes.
These publications were
seen by several million
users.
The high quality of our products
is ensured by strict regulatory compliance
control at all stages of production and the
use of natural ingredients.
In 2019, we continued to develop our
range of branded and high value-added
products. Cherkizovo Group’s strategic
goal is to bring the share of these
products in total sales to 80%.
BRAND DEVELOPMENT
The Group's marketing strategy is aimed
at building megabrands, which will
become clear leaders in their particular
market segment. The Company is
focused on developing the Cherkizovo,
Petelinka and Pava-Pava brands, each of
which already holds high positions in its
respective market segment.
The Group takes an individual approach
to promoting each of its brands.
Marketing priorities are determined by the
health of the brand – a complex measure
that takes into account the level of brand
recognition, brand visibility,
THE GROUP’S SALES BY TYPE, %
Non-branded products
30%
Niche brands
and other products
27%
Export
HoReCa
Private Label ( 2 )
5%
5%
5%
Pava-Pava
7%
Petelinka
21%
70%
Branded products
55%
Kurinoe
Tsarstvo
22%
Cherkizovo
23%
2019 total
revenue split
2019 branded value
added products split
84
2 Annual report 2019
CHERKIZOVO GROUPAbout the Company Strategic ReportFinancial ResultsSustainable development Corporate governance Cherkizovo Group’s number one priority is the quality of its products.
We strive to be the very best for our customers and to do our utmost to fully take into
account their taste preferences. To this end, we constantly improve our product range,
develop new recipes in accordance with global and Russian trends and work to interact
openly and honestly with our customers and partners.
MARKET SHARE OF THE GROUP'S
KEY BRANDS, %
Rebranding of Cherkizovo
In 2019, the Group conducted
a major rebranding of its flagship brand,
Cherkizovo. The changes affected not only
the appearance of the product, but also
its content – we improved the packaging,
changed the logo and refined the recipes
of our sausages and ready-to-cook
pork products. The key message of
the revamped brand was the constant
care of customers and their families
that Cherkizovo provides through its
consistently high-quality products.
The Cherkizovo brand's new logo is the
Heart at Home. The logo emphasizes that
the quality and variety of our food brings
people together and creates positive
emotions that can accompany any meal.
Thanks to the rebranding, Cherkizovo's
products have become more visible on
shop shelves.
RUSSIAN MARKET
KURINOE TSARSTVO
2019
2018
PETELINKA
2019
2018
16.1%
14.7%
5.4%
4.9%
CHERKIZOVO BRAND SAUSAGES
2019
2018
6.4%
6.8%
MOSCOW AND ST. PETERSBURG
MARKETS
PAVA-PAVA
MOSCOW
2019
2018
ST. PETERSBURG
2019
2018
CHERKIZOVO PORK
MOSCOW
2019
2018
ST. PETERSBURG
2019
2018
42.8%
42.3%
38.9%
39.9%
9.0%
10.3%
20.7%
18.2%
Source: Nielsen Holdings
www.cherkizovo.com
85
CHERKIZOVO GROUPCherkizovo unites Product
strategy
In 2019, the R&D function contributed to the
launch of 53 new products.
20
in the Meat Processing
segment
33
in the Fresh
segment
DEVELOPMENT OF NEW PRODUCTS
New products are developed by
SALES
The Company continued to work on
In fall 2019, products from the
Petelinka brand first became available
Cherkizovo Group's centralized R&D
function * – the Department of Research
and Development aligned with
increasing the share of high value-added
to consumers in Russia's Siberian
products in the total sales volume.
Federal District. All products of the
brand supplied to shops in the region
international standards.
Cherkizovo aims to strengthen its position
are manufactured at the Altaisky Broiler
in markets where its products are
facilities, which became part of the
The Group's R&D activities are aimed
already available and gradually expand
Group in December 2018. Thanks to the
at ensuring the highest quality and
its presence. The company supplies
geographical expansion and product
excellent taste of all products. We
its products to virtually all regions of
range optimization, the brand's sales grew
operate two pilot facilities at the sites
European Russia and is increasing its
by 20% y-o-y.
of Cherkizovsky Meat Processing Plant
presence beyond the Urals. To expand its
and Mosselprom specifically for R&D
presence in these regions, the Group is
purposes. The facilities are equipped
developing partnerships with major retail
to simulate any process flow in product
chains. They increase the Group's product
development.
range and the number of stores selling its
products.
In order to effectively roll out R&D
projects, we cooperate with research
institutes and educational institutions,
including the All-Russian Research
and Development Institute of Poultry
Processing Industry (VNIIPP), Gorbatov’s
All-Russian Meat Research Institute,
Razumovsky Moscow State University of
Technologies and Management, Moscow
State University of Food Production
and the Scientific Research Institute
of Nutrition at the Russian Academy of
Medical Sciences. The Group also works
with international experts from Italy,
Spain, Austria and the US.
* R&D is an abbreviation for research and
development activities that give rise to launching
a new product into production and span a wide
range of operations from academic research
to the manufacturing of prototypes.
Key R&D projects of 2019:
• The launch of a range of cooked sausages: the Russkaya,
the Doktorskaya and the Molochnaya as part of the
Po-Cherkizovski range.
• The expansion of the Cherkizovo Premium range with the
launch of a line of European sausages (Capri, Verona, Milano
and Fuet Extra) and sliced bacon.
• The development of a range of high value-added processed
products (ground meat, cutlets, sausages, steaks) under the
Petelinka, Pava-Pava and Cherkizovo brands.
• 20 projects related to recipe optimization, engineering,
and packaging solutions.
86
2 Annual report 2019
CHERKIZOVO GROUPAbout the Company Strategic ReportFinancial ResultsSustainable development Corporate governance THE GROUP’S SALES BY CHANNEL, %
SALES CHANNELS
The majority of Cherkizovo Group's
products are sold through retail chains
and the HoReCa segment, which
primarily offer high value-added products.
In 2019, the share of high value-added
products reached 70% of Cherkizovo's
sales portfolio. The Company is actively
developing priority sales areas: HoReCa
and exports. At the end of the year, export
sales grew by 78%, while restaurant-
related sales doubled.
Channels
Total sales
Federal retailers
Traditional retail
Wholesale
HoReCa
Export
In the HoReCa segment, the Group
is focused on supplying fast food
SALES STRUCTURE, %
restaurants and working with such chains
as Burger King, Pizza Hut and KFC. Close
cooperation with these major brands
confirms and further guarantees the high
quality of our products.
Channels
Total sales
Branded
Private label (B2B)
HoReCa
Export
Non-branded products
SALES BY BRAND, %
Brand
Branded sales
Cherkizovo
Kurinoe Tsarstvo
Petelinka
Pava-Pava
Niche brands and other products
www.cherkizovo.com
RUB share in 2018
RUB share in 2019
RUB 95.7 billion
RUB 115.1 billion
56%
16%
22%
3%
3%
51%
12%
28%
5%
5%
Share in 2018, %
Share in 2019, %
RUB 95.7 billion
RUB 115.1 billion
56%
6%
3%
3%
31%
55%
5%
5%
5%
30%
Share in 2018, %
Share in 2019, %
RUB 60.1 billion
RUB 74.6 billion
27%
26%
23%
6%
18%
23%
22%
21%
7%
27%
87
CHERKIZOVO GROUPCherkizovo unites Product
strategy
RELATIONSHIPS WITH
CUSTOMERS AND PARTNERS
Cherkizovo Group is committed to
The Group is committed to further
bolstering interaction with customers
using digital channels, including our
meeting the needs and requirements of
corporate and brand-specific websites,
its customers by offering them the highest
mobile applications and social media
quality products in convenient packaging.
pages. Each of the Group's key brands has
For this purpose, the Company is building
a system in place to respond quickly to
a mutually beneficial and transparent
consumer requests. Customers can ask
relationship with both end consumers and
a question or submit a complaint via our
business partners – large retailers and fast
hotline or write to Cherkizovo on social
food chains that purchase our products.
networks with the confidence that their
request will not be ignored.
Even at the product development
stage, the Company conducts tests
with the involvement of customers
and industry professionals, including
leading restaurateurs and nutritionists.
Their opinions are taken into account
when determining the recipe of the final
product. The Group also conducts market
research and surveys, analyses feedback
on social networks and as a result
implements necessary improvements
at any stage of production and delivery.
Key positions and new products are tested
across all segments.
64
million people
total brand Petelinka
coverage in digital
communication
channels in 2019
88
2 Annual report 2019
CHERKIZOVO GROUPAbout the Company Strategic ReportFinancial ResultsSustainable development Corporate governance Petelinka Digital
In 2019, one of the Group's brands,
Petelinka had a total brand coverage
in digital communication channels of
64 million people.
The brand has accounts on all popular
social networking sites where it publishes
news and recipes. The total number of
subscribers during the year exceeded
114,000 people and the coverage on
social networks exceeded 14 million
people. In December 2019, Petelinka ran
a promotional campaign featuring well-
known Instagram bloggers, who acted
as brand ambassadors in their posts and
spoke about how they trust our products.
The Company’s website www.petelinka.ru
is extremely popular and features not only
information and news about the Company,
but also over 890 recipes that use chicken.
In 2019, 3.2 million users visited the site.
Since 2017, Petelinka has been running
a loyalty program encouraging customers
to register promotional codes from
packaging on its website or in a mobile
app. Throughout the year, about 1.5 million
promo codes were registered in the loyalty
program and the number of participants
amounted to approximately 330,000
people.
www.cherkizovo.com
89
CHERKIZOVO GROUPCherkizovo unites Financial
Performance
Overview
Ludmila Mikhaylova
CFO
120.1
RUB billion
Cherkizovo Group’s
consolidated revenue
90
2 Annual report 2019
CHERKIZOVO GROUPAbout the Company Strategic ReportFinancial ResultsSustainable development Corporate governance In 2019, Cherkizovo’s the company operated in a stable macroeconomic environment,
with growing demands from our consumers and retail. Our vertically integrated
business model demonstrated its competitiveness and resilience: superb
performance of the chicken segment boosted by a number of strategic acquisitions
in the late 2018, and buoyed by steady growth in the grain business were key drivers
of our results during 2019. Price weakness in the pork market adversely impacted profits
in the pork and meat processing segments.
KEY FINANCIAL INDICATORS IN 2018-2019
Revenue, RUB bln
Gross profit, RUB bln
Gross margin
Adjusted EBITDA, RUB bln
Adjusted EBITDA margin
Net profit, RUB bln
Net profit margin
Net cash flow from operating activities, RUB bln
Net debt, RUB bln
Net debt / Adjusted EBITDA
2018
100.4
29.2
29.1%
20.4
20.3%
12.0
12.0%
14.2
58.6
2.9x
20.6
RUB billion
Cherkizovo Group’s
adjsuted EBITDA
2019
120.1
27.9
23.2%
20.6
17.2%
6.8
5.6%
16.1
61.2
3.0x
In 2019, Cherkizovo Group’s consolidated
OPERATIONAL PERFORMANCE
The Group also includes Tambov Turkey
revenue increased by 19.6% year-on-
year to RUB 120.1 billion, with adjusted
OVERVIEW
Cherkizovo Group is the largest meat and
facility, a joint Russian-Spanish venture.
In 2019, Cherkizovo Group produced
EBITDA up by 1.0% to RUB 20.6 billion and
feed producer in Russia. The Group is
c. 1 mn tonnes of meat and meat products
adjusted EBITDA margin decreased to
a top-3 producer in each of the Russian
and generated revenue of RUB 120.1 billion.
17.2% (up from 20.3% in 2018). Net profit
poultry, pork and processed meat markets.
nearly halved to RUB 6.8 billion as
In 2019, Cherkizovo Group’s sales totaled
compared to RUB 12.0 billion in 2018, while
Cherkizovo Group encompasses eight
663.0 thousand tonnes of finished products
operating cash flow increased by 13.2% to
meat processing plants (including meat
in the poultry segment, 245.6 thousand
RUB 16.1 billion (RUB 14.2 billion in 2018).
processing plant operated by an equity
tonnes in the Meat Processing segment,
associate Samson – Food Products),
274.6 thousand tonnes in the Pork segment.
Net debt came in at RUB 61.2 billion (2018:
thirteen pork production complexes,
The Company harvested 593.0 thousand
RUB 58.6 billion), with our results providing
twenty one wean-to-finish facilities and
tonnes of various crops in the Grain
us sufficient comfort on all debt covenants.
two saw farms, nine poultry production
segment, and produced some 2.2 million
complexes (including the Belaya Ptitsa
tonnes of feed to cater for its own needs.
In 2019, total capital expenditures
production complex which is currently
amounted to RUB 8.6 billion, with the major
operate pursuant to a lease agreement),
part attributable to the pork (RUB 2.8 billion)
and poultry (RUB 1.9 billion) segments.
nine combined fodder production plants
and more than 300,000 hectares of
The remaining CAPEX was distributed
agricultural land.
among other businesses.
www.cherkizovo.com
91
CHERKIZOVO GROUPCherkizovo unites Financial
Performance
Overview
MARKET AND REGULATORY
OVERVIEW
Interest rates
In 2019, the Central Bank of Russia
delivered multiple rate cuts, lowering
Loan benefits and government
subsidies for interest payments
In accordance with Russian legislation,
FX exchange rates
In 2019, the Russian rouble appreciated
the key rate from 7.75% at the end of
the Company received certain government
2018 to 6.25% at the end of 2019. It allowed
grants. The largest of such government
against both EUR and USD. According
the company to successfully refinance its
grants relate to the reimbursement of
to the Central Bank of Russia, as at
debt portfolio and extend its maturity – in
interest expense on qualifying loans, which
31 December 2019, the USD/RUB and
November 2019, we placed local bonds
is received directly by the Group and for
EUR/RUB pairs traded at 61.91 and
in the amount of 10 bn roubles with 7.5%
the reimbursement of interest expense
69.34, respectively (2018: 69.47 and
coupon and 3.5 tenor.
79.46). At the end of the year, RUB-
denominated liabilities accounted for 95%
of the Group’s long-term debt and 100%
Tax benefits
Russian agricultural producers have a zero
through accredited banks, who provide
loans to agricultural producers at reduced
rates not exceeding 5% per annum on
Rouble-denominated loans. The difference
of its short-term debt.
corporate income tax rate. However, no
between market rate and the reduced
tax benefits are provided for sales and
rate equals the Key rate of the Bank of
Cherkizovo’s products are generally
distribution, feed production and meat
Russia and is compensated by the Ministry
priced in Russian roubles, with
processing. In 2019, our overall effective tax
of Agriculture to the accredited banks.
the exception of the produce that we
rate was 0.7%, compared to 1.6% tax benefit
The Group records interest and reduced
sell to the exports markets. Many of our
in 2018. An increase compared to 2018 was
rate lending subsidies as an offset to
sourcing costs, including certain feed
primarily due to a loss carry forward.
interest expense during the period to which
ingredients and veterinary drugs, are
they relate. Total government grants for
directly or indirectly linked to foreign
The general income tax rate for Russian
compensation of interest expense grossed
exchange rates. On the other hand, some
companies was 20%. On 1 January 2017,
of related interest expense amounted to
other costs, such as payroll, interest
amendments to the Russian Tax Code
RUB 1.1 billion RUB.
payments and transportation,
became effective allowing the Group
are denominated in Russian roubles.
to offset no more than 50% of each
subsidiary’s taxable income against
the accrued carryforward tax losses.
No time limit is set for the use of the Group’s
tax loss carryforward. Hence, the Group
does not expect its deferred tax position
to be affected.
92
2 Annual report 2019
CHERKIZOVO GROUPAbout the Company Strategic ReportFinancial ResultsSustainable development Corporate governance CONSOLIDATED RESULTS
OF CHERKIZOVO GROUP
In 2019, revenue increased by 19.6%
Operating expenses increased
Adjusted EBITDA of RUB 20.6 billion, in line
by 29.3% y-o-y to RUB 17.6 billion,
with previous year results. Adjusted EBITDA
from RUB 13.6 billion a year ago.
margin declined to 17.2% (2018: 20.3%)
y-o-y to RUB 120.1 billion (2018:
Operating expenses as a percentage of
driven by softer pricing in the pork segment,
RUB 100.4 billion). Revenue growth is
sales increased to 14.6% (2018: 13.5%).
marginal decline in profitability in meat
attributed to higher volumes across
processing, and offset by better results in
business segments on the back of organic
Adjusted operating profit of RUB 12.4 billion,
the chicken business.
growth and M&A, favourable pricing
declined by 8.2% y-o-y from RUB 13.5 billion
environment for poultry products, and
a year ago. Our adjusted operating profit
Net interest expense in 2019 increased
offset by negative dynamics in pork prices
excludes non-recurring impairment loss
by 37.3% y-o-y to RUB 4.5 billion.
domestically.
recognized for non-operational items
of property, plant and equipment in
Net profit for the Group totaled
Gross profit declined by 4.5% y-o-y to
the amount of RUB 530 million (2018: nil),
RUB 6.8 billion in 2019, down 43.8%
RUB 27.9 billion (2018: RUB 29.2 billion).
net change in fair value of biological assets
compared to RUB 12.0 billion in 2018.
Revenue growth was offset by the negative
of the Group’s segments in the amount
Net profit margin declined to 5.6% from
net change in fair value of biological assets,
of RUB 1.4 billion (2018: RUB 1.8 billion)
12.0% a year ago.
and lower effect from net revaluation of
and the effect of net change in fair value
harvested crops in stock. Gross profit
of biological assets of JVs and associates
Adjusted net profit declined by 10.0% y-o-y
margin declined to 23.2% (2018: 29.1%).
on the Group’s share of their results in
to RUB 9.0 billion, from RUB 10.0 billion
the amount of RUB 298 million negative
a year ago. Adjusted net profit margin
(2018: RUB 210 million).
amounted to 7.5%, compared to 9.9%
in 2018.
9.0
RUB billion
Adjusted net profit
for the Group totaled
www.cherkizovo.com
93
CHERKIZOVO GROUPCherkizovo unites Financial
Performance
Overview
CONSOLIDATED INCOME STATEMENT DATA FOR THE YEAR ENDED 31 DECEMBER 2019
RUB mln
Sales
incl. Sales volume discounts
incl. Sales returns
Net change in fair value of biological assets
Net revaluation of harvested crops in stock
Cost of sales
Gross profit
Gross margin
Operating expenses
Share of loss of joint ventures and associates
Operating profit
Operating margin
Profit before income tax
Profit attributable to Cherkizovo Group
Net profit margin
12 months ended
31 December 2019
12 months ended
31 December 2018
120,109
(1,779)
(1,010)
(1,379)
29
(90,896)
27,863
23.2%
(17,551)
(123)
10,189
8.5%
6,697
6,751
5.6%
100,422
(1,473)
(1,091)
1,836
2,242
(75,318)
29,182
29.1%
(13,570)
(57)
15,555
15.5%
11,793
12,004
12.0%
Change
19.6%
20.8%
(7.4%)
n.a.
(98.7%)
20.7%
(4.5%)
(5.9 p.p.)
29.3%
115.8%
(34.5%)
(7.0 p.p.)
(43.2%)
(43.8%)
(6.4 p.p.)
Weighted average number of shares outstanding
41,047,014
41,047,014
—
Earnings per share
Profit attributable to Cherkizovo Group per share –
basic and diluted (RUB)
164.46
292.45
(43.8%)
94
2 Annual report 2019
CHERKIZOVO GROUPAbout the Company Strategic ReportFinancial ResultsSustainable development Corporate governance CONSOLIDATED INCOME STATEMENT DATA FOR THE YEAR ENDED 31 DECEMBER 2019 (continued)
RUB mln
Consolidated Adjusted EBITDA reconciliation
Profit before income tax
Add:
Interest expense, net of subsidies
Interest income
Foreign exchange (gain)/loss, net
Depreciation and amortisation
Net change in fair value of biological assets
Share of loss of joint ventures and associates
Share of adjusted EBITDA of joint ventures and associates
Bonuses to employees under long-term incentive program
Depreciation and amortisation accumulated
in harvested crops in stock
Consolidated Adjusted EBITDA
Adjusted EBITDA Margin
12 months ended
31 December 2019
12 months ended
31 December 2018
Change
6,697
11,793
(43.2%)
4,484
(243)
(676)
7,818
1,379
123
736
205
94
20,617
17.2%
3,267
(290)
829
6,045
(1,836)
57
165
658
(273)
20,415
20.3%
37.3%
(16.2%)
n.a.
29.3%
n.a.
115.8%
346.1%
(68.8%)
n.a.
1.0%
(3.1 p.p.)
www.cherkizovo.com
95
CHERKIZOVO GROUPCherkizovo unites Financial
Performance
Overview
CONSOLIDATED SELECTED FINANCIAL DATA FOR THE YEAR ENDED 31 DECEMBER 2019
RUB mln
Total Sales
including sales volume discount
Interdivision Sales
Sales to external customers (Sales)
% of Total sales
Net change in fair value of biological assets
Net revaluation of harvested crops in stock
Meat-Processing
40,056
(872)
(31)
40,025
33.3%
—
—
Poultry
70,332
(773)
(1,820)
68,512
57.0%
(135)
—
Pork
24,478
—
(20,948)
3,530
2.9%
(1,244)
—
Cost of Sales
Gross profit/(loss)
Gross margin
Operating expenses
Share of gain/(loss) of joint ventures and
associates
Operating income/(loss)
Operating margin
Interest income
Interest expense, net
Other income/ (expenses), net
Division profit / (loss) before income tax
Division profit margin
Supplemental information:
Income tax expense (benefit)
Segment’s capital expenditure
(37,035)
(53,281)
(17,588)
3,021
7.5%
(5,033)
(23)
(2,035)
-5.1%
17
(158)
485
(1,691)
-4.2%
(36)
1,337
16,916
24.1%
(7,581)
15
9,350
13.3%
246
(1,504)
(30)
8,062
11.5%
22
1,859
5,646
23.1%
(440)
—
5,206
21.3%
32
(1,025)
18
4,231
17.3%
(1)
2,798
Grain
5,758
—
(3,545)
2,213
1.8%
—
155
(4,128)
1,785
31.0%
(274)
—
1,511
26.2%
1
(132)
22
1,402
24.3%
15
1,109
Feed
40,321
—
(40,311)
10
0.0%
—
—
(39,945)
376
0.9%
(173)
—
203
0.5%
73
(727)
313
(138)
-0.3%
40
719
Total reportable
segments
Corporate
and other adjustments
without Turkey
Turkey
Combined
Intersegment
Total
180,945
(1,645)
(66,655)
114,290
95.2%
(1,379)
155
(151,977)
27,744
15.3%
(13,501)
(8)
14,235
7.9%
369
(3,546)
808
11,866
6.6%
40
7,822
0.0%
—
—
—
—
—
—
—
—
0.0%
(3,990)
—
(3,990)
-
242
(1,306)
(59)
(5,113)
—
6
730
(67,552)
—
66,801
(751)
-0.6%
—
(126)
67,090
(588)
0.9%
653
—
65
-0.1%
(368)
368
-0.1%
—
65
—
—
113,393
(1,645)
146
113,539
94.5%
(1,379)
29
(84,887)
27,156
23.9%
(16,838)
(8)
10,310
9.1%
243
(4,484)
749
6,818
6.0%
46
8,552
6,716
(134)
(146)
6,570
5.5%
—
—
(6,009)
707
10.5%
(713)
(115)
(121)
-1.8%
(121)
-1.8%
—
—
—
—
—
120,109
(1,779)
—
120,109
100.0%
(1,379)
29
(90,896)
27,863
23.2%
(17,551)
(123)
10,189
8.5%
243
(4,484)
749
6,697
5.6%
46
8,552
96
2 Annual report 2019
CHERKIZOVO GROUPAbout the Company Strategic ReportFinancial ResultsSustainable development Corporate governance CONSOLIDATED SELECTED FINANCIAL DATA FOR THE YEAR ENDED 31 DECEMBER 2019
RUB mln
Total Sales
including sales volume discount
Interdivision Sales
Sales to external customers (Sales)
% of Total sales
Net change in fair value of biological assets
Net revaluation of harvested crops in stock
Cost of Sales
Gross profit/(loss)
Gross margin
Operating expenses
Share of gain/(loss) of joint ventures and
associates
Operating income/(loss)
Operating margin
Interest income
Interest expense, net
Other income/ (expenses), net
Division profit margin
Supplemental information:
Income tax expense (benefit)
Segment’s capital expenditure
Division profit / (loss) before income tax
(37,035)
(53,281)
(17,588)
(39,945)
40,056
(872)
(31)
40,025
33.3%
—
—
3,021
7.5%
(5,033)
(23)
(2,035)
-5.1%
17
(158)
485
(1,691)
-4.2%
(36)
1,337
Poultry
70,332
(773)
(1,820)
68,512
57.0%
(135)
—
16,916
24.1%
(7,581)
15
9,350
13.3%
246
(1,504)
(30)
8,062
11.5%
22
1,859
Pork
24,478
—
(20,948)
3,530
2.9%
(1,244)
—
5,646
23.1%
(440)
—
5,206
21.3%
(1,025)
32
18
4,231
17.3%
(1)
2,798
Grain
5,758
—
(3,545)
2,213
1.8%
—
155
(4,128)
1,785
31.0%
(274)
—
1,511
26.2%
1
(132)
22
1,402
24.3%
15
1,109
Feed
40,321
—
(40,311)
10
0.0%
—
—
376
0.9%
(173)
—
203
0.5%
73
(727)
313
(138)
-0.3%
40
719
Meat-Processing
Total reportable
segments
Corporate
Intersegment
and other adjustments
Total
without Turkey
Turkey
Combined
180,945
(1,645)
(66,655)
114,290
95.2%
(1,379)
155
(151,977)
27,744
15.3%
(13,501)
(8)
14,235
7.9%
369
(3,546)
808
11,866
6.6%
40
7,822
—
—
—
—
0.0%
—
—
—
—
0.0%
(3,990)
—
(3,990)
-
242
(1,306)
(59)
(5,113)
—
6
730
(67,552)
—
66,801
(751)
-0.6%
—
(126)
67,090
(588)
0.9%
653
—
65
-0.1%
(368)
368
—
65
-0.1%
—
—
113,393
(1,645)
146
113,539
94.5%
(1,379)
29
(84,887)
27,156
23.9%
(16,838)
(8)
10,310
9.1%
243
(4,484)
749
6,818
6.0%
46
8,552
6,716
(134)
(146)
6,570
5.5%
—
—
(6,009)
707
10.5%
(713)
(115)
(121)
-1.8%
—
—
—
(121)
-1.8%
—
—
120,109
(1,779)
—
120,109
100.0%
(1,379)
29
(90,896)
27,863
23.2%
(17,551)
(123)
10,189
8.5%
243
(4,484)
749
6,697
5.6%
46
8,552
www.cherkizovo.com
97
CHERKIZOVO GROUPCherkizovo unites Financial
Performance
Overview
CONSOLIDATED SELECTED FINANCIAL DATA FOR THE YEAR ENDED 31 DECEMBER 2019 (continued)
RUB mln
Meat Processing
Poultry
Division profit /
(loss) before income tax
Add:
Interest expense, net
Interest income
Foreign exchange loss/(gain)
Depreciation and amortisation expense
Net change in fair value of biological
assets
Share of (gain)/loss of joint ventures and
accociates
Share of adjusted EBITDA of joint ventures
and associates
Bonuses to employees under long-term
incentive program
Depreciation and amortisation
accumulated in harvested crops in stock
Adjusted EBITDA
Adjusted EBITDA Margin
(1,691)
8,062
158
(17)
(441)
1,245
—
23
104
11
—
(608)
-1.5%
1,504
(246)
41
2,847
135
(15)
193
41
—
12,562
17.9%
Pork
4,231
1,025
(32)
(14)
1,870
1,244
—
—
40
—
8,364
34.2%
Grain
1,402
132
(1)
(10)
510
—
—
—
3
94
2,130
37.0%
Feed
(138)
727
(73)
(311)
725
—
—
—
7
—
937
2.3%
Total reportable
segments
Intersegment
Corporate
and other adjustments
Total without Turkey
Turkey
Combined
11,866
(5,113)
6,818
(121)
6,697
3,546
(369)
(735)
7,197
1,379
8
297
102
94
23,385
12.9%
1,306
(242)
59
618
—
—
—
—
—
103
(3,269)
65
(368)
368
—
—
—
—
—
—
—
65
-0.1%
4,484
(243)
W
7,815
1,379
8
297
205
94
20,181
17.8%
—
—
—
3
—
115
439
—
—
437
6.5%
4,484
(243)
(676)
7,818
1,379
123
736
205
94
20,617
17.2%
98
2 Annual report 2019
CHERKIZOVO GROUPAbout the Company Strategic ReportFinancial ResultsSustainable development Corporate governance CONSOLIDATED SELECTED FINANCIAL DATA FOR THE YEAR ENDED 31 DECEMBER 2019 (continued)
Division profit /
(loss) before income tax
Add:
Interest expense, net
Interest income
Foreign exchange loss/(gain)
Depreciation and amortisation expense
Net change in fair value of biological
assets
accociates
Share of (gain)/loss of joint ventures and
Share of adjusted EBITDA of joint ventures
and associates
Bonuses to employees under long-term
incentive program
Depreciation and amortisation
accumulated in harvested crops in stock
Adjusted EBITDA
Adjusted EBITDA Margin
158
(17)
(441)
1,245
—
23
104
11
—
(608)
-1.5%
1,504
(246)
41
2,847
135
(15)
193
41
—
12,562
17.9%
Pork
4,231
1,025
(32)
(14)
1,870
1,244
—
—
40
—
8,364
34.2%
Grain
1,402
132
(1)
(10)
510
—
—
—
3
94
2,130
37.0%
Feed
(138)
727
(73)
(311)
725
—
—
—
7
—
937
2.3%
RUB mln
Meat Processing
Poultry
Total reportable
segments
Corporate
Intersegment
and other adjustments
Total without Turkey
Turkey
Combined
(1,691)
8,062
11,866
(5,113)
3,546
(369)
(735)
7,197
1,379
8
297
102
94
23,385
12.9%
1,306
(242)
59
618
—
—
—
103
—
(3,269)
—
65
(368)
368
—
—
—
—
—
—
—
65
-0.1%
6,818
(121)
6,697
4,484
(243)
W
7,815
1,379
8
297
205
94
20,181
17.8%
—
—
—
3
—
115
439
—
—
437
6.5%
4,484
(243)
(676)
7,818
1,379
123
736
205
94
20,617
17.2%
www.cherkizovo.com
99
CHERKIZOVO GROUPCherkizovo unites Financial
Performance
Overview
POULTRY
Sales volumes in 2019 increased by
Gross profit was up by 32.3% y-o-y
22% to 663.0 thousand tonnes (2018:
and totaled RUB 16.9 billion, (2018:
544.2 thousand tonnes). The average
RUB 12.8 billion) driven by volumes growth,
selling price increased by 9% y-o-y to
sales channel diversification and better
106.0 RUB/kg. We successfully integrated
pricing. Gross margin declined to 24.1%,
several companies that we had acquired
from 24.2% in 2018.
at the end of 2018, and which significantly
contributed to the growth of the volumes
Operating expenses as a percentage
in 2019. Our sales from Petelinka branded
of sales increased to 10.8% compared
products, the focus brand of the segment,
to 10.2% a year ago. Operating income
added 13%, while exports and foodservice
increased by 26.3% y-o-y to RUB 9.4 billion
were the fastest-growing channels, adding
(2018: RUB 7.4 billion). Operating margin
131% and 95% respectively. As a result,
declined to 13.3% from 14.0% in 2018.
the segment’s revenue increased by 33.4%
and amounted to RUB 70.3 billion (2018:
The segment’s profit before income
RUB 52.7 billion).
tax amounted to RUB 8.1 billion (2018:
Net change in fair value of biological assets
was negative RUB 135 million, compared to
Adjusted EBITDA of RUB 12.6 billion,
positive RUB 1.3 billion in 2018.
increased by 49.8% y-o-y, while Adjusted
RUB 6.9 billion).
EBITDA margin increased to 17.9% from
15.9% a year ago.
70.3
RUB billion
Segment’s revenue
12.6
RUB billion
Segment's adjusted EBITDA
100
100
Cherkizovo Group
2 Annual Report 2019
2 Annual report 2019
CHERKIZOVO GROUPAbout the Company Strategic ReportFinancial ResultsSustainable development Corporate governance RUB mln
Total Sales
Interdivision sales
Sales to external customers
Net change in fair value of biological assets
Cost of sales
Gross profit/(loss)
Gross margin
Operating expenses
Share of gain/(loss) of joint ventures
Operating profit/(loss)
Operating margin
Interest income
Interest expense, net
Other income/(expenses), net
Division profit/(loss) before income tax
Division profit margin
Poultry division Adjusted EBITDA reconciliation
12 months ended
31 December 2019
12 months ended
31 December 2018
Change, %
70,332
(1,820)
68,512
(135)
(53,281)
16,916
24.1%
(7,581)
15
9,350
13.3%
246
(1,504)
(30)
8,062
11.5%
52,723
(1,594)
51,129
1,264
(41,205)
12,782
24.2%
(5,379)
—
7,403
14.0%
172
(621)
(53)
6,901
13.1%
33.4%
14.2%
34.0%
n.a.
29.3%
32.3%
(0.1 p.p.)
40.9%
n.a.
26.3%
(0.7 p.p.)
43.0%
142.2%
(43.4%)
16.8%
(1.6 p.p.)
Division profit/(loss) before income tax
8,062
6,901
16.8%
Add:
Interest expense, net of subsidies
Interest income
Foreign exchange (gain)/loss, net
Depreciation and amortisation
Net change in fair value of biological assets
Share of (gain)/loss of joint ventures
Share of adjusted EBITDA of joint ventures
Bonuses to employees under long-term incentive program
Poultry division Adjusted EBITDA
Adjusted EBITDA Margin
1,504
(246)
41
2,847
135
(15)
193
41
12,562
17.9%
621
(172)
74
2,055
(1,264)
—
—
172
8,387
15.9%
142.2%
43.0%
(44.6%)
38.5%
n.a.
n.a.
n.a.
(76.2%)
49.8%
2 p.p.
www.cherkizovo.ru/en
www.cherkizovo.com
Cherkizovo Group
101
101
CHERKIZOVO GROUPCherkizovo unites Financial
Performance
Overview
PORK
Sales volumes in 2019 increased by 16%
Gross profit of RUB 5.6 billion declined by
y-o-y, to 274.6 thousand tonnes (2018:
46.7% compared to RUB 10.6 billion in 2018,
236.9 thousand tonnes), as wean-to-finish
on softer price environment and 11.1%
facilities launched in 2019 boosted our
cost inflation in per kg pork production.
production. The average selling price
The segment’s gross margin declined to
of 89.1 RUB/kg, declined by 9% y-o-y
23.1%, from 45.5% a year ago.
compared to 98.2 RUB/kg a year ago, as
pork prices were under pressure from
Operating income amounted to
the supply push of domestic producers.
RUB 5.2 billion (2018: RUB 10.4 billion).
The segment’s revenue increased by
The segment’s operating margin declined
5.2% y-o-y to RUB 24.5 billion (2018:
to 21.3% from 44.8% a year ago.
RUB 23.3 billion).
Net change in fair value of biological assets
declined by 57.2% y-o-y to RUB 4.2 billion
was negative RUB 1.2 billion, compared to
(2018: RUB 9.9 billion).
The segment’s profit before income tax
positive RUB 0.9 billion a year ago.
Adjusted EBITDA compressed by
23.3% y-o-y to RUB 8.4 billion (2018:
RUB 10.9 billion). Adjusted EBITDA margin
declined to 34.2% from 46.9% in 2018.
24.5
RUB billion
Segment’s revenue
8.4
RUB billion
Segment's adjusted EBITDA
102
2 Annual report 2019
CHERKIZOVO GROUPAbout the Company Strategic ReportFinancial ResultsSustainable development Corporate governance RUB mln
Total Sales
Interdivision sales
Sales to external customers
Net change in fair value of biological assets
Cost of sales
Gross profit/(loss)
Gross margin
Operating expenses
Operating profit/(loss)
Operating margin
Interest income
Interest expense, net
Other income/(expenses), net
Division profit/(loss) before income tax
Division profit margin
Pork division Adjusted EBITDA reconciliation
Division profit/(loss) before income tax
Add:
Interest expense, net of subsidies
Interest income
Foreign exchange (gain)/loss, net
Depreciation and amortisation
Net change in fair value of biological assets
Bonuses to employees under long-term incentive program
Pork division Adjusted EBITDA
Adjusted EBITDA Margin
12 months ended
31 December 2019
12 months ended
31 December 2018
Change, %
24,478
(20,948)
3,530
(1,244)
(17,588)
5,646
23.1%
(440)
5,206
21.3%
32
(1,025)
18
4,231
17.3%
4,231
1,025
(32)
(14)
1,870
1,244
40
8,364
34.2%
23,262
(20,238)
3,024
899
(13,567)
10,594
45.5%
(179)
10,415
44.8%
64
(588)
(3)
9,888
42.5%
5.2%
3.5%
16.7%
n.a.
29.6%
(46.7%)
(22.4 p.p.)
145.8%
(50.0%)
(23.5 p.p.)
(50.0%)
74.3%
n.a.
(57.2%)
(25.2 p.p.)
9,888
(57.2%)
588
(64)
10
1,339
(899)
40
10,902
46.9%
74.3%
(50.0%)
n.a.
39.7%
n.a.
0.0%
(23.3%)
(12.7 p.p.)
www.cherkizovo.com
103
CHERKIZOVO GROUPCherkizovo unites Financial
Performance
Overview
MEAT
PROCESSING
Sales volumes in 2019 increased by 7%
Operating expenses increased by
y-o-y to 245.6 thousand tonnes (2018:
28.5% y-o-y, and amounted to 12.6% as
229.5 thousand tonnes), as higher volumes
a percentage of sales, compare with 10.1%
of pork production led to higher pork
in 2018.
carcass sales, while sausages volumes
were stable. The average selling price
Operating loss amounted to RUB 2.0 billion
declined by 4.0% y-o-y to 163.0 RUB/kg
compared to RUB 0.5 billion loss in 2018.
(2018: 169.6 RUB/kg), as price increase
in sausages was offset by negative
The segment’s loss before income tax
dynamics in pork carcass sales. As a result
was RUB 1.7 billion, compared to a loss
the segment’s revenue increased by
of RUB 1.1 billion a year ago.
3.3% and reached RUB 40.1 billion (2018:
RUB 38.8 billion).
Adjusted EBITDA turned to negative
RUB 0.6 billion from RUB 0.5 billion in
Gross profit declined by 12.2% y-o-y to
2018 as we invested in the prices of
RUB 3.0 billion, (2018: RUB 3.4 billion).
the value-added products to support
The gross margin fell to 7.5% from 8.9%
our sales.
a year ago.
