"Cherkizovo" (MCX: GCHE) is a leader in the Russian market of meat products and is one of the largest producers of chicken, Turkey, pork and meat processing products.
The company independently produces agricultural products and compound feed, engaged in poultry and animal husbandry, processes meat and produces finished products under its own brands: "Cherkizovo", "Rooster", "Chicken Kingdom", "Peacock-peacock", "Empire of Taste".
12 July, the company published operating results for the first half 2021 of the year. Press release reflects record sales of chicken and turkey amid high prices for poultry. At the same time, the volume of pork production decreased to the minimum of recent years.
I propose to take a closer look at the dynamics of sales and prices in the main business segments for the first half of this year.
Overview of operating results by segment
? Poultry. The company has once again updated the record for the volume of sales of chicken meat - 359,71 thousand tons of chicken, What's on 5% more than the same period last year.
Record results were facilitated by sales growth in the second quarter due to an increase in export supplies, as well as the recovery in demand from catering establishments. Let me remind you, what's in the second quarter 2020 years have limited the work of canteens, cafes and restaurants due to the coronavirus pandemic.
Against the backdrop of rising production costs, the average price of chicken meat reached a record level and increased by 25% quarter to quarter — up to 132,89 P per kilogram.
Turkey sales volumes in the first half of the year also reached a historic high.. The company has implemented 23,46 thousand tons of turkey - compare with 19,5 thousand tons in the first half of last year.
Against the backdrop of record sales and favorable prices, turkey production at the Tambovskaya Turkey joint venture increased by 33%. And there is potential for further growth., since the design capacity of the enterprise can allow to produce up to 130 thousand tons of products per year.
Average selling price of turkey in the first half 2021 year also reached a record and exceeded 190 P per kilogram. On average, a kilogram of turkey costs almost 50% more expensive than a kilogram of chicken meat.
? Pork and meat processing. Against the background of a high base in the first half of last year, when the company produced record 153,47 thousand tons of pork, pork production volumes over the past six months have decreased by 20% - to 122,89 thousands of tons, reaching a three-year low.
Seems to be, the reasons for the decline in production are associated with low demand from external buyers. So, carcass sales fell on 34% - to 33,49 thousands of tons, and sales of pork livestock collapsed by 91% - to 2,56 thousands of tons. And only the sale of pork cuts increased by 36% - to 18,82 thousands of tons.
At the same time, pork sales prices in the first half of the year showed an increase. So, the average price for a pork half carcass reached 2 quarter of record 166,39 P per kilogram.
The positive aspect includes the growth in production and sales of meat processing products.. Sale of sausages in the first half 2021 was 60,39 thousand tons of products, What's on 16% more than the same period last year. This is partly due to the acquisition of meat processing assets in the Northwest region..
The average selling price of meat processing products continued to grow in the second half of the year, reaching record 210,83 P per kilogram in the second quarter of the current year.
What's the bottom line?
The past six months have been challenging for meat producers, since inflationary processes led to a sharp increase in the cost of production of meat products. Everything rises in price: from mixed fodder to packaging. "Cherkizovo", as a vertically integrated company, largely provides itself with raw materials, therefore, it suffers less from the increase in production costs compared to most competitors, but is also forced to raise prices for its products.
Price growth has not yet kept pace with the increase in cost. According to The General Director of Cherkizovo Sergey Mikhailov, the growth of the cost price year-on-year is 30% and more, which negatively affects the profitability of the business of meat producers.
The situation in the pork market remains difficult, where in recent years there has been an excess of production capacity. That's what it's all about., apparently, a drop in pork production volumes at Cherkizovo enterprises in the first half of the year is associated with a decrease to a minimum.
Negatively affects the company and the fall in real disposable incomes of the population. Against this background, prices for meat products in stores in Russia remain among the lowest in the world..
"Cherkizovo", as the largest meat producer in Russia with a sustainable business model, can take advantage of the current situation to, to consolidate competitors' assets and increase their market share. Besides, management plans to focus on organic business growth, which means, further increases in operating performance can be expected in the future.
Seems to be, the company's revenue in the first half of the year will again update the record, but an increase in the cost of sales of products can reduce the profitability of the business, which will negatively affect the total profit of the company for the past period.