40.1
RUB billion
Segment’s revenue
(0.6)
RUB billion
Segment's adjusted EBITDA
104
2 Annual report 2019
CHERKIZOVO GROUPAbout the Company Strategic ReportFinancial ResultsSustainable development Corporate governance RUB mln
Total Sales
Interdivision sales
Sales to external customers
Cost of sales
Gross profit/(loss)
Gross margin
Operating expenses
Share of gain/(loss) of associates
Operating profit/(loss)
Operating margin
Interest income
Interest expense, net
Other income/(expenses), net
Division profit/(loss) before income tax
Division profit margin
Meat processing division Adjusted EBITDA reconciliation
12 months ended
31 December 2019
12 months ended
31 December 2018
Change, %
40,056
(31)
40,025
(37,035)
3,021
7.5%
(5,033)
(23)
(2,035)
-5.1%
17
(158)
485
(1,691)
-4.2%
38,780
(1,027)
37,753
(35,341)
3,439
8.9%
(3,916)
—
(477)
-1.2%
20
(122)
(472)
(1,051)
-2.7%
3.3%
(97.0%)
6.0%
4.8%
(12.2%)
(1.4 p.p.)
28.5%
n.a.
326.6%
(3.9 p.p.)
(15.0%)
29.5%
n.a.
60.9%
(1.5 p.p.)
Division profit/(loss) before income tax
(1,691)
(1,051)
60.9%
Add:
Interest expense, net of subsidies
Interest income
Foreign exchange (gain)/loss, net
Depreciation and amortisation
Share of (gain)/loss of associates
Share of adjusted EBITDA of associates
Bonuses to employees under long-term incentive program
Meat processing division Adjusted EBITDA*
Adjusted EBITDA Margin
158
(17)
(441)
1,245
23
104
11
(608)
-1.5%
122
(20)
485
883
—
—
39
458
1.2%
www.cherkizovo.com
29.5%
(15.0%)
n.a.
41.0%
(71.8%)
n.a.
(2.7 p.p.)
105
CHERKIZOVO GROUPCherkizovo unites Financial
Performance
Overview
GRAIN
Sales volumes in 2019 declined by 25%
Operating expenses as a percentage
y-o-y to 524.0 thousand tonnes (2018:
of sales increased to 12.4% from 6.9%
696.1 thousand tonnes), while overall
a year ago.
harvest in the season increased by 24%
y-o-y to 593.0 thousand tonnes (2018:
Operating income declined to
479.7 thousand tonnes) driven by better
RUB 1.5 billion from RUB 1.7 billion in 2018,
results of wheat and corn cultivation.
with operating margin of 26.2% compared
The segment’s revenue declined by
to 24.9% in 2018.
5.8
RUB billion
Segment’s revenue
16.5% and reached RUB 5.8 billion (2018:
RUB 6.9 billion).
The segment’s profit before income tax was
RUB 1.4 billion, compared to RUB 1.5 billion
Net revaluation of harvested crops in
a year ago.
stock declined to RUB 155 million from
RUB 1.3 billion in 2018.
Adjusted EBITDA amounted to
RUB 2.1 billion compared RUB 2.3 billion
Gross profit declined by 7.2% to
in 2018.
RUB 1.8 billion (2018: RUB 1.9 billion).
Gross margin increased to 31.0% from
27.9% a year ago.
2.1
RUB billion
Segment's adjusted EBITDA
763
RUB million
Consolidated EBITDA
of the Group from all JVs
Results of joint ventures and associates
The Group’s significant joint ventures and associates include: 50% share in
Tambov Turkey, a turkey producer established by the Company and its partner
and shareholder Grupo Corporativo Fuertes, 75% share in Samson – Food
products, a meat processor in St-Petersburg, and 50% share in Cobb-Russia.
Total result in consolidated EBITDA of the Group from all JVs and associates
amounted to RUB 736 million, up from RUB 165 million a year ago.
106
2 Annual report 2019
CHERKIZOVO GROUPAbout the Company Strategic ReportFinancial ResultsSustainable development Corporate governance RUB mln
Total Sales
Interdivision sales
Sales to external customers
Net change in fair value of biological assets
Net revaluation of harvested crops in stock
Cost of sales
Gross profit/(loss)
Gross margin
Operating expenses
Operating profit/(loss)
Operating margin
Interest income
Interest expense, net
Other income/(expenses), net
Division profit/(loss) before income tax
Division profit margin
Grain division Adjusted EBITDA reconciliation
12 months ended
31 December 2019
12 months ended
31 December 2018
Change, %
5,758
(3,545)
2,213
—
155
(4,128)
1,785
31.0%
(274)
1,511
26.2%
1
(132)
22
1,402
24.3%
6,899
(3,945)
2,954
—
1,297
(6,273)
1,923
27.9%
(205)
1,718
24.9%
2
(173)
1
1,548
22.4%
(16.5%)
(10.1%)
(25.1%)
—
(88.0%)
(34.2%)
(7.2%)
3.1 p.p.
33.7%
(12.0%)
1.3 p.p.
(50.0%)
(23.7%)
2100.0%
(9.4%)
1.9 p.p.
Division profit/(loss) before income tax
1,402
1,548
(9.4%)
Add:
Interest expense, net of subsidies
Interest income
Foreign exchange (gain)/loss, net
Depreciation and amortisation
Net change in fair value of biological assets
Depreciation and amortisation accumulated in harvested crops
in stock
Bonuses to employees under long-term incentive program
Grain division Adjusted EBITDA
Adjusted EBITDA Margin
132
(1)
(10)
510
—
94
3
2,130
37.0%
173
(2)
—
809
—
(273)
8
2,263
32.8%
www.cherkizovo.com
(23.7%)
(50%)
n.a.
(37.0%)
—
n.a.
(62.5%)
(5.9%)
4.2 p.p.
107
CHERKIZOVO GROUPCherkizovo unites Financial
Performance
Overview
LIQUIDITY AND CAPITAL
Debt
As at 31 December 2019, net debt came
TOTAL DEBT STRUCTURE,
RUB bln
Capital needs
In addition to our working capital
in at RUB 61.2 billion as compared to
RUB 58.6 billion at the end of 2018.
requirements, we require capital to finance
Total debt decreased from RUB 68.8 billion
67.4%
32.6%
the following:
• capital expenditures, particularly
at the end of 2018 to RUB 65.2 billion.
in connection with development and
As at 31 December 2019, long- term debt
maintenance capital expenditures;
stood at RUB 43.9 billion, or 67.4% of
repayment of debt; and
•
• potential acquisitions.
the Group’s debt portfolio, while short-
term debt accounted for 32.6% of the debt
portfolio. The effective cost of debt was
We anticipate that capital expenditures,
6.9% as of 31 December 2019, change from
repayment of long-term debt and potential
4.7% in 2018. Subsidised loans and credit
acquisitions will represent the most
facilities made up 27% of the debt portfolio
significant uses of funds for the next several
in 2018 (2018: 40%). As at 31 December
years.
2019, cash and cash equivalents totaled
RUB 3.3 billion.
In 2019, the major sources of our funds
were our operating cash flows and short
and long-term borrowings. We financed our
capital expenditures primarily with short
and long-term borrowings.
Long-term debt
Short-term debt
%
67.4
32.6
108
2 Annual report 2019
CHERKIZOVO GROUPAbout the Company Strategic ReportFinancial ResultsSustainable development Corporate governance
CAPITAL EXPENDITURES
In 2019 Cherkizovo Group’s total capital
SUBSIDIES
In 2019, total government grants for compensation of interest expenses grossed of related
expenditures, excluding acquisitions and
interest expense stay at the same level and amounted to RUB 1.3.
investments in joint ventures and associates
amounted to RUB 8.6 billion (down 12%
year-on year) and included:
Cash flows, RUB bln
The table below represents movements in our cash flows from various activities associated
with continuing operations for the two years ended 31 December 2019 and 31 December
• RUB 1.3 billion invested in the Meat
Processing segment (significant
investments were made in
2018, respectively:
the modernization of meat processing
Net cash flows from operating activities
facilities: slicing and packing bacon,
the production of sausages in a tray,
sliced smoked sausage; the Group
also made significant investments
in the reconstruction of treatment
facilities at the slaughter plants);
Net cash used in investing activities
Net cash (used in) /
generated from financing activities
Net (decrease)/
increase in cash and cash equivalents
2019
16.1
(11.0)
(11.4)
(6.3)
2018
14.2
(15.3)
10.1
8.9
• RUB 2.8 billion invested in the Pork
segment (construction of four new
wean-to-finish facilities in the Penza
region);
• RUB 1.9 billion invested in the Poultry
segment (the investments made in
strategically significant project on
a slaughter line cooling system and
completed a number of projects aimed
at the production of high value-added
products);
• RUB 1.1 billion invested in the Grain
segment (construction of a new grain
drying facility).
www.cherkizovo.com
109
CHERKIZOVO GROUPCherkizovo unites Financial
Performance
Overview
16.1
RUB billion
Net cash from operating
increased
Operating activities
Net cash from operating activities in
Investing activities
Use of cash in investing activities decreased
2019 increased by 13,3% to RUB 16.1 billion
to RUB 11.0 billion from RUB 15.3 billion
from RUB 14.2 billion in 2018.
in 2018. In 2018 the Group completed
the acquisition of 100% of JSC “Altaisky
In 2019, the Company showed an outflow
Broiler” for cash consideration of
of working capital in the amount of
RUB 4.6 billion and acquisition of all tangible
RUB 0.6 billion. In 2018, the inflow of
assets, including poultry parent stock, of
working capital amounted to RUB 0,9 billion.
four hatching eggs’ production facilities of
CJSC “Krasnoyaruzhsky Broiler” (Belgorod
• RUB 1.1 billion increase in current
region) at the amount of RUB 1.8 billion.
biological assets due to increase in
the number of livestock as a result of
In 2019, the only acquisition was 100%
the commissioning of new production
of СJSC “Rovensky Broiler” for cash
facilities and improvement of key
consideration of RUB 1.7 billion.
performance indicators;
• RUB 0.5 billion increase in inventory
Financing activities
Our net cash flows used in financing
particularly due to the increase in grain
activities amounted to RUB 11.4 billion
stocks and feed components, increase
in 2019 compared to net cash from
in stocks in connection with the launch
financing activities in 2018 in the amount of
of production at Kashira-1 and
RUB 10.1 billion. The change in 2019 was
fertilizers in the Grain segment;
due to repayment of the short-term loans.
• RUB 1.2 billion increase in trade
payables due to the increase in
deferred payments under contracts;
110
2 Annual report 2019
CHERKIZOVO GROUPAbout the Company Strategic ReportFinancial ResultsSustainable development Corporate governance Liquidity
As of 31 December 2019, we had total cash
trade receivables was RUB 183 million and
Current biological assets amounted
RUB 119 million as of 31 December 2019,
to RUB 16.3 billion as of 31 December
and cash equivalents of RUB 3.3 biillion,
2018, respectively, due to the additional
2019 and RUB 15.4 billion as of
which were denominated largely in
information received regarding insolvency
31 December 2018. The increase was
Roubles. As of 31 December 2019, we had
of some of the buyers.
largely due to increase in the number of
Net Current Assets of RUB 3.9 billion (2018:
livestock as a result of the commissioning of
6.3 billion).
Trade payables increased to
new production facilities and improvement
RUB 11.6 billion as of 31 December
of key performance indicators.
Our Trade Working Capital as of
2019 from RUB 10.8 billion as of
31 December 2019, which we define
31 December 2018 primarily due to
Other receivables, net, decreased
as current assets less current liabilities
the growth of business purchases.
to RUB 0.2 billion as of 31 December
excluding short-term loans and
Trade payables turnover averaged 45 days,
2019 from RUB 1.5 billion as of
current portion of long-term loans,
48 days as of 31 December 2019, 2018,
31 December 2018. The decrease in other
was RUB 25.1 billion as compared to
respectively.
RUB 30.5 billion as of 31 December 2018.
receivables in 2019 was largely due to
due to receiving subsidies of the previous
Our inventory consists primarily of raw
periods.
In 2019 our trade receivables, net slightly
materials, spare parts, work-in-progress
decreased by 4.5% and amounted to
and finished goods. Our inventories
RUB 5.5 billion from RUB 5.7 billion as of
were RUB 13.2 million, RUB 12.4 as of
31 December 2018. Trade receivables
31 December 2019, 2018, respectively.
turnover averaged 17 days as of
The increase in inventories in 2019 was
31 December 2019 and 19 days as of
largely due to the increase in wheat and
31 December 2018. Allowance for doubtful
soybean stock.
Ludmila Mikhaylova
CFO
www.cherkizovo.com
111
CHERKIZOVO GROUPCherkizovo unites Sustainable
development
Cherkizovo Group monitors and takes
customers, employees, suppliers and
Cherkizovo Group takes an active part in
society’s expectations into account in
partners, agricultural industry players,
developing the industry and liaises with
decision-making. The Company promotes
local and federal authorities, trade
its community. The Company is a member
an effective dialogue with a broad range
associations, non-profit organizations,
of the National Meat Association, National
of stakeholders. Our stakeholders include
and local communities in all regions
Union of Swine Breeders, National Union
investors and shareholders, consumers,
where we operate.
of Meat Processors, and National Union
of Poultry Farmers established in 2019.
Suppliers
and business partners
•
transparent business practices,
including transparency of
tenders;
selection of partners who meet
the Group’s high standards
and requirements.
•
Customers
(retail, HoReCa, exports)
timely supplies of high-quality
•
products;
joint projects;
transparent business practices.
•
•
Government agencies
• compliance with applicable
laws;
timely payment of taxes;
•
• cooperation in investment
projects and social programs.
Investors and
shareholders
•
full and timely disclosure
of all required information;
• approved dividend policy;
• maintaining an ongoing
dialogue in a variety of formats
(meetings, participation in
conferences, publications).
Agricultural sector
•
introduction of innovative
technologies;
• application and development
of humane animal treatment
practices;
• compliance with biosafety
standards;
• amelioration.
Local communities
• creation of jobs;
•
•
sponsoring charities;
funding educational,
healthcare, and cultural
facilities;
• mitigation of negative
environmental impact.
112
CHERKIZOVO GROUP
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUP As a major Russian food producer, Cherkizovo Group has a considerable
impact on the regions where it operates. In our operations, we are
committed to the concept of sustainable development, as we seek
to ensure that today’s growth ambitions do not compromise the ability of the future
generations to meet their own needs. We advocate responsible land use, animal
management, and food production.
RSPP
In 2019, Cherkizovo joined the
Russian Union of Industrialists and
Entrepreneurs (RSPP), an association
that brings together players from the
country’s key economic sectors.
As part of the union, the Group plans
to participate in the activities of the
Commission on the Agricultural
Complex and contribute to developing
the industry’s consolidated position
on matters such as improving access
to government support for agriculture,
and maximizing the export potential
of Russian animal products.
Last year, Cherkizovo represented by CEO Sergey
Mikhailov joined a working group participating
in the regulatory guillotine project for animal
and crop farming. The regulatory guillotine
is a mechanism designed by the Russian
Government to eliminate outdated regulations,
some of which date back to the USSR.
Employees
• competitive salaries and social benefits;
• workplace safety;
•
training and educational programs.
Consumers
• product quality excellence and quality
control;
• addressing consumer complaints
in a timely manner and taking
immediate action;
refining product portfolio and
production technology in line with
current trends such as healthy lifestyles
and environmental protection.
•
www.cherkizovo.com
113
CHERKIZOVO GROUPCherkizovo unites Our
employees
HR POLICY
Highly skilled employees are essential
for an efficient business. Cherkizovo
Group seeks to develop human capital:
we source the best professionals in
the industry, run training programs
and promote self-development. The
Company complies with applicable
Russian laws, monitors and employs
international best practices in human
resources management.
Cherkizovo Group is among the largest
employers in the Russian agricultural
sector: at the end of 2019, we employed
EMPLOYEE AGE, %
27
27
11
28
8
8
2019
2018
2017
Under 25 years
26–35
36–45
24
24
23
12
12
11
29
29
27
46–55
55+
over 30,000 people, up 19% year-on-year.
YEARS OF EMPLOYMENT WITH THE COMPANY, %
The increase was driven by the ramp-up
of the Group’s operations: we acquired
new poultry assets and launched new
nursery and finisher sites in the Penza
Region.
2019
2018
2017
37
24
14
16
8
31
24
15
27
31
14
18
17
12
11
Less than 1 year
1–3 years
3–5 years
5–10 years
Over 10 years
EMPLOYEE EDUCATION, %
EMPLOYEES BY TYPE OF
EMPLOYMENT AND NON-PAYROLL
STAFF, %
20 1
2019
2018
2017
23 1
23 1
79
75
76
18
17
17
2019
2018
2017
82
0
82 1
281
Higher education
Incomplete degree
Secondary and vocational
education
Administrative personnel
Workers
Non-payroll labour
30
thousand employees
Cherkizovo Group’s
headcount
114
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUP
In 2019, we continued to
develop our human capital.
Our key HR initiatives
included:
• “Evolution@Cherkizovo.
Leaders of Change”
program;
• Training and development
program for beginning
managers;
• Distance learning
system for workers and
management in the
workplace;
• Dual education programs
implemented as part of the
Youth project to attract and
train young professionals;
• Strategic sessions to support
management teams.
PERSONNEL AND NEW HIRES
BY GENDER
RECRUITMENT
Cherkizovo Group ishiring across the
INDUCTION AND MENTORING
Cherkizovo seeks to make the onboarding
exercise for new hires quick and easy:
it holds dedicated events, trainings, and
mentoring sessions.
Employees who have recently joined
us go on a virtual tour of the Group’s
facilities, a special interactive online
course designed to introduce them
to production processes. This online
program also introduces them to
Cherkizovo Lab’s operations and food
safety at production facilities.
Cherkizovo is developing a mentoring
system where mentors, skilled and
seasoned employees, train new hires
in professional skills and give them
feedback. This helps newcomers to adapt
EMPLOYEE HEADCOUNT BY GENDER, %
segments, where it operates, as well as in
to the Company’s processes more quickly
IT, sales, innovation and R&D. When the
and boosts productivity.
57
56
55
2019
2018
2017
43
44
45
Company decides to hire an employee,
it relies exclusively on the person’s
A dedicated cross-cultural induction
professional skills and never discriminates
program helps foreign professionals
on the grounds of gender, age, nationality
employed by Cherkizovo Group to learn
or any other factor.
more about the Russian agricultural
industry, production processes and
We strive to contribute to the economic
corporate culture of the Company.
NEW HIRES, PERSONS
growth of local communities and
8,212
6,015
hire people from the regions where
6,751
4,025
6,417
3,729
we operate. Among other things, we
cooperate with local authorities and
employment centers.
2019
2018
2017
Male
Female
www.cherkizovo.com
115
CHERKIZOVO GROUPCherkizovo unites Our
employees
116
young specialists
were accepted into the
Company in 2019, 79
mentors took part in their
training
TRAINING AND DEVELOPMENT
Training employees and unlocking their
We provide a wide range of opportunities
for development. The Company hosts
potential are key to staff professionalism
Days of Learning and Development twice
Cooperation with educational
institutions
Cherkizovo Group partners directly with
and loyalty, and therefore to the
a year, with open workshops and master
major agricultural universities, such as
Company’s success. Cherkizovo Group
classes in many fields. Cherkizovo has
Razumovsky Moscow State University of
organizes educational events, provides
a corporate online library available
Technologies and Management, Russian
an opportunity to take part in industry
to all employees. We encourage our
State Agrarian University – Moscow
conferences, and overseas internships.
employees to learn foreign languages
Timiryazev Agricultural Academy,
with English language classes and
Voronezh State Agricultural University,
Our training programs cover all employee
English club sessions offered at some of
Penza State Agricultural University, teams
categories. We pay particular attention
the Group’s facilities to practise foreign
up with Moscow State University, Bauman
to biosafety and occupational safety,
language skills.
Moscow State Technical University, Higher
increasing productivity and improving
performance at work.
YOUTH PROGRAMS
Our priorities in human resource
School of Economics, and Plekhanov
Russian University of Economics. This
business-academia collaboration results
The Company runs Evolution@Cherkizovo.
management include ensuring a
in dedicated internship programs and
Leaders of Change, an 2-year integral
continuous supply of young talent,
induction plans for young talent.
leadership program. Participants
building an effective succession system,
implement personal and team projects,
and raising the profile of the agricultural
At the heart of the project is the dual
where they learn to apply new approaches
sector among young people. To this end,
education program enabling students to
and to look at challenges in a different way.
the Group runs Youth, a major staffing
obtain hands-on production experience
program, while our HR Department
in addition to academic training. This way,
We conduct annual employee
operates a young specialist engagement
they have an opportunity to address real
competency assessments, based on
center. In 2019, 116 young specialists were
business challenges. Dual education
which individual development plans are
accepted into the Company, 79 mentors
programs are introduced for second and
designed. In 2019, 80% of the Company’s
took part in their training.
third year students. They are implemented at
managerial staff had development plans
10 sites in Moscow, and across the Moscow,
based on personalized career paths.
The Group aims to become a Top 3
Kaliningrad, Lipetsk, and Penza regions, with
employer for agricultural graduates. For
a total of 102 students participating.
One of the technologies used by
this purpose, we build up cooperation
Cherkizovo Group to train employees
with leading educational institutions,
Young graduates who have completed
is e-learning. Our employees access
participate in job fairs and similar events
the dual education program do not need
training courses through Cherkizovo
to tell students and recent graduates
additional time for onboarding. Many
WORLD learning and development portal,
about career and professional growth
of the program participants remain our
a dedicated corporate platform. Webinars
are also held by our employees, who tell
opportunities at the Group, hold career
guidance meetings and presentations at
employees. It helps maintain an inflow of
young talent and increases the percentage
colleagues about our internal processes
universities, and open days.
of students whose employment matches
and initiatives.
their professional training.
116
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUP Technology leaders
In the reporting year, the Group’s Yours.
Present. Future project ranked second
in the nationwide Graduate Awards
2019, a major contest for projects
targeting university graduates and young
professionals, and won in the Education
and Science category of Russia’s Best
Social Projects 2019 Award.
119
students have
participated in
Cherkizovo Group's
dual education program
since 2017
The initiative also covers upskilling and
reskilling programs, competitions, and
contests, as well as work on student
graduation projects based on the
Company’s objectives.
As part of its career guidance initiative,
Cherkizovo held 32 events at universities,
vocational and secondary schools, involving
3,500 people. The main activities included:
• The Company days;
• The University Saturdays, university-
based workshops held once a year
to induce school students to choose
a career in agriculture;
• The Choose Your Path meetings held
twice a year at vocational schools to
interest school students in agricultural
careers;
• Tours around Cherkizovo Lab and
the automated plant in Kashira for
university and school students.
In 2019, the Company’s Center for
• Discover Cherkizovo event for interns
In the reporting year, the Group’s Yours.
Student Programs and Youth Initiatives
attended by the Company’s top
Present. Future project ranked second
implemented the following projects:
management;
in the nationwide Graduate Awards
• The launch of four new Meat
Technology training programs
at a specialized university;
• The launch of Cherkizovo Vocational
2019, a major contest for projects
School project in Kashira;
targeting university graduates and young
• The launch of the Technology Leaders
project by the Company's Research
professionals, and won in the Education
and Science category of Russia’s Best
• Development and launch of new
and Development Department;
Social Projects 2019 Award.
training programs covering Process
• The launch of the Cherkizovo
and Production Automation, Meat
Champions project, with seven
Technology, automation, and HACCP
at a specialized university;
university graduates participating;
• Marketing project defence by Moscow
• The launch of a series of lectures
by Cherkizovo experts for Meat
State University students; seven projects
were presented and as a result twelve
Technology and HR Management
students were awarded internships.
training programs;
www.cherkizovo.com
117
CHERKIZOVO GROUPCherkizovo unites Our
employees
683
RUB million
Cherkizovo Group’s
spending on social
programs and benefits,
+249%
COMPENSATION AND BENEFITS
Well-being of employees is the Company’s
In 2019, the payroll, including bonuses and
remuneration, increased by 19% to RUB
CORPORATE CULTURE
Employee engagement and loyalty
top priority that has a direct impact on
18.3 billion, while the average monthly
have a direct impact on the Company’s
its long-term development. This is why
salary was RUB 54,357. Excluding the
business performance. That is why we
we provide competitive salaries to our
medium-term bonus program, the average
promote our corporate culture, create
staff in line with the social and economic
salary increased by 3.2% to RUB 53,749 in
a friendly working atmosphere, and
environment in the regions where we
2019 from RUB 52,082 in 2018.
develop various feedback channels for
operate. Salary is commensurate with the
employee’s position, qualification, and
performance.
SOCIAL BENEFITS
We offer not only a decent salary, but
The Group’s corporate portal features
also social security and an environment
Thank You, a non-financial recognition
our employees.
The remuneration often includes a variable
for personal and professional growth.
program, where employees can publicly
part (bonus). Its amount depends on
post "thank you" messages to their
the nature of the job and achievement
On top of the social benefits mandated
colleagues. The rating of employees
of performance indicators the position
by the Russian laws and regulations,
with the biggest number of "thank you"
has impact on. Managers receive annual
the Group provides corporate perks and
notes is open for all staff to see. Every
bonuses based on the achievement of
incentives, and creates a comfortable
quarter, the Top 3 of them are awarded
corporate and individual targets for the
environment for work and leisure. Our
by the Group. The Thank You program
year. Uniform criteria for the establishment
fringe benefits include paid holiday
boosts staff engagement in the form of
and assessment of annual targets provide
allowance, vouchers to health resorts
a game and creates a friendly working
a transparent and clear mechanism to
and summer camps for employees and
environment.
calculate the annual bonus.
their families, financial assistance in
EMPLOYEE REMUNERATION
IN 2017–2019
PAYROLL, INCLUDING BONUSES
AND REMUNERATION, RUB MILLION
18,327
15,343
13,534
54,357
54,416
48,700
2019
2018
2017
AVERAGE MONTHLY SALARY, RUB*
2019
2018
2017
118
emergencies. Most of our assets have
Cherkizovo Group sites regularly host
corporate cafeteria, and health centers
professional skills contests, where the
for employees.
year’s best performers receive special
In 2019, Cherkizovo Group’s spending on
awards.
social programs and benefits soared by
The Group seeks to maintain a dialogue
249% to RUB 683.9 million.
between the management team and
employees. In March 2019, we held our
first Town Hall, a video conferencing
session where our employees had an
opportunity to ask the CEO a question
in person.
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUP Health, Safety and
the Environment
Industrial safety
and environmental
protection are top
priorities at Cherkizovo
Group. We seek to
completely eliminate work-
related injuries, lead the
industry in health and safety
performance, and minimize
our environmental footprint.
Our approach to occupational safety includes:
• workplace safety;
• systematic risk identification and management;
• sound occupational health and safety management system;
• effective hazard information system;
• robust employee training in OHS requirements and standards;
• strict employee compliance with existing OHS requirements.
OCCUPATIONAL HEALTH
We implement numerous initiatives
To further promote personnel
AND SAFETY
We are well aware that the health and
aimed at preventing accidents and
engagement, we have set up
incidents, reducing injuries, improving
a Occupational Safety for employees to
safety of our people are key to the
workplace safety, and promoting
communicate their ideas on improving
Company’s strategic plan and sustainable
employee well-being.
occupational health and safety.
development in the long run. We strictly
comply with all statutory health and safety
We invest continuously in enhancing
We employ a number of key indicators,
requirements, and make sure that our
our occupational safety procedures to
including the lost time injury frequency
safety procedures are in line with the best
safeguard the health of our employees.
rate (LTIFR), to assess occupational safety
international practices.
In particular, we place major emphasis on
performance at Cherkizovo.
upgrading equipment and increasingly
In 2019, Cherkizovo adopted the
automating production processes to
Occupational Health and Safety Policy to
reduce human-related risk factors in
set out our long-term goals for improving
health and safety.
performance in this sphere.
The Group provides training for
Cherkizovo Group has joined the Vision
employees to increase their awareness
Zero campaign sponsored by the
and involvement in OHS matters. In 2019,
International Social Security Association
the Company trained an equivalent of
(ISSA) with a relevant certificate issued to
2,071 employees in occupational health
the Company at the Russian Health and
Safety Week in Sochi in 2019.
and safety and organised 75 workshops
on corporate safety standards.
www.cherkizovo.com
119
CHERKIZOVO GROUPCherkizovo unites PAYROLL, INCLUDING BONUSES
AND REMUNERATION, RUB MILLION
Health, Safety
and the Environment
AVERAGE MONTHLY SALARY, RUB*
No fatalities, no major
group accidents in 2019
SEVERITY RATE *
Key occupational health and safety
LOST TIME INJURY FREQUENCY
RATE (LTIFR)
2019
2018
2017
1.71
1.99
1.50
POULTRY
PORK
FEED
In 2019, LTIFR was down by 14% year-on-
year. Most injuries were caused by falls (28%
of all accidents), stab wounds (16%), and
GRAIN
road accidents during the transportation of
employees by third-party providers (12%).
The reporting year saw no fatalities or major
MEAT PROCESSING
group accidents across the Company’s
facilities.
We thoroughly investigate all accidents to
identify and localize their causes and prevent
recurrence in the future. In 2019, we acted
promptly to tighten safety requirements
for employee transportation to curb the
rise in traffic accidents involving third-party
providers.
TURKEY
LOGISTICS
2019
2018
36.64
44.41
57
18.4
5
58
45
0
24.34
26.78
35.28
56.67
15.5
41
* SR = D/A, where D stands for the number of days
lost due to workplace injury in the reporting period,
while A stands for the number of accidents in the
reporting period.
projects in 2019:
• Rolling out of the occupational risk
mitigation system, where all production
processes are examined in stages to
identify potential risks for each stage
and assess them on a special scale.
Major risks are promptly tackled, while
remedial measures are developed for
less likely risks. Through this practice,
we identified over 2,000 risk mitigation
activities to be conducted in 2020.
• Online tests to examine knowledge of
the ten most important OHS issues by
the managerial staff. Managers failing
the tests are required to undergo special
training and retake the tests.
•
Implementation of the minor injury
investigation program to register all
visits to first aid rooms, uses of first aid
kits and sick leave notes. This initiative
helps to better understand the causes of
occupational accidents and tackle them
proactively. In 2019, we revealed and
investigated 426 minor injuries across
the Group’s facilities.
• Equipment assessment in buildings and
structures at the Company’s production
sites with repairs and replacement
carried out when necessary.
• Safety awareness campaigns with
emphasis on prevention education and
visual impact methods.
120
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUP 484.6
RUB million
of occupational health
and safety expenses
across the Group
+70% year-on-year
OCCUPATIONAL HEALTH AND
SAFETY EXPENSES, RUB ‘000
EXPENSES FOR OCCUPATIONAL HEALTH AND
SAFETY ACTIVITIES PER EMPLOYEE, RUB ‘000
2019
2018
321.5
201
EXPENSES FOR OCCUPATIONAL HEALTH AND
SAFETY TRAINING OF PERSONNEL, RUB MILLION
2019
2018
25.92
16.85
OCCUPATIONAL HEALTH AND
SAFETY EXPENSES, RUB ‘000
2019
2018
2017
484.6
283.6
164.8
NUMBER OF INJURIES IN 2017–2019
FATAL
In 2019, Cherkizovo Group became
MAJOR
a partner of the Russian Health and Safety
Week, displaying the Company’s OHS
practices at the event.
MINOR
In 2020, we will work persistently to
TOTAL
cultivate the occupation safety culture.
2019
2018
2017
0
8
82
90
3
7
79
89
2
6
57
65
www.cherkizovo.com
121
CHERKIZOVO GROUPCherkizovo unites Health, Safety
and the Environment
Environmental safety and sustainable use of natural
resources is a major priority for the Company.
In implementing its environmental initiatives, Cherkizovo Group
strictly complies with regulatory requirements and the best
industry practices.
ENVIRONMENTAL PROTECTION
We invest in the most advanced
(WWF). On 30 March 2019, Cherkizovo
In 2019, we implemented a number
Group for the first time took part in the
of major projects to reduce our
technology and management systems to
Earth Hour, an annual international
environmental footprint and decrease
minimize the Company’s environmental
environmental campaign to switch off
consumption of natural resources at our
footprint, pay great attention to the
the lights for one hour to signal our
facilities:
efficient use of natural resources, and
commitment to saving the planet.
support a broad range of environmental
projects.
The Group was also an official partner
• Renovation and upgrade of treatment
facilities at the production sites in the
of the event to celebrate 25 years of
Lipetsk, Penza, Voronezh and Moscow
All of our production facilities are
WWF work in Russia. Guests at the event
regions. This includes renovation of
equipped to monitor wastewater
were able to enjoy a wide selection of
the local full cycle treatment facilities at
discharge, air pollution and energy
Cherkizovo products. The Company
the Group's Dankov site. The project saw
consumption. Through constant
also sponsored a win-win charity lottery
complete facility clean-up, equipment
environmental monitoring and analysis
with all proceeds used to support rare
upgrade, treatment technology
at our production sites we are able to
species preservation projects in Russia.
automation, and pollutant reduction in
prevent accidents and take prompt
the plant’s incoming flow.
action to redress any potential problems.
Cherkizovo Group seeks to minimize
its production waste. For example,
• Overhaul of wells in the Moscow and
The Company closely cooperates on
waste from poultry production is used
Penza regions.
environmental matters with government
to make granular fertilizers. In pork
agencies, business partners, NGO
production, we use a unique monolithic
experts, and broad industry community.
seamless flooring technique at the
• Design and construction of composting
facilities and poultry manure storages in
nursery and finisher sites to prevent soil
the Lipetsk, Penza and Tambov regions.
Last year saw the start of our partnership
contamination with manure. We make
with the World Wide Fund for Nature
every effort to promote resource
• Launching a blood processing unit in
512.4
RUB million.
Investment in
environmental
protection projects
conservation and energy efficiency
the Penza Region.
among our employees. To this end,
we have implemented waste sorting,
• Construction and upgrade of exhaust
as well as collection and disposal of
and ventilation systems, as well
used batteries and accumulators at our
as construction of lagoons and
headquarters.
refurbishment of manure removal
pipelines in the Lipetsk Region.
All environmental projects underwent
state expert review to confirm compliance
with regulatory requirements.
122
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUP 3.4%
the Group’s energy
consumption down
in 2019
INVESTMENT IN ENVIRONMENTAL
PROTECTION PROJECTS, RUB million
AIR
WATER
WASTE
TOTAL
32.7
15.0
342.8
121.3
136.9
163.3
512.4
299.6
HAZARD CLASSES 1 TO 4 WASTE
MANAGEMENT IN 2018-2019,
thousand tonnes
RECYCLED
DECONTAMINATED
LANDFILLED
TRANSFERRED TO THIRD PARTIES
TOTAL
3,514
808
184
123
955
1,164
2,735
1,503
7,388
3,598
KEY ENVIRONMENTAL
IMPACT FACTORS
In 2019, Cherkizovo Group generated
PLANS
In 2020, we are planning to install
an additional filtration-based air
2.2 times more waste of hazard classes
treatment system at Cherkizovsky
1 to 4 than in 2018. The rise was due
Meat Processing Plant’s Dankov
to the acquisition of new legal entities
site. It uses nozzles to feed
and production increase. The growth in
and vaporize aromatized water,
production contributed to a 30% increase in
creating a wet barrier for dust and
fresh water use from water sources, driving
up treated wastewater discharge and
odours along the plant’s perimeter.
The new treatment system will
pollutant emissions from stationary sources
help improve living conditions
by 69% and 1.1%, respectively. In 2019,
in Dankov, especially for people
the Group’s energy consumption per unit
residing close to the plant.
of output was down by 3.4% year-on-year
helped by the energy efficiency initiatives.
www.cherkizovo.com
123
CHERKIZOVO GROUPCherkizovo unites Community
relations
On top of that, the Company implements
targeted assistance programs across
its footprint to bolster educational and
healthcare institutions, sponsor cultural
events and sports teams, and help public
organizations and socially disadvantaged
groups.
Some of the charitable projects are
initiated by our employees and funded
by way of their personal contributions.
For example, in December 2019, we
sponsored a New Year’s event for children
and teenagers with Down syndrome,
whose holiday gift wishes were posted in
advance at the Company’s Moscow office.
The entire Group was able to contribute to
purchasing gifts for the event.
Our charitable initiatives go through
a thorough vetting process, which
includes discussion and approval by
internal and some external stakeholders.
Increasingly more regions are covered by
Cherkizovo Group’s charitable projects.
In 2019, we launched such projects in
the Altai Territory and the Belgorod and
Leningrad regions. .
INVESTMENT IN CHARITABLE
PROJECTS, RUB million
2019
2018
2017
12.8
5.8
2.4
INVESTMENT IN CHARITABLE
PROJECTS IN 2019 BY SECTOR
AND AREA
6%
3%
42%
49%
Social projects
Sport and healthy lifestyle
District events
Other
Total
RUB
6,280,433
5,357,000
357,000
806,890
12,801,323
12.8
RUB million
invested in local
community support
and development
in 2019
124
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUP
At Cherkizovo Group, we place great emphasis on the well-being and
prosperity of local communities. We contribute to economic growth and
security by creating jobs and making timely tax payments to the federal and
regional budgets, which support local communities.
Kashira children's football team
"Cherkizovo".
LOCAL COMMUNITY SUPPORT
The Company is committed to providing
In the Penza and Lipetsk regions, we took
part in Back to School charity events by
equal opportunities for all community
donating stationery sets to first-graders
members, particularly focusing on socially
from low-income and large families.
vulnerable groups. We support those
in need through dedicated assistance
In November, Cherkizovo Group staged
programmes and sponsor social
festivities for a rehabilitation center
institutions, paying special attention to
patients in the Lipetsk Region. Children
children from low-income families and
enjoyed a comprehensive entertainment
those with special needs and disabilities.
programme and a variety of treats.
Employees from our Agro Division helped
In the spring of 2019, Cherkizovo Group
organize the event, handing over a wide
donated RUB 4 billion and three brand
range of gifts to the center.
new Belarus tractors to farmers in the
Trans-Baikal Territory, helping them to
We make every effort to promote sports
recoup from devastating steppe fires,
among young people. In 2019, we built
which had destroyed their property and
a rink for a secondary school in the
agricultural machinery.
Volovsky District of the Lipetsk Region
and purchased hockey gear for students
The Group also contributes to major
spending a total of over RUB 2.2 million on
charity events. In June 2019, we took part
the project.
in the Running Hearts Green Marathon in
Moscow. The race was organized by the
Cherkizovo supports the children's
Naked Heart Foundation and Sberbank.
football team of the same name from
The funds raised during the event went
Kashira: it purchases uniforms, pays for
to a charity fund supporting children
participation in the championship of the
with special needs. In September, the
Moscow Region and transfers between
Company co-sponsored a charity race
matches.
held by SAP and Arifmetika Dobra charity
foundation in Moscow's Izmaylovsky
In the reporting period, Cherkizovo
Park. The event helped raise over RUB
Group also became the general sponsor
1.5 million to cover education fees in
of Crystal, a men’s volleyball club from
orphanages.
Voronezh, renamed Crystal Cherkizovo.
In addition, Cherkizovo Group held its own
race in Penza.
www.cherkizovo.com
125
CHERKIZOVO GROUPCherkizovo unites CORPORATE
GOVERNANCE
In 2019, we continued to improve our
corporate governance framework,
with major industry experts joining
the Management Board to bring in their
global expertise.
DIRECTORS’ STATEMENT
The Company’s Board of Directors and
management are pleased to present this
annual report and the Group’s audited
financial statements for the year ended
31 December 2019 and reiterate their
strong commitment to meeting all
regulatory requirements and following
the best corporate governance practices.
The Board of Directors acknowledges
the key principles and recommendations
set out in the Corporate Governance
Code and views them as conducive
to better governance and the Company's
long-term sustainable development.
CORPORATE GOVERNANCE
FRAMEWORK
Cherkizovo Group maintains its
corporate governance framework in line
CORPORATE GOVERNANCE FRAMEWORK
Shareholder rights and equitable treatment
of shareholders
The Company’s Board of Directors
The Company's Corporate Secretary
Remuneration of the Company's directors,
executives and other key managers
Risk governance and internal control
Disclosures and the Company's information
policy
Material corporate actions
Complied with
Partially
complied with
Not complied
with
9
26
2
3
5
3
–
2
5
–
5
1
4
–
2
5
–
2
–
0
5
Managing sustainable development
At Cherkizovo, sustainable development is managed by different
functions, with HSE matters falling within the remit of a special
department headed by a direct report to the Head of Business
Development, who is also the Chairman of the Board of Directors.
with Russian laws and the Corporate
CORPORATE GOVERNANCE
the Management Board’s competencies.
Governance Code (2014) as approved by
FRAMEWORK DEVELOPMENT
Six new members joined the Management
the Bank of Russia’s Board of Directors.
IN 2019
In 2019, Cherkizovo Group maintained
Board, including both members
of the Company’s talent pool and major
Underpinned by vertical integration,
an effective corporate governance
industry experts with global experience.
it enables us to ensure that all
framework conducive to its sustainable
of the Group’s companies are governed
development and achievement of its
efficiently.
126
strategic goals. Throughout the reporting
period, the Group's corporate governance
bodies continued their efforts to enhance
the governance approaches and practices,
with a particular focus on strengthening
Our full report on the Corporate Governance
Code compliance is available at e-disclosure.
ru/portal/company.aspx?id=6652 (only
available in Russian).
2 Annual report 2019
CHERKIZOVO GROUPAbout the Company Strategic ReportFinancial ResultsSustainable development Corporate governance Cherkizovo Group has an effective corporate governance framework compliant
with regulatory requirements and global best practices. Our management
seeks to ensure sustainable development of the Company by balancing the interests
of shareholders, employees, local communities, and other stakeholders.
KEY EVENTS AFTER
THE REPORTING DATE
10 January 2020 Emin Mammadov was
appointed Deputy CEO and his director
status changed from independent
to executive,
12 February 2020 the Board of Directors
resolved to:
• appoint Oleg Zakov, Armen Pogosyan
and Olga Buryak to the Management
Board,
•
•
•
remove Andrey Khizhnyak and Sergey
Buylov from the Management Board,
set the number of members
of the Management Board at 16,
recommend that the Annual General
Meeting of Shareholders vote for
allocating and paying RUB 60.92 per
share in dividends for 2019.
02 March 2020 Leonid Izmailov, member
of Cherkizovo Group’s Management
Board, acquired shares of Cherkizovo
Group. Following the acquisition,
Mr. Izmailov’s share in the Company’s
authorized capital and his share in the
Company’s common stock was 0.00072%.
On March 27th 2020, the General
Shareholder Meeting elected the
following members of the Board of
Directors: Balay John Michael, Mikhailov
Evgeny, Mikhailov Sergey, Fuertes
Quintanilla Rafael, Sobel Richard Paul,
Kegels Filip, Warmoth Christopher John.
The Company’s activities are
governed by its Articles
of Association and
internal regulations,
including:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the Regulations on General Meeting
of Shareholders,
the Regulations on the Board of Directors,
the Regulations on the Board of Directors
Audit Committee,
the Regulations on the Personnel and
Remuneration Committee,
the Regulations on the Investment and
Strategic Planning Committee,
the Regulations on the Management
Board,
the Regulations on the General Director,
the Regulations on Internal Audit,
the Regulations on the Review
Commission,
the Regulations on the Corporate
Secretary,
the Regulations on the Dividend Policy;
the Regulations on Insider Information,
the Regulations on Information Policy in
Disclosure and Delivery of Information,
the Regulations on Remuneration and
Compensation Paid to the Members
of the Board of Directors,
•
the Regulations on the Liquidation
Commission
No changes were made to the Company's
regulations in 2019.
www.cherkizovo.com
127
CHERKIZOVO GROUPCherkizovo unites CORPORATE
GOVERNANCE
CORPORATE GOVERNANCE STRUCTURE
The General Meeting of Shareholders is the supreme
governing body of Cherkizovo Group. the corporate
The Board of Directors has three standing committees
and four subcommittees.
governance structure also includes the Board of Directors,
Cherkizovo Group annually conducts an independent
the executive tier represented by the CEO and
external audit of its financial (accounting) statements
the Management Board led by the CEO as Chairman,
prepared in accordance with the Russian and
and the Review Commission acting as a supervisory body.
international standards.
Board of Directors’
committees
and subcommittees
Review matter that fall
within their remit
For further details, see page 134.
Audit Committee
Personnel
and Remuneration
Committee
Investment
and Strategic Planning
Committee
Subcommittees:
• for cost visibility and data capabilities
• for turkey, HoReCa and new
channels
• for strategy and M&A
• for marketing and R&D
Board of Directors
Oversees the Group's strategic management
Directors:
Independent non-executive
(Mammadov * , Kegels, Jones)
Non-executive
(Sobel, Fuertes)
Executive
(Mikhailov S., Mikhailov Е.)
For further details, see page 130.
* Changed status to executive director 10 January 2020.
Executive bodies
In charge of the Group's strategy
implementation
For further details, see page 137.
Board of Directors
Chairman
of the Management Board
Management Board
128
2 Annual report 2019
CHERKIZOVO GROUPAbout the Company Strategic ReportFinancial ResultsSustainable development Corporate governance
27 March 2019: Annual General Meeting of Shareholders
9 April 2019, 15 May 2019, 26 September 2019:
Extraordinary General Meetings of Shareholders
In accordance with the decision
GENERAL MEETING
made at the Annual General Meeting
GOING CONCERN
The Board of Directors is satisfied that
the Company’s financial statements have
of Shareholders on 27 March 2019 and
been prepared on a going concern basis
taking into account the Group’s 2018
General Meeting of Shareholders (AGM)
and that the same principle is assumed
performance, the total dividend payout
on an annual basis. the agenda of the AGM
in the preparation of the Company’s 2020
for the year amounted to RUB 4.2 billion,
budget and long-term plans.
with dividend per share of RUB 101.63
always includes such items as:
• approval of Cherkizovo Group's
OF SHAREHOLDERS
Cherkizovo Group holds the Annual
(excluding the 2.916.759 treasury ordinary
annual report and annual accounting
registered shares).
statements,
DIVIDENDS
Cherkizovo Group’s dividend policy is based
• approval of profit and loss distribution,
• election of the Board of Directors
on the principle of rational distribution
The Extraordinary General Meeting
of profits balancing shareholders' interests
of Shareholders of Cherkizovo Group
members,
with the Group’s need for investment
held on 26 September 2018 in the form
• election of the Review Commission
to fund its future growth.
of absentee voting resolved to distribute
members,
The dividend payment is considered
of RUB 2.0 billion, with dividend per share
by the Board of Directors upon
of RUB 48.79 (excluding the 2.916.759
The agenda of the AGM can be expanded
the recommendation of the Investment
treasury ordinary registered shares).
to include other matters.
net profit for 1H 2019 in the amount
• appointment of the Company’s auditor.
and Strategic Planning Committee, taking
into account the Group’s current financial
standing and the proposed distribution
amount. the effective Dividend Policy
provides for a targeted dividend payout
of at least 50% of consolidated net
profit for the reporting period. The final
decision on profit distribution and dividend
payout is made by the General Meeting
of Shareholders.
Dividends are paid semiannually:
for the first half and the full year.
The Board of Directors may resolve
to convene an Extraordinary General
Meeting of Shareholders, if necessary.
2019
2018
2017
109.71*
**
122.11
134.89
2017
2018
2019
Full-year dividends
Interim dividends
75.07 101.63
59.82
59.82
60.92
59.82
* On 12 February 2020, the Board of Directors
resolved to recommend that the Annual General
Meeting of Shareholders vote for paying RUB 60.92
per ordinary share in dividends for 2019.
** Consolidated net profit for the purposes
of calculating the dividend may be adjusted for
net change in fair value of biological assets and
agricultural produce and for incidental profit (loss)
not related to current operations
www.cherkizovo.com
129
CHERKIZOVO GROUPCherkizovo unites
CORPORATE
GOVERNANCE
In 2019, the AGM was held on 27 March.
In accordance with the agenda,
the shareholders:
• approved Cherkizovo Group’s
BOARD OF DIRECTORS
The Board of Directors is the collective
According to the Articles of Association,
Board resolutions are adopted by a majority
governing body of Cherkizovo Group
vote of the directors present at the meeting.
responsible for its overall management.
Pursuant to Russian laws, certain decisions
2018 annual report and annual
the Board’s terms of reference are
require more than a simple majority vote.
accounting (financial) statements for
determined by Russian laws and
2018 prepared in accordance with
the Company's Articles of Association.
This rule applies to:
• major transactions (require approval by
the Russian Accounting Standards,
the key responsibilities of the Board
a unanimous vote),
• passed a resolution on profit
distribution and dividend payout,
• elected the Board of Directors and
the Review Commission members,
•
reappointed Deloitte & Touche CIS as
Cherkizovo Group’s auditor for 2019.
9 April
An interested-party transaction (several
interrelated transactions) involving the sale
of Directors include:
• performing strategic management,
• approving the Group's internal risk
•
interested-party transactions (resolved
by a majority vote of the directors who
have no interest in the transaction,
management procedures, assessing
and in compliance with the legal
•
•
their effectiveness and ensuring they
requirements).
are complied with,
• Meetings of the Board are considered
setting up and dissolving the Group's
duly convened if the majority
executive bodies,
of the directors are present.
• approving financial plans and budgets,
• making recommendations on profit
BOARD ACTIVITIES
In 2019, Cherkizovo Group’s Board
of more than 2% of the Company’s
and loss distribution.
outstanding ordinary shares approved.
•
In performing its role, the Board
of Directors held ten meetings, including nine
of Directors is guided by the following
with directors present in person. Key items
15 May
• The Company’s address and place
of business changed, the Articles
principles:
• decision-making based on reliable
information about the Company's
of Association amended accordingly.
operations,
• Resolutions passed to join
• ensuring shareholders’ rights
the Company's budget
reviewed in the reporting year:
•
•
• Risk management
• Convocation of General Meetings
the Company's development strategy
the Russian Union of Industrialists and
to participate in the management
of Shareholders, and recommendations
Entrepreneurs (RSPP) and the Etalon
of the Company, receive dividend
on dividends
Labor Safety and Health Association.
payouts and information about
• Consents to interested-party
26 September
A resolution on profit distribution and
• balancing the interests of various
groups of shareholders and ensuring
• Reports by committee and
subcommittee chairmen
dividend payout for 1H 2019 passed.
unbiased decision-making for
Cherkizovo Group,
transactions
the benefit of all shareholders.
The attendance of meetings held in person
was 87%, which the Company rates as
satisfactory.
130
2 Annual report 2019
CHERKIZOVO GROUPAbout the Company Strategic ReportFinancial ResultsSustainable development Corporate governance 10
meetings
held by the Board
of Directors
Cherkizovo Group in 2019
87%
total attendance
of in-person meetings
of the Board of Directors
INFORMATION ON INDEPENDENT AND NON-EXECUTIVE DIRECTORS,
SHARES IN THE AUTHORIZED CAPITAL AND SHARE OWNERSHIP *
Independent
director
Non-executive
director
Executive
director
+
–
–
+
–
–
+
+
+
–
–
-
-
-
-
+
+
-
Share in
the authorized
capital
–
Grupo Fuertes
8.01%
–
–
26.27%
26.27%
–
Share
ownership
–
–
–
–
26.27%
26.27%
–
MEMBERS OF THE BOARD
OF DIRECTORS
No members left or joined the Board
of Directors in 2019. Sergey Igorevich
Mikhailov, Evgeny Igorevich Mikhailov, Emin
Board member
Tofik oglu Mammadov, Richard Paul Sobel,
Elliot Jones
Rafael Fuertes Quintanilla, Elliot Brinton
Rafael Fuertes
Jones, and Filip Kegels were all re-elected
to the Board at the AGM in March 2019.
At the first meeting of the Board following
the AGM, Evgeny Mikhailov was re-elected
as Chairman and Richard Sobel as Deputy
Chairman.
Richard Sobel
Emin Mammadov
Evgeny Mikhailov
Sergey Mikhailov
Filip Kegels
The independent directors chair the Audit
DIRECTOR EXPERIENCE
Committee (Elliot Jones) and the Personnel
and Remuneration Committee (Filip Kegels)
AND EXPERTISE
The directors have all necessary
and are also members and chairmen
of the following subcommittees:
•
the Cost Visibility and Data
competencies, which cover:
•
insights from extensive experience in:
– animal farming
food manufacturing
•
• promotion of consumer goods in
emerging markets
restaurants and HoReCa
•
•
strategic development and M&A
• consumer brand marketing and
•
•
•
Capabilities Subcommittee (chaired by
– poultry farming
Elliot Jones),
– meat processing
the Marketing and R&D Subcommittee
– agriculture
(chaired by Filip Kegels),
the Strategy and M&A Subcommittee
(one of the members is Elliot Jones),
the Turkey, HoReCa and New
Channels Subcommittee (chaired by
Emin Mammadov),
* As of 31 December 2019.
www.cherkizovo.com
investment
development
• finance and audit
•
• management of global operations
•
international business consulting
•
investment case studies.
* the table does not include the remote meeting
of the Board of Directors held on 13 March 2019
(ballot voting). Only those members of the Board
of Directors who were not interested in approving
the interested party transaction and who met
the requirements of the law for persons entitled
to vote on these issues took part in it.
131
CHERKIZOVO GROUPCherkizovo unites CORPORATE
GOVERNANCE
Members of the board
of directors
1
2
3
4
5
6
7
Evgeny Mikhailov
Sergey Mikhailov
Emin Mammadov
Richard Sobel
Rafael Fuertes
Elliot Jones
Filip Kegels
Evgeny Mikhailov
Executive director, Chairman of the Board
of Directors
Sergey Mikhailov
Executive director, CEO of Cherkizovo
Group, Chairman of the Investment and
Strategic Planning Committee
Emin Mammadov
Independent director, Chairman
of the Investment and Strategic Planning
Committee, member of the Audit
Committee and member of the Personnel
and Remuneration Committee
Evgeny Mikhailov is the Chairman
Sergey Mikhailov has been Chief Executive
Emin Mammadov is a seasoned expert
of the Board of Directors of PJSC Cherkizovo
Officer of Cherkizovo Group since
with over 20 years’ FMCG experience in
Group. From 2006 to 2014, he was the Head
2006. He is responsible for the general
emerging markets, including at large global
of Investment Projects at Cherkizovo Group
management of the Company, its sustainable
companies where he headed divisions in
overseeing strategic business development,
development and strategy.
RIMEA (Russia, India, Middle East, and
investment coordination and decision-
Africa) and China.
making on the Group’s expansion into new
In 2006, Mr. Mikhailov steered Cherkizovo
markets.
Group to become Russia's first agricultural
Emin graduated from Baku Institute
Since 2016, he is also the Head of Business
the LSE. Under his leadership, the Company
Science, Azerbaijan, with a degree in
Development.
grew into Russia's largest meat and feed
International Relations.
company to successfully go public on
of Social Management and Political
Prior to joining Cherkizovo Group in 2004
producer.
as First Deputy CEO of AIC Mikhailovsky,
In 2001, Sergey Mikhailov was appointed
he was an assistant to the Vice President
Marketing Director of Cherkizovsky Meat
at aTelo, Inc, a US telecommunications
Processing Plant. He was promoted
company, in Washington DC (2001) and
to the new role of Deputy CEO for marketing
worked as a financial analyst at Morgan
and sales in 2002, and in 2003 he became
Stanley in 2002.
CEO of AIC Cherkizovsky.
He graduated from the University
In 1998, he interned as a financial analyst at
of California (Los Angeles) in 2004 with
Goldman Sachs, and in 1999 – at Morgan
a degree in Business Economics.
Stanley. In 1998, he also founded and
headed aTelo, Inc., a telecommunications
company based in Washington, USA.
Sergey Mikhailov graduated from
Georgetown University (USA) in 2000 with
a degree in Finance and Economics.
132
2 Annual report 2019
CHERKIZOVO GROUPAbout the Company Strategic ReportFinancial ResultsSustainable development Corporate governance 1
5
2
6
3
7
4
Richard Sobel
Non-executive director, Deputy Chairman
of the Board of Directors, member
of the Investment and Strategic Planning
Committee
Rafael Fuertes
Non-executive director, member
of the Investment and Strategic Planning
Committee
Filip Kegels
Independent director, Chairman
of the Personnel and Remuneration
Committee, member of the Audit
Committee and member of the Investment
and Strategic Planning Committee
Richard Sobel has a wealth of experience in
direct investments.
Rafael Fuertes has extensive experience in
the agricultural industry, in particular in animal
breeding, meat processing and crop farming.
Filip Kegels is an experienced expert in
food production and consumer brand
development in European, Asian and
As one of the pioneers of the Russian
He is the Chairman of the Board of Directors
emerging markets. For many years, Filip
private equity industry, Mr. Sobel was
of Grupo Fuertes, a leading Spanish agricultural
headed international operations of Danone
a senior fund manager at Baring Asset
holding company, which is the partner
Group. He served as Vice- President and
Management and Alfa Capital Partners
of Cherkizovo Group in the Tambov Turkey JV
Non-Executive Chairman of Group Danone
in the 1990s and early 2000s. He is
and a minority shareholder in Cherkizovo Group
China and Japan (Asia-Pacific, India and
the founder and manager of Altai Advisors,
owning 8.0065% of its issued shares.
Middle East), and Vice-President of Danone
a consulting firm which specializes in
Africa, Middle East and Asia-Pacific. He has
providing advice on potential investment
He graduated from the University of Murcia,
successful experience of doing business in
opportunities in Russia, CIS, Europe and
Spain.
the USA.
Previously, he was an adviser at Bain
& Company in Boston, USA, and an
investment manager at Batterymarch
Financial Management, the European Bank
for Reconstruction and Development and
CIBC Oppenheimer.
Elliot Jones
Independent director, Chairman
of the Audit Committee, member
of the Personnel and Remuneration
Committee and member of the Investment
and Strategic Planning Committee
Russia as member of the Board and CEO
of Danone Unimilk Russia. He is the founder
of BTF Solutions.
Filip Kegels has a broad experience
of board service at leading international
food companies. Earlier Mr. Kegels chaired
the boards of Danone Murray Goulburn,
Australia, and Centrale Laitiere, Morrocco,
Richard graduated from Stanford University,
the agricultural industry.
of Al Safi Danone, Saudi Arabia, and
USA, and holds an MBA from Harvard
Pulmuone Danone, South Korea. He also
Business School, USA.
Over the last 17 years, he has been leading
served on the boards of Yakult (Japan),
Elliot Jones has a strong track record in
and served as Vice Chairman of the boards
Jones and Jones Consulting, a firm providing
Strauss Health, Israel, Mengniu Group,
consulting advice on strategic development
China, Brookeside, Kenia, and Fanmilk Sub-
to poultry producers in the USA and other
Saharan Africa, Luxemburg.
countries.
Prior to that, he worked for a number of US
of Antwerp (Master in Economics) and
poultry and turkey production companies,
the University of Brussels (MBA).
He graduated from the Catholic University
including Foster Farms, Zacky Farms, Swift
Dairy and Poultry Company, over 20 years.
He graduated from the University of San
Francisco, USA.
www.cherkizovo.com
133
CHERKIZOVO GROUPCherkizovo unites CORPORATE
GOVERNANCE
BOARD COMMITTEES
There are three standing Board Committees
Committee
Key functions
Members
Attendance
Key matters reviewed in 2019
Meetings held
in 2019
in Cherkizovo Group:
•
•
the Audit Committee,
the Personnel and Remuneration
Committee,
•
the Investment and Strategic Planning
Committee.
Audit Committee
(operating since 2006)
Personnel and
Remuneration
Committee
(operating since 2010)
Investment
and Strategic
Planning
Committee
(operating since 2012)
The committees serve as consulting
and advisory bodies. the functions and
tasks of each committee are defined by
the respective committee regulations * .
No updates we made to the committee
regulations in 2019.
All Committee members have the skills,
experience and resources required
to efficiently perform their duties and may
also engage external consultants.
The Committees meet as appropriate,
with a minimum of five meetings a year
for the Personnel and Remuneration
Committee and the Investment and
Strategic Planning Committee, and four
meetings a year for the Audit Committee.
These meetings are held separately from
those of the Board of Directors. Each
Committee makes decisions by a majority
of votes of the members present at
the meeting, with each member having
one vote. the Chairman of each committee
reports the results of its meeting at the next
meeting of the Board of Directors.
In April 2019, the Board of Directors
approved the members and Chairmen of all
three committees.
•
•
•
•
•
•
•
•
•
•
•
to monitor completeness, accuracy and reliability
of the Company's financial statements,
to monitor reliability and efficiency of the risk management and
internal control system,
to ensure that the Company's internal and external audits are
independent and unbiased,
to monitor the efficiency of the Company's whistleblowing
system.
to develop and regularly review the Company's policy
on remuneration of the Board directors, members
of the Management Board, the Chief Executive Officer and other
key executives,
to carry out preliminary assessment of the executive
management's performance,
to develop a list of the executive management's KPIs,
to perform a detailed formalized annual self-assessment or
arrange a third-party assessment of the efficiency of the Board
of Directors,
to evaluate the Board's composition by way of assessing its
members' professional skills, experience, independence and
involvement in the work of the Board of Directors,
to perform other tasks in line with the Regulations on the Audit
Committee and the Regulations on the Personnel and
Remuneration Committee.
to review the proposals submitted to the Board of Directors with
regard to setting the Company's business priorities,
• development strategy and investment policy,
•
to assess and review strategic projects and organic growth
opportunities,
to consider investment and dividend policy matters.
•
•
In 2019, the Committee
included only
independent directors:
4
Elliot Jones (Chairman),
Emin Mammadov,
Filip Kegels.
In 2019, the Committee
included only
independent directors:
Filip Kegels (Chairman),
Elliot Jones,
Emin Mammadov.
100%
• Quarterly, semi-annual and
annual financial results and
press-releases
• External and internal auditors
reports
9
93%
• Company Development
Strategy
• Strategic projects
• M&As and integration
of acquired companies
• CAPEX and ROIC issues
• Certain lines of business
(ready-to-eat, foodservice,
export, etc.)
Emin Mammadov
(Chairman),
Richard Sobel,
Sergey Mikhailov,
Elliot Jones,
Rafael Fuertes,
Filip Kegels.
5
90%
• CEO and Management
• Organizational design and
• Long-term incentives for key
Board KPIs
structure
officers
• Talent management
• Corporate culture
• Succession planning
* the regulations are available on Cherkizovo Group’s website in the Corporate Documents section at
https://cherkizovo.com/en/investors/#/en/company/corporate-governance/documents/
134
2 Annual report 2019
CHERKIZOVO GROUPAbout the Company Strategic ReportFinancial ResultsSustainable development Corporate governance Committee
Key functions
Audit Committee
(operating since 2006)
internal control system,
to monitor completeness, accuracy and reliability
of the Company's financial statements,
to monitor reliability and efficiency of the risk management and
to ensure that the Company's internal and external audits are
independent and unbiased,
to monitor the efficiency of the Company's whistleblowing
system.
to develop and regularly review the Company's policy
on remuneration of the Board directors, members
of the Management Board, the Chief Executive Officer and other
key executives,
to carry out preliminary assessment of the executive
management's performance,
to develop a list of the executive management's KPIs,
to perform a detailed formalized annual self-assessment or
arrange a third-party assessment of the efficiency of the Board
of Directors,
to evaluate the Board's composition by way of assessing its
members' professional skills, experience, independence and
involvement in the work of the Board of Directors,
to perform other tasks in line with the Regulations on the Audit
Committee and the Regulations on the Personnel and
Remuneration Committee.
to review the proposals submitted to the Board of Directors with
regard to setting the Company's business priorities,
• development strategy and investment policy,
to assess and review strategic projects and organic growth
opportunities,
to consider investment and dividend policy matters.
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Personnel and
Remuneration
Committee
(operating since 2010)
Investment
and Strategic
Planning
Committee
(operating since 2012)
Members
In 2019, the Committee
included only
independent directors:
Elliot Jones (Chairman),
Emin Mammadov,
Filip Kegels.
In 2019, the Committee
included only
independent directors:
Filip Kegels (Chairman),
Elliot Jones,
Emin Mammadov.
Meetings held
in 2019
Attendance
Key matters reviewed in 2019
and Strategic Planning Committee operated
Four subcommittees of the Investments
4
100%
• Quarterly, semi-annual and
annual financial results and
press-releases
• External and internal auditors
reports
9
93%
• Company Development
Strategy
• Strategic projects
• M&As and integration
of acquired companies
• CAPEX and ROIC issues
• Certain lines of business
(ready-to-eat, foodservice,
export, etc.)
in 2019:
•
the Cost Visibility and Data
•
•
•
Capabilities Subcommittee,
the Turkey, HoReCa and New
Channels Subcommittee,
the Strategy and M&A Subcommittee,
the Marketing and R&D
Subcommittee.
The subcommittees report the results
of their work in a given year at a joint
meeting of the Investment and Strategic
Planning Committee and the Personnel and
Remuneration Committee. the Chairmen
of subcommittees report to the Board
of Directors at least once a quarter.
Emin Mammadov
(Chairman),
Richard Sobel,
Sergey Mikhailov,
Elliot Jones,
Rafael Fuertes,
Filip Kegels.
5
90%
• CEO and Management
Board KPIs
• Organizational design and
structure
• Long-term incentives for key
officers
• Talent management
• Corporate culture
• Succession planning
www.cherkizovo.com
135
CHERKIZOVO GROUPCherkizovo unites CORPORATE
GOVERNANCE
BOARD OF DIRECTORS’
REMUNERATION OF THE BOARD
effective performance. the Regulations
PERFORMANCE ASSESSMENT
At Cherkizovo Group, the Board of Directors
OF DIRECTORS
The Board directors are remunerated in line
on Remunerations determine the base
annual remuneration, set out a transparent
conducts an annual evaluation of its work
with the Regulations on Remunerations
procedure for the calculation of the variable
in the reporting period, which includes
and Compensations Paid to the Members
part of remuneration (the annual bonus)
performance assessment of the Board’s
of the Board of Directors.
and detail the list of reimbursable expenses
committees. the evaluation results are
and the service level provided to the Board
reviewed at a meeting of the Board held in
According to the Regulations, the Board
directors.
person. the Board rated its performance in
directors are paid an annual remuneration
2019 as successful.
for their work in the Board of Directors
In 2019, the Board of Directors’ remuneration
comprising a fixed (base and additional
totalled RUB 136.1 million.
remuneration) and variable (annual bonus)
part. the remuneration levels currently
Additionally, the Company maintains liability
offered by the Company to the Board
insurance for all its Board directors for their
directors are sufficient to incentivize their
full term in office as recommended by
the Personnel and Remuneration Committee.
REMUNERATION OF THE BOARD OF DIRECTORS
Base remuneration
Additional remuneration
Annual bonus
Reimbursable expenses
Calculation basis for
remuneration, RUB
5,340,000
Chairman
26,700,000
Deputy Chairman
1,068,000
Committee Chairman
1,068,000
AB = BR * (EBITDAr * 0.3 +
CFr * 0.3 + SCr * 0.4), but
no more than 125% of BaR,
where
AB – annual bonus,
BR – base remuneration
EBITDAr – ratio of actual
to target EBITDA,
Subcommittee
Chairman
1,068,000
CFr – ratio of actual to target
Cash Flow,
For each additional
meeting (>6 per year)
100,000
SCr** – ratio of actual
to target subcommittee KPI
value
roundtrip travel
to the meeting venue,
accommodation and meals
expenses not directly related
to the Board meetings, but
associated with its work
and approved in writing by
the Board Chairman
* Directors serving as chairs of two or more committees are eligible for only one additional remuneration. a similar rule applies to chairs of subcommittees.
** Applies to subcommittee members only. In case of membership in two or more subcommittees, the ratio of the subcommittee in which the member was most
active applies.
136
2 Annual report 2019
CHERKIZOVO GROUPAbout the Company Strategic ReportFinancial ResultsSustainable development Corporate governance MANAGEMENT BOARD
The Management Board is a collective
executive governing body of Cherkizovo
MEMBERS
OF THE MANAGEMENT BOARD
As of 31 December 2019,
Group, managing its operations and
the Management Board consisted
REMUNERATION OF THE
MANAGEMENT BOARD
AND BOARD OF DIRECTORS
In 2019, total remuneration amounted to
accountable to the Board of Directors.
of 15 members. the Management Board is
RUB 680.6 milion. Remuneration of the
the Management Board is authorized:
•
to approve strategic plans and
business priorities of Cherkizovo
chaired by Sergey Mikhailov, Cherkizovo
Board of Directors was RUB 136.1 million,
Group's CEO.
and remuneration of Management Board
was RUB 544.5 million.
Group, its subsidiaries and affiliates,
In 2019, the Board saw the following
•
•
to review the business performance
of the Group’s subsidiaries,
to approve the staff incentive
changes:
•
in April, the Board of Directors
removed John Ross and elected
framework for Cherkizovo Group, its
Sergey Buylov, Ray Cheeks, Roger
subsidiaries and affiliates,
•
to review and make decisions
Jones, Evgeny Subbotin and Alexey
Kletsko to the Management Board,
on signing collective bargaining
•
in November, the Board of Directors
agreements and contracts by
remobed Violetta Shimkevich
the Group, its subsidiaries and
affiliates.
and elected Akim Tiunov
to the Management Board.
• The Management Board is led by
the Chairman of the Management
.
Board, who acts as Cherkizovo
Group's Chief Executive Officer (CEO).
the CEO’s mission is to:
• ensure Cherkizovo Group's profitability
and competitive performance, its
financial and economic sustainability,
• oversee the observance
of shareholders' rights, and
• ensure the provision of employee
benefits to Cherkizovo Group's
personnel.
15
members
of the Management Board,
as of 31 December 2019
www.cherkizovo.com
137
CHERKIZOVO GROUPCherkizovo unites CORPORATE
GOVERNANCE
Sergey Mikhailov
Chief Executive Officer,
Ludmila Mikhailova
Chief Financial Officer,
Chairman of the Management Board
Member of the Management Board
Sergey Mikhailov has been CEO of Cherkizovo Group
Ludmila Mikhailova has been CFO of Cherkizovo Group
since 2006. He is responsible for the general management
since 2006. Her responsibilities include setting the Group's
of the Company, its sustainable development and strategy.
financial policy, managing internal and external financial
reporting, budgeting, and sourcing funds for the effective
In 2006, Mr. Mikhailov steered Cherkizovo Group
development of the Group.
to become the first Russian agricultural company
to successfully go public on the LSE. Under his leadership,
Between 2001 and 2004, Ludmila Mikhailova worked as
the Company grew into Russia's largest meat and feed
a financial analyst at McFarlane Gordon, Inc. (Canada),
producer.
General Mills Co (Canada) and ING Barings (UK). She then
held various managerial positions at Cherkizovo Group and
In 2001, Sergey Mikhailov was appointed Marketing
AIC Cherkizovsky.
Director of Cherkizovsky Meat Processing Plant. He was
promoted to the new role of Deputy CEO for marketing
A number of major transactions were implemented under
and sales in 2002, and in 2003 he became CEO of AIC
Ludmila Mikhailova’s supervision, enabling the Group
Cherkizovsky.
to consolidate approximately 13% of Russia’s poultry
market. In 2006, the Сompany successfully carried out its
In 1998, he interned as a financial analyst at Goldman
IPO on the London Stock Exchange, raising over USD 250
Sachs, and in 1999 – at Morgan Stanley.
million.
In 1998, he founded and headed aTelo, Inc.,
Ludmila Mikhailova ranks among the Top 1,000 Russian
a telecommunications company based in Washington,
Managers.
USA.
Mr. Mikhailov ranks among the Top 1,000 Russian
of the Government of the Russian Federation and holds an
Managers, leading the charge in the agricultural industry
MBA from York University (Canada).
She graduated from the Financial Academy
category.
He graduated from Georgetown University (USA) in 2000
with a degree in Finance and Economics.
Share in the Company's common stock: 0.39%
Share in the Company’s authorized capital: 0.39%
Share in the Company’s authorized capital: : 26.27%
Share in the Company's common stock: 26.27%
138
2 Annual report 2019
CHERKIZOVO GROUPAbout the Company Strategic ReportFinancial ResultsSustainable development Corporate governance
AS OF 31 DECEMBER 2019
Alexey Skorobogatov
Head of Procurement and Logistics,
Maksim Zudin
CEO of Poultry Management Company,
Yury Dyachuk
Head of Legal Support and Real Estate
Member of the Management Board
Member of the Management Board
Operations, Member of the Management Board
Alexey Skorobogatov has been Head
Maksim Zudin was appointed CEO
Yury Dyachuk has worked at Cherkizovo
of Procurement and Logistics at
of Poultry Management Company in 2017.
Group for over 20 years. Since 2006, he has
Cherkizovo Group since 2011. He is
been overseeing legal support at Cherkizovo
responsible for the development and
Between 2015 and 2018, he headed
Group, litigation involving the Company, and
coordination of procurement activities,
Cherkizovo’s Agro Division and was
its regulatory compliance.
building efficient supply chains and
responsible for the strategic development
managing stock flows in a cost-effective
of the Pork, Feed and Grain segments.
He worked as part of the legal team at
manner.
Prior to joining Cherkizovo Group, Maksim
Cherkizovsky Meat Processing Plant from
was Head of Oil Production at Solnechnye
1995 to 1996
Between 2006 and 2009, he was Head
Produkty.
of Procurement at Wimm-Bill-Dann
and was Head of its Legal Department
Foods OJSC. From 2009 to 2011, he
Between 2003 and 2013, he was Head
between 1996 and 2000.
was regional Head of Procurement at
of the Agro Division as well as a member
Danone Nutricia Baby Food (Eastern
of the Management Board at Razgulay
In 2005, he was Senior Counsel advising on
Europe) and worked at Mobile
Group, where he was responsible for
the restructuring of Cherkizovo Group.
TeleSystems OJSC, where he set up and
the East branch and led the Krupa project.
headed the procurement and logistics
He graduated from Moscow State University
department, which was later merged into
He graduated from the Faculty
of Law.
a single logistics department.
of Mechanics and Mathematics
of Moscow State University.
Share in the Company’s authorized capital:
He graduated from Pyatigorsk State
0.086%
Linguistic University.
He holds no stake in the Group's
authorized capital or common stock.
Share in the Company's common stock:
He holds no stake in the Group's
0.086%
authorized capital or common stock.
He holds no stake in the Group's
authorized capital or common stock.
www.cherkizovo.com
139
CHERKIZOVO GROUPCherkizovo unites CORPORATE
GOVERNANCE
Vladislav Belyaev
Head of IT, Member
of the Management Board
Leonid Izmailov
Head of Investment Projects, Member
of the Management Board
Alexander Gusakov
Security Director, Member
of the Management Board
Vladislav Belyaev has been Head of IT
Leonid Izmailov has been Head
Alexander Gusakov has been Security
at Cherkizovo Group since 2012. He is
of Investment Projects at Cherkizovo
Director of Cherkizovo Group since
responsible for developing the Group's
Group since 2014. He is responsible for
February 2016. He is responsible for
IT strategy, overseeing its in-house IT
managing construction as part of major
developing and overseeing safety
projects and the ongoing improvements
investment projects.
of the regional IT infrastructure.
standards and procedures, maintaining
the Group's economic, information
Prior to joining the Group, Leonid was
and physical security, as well as
Between 2008 and 2012, he was Head
Technical Director and Operational
the coordination and interaction with
of the Management Systems Department
Cluster Director at AgroTerra for four
government authorities at both national
at VimpelCom. Prior to this, he held senior
years. Prior to this, he held a number
and regional levels.
management positions at CafeMax and
of senior management positions across
Moscow Industrial Bank.
a range of companies, including Russian
Alexander has over ten years
Oils, Bunge, Unilever and Nestle Food.
of experience in corporate security
Vladislav has led the implementation
management at international companies.
of a SAP ERP system launched in 2013.
Leonid graduated from Moscow State
Prior to joining the Group, he worked for
University with a degree in Chemistry.
Henkel Rus, Zurich Insurance Company
In 2015, he oversaw the roll-out
and Gazprom.
of the electronic document management
He holds no stake in the Group's
system (EDMS) across the Group and
authorized capital or common stock.
Between 1981 and 2005, he worked in
the creation of the unique modern data
processing center.
He graduated from the Moscow Institute
of Radio Engineering, Electronics and
Automation and Moscow State University.
He holds no stake in the Group's
authorized capital or common stock.
the state security services.
He graduated from the Higher School
of the KGB with a degree in law.
He holds no stake in the Group's
authorized capital or common stock.
140
2 Annual report 2019
CHERKIZOVO GROUPAbout the Company Strategic ReportFinancial ResultsSustainable development Corporate governance AS OF 31 DECEMBER 2019
Evgeny Subbotin
Director for Logistics and Supplies,
Akim Tiunov
Manufacturing Director, Member
Roger Jones
Agrodivision Director of Operations,
Member of the Management Board
of the Management Board
Member of the Management Board
Evgeny Subbotin has served as Director
His major focus is management
Roger Jones has been Agrodivision
for Logistics and Supplies heading
of production segments of the Group,
Director of Operations since late
the supply chain operations of the Group
production strategy planning and
2018. From 2014 to 2018, he headed
since 2017. He is responsible for
development, business-process
the financial control team within
integrating the logistics operations
optimization, and modern and innovative
the Finance Department. Since 2013,
of the Poultry, Meat Processing and
production technologies implementation.
he had been holding the post of Deputy
Turkey segments into a single centralized
Director for Economics and Finance at
structure. He also oversees the efforts
Before joining Cherkizovo Group, Akim
Cherkizovo Group's Pork Management
to bring the planning functions of sales,
was Manufacturing Vice-President at Kraft
Company.
production, and packaging and ingredient
Heinz. From 2000 to 2007, he worked
supply within a single planning unit. Mr
at major international corporations,
Roger is responsible for design and
Subbotin is also in charge of designing
including OTIS Elevators and Ford Motor
implementation of the development
and bringing on stream the Route
Company.
to Market project.
strategy for the economics and finance
function. In addition, he oversees efforts
Akim Tiunov graduated from
to streamline the planning, accounting,
He has 17 years of experience in
St Petersburg State University
and reporting systems and supervises
procurement and logistics, including
of Architecture and Civil Engineering, and
the segment’s financial analysis and
15 years of managing supply chains
St Petersburg Polytechnic University.
control processes, and project financing.
and procurement in major corporations
like Carlsberg Group (Vena and Baltika
He holds no stake in the Group's
Roger Jones graduated with honors from
Breweries), Danone Group (Danone,
authorized capital or common stock.
Bloomsburg University of Pennsylvania
Nutricia), and SC Johnson.
with a degree in Accounting.
He graduated from the St Petersburg
State University of Architecture and
Civil Engineering with a degree in
Road Transportation Management and
Logistics.
He holds no stake in the Group's
authorized capital or common stock.
He holds no stake in the Group's
authorized capital or common stock.
www.cherkizovo.com
141
CHERKIZOVO GROUPCherkizovo unites CORPORATE
GOVERNANCE
Ray Cheeks
Director of Operations at Tambov Turkey,
Alexey Kletsko
Director for Strategy, Member
Andrey Khizhnyak
Head of Sales and Marketing Strategy,
Member of the Management Board
of the Management Board
Member of the Management Board
Ray Cheeks has been Director
Alexey Kletsko oversees strategy
Andrey Khizhnyak has been Head of Sales
of Operations at Tambov Turkey since
development at Cherkizovo Group.
and Marketing Strategy at Cherkizovo
2018. His responsibilities include
He is responsible for M&A and asset
Group since 2013. He is responsible
overseeing the company’s day-to-day
integration, business development, and
for strategic planning and allocation
operations and ongoing activities in line
expert and methodological support
of the Company’s marketing budget
with performance targets, including
for strategic development of various
to ensure sales growth across all segments
operational efficiency, costs, and quality.
segments and functions.
and oversees the marketing program
execution within Cherkizovo Group.
Prior to joining Cherkizovo Group,
Prior to joining Cherkizovo Group, Alexey
he held senior positions in a number
ran strategic development projects
Between 2001 and 2004, he was Head
of major corporations, including Brown
at major Russian and international
of Marketing at Cherkizovsky Meat
& Williamson Vintage Tobacco Coupons,
companies, including Megapolis, Fesco,
Processing Plant.
KRAFT FOODS, and POSS Design
Rolf, and McKinsey & Company.
Limited.
From 2004 to 2007, he was Marketing
He graduated from the Moscow Institute
Director at Exima Agricultural Holding,
He graduated from Clemson University
of Physics and Technology with a degree
which incorporates more than 26
with a degree in Electrical Engineering.
in Applied Mathematics and has an MBA
enterprises, including Mikoyanovskiy Meet
from HEC Paris.
Processing Plant.
He holds no stake in the Group's
authorized capital or common stock.
He holds no stake in the Group's
Between 2010 and 2012, he was
authorized capital or common stock.
Commercial Director at United
Confectioners. Prior to joining the Group,
he worked for a range of companies,
including OST Group and Betalink.
Andrey ranks among the Top 1,000 Russian
Managers.
He graduated from Moscow State
University of Law.
He holds no stake in the Group's authorized
capital or common stock.
He holds no stake in the Group's
authorized capital or common stock.
2 Annual report 2019
142
CHERKIZOVO GROUPAbout the Company Strategic ReportFinancial ResultsSustainable development Corporate governance AS OF 31 DECEMBER 2019
Sergey Buylov
Managing Director of the Meat
CORPORATE SECRETARY
The Corporate Secretary is a Company
Anastasia Bakhmacheva
Corporate Secretary
Processing segment, Member
officer who ensures effective ongoing
of the Management Board
communication with the Group
shareholders, overviews the protection
Sergey Buylov has been Managing
of the shareholders’ rights and interests,
Anastasia has been in corporate
Director of the Meat Processing segment
supports operations of the Board
governance for 17 years. Prior to joining
since 2019. He is responsible for
of Directors and coordinates the activity
Cherkizovo Group, she served as
the segment’s strategic and operational
of the Board sub-committees.
the Deputy Head of Legal Department at
planning and management. He oversees
the scope of the Corporate Secretary’s
Blagosostoyanie Non-State Pension Fund
development and implementation
role is defined in the Regulations on
from 2014 to 2016. In 2011–2014, she
of marketing and business strategies,
the Corporate Secretary. Anastasia
worked as Director at VTB Bank
sales planning and assortment policy
Bakhmacheva has been serving as
overseeing implementation of a single
across the sales channels. He also
the Corporate Secretary of the Company
corporate governance framework across
supervises budgeting, management
since November 2016, following
the VTB Group. During 2009–2011,
accounting, financial planning, and
the resolution of the Board of Directors.
Anastasia was Corporate Secretary at
financial performance analysis and
control.
For 17 years prior to joining Cherkizovo
Group, he worked for Danone in Russia,
France and Belgium, holding senior
management positions in various areas,
including procurement and sales. Before
that, he served as Commercial Director
at L'Oreal Russia and CEO at Natura
Siberica.
Sergey graduated from the faculty
of International Economic Relations
of the Plekhanov Russian University
of Economics with degrees in marketing
and sales. He also holds degrees in
international economic relations from two
French universities.
He holds no stake in the Group's
authorized capital or common stock.
Bashneft, after heading the corporate
governance team at VimpelCom (a former
NYSE-listed company) from 2003 to 2008.
Anastasia graduated from the International
Law Institute under the Ministry of Justice
of the Russian Federation with a degree
in Civil Law and from the Higher School
of Economics having completed its
Business Law program.
She is a certified financial market
specialist and a member of the National
Union of Corporate Secretaries. In 2018,
Anastasia was rated among 25 best
corporate governance executives as part
of the Director of the Year Awards.
She holds no stake in the Group's
authorized capital or common stock.
www.cherkizovo.com
143
CHERKIZOVO GROUPCherkizovo unites CORPORATE
GOVERNANCE
INTERNAL CONTROL AND RISK
•
to assess the appropriateness
DISCLOSURE
Cherkizovo Group is committed
MANAGEMENT
The Board of Directors is responsible for
of management decisions made
following audits, to identify areas for
to being a transparent company open
maintaining the internal control and risk
efficiency improvements;
to stakeholders. the Group discloses
management framework at Cherkizovo
Group and for ensuring its effectiveness.
•
•
to check asset availability and safety;
information pursuant to the Regulations
to interact with the independent
of Information Policy in Disclosure
In November and December 2019,
external auditor.
the Board of Directors reviewed the risk
and Delivery of Information and
external disclosure requirements and
management report and put forward
The Internal Audit Service
recommendations for the management
monitors the implementation
to improve the risk management
of recommendations following audits.
framework. Throughout the year,
the monitoring procedure is considered
the Audit Committee reviewed internal
completed only if there is a report
the laws of the Russian Federation,
recommendations:
•
•
•
•
the regulations of the Bank of Russia,
the Moscow Exchange Listing Rules,
the basic principles of disclosure and
control and audit matters on a quarterly
on the measures taken in line with
provision of information by public joint-
basis.
the recommendations.
stock companies recommended by
the Corporate Governance Code.
The key documents governing
In 2020, the Internal Audit Service
the internal control function are:
•
the Regulations on the Board
plans to assess the reliability and
In 2019, the disclosure requirements
performance of the internal control
imposed by the Russian laws did not see
of Directors Audit Committee,
framework with regard to a number
any changes.
•
the Regulations on the Internal Audit.
of key business processes of the Group
The Company's Internal Audit Service
approach criteria.
operates in line with regulatory
selected according to the risk-based
The Group's information policy seeks:
•
to ensure stakeholders' right
to information they need for decision-
requirements, professional standards
Internal control is also exercised by
making on investment, management and
and international best practices. It
the Review Commission pursuant
other matters,
conducts centralized internal audit of all
to the Articles of Association and
•
to promote openness and transparency,
departments. Key functions of the Internal
the Regulations on the Review
enhancing the Group's overall corporate
Audit Service:
•
to review, assess and monitor
Commission. the Review Commission
image.
coordinates financial and business
the reliability and effectiveness
audits at Cherkizovo Group. Its
The key principles of Cherkizovo
of the internal control systems;
members are elected by the General
Group’s Information Policy are regularity,
•
to monitor compliance with financial and
Meeting of Shareholders for a one-year
consistency, promptness, timeliness,
business operations procedures, internal
term.
regulations, including those relating
to the risk of management override;
In March 2019, the AGM elected
the Review Commission consisting
of Nina Erkovich, Aminat Shamkhalova
and Nadezhda Emelyanova.
accessibility, reliability, completeness,
comparability, neutrality, equitable access
and ease of control.
144
2 Annual report 2019
CHERKIZOVO GROUPAbout the Company Strategic ReportFinancial ResultsSustainable development Corporate governance CONTROL FRAMEWORK
General Meeting of Shareholders
Review Commission
Board of Directors
Internal Audit Service
Audit Committee
External auditor
Cherkizovo Group discloses
information:
• on its corporate website
cherkizovo.com/,
MAJOR AND INTERESTED-PARTY
DISCLOSURE OF INSIDER
TRANSACTIONS
In 2019, Cherkizovo Group entered
INFORMATION
To protect insider information,
into one major transaction and
the Company approved the Regulations
•
via the Interfax news agency
seven interested-party transactions
on Insider Information and the List
e-disclosure.ru/portal/company.
recognised as such under the Federal
of Insider information. the Company also
aspx?id=6652,
Law On Joint-Stock Companies.
maintains a list of insiders. the Group
• at meetings with stakeholders,
• by other means stipulated the by laws
and internal regulations of the Group.
These transactions were either
informs the insiders about the start
approved by the Board of Directors
of lock-up periods for trading in stocks,
or made following prior notification
GDRs and exchange-traded bonds.
of the members of the management
The main landmark in 2019 was
bodies stipulated in Article 81, Clause
Given that the amendments to Federal
the relaunch of the Company's
1.1 of the Federal Law On Joint-Stock
Law No. 224-FZ On Countering the Illegal
corporate website. the website address
Companies without prior approval
Use of Insider Information and Market
remains the same – cherkizovo.com,
required.
while its design became more intuitive
Manipulation and on Amendments
to Certain Legislative Acts of the Russian
and modern. It is now more convenient
The Company publishes information
Federation dated of 27 July 2010 were
for users to find relevant information
on major and interested-party
enacted on 1 May 2019, the Company
and follow the Company's news.
transactions at e-disclosure.ru/portal/
plans to make relevant changes to its
company.aspx?id=6652.
internal regulations governing the use
In 2019, the Group continued reporting
its financial performance on a quarterly
basis, and its operational results – on
DISCLOSURE TO AUDITORS
As far as each of the directors is
a monthly basis.
aware, there is no material information
of insider information.
undisclosed to Cherkizovo Group’s
auditors. Each of the directors has
taken all the necessary steps to obtain
all material information and provide it
to the Group’s auditors.
Cherkizovo Group’s current auditor,
Deloitte & Touche CIS, was approved
for reappointment in March 2019.
The General Meeting of Shareholders
annually considers external auditor
approval.
www.cherkizovo.com
145
CHERKIZOVO GROUPCherkizovo unites SHAREHOLDER
AND INVESTOR
HIGHLIGHTS
ORDINARY SHARES
Cherkizovo Group’s ordinary shares are
quoted on the Moscow Exchange (MOEX)
(MOEX ticker: GCHE). the Group’s stocks
are traded in the Level 3 List as its free float
remained below 7.5% of outstanding shares
for six consecutive months. the Group may
ORDINARY SHARE PRICE PERFORMANCE IN 2019 * , RUB
2,500
2,000
restore the level in 2–3 years depending on
1,500
the macroeconomic environment.
The Group delisted its GDRs from
the London Stock Exchange (LSE) in 2018,
but continues its GDR programme. It may
be terminated at the Company’s discretion.
As of the end of 2019, the share price grew
by 55% to RUB 1,736 per share.
1,000
500
0
Jan19 Feb19 Mar19 Apr19 May19 Jun19
Jul19 Aug19 Sep19 Oct19 Nov19 Dec19
Source: Moscow Exchange
CHERKIZOVO GROUP’S ORDINARY SHARE PRICE PERFORMANCE IN 2019 *
As of 31 December 2018
12M high
12M low
As of 31 December 2019
Average 12M closing price
12M ADTV, shares
Source: Moscow Exchange
1 118
2 120
1 118
1 736
1 688
1 894
146
2 Annual report 2019
CHERKIZOVO GROUPAbout the Company Strategic ReportFinancial ResultsSustainable development Corporate governance 69%
Total shareholder
return amounts
including dividends
paid in 2019 *
SHAREHOLDING STRUCTURE
The total number of authorized shares
BONDS
was 54,702,600 and the number of issued
Series
BО-001Р-02
BО-001Р-01
shares was 43,963,773. All issued and
outstanding shares have equal voting rights.
2.8%
0.5%
6.6%
15.1%
8.0%
14.4%
26.3%
26.3%
Registration number
4B02-02-10797-A-001P
4B02-01-10797-A-001P
Stock exchange
Annual coupon
Issue date
Coupon payment
Issue amount
Maturity
Moscow Exchange
Moscow Exchange
7.5 %
12.5%
28 November 2019
13 October 2015
Quarterly
RUB 10 bln
3.5 years
Semi-annually
RUB 5 bln
5 years
Boltenko Law GmbH
Lidiya Mikhailova
Evgeny Mikhailov
Sergey Mikhailov
Grupo Corporativo Fuertes, S.L.
AIC Mikhailovsky
Management
Free float
INVESTOR AND SHAREHOLDER RELATIONS
%
15.1
14.4
26.3
26.3
8.0
6.6
0.5
2.8
Cherkizovo Group seeks to attract new
News releases are available on our
investment and actively cooperates with
website at http://cherkizovo.com/en/press/
stock market players. In 2019, the Company
company-news/
interacted by communicating press
releases with operational and financial
Information for shareholders and investors
results, by holding conference calls and
is available on our website at:
meetings in person, and by organizing other
http://cherkizovo.com/en/investors/
dedicated events.
Also, the Group updated its corporate
mandatory disclosures are published on
Corporate action notices and other
The Company’s key shareholders (in total,
website in 2019. a new user-friendly section
the Group’s website and the Corporate
82.1% of all shares) are Sergey Mikhailov,
for investors contains the Company's
Disclosure Centre’s website at:
Evgeny Mikhailov, Lidiya Mikhailova, and
key performance indicators, reports and
http://www.e-disclosure.ru/portal/
Boltenko Law GmbH.
presentations, securities information, and
company.aspx?id=6652.
other helpful data. the investor calendar
for the current year is available at http://
cherkizovo.com/en/investors/calendar/.
The Group employs a variety of channels
to provide timely disclosure of material
information.
* Total shareholder return is a percentage
calculated by dividing the closing share price
adjusted for dividends paid in the period, if any, by
the opening share price.
www.cherkizovo.com
147
CHERKIZOVO GROUPCherkizovo unites
About the Company
Strategic Report
Financial Results
Sustainable development
Corporate governance
Consolidated
Financial
Statements
PJSC Cherkizovo Group
Consolidated Financial Statements
for the year ended 31 December 2019 and
Independent Auditor’s Report
148
CHERKIZOVO GROUP
2 Annual report 2019
Financial Statements
Appendix
Cherkizovo unites
Contents
STATEMENT OF MANAGEMENT RESPONSIBILITIES FOR the PREPARATION
AND APPROVAL OF the CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
CONSOLIDATED STATEMENT OF CASH FLOWS
NOTES TO the CONSOLIDATED FINANCIAL STATEMENTS
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
Nature of the business
Significant accounting policies
New and revised International financial reporting standards
Key sources of estimation uncertainty
Operating segments
Cost of sales
Selling, general and administrative expenses
Other operating (expenses) income, net
Interest expense, net
Other income (expenses), net
Income tax
Property, plant and equipment
Investment property
Right-of-use assets
Goodwill
Intangible assets
Biological assets
Investments in joint ventures and associates
Long-term deposits in banks
Inventories
Taxes recoverable and prepaid
Trade receivables, net
Other receivables, net
Cash and cash equivalents
Other current assets
Shareholder’s equity
Non-controlling interests
Borrowings
Lease liabilities
Tax related liabilities
Financial instruments
Related parties
Acquisitions
Commitments and contingencies
Subsequent events
150
151
156
157
159
160
162
163
176
180
183
188
189
190
190
191
191
194
196
197
197
198
200
204
207
207
207
207
208
209
209
209
210
212
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225
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231
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CHERKIZOVO GROUP
149
STATEMENT OF MANAGEMENT RESPONSIBILITIES
FOR the PREPARATION AND APPROVAL
OF the CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended 31 December 2019
Management is responsible for the preparation of the consolidated
Management is also responsible for:
financial statements that present fairly the financial position of
• Designing, implementing and maintaining an effective system of
PJSC Cherkizovo Group (the “Company”) and its subsidiaries (the
internal controls throughout the Group;
“Group”) as at 31 December 2019, and the consolidated results of its
• Maintaining adequate accounting records that are sufficient to
operations, cash flows and changes in equity for the year then ended,
show and explain the Group’s transactions and disclose with
in compliance with International Financial Reporting Standards
reasonable accuracy at any time the consolidated financial
(“IFRS”).
position of the Group, and which enable them to ensure that
In preparing the consolidated financial statements, management is
the consolidated financial statements of the Group comply with
responsible for:
IFRS;
• Properly selecting and applying accounting policies;
• Maintaining statutory accounting records in compliance with local
• Presenting information, including accounting policies, in a manner
legislation and accounting standards;
that provides relevant, reliable, comparable and understandable
• Taking such steps as are reasonably available to them to safeguard
information;
the assets of the Group; and
• Providing additional disclosures when compliance with the specific
• Preventing and detecting fraud and other irregularities.
requirements in IFRS are insufficient to enable users to understand
the impact of particular transactions, other events and conditions
The consolidated financial statements of the Group for the year ended
on the Group’s consolidated financial position and financial
31 December 2019 were approved by Management on 13 February
performance;
2020.
• Making an assessment of the Group’s ability to continue as a going
concern.
On behalf of the Management:
Sergei Mikhailov
Chief Executive Officer
Ludmila Mikhailova
Chief Financial Officer
150
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUP INDEPENDENT AUDITOR’S REPORT
To the Board of Directors
and Shareholders of PJSC Cherkizovo Group:
BASIS FOR OPINION
OPINION
We conducted our audit in accordance with International Standards
on Auditing (“ISAs”). Our responsibilities under those standards are
further described in the Auditor’s Responsibilities for the Audit of
We have audited the consolidated financial statements of
the Consolidated Financial Statements section of our report. We are
PJSC Cherkizovo Group (the “Company”) and its subsidiaries
independent of the Group in accordance with the International Ethics
(collectively – the “Group”), which comprise the consolidated
Standards Board for Accountants’ Code of Ethics for Professional
statement of financial position as at 31 December 2019, and
Accountants (the “IESBA Code”) together with the ethical
the consolidated statement of profit or loss and other comprehensive
requirements that are relevant to our audit of the consolidated
income, consolidated statement of changes in equity and
financial statements in the Russian Federation, and we have fulfilled
consolidated statement of cash flows for 2019, and notes to
our other ethical responsibilities in accordance with the IESBA Code.
the consolidated financial statements, including a summary of
We believe that the audit evidence we have obtained is sufficient and
significant accounting policies.
appropriate to provide a basis for our opinion.
In our opinion, the accompanying consolidated financial statements
present fairly, in all material respects, the consolidated financial
KEY AUDIT MATTERS
position of the Group as at 31 December 2019, and its consolidated
financial performance and its consolidated cash flows for 2019 in
Key audit matters are those matters that, in our professional judgment,
accordance with International Financial Reporting Standards
were of most significance in our audit of the consolidated financial
(“IFRSs”).
statements of the current period. These matters were addressed in
the context of our audit of the consolidated financial statements as
a whole, and in forming our opinion thereon, and we do not provide
a separate opinion on these matters.
www.cherkizovo.com
151
Financial StatementsAppendixCHERKIZOVO GROUPCherkizovo unites INDEPENDENT AUDITOR’S REPORT CONTINUED
WHY the MATTER WAS DETERMINED a KEY AUDIT MATTER
HOW the MATTER WAS ADDRESSED IN the AUDIT
Valuation of biological assets
At 31 December 2019 the carrying values of current and non-current
We performed audit procedures on all valuation models relating to
biological assets related to pork segment were RUB 7,390 million
material types of biological assets.
and RUB 2,007 million respectively (2018: RUB 7,628 million and
RUB 2,638 million) and the carrying value of current biological
Our audit procedures included verification of management’s
assets related to poultry segment was RUB 6,749 million (2018:
assumptions used in the models.
RUB 6,004 million).
The assumptions to which the models were most sensitive and most
Biological assets are stated at fair value less estimated costs to
likely to lead to material mistakes in valuation were:
sell. At 31 December 2019 the effect of fair value adjustment on
the carrying value of biological assets was RUB 5,204 million (2018:
• Future selling prices; and
RUB 6,583 million).
Further details are provided in Notes 4 and 17 to the consolidated
financial statements.
• The projected cost per head/ kg.
We challenged management’s assumptions in the models with
reference to historical data and, where applicable, external/
We focused on this area as a key audit matter because
independent sources, noting that the assumptions used fell within
the assessment of the fair value using valuation techniques involves
an acceptable independently determined range. We compared
complex and significant judgements about future poultry and pork
the current performance up to the date of the audit report with
prices as well as the projected costs being unobservable inputs, and
the forecasts to ensure no significant changes in market conditions
because the valuation is particularly sensitive to these assumptions.
had occurred after the testing had been performed, which can affect
the assumptions used in the models.
We tested the accuracy of the models and management’s sensitivity
calculations.
We tested the appropriateness of the related disclosures provided in
the consolidated financial statements. In particular, we focused on
the disclosure of key unobservable inputs and the related sensitivity
analysis.
152
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUP OTHER INFORMATION
RESPONSIBILITIES OF MANAGEMENT AND
THOSE CHARGED WITH GOVERNANCE FOR
Management is responsible for the other information. the other
THE CONSOLIDATED FINANCIAL STATEMENTS
information comprises the information included in the Annual report,
but does not include the consolidated financial statements and our
Management is responsible for the preparation and fair presentation
auditor’s report thereon. the Annual report is expected to be made
of the consolidated financial statements in accordance with
available to us after the date of this auditor's report.
International Financial Reporting Standards (“IFRSs”), and for such
internal control as management determines is necessary to enable
Our opinion on the consolidated financial statements does not cover
the preparation of consolidated financial statements that are free from
the other information and we will not express any form of assurance
material misstatement, whether due to fraud or error.
conclusion thereon.
In connection with our audit of the consolidated financial statements,
responsible for assessing the Group’s ability to continue as a going
our responsibility is to read the other information identified above
concern, disclosing, as applicable, matters related to going concern
when it becomes available and, in doing so, consider whether
and using the going concern basis of accounting unless management
the other information is materially inconsistent with the consolidated
either intends to liquidate the Group or to cease operations, or has no
In preparing the consolidated financial statements, management is
financial statements or our knowledge obtained in the audit, or
realistic alternative but to do so.
otherwise appears to be materially misstated.
When we read the Annual report, if we conclude that there is
the Group’s financial reporting process.
Those charged with governance are responsible for overseeing
a material misstatement therein, we are required to communicate
the matter to those charged with governance.
www.cherkizovo.com
153
Financial StatementsAppendixCHERKIZOVO GROUPCherkizovo unites INDEPENDENT AUDITOR’S REPORT CONTINUED
AUDITOR’S RESPONSIBILITIES FOR THE AUDIT
• Evaluate the appropriateness of accounting policies used
OF THE CONSOLIDATED FINANCIAL STATEMENTS
and the reasonableness of accounting estimates and related
disclosures made by management;
Our objectives are to obtain reasonable assurance about whether
the consolidated financial statements as a whole are free from material
• Conclude on the appropriateness of management’s use of
misstatement, whether due to fraud or error, and to issue an auditor’s
the going concern basis of accounting and, based on the audit
report that includes our opinion. Reasonable assurance is a high
evidence obtained, whether a material uncertainty exists related to
level of assurance, but is not a guarantee that an audit conducted
events or conditions that may cast significant doubt on the Group’s
in accordance with ISAs will always detect a material misstatement
ability to continue as a going concern. If we conclude that
when it exists. Misstatements can arise from fraud or error and are
a material uncertainty exists, we are required to draw attention in
considered material if, individually or in the aggregate, they could
our auditor’s report to the related disclosures in the consolidated
reasonably be expected to influence the economic decisions of users
financial statements or, if such disclosures are inadequate, to
taken on the basis of these consolidated financial statements.
modify our opinion. Our conclusions are based on the audit
evidence obtained up to the date of our auditor’s report. However,
As part of an audit in accordance with ISAs, we exercise professional
future events or conditions may cause the Group to cease to
judgment and maintain professional scepticism throughout the audit.
continue as a going concern; and
We also:
•
Identify and assess the risks of material misstatement of
the consolidated financial statements, including the disclosures,
the consolidated financial statements, whether due to fraud or
and whether the consolidated financial statements represent
error, design and perform audit procedures responsive to those
the underlying transactions and events in a manner that achieves
• Evaluate the overall presentation, structure and content of
risks, and obtain audit evidence that is sufficient and appropriate to
fair presentation.
provide a basis for our opinion. the risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting
• Obtain sufficient appropriate audit evidence regarding the financial
from error, as fraud may involve collusion, forgery, intentional
information of the entities or business activities within the Group
omissions, misrepresentations, or the override of internal control;
to express an opinion on the consolidated financial statements.
We are responsible for the direction, supervision and performance
• Obtain an understanding of internal control relevant to the audit
of the group audit. We remain solely responsible for our audit
in order to design audit procedures that are appropriate in
opinion.
the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Group’s internal control;
154
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUP We communicate with those charged with governance regarding,
among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies in
internal control that we identify during our audit.
We also provide those charged with governance with a statement
that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships
and other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
From the matters communicated to those charged with governance,
we determine those matters that were of most significance in
the audit of the consolidated financial statements of the current
period and are therefore the key audit matters. We describe
these matters in our auditor’s report unless law or regulation
precludes public disclosure about the matter or when, in extremely
rare circumstances, we determine that a matter should not be
communicated in our report because the adverse consequences
of doing so would reasonably be expected to outweigh the public
interest benefits of such communication.
Srbuhi Hakobyan,
Engagement partner
13 February 2020
The Entity: PJSC Cherkizovo Group
Primary State Registration Number: 1057748318473
Certificate of registration in the Unified State Register №
1057748318473 of 22.09.2005, issued by Moscow Interdistrict
Inspectorate of the Russian Ministry of Taxation № 46.
Address: 1, Cherkizovskaya street, Topkanovo village, Kashira, Moscow
region, Russian Federation, 142931
Audit Firm: AO “Deloitte & Touche CIS”
Certificate of state registration № 018.482, issued by the Moscow
Registration Chamber on 30.10.1992.
Primary State Registration Number: 1027700425444
Certificate of registration in the Unified State Register
№ 77,004840299 of 13.11.2002, issued by Moscow Interdistrict
Inspectorate of the Russian Ministry of Taxation № 39.
Member of Self-regulatory organization of auditors Association
“Sodruzhestvo”, ORNZ 12006020384.
www.cherkizovo.com
155
Financial StatementsAppendixCHERKIZOVO GROUPCherkizovo unites Consolidated statement of profit or loss
and other comprehensive income
For the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise indicated)
Revenue
Net change in fair value of biological assets
Net revaluation of harvested crops in stock
Cost of sales
Gross profit
Selling, general and administrative expenses
Other operating (expenses) income, net
Share of loss of joint ventures and associates
Operating profit
Interest income
Interest expense, net
Other income (expenses), net
Profit before income tax
Income tax (expense) benefit
Profit for the year and total comprehensive income
Profit and total comprehensive income attributable to:
Cherkizovo Group
Non-controlling interests
Earnings per share
Notes
5
17
17
6
7
8
18
9
10
11
2019
120,109
(1,379)
29
(90,896)
27,863
(17,441)
(110)
(123)
10,189
243
(4,484)
749
6,697
(46)
6,651
6,751
(100)
2018
(restated) ˙*˙
100,422
1,836
2,242
(75,318)
29,182
(14,234)
664
(57)
15,555
290
(3,267)
(785)
11,793
187
11,980
12,004
(24)
Weighted average number of shares outstanding – basic and diluted:
41,047,014
41,047,014
Profit attributable to Cherkizovo Group per share – basic and diluted (in
Russian rubles):
164.46
292.45
˙*˙ Comparative information for the year ended 31 December 2018 was retrospectively restated in order to reflect the change in accounting policy in relation to the presentation
of general and administrative expenses incurred in production sites and related to production and the change in accounting policy in relation to the presentation of other sales
related to non-core activities of the Group and related cost of sales (Note 2).
The accompanying notes form an integral part of these consolidated financial statements.
156
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUP
Consolidated statement
of financial position
For the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise indicated)
ASSETS
Non-current assets
Property, plant and equipment
Investment property
Right-of-use assets
Goodwill
Intangible assets
Non-current biological assets
Investments in joint ventures and associates
Long-term deposits in banks
Restricted cash
Deferred tax assets
Rights to claim debt
Other non-current assets
Total non-current assets
Current assets
Biological assets
Inventories
Taxes recoverable and prepaid
Trade receivables, net
Advances paid, net
Other receivables, net
Cash and cash equivalents
Other current assets
Total current assets
TOTAL ASSETS
Notes
31 December 2019
31 December 2019
(restated) ˙*˙
12
13
14
15
16
17
18
19
11
33
17
20
21
22
23
24
25
82,622
82,393
664
1,567
1,628
2,335
2,007
3,789
641
-
1,214
4,685
1,239
595
-
1,628
2,144
2,673
3,518
641
109
1,073
4,685
678
102,391
100,137
16,287
13,223
2,396
5,476
844
199
3,304
328
42,057
15,395
12,429
1,909
5,733
875
1,523
9,613
563
48,040
144,448
148,177
˙*˙ Comparative information for the year ended 31 December 2018 has been retrospectively adjusted for the finalisation of the allocation of the purchase price of businesses
acquired in 2018 (Note 33).
The accompanying notes form an integral part of these consolidated financial statements.
www.cherkizovo.com
157
Financial StatementsAppendixCHERKIZOVO GROUPCherkizovo unites
Consolidated statement
of financial position CONTINUED
For the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise indicated)
EQUITY AND LIABILITIES
Equity
Share capital
Treasury shares
Additional paid-in capital
Retained earnings
Total shareholder’s equity
Non-controlling interests
Total equity
Non-current liabilities
Long-term borrowings
Long-term lease liabilities
Deferred tax liability
Total non-current liabilities
Current liabilities
Short-term borrowings
Short-term lease liabilities
Trade payables
Advances received
Payables for non-current assets
Tax related liabilities
Payroll related liabilities
Other payables and accruals
Total current liabilities
Notes
31 December 2019
31 December 2019
(restated) ˙*˙
26
27
28
29
11
28
29
30
-
(3,724)
5,622
58,507
60,405
879
61,284
43,182
759
1,023
44,964
20,790
420
11,560
893
656
1,327
2,317
237
38,200
-
(3,724)
5,611
57,932
59,819
990
60,809
44,643
-
996
45,639
24,170
-
10,830
576
1,216
1,325
2,707
905
41,729
Total liabilities
83,164
87,368
TOTAL EQUITY AND LIABILITIES
144,448
148,177
˙*˙ Comparative information for the year ended 31 December 2018 has been retrospectively adjusted for the finalisation of the allocation of the purchase price of businesses
acquired in 2018 (Note 33).
The accompanying notes form an integral part of these consolidated financial statements.
158
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUP
Consolidated statement
of changes in equity
For the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise indicated)
Share capital
Share capital
Amount
Number of
shares
Amount
Number of
shares
Additional
paid-in
capital
Retained
earnings
Total
shareholder’s
equity
Non-
controlling
interests
Total
equity
Balances at
1 January 2018
Profit for the year
and total
comprehensive
income
Purchase of
non-controlling
interests
Dividends
(Note 26)
Balances at
31 December
2018
Profit for the year
and total
comprehensive
income
Purchase of
non-controlling
interests
Dividends
(Note 26)
Balances at
31 December
2019
-
-
-
-
-
-
-
-
-
43,963,773
(3,724)
(2,916,759)
5,588
49,850
51,714
1,066
52,780
-
-
-
-
-
-
-
-
-
-
12,004
12,004
(24)
11,980
23
-
23
(52)
(29)
-
(3,922)
(3,922)
-
(3,922)
43,963,773
(3,724)
(2,916,759)
5,611
57,932
59,819
990
60,809
-
-
-
-
-
-
-
-
-
-
6,751
6,751
(100)
6,651
11
-
11
(11)
-
-
(6,176)
(6,176)
-
(6,176)
43,963,773
(3,724)
(2,916,759)
5,622
58,507
60,405
879
61,284
The accompanying notes form an integral part of these consolidated financial statements.
www.cherkizovo.com
159
Financial StatementsAppendixCHERKIZOVO GROUPCherkizovo unites Consolidated statement
of cash flows
For the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise indicated)
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before income tax
Adjustments for:
Depreciation and amortisation
Changes in allowance for expected credit losses
Foreign exchange (gain) loss, net
Interest income
Interest expense, net
Net change in fair value of biological assets
Net revaluation of harvested crops in stock
Loss (gain) on disposal of property, plant and equipment, net
Loss (gain) on disposal of non-current biological assets, net
Share of loss of joint ventures and associates
Other adjustments, net
Operating cash flows before working capital and other changes
Increase in inventories
Increase in biological assets
Decrease (increase) in trade receivables
Decrease in advances paid
(Increase) decrease in other receivables and other current assets
Decrease in other non-current assets
Increase in trade payables
(Decrease) increase in tax related liabilities (other than income tax)
(Decrease) increase in other current payables
Operating cash flows before interest and income tax
Interest received
Interest paid
Government grants for compensation of interest expense received
Income tax paid
Net cash from operating activities
2019
2018
6,697
11,793
7,818
129
(676)
(243)
4,484
1,379
(29)
164
60
123
(82)
19,824
(465)
(1,096)
108
45
(66)
8
1,175
(19)
(258)
19,256
232
(4,254)
1,282
(460)
16,056
6,045
118
829
(290)
3,267
(1,836)
(2,242)
(47)
(192)
57
(52)
17,450
(713)
(764)
(1,279)
536
626
62
1,321
508
618
18,365
245
(4,159)
333
(606)
14,178
160
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUP Consolidated statement
of cash flows CONTINUED
For the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise indicated)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment
Purchase of non-current biological assets
Purchase of intangible assets
Proceeds from sale of property, plant and equipment
Proceeds from disposal of non-current biological assets
Acquisitions of subsidiaries, net of cash acquired
Investments in joint ventures and acquisitions of associates
Placing of deposits and issuance of loans
Repayment of loans issued and notes receivable and redemption of deposits
2019
2018
(8,092)
(1,307)
(504)
350
834
(1,658)
(788)
(161)
369
(9,182)
(944)
(431)
181
993
(5,646)
(579)
(101)
388
Net cash used in investing activities
(10,957)
(15,321)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term loans
Repayment of long-term loans
Proceeds from short-term loans
Repayment of short-term loans
Repayment of lease obligations
Dividends paid
Purchase of non-controlling interests
Net cash (used in) generated from financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
26,295
(21,870)
35,367
(44,604)
(420)
(6,176)
-
(11,408)
(6,309)
9,613
3,304
30,007
(21,056)
22,263
w
-
(3,922)
(29)
10,051
8,908
705
9,613
Non-cash transactions:
• In December 2018 the Group acquired Rosselkhozbank’s rights to claim debt (loans) from LLC “Belaya Ptitsa Kursk” (further “Belaya Ptitsa Kursk”) and related security
agreements (Note 33). To finance the transaction the Group assumed a five-year rubles-denominated loan from Rosselkhozbank. No cash was received or provided with respect
to the two transactions with Rosselkhozbank, and therefore the acquisition did not impact the Group's cash position.
The accompanying notes form an integral part of these consolidated financial statements.
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Financial StatementsAppendixCHERKIZOVO GROUPCherkizovo unites 1. NATURE OF THE BUSINESS
General information
PJSC Cherkizovo Group (the “Company”) is a public joint stock company incorporated in Russia. The registered office of the Company is 1,
Cherkizovskaya st., Topkanovo village, Kashira, Moscow region, 142931, Russia.
The ultimate controlling party of PJSC Cherkizovo Group is Mikhailov family who jointly control the Company.
At 31 December 2019 and 2018 the Group included the following principal companies:
Name of company
Legal form
Nature of business
JSC Cherkizovsky Meat Processing Plant
(JSC CMPP)
Joint Stock Company
Meat processing plant
LLC PKO Otechestvennyi Product
Limited Liability Company
Meat processing plant
JSC Cherkizovo-Kashira
Joint Stock Company
Meat processing plant
JSC Petelinskaya
JSC Vasiljevskaya
Joint Stock Company
Raising poultry ˙*˙
Joint Stock Company
Raising poultry
JSC Kurinoe Tsarstvo
Open Joint Stock Company
Raising poultry
JSC Kurinoe Tsarstvo Bryansk
Joint Stock Company
Raising poultry
JSC Mosselprom ˙**˙
LLC Lisko Broiler
JSC Altaisky Broiler
Joint Stock Company
Raising poultry
Limited Liability Company
Raising poultry
Joint Stock Company
Raising poultry
LLC Cherkizovo trade house
Limited Liability Company
Trading company
LLC Cherkizovo-Pork
Limited Liability Company
Pig breeding
LLC Cherkizovo-Grain Production
Limited Liability Company
Grain crops cultivation
LLC Agrarnaya Gruppa ˙***˙
Limited Liability Company
Grain crops cultivation
JSC Lipetskmyaso ˙***˙
Joint Stock Company
Grain crops cultivation
˙*˙ Hereinafter poultry includes only chicken.
˙**˙ In August 2019 JSC Mosselprom was merged with JSC Kurinoe Tsarstvo.
˙***˙ In December 2019 LLC Agrarnaya Gruppa and JSC Lipetskmyaso were merged with LLC Cherkizovo-Grain Production.
%
31.12.2019
%
31.12.2018
95%
95%
95%
88%
100%
100%
100%
-
100%
100%
88%
100%
100%
-
-
95%
95%
95%
88%
100%
100%
100%
100%
100%
100%
88%
100%
100%
100%
100%
162
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUPNotes to the consolidated financial statements For the year ended 31 December 2019(in millions of Russian rubles, unless otherwise indicated) The business of the Group
The Group’s operations are spread over the full production cycle
from grain and feed production and breeding to meat processing
and distribution. The operational facilities of the Group include eight
2. SIGNIFICANT ACCOUNTING POLICIES
Statement of compliance
These consolidated financial statements have been prepared in
meat processing plants (including meat processing plant operated
accordance with International Financial Reporting Standards (“IFRS”).
by an equity associate Samson – Food Products), thirteen full pig
production complexes, twenty one wean-to-finish facilities and two
saw farms, nine poultry production complexes (including the Belaya
Basis of preparation
The entities of the Group maintain their accounting records in
Ptitsa production complex which is currently operate pursuant to
accordance with laws, accounting and reporting regulations of
a lease agreement), nine combined fodder production plants and
the jurisdictions in which they are incorporated and registered.
more than 300,000 hectares of agricultural land.
Accounting policies and financial reporting procedures in these
jurisdictions may differ substantially from those generally accepted
The Group’s assets and distribution network is spread across
under IFRS. Accordingly, the consolidated financial statements, which
European and Siberian parts of Russia.
have been prepared from the Group’s statutory basis accounting
The Group owns locally recognised brands, which include Cherkizovo
to be presented in accordance with IFRS.
(“Черкизово”), Pyat Zvezd (“Пять Звезд”), Petelinka (“Петелинка”),
Kurinoe Tsarstvo (“Куриное Царство”) and Imperia Vkusa (“Империя
The consolidated financial statements have been prepared under
вкуса”) and has a diverse customer base.
the historical cost convention, except for biological assets measured
records, reflect adjustments necessary for such financial statements
Operating environment
Emerging markets such as Russia are subject to different risks
than more developed markets, including economic, political and
at fair value less estimated point-of-sale costs; and assets and
liabilities of subsidiaries acquired and recorded in accordance with
IFRS 3 “Business combinations” (“IFRS 3”).
social, and legal and legislative risks. Laws and regulations affecting
Historical cost is generally based on the fair value of the consideration
businesses in Russia continue to change rapidly; tax and regulatory
given in exchange for goods and services.
frameworks are subject to varying interpretations. The future
economic direction of Russia is heavily influenced by the fiscal
Fair value is the price that would be received to sell an asset or
and monetary policies adopted by the government, together with
paid to transfer a liability in an orderly transaction between market
developments in the legal, regulatory, and political environment.
participants at the measurement date, regardless of whether that
price is directly observable or estimated using another valuation
Because Russia produces and exports large volumes of oil and gas,
technique. In estimating the fair value of an asset or a liability,
its economy is particularly sensitive to the price of oil and gas on
the Group takes into account the characteristics of the asset or
the world market. Starting from 2014, sanctions have been imposed
liability if market participants would take those characteristics into
in several packages by the U.S. and the E.U. on certain Russian
account when pricing the asset or liability at the measurement date.
officials, businessmen and companies. This led to reduced access of
Fair value for measurement and/or disclosure purposes in these
the Russian businesses to international capital markets. the impact
consolidated financial statements is determined on such a basis,
of further economic developments on future operations and financial
except for leasing transactions that are within the scope of IAS 17 and
position of the Group is difficult to determine at this stage
IFRS 16, and measurements that have some similarities to fair value
but are not fair value, such as net realizable value in IAS 2 or value in
use in IAS 36.
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Financial StatementsAppendixCHERKIZOVO GROUPCherkizovo unites 2. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
In addition, for financial reporting purposes, fair value measurements
The Group continues to monitor its existing liquidity needs on an on-
are categorized into Level 1, 2 or 3 based on the degree to which
going basis. Management believes that the Group will have sufficient
the inputs to the fair value measurements are observable and
operating cash flows and borrowing capacity to continue as a going
the significance of the inputs to the fair value measurement in its
concern in the foreseeable future.
entirety, which are described as follows:
• Level 1 inputs are quoted prices (unadjusted) in active markets
Basis of consolidation
The consolidated financial statements incorporate the financial
for identical assets or liabilities that the entity can access
statements of the Company and entities controlled by the Company
at the measurement date;
(its subsidiaries).
• Level 2 inputs are inputs, other than quoted prices included within
Control is achieved when the Company:
Level 1, that are observable for the asset or liability, either directly
or indirectly; and
• Has power over the investee;
• Level 3 inputs are unobservable inputs for the asset or liability.
•
Is exposed, or has rights, to variable returns from its involvement
Functional and presentation currency
The functional currency of the Company, and each of its subsidiaries,
is the Russian rouble. These consolidated financial statements are
with the investee; and
• Has the ability to use its power to affect its returns.
also presented in Russian roubles which is the presentation currency
The Company reassesses whether or not it controls an investee if
used by the Group.
facts and circumstances indicate that there are changes to one or
more of the three elements of control listed above.
Foreign currency transactions
In preparing the financial statements of each individual group entity,
When the Company has less than a majority of the voting rights of
transactions in currencies other than the entity’s functional currency
an investee, it has power over the investee when the voting rights are
(foreign currencies) are recognised at the rates of exchange prevailing
sufficient to give it the practical ability to direct the relevant activities
at the dates of the transactions. At the end of each reporting period,
of the investee unilaterally. The Company considers all relevant facts
monetary items denominated in foreign currencies are retranslated
and circumstances in assessing whether or not the Company’s voting
at the rates prevailing at that date. Non-monetary items that are
rights in an investee are sufficient to give it power, including:
measured in terms of historical cost in a foreign currency are not
retranslated.
Exchange differences on monetary items are recognised in profit or
• The size of the Company’s holding of voting rights relative to
the size and dispersion of holdings of the other vote holders;
loss in the period in which they arise.
• Potential voting rights held by the Company, other vote holders or
Going concern
These consolidated financial statements have been prepared on
the assumption that the Group will continue as a going concern in
the foreseeable future, which implies the realization of assets and
settlement of liabilities in the normal course of business.
other parties;
• Rights arising from other contractual arrangements; and
164
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUPNotes to the consolidated financial statements For the year ended 31 December 2019(in millions of Russian rubles, unless otherwise indicated) • Any additional facts and circumstances that indicate that
At the acquisition date, the identifiable assets acquired and
the Company has, or does not have, the current ability to direct
the liabilities assumed are recognized at their fair value
the relevant activities at the time that decisions need to be made,
at the acquisition date, except for:
including voting patterns at previous shareholders’ meetings.
Consolidation of a subsidiary begins when the Company obtains
employee benefit arrangements are recognized and measured
control over the subsidiary and ceases when the Company loses
in accordance with IAS 12 Income Taxes and IAS 19 Employee
• Deferred tax assets or liabilities and liabilities or assets related to
control of the subsidiary. Specifically, income and expenses of
Benefits respectively;
a subsidiary acquired or disposed of during the year are included in
the consolidated statement of profit or loss and other comprehensive
• Liabilities or equity instruments related to share-based payment
income from the date the Company gains control until the date when
arrangements of the acquiree or share-based payment arrange-
the Company ceases to control the subsidiary.
ments of the Group entered into to replace share-based payment
Profit or loss and each component of other comprehensive income
IFRS 2 Share-based Payment at the acquisition date; and
are attributed to the owners of the Company and to the non-controlling
interests. Total comprehensive income of subsidiaries is attributed to
• Assets (or disposal groups) that are classified as held for sale in
the owners of the Company and to the non-controlling interests even if
accordance with IFRS 5 Non-current Assets Held for Sale and
this results in the non-controlling interests having a deficit balance.
Discontinued Operations are measured in accordance with that
arrangements of the acquiree are measured in accordance with
When necessary, adjustments are made to the financial statements
Standard.
of subsidiaries to bring their accounting policies into line with
Goodwill is measured as the excess of the sum of the consideration
the Group’s accounting policies.
transferred, the amount of any non-controlling interests in
the acquiree, and the fair value of the acquirer’s previously held
All intragroup assets and liabilities, equity, income, expenses and
interest in the acquiree (if any) over the net of the acquisition-date
cash flows relating to transactions between members of the Group
amounts of the identifiable assets acquired and the liabilities assumed.
are eliminated in full on consolidation.
If, after reassessment, the net of the acquisition-date amounts of
Business combinations
Acquisitions of businesses are accounted for using the acquisition
the identifiable assets acquired and liabilities assumed exceeds
the sum of the consideration transferred, the amount of any non-
controlling interests in the acquiree and the fair value of the acquirer’s
method, including acquisitions from entities under common control.
previously held interest in the acquiree (if any), the excess is
The consideration transferred in a business combination is measured
recognized immediately in profit and loss as a bargain purchase gain.
at fair value, which is calculated as the sum of the acquisition-date
fair values of the assets transferred by the Group, liabilities incurred
Non-controlling interests that are present ownership interests and
by the Group to the former owners of the acquiree and the equity
entitle their holders to a proportionate share of the entity’s net
interests issued by the Group in exchange for control of the acquiree.
assets in the event of liquidation may be initially measured either
Acquisition-related costs are recognized in profit or loss as incurred.
at fair value or at the non-controlling interests’ proportionate share
For acquisitions of entities under common control, if the consideration
of the recognised amounts of the acquiree’s identifiable net assets.
transferred in a business combination significantly differs from the fair
The choice of measurement basis is made on a transaction-by-
value of the business acquired, the Group recognizes the difference
transaction basis. Other types of non-controlling interests are
as a capital contribution if the fair value of the business acquired is
measured at fair value or, when applicable, on the basis specified in
higher than consideration or a distribution if lower.
another IFRS.
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Financial StatementsAppendixCHERKIZOVO GROUPCherkizovo unites 2. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
If the initial accounting for a business combination is incomplete by
the end of the reporting period in which the combination occurs,
Investments in joint ventures and associates
A joint venture is a joint arrangement whereby the parties that have
the Group reports provisional amounts for the items for which
joint control of the arrangement have rights to the net assets of
the accounting is incomplete. Those provisional amounts are
the joint arrangement. Joint control is the contractually agreed sharing
adjusted during the measurement period, or additional assets or
of control of an arrangement, which exists only when decisions about
liabilities are recognized, to reflect new information obtained about
the relevant activities require unanimous consent of the parties
facts and circumstances that existed as of the acquisition date that,
sharing control.
if known, would have affected the amounts recognized as of that date.
The measurement period is the period from the date of acquisition
An entity is considered an associate if the Group has significant
to the date the Group obtains complete information about facts and
influence over its financial and operating activities. Significant
circumstances that existed as of the acquisition date – and is subject
influence is the power to participate in the financial and operating
to a maximum of one year.
policy decisions of the investee but is not control or joint control over
those policies.
Goodwill
Goodwill arising on an acquisition of a business is carried
The Group reports its interests in joint ventures and associates using
at cost as established at the date of acquisition of the business
the equity method of accounting, whereby an investment in an associate
(see accounting policy on Business combinations above) less
or a joint venture is initially recognised in the consolidated statement
accumulated impairment losses, if any.
of financial position at cost and adjusted thereafter to recognise
the Group’s share of the profit or loss and other comprehensive income
For the purposes of impairment testing, goodwill is allocated to
of the associate or joint venture. When the Group’s share of losses
each of the Group’s cash-generating units (or groups of cash-
of an associate or a joint venture exceeds the Group’s interest in that
generating units) that is expected to benefit from the synergies of
associate or joint venture (which includes any long-term interests that,
the combination.
in substance, form part of the Group’s net investment in the associate
or joint venture), the Group discontinues recognising its share of
A cash-generating unit to which goodwill has been allocated is
further losses. Additional losses are recognised only to the extent
tested for impairment annually, or more frequently when there
that the Group has incurred legal or constructive obligations or made
is an indication that the unit may be impaired. If the recoverable
payments on behalf of the associate or joint venture.
amount of the cash-generating unit is less than its carrying amount,
the impairment loss is allocated first to reduce the carrying amount
An investment in an associate or a joint venture is accounted for using
of any goodwill allocated to the unit and then to the other assets
the equity method from the date on which the investee becomes
of the unit pro rata based on the carrying amount of each asset in
an associate or a joint venture.
the unit. Any impairment loss for goodwill is recognised directly
in profit or loss. An impairment loss recognised for goodwill is not
When necessary, the entire carrying amount of the investment
reversed in subsequent periods. On disposal of the relevant cash-
(including goodwill) is tested for impairment in accordance with
generating unit, the attributable amount of goodwill is included in
IAS 36 Impairment of Assets as a single asset by comparing its
the determination of the profit or loss on disposal.
recoverable amount (higher of value in use and fair value less costs to
sell) with its carrying amount, Any impairment loss recognised forms
part of the carrying amount of the investment.
Any reversal of that impairment loss is recognised in accordance with
IAS 36 to the extent that the recoverable amount of the investment
subsequently increases.
166
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUPNotes to the consolidated financial statements For the year ended 31 December 2019(in millions of Russian rubles, unless otherwise indicated) When a group entity transacts with a joint venture or associate
of the Group, profits and losses resulting from the transactions
Depreciation
Depreciation is recognized to write off the cost of assets (other
with the joint venture or associate are recognised in the Group’s
than freehold land and properties under construction) less their
consolidated financial statements only to the extent of interests in
residual values over their useful lives, using the straight-line method.
the joint venture or associate that are not related to the Group.
the estimated useful lives for the current and comparative periods
Property, plant and equipment
Owned assets
Property, plant and equipment are measured at cost less accumulated
are as follows:
Land
Buildings, infrastructure and lease hold
improvements
depreciation and impairment losses. Land is not depreciated.
Machinery and equipment
Cost includes expenditure that is directly attributable to
the acquisition of the asset. The cost of self-constructed assets
includes the cost of materials, direct labour, and any other costs
directly attributable to bringing the asset to a working condition
Vehicles
Other
indefinite life
10-40 years
3-22 years
3-10 years
3-10 years
for its intended use, and the costs of dismantling and removing
Depreciation methods, useful lives and residual values are
the items and restoring the site in which they are located. Purchased
reassessed at each reporting date, with the effect of any changes
software that is integral to the functionality of the related equipment is
in accounting estimate recognized on a prospective basis.
capitalized as part of that equipment.
When parts of an item of property and equipment have different useful
Investment property
Investment properties represent buildings and land held to earn
lives, they are accounted for as separate items (major components) of
rentals and/or for capital appreciation (including property under
property and equipment. Gains and losses on disposal of an item of
construction for such purposes). Investment properties are measured
property, plant and equipment are recognized net in other income in
at cost, including transaction costs, less accumulated depreciation
profit or loss.
and impairment losses. Land is not depreciated.
Repairs and maintenance
The cost of replacing part of an item of property, plant and equipment
Depreciation is recognized in profit or loss on a straight-line basis
over the estimated useful lives (10-40 years) of each building.
is recognized in the carrying amount of the item if it is probable
that future economic benefits embodied within the part will flow
An investment property is derecognised upon disposal or when
to the Group and its cost can be measured reliably. The carrying
the investment property is permanently withdrawn from use and
amount of the replaced part is derecognized. The costs of day-to-day
no future economic benefits are expected from the disposal. Any
servicing of property, plant and equipment are recognized in profit or
gain or loss arising on derecognition of the property (calculated
loss as incurred.
as the difference between the net disposal proceeds and the carrying
amount of the asset) is included in profit or loss in the period in which
the property is derecognised.
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Financial StatementsAppendixCHERKIZOVO GROUPCherkizovo unites 2. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Intangible assets
Intangible assets represent acquired trademarks and computer
An impairment loss is recognized if the carrying amount of an asset or
its cash-generating unit exceeds its recoverable amount. Impairment
software. All trademarks have been determined to have an indefinite
losses are recognised immediately in profit or loss. Impairment losses
life.
recognized in respect of cash-generating units are allocated first to
reduce the carrying amount of any goodwill allocated to the units and
Intangible assets with finite useful lives are carried at cost less
then to reduce the carrying amount of the other assets in the unit
accumulated amortisation and accumulated impairment losses.
(group of units) on a pro rata basis.
Amortisation is recognised on a straight-line basis over their
estimated useful lives. The estimated useful life and amortisation
When an impairment loss subsequently reverses, the carrying amount
method are reviewed at the end of each reporting period, with
of the asset (or a cash-generating unit) is increased to the revised
the effect of any changes in estimate being accounted for on
estimate of its recoverable amount, but so that the increased carrying
a prospective basis. Intangible assets with indefinite useful lives are
amount does not exceed the carrying amount that would have been
carried at cost less accumulated impairment losses.
determined had no impairment loss been recognised for the asset (or
Impairment of tangible and intangible assets other than
goodwill
The carrying amounts of the Group’s non-current assets are reviewed
at each reporting date to determine whether there is any indication
that those assets have suffered an impairment loss. If any such
cash-generating unit) in prior years. A reversal of an impairment loss
is recognised immediately in profit or loss.
Inventories
Inventories are measured at the lower of cost and net realizable value.
indication exists, then the asset’s recoverable amount is estimated.
The cost of inventories is based on the weighted average principle
Intangible assets with indefinite useful lives and intangible assets not
and includes expenditure incurred in acquiring the inventories,
yet available for use are tested for impairment at least annually, and
production or conversion costs and other costs included in
whenever there is an indication that the asset may be impaired.
bringing them to their existing location and condition. In the case
The recoverable amount of an asset or cash-generating unit is
an appropriate share of production overheads based on normal
of manufactured inventories and work in progress cost includes
the greater of its value in use and its fair value less costs to sell.
operating capacity.
In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate that
Net realizable value is the estimated selling price in the ordinary course
reflects current market assessments of the time value of money
of business, less the estimated costs of completion and selling expenses.
and the risks specific to the asset for which the estimates of future
cash flows have not been adjusted. For the purpose of impairment
testing, assets are grouped together into the smallest group of assets
Biological assets and agricultural produce
Biological assets of the Group consist of livestock (pigs and poultry)
that generates cash inflows from continuing use that are largely
and unharvested crops (grain crops and other plantations).
independent of the cash inflows of other assets or groups of assets
(the “cash-generating unit”). The goodwill acquired in a business
The Group recognizes a biological asset or agricultural produce when
combination acquisition, for the purposes of impairment testing, is
the Group controls the asset as a result of past events,
allocated to cash-generating units that are expected to benefit from
it is probable that future economic benefits associated with the asset
the synergies of the combination.
will flow to the Group, and the fair value or cost of the asset can be
measured reliably.
168
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUPNotes to the consolidated financial statements For the year ended 31 December 2019(in millions of Russian rubles, unless otherwise indicated) Biological assets are stated at fair value less estimated costs to
(iii) Market hogs
sell at both initial recognition and as of the reporting date, with any
Market hogs comprise of pigs held for pork meat production.
changes recognized in profit or loss. Costs to sell include all costs
The fair value of broilers is determined by reference to the cash
that would be necessary to sell the assets, including costs necessary
flows that will be obtained from sales of finished pigs, with
to get the assets to market.
an allowance for costs to be incurred and risks to be faced during
the remaining transformation process.
The difference between fair value less costs to sell and total
production costs is allocated to biological assets held in stock as of
(iv) Sows
each reporting date as a fair value adjustment. The change in this
Sows comprise pigs held for regeneration of market hogs
adjustment from one period to another is recognized as “Net change
population. The fair value of sows is determined by reference to
in fair value of biological assets” in profit or loss.
the cash flows that will be obtained from sales of weaned piglets,
with an allowance for costs to be incurred and risks to be faced
Agricultural produce harvested from biological assets is recognised
during the remaining productive period.
in inventory and measured at its fair value less costs to sell at the point
of harvest. A gain or loss arising on initial recognition of harvested
(v)
Unharvested crops (wheat, corn, sunflower, barley, pea and others)
crops at fair value less costs to sell is recognized as “Net revaluation of
At the year-end unharvested crops are carried at the accumulated
harvested crops in stock” in profit or loss and for items sold is presented
costs incurred, which approximate the fair value since little
on net basis as a reduction of the line “Cost of sales”. A gain or loss
biological transformation has taken place due to the seasonal
arising on initial recognition of other agricultural produce is recognized
nature of the crops. Subsequent to the year-end unharvested
as “Net change in fair value of biological assets” and for items sold is
crops in fields are measured at fair value, which is determined
presented on net basis as a reduction of the line “Cost of sales”.
by reference to the cash flows that will be obtained from sales
Based on the above policy, the principal groups of biological assets
at the point of sale and risks to be faced during the remaining
and agricultural produce are stated as follows:
transformation process.
of harvested crops, with an allowance for costs to be incurred
Biological assets
(i) Broilers
Agricultural produce
(i) Dressed poultry and pork
Broilers comprise poultry held for chicken meat production.
The fair value of dressed poultry and pork is determined by
The fair value of broilers is determined by reference to the cash
reference to market prices at the point of harvest.
flows that will be obtained from sales of finished chickens, with
an allowance for costs to be incurred and risks to be faced during
(ii) Crops
the remaining transformation process.
The fair value of crops is determined by reference to market
prices at the point of harvest.
(ii) Breeders (laying hens and replacement flock)
Breeders comprise poultry held for regeneration of broilers.
The fair value of breeders is determined by reference to the cash
flows that will be obtained from sales of hatchery eggs, with
an allowance for costs to be incurred and risks to be faced during
the remaining productive period.
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Financial StatementsAppendixCHERKIZOVO GROUPCherkizovo unites
2. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
The Group’s biological assets are classified into bearer and
The Group offers product guarantees to its customers, providing
consumable biological assets depending upon the function of
them with an option to return damaged and non-conforming goods
a particular group of biological assets in the Group’s production
and goods of initial improper quality. The period that goods may be
process. Consumable biological assets are those that are to be
returned is typically limited to the expiration period for the goods
harvested as agricultural produce, and include broilers, market hogs
shipped and is not exceeding one month from the date of shipment.
and unharvested crops. Bearer biological assets include poultry
Returns are accounted for as deductions to sales in the period to
breeders and sows.
Revenue recognition
The Group derives its revenue from five main sources: sale of
processed meat, poultry, pork, grain crops and feed. Disaggregation
which sales relate. Accumulated historical experience of the Group
indicates that the share of goods returned is insignificant and that
the most returns relate to chilled poultry and pork meat with a return
period of less than 10 days.
of revenue is consistent with the revenue information that is
Therefore, the Group does not recognise any liability related to
disclosed for each reportable segment. Revenue is recognised when
customers’ right to return products within the return period and does
control of the products has transferred, being when the products
not recognise an asset related to the right to recover the product from
are shipped or when the goods are delivered to the customer, it has
the customer where the customer is expected to exercise his/her
full discretion over the channel and price to sell the products, and
right of return.
there is no unfulfilled obligation that could affect the customer’s
acceptance of the products.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction
In accordance with the Group’s standard sales terms, control is
or production of qualifying assets, which are assets that necessarily
transferred upon shipment. However, on contracts with certain large
take a substantial period of time to get ready for their intended
retail chains, control transfers upon delivery. Delivery occurs when
use or sale, are added to the cost of those assets, until such time
the products have been shipped to the specific location, the risks
as the assets are substantially ready for their intended use or sale.
of obsolescence and loss have been transferred to the customer,
and either the customer has accepted the products in accordance
All other borrowing costs are recognized in profit or loss in the period
with the sales contract, the acceptance provisions have lapsed, or
in which they are incurred.
the Group has objective evidence that all criteria for acceptance have
been satisfied.
Government grants
In accordance with Russian legislation, enterprises engaged in
Sales are recognised at the fair value of the consideration received
agricultural activities receive certain government grants. Government
or receivable, net of VAT, discounts and returns. No element of
grants are not recognised until there is reasonable assurance that
financing is deemed present as the sales are typically made with
the Group will comply with the conditions attaching to them and that
a credit term of less than 30 days, which is consistent with market
the grants will be received.
practice.
The largest of such government grants relate to the reimbursement
The Group grants discounts to customers primarily based on
of interest expense on qualifying loans, which is received directly
the volume of goods purchased. Discounts are based on monthly,
by the Group (“interest subsidies”) and for the reimbursement of
quarterly, or annual target sales. Discounts are offered in the meat
interest expense through accredited banks, who provide loans
processing segment and in the poultry segment. The discounts
to agricultural producers at reduced rates not exceeding 5% per
are graduated to increase when actual sales exceed target sales.
annum on Rouble-denominated loans (“reduced rate lending
subsidy”). the difference between market rate and the reduced
170
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUPNotes to the consolidated financial statements For the year ended 31 December 2019(in millions of Russian rubles, unless otherwise indicated) rate equals the Key rate of the Bank of Russia (“the Key rate”) and is
The Group contributes to the State Pension Fund of the Russian
compensated by the Ministry of Agriculture to the accredited banks.
Federation. The only obligation of the Group with respect to these
If Ministry of Agriculture will not compensate the interest expense
defined contribution plans is to make the specified contributions
accrued during the interest period (typically month or quarter) due
in the period in which they arise. These contributions to the State
to lack of available funds or due to any other reason, than the bank
Pension Fund of the Russian Federation are recognized in
can unilaterally increase the interest rate payable by the Group by
the consolidated statement of profit or loss and other comprehensive
the Key rate. The Group records interest and reduced rate lending
income when employees have rendered services entitling them to
subsidies as an offset to interest expense during the period to which
the contribution. The Group does not maintain any supplemental
they relate.
post-retirement benefit plans for its employees.
The Group also receives government grants based on square of
cultivated land and volumes of meat or eggs produced and fodder
Taxation
Income tax expense represents the sum of the tax currently payable
purchased. These grants are less systematic and therefore in general
and deferred tax.
the Group recognizes them only when receives the grant or it is
highly probable that the grant will be received. These grants are
Current tax
recorded as reductions to cost of sales during the period to which
The tax currently payable is based on taxable profit for the year.
they relate.
Taxable profit differs from ‘profit before tax’ as reported in
the consolidated statement of profit or loss and other comprehensive
In addition to that, from time to time the Group receives government
income because of items of income or expense that are taxable
grants for compensation of certain capital expenditures. These grants
or deductible in other years and items that are never taxable or
are non-systematic and therefore the Group recognizes them only
deductible. The Group’s current tax is calculated using tax rates
when receives the grant. These grants are recorded as reductions to
that have been enacted or substantively enacted by the end of
costs capitalized during the period to which they relate.
the reporting period.
Employee benefits
Remuneration to employees in respect of services rendered during
Deferred tax
Deferred tax is recognised on temporary differences between
the reporting period is recognized as an expense in that reporting
the carrying amounts of assets and liabilities in the consolidated
period.
financial statements and the corresponding tax bases used in
the computation of taxable profit. Deferred tax liabilities are generally
The Group has implemented a long-term employee bonus plan
recognised for all taxable temporary differences. Deferred tax assets
for its key employees according to which the amount of bonus is
are generally recognised for all deductible temporary differences
determined by reference to the Group’s cumulative financial results
to the extent that it is probable that taxable profits will be available
for 2017-2018 financial years and was payable in two tranches during
against which those deductible temporary differences can be
2019. To qualify for the bonus employees are required to remain
utilised. Such deferred tax assets and liabilities are not recognised
in service until each payment date. the Group starts to recognize
if the temporary difference arises from the initial recognition
the amount of bonus only when it is probable that the performance
(other than in a business combination) of assets and liabilities in
conditions will be achieved and an outflow of economic benefits will
a transaction that affects neither the taxable profit nor the accounting
be required to settle the obligation. At that date the Group recognises
profit.
the cumulative expense related to past service period and starts
recognising the remaining expense over the residual period of
service, which includes the period until the payment date.
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Financial StatementsAppendixCHERKIZOVO GROUPCherkizovo unites 2. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Deferred tax liabilities are recognised for taxable temporary
differences associated with investments in subsidiaries and
Cash and cash equivalents
Cash and cash equivalents represent cash on hand and in bank
interests in joint ventures, except where the Group is able to control
accounts and short-term highly liquid investments having original
the reversal of the temporary difference and it is probable that
maturities of less than three months.
the temporary difference will not reverse in the foreseeable future.
Deferred tax assets arising from deductible temporary differences
associated with such investments and interests are only recognised to
Provisions
A provision is recognized if, as a result of a past event, the Group
the extent that it is probable that there will be sufficient taxable profits
has a present legal or constructive obligation that can be estimated
against which to utilise the benefits of the temporary differences and
reliably, and it is probable that an outflow of economic benefits
they are expected to reverse in the foreseeable future.
will be required to settle the obligation. The amount recognised
as a provision is the best estimate of the consideration required to
The carrying amount of deferred tax assets is reviewed at the end of
settle the present obligation at the end of the reporting period, taking
each reporting period and reduced to the extent that it is no longer
into account the risks and uncertainties surrounding the obligation.
probable that sufficient taxable profits will be available to allow all or
When a provision is measured using the cash flows estimated to
part of the asset to be recovered.
settle the present obligation, its carrying amount is the present value
of those cash flows (when the effect of the time value of money is
Leases
For contracts concluded after 1 January 2019, the Group assesses
material).
whether a contract is or contains a lease at inception of a contract.
the Group recognises a right-of-use asset and a corresponding lease
Share capital
Ordinary shares are classified as equity and are recorded at the par
liability with respect to all lease agreements (including sub-lease),
value of proceeds received. Where shares are issued above par value,
which conveys the right to control the use of identified assets for
the proceeds in excess of par value are recorded in additional paid-in
a period of time in exchange for consideration, except for short-term
capital, net of direct issue costs.
leases (with lease term of 12 months or less) and leases of low-value
assets. For these leases, the Group recognises the lease payments as
operating expense on a straight-line basis over the term of the lease.
Treasury shares
Where the Company or its subsidiaries purchase the Company’s
equity instruments, the consideration paid, including any directly
The right-of-use asset is initially measured at cost and subsequently
attributable incremental costs, net of income taxes, is deducted
measured at cost (subject to certain exceptions) less accumulated
from equity attributable to the Company’s owners until the equity
depreciation and impairment losses, adjusted for any remeasurement
instruments are cancelled, reissued or disposed of. Where such
of the lease liability. Right-of-use assets are depreciated on a straight-
shares are subsequently sold or reissued, any consideration received,
line basis over the lease term within the range from 1 to 7 years.
net of any directly attributable incremental transaction costs and
the related income tax effects, is included in equity attributable to
The lease liability is initially measured at the present value of
the Company’s owners.
the lease payments that are not paid at that date. Subsequently,
the lease liability is adjusted for interest and lease payments, as well
as the impact of lease modifications and remeasurements, amongst
others. Variable lease payments that do not depend on an index or
a rate are not included in the measurement of the lease liability and
are recognised in profit or loss.
172
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUPNotes to the consolidated financial statements For the year ended 31 December 2019(in millions of Russian rubles, unless otherwise indicated) Dividends
Dividends are recognized as a liability and deducted from
the rate that exactly discounts estimated future cash receipts
(including all fees and points paid or received that form an integral
equity at the reporting date only if they are declared before or
part of the effective interest rate, transaction costs and other
on the reporting date by the shareholders at a general meeting.
premiums or discounts) excluding expected credit losses, through
Dividends are disclosed when they are proposed before
the expected life of the debt instrument, or, where appropriate,
the reporting date or proposed or declared after the reporting date
a shorter period, to the gross carrying amount of the debt
but before the consolidated financial statements are authorized for
instrument on initial recognition.
issue.
Financial instruments
Financial assets and financial liabilities are recognised when
The amortised cost of a financial asset is the amount at which
the financial asset is measured at initial recognition minus
the principal repayments, plus the cumulative amortisation using
a group entity becomes a party to the contractual provisions of
the effective interest method of any difference between that initial
the instruments.
amount and the maturity amount, adjusted for any loss allowance.
On the other hand, the gross carrying amount of a financial asset is
Financial assets and financial liabilities are initially measured
the amortised cost of a financial asset before adjusting for any loss
at fair value. Transaction costs that are directly attributable to
allowance.
the acquisition or issue of financial assets and financial liabilities
(other than financial assets and financial liabilities at fair value
Interest income is recognised in profit or loss using the effective
through profit or loss) are added to or deducted from the fair
interest method and is included in the “interest income” line item.
value of the financial assets or financial liabilities, as appropriate,
on initial recognition. Transaction costs directly attributable to
Financial assets at FVTPL
the acquisition of financial assets or financial liabilities at fair value
Financial assets at FVTPL are measured at fair value at the end of
through profit or loss are recognised immediately in profit or loss.
each reporting period, with any fair value gains or losses recognised
Financial assets
All recognised financial assets are subsequently measured in
their entirety at either amortised cost or fair value, depending on
in profit or loss. the net gain or loss recognised in profit or loss
includes any dividend or interest earned on the financial asset
(Note 33).
the classification of the financial assets.
Impairment of financial assets
The Group recognises a loss allowance for expected credit losses on
The classification depends on the entity’s business model
investments in debt instruments that are measured at amortised cost
for managing the financial assets and the contractual terms
and trade and other receivables. the amount of expected credit losses
of the cash flows. At the reporting dates, the Group had only
(further “ECL”) is updated at each reporting date to reflect changes in
financial assets classified as those to be measured at amortised
credit risk since initial recognition of the respective financial asset.
cost, except for the rights to claim debt, which were classified as
financial assets measured subsequently at fair value through profit
The Group always recognises lifetime ECL for trade and other
or loss (FVTPL).
receivables. the expected credit losses on these financial assets are
estimated using a provision matrix based on the Group’s historical
Amortised cost and effective interest method
credit loss experience, adjusted for factors that are specific to
The effective interest method is a method of calculating
the debtors, general economic conditions and an assessment of
the amortised cost of a debt instrument and of allocating interest
both the current as well as the forecast direction of conditions at
income over the relevant period. the effective interest rate is
the reporting date, including time value of money where appropriate.
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Financial StatementsAppendixCHERKIZOVO GROUPCherkizovo unites 2. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
For all other financial instruments, the Group recognises lifetime
Financial liabilities subsequently measured at amortised cost
ECL when there has been a significant increase in credit risk since
Financial liabilities that are not (1) contingent consideration of an
initial recognition. If, on the other hand, the credit risk on the financial
acquirer in a business combination, (2) held-for-trading, or
instrument has not increased significantly since initial recognition,
(3) designated as at FVTPL, are subsequently measured at amortised
the Group measures the loss allowance for that financial instrument
cost using the effective interest method. the effective interest method
at an amount equal to 12m ECL. The assessment of whether lifetime
is a method of calculating the amortised cost of a financial liability
ECL should be recognised is based on significant increases in
and of allocating interest expense over
the likelihood or risk of a default occurring since initial recognition
the relevant period. the effective interest rate is the rate that exactly
instead of on evidence of a financial asset being credit-impaired
discounts estimated future cash payments (including all fees and
at the reporting date or an actual default occurring. Lifetime ECL
points paid or received that form an integral part of the effective
represents the expected credit losses that will result from all possible
interest rate, transaction costs and other premiums or discounts)
default events over the expected life of a financial instrument. In
through the expected life of the financial liability, or (where
contrast, 12m ECL represents the portion of lifetime ECL that is
appropriate) a shorter period, to the amortised cost of
expected to result from default events on a financial instrument that
a financial liability.
are possible within 12 months after the reporting date.
Derecognition of financial liabilities
The measurement of expected credit losses is a function of
The Group derecognises financial liabilities when, and only when,
the probability of default, loss given default (i.e. the magnitude
the Group’s obligations are discharged, cancelled or they expire.
of the loss if there is a default) and the exposure at default.
the difference between the carrying amount of the financial liability
the assessment of the probability of default and loss given default is
derecognised and the consideration paid and payable, including any
based on historical data adjusted by forward-looking information.
non-cash assets transferred or liabilities assumed, is recognised in
Derecognition of financial assets
profit or loss.
The Group derecognises a financial asset only when the contractual
rights to the cash flows from the asset expire, or when it transfers
Changes in accounting policy
Starting from 1 January 2019 the Group has changed its accounting
the financial asset and substantially all the risks and rewards
policy in relation to the presentation of general and administrative
of ownership of the asset to another party. On derecognition of
expenses incurred in production sites and related to production
a financial asset measured at amortised cost, the difference between
(property tax, payroll costs of site managers and certain other types
the asset’s carrying amount and the sum of the consideration
of expenses). Pursuant to the Group’s revised policy, the Group now
received and receivable is recognised in profit or loss.
presents such expenses in “Cost of sales” line in the statement
Financial liabilities
All financial liabilities are subsequently measured at amortised cost
of consolidated profit or loss and other comprehensive income.
Prior to this change, they were presented in “Selling, general and
administrative expenses”. Management believes that the changed
using the effective interest method or at FVTPL. At the reporting
presentation better reflects the substance of the reclassified
dates, the Group had only financial liabilities classified as those to be
expenses and therefore enhances the quality of the consolidated
measured at amortised cost.
financial statements by providing more relevant information about
the Group’s financial performance.
174
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUPNotes to the consolidated financial statements For the year ended 31 December 2019(in millions of Russian rubles, unless otherwise indicated) Starting from 1 January 2019 the Group has also changed its
the changed presentation provides a better split between core and
accounting policy in relation to the presentation of other sales related
non-core activities of the Group, which enhances the transparency
to non-core activities of the Group (rent income, grain elevator services,
of the consolidated financial statements by providing more relevant
sales of by-products and others) and related cost of sales. Pursuant to
information about the Group’s financial performance.
the Group’s revised policy, the Group now presents such other sales
and related cost of sales within “Other operating income, net” line in
The Group has retrospectively applied the new accounting policy and,
the statement of profit or loss and other comprehensive income. Prior
therefore, comparative information has been retrospectively restated.
to this change, other sales were presented in “Revenue” and related
the effect of the changes in accounting policy on the consolidated
cost of sales were presented in “Cost of sales”. Management believes
statement of profit or loss and other comprehensive income for
that these activities are not principal to the Group and therefore
the year ended 31 December 2018 was as follows:
Year ended 31 December 2018
As previously reported
Effect of the change
in accounting
policy for expenses
classification
Effect of the change
in accounting policy
for presentation
of other sales
Revenue
Cost of sales
Gross profit
Selling, general and administrative expenses
Other operating income, net
Operating profit
102,639
(74,794)
31,923
(16,550)
239
15,555
-
(2,316)
(2,316)
2,316
-
-
(2,217)
1,792
(425)
-
425
-
As restated
100,422
(75,318)
29,182
(14,234)
664
15,555
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Financial StatementsAppendixCHERKIZOVO GROUPCherkizovo unites 3. NEW AND REVISED INTERNATIONAL FINANCIAL
REPORTING STANDARDS
The Group made use of the following practical expedients:
IFRSs and IFRIC interpretations adopted in the current year
The Group has adopted all IFRSs and Interpretations that are relevant
the lease term ends within 12 months from 1 January 2019 and
recognise the lease payments associated with those leases as an
to its operations and effective for annual reporting periods beginning
expense on a straight-line basis over the lease term;
• Permission to exclude from IFRS 16 scope leases for which
on 1 January 2019. the impact of the adoption of IFRS 16 Leases on
the Group’s results of operations and financial position is described
• Relief from the requirement to reassess whether a contract is, or
below. the adoption of other standards and amendments did not have
contains the lease;
an impact on the Group’s results of operations, financial position or
cash flows.
• Application of a single discount rate to a portfolio of leases with
IFRS 16 Leases
As at 1 January 2019, the Group adopted IFRS 16.
reasonably similar characteristics;
• Use of assessment of whether leases are onerous applying IAS
37, Provisions, Contingent Liabilities and Contingent Assets,
IFRS 16 introduces a comprehensive model for the identification
immediately before the date of initial application as an alternative to
of lease arrangements and accounting treatments for both lessors
performing an impairment review;
and lessees. IFRS 16 replaced IAS 17 Leases and all related
interpretations.
IFRS 16 distinguishes leases and service contracts on the basis of
• Permission to exclude initial direct costs from the measurement of
the right-of-use asset at the date of initial application;
whether an identified asset is controlled by a customer. Distinctions
• Use hindsight, such as in determining the lease term if the contract
between operating leases (off balance sheet) and finance leases
contains options to extend or terminate the lease.
(on balance sheet) is removed for lessee accounting, and is replaced
by a model where a right-of-use asset and a corresponding liability
have to be recognised for all leases by lessees (i.e. all on balance
sheet) except for short-term leases and leases of low value assets.
Transition
According to the transition provisions of IFRS 16, the Group selected
the modified retrospective method of transition with liabilities
measured at the present value of the remaining lease payments,
discounted using incremental borrowing rate at 1 January 2019,
and right-of-use assets measured as an amount equal to the lease
liabilities, adjusted by the amount of any prepaid or accrued lease
payments. In accordance with this method the Group did not restate
comparative information for the previous period.
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About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUPNotes to the consolidated financial statements For the year ended 31 December 2019(in millions of Russian rubles, unless otherwise indicated) Effect from the adoption
As a result of adoption of IFRS 16 the Group recognised right-of-use assets of 1,668 and lease liabilities of 1,308.
The result of the transition is represented as follows:
Future minimum lease payments at 31 December 2018 as disclosed in the consolidated financial statements for
the year-ended 31 December 2018
Reassessment of options to extend and cancel lease contracts
Land lease rights with variable lease payments that do not depend on an index or a rate
Impact of discounting (weighted average borrowing rate 8.4%)
Add: finance lease liabilities as at 31 December 2018
Lease liabilities recognized at 1 January 2019
Future minimum lease payments at 31 December 2018 as disclosed in the consolidated financial statements for
the year-ended 31 December 2018
Reassessment of options to extend and cancel lease contracts
Land lease rights with variable lease payments that do not depend on an index or a rate
Impact of discounting (weighted average borrowing rate 8.4%)
Transfer from property, plant and equipment
Right-of-use assets recognized at 1 January 2019
3,268
(523)
(1,472)
(220)
255
1,308
3,268
(523)
(1,472)
(220)
615
1,668
The table below shows the effect of application of IFRS 16 on the consolidated statement of profit or loss and other comprehensive income for
the year ended 31 December 2019:
Increase in depreciation within Cost of sales and Selling, general and administrative expenses
Increase in Interest expenses, net
Decrease in rent expenses within Cost of sales and Selling, general and administrative expenses
Decrease in profit and total comprehensive income
The application of IFRS 16 has an impact on the consolidated statement of cash flows of the Group.
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2019
(454)
(121)
476
(99)
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Financial StatementsAppendixCHERKIZOVO GROUPCherkizovo unites 3. NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS CONTINUED
Under IFRS 16, lessees must present:
• Under IAS 17, all lease payments on operating leases were
presented as part of cash flows from operating activities.
• Short-term lease payments, payments for leases of low-
Consequently, the net cash generated by operating activities has
value assets and variable lease payments not included in
increased by 420 being the lease payments, and net cash used in
the measurement of the lease liability as part of operating activities;
financing activities has increased by the same amount.
• Cash paid for the interest portion of a lease liability as either operating
The adoption of IFRS 16 did not have an impact on net cash flows.
activities or financing activities, as permitted by IAS 7 (the Group has
opted to include interest paid as part of operating activities); and
• Cash payments for the principal portion for a lease liability, as part
of financing activities.
IFRS and IFRIC interpretations
in issue but not yet effective
At the date of authorization of these consolidated financial
statements, the following standards and interpretations have been
published that are mandatory for the Group’s accounting periods
beginning on or after 1 January 2020 or later periods and which the entity has not early adopted:
Standards and Interpretations
IFRS 17 Insurance Contracts
Effective for annual periods
beginning on or after
1 January 2021
Amendments to IFRS 10 and IAS 28 – Sale or Contribution of Assets between an Investor and its
Associate or Joint Venture
Date to be determined by the IASB
Amendments to IFRS 3 – Definition of a business
January 2020
Annual Improvements to IFRSs (2010—2012 Cycle Amendments to IAS 1) – Classification of Liabilities
as Current or Non-Current
1 January 2022
Amendments to IFRS 9, IAS 39 and IFRS 7 – Interest Rate Benchmark Reform and its Effects on
Financial Reporting
Amendments to IAS 1 and IAS 8 – Definition of material
Amendments to References to the Conceptual Framework in IFRS Standards
1 January 2020
1 January 2020
1 January 2020
178
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUPNotes to the consolidated financial statements For the year ended 31 December 2019(in millions of Russian rubles, unless otherwise indicated) Amendments to IFRS 10 and IAS 28 Sale or Contribution
of Assets between an Investor and its Associate or Joint
Venture
The amendments to IFRS 10 and IAS 28 deal with situations where
The amendments introduce an optional concentration test that
permits a simplified assessment of whether an acquired set
of activities and assets is not a business. Under the optional
concentration test, the acquired set of activities and assets is not
there is a sale or contribution of assets between an investor and its
a business if substantially all of the fair value of the gross assets
associate or joint venture. Specifically, the amendments state that
acquired is concentrated in a single identifiable asset or group of
gains or losses resulting from the loss of control of a subsidiary
similar assets.
that does not contain a business in a transaction with an associate
or a joint venture that is accounted for using the equity method,
The amendments are applied prospectively to all business
are recognised in the parent’s profit or loss only to the extent of
combinations and asset acquisitions for which the acquisition date
the unrelated investors’ interests in that associate or joint venture.
is on or after the first annual reporting period beginning on or after
Similarly, gains and losses resulting from the remeasurement of
1 January 2020, with early application permitted. The management of
investments retained in any former subsidiary (that has become
the Group plans to apply the amendments for the future transactions.
an associate or a joint venture that is accounted for using the equity
method) to fair value are recognised in the former parent’s profit or
loss only to the extent of the unrelated investors’ interests in the new
associate or joint venture.
Amendments to IAS 1 and IAS 8 Definition of material
The amendments are intended to make the definition of material
in IAS 1 easier to understand and are not intended to alter
the underlying concept of materiality in IFRS Standards. the concept
The effective date of the amendments has yet to be set by the IASB;
of ‘obscuring’ material information with immaterial information has
however, earlier application of the amendments is permitted.
been included as part of the new definition.
the management of the Group does not anticipate that the application
of the amendments in the future will have an impact on the Group’s
The threshold for materiality influencing users has been changed
consolidated financial statements.
from ‘could influence’ to ‘could reasonably be expected to influence’.
Amendments to IFRS 3 Definition of a business
The amendments clarify that while businesses usually have outputs,
The definition of material in IAS 8 has been replaced by a reference to
the definition of material in IAS 1. In addition, the IASB amended other
outputs are not required for an integrated set of activities and assets
Standards and the Conceptual Framework that contain a definition of
to qualify as a business. To be considered a business an acquired
material or refer to the term ‘material’ to ensure consistency.
set of activities and assets must include, at a minimum, an input
and a substantive process that together significantly contribute to
The amendments are applied prospectively for annual periods
the ability to create outputs.
beginning on or after 1 January 2020, with earlier application
Additional guidance is provided that helps to determine whether
permitted.
a substantive process has been acquired.
The management of the Group do not anticipate that the application
of the amendments in the future will have an impact on the Group’s
consolidated financial statements.
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Financial StatementsAppendixCHERKIZOVO GROUPCherkizovo unites 3. NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS CONTINUED
Annual Improvements to IFRSs (2010—2012 Cycle
Amendments to IAS 1) - Classification of Liabilities as
Current or Non-Current
The amendments are intended to clarify that a liability is classified as
4. KEY SOURCES OF ESTIMATION UNCERTAINTY
Management has made a number of judgments, estimates and
assumptions relating to the reporting of assets and liabilities
non-current if an entity expects, and has the discretion, to refinance
and the disclosure of contingent assets and liabilities to prepare
or roll over an obligation for at least twelve months after the reporting
these consolidated financial statements in conformity with IFRSs.
period under an existing loan facility with the same lender, on
The estimates and associated assumptions are based on historical
the same or similar terms.
experience and other factors that are considered relevant. Actual
results may differ from those estimates. Additional information relating
The amendment affect only the presentation of liabilities in
to contingencies and commitments is disclosed in Note 34.
the statement of financial position- not the amount or timing of
recognition, or the information that entities disclose about those items.
The estimates and underlying assumptions are reviewed on
The amendments clarify that the classification should be based
in the period in which the estimate is revised if the revision affects
on rights that are in existence at the end of the reporting period to
only that period, or in the period of the revision and future periods if
defer settlement by at least twelve months and make explicit that
the revision affects both current and future periods.
only rights in place “at the end of the reporting period” should affect
the classification of a liability.
The following are the key assumptions concerning the future, and
an ongoing basis. Revisions to accounting estimates are recognized
The classification is unaffected by expectations about whether an
period, that may have a significant risk of causing a material
entity will exercise its right to defer settlement of a liability; and that
adjustment to the carrying amounts of assets and liabilities within
other key sources of estimation uncertainty at the end of the reporting
settlement refers to the transfer to the counterparty of cash, equity
the next financial year.
instruments, other assets or services.
The amendments are effective for annual reporting periods beginning
Biological assets
Biological assets are recorded at fair values less costs to sell. Fair
on or after 1 January 2022 and are to be applied retrospectively.
value of the Group’s biological assets was determined by using
Earlier application is permitted.
valuation techniques, as there were no observable market prices near
the reporting date for biological assets of the same physical conditions.
The management of the Group does not anticipate that
the application of the amendments in the future will have an impact
Fair value is determined using Level 3 of fair value hierarchy and
on the Group’s consolidated financial statements.
the following key unobservable inputs:
180
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUPNotes to the consolidated financial statements For the year ended 31 December 2019(in millions of Russian rubles, unless otherwise indicated) Description
Fair value as
at 31 December
2019
Valuation
technique
Broilers
3,525
Discounted
cash flows
Breeders
held for
hatchery
eggs
production
3,224
Discounted
cash flows
Unobservable inputs
Average weight of
one broiler – kg
Poultry meat price – rubles
Projected production costs –
rubles per kg
Number of hatchery eggs
produced by one breeder
Hatchery egg price – rubles
Projected production costs of
hatchery egg – rubles
Average number of piglets
produced by one sow
Sows
2,007
Discounted
cash flows
Market price of weaned piglet –
rubles
Market hogs
7,390
Discounted
cash flows
Discount rate
Average weight of one market
hog – kg
Pork meat price – rubles per kg
Projected production costs –
rubles per kg
Value of
unobservable inputs
Relationship
of unobservable inputs
to fair value
The higher the weight, the higher
the fair value
2.5
105.2
The higher the price, the higher
the fair value
The higher the costs, the lower
the fair value
The higher the number,
the higher the fair value
The higher the price, the higher
the fair value
75.2
151
17.3
The higher the costs, the lower
the fair value
8.3
The higher the number,
the higher the fair value
35.1
1,763
The higher the price, the higher
the fair value
11.0%
The higher the discount rate,
the lower the fair value
127.3
The higher the weight, the higher
the fair value
The higher the price, the higher
the fair value
The higher the costs, the lower
the fair value
80.8
60.4
Among the unobservable inputs stated above, there are several key assumptions that the Group estimates to determine the fair values of
biological assets:
• Expected selling prices;
• Projected production costs and costs to sell.
Although some of these assumptions are obtained from published market data, a majority of these assumptions are estimated based on
the Group’s historical and projected results.
www.cherkizovo.com
181
Financial StatementsAppendixCHERKIZOVO GROUPCherkizovo unites 4. KEY SOURCES OF ESTIMATION UNCERTAINTY CONTINUED
Should key assumptions used in determination of fair value of biological assets have been 10% higher or lower with all other variables held
constant, the fair value of biological assets at the reporting date would be higher or (lower) with the corresponding effect to the net change in
fair value of biological assets line in profit or loss by the following amounts:
31 December 2019
31 December 2019
Pork
Poultry
10% increase
10% decrease
10% increase
10% decrease
Expected selling prices
Projected production costs and costs to sell
1,780
(835)
(1,775)
830
1,451
(898)
(1,451)
896
Recoverable amount
of Meat-processing cash-generating unit
During the year, as the result of the poor performance of Meat-
The model is sensitive to the changes in assumptions above as well
as to the assumptions of sales volumes and gross margin levels.
Fluctuations in these assumptions in the range from 0.5 p.p. to 1 p.p
processing cash-generating unit, the Group carried out a review
(or from 0.5% to 1%) would result in the aggregate carrying amount of
of its recoverable amount. It was determined based on a value
the cash-generating unit exceeding the recoverable amount of it by
in use calculation, which uses cash flow projections based on
the amount in the range from 1,139 to 2,249.
management’s estimations covering a five-year period.
The key assumptions used are set out below.
the other assumptions on which recoverable amount is based would
The management believes that any reasonably possible change in
In percent
Discount rate
Terminal value growth rate
Average annual increase in prices (average of
next five years)
31 December 2019
amount to exceed its recoverable amount.
not cause the Meat-processing cash-generating unit’s carrying
11.6
4
0.44
182
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUPNotes to the consolidated financial statements For the year ended 31 December 2019(in millions of Russian rubles, unless otherwise indicated) 5. OPERATING SEGMENTS
• The Turkey column represents operations related to purchase and
subsequent resale of turkey meat produced by the joint venture
The Group’s operations are divided into five segments by types
through the Group’s distribution network.
of products produced: poultry, pork, meat processing, grain
and feed. Substantially all of the Group’s operations are located
Each of Turkey and Corporate are not operating segments.
within the Russian Federation. All segments have different
segment managers responsible for the segments’ operations.
The Group evaluates segment performance based on Adjusted
the chief operating decision maker (the Chief Executive Officer) is
EBITDA, which is the primary segment profit measure of the Group.
the individual responsible for allocating resources to and assessing
Adjusted EBITDA is the measure reported to the chief operating
the performance of each segment of the business.
decision maker for the purposes of resource allocation and
assessment of segment performance. the Group accounts for
• The Meat processing segment operations include the production
inter-segment sales and transfers as if the sales or transfers were to
of two distinctive product lines: the Sausages product line, which
third parties. the accounting policies of the reportable segments are
comprises a wide range of processed meat products, including
the same as the Group’s accounting policies described in Note 2.
sausages, ham, hot dogs, etc., and the Pork product line, which
Segment assets and liabilities are not disclosed, as this information is
comprises production and sales of pork meat.
not provided to the chief operating decision maker.
• The Poultry segment operations consist of breeding, raising and
Adjusted EBITDA is defined as profit for the period before income
processing broilers, as well as sales of chilled and frozen chicken
tax expense/benefit, interest income and interest expense, net,
products.
foreign exchange loss/gain, depreciation and amortisation expense,
net change in fair value of biological assets, bonuses to employees
• The Pork segment operations consist of breeding, raising and
under long-term incentive program and share of loss of joint ventures
selling live pigs.
and associates plus share of Adjusted EBITDA of joint ventures
and associates and depreciation and amortisation accumulated in
• The Grain segment is involved in the farming of wheat and other
harvested crops in stock.
crops.
• The Feed segment is involved in the production of feed for internal
changed the presentation of revenue from sales of meat-processing
use by pork and poultry segments.
products produced from the Group’s sows and related cost of sales.
Starting from 1 January 2019, in the Segment information the Group
All five segments are involved in other business activities, including
sows was shown in sales of Meat-processing segment net of cost
production of dairy, sale of non-hatchery eggs and other services,
of sows purchased from Pork segment. After the change the Group
which are non-core business activities. the Group also presents
shows such sales and related cost of sows on a gross basis in Sales
separately two reconciling columns in the table with segment
and Cost of sales of Meat-processing segment, respectively, wherein
Previously, revenue from sales of products produced from the Group’s
information:
this gross-up is eliminated in Intersegment column. the comparative
information for the year ended 31 December 2018 has been
•
the Corporate column mainly include payroll and other expenses
retrospectively adjusted to reflect the change in presentation.
of the holding company and
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183
Financial StatementsAppendixCHERKIZOVO GROUPCherkizovo unites 5. OPERATING SEGMENTS CONTINUED
Segment information for the year ended at 31 December 2019 comprised:
Meat-processing
Total sales
including sales volume discounts
Intersegment sales
Sales to external customers ˙*˙
Net change in fair value of biological assets
Net revaluation of harvested crops in stock
Cost of sales
Gross profit (loss)
Operating expense ˙**˙
Share of (loss) profit of joint ventures and associates
Operating income (loss)
Other income (expense), net ˙***˙
Interest expense, net
Profit (loss) before income tax
Adjustments for:
Interest expense, net
Interest income
Foreign exchange (gain) loss
Depreciation and amortisation expense
Net change in fair value of biological assets
Share of loss (profit) of joint ventures and associates
Share of adjusted EBITDA of joint ventures and associates ˙****˙
Bonuses to employees under long-term incentive program
Depreciation and amortisation accumulated in harvested crops
in stock
Adjusted EBITDA
Supplemental information:
Segment capital expenditure
Income tax expense (benefit)
40,056
(872)
(31)
40,025
-
-
(37,035)
3,021
(5,033)
(23)
(2,035)
502
(158)
(1,691)
158
(17)
(441)
1,245
-
23
104
11
-
(608)
1,337
(36)
Pork
24,478
-
(20,948)
3,530
(1,244)
-
(17,588)
5,646
(440)
-
5,206
50
(1,025)
4,231
1,025
(32)
(14)
1,870
1,244
-
-
40
-
Poultry
70,332
(773)
(1,820)
68,512
(135)
-
(53,281)
16,916
(7,581)
15
9,350
216
(1,504)
8,062
1,504
(246)
41
2,847
135
(15)
193
41
-
8,364
12,562
2,798
(1)
1,859
22
Grain
5,758
-
(3,545)
2,213
-
155
(4,128)
1,785
(274)
-
1,511
23
(132)
1,402
132
(1)
(10)
510
-
-
-
3
94
2,130
1,109
15
˙*˙ Included in total sales are revenues which arose from sales to the Group’s two largest customers each contributing more than 10 per cent to the Group’s revenue in 2019. No
other single customer contributed 10 per cent or more to the Group’s revenue in 2019.
˙**˙ Operating expenses include selling, general and administrative expenses and other operating income/expense, net.
˙***˙ Other income (expense), net presents interest income and other income/expense as a combined line item.
˙****˙ Adjusted EBITDA of joint ventures and associates is calculated consistently to that of the Group and reported to the CODM as part of segment reporting.
184
2 Annual report 2019
Total reportable
segments
Corporate
Intersegment
Turkey
Total consolidated
Total without
Feed
40,321
(40,311)
10
(39,945)
376
(173)
203
386
(727)
(138)
727
(73)
(311)
725
-
-
-
-
-
-
-
-
7
719
40
180,945
(1,645)
(66,655)
114,290
(1,379)
155
(151,977)
27,744
(13,501)
(8)
14,235
1,177
(3,546)
11,866
3,546
(369)
(735)
7,197
1,379
8
297
102
94
7,822
40
-
-
-
-
-
-
-
-
-
-
-
-
-
(3,990)
(3,990)
183
(1,306)
(5,113)
1,306
(242)
59
618
103
730
6
(67,552)
66,801
(751)
(126)
67,090
(588)
653
-
65
(368)
368
65
(368)
368
-
-
-
-
-
-
-
-
-
-
-
Turkey
113,393
(1,645)
146
113,539
(1,379)
29
(84,887)
27,156
(16,838)
(8)
10,310
992
(4,484)
6,818
4,484
(243)
(676)
7,815
1,379
8
297
205
94
8,552
46
6,716
(134)
(146)
6,570
(6,009)
707
(713)
(115)
(121)
(121)
3
-
115
439
-
-
-
-
-
-
-
-
-
-
-
120,109
(1,779)
-
120,109
(1,379)
29
(90,896)
27,863
(17,551)
(123)
10,189
992
(4,484)
6,697
4,484
(243)
(676)
7,818
1,379
123
736
205
94
8,552
46
937
23,385
(3,269)
65
20,181
436
20,617
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUPNotes to the consolidated financial statements For the year ended 31 December 2019(in millions of Russian rubles, unless otherwise indicated) Segment information for the year ended at 31 December 2019 comprised:
Meat-processing
Total sales
including sales volume discounts
Intersegment sales
Sales to external customers ˙*˙
Net change in fair value of biological assets
Net revaluation of harvested crops in stock
Cost of sales
Gross profit (loss)
Operating expense ˙**˙
Share of (loss) profit of joint ventures and associates
Operating income (loss)
Other income (expense), net ˙***˙
Interest expense, net
Profit (loss) before income tax
Adjustments for:
Interest expense, net
Interest income
Foreign exchange (gain) loss
Depreciation and amortisation expense
Net change in fair value of biological assets
Share of loss (profit) of joint ventures and associates
Share of adjusted EBITDA of joint ventures and associates ˙****˙
Bonuses to employees under long-term incentive program
Depreciation and amortisation accumulated in harvested crops
in stock
Adjusted EBITDA
Supplemental information:
Segment capital expenditure
Income tax expense (benefit)
40,056
(872)
(31)
40,025
-
-
(37,035)
3,021
(5,033)
(23)
(2,035)
502
(158)
(1,691)
158
(17)
(441)
1,245
-
23
104
11
-
(608)
1,337
(36)
Pork
24,478
(20,948)
3,530
(1,244)
(17,588)
5,646
(440)
-
-
-
5,206
50
(1,025)
4,231
1,025
(32)
(14)
1,870
1,244
-
-
-
40
2,798
(1)
Poultry
70,332
(773)
(1,820)
68,512
(135)
-
(53,281)
16,916
(7,581)
15
9,350
216
(1,504)
8,062
1,504
(246)
41
2,847
135
(15)
193
41
-
1,859
22
Grain
5,758
(3,545)
2,213
155
(4,128)
1,785
(274)
-
-
-
1,511
23
(132)
1,402
132
(1)
(10)
510
-
-
-
3
94
2,130
1,109
15
˙*˙ Included in total sales are revenues which arose from sales to the Group’s two largest customers each contributing more than 10 per cent to the Group’s revenue in 2019. No
other single customer contributed 10 per cent or more to the Group’s revenue in 2019.
˙**˙ Operating expenses include selling, general and administrative expenses and other operating income/expense, net.
˙***˙ Other income (expense), net presents interest income and other income/expense as a combined line item.
˙****˙ Adjusted EBITDA of joint ventures and associates is calculated consistently to that of the Group and reported to the CODM as part of segment reporting.
Feed
40,321
-
(40,311)
10
-
-
(39,945)
376
(173)
-
203
386
(727)
(138)
727
(73)
(311)
725
-
-
-
7
-
Total reportable
segments
Corporate
Intersegment
Total without
Turkey
Turkey
Total consolidated
180,945
(1,645)
(66,655)
114,290
(1,379)
155
(151,977)
27,744
(13,501)
(8)
14,235
1,177
(3,546)
11,866
3,546
(369)
(735)
7,197
1,379
8
297
102
94
-
-
-
-
-
-
-
-
(3,990)
-
(3,990)
183
(1,306)
(5,113)
1,306
(242)
59
618
-
-
-
103
-
(67,552)
-
66,801
(751)
-
(126)
67,090
(588)
653
-
65
(368)
368
65
(368)
368
-
-
-
-
-
-
-
113,393
(1,645)
146
113,539
(1,379)
29
(84,887)
27,156
(16,838)
(8)
10,310
992
(4,484)
6,818
4,484
(243)
(676)
7,815
1,379
8
297
205
94
6,716
(134)
(146)
6,570
-
-
(6,009)
707
(713)
(115)
(121)
-
-
(121)
-
-
-
3
-
115
439
-
-
120,109
(1,779)
-
120,109
(1,379)
29
(90,896)
27,863
(17,551)
(123)
10,189
992
(4,484)
6,697
4,484
(243)
(676)
7,818
1,379
123
736
205
94
8,364
12,562
937
23,385
(3,269)
65
20,181
436
20,617
719
40
7,822
40
730
6
-
-
8,552
46
-
-
8,552
46
www.cherkizovo.ru
www.cherkizovo.com
185
Financial StatementsAppendixCHERKIZOVO GROUPCherkizovo unites 5. OPERATING SEGMENTS CONTINUED
Segment information for the year ended at 31 December 2018 comprised:
Meat-processing
Total sales
including sales volume discounts
Intersegment sales
Sales to external customers ˙*˙
Net change in fair value of biological assets
Net revaluation of harvested crops in stock
Cost of sales
Gross profit (loss)
Operating expense ˙**˙
Share of loss of joint ventures and associates
Operating income (loss)
Other (expense) income, net ˙***˙
Interest expense, net
Profit (loss) before income tax
Adjustments for:
Interest expense, net
Interest income
Foreign exchange loss (gain)
Depreciation and amortisation expense
Net change in fair value of biological assets
Share of loss of joint ventures and associates
Share of adjusted EBITDA of joint ventures and associates ˙****˙
Bonuses to employees under long-term incentive program
Depreciation and amortisation accumulated in harvested crops
in stock
Adjusted EBITDA
Supplemental information:
Segment capital expenditure
Income tax (benefit) expense
38,780
(682)
(1,027)
37,753
-
-
(35,341)
3,439
(3,916)
-
(477)
(452)
(122)
(1,051)
122
(20)
485
883
-
-
-
39
-
458
2,181
(375)
Pork
23,262
-
(20,238)
3,024
899
-
(13,567)
10,594
(179)
-
10,415
61
(588)
9,888
588
(64)
10
1,339
(899)
-
-
40
-
10,902
3,883
2
Poultry
52,723
(709)
(1,594)
51,129
1,264
-
(41,205)
12,782
(5,379)
-
7,403
119
(621)
6,901
621
(172)
74
2,055
(1,264)
-
-
172
-
8,387
2,020
88
Grain
6,899
-
(3,945)
2,954
-
1,297
(6,273)
1,923
(205)
-
1,718
3
(173)
1,548
173
(2)
-
809
-
-
-
8
(273)
2,263
390
104
(30,703)
(127,089)
Feed
31,210
(31,210)
-
-
-
-
-
-
-
-
-
507
(170)
337
(221)
(870)
(754)
870
(55)
277
609
19
966
300
14
Total reportable
segments
Corporate
Intersegment
Turkey
Total consolidated
Total without
Turkey
152,874
(1,391)
(58,014)
94,860
2,163
1,297
29,245
(9,849)
-
19,396
(490)
(2,374)
16,532
2,374
(313)
846
5,695
(2,163)
-
-
278
(273)
22,976
8,774
(167)
-
-
-
-
-
-
-
-
-
-
-
-
-
(3,505)
(3,505)
148
(1,046)
(4,403)
1,046
(130)
(17)
347
373
979
(20)
(58,267)
58,267
(327)
945
56,897
(752)
398
-
(354)
(153)
153
(354)
(153)
153
327
-
-
-
-
-
-
-
-
-
-
94,607
(1,391)
253
94,860
1,836
2,242
(70,192)
28,493
(12,956)
-
15,537
(495)
(3,267)
11,775
3,267
(290)
829
6,042
(1,836)
-
-
651
(273)
20,165
9,753
(187)
(2,784)
(27)
5,815
(82)
(253)
5,562
(5,126)
689
(614)
(57)
18
18
-
-
-
-
-
-
-
3
-
7
-
-
-
57
165
250
100,422
(1,473)
-
100,422
1,836
2,242
(75,318)
29,182
(13,570)
(57)
15,555
(495)
(3,267)
11,793
3,267
(290)
829
6,045
(1,836)
57
165
658
(273)
20,415
9,753
(187)
˙*˙ Included in total sales are revenues which arose from sales to the Group’s two largest customers each contributing more than 10 per cent to the Group’s revenue in 2018. No other single customer contributed 10 per cent or more to the Group’s revenue in 2018.
˙**˙ Operating expenses include selling, general and administrative expenses and other operating income/expense, net.
˙***˙ Other income (expense), net presents interest income and other income/expense as a combined line item.
˙****˙ Adjusted EBITDA of joint ventures and associates is calculated consistently to that of the Group and reported to the CODM as part of segment reporting.
186
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUPNotes to the consolidated financial statements For the year ended 31 December 2019(in millions of Russian rubles, unless otherwise indicated) Segment information for the year ended at 31 December 2018 comprised:
Meat-processing
Total sales
including sales volume discounts
Intersegment sales
Sales to external customers ˙*˙
Net change in fair value of biological assets
Net revaluation of harvested crops in stock
Share of loss of joint ventures and associates
Cost of sales
Gross profit (loss)
Operating expense ˙**˙
Operating income (loss)
Other (expense) income, net ˙***˙
Interest expense, net
Profit (loss) before income tax
Adjustments for:
Interest expense, net
Interest income
Foreign exchange loss (gain)
Depreciation and amortisation expense
Net change in fair value of biological assets
Share of loss of joint ventures and associates
in stock
Adjusted EBITDA
Supplemental information:
Segment capital expenditure
Income tax (benefit) expense
38,780
(682)
(1,027)
37,753
(35,341)
3,439
(3,916)
(477)
(452)
(122)
(1,051)
122
(20)
485
883
-
-
-
-
-
-
-
2,181
(375)
Pork
23,262
(20,238)
3,024
899
(13,567)
10,594
(179)
-
-
-
10,415
61
(588)
9,888
588
(64)
10
1,339
(899)
-
-
-
40
3,883
2
Poultry
52,723
(709)
(1,594)
51,129
1,264
(41,205)
12,782
(5,379)
7,403
119
(621)
6,901
621
(172)
74
2,055
(1,264)
172
-
-
-
-
-
2,020
88
Grain
6,899
(3,945)
2,954
1,297
(6,273)
1,923
(205)
1,718
(173)
1,548
173
(2)
809
-
-
-
3
-
-
-
-
8
(273)
2,263
390
104
Share of adjusted EBITDA of joint ventures and associates ˙****˙
Bonuses to employees under long-term incentive program
39
Depreciation and amortisation accumulated in harvested crops
458
10,902
8,387
Total reportable
segments
Corporate
Intersegment
Total without
Turkey
Turkey
Total consolidated
Feed
31,210
-
(31,210)
-
-
-
152,874
(1,391)
(58,014)
94,860
2,163
1,297
(30,703)
(127,089)
507
(170)
-
337
(221)
(870)
(754)
870
(55)
277
609
-
-
-
19
-
966
300
14
29,245
(9,849)
-
19,396
(490)
(2,374)
16,532
2,374
(313)
846
5,695
(2,163)
-
-
278
(273)
22,976
8,774
(167)
-
-
-
-
-
-
-
-
(3,505)
-
(3,505)
148
(1,046)
(4,403)
1,046
(130)
(17)
347
-
-
-
373
-
(58,267)
-
58,267
-
(327)
945
56,897
(752)
398
-
(354)
(153)
153
(354)
(153)
153
-
-
327
-
-
-
-
(2,784)
(27)
979
(20)
-
-
94,607
(1,391)
253
94,860
1,836
2,242
(70,192)
28,493
(12,956)
-
15,537
(495)
(3,267)
11,775
3,267
(290)
829
6,042
(1,836)
-
-
651
(273)
20,165
9,753
(187)
5,815
(82)
(253)
5,562
-
-
(5,126)
689
(614)
(57)
18
-
-
18
-
-
-
3
-
57
165
7
-
250
-
-
100,422
(1,473)
-
100,422
1,836
2,242
(75,318)
29,182
(13,570)
(57)
15,555
(495)
(3,267)
11,793
3,267
(290)
829
6,045
(1,836)
57
165
658
(273)
20,415
9,753
(187)
˙*˙ Included in total sales are revenues which arose from sales to the Group’s two largest customers each contributing more than 10 per cent to the Group’s revenue in 2018. No other single customer contributed 10 per cent or more to the Group’s revenue in 2018.
˙**˙ Operating expenses include selling, general and administrative expenses and other operating income/expense, net.
˙***˙ Other income (expense), net presents interest income and other income/expense as a combined line item.
˙****˙ Adjusted EBITDA of joint ventures and associates is calculated consistently to that of the Group and reported to the CODM as part of segment reporting.
www.cherkizovo.com
187
Financial StatementsAppendixCHERKIZOVO GROUPCherkizovo unites 6. COST OF SALES
Cost of sales for the years ended 31 December 2019 and 2018 comprised:
Raw materials and goods for resale
Personnel (excluding pension costs)
Depreciation
Utilities
Pension costs
Other
Total cost of sales
2019
59,803
12,496
6,996
4,260
2,563
4,778
90,896
2018
48,988
10,147
5,595
3,956
2,042
4,590
75,318
Raw materials and goods for resale include as an offset subsidies received from local governments in the amount of 37 and 48 for the years
ended 31 December 2019 and 2018, respectively. These subsidies were received based on square of cultivated land and volumes of meat and
eggs produced.
Deprecation includes an impairment loss recognized for non-operational items of property, plant and equipment in the amount of 531 and nil for
the years ended 31 December 2019 and 2018, respectively (Note 12).
188
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUPNotes to the consolidated financial statements For the year ended 31 December 2019(in millions of Russian rubles, unless otherwise indicated) 7. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the years ended 31 December 2019 and 2018 comprised:
Personnel (excluding pension costs)
Transportation
Advertising and marketing
Penalties
Pension costs
Materials and supplies
Depreciation and amortisation
Security services
Taxes (other than income tax)
Information technology and communication services
Audit, consulting and legal fees
Utilities
Bonuses to employees under long-term incentive program ˙*˙
Insurance
Rent expenses
Change in expected credit losses and other write-off
Veterinary services
Repairs and maintenance
Bank charges
Other
Total selling, general and administrative expenses
2019
5,626
3,374
1,218
897
834
831
718
534
509
368
304
210
205
155
130
129
115
52
27
1,205
17,441
2018
4,538
2,684
1,088
390
741
592
369
457
273
277
285
218
658
153
404
118
163
61
41
724
14,234
˙*˙ In 2017 the Group entered into long-term remuneration agreement with key employees of the Group. Under the terms of the arrangement, the Group agreed to pay a one-time
bonus in 2019 if the Group’s financial performance will achieve target level for 2017 and 2018 on cumulative basis and employee will continue to serve the Group until the date
of bonus distribution. Until the fourth quarter of 2018 the achievement of the result was not probable based on management estimates. In the fourth quarter of 2018 the Group
achieved the target due to favourable market conditions.
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189
Financial StatementsAppendixCHERKIZOVO GROUPCherkizovo unites 8. OTHER OPERATING (EXPENSES) INCOME, NET
Other operating (expenses) income, net for the years ended 31 December 2019 and 2018 comprised:
Income from non-core activities of the Group
Expenses related to income from non-core activities, comprising:
Raw materials
Personnel (excluding pension costs)
Depreciation
Utilities
Pension costs
Other
(Loss) gain on disposal of property, plant and equipment, net
(Loss) gain on disposal of non-current biological assets, net
Other operating (expenses) income, net
9. INTEREST EXPENSE, NET
Interest expense, net for the years ended 31 December 2019 and 2018 comprised:
Interest on bank overdrafts and loans*
Interest on lease liabilities
Less: amounts included in the cost of qualifying assets
Total interest expense
Government grants for compensation of interest expenses accrued ˙*˙
Government grants for compensation of interest expenses write-off
Less: amounts included in the cost of qualifying assets
Total government grants for compensation of interest expenses
Total interest expense, net
2019
1,863
(1,749)
(1,277)
(148)
(104)
(53)
(32)
(135)
(164)
(60)
(110)
2019
5,771
121
(95)
5,797
(1,648)
254
81
(1,313)
4,484
2018
2,217
(1,792)
(1,409)
(173)
(82)
(37)
(35)
(56)
47
192
664
2018
4,853
41
(290)
4,604
(1,519)
-
182
(1,337)
3,267
˙*˙ Starting from 1 January 2017 the Group receives government grants through accredited banks, who provide loans to agricultural producers at reduced rates not exceeding 5%
per annum on Rouble-denominated loans (“reduced rate lending subsidy”). the difference between market rate and the reduced rate equals the Key rate of the Bank of Russia and
is compensated by Ministry of Agriculture to the accredited banks. The Group presents such subsidy in the table above gross of related interest expense in the amount of 1,065
(2018: 537).
190
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUPNotes to the consolidated financial statements For the year ended 31 December 2019(in millions of Russian rubles, unless otherwise indicated) 10. OTHER INCOME (EXPENSES), NET
Other income (expenses), net for the years ended 31 December 2019 and 2018 comprised:
Foreign exchange gain (loss)
Other income, net
Total other income (expenses), net
11. INCOME TAX
2019
676
73
749
2018
(829)
44
(785)
All of the Group’s taxes are levied and paid in the Russian Federation. Under Russian legislation, the statutory income tax rate for entities
designated as agricultural entities is 0%. The statutory tax rate for non-agricultural entities is 20% for generally taxed entities and 10% for other
tax regimes.
The main components of income tax for the years ended 31 December 2019 and 2018 were as follows:
Current tax expense
Deferred tax benefit
Total income tax (expense) benefit
2019
(160)
114
(46)
2018
(201)
388
187
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191
Financial StatementsAppendixCHERKIZOVO GROUPCherkizovo unites 10. OTHER INCOME (EXPENSES), NET CONTINUED
The income tax expense can be reconciled to the theoretical tax provision at the statutory rate for the years ended 31 December 2019 and
2018 as follows:
Profit before income tax
Profit before income tax of entities taxed at zero rates (agricultural entities)
Profit before income tax of entities taxed at 10% (other tax regimes)
Loss before income tax of generally taxed entities
Statutory income tax rate (agricultural entities)
Statutory income tax rate (other tax regimes)
Statutory income tax rate (general)
Theoretical income tax benefit at the statutory tax rates
Expenses not deductible for Russian statutory taxation purposes
Additional income tax accrued for prior years
Other
Income tax expense (benefit)
2019
6,697
8,706
120
(2,129)
0%
10%
20%
(414)
255
134
71
46
2018
11,793
13,861
281
(2,349)
0%
10%
20%
(442)
186
43
26
(187)
The following amounts, determined after appropriate offsetting, are presented in the consolidated statement of financial position as of
31 December 2019 and 2018:
Deferred tax asset
Deferred tax liability
Net deferred tax asset
31 December 2019
31 December 2018
1,214
(1,023)
191
1,073
(996)
77
192
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUPNotes to the consolidated financial statements For the year ended 31 December 2019(in millions of Russian rubles, unless otherwise indicated) The movement in the net deferred tax asset for the year ended 31 December 2019 comprised:
Property, plant and equipment and investment property
Trade receivables
Other assets and liabilities
Tax loss carry forward
Net deferred tax asset
31 December 2018
Recognised in profit or loss
31 December 2019
(1,274)
(66)
16
1,401
77
(107)
19
87
115
114
(1,381)
(47)
103
1,516
191
The movement in the net deferred tax asset for the year ended 31 December 2018 comprised:
1 January 2018
Recognised in profit or loss
31 December 2018
Property, plant and equipment and investment property
Trade receivables
Other assets and liabilities
Tax loss carry forward
Net deferred tax asset (liability)
(1,267)
(77)
39
994
(311)
(7)
11
(23)
407
388
(1,274)
(66)
16
1,401
77
Starting from 2017 the Group can offset only 50% of taxable profit of each subsidiary against tax loss carry forwards accumulated by
the subsidiary and the Group’s tax loss carry forwards have no date of expiration (after amendments to the Russian Tax Code effective 1 January
2017). the Group expects no impact on their deferred tax position as a result.
www.cherkizovo.com
193
Financial StatementsAppendixCHERKIZOVO GROUPCherkizovo unites 12. PROPERTY, PLANT AND EQUIPMENT
The following table represents movements in property, plant and equipment for the years ended 31 December 2019 and 2018:
Land and land lease rights
Buildings, infrastructure and
leasehold improvements
Machinery and equipment
Vehicles
Other
Construction
in progress
Cost
Balance as at 1 January 2018
Additions
Acquisitions of subsidiaries (Note 33)
Disposals
As at 31 December 2018
Additions
Acquisitions of subsidiaries (Note 33)
Transferred to right-of-use assets
Disposals
As at 31 December 2019
Accumulated depreciation
Balance as at 1 January 2018
Depreciation charge
Eliminated on disposals
As at 31 December 2018
Depreciation charge ˙*˙
Transferred to right-of-use assets
Eliminated on disposals
As at 31 December 2019
Carrying amounts
At 31 December 2018
At 31 December 2019
7,627
98
39
(164)
7,600
305
-
(433)
(123)
7,349
(15)
(20)
-
(35)
-
35
-
-
7,565
7,349
50,347
6,420
3,362
(207)
59,922
3,495
1,402
(497)
(699)
63,623
(10,918)
(2,015)
114
(12,819)
(2,809)
457
652
(14,519)
47,103
49,104
28,999
5,450
1,253
(767)
34,935
3,854
2
(262)
(955)
37,574
(13,714)
(2,808)
718
(15,804)
(3,307)
138
855
(18,118)
19,131
19,456
˙*˙ Depreciation charge includes 531 of impairment loss recognized through accelerated depreciation for non-operational assets.
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2 Annual report 2019
5,424
867
153
(118)
6,326
1,231
1
(138)
(559)
6,861
(2,824)
(702)
97
(3,429)
(888)
85
533
(3,699)
2,897
3,162
289
50
-
(25)
314
121
-
-
(45)
390
(196)
(53)
24
(225)
(68)
-
41
(252)
89
138
10,301
(4,694)
18
(17)
5,608
(1,957)
(238)
3,413
-
-
-
-
-
-
-
-
-
-
5,608
3,413
Total
102,987
8,191
4,825
(1,298)
114,705
7,049
1,405
(1,330)
(2,619)
119,210
(27,667)
(5,598)
953
(32,312)
(7,072)
715
2,081
(36,588)
82,393
82,622
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUPNotes to the consolidated financial statements For the year ended 31 December 2019(in millions of Russian rubles, unless otherwise indicated)
12. PROPERTY, PLANT AND EQUIPMENT
The following table represents movements in property, plant and equipment for the years ended 31 December 2019 and 2018:
Land and land lease rights
Machinery and equipment
Vehicles
Other
Buildings, infrastructure and
leasehold improvements
Construction
in progress
Balance as at 1 January 2018
Acquisitions of subsidiaries (Note 33)
As at 31 December 2018
Cost
Additions
Disposals
Additions
Acquisitions of subsidiaries (Note 33)
Transferred to right-of-use assets
Disposals
As at 31 December 2019
Accumulated depreciation
Balance as at 1 January 2018
Depreciation charge
Eliminated on disposals
As at 31 December 2018
Depreciation charge ˙*˙
Transferred to right-of-use assets
Eliminated on disposals
As at 31 December 2019
Carrying amounts
At 31 December 2018
At 31 December 2019
7,627
98
39
(164)
7,600
305
-
(433)
(123)
7,349
(15)
(20)
(35)
35
-
-
-
-
7,565
7,349
50,347
6,420
3,362
(207)
59,922
3,495
1,402
(497)
(699)
63,623
(10,918)
(2,015)
114
(12,819)
(2,809)
457
652
(14,519)
47,103
49,104
28,999
5,450
1,253
(767)
34,935
3,854
2
(262)
(955)
37,574
(13,714)
(2,808)
718
(15,804)
(3,307)
138
855
(18,118)
19,131
19,456
˙*˙ Depreciation charge includes 531 of impairment loss recognized through accelerated depreciation for non-operational assets.
5,424
867
153
(118)
6,326
1,231
1
(138)
(559)
6,861
(2,824)
(702)
97
(3,429)
(888)
85
533
(3,699)
2,897
3,162
289
50
-
(25)
314
121
-
-
(45)
390
(196)
(53)
24
(225)
(68)
-
41
(252)
89
138
10,301
(4,694)
18
(17)
5,608
(1,957)
-
-
(238)
3,413
-
-
-
-
-
-
-
-
5,608
3,413
Total
102,987
8,191
4,825
(1,298)
114,705
7,049
1,405
(1,330)
(2,619)
119,210
(27,667)
(5,598)
953
(32,312)
(7,072)
715
2,081
(36,588)
82,393
82,622
Net book values of buildings, infrastructure and leasehold
Advances paid for acquisition and construction of property, plant and
improvements include 40 of leased buildings and infrastructure as of
equipment are included in construction in progress in the amount of
31 December 2018. Net book values of vehicles and machinery and
425 and 532 as at 31 December 2019 and 2018, respectively.
equipment include 177 of leased equipment as of 31 December 2018.
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195
Financial StatementsAppendixCHERKIZOVO GROUPCherkizovo unites
13. INVESTMENT PROPERTY
The Group’s investment property consists of commercial units located in Vostochnoe Biryulevo region of Moscow and land plots. The changes
in the carrying amount of investment property for the years ended 31 December 2019 and 2018 were as follows:
Land
Buildings
Total
Cost
Balance as at 1 January 2018
Reconstruction and modernisation
As at 31 December 2018
Reconstruction and modernisation
As at 31 December 2019
Accumulated depreciation
Balance as at 1 January 2018
Depreciation charge
As at 31 December 2018
Depreciation charge
As at 31 December 2019
Carrying amounts
At 31 December 2018
At 31 December 2019
275
-
275
-
275
-
-
-
-
-
275
275
386
17
403
82
485
(71)
(12)
(83)
(13)
(96)
320
389
661
17
678
82
760
(71)
(12)
(83)
(13)
(96)
595
664
For disclosure purpose only, the Group determined the fair value of the buildings as at 1 January 2014 (the date of transition to IFRS)
as approximately 1 billion rubles based on the income approach (Level 3 of fair value hierarchy). The management anticipates that the fair value
did not materially change in subsequent years.
The Group recognised the following amounts in respect of the investment property in profit or loss:
Rental income from investment property
Direct operating expenses arising from investment property that generated rental income
during the year
Operating loss from investment property
2019
197
(210)
(13)
2018
193
(196)
(3)
196
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUPNotes to the consolidated financial statements For the year ended 31 December 2019(in millions of Russian rubles, unless otherwise indicated) 14. RIGHT-OF-USE ASSETS
For the year ended 31 December 2019 the movement of right-of-use assets was as follows:
Buildings,
infrastructure
and leasehold
improvements
Machinery and
equipment
Vehicles
771
(297)
41
-
-
812
(297)
515
326
(75)
44
-
-
370
(75)
295
53
(40)
109
-
(36)
126
(40)
86
Land
518
(42)
185
10
-
713
(42)
671
Cost at 1 January 2019
Depreciation
New lease contracts and modification of existing
lease contracts
New lease contracts arose from acquisition
Transfer to property, plant and equipment, net
Cost at 31 December 2019
Accumulated depreciation as at
31 December 2019
Carrying amount at 31 December 2019
15. GOODWILL
Goodwill has been allocated for impairment testing purposes to the following cash-generating units, being also operating segments of
the Group, and represents the lowest level at which goodwill is monitored for impairment by management:
Meat-processing
Poultry
Grain
Total goodwill
2019
250
680
698
1,628
Total
1,668
(454)
379
10
(36)
2,021
(454)
1,567
2018
250
680
698
1,628
The recoverable amount of Poultry and Grain cash-generating units is
amount is based would not cause the aggregate carrying amount to
determined based on a value in use calculation, which uses cash flow
exceed the aggregate recoverable amount of the cash-generating
projections based on financial budgets approved by management
unit.
covering a five-year period and 11% discount rate. The cash flows
beyond that period have been extrapolated using a steady 3.5%
Key inputs in determination of the recoverable amount of Meat-
per annum growth rate. Management believes that any reasonably
processing cash-generating unit together with sensitivity to
possible change in the key assumptions on which recoverable
reasonably possible changes in those inputs are disclosed in Note 4.
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197
Financial StatementsAppendixCHERKIZOVO GROUPCherkizovo unites 16. INTANGIBLE ASSETS
The following table represents movements of intangible assets for the years ended 31 December 2019 and 2018:
Computer software
Indefinite life trademarks
Other intangible assets
Total
Cost
Balance at 1 January 2018
Additions
Balance at 31 December 2018
Additions
Balance at 31 December 2019
Accumulated amortisation
Balance at 1 January 2018
Amortisation expense
Balance at 31 December 2018
Amortisation expense
Balance at 31 December 2019
Carrying amounts
At 31 December 2018
At 31 December 2019
1,450
410
1,860
494
2,354
(705)
(278)
(983)
(304)
(1,287)
877
1,067
1,216
-
1,216
-
1,216
-
-
-
-
-
1,216
1,216
166
7
173
10
183
(111)
(11)
(122)
(9)
(131)
51
52
2,832
417
3,249
504
3,753
(816)
(289)
(1,105)
(313)
(1,418)
2,144
2,335
Computer software
Software is amortised over its useful life ranging from 2 to 10 years
As of 31 December 2019 and 2018, management tested the Kurinoe
Tsarstvo trademark for impairment and determined that the trademark
and is mainly presented by SAP and Oracle systems installed by
was not impaired. The fair value was determined using a relief from
the Group.
Indefinite life trademarks
royalty method based on expected sales by trademark derived from
the segment business plan approved by the management covering
a five-year period. The cash flows beyond that period have been
extrapolated using a steady 3.5% per annum growth rate, which is
Kurinoe Tsarstvo (“Куриное Царство”) trademark
the projected long-term average general inflation in Russia.
The carrying value of the Kurinoe Tsarstvo trademark was 745 as of
31 December 2019 and 2018.
198
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUPNotes to the consolidated financial statements For the year ended 31 December 2019(in millions of Russian rubles, unless otherwise indicated) The key assumptions used for impairment testing purposes are set out below.
In percent
Discount rate
Terminal value growth rate
Royalty rate
Trademark revenue growth rate (average of next five years)
31 December 2019
31 December 2018
16.0%
3.5%
3.3%
4.4%
18.1%
3.5%
3.3%
4.4%
The values assigned to the key assumptions represented
As of 31 December 2019 and 2018, management tested
management’s assessment of future trends in the relevant industries
the Cherkizovo trademark for impairment and determined that
and were based on historical data from both external and internal
the trademark was not impaired. The fair value was determined
sources.
using a relief from royalty method based on current year actual sales
by trademark and royalty rate of 3.3%. Potential royalty from one-
The management believes that any reasonably possible change in
year sales covers the carrying value of the trademark and therefore
the key assumptions on which recoverable amount is based would
the Group did not make a detailed calculation for the whole life of
not cause the aggregate carrying amount to exceed the aggregate
the trademark.
recoverable amount of the trademark.
Cherkizovo (“Черкизово”) trademark
the key assumptions on which recoverable amount is based would
The carrying value of the Cherkizovo trademark was 436 as of
not cause the aggregate carrying amount to exceed the aggregate
31 December 2019 and 2018.
recoverable amount of the trademark.
The management believes that any reasonably possible change in
www.cherkizovo.com
199
Financial StatementsAppendixCHERKIZOVO GROUPCherkizovo unites 17. BIOLOGICAL ASSETS
Non-current biological assets
The balances of non-current biological assets were as follows:
31 December 2019
31 December 2018
Units
Carrying amount
Units
Carrying amount
Sows, heads
Cattle, heads
Total bearer non-current biological assets
107,888
-
107,888
2,007
-
2,007
100,903
510
101,413
The following table represents movements in sows:
Balance at 1 January 2018
Increase due to purchases and breeding costs of growing livestock
Decrease due to sale
Gain arising from changes in fair value less estimated point-of-sales costs
Balance at 31 December 2018
Increase due to purchases and breeding costs of growing livestock
Decrease due to sale
Loss arising from changes in fair value less estimated point-of-sales costs
Balance at 31 December 2019
2,638
35
2,673
Amount
2,259
944
(993)
428
2,638
1,307
(834)
(1,104)
2,007
200
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUPNotes to the consolidated financial statements For the year ended 31 December 2019(in millions of Russian rubles, unless otherwise indicated) Current biological assets and related work-in progress
All current biological assets are consumable except for breeders, which are bearer biological assets. The balances of current biological assets
were as follows:
Pork
Market hogs, heads
Poultry
Broilers, heads
Breeders, heads (bearer biological assets)
Hatchery eggs, quantity
Other
Unharvested crops, hectares
Work-in progress related to cultivation of
crops
Total current biological assets and related
work-in progress
31 December 2019
31 December 2018
Units
Carrying amount
Units
Carrying amount
1,277,298
1,277,298
36,510,440
3,576,183
40,086,623
25,327,958
-
59,005
1,130,928
1,130,928
32,859,688
2,884,976
35,744,664
23,257,939
435
59,555
7,390
7,390
3,525
3,224
6,749
400
-
838
910
7,628
7,628
2,910
3,094
6,004
345
16
783
619
16,287
15,395
www.cherkizovo.com
201
Financial StatementsAppendixCHERKIZOVO GROUPCherkizovo unites
17. BIOLOGICAL ASSETS CONTINUED
The following table represents movements in the most material classes of the current biological assets:
Balance at 1 January 2018
Increase due to purchases and gain arising from cost inputs
Increase due to acquisition of subsidiaries
Transfer to consumable biological assets
Pork
Broilers
Breeders
6,101
13,909
-
-
1,928
39,310
205
1,572
1,969
1,770
589
(1,572)
Unharvested
crops and
related WIP
1,286
2,528
-
-
Total
11,284
57,517
794
-
Decrease due to sale or harvest of assets
(23,262)
(47,700)
-
(4,736)
(75,698)
Gain arising from changes in fair value less estimated point-
of-sales costs
10,880
7,595
338
2,324
21,137
Balance at 31 December 2018
7,628
2,910
3,094
1,402
15,034
Increase due to purchases and gain arising from cost inputs
18,163
49,668
Increase due to acquisition of subsidiaries
Transfer to consumable biological assets
-
-
2,571
356
-
2,364
(2,364)
4,856
75,258
-
-
356
-
Decrease due to sale or harvest of assets
(24,478)
(60,597)
-
(6,075)
(91,150)
Gain (loss) arising from changes in fair value less estimated
point-of-sales costs
6,077
9,180
(433)
1,565
16,389
Balance at 31 December 2019
7,390
3,525
3,224
1,748
15,887
The reconciliations of net change in fair value of biological assets are as follows:
Fair value adjustment at the beginning of the year (biological assets transferred to inventory and
subsequently sold)
Fair value adjustment at the date of acquisition of subsidiaries (biological assets transferred to
inventory and subsequently sold)
Fair value adjustment at the end of the year (biological assets)
Net change in fair value of biological assets
2019
(6,583)
-
5,204
(1,379)
2018
(4,457)
(290)
6,583
1,836
202
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUPNotes to the consolidated financial statements For the year ended 31 December 2019(in millions of Russian rubles, unless otherwise indicated) The reconciliations of net revaluation of harvested crops in stock are as follows:
Fair value adjustment at the beginning of the year (agricultural produce subsequently sold)
Fair value adjustment at the end of the year (agricultural produce)
Net revaluation of harvested crops in stock
The main crops of the Group’s agricultural production and output were as follows (in thousands of tonnes):
Winter wheat
Spring wheat
Corn
Sunflower
Soybean
Barley
Peas
The production output of pork and poultry segments of the Group were as follows (in thousands of tonnes):
Pork meat
Poultry meat
2019
(1,128)
1,157
29
2019
230
125
99
84
46
41
12
2019
284
663
2018
1,114
1,128
2,242
2018
235
73
61
65
33
34
17
2018
247
544
Key inputs in fair value measurement of biological assets together with sensitivity to reasonably possible changes in those inputs are disclosed
in Note 4.
www.cherkizovo.com
203
Financial StatementsAppendixCHERKIZOVO GROUPCherkizovo unites 18. INVESTMENTS IN JOINT VENTURES AND ASSOCIATES
The Group’s significant joint ventures and associates include:
Type of investment
Ownership and voting
interest of the Group
31 December 2019
31 December 2018
LLC Tambovskaya Indeika (Tambov Turkey JV)
Joint venture
Samson – Food Products
LLC COBB-RUSSIA
Associate
Joint venture
Total investments in joint ventures and associates
50%
75%
50%
3,266
327
196
3,789
2,987
350
181
3,518
Tambov Turkey JV
During the year ended 31 December 2012 the Group, together with
Summarised financial information in respect of the Group’s joint
Grupo Corporativo Fuertes, S.L., established a joint venture, LLC
venture and its reconciliation to the carrying amount of the interest
Tambovskaya Indeika. The joint venture’s primary business is breeding
in the joint venture are set out below. The summarised financial
of turkey. The joint venture started construction of an integrated full
information below represents amounts shown in the joint venture’s
cycle turkey production complex in 2013 and started operations in
financial statements prepared in accordance with IFRSs adjusted by
November 2016.
the Group for equity accounting purposes.
Cash and cash equivalents
Other current assets
Non-current assets
Trade and other payables
Short-term borrowings
Other current liabilities
Long-term borrowings
Other non-current liabilities
Net assets of the joint venture
Proportion of the Group’s ownership interest in the joint venture
The Group’s equity interest in the joint venture
Notes receivable classified as net investment in the joint venture ˙*˙
Carrying amount of the Group’s interest in the joint venture
31 December 2019
31 December 2018
145
2,460
8,334
(641)
(1,643)
(72)
(1,937)
(114)
6,532
50%
3,266
-
3,266
4
3,121
7,876
(546)
(1,720)
(136)
(3,531)
(93)
4,975
50%
2,487
500
2,987
˙*˙ the Notes are considered to represent an ‘in substance’ equity interest in the joint venture. The Group, together with the second venturer, converted most of the Notes to
an equity investment in the joint venture in 2018 and completed the conversion in 2019. These Notes together with the Group’s equity interest in the joint venture are pledged as
security under borrowings of the joint venture.
204
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUPNotes to the consolidated financial statements For the year ended 31 December 2019(in millions of Russian rubles, unless otherwise indicated) Revenue
Operating expenses without depreciation and amortisation, foreign exchange loss (gain), net change in
fair value of biological assets
Adjusted EBITDA
Depreciation and amortisation
Interest income
Interest expense
Foreign exchange loss (gain)
Net change in fair value of biological assets
Income tax
Loss for the year and total comprehensive loss for the year
Proportion of the Group’s ownership interest in the joint venture
The Group’s share of Adjusted EBITDA
The Group’s share of loss of the joint venture
2019
6,310
(5,432)
878
(620)
16
(150)
32
(379)
(7)
(230)
50%
439
(115)
2018
5,331
(5,000)
331
(624)
-
(202)
(38)
420
(1)
(114)
50%
165
(57)
As of 31 December 2019, management tested the Group’s investment
the Group agreed that operational management, including
in Tambov Turkey for impairment and determined that the investment
the General Director appointment decisions, remains the authority
was not impaired.
Samson – Food Products
of the Seller until the final sale of the residual 25% share. Based on
the above considerations the Group accounted for the investment in
75% of Samson – Food Products as an investment in an associate.
On 25 December 2018 the Group acquired 75% in LLC
Samson – Food Products is a meat-processing group of companies
“Myasokombinat Vsevolzhskyi” and LLC “Svezhyi Product” (together
located in the North-West region and offering meat products under
“Samson – Food Products”) for cash consideration of 350 payable
such brands as Samson, Grillmania, Fileya and others.
at the acquisition date and contingent consideration payable within
two years after the acquisition. the contingent consideration depends
Summarised financial information in respect of the Group’s associate
on performance of Samson – Food Products in 2019 and based on
and its reconciliation to the carrying amount of the interest in
the performance of the associate in 2019 was estimated as zero. At
the associate are set out below. The summarised financial information
the acquisition date the Group also signed a shareholders agreement
below represents amounts shown in the associate’s financial
with JSC “Samson-Producty Pitaniya”, being the Seller and holder
statements prepared in accordance with IFRSs adjusted by the Group
of the residual 25% share. Under the terms of this arrangement,
for equity accounting purposes.
www.cherkizovo.com
205
Financial StatementsAppendixCHERKIZOVO GROUPCherkizovo unites 18. INVESTMENTS IN JOINT VENTURES AND ASSOCIATES CONTINUED
Cash and cash equivalents
Other current assets
Goodwill
Property, plant and equipment
Other non-current assets
Trade and other payables
Short-term borrowings
Other current liabilities
Long-term borrowings
Net assets of the associate
Proportion of the Group’s ownership interest in the associate
Carrying amount of the Group’s interest in the associate
31 December 2019
31 December 2018 ˙*˙
154
551
388
501
503
(628)
(856)
(30)
(147)
436
75%
327
1
254
388
508
542
(541)
(552)
(63)
(70)
467
75%
350
˙*˙ Comparative information for the year ended 31 December 2018 has been retrospectively adjusted for the finalization of the allocation of the purchase price of the associate
acquired.
Revenue
Operating expenses without depreciation and amortisation, foreign exchange loss (gain), net change in fair value of
biological assets
Adjusted EBITDA
Depreciation and amortisation
Interest income
Interest expense
Foreign exchange loss
Income tax
Loss for the year and total comprehensive loss for the year
Proportion of the Group’s ownership interest in the joint venture
The Group’s share of Adjusted EBITDA
The Group’s share of loss of the associate
2019
4,700
(4,562)
138
(99)
2
(89)
4
13
(31)
75%
104
(23)
LLC Cobb-Russia
LLC Cobb-Russia is a joint venture with GP CY Holdings Ltd. LLC Cobb-Russia is the official distributor and producer of “Cobb” poultry breeders
in Russia.
206
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUPNotes to the consolidated financial statements For the year ended 31 December 2019(in millions of Russian rubles, unless otherwise indicated) 19. LONG-TERM DEPOSITS IN BANKS
CCY
Effective rate, %
Maturity
31 December
2019
31 December
2018
Deposits in Gazprombank
RUR
8%
2022
641
641
641
641
Total long-term deposits in banks
20. INVENTORIES
Raw materials
Spare parts
Work in-progress
Finished goods
Total inventory
21. TAXES RECOVERABLE AND PREPAID
Value added tax
Income tax prepaid
Other taxes
Total tax recoverable and prepaid
22. TRADE RECEIVABLES, NET
Trade receivables
Less: allowance for expected credit losses
Total trade receivables, net
www.cherkizovo.com
31 December 2019
31 December 2018
9,544
830
418
2,431
13,223
8,971
899
461
2,098
12,429
31 December 2019
31 December 2018
1,209
608
579
2,396
1,399
365
145
1,909
31 December 2019
31 December 2018
5,659
(183)
5,476
5,852
(119)
5,733
207
Financial StatementsAppendixCHERKIZOVO GROUPCherkizovo unites 22. TRADE RECEIVABLES, NET CONTINUED
The following table summarizes the changes in the allowance for expected credit losses for the years ended 31 December 2019 and 2018:
Balance at beginning of the year
Additional allowance, recognized during the year
Trade receivables written off during the year
Balance at end of the year
23. OTHER RECEIVABLES, NET
Subsidies receivable for interest expense reimbursement
Subsidies receivable for compensation of capital expenditure ˙*˙
Subsidies receivable for purchase of fodder
Other receivables
Less: allowance for expected credit losses
Total other receivables, net
2019
119
101
(37)
183
2018
86
59
(26)
119
31 December 2019
31 December 2018
31
-
-
292
(124)
199
985
200
15
455
(132)
1,523
˙*˙ these subsidies were collected in cash in January 2019 and related to compensation of certain portion of capital expenditures for construction of Kashira meat-processing
plant, which was completed in 2018.
The following table summarizes the changes in the allowance for expected credit losses for the years ended 31 December 2019 and 2018:
Balance at beginning of the year
Additional allowance, recognized during the year
Other receivables written off during the year
Balance at end of the year
2019
132
-
(8)
124
2018
120
56
(44)
132
208
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUPNotes to the consolidated financial statements For the year ended 31 December 2019(in millions of Russian rubles, unless otherwise indicated)2. ** CONTINUED 24. CASH AND CASH EQUIVALENTS
RUR-denominated cash at banks
USD-denominated cash at banks
Bank deposits
Cash in hand
Total
31 December 2019
31 December 2018
771
18
2,513
2
3,304
773
77
8,759
4
9,613
Bank deposits are denominated in rubles and euro and have original maturity of less than 3 months.
25. OTHER CURRENT ASSETS
Prepaid expenses
Notes receivable
Loans receivable
Other assets
Total other current assets
26. SHAREHOLDER’S EQUITY
31 December 2019
31 December 2018
252
-
48
28
328
179
310
46
28
563
Share capital
As of 31 December 2019 and 2018, issued shares of the Company
Dividends
In accordance with Russian legislation, earnings available for
had a par value of 0.01 rubles. The total number of authorized shares
dividends are limited to retained earnings of the Company, calculated
was 54,702,600 and the number of issued shares was 43,963,773.
in accordance with statutory rules in local currency. On March
All issued and outstanding shares have equal voting rights.
2019 and September 2019 dividends of approximately 101.63 Russian
The Company is authorized to issue preferred shares not exceeding
rubles per share (4,173 in total) and approximately 48.79 Russian
25% of its ordinary share capital. No such shares are currently issued.
rubles per share (2,003 in total) were approved at the extraordinary
shareholders’ meeting and have been fully paid during the year
ended 31 December 2019.
On February 2018 and September 2018 dividends of approximately
75.07 Russian rubles per share (3,081 in total) and approximately
20.48 Russian rubles per share (841 in total) were approved
at the extraordinary shareholders’ meeting and have been fully paid
during the year ended 31 December 2018.
www.cherkizovo.com
209
Financial StatementsAppendixCHERKIZOVO GROUPCherkizovo unites 27. NON-CONTROLLING INTERESTS
JSC Petelinskaya
LLC PKO Otechestvennyi Product
LLC Cherkizovo trade house
Other non-controlling interests
Total non-controlling interests
NCI percentage
31 December 2019
31 December 2018
11.8%
4.0%
11.8%
142
215
307
215
879
468
209
23
290
990
The following table summarises the information relating to each of the Group’s subsidiaries that has material NCI, before any intra-group
eliminations:
As at 31 December 2019 and for 2019
JSC Petelinskaya
LLC PKO
Otechestvennyi Product
LLC Cherkizovo
trade house
NCI percentage
Non-current assets
Current assets
Non-current liabilities
Current liabilities
Net assets
Carrying amount of NCI
Revenue
(Loss) profit
Total comprehensive (loss) income
(Loss) profit allocated to NCI
Cash flows from operating activities
Cash flows from investment activities
Cash flows from financing activities (dividends to NCI: nil)
Net increase in cash and cash equivalents
11.8%
1,782
1,606
-
(2,184)
1,204
142
6,694
341
341
40
(805)
345
460
-
4.0%
311
5,412
(101)
(194)
5,428
215
2,067
156
156
6
175
(20)
1
156
11.8%
1,267
12,796
(266)
Total
3,360
19,814
(367)
(11,193)
(13,571)
2,604
307
95,267
(695)
(695)
(82)
(1,607)
2,465
209
1,067
9,236
664
104,028
(198)
(198)
(36)
(2,237)
2,790
670
1,223
210
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUPNotes to the consolidated financial statements For the year ended 31 December 2019(in millions of Russian rubles, unless otherwise indicated) As at 31 December 2018 and for 2018
JSC Petelinskaya
LLC PKO
Otechestvennyi Product
LLC Cherkizovo
trade house
NCI percentage
Non-current assets
Current assets
Non-current liabilities
Current liabilities
Net assets
Carrying amount of NCI
Revenue
Profit (loss)
Total comprehensive income (loss)
Profit (loss) allocated to NCI
Cash flows from operating activities
Cash flows from investment activities
Cash flows from financing activities
(dividends to NCI: nil)
Net increase (decrease) in cash and cash equivalents
11.8%
2,289
3,675
-
(2,001)
3,962
468
6,946
714
714
84
(600)
760
(160)
-
4.0%
379
5,320
(19)
(408)
5,272
209
2,736
230
230
9
29
(45)
-
(16)
11.8%
1,148
12,594
(245)
Total
3,816
21,589
(264)
(13,298)
(15,707)
199
23
9,434
700
62,068
71,750
(252)
(252)
(30)
973
616
-
1,589
692
692
63
402
1,331
(160)
1,573
www.cherkizovo.com
211
Financial StatementsAppendixCHERKIZOVO GROUPCherkizovo unites 28. BORROWINGS
This note provides information about the contractual terms of the Group’s interest-bearing loans and borrowings, which are measured
at amortised cost. For more information about the Group’s exposure to interest rate, foreign currency and liquidity risk, see Note 31. Terms and
conditions of outstanding loans were as follows:
Nominal
interest rate
EIR ˙1˙
Adjusted
EIR ˙2˙
Year
of maturity
Bonds
7.50%-12.50%
9.17%
9.17%
2020-2023
Bank loans
1.17%-12.50%
6.54%
5.57%
2020-2026
Other borrowings
7.00%
7.00%
7.00%
2029
Interest payable
Finance lease
liabilities ˙*˙
Total borrowings
n/a
n/a
n/a
n/a
31 December 2019
31 December 2018
Current
5,000
15,442
-
348
-
Non-
current
10,000
33,100
82
-
-
Current
Non-
current
-
5,000
23,708
39,471
-
372
90
7
-
165
20,790
43,182
24,170
44,643
˙*˙ Following the adoption of IFRS 16 (Note 3), finance lease liabilities as at 31 December 2019 were reclassified to long-term lease liabilities and short-term lease liabilities of
the consolidated statement of financial position as at 31 December 2019.
As of 31 December 2019, the Group’s borrowings are denominated in
Bonds
the following currencies: 61,966 in Russian roubles and
Bonds due in October 2020
2,006 in Euro. As of 31 December 2018, the Group’s borrowings are
In October 2015, the Group placed 5,000,000 bonds in roubles at par
denominated in the following currencies: 66,418 in Russian roubles
value (1,000 roubles at the issuance date) with a maturity date in
and 2,395 in Euro.
October 2020. The coupon rate on the bonds, payable semi-annually,
is set at 12.5% per annum. The Group accounts for these instruments
Interest on the majority of borrowings is paid on a monthly or
at amortized cost.
quarterly basis, with the exception of bonds, for which the interest is
paid on a semi-annual basis.
Bonds due in May 2023
In November 2019, the Group placed 10,000,000 bonds in roubles
at par value (1,000 roubles at the issuance date) with a maturity date
in May 2023. The coupon rate on the bonds, payable semi-annually,
is set at 7.5% per annum. The Group accounts for these instruments
at amortized cost.
˙1˙ EIR represents the weighted average interest rate on outstanding loans.
˙2˙ Adjusted EIR represents the effective rate on borrowings at year end, adjusted by government subsidies for certain qualifying debt. Since approvals for subsidies are submitted
annually by the Group as required by law, the existence of such subsidies in any given year is not necessarily indicative of their existence in future periods. See Note 9 for further
disclosure of government subsidies related to interest on borrowings.
212
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUPNotes to the consolidated financial statements For the year ended 31 December 2019(in millions of Russian rubles, unless otherwise indicated)
Bank loans
Terms and conditions of outstanding bank loans were as follows:
Sberbank of Russia
Sberbank of Russia
Alfa bank
Bank VTB
Gazprombank
Gazprombank
Raiffeisenbank
Rosselkhozbank
UniCredit Bank
Total bank loans
Currency
Nominal
interest rate
Year
of maturity
31 December
2019
31 December
2018
Russian roubles
1.40%˙*˙-10.80%
2020-2024
12,394
Euro
3.40%
Russian roubles
1.17%˙*˙-9.10%
Russian roubles
1.60%˙*˙-9.20%
Russian roubles
1.40%˙*˙-8.99%
Euro
Russian roubles
n/a
6.31%
Russian roubles
1.40%˙*˙-10.31%
Russian roubles
6.91%-12.50%
2024
2020-2026
2020-2024
2020-2022
n/a
2020
2020-2023
2021-2022
2,006
4,476
7,012
4,982
-
5,985
7,310
4,377
22,348
2,299
10,695
9,645
6,617
96
5,986
5,456
37
48,542
63,179
˙*˙ Low interest rates relate to subsidized borrowings under new government policy effective since 2017 (Note 9).
Unused lines of credit
The total amount of unused credit on lines of credit as of 31 December 2019 is 75,542. the unused credit can be utilized from 2020 to 2026 with
expiration of available amounts varying as follows: 29,295 expires by 31 December 2020, 10,832 expires by 31 December 2021, 27,215 expires
by 31 December 2022, 500 expires by 31 December 2024 and 7,700 expires by 31 December 2026.
Collateral under borrowings
Shares of and participating interests in the following Group companies are pledged as collateral under certain borrowings as of 31 December
2019:
JSC Altaisky Broiler
LLC Cherkizovo Pork
CJSC Rovesnky Broiler
JSC Kurinoe tsarstvo
JSC Cherkizovo-Kashira
www.cherkizovo.com
31 December 2019
31 December 2018
100%
-
100%
-
100%
100%
51%
-
100%
100%
213
Financial StatementsAppendixCHERKIZOVO GROUPCherkizovo unites
28. BORROWINGS CONTINUED
Property, plant and equipment with a carrying value of 10,427 and
maintenance of specific debt to EBITDA, net debt to EBITDA, EBIT to
11,200 were pledged as security under loan agreements as of
Interest expense, debt service coverage and other ratios.
31 December 2019 and 2018, respectively, including construction
in progress pledged with a carrying value of nil and nil as of
The Group was in compliance with all covenants as at 31 December
31 December 2019 and 2018, respectively.
2019.
Notes receivable, net with a carrying value of nil and 310 were
pledged as security under loan agreements as of 31 December
Reconciliation of liabilities arising from financing activities
The table below details changes in the Group’s liabilities arising
2019 and 2018, respectively.
from financing activities, including both cash and non-cash changes.
Liabilities arising from financing activities are those for which cash
Certain significant loan agreements with the Sberbank of Russia,
flows were, or future cash flows will be, classified in the Group’s
Rosselkhozbank, Bank VTB, Gazprombank, UniCredit Bank,
consolidated statement of cash flows as cash flows from financing
Raiffeisenbank and Alfa-bank contain financial covenants requiring
activities.
Non-cash changes
31
December
2018
Financing
cash
flows ˙(i)˙
Restricted
cash (used
in investing
activities)
Acquisition of
subsidiaries
(Note 33)
Effect of
adoption of
IFRS 16
Forex
adjust-
ments
Other
non-cash
changes
Interest
accruals
and
payments
31
December
2019
68,813
(5,233)
(109)
290
1,344
(302)
372
(24)
65,151
Non-cash changes
31
December
2017
Financing
cash
flows ˙(i)˙
Restricted
cash (used
in investing
activities)
Acquisition of
subsidiaries
(Note 33)
Acquisition
of debt
rights
(Note 33)
Forex
adjust-
ments
Other
non-cash
changes
Interest
accruals
and
payments
31
December
2018
50,015
14,001
(632)
338
4,685
419
32
(45)
68,813
Borrowings,
including lease
liabilities
Borrowings,
including lease
liabilities
˙(i)˙ Net amount of repayment of lease liabilities, proceeds from short-term and long-term borrowings and repayments of short-term and long-term borrowings in the consolidated
statement of cash flows.
214
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUPNotes to the consolidated financial statements For the year ended 31 December 2019(in millions of Russian rubles, unless otherwise indicated) 29. LEASE LIABILITIES
For the year ended 31 December 2019 the movement of lease liabilities was as follows:
Balance at 1 January 2019
Interest expense on lease liabilities
Lease payments
New leased contracts arose from acquisition
New lease contracts and modification of existing lease contracts
Balance at 31 December 2019
1,308
121
(541)
10
281
1,179
For the year ended 31 December 2019 lease expenses for leases with lease term of 12 months or less and leases of low-value assets amounted
to 178 and lease expenses for variable lease payments not included in the measurement of lease liabilities amounted to 25.
30. TAX RELATED LIABILITIES
Value added tax
Payroll related taxes
Property tax
Personal income tax withheld
Land tax
Transportation tax
Other taxes
Total tax related liabilities
31 December 2019
31 December 2018
617
385
261
52
7
2
3
758
315
145
92
9
5
1
1,327
1,325
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Financial StatementsAppendixCHERKIZOVO GROUPCherkizovo unites 31. FINANCIAL INSTRUMENTS
Categories of financial instruments and fair value measurements
The carrying values and fair values of the Group’s financial assets and liabilities, except for the rights to claim debt that are separately disclosed
in Note 33, as of 31 December 2019 and 2018 are as follows:
Financial assets not measured at fair value
Amortised cost
Notes receivable, net (current and non-current)
Long-term deposits in banks
Other non-current assets
Trade receivables
Other receivables
Other current assets
Restricted cash
Cash and cash equivalents
Financial liabilities not measured at fair value
Amortised cost
Borrowings (including finance lease liabilities as at 31 December
2018)
Lease liabilities
Trade payables
Payables for non-current assets
Payroll related liabilities
Other payables and accruals
31 December 2019
31 December 2018
Carrying
value
Fair
value
Carrying
value
Fair
value
-
641
246
5,476
199
76
-
3,304
9,942
63,972
1,179
11,560
656
2,317
237
79,921
-
678
246
5,476
199
76
-
3,304
9,979
62,968
1,179
11,560
656
2,317
237
78,917
310
641
177
5,733
1,523
75
109
9,613
18,181
68,813
-
10,830
1,216
2,707
905
310
667
177
5,733
1,523
75
109
9,613
18,207
67,513
-
10,830
1,216
2,707
905
84,471
83,171
As at 31 December 2019 the Group used 7.84% for short-term
Fair value measurement of long-term deposits and borrowings was
agreements, 9.2% for medium-term agreements, 8.47% for long-term
categorized into Level 3 as at 31 December 2019 and 2018.
agreements (as at 31 December 2018: 9.8% was used for all periods) as
market rate of cost of debt for the fair value estimation (for borrowings
nominated in RUB). That rate excludes the effect of subsidies.
216
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUPNotes to the consolidated financial statements For the year ended 31 December 2019(in millions of Russian rubles, unless otherwise indicated)
Financial risk management
The main risks arising from the Group’s financial instruments are
retained earnings. The management of the Group reviews the capital
structure on a regular basis. As part of this review, management
capital risk management, interest rate risk, credit risk, liquidity risk and
considers the cost of capital and the risks associated with each class
foreign currency risk.
of capital.
The Group’s management identifies measures and manages financial
risks in accordance with the Group’s policies and procedures.
Credit risk
Credit risk refers to the risk that counterparty may default on its
contractual obligations resulting in financial loss to the Group.
Capital risk management
The Group manages its capital to ensure that it will be able to
Financial assets which potentially subject the Group to credit risk
consist primarily of trade and other receivables, long-term deposits,
continue as a going concern while maximizing the return to the equity
notes receivable, rights to claim debt and cash in current and deposit
holders. The capital structure of the Group consists of debt, cash and
accounts with banks.
cash equivalents and equity, comprising issued capital, reserves and
The Group’s maximum exposure to credit risk arises from the following classes of financial assets (except for the rights to claim debt that are
separately disclosed in Note 33):
Long-term deposits in banks
Notes receivable, net
Other non-current assets
Trade receivables
Other receivables
Other current assets
Restricted cash
Cash and cash equivalents (except for cash in hand)
Total maximum credit risk
31 December 2019
31 December 2018
641
-
246
5,476
199
76
-
3,302
9,940
641
310
177
5,733
1,523
75
109
9,609
18,177
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Financial StatementsAppendixCHERKIZOVO GROUPCherkizovo unites 31. FINANCIAL INSTRUMENTS CONTINUED
Trade receivables
The maximum exposure to credit risk for trade receivables by counterparty was as follows:
Company 1
Company 2
Company 3
Company 4
Company 5
Other counterparties
Total
31 December 2019
31 December 2018
965
544
418
372
300
2,877
5,476
852
838
529
494
351
2,669
5,733
The average credit period on sales of goods is 30 days. No interest
For trade receivables the Group has applied the simplified approach
is charged on trade and other receivables. Before accepting any new
in IFRS 9 to measure the loss allowance at lifetime ECL. the Group
customer, the Group uses an internal credit scoring system to assess
determines the expected credit losses on these items by using
the potential customer’s credit quality and defines credit limits by
a provision matrix, estimated based on historical credit loss
customer. Limits and scoring attributed to customers are regularly
experience based on the past due status of the debtors, adjusted
reviewed.
Neither past due nor impaired
Past due 1-90 days
Past due 91-180 days
Past due 180-365 days
Past due more than 365 days
Total
as appropriate to reflect current conditions and estimates of future
economic conditions. Accordingly, the credit risk profile of these
assets is presented based on their past due status in terms of
the provision matrix:
Expected credit loss rate
31 December 2019
31 December 2018
-
-
-
79%
100%
4,723
518
217
87
114
5,659
4,619
943
148
69
73
5,852
Other receivables
Cash and cash equivalents and long-term deposits
Other receivables disclosed above mainly consists of subsidies
The credit risk on cash and cash equivalents and long-term deposits
receivable from regional Ministries of agriculture. Timing of
is limited because these funds are placed only with banks with stable
collection depends on availability of budget funds and on average
credit ratings assigned by international credit-rating agencies. All
is approximately 6-12 months. At 31 December 2019, the amount
balances on bank accounts are neither overdue nor impaired.
of subsidies receivable outstanding more than one year was nil
(at 31 December 2018: nil).
218
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUPNotes to the consolidated financial statements For the year ended 31 December 2019(in millions of Russian rubles, unless otherwise indicated) The table below shows the rating and cash and cash equivalents balances with major banks at the reporting dates:
Rating agency
Rating
31 December 2019
31 December 2018
Bank 1
Bank 2
Bank 3
Bank 4
Standard & Poor’s
Moody’s
Fitch Ratings
Standard & Poor’s
Other banks
-
Total cash and cash equivalents at banks
BB-
BB-
BB+
BBB-
-
2,669
317
145
41
130
3,302
-
101
189
8,103
1,216
9,609
The table below shows the rating and long-term bank deposits balances at the reporting dates:
Gazprombank
Fitch Ratings
BB+
Total long-term bank deposits
641
641
641
641
Rating agency
Rating
31 December 2019
31 December 2018
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing
liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed
conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.
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Financial StatementsAppendixCHERKIZOVO GROUPCherkizovo unites 31. FINANCIAL INSTRUMENTS CONTINUED
The following tables detail the Group’s expected maturity for its financial assets, except for cash and cash equivalents and rights to claim debt.
The tables below have been drawn up based on the undiscounted contractual maturities of the financial assets, including interest that will be
earned on those:
Effective
interest rate,
%
8%
6.35%-7.39%
At 31 December 2018
Trade and other receivables
Long-term deposits in banks
Notes receivable, net
Other non-current assets
Other current assets
Total
At 31 December 2019
Trade and other receivables
Long-term deposits in banks
8%
Other non-current assets
Other current assets
Total
Less than
6 month
6 months-
1 year
1-4 years
More than
4 years
7,256
26
156
-
75
-
26
164
-
-
-
761
-
-
-
7,513
190
761
5,675
26
-
76
5,777
-
26
-
-
26
-
709
-
-
709
-
-
-
177
-
177
-
-
246
-
246
Total
7,256
813
320
177
75
8,641
5,675
761
246
76
6,758
220
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUPNotes to the consolidated financial statements For the year ended 31 December 2019(in millions of Russian rubles, unless otherwise indicated) The following are the contractual maturities of financial liabilities, including estimated interest payments:
Effective
interest rate, %
Less than
6 month
6 months-
1 year
1-4 years
More than
4 years
At 31 December 2018
Borrowings, including finance lease
5.2%-13.83%
9,108
11,736
1,216
2,707
19,645
41,417
10,808
-
-
-
-
-
-
-
-
-
Total
80,978
11,736
1,216
2,707
24,767
19,645
41,417
10,808
96,637
1.17%-12.5%
5.32%-16.62%
14,051
255
11,797
656
2,317
11,486
255
47,529
720
-
-
-
-
-
-
3,244
294
-
-
-
76,310
1,524
11,797
656
2,317
29,076
11,741
48,249
3,538
92,604
Trade and other payables
Payables for non-current assets
Payroll related liabilities
Total
At 31 December 2019
Borrowings
Finance lease obligations
Trade and other payables
Payables for non-current assets
Payroll related liabilities
Total
Interest rate risk
Changes in interest rates impact primarily loans and borrowings by
borrowings, then the Group will incur additional interest expenses
increased by the Key Rate. For disclosure purposes only, the Group
changing either their fair value (fixed rate debt) or their future cash
determined that if Ministry of Agriculture had not continued to
flows (variable rate debt). The Group adopts a policy of limiting its
subsidize the interest during 2019 and the Key rate had been
exposure to changes in interest rates by borrowing mostly with a fixed
1% p.p. higher/lower and all other variables were held constant,
rate basis except for the subsidized borrowings obtained under new
the Group’s profit and total comprehensive income for the year ended
government policy effective from 2017 (Notes 9 and 28). the Group
31 December 2019 would decrease/increase by 1,065 (Note 9) and
receives such borrowings from accredited banks at reduced rates
108 (2018: decrease/increase by 537 and 64).
not exceeding 5% per annum on Rouble-denominated loans,
the difference between market rate and the reduced rate equals
the Key rate of the Bank of Russia and is compensated by Ministry of
Foreign currency risk
The Group undertakes transactions denominated in foreign
Agriculture directly to the accredited bank. If Ministry of Agriculture
currencies; consequently, exposures to exchange rate fluctuations
will not continue to subsidize the interest on aforementioned
arise.
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Financial StatementsAppendixCHERKIZOVO GROUPCherkizovo unites
31. FINANCIAL INSTRUMENTS CONTINUED
The table below summarizes the Group’s exposure to foreign currency exchange rate risk at the reporting date relative to the functional
currency of the Group.
31 December 2019
31 December 2018
Financial assets
Financial liabilities
Net position
Financial assets
Financial liabilities
Net position
Hard currency
(USD or Euro)
2,174
5,698
(3,524)
77
6,979
(6,902)
The table below details the Group’s sensitivity to weakening of Russian Ruble against the respective foreign currencies by 20%, all other
variables being held constant. The analysis was applied to monetary items at the reporting dates denominated in respective currencies.
Loss
Hard currency – impact
31 December 2019
31 December 2018
(705)
(1,380)
The strengthening of the Russian Ruble in relation to the same currency by the same percentage will produce an equal and opposite effect on
the consolidated financial statements of the Group to that shown above.
32. RELATED PARTIES
Transactions with key management personnel
Key management personnel of the Group are all members of
Parties are generally considered to be related if one party has
the Board of Directors and members of the Management Board.
the ability to control the other party or can exercise significant
The remuneration of key management personnel during the years
influence over the other party in making financial or operational
ended 31 December 2019 and 2018 were as follows:
decisions, as defined by IAS 24 Related Party Disclosures.
In considering each possible related party relationship, attention is
directed to the substance of the relationship not merely the legal form.
Related parties may enter into transactions which unrelated parties
might not, and transactions between related parties may not be
effected on the same terms, conditions and amounts as transactions
between unrelated parties.
The Company and its subsidiaries enter into various transactions with
related parties such as the sale and purchase of inventory.
Salaries and bonuses, excluding
social security contributions
681
550
2019
2018
222
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUPNotes to the consolidated financial statements For the year ended 31 December 2019(in millions of Russian rubles, unless otherwise indicated) Transactions with entities under common control
Trading transactions with related parties mostly comprised the sale of
Trade receivables, trade payables and advances issued are
associated with such transactions. The Group expects to settle such
sausages, raw meat and poultry to a retail chain “Myasnov” and lease
balances in the normal operating cycle.
of certain production and office space to “Myasnov” and other entities
under common control.
The Group also transferred certain land plots to the closed unit
investment fund managed by LLC “UK Mikhailovskyi”, an entity under
common control.
Balances with companies under common control are summarized as follows:
Balances
Trade receivables
Other non-current assets
Advances paid
Other receivables
Closed unit investment fund (presented within other non-current assets)
Trade payables
Advances received
Transactions with companies under common control are summarized as follows:
Transactions
Sales
Rent income
Purchases of property, plant and equipment
Purchases of goods and other services
31 December 2019
31 December 2018
112
73
6
7
495
3
4
2019
1,066
187
9
4
291
92
6
7
494
25
1
2018
2,593
208
14
19
Transactions with joint ventures
The Group purchases day-old chicks from its joint venture LLC Cobb-
Trade receivables, trade payables and advances issued are
associated with such transactions. The Group expects to settle such
Russia (former LLC Broiler Budushchego). The Group also purchases
balances in the normal course of business.
turkey meat from LLC Tambovskaya Indeika for its subsequent resale
through the distribution network of the Group. The Group also sells
mixed fodder to LLC Tambovskaya Indeika.
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Financial StatementsAppendixCHERKIZOVO GROUPCherkizovo unites 32. RELATED PARTIES CONTINUED
Balances with joint ventures are summarized as follows:
Balances
Trade receivables
Advances paid
Other receivables
Trade payables
Other payables
Transactions with joint ventures are summarized as follows:
Transactions
Sales
Purchases of goods and other services
31 December 2019
31 December 2018
67
40
3
848
-
2019
229
6,626
84
-
-
1,057
139
2018
303
5,936
Transactions with associate
The Group sells raw meat for meat-processing and finished goods to associate Samson – Food Products. Trade receivables are associated with
such transactions. The Group expects to settle such balances in the normal course of business.
Balances with the associate are summarized as follows:
Balances
Trade receivables
Trade payables
Transactions with the associate are summarized as follows:
Transactions
Revenue
31 December 2019
31 December 2018
76
8
2019
1,133
-
-
2018
-
224
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUPNotes to the consolidated financial statements For the year ended 31 December 2019(in millions of Russian rubles, unless otherwise indicated) 33. ACQUISITIONS
Acquisition of Rovensky Broiler
On 4 October 2019, the Group completed the acquisition of 100% of
The acquisition was accounted for using historical book values of
assets and liabilities acquired as provisional values since there was
no other information available at that time. the difference between
consideration paid and historical book value of the net assets acquired
СJSC “Rovensky Broiler” for cash consideration of 1,664.
was preliminary allocated to property, plant and equipment based on
The acquired company is a hatching egg producer with production
capacity of 80 million eggs/year, located in the Belgorod region,
The Group is in the process of obtaining a third party valuation
close to our existing operations. the acquisition will allow to cover
report on the fair value of the assets and liabilities acquired including
the Group’s needs in hatching eggs supply.
obtaining third-party valuation of the property, plant and equipment,
the internal valuation analysis done by management of the Group.
and accordingly, these amounts are preliminary and subject to change.
The provisional purchase price allocation was as follows:
Provisional values (at the acquisition date)
Purchase price
Property, plant and equipment
Inventories
Biological assets
Other current assets
Short-term loans and finance leases
Other current liabilities
Total assets acquired and liabilities assumed
Goodwill recognized on acquisition
Net outflow of cash and cash equivalents on acquisition comprised of the following:
Consideration payable to acquire Rovensky Broiler
Less: cash and cash equivalents of subsidiaries acquired
Net outflow of cash and cash equivalents on acquisition of Rovensky Broiler
www.cherkizovo.com
1,664
1,406
26
356
197
(290)
(31)
1,664
-
1,664
(196)
1,468
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Financial StatementsAppendixCHERKIZOVO GROUPCherkizovo unites 33. ACQUISITIONS CONTINUED
The following pro forma financial information presents consolidated statement of profit or loss as if the acquisition occurred as of the beginning
of the reporting period. In determining pro forma amounts, all non-recurring costs were determined to be immaterial.
Pro forma Information
Revenue
Operating profit
Profit for the year
For the year ended 31 December 2019 (unaudited)
120,109
10,286
6,843
The actual results of operations of Rovensky Broiler are included in the consolidated financial statements of the Group only from the date of
acquisition and were:
Actual results of Rovensky Broiler from the date of acquisition (4 October 2019) to 31 December 2019
Revenue
Operating income
Profit for the period
5
90
89
Acquisition of Altaisky Broiler
On 28 November 2018, the Group completed the acquisition of 100%
In the consolidated financial statements for the year ended
31 December 2018 the acquisition was accounted for using
of JSC “Altaisky Broiler” for cash consideration of 4,588.
historical book values of assets and liabilities acquired as provisional
values since there was no other information available at that time.
Altaisky Broiler is one of the leading players in the Siberian poultry
the difference between consideration paid and historical book value
market with an annual output of 67 thousand tonnes (live weight) of
of the net assets acquired was preliminary allocated to property,
poultry products (58 thousand tonnes of finished products). Today, it
plant and equipment based on the internal valuation analysis done by
is a state-of-the-art poultry production facility comprising a hatchery,
management of the Group.
a feed mill, four fattening sites, a slaughterhouse, and a meat packing
plant in Biysk. the acquisition will enable Cherkizovo Group to access
A third party valuation report on the fair value of the individual
the Siberian Federal District market and strengthen its market-leading
assets and liabilities was obtained in 2019. Accordingly, the Group
position in the domestic poultry market.
completed the finalisation of the allocation of the purchase price of
Altaisky Broiler in the consolidated financial statements for the year
ended 31 December 2019 and adjusted comparative information for
2018 by changing the fair value of the following assets and liabilities
at the acquisition date:
226
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUPNotes to the consolidated financial statements For the year ended 31 December 2019(in millions of Russian rubles, unless otherwise indicated) Purchase price
Property, plant and equipment
Inventories and biological assets
Other current assets
Short-term loans and finance leases
Long-term loans and finance leases
Other current liabilities
Total assets acquired and liabilities assumed
Goodwill recognized on acquisition
Provisional values
(as previously reported for
the year ended 31 December
2018)
4,588
3,989
533
676
(310)
(28)
(272)
4,588
-
Fair values
4,588
3,616
533
676
(310)
(28)
(272)
4,215
373
The difference in depreciation charged for provisional values of
Goodwill arose in the acquisition of Altaisky Broiler because
property, plant and equipment and depreciation charged for their
the consideration paid for the combination effectively included
fair value was immaterial and therefore the Group did not adjust
amounts in relation to the benefit of expected expansion of the Group
the consolidated results for the year ended 31 December 2018.
to the regional markets.
Net outflow of cash and cash equivalents on acquisition comprised of the wollowing:
Consideration payable to acquire Altaisky Broiler
Less: cash and cash equivalents of subsidiaries acquired
Less: consideration remained unpaid at 31 December 2018
Net outflow of cash and cash equivalents on acquisition of Altaisky Broiler
4,588
(560)
(200)
3,828
The following pro forma financial information presents consolidated statement of profit or loss as if the acquisition occurred as of the beginning
of the prior annual reporting period (1 January 2018). In determining pro forma amounts, all non-recurring costs were determined to be
immaterial.
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Financial StatementsAppendixCHERKIZOVO GROUPCherkizovo unites 33. ACQUISITIONS CONTINUED
Pro forma Information
Revenue
Operating profit
Profit for the year
For the year ended 31 December 2018 (unaudited)
107,440
15,994
12,334
Acquisition of poultry breeder’s facilities
of Krasnoyaruzhsky Broiler
On 23 October 2018, the Group acquired all tangible assets,
there was no other information available at that time. the statutory
book value of assets was equal to value stated in legal documents
for acquisition of these assets. the difference between consideration
including poultry parent stock, of four hatching eggs’ production
paid and statutory book value of the net assets acquired was
facilities of CJSC “Krasnoyaruzhsky Broiler” (Belgorod region)
preliminary allocated to property, plant and equipment based on
and hired most of the employees working at these sites.
the internal valuation analysis done by management of the Group.
Total consideration amounted to 1,799 and was paid in cash.
The acquisition will allow the Group to supply Altaisky Broiler
the fair value of the individual assets and liabilities of poultry
with hatching eggs and cover all of the Group’s needs in
breeder’s facilities of Krasnoyaruzhsky Broiler, which confirmed
In 2019, the Group received a third party valuation report on
hatching eggs supply.
the preliminary allocation; accordingly, there were no adjustments
to the provisional book values of assets and liabilities. Fair values
In the consolidated financial statements for the year ended
of assets and liabilities of poultry breeder’s facilities of
31 December 2018 the acquisition was accounted for using
Krasnoyaruzhsky Broiler at the acquisition date are presented
statutory book values of assets acquired as provisional values since
below:
Purchase price
Property, plant and equipment
Biological assets (poultry breeders)
Total assets acquired and liabilities assumed
Goodwill recognized on acquisition
Provisional values
(as previously reported for
the year ended 31 December
2018)
1,799
1,210
589
1,799
-
Fair values
1,799
1,210
589
1,799
-
228
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUPNotes to the consolidated financial statements For the year ended 31 December 2019(in millions of Russian rubles, unless otherwise indicated) The acquired facilities were part of the legal entity CJSC
collateral once such collateral becomes the legal property of
“Krasnoyaruzhsky Broiler” and there is no separate financial
the Group. At the date of acquisition of the rights, Belaya Ptitsa
information related to performance of these facilities prior to
Kursk’s facilities were not operational and the Group relaunched
the acquisition date. Therefore, information about revenue and profit
the production in Q1,2019, using it in combination with the Group’s
or loss of the combined entity for the current reporting period as
existing parent stock sites and feed mills to leverage the potential
though the acquisition date for the business combination had been as
synergies perceived as existing.
of the beginning of the annual reporting period is impracticable and is
not disclosed.
In April 2019, the bankruptcy proceeding were initiated for
LLC “Belaya Ptitsa Kursk”, which are governed by an independent
Acquisition of rights to claim debt from Belaya Ptitsa Kursk
On 21 December 2018 the Group acquired Rosselkhozbank’s rights
bankruptcy trustee. Management has considered probability of
different results of procedure and developed a strategy to ensure
to claim debt (in the form of loans) from LLC “Belaya Ptitsa Kursk”
positive outcome, resulting in transfer of legal title of collateral to
(further “Belaya Ptitsa Kursk”) and the related security agreements
the Group within 12-months period. However, laws and regulations
(i.e. underlying collateral) for a principal amount of
affecting businesses in Russian Federation, including bankruptcy
5,639. the collateral included property pledge agreements for most of
legislation, continue to change rapidly. These changes are
Belaya Ptitsa Kursk’s property, plant and equipment and share pledge
characterized by different interpretations and arbitrary application by
agreements for 100% of capital of LLC “Belaya Ptitsa Kursk”.
authorities. Such changes are outside of the Group control.
To finance the transaction the Group obtained a five-year rubles-
The Group classified these rights as financial assets at FVTPL.
denominated loan from Rosselkhozbank in the principal amount
Management of the Group has reviewed all relevant facts and
of 5,639 at 0% per annum during the first two years and 10%
circumstances happened in 2019 that can affect the fair value of
subsequently. the fair value of the loan at inception date was
the rights and concluded that the fair value did not materially change
4,685 determined using the market interest rate of 10%.
since the acquisition date.
No cash was received or provided with respect to the two
transactions with Rosselkhozbank, which has been reported as a non-
34. COMMITMENTS AND CONTINGENCIES
cash transaction in the statement of cash flows reflecting rights to
claim debt acquired and loan assumed.
Legal
As of 31 December 2019 and 2018, several Group companies
At the acquisition date, the rights to claim debt from Belaya Ptitsa
reported negative net assets in their statutory financial statements.
Kursk were accounted for at fair value, which was determined as
In accordance with the Civil Code of the Russian Federation,
equal to the fair value of the loan obtained from Rosselkhozbank.
a liquidation process may be initiated against a company reporting
Belaya Ptitsa Kursk had not been servicing the debt for a number of
negative net assets. Management believes that it is remote that
months prior to the transaction and had also stopped its operating
the liquidation process will be initiated against those companies.
activities; therefore, at acquisition, the Group classified the rights
as purchased credit-impaired financial assets. Notwithstanding
From time to time and in the normal course of business, claims
the foregoing, the Group concluded that the fair value of
against the Group are received from customers and counterparties.
the underlying collateral exceeds the fair value of the rights acquired
Management is of the opinion that no material unaccrued losses will
and therefore did not recognise a loss allowance. the Group ultimately
be incurred and accordingly no provision has been made in these
expects to settle the rights through the recovery of the underlying
consolidated financial statements.
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Financial StatementsAppendixCHERKIZOVO GROUPCherkizovo unites 34. COMMITMENTS AND CONTINGENCIES CONTINUED
Taxation
Laws and regulations affecting businesses in the Russian Federation
be challenged, including transfer pricing legislation. Although
the transfer pricing legislation was amended in 2012, as of now there
continue to change rapidly. These changes are characterized by
is no established practice in place in respect of transfer pricing.
different interpretations and arbitrary application by the authorities.
Therefore the management believes that their assessment of transfer
Management’s interpretation of such legislation as applied to
pricing position of the Group may be challenged by authorities.
the activity of the Group may be challenged by the relevant regional
and federal authorities. The tax authorities in the Russian Federation
From 1 January 2015 a number of amendments into the Russian
frequently take an assertive position in their interpretation of
tax legislation aimed at deoffshorisation of the Russian economy
the legislation and assessments and as a result, it is possible that
became effective, with the submission of the first documentation
transactions and activities may be challenged. It is therefore possible
package in 2017. Specifically, they introduce new rules for controlled
that significant additional taxes, penalties and interest may be
foreign companies, a concept of beneficiary owner of income for
assessed. Under certain circumstances reviews may cover longer
the purposes of application of preferential provisions of taxation
periods. At the reporting date, the Group is litigating the results of
treaties of the Russian Federation and a concept of tax residency for
recent field tax audits of certain subsidiaries of the Group done by
foreign companies. The Group takes necessary steps to comply with
the regional tax authorities. Management is of the opinion that no
the new requirements of the Russian tax legislation including periodic
material losses will be incurred as a result of these litigations and
reviews of its tax planning strategies. However, in view of the recent
accordingly no provision has been made in these consolidated
introduction of the above provisions and insufficient administrative
financial statements. Management estimates that the Group’s
and court practice in these areas, at present the probability of claims
possible exposure in relation to the aforementioned tax audits will
from Russian tax authorities and probability of favourable outcome of
not exceed 1% of the Group’s profit for the year ended 31 December
tax disputes (if they arise) cannot be reliably estimated.
2019.
Recent events also suggest that the tax authorities are taking
Environmental remediation costs
The Group’s management believes that the Group is in compliance
a more assertive position in their interpretation of the tax legislation
with applicable legislation and is not aware of any potential
and assessments and as a result, it is possible that transactions
environmental claims; therefore, no liabilities associated with such
and activities that have not been challenged in the past may
costs are recorded as of 31 December 2019 and 2018.
Capital commitments
Capital commitments by each operating segments are as follows:
Commitments for the acquisition of property, plant and equipment
Meat-processing
Pork
Poultry
Feed
Total capital commitments
230
31 December 2019
351
113
995
85
1,544
2 Annual report 2019
About the Company Strategic ReportFinancial ResultsSustainable development Corporate governanceCHERKIZOVO GROUPNotes to the consolidated financial statements For the year ended 31 December 2019(in millions of Russian rubles, unless otherwise indicated) At 31 December 2019, the Group had capital projects in progress
35. SUBSEQUENT EVENTS
at LLC Cherkizovo Pork, JSC Kurinoe Tsarstvo, JSC Vasilievskay poulty
farm, JSC СMPZ and LLC Lisko Broiler
On 12 February 2020 the Board recommended that the General
meeting of shareholders approve distribution of the Сompany’s net
profit following 2019 results in the form of the dividends in the amount
of 60.92 rubles per ordinary share of the Company.
Agricultural market risk
As a rule, grain prices exhibit rather high seasonal fluctuation.
As a general trend, prices tend to be lower in autumn mainly due to
the increasing in supply. Market prices of agricultural commodities
are also influenced by a variety of unpredictable factors which
are beyond the control of the Group, including weather, planting
intentions, government (Russian and foreign) farm programs and
policies, changes in global demand resulting from population growth
and higher standards of living and global production of similar and
competitive crops.
Insurance
The Group holds insurance policies in relation to certain assets.
As of 31 December 2019 the Group secured major part of its livestock
and property, plant and equipment with a number of insurance
companies. The Group holds no other insurance policies in relation
to operations, or in respect of public liability or other insurable risks.
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231
Financial StatementsAppendixCHERKIZOVO GROUPCherkizovo unites Appendix 1.
About the Report
Name of the report
Cherkizovo Group’s annual report for 2019
“Cherkizovo Unites”
Reporting cycle
Annual, 1 January 2019 – 31 December 2019
International reporting
standards
This annual report has been prepared with reference to GRI Sustainability Reporting Standards
The list of the standards referenced in this report is shown in the GRI content index on p. 233
Russian reporting
standards
Regulation on Disclosing Information by the Issuers of the Issue-Grade Securities No. 454-P dated 30 December 2014 and
approved by the Bank of Russia
Corporate Governance Code recommended by the Bank of Russia (Letter No. 06-52/2463 dated 10 April 2014)
Date of the previous
report
April 2019
Reporting boundaries
The report discloses information about the operations and performance of Cherkizovo Group
Verification
of the reported
information
Reliability of the RAS * accounting statements and IFRS ** consolidated financial statements was confirmed by Deloitte & Touche
CIS, an independent audit firm
Cherkizovo Group aims to be a transparent company and develops its public reporting in line with global best practices. the annual report
for 2019 is already the second report that the Group prepared with reference to GRI Standards.
Comparing to the previous report the Company disclosed additional information, in particular, number of employees hired, financial
assistance received from government, and weight of waste with a breakdown by disposal methods.
While preparing the report, the Company relied on GRI reporting principles, including clarity, comparability, and timeliness. the Company
selected the most important GRI disclosures relevant to its activities, disclosing a total of 27 general and 6 topic-specific disclosures,
all available in the GRI content index.
The Company intends to continue improving its public reporting practices.
* Auditor’s report is available on the Company’s website at http://cherkizovo.com/company/information-disclosure/financial-statements/fin-statements/
** Auditor’s report is available on the Company’s website at http://cherkizovo.com/investors/reports/financial/financial-msfo/
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CHERKIZOVO GROUPAbout the Company Strategic ReportFinancial ResultsSustainable development Corporate governance Appendix 2.
GRI Content Index
GRI Standard
Disclosure
Report section
Omissions
GRI 101 Foundation 2016 (does not include any disclosures)
GRI 102 General
Disclosures
2016
102-1 Name of the organization
About the Company, p. 2
102-2 Activities, brands, products,
and services
About the Company, p. 8
102-3 Location of headquarters
Contacts, p. 240
102-4 Location of operations
About the Company, p. 34
102-5 Ownership and legal form
About the Company, p. 2
102-6 Markets served
About the Company, p. 8
102-7 Scale of the organization
About the Company, p. 4
–
–
–
–
–
–
–
102-8 Information on employees
and other workers
102-9 Supply chain
102-10 Significant changes to the
organization and its supply chain
Business model, p. 54
Our employees, p. 114
Supply chain, p. 58
About the Company, p. 19
Supply chain, p. 58
Message from the CEO, p. 42
Shareholder and investor highlights, p. 147
102-12 External initiatives
Corporate governance, p. 126
Health, safety and environment,
p. 119
102-13 Membership of associations
About the Company, p. 3
102-14 Statement from senior decision-
maker
Message from the CEO, p. 42
Message from the Chairman, p. 38
102-16 Values, principles, standards,
and norms of behavior
About the Company, p. 2
Supply chain, p. 58
102-18 Governance structure
Corporate governance, p. 128
102-40 List of stakeholder groups
Sustainable development, p. 112
102-45 Entities included in the
consolidated financial statements
102-46 Defining report content and topic
Boundaries
Financial statements, p. 148
Appendix 1. About the report, p. 232
102-48 Restatements of information
Financial statements, p. 148
Breakdowns by gender, region and
employment contract type are shown
separately.
–
–
–
–
–
–
–
–
–
–
Restatements of information are provided
for the financials only.
102-49 Changes in reporting
Appendix 1. About the report, p. 232
102-50 Reporting period
Appendix 1. About the report, p. 232
102-51 Date of most recent report
Appendix 1. About the report, p. 232
102-52 Reporting cycle
Appendix 1. About the report, p. 232
–
–
–
–
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233
Financial statementsAppendixCHERKIZOVO GROUPCherkizovo unites
Appendix 2.
GRI Content Index
GRI Standard
Disclosure
GRI 102 General
Disclosures
102-53 Contact point for questions
regarding the report
Report section
Contacts, p. 240
2016
102-54 Claims of reporting in accordance
with the GRI Standards
Appendix 1. About the report, p. 232
102-55 GRI content index
-
102-56 External assurance
Appendix 1. About the report, p. 232
103 Management
Approach 2016
103-1 Explanation of the material topic
and its Boundary
Provided separately for each specific topic.
103-2 The management approach and its
components
201 Economic
Performance 2016
103-1 Explanation of the material topic
and its Boundary
Financial performance overview, p. 90
103-2 The management approach and its
components
201-1 Direct economic value generated
and distributed
201-3 Defined benefit plan obligations
and other retirement plans
201-4 Financial assistance received from
government
The Company does not have defined
benefit plan obligations or other retirement
plans.
Financial performance overview, p. 90
202 Market
Presence 2016
103-1 Explanation of the material topic
and its Boundary
29% of the members of the Board of
Directors are Russian citizens
103-2 The management approach and its
components
87% of the members of the Management
Board are Russian citizens
202-2 Proportion of senior management
hired from the local community
204 Procurement
Practices 2016
103-1 Explanation of the material topic
and its Boundary
Supply chain, p. 58
103-2 The management approach and its
components
204-1 Proportion of spending on local
suppliers
103-1 Explanation of the material topic
and its Boundary
103-2 The management approach and its
components
206-1 Legal actions for anti-competitive
behavior, anti-trust, and monopoly
practices
In 2019, no legal actions for anti-
competitive behavior, anti-trust, and
monopoly practices were taken in relation
to the Company.
206 Anti-
competitive
Behavior
234234
Omissions
–
–
–
–
–
–
–
Economic value retained is not disclosed.
–
–
–
–
–
–
–
–
–
–
–
2 Annual report 2019
CHERKIZOVO GROUPAbout the Company Strategic ReportFinancial ResultsSustainable development Corporate governance
GRI Standard
Disclosure
Report section
Omissions
302 Energy 2016
103-1 Explanation of the material topic
and its Boundary
Environmental protection, p. 123
103-2 The management approach and its
components
302-4 Reduction of energy consumption
306 Effluents and
Waste 2016
103-1 Explanation of the material topic
and its Boundary
Environmental protection, p.123
103-2 The management approach and its
components
306-2 Waste by type and disposal method
401 Employment
2016
103-1 Explanation of the material topic
and its Boundary
Our employees, p. 115
403 Occupational
Health and Safety
2018
103-2 The management approach and its
components
401-1 New employee hires and employee
turnover
103-1 Explanation of the material topic
and its Boundary
103-2 The management approach and its
components
403-9 Work-related injuries
Occupational health and safety, p. 120
–
–
404 Training and
Education 2016
103-1 Explanation of the material topic
and its Boundary
Our employees, p. 116
103-2 The management approach and its
components
404-2 Programs for upgrading employee
skills and transition
assistance programs
103-1 Explanation of the material topic
and its Boundary
103-2 The management approach and its
components
405-1 Diversity of governance bodies
and employees
405 Diversity and
Equal Opportunity
2016
Our employees, p. 114
www.cherkizovo.com
235
–
–
Absolute value of the reduction is not
disclosed, no breakdown by type of energy
is provided.
–
–
No breakdown by waste type is provided.
–
–
No breakdowns by gender, age and region
are provided.
Data is provided only for the Company’s
employees. The rates of fatalities,
highconsequence work–related injuries
(excluding fatalities) and recordable work–
related injuries, as well as the main types of
workrelated injuries, the number of hours
worked and work–related hazards remain
undisclosed.
–
–
–
–
–
Diversity of governance bodies is not
disclosed.
Financial statementsAppendixCHERKIZOVO GROUPCherkizovo unites Appendix 2.
GRI Content Index
GRI Standard
Disclosure
Report section
Omissions
408 Child Labor
2016
103-1 Explanation of the material topic and
its Boundary
The Company operations do not use child
labor.
Information on suppliers is not disclosed.
409 Forced or
Compulsory Labor
2016
103-2 The management approach and its
components
408-1 Operations and suppliers at
significant risk for incidents of child labor
103-1 Explanation of the material topic and
its Boundary
The Company operations do not use
forced or compulsory labor.
Information on suppliers is not disclosed.
103-2 The management approach and its
components
409-1 Operations and suppliers at
significant risk for incidents of forced or
compulsory labor
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CHERKIZOVO GROUPAbout the Company Strategic ReportFinancial ResultsSustainable development Corporate governance
Appendix 3.
Glossary
Animal Welfare is a standard for the humane treatment of farm animals and poultry, based on the following principles: freedom from hunger,
thirst and malnutrition; freedom from fear and distress; freedom from physical and thermal discomfort; freedom from pain, injury and disease;
and freedom to express normal patterns of behavior.
Compartmentalization is a method used to classify pig farms by biosafety standards. the Federal Service for Veterinary and Phytosanitary
Surveillance of Russia (Rosselkhoznadzor) has four biosafety levels (compartments), with farms vulnerable to biological threats assigned
to Compartment I and those boasting high biosafety standards assigned to Compartment IV.
Dual education is a system combining theoretical training in higher education institutions and on-site apprenticeship in a company.
Epizootic risk is a risk associated with the outbreak and spread of infectious diseases in an animal population.
Full-cycle business is an enterprise controlling the entire production chain.
FSSC 22000 is a certification standard for food safety management systems of organizations in the food chain that process or manufacture
animal products, perishable vegetal products, products with a long shelf life, food ingredients (such as additives, vitamins and bio-cultures)
and food packaging materials.
Genomics is a field of molecular genetics focusing on the genomes and genes of living organisms.
HACCP (hazard analysis and critical control points) is a systematic preventive approach to food safety involving ongoing identification,
assessment and management of hazards.
HoReCa is an abbreviation for a dedicated segment of the hospitality industry (hotels and restaurants) and a sales channel involving product
consumption at the point of sale.
Industry 4.0 is a new generation of solutions for managing production facilities and value chains across the entire product life cycle, drawing
on automation and data exchange technologies (cyber-physical systems, the Internet of things and cloud computing).
ISO 22000:2005 is the first international standard specifying requirements for the implementation and certification of food safety
management systems and focusing on reporting, system management and control of food safety hazards.
Lean production is a production facility management concept promoting continuous waste minimization.
Oilseed meal is a concentrated feed obtained as a by-product of oil extraction (extraction of oil from the seeds of oil plants, for example,
soybeans).
R&D is an abbreviation for research and development activities that give rise to launching a new product into production and span a wide
range of operations from academic research to the manufacturing of prototypes.
Standard operating procedures are step-by-step instructions that help employees correctly perform complex, monotonous operations.
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237
Financial statementsAppendixCHERKIZOVO GROUPCherkizovo unites ABBREVIATIONS
CMPP – Cherkizovsky Meat Processing Plant
GDR – global depositary receipt
JV – joint venture
LTIFR – lost time injury frequency rate
MPP – meat processing plant
R&D – research and development
SOP – standard operating procedure
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CHERKIZOVO GROUPAbout the Company Strategic ReportFinancial ResultsSustainable development Corporate governance Appendix 4.
Supplementary Information
on Staff
EMPLOYEE HEADCOUNT BY SEGMENT
Poultry
Pork
Meat Processing
Feed
Grain
Group = R&D Center + SSC
BIKOM Distribution Center
Trading Company
Total
EMPLOYEE HEADCOUNT BY REGION
Moscow
Penza Region
Moscow Region
Lipetsk Region
Voronezh Region
Kursk Region
Bryansk Region
Altai Territory
Belgorod Region
Tula Region
Tambov Region
Orel Region
Other
Total
www.cherkizovo.com
2017
13,880
1,811
4,521
1,178
1,375
1,037
268
935
2018
13,914
2,042
4,298
1,091
1,420
1,133
446
1,122
2019
17,410
2,085
4,598
1,144
1,620
1,249
560
1,688
25,005
25,466
30,355
2017
4,596
4,375
3,297
4,404
3,121
980
2,047
-
-
495
485
332
873
2018
4,601
4,468
3,462
4,084
3,125
994
2,192
-
-
725
495
334
986
25,005
25,466
2019
5,068
4,956
3,750
3,642
3,234
2,692
1,800
1,702
910
753
505
318
1,025
30,355
239
Financial statementsAppendixCHERKIZOVO GROUPCherkizovo unites
Contact
Information
ADDRESS AND CONTACTS
Headquarters
PJSC Cherkizovo Group
5B Lesnaya St., Moscow 125047, Russia
White Square Office Centre
Tel. +7 495 660-24-40
Website: www.cherkizovo.com
Email: info@cherkizovo.com
Contact point for questions
about public reporting:
Andrey Novikov
Email: a.novikov@cherkizovo.com
REGISTRATION NUMBER
1057748318473 of 22 September 2005
REGISTRAR
JSC Novy Registrator
30-1 Buzheninova St.,
Moscow 107996, Russia
Tel. +7 495 980-11-00, +7 499 519-02-62
AUDITORS
Deloitte and Touche CIS
5B Lesnaya St., Moscow 125047, Russia
White Square Office Centre
DEPOSITORY
The Bank of New York Mellon
1 Wall Street
New York, NY 10286
United State
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