The Russian food company, Cherkizovo, has set its sights on increasing its exports to 20% of its business with poultry products at the heart of its expansion.
Already one of the country’s largest poultry producers, Cherkizovo is due to begin shipments of poultry products to the UAE and Egypt in the “coming months” with opportunities to enter new markets in China, the Middle East and Africa also being “explored”.
The company’s export growth ambitions coincide with a period of significant rise, in volume terms, of both poultry meat and egg production in Russia, according to new figures released by the country’s Ministry of Agriculture for the first four months of 2016. Compared to the same period in 2015, they show a 6.1% increase in the production of poultry for slaughter, measured in live weight terms, and a 4.8% rise egg production.
The financial state of the sector is more challenging, however, as revealed by Cherkizovo CEO, Sergei Mikhailov, in the company’s first quarter 2016 report which recorded an 8% rise in total revenue, alongside a 45% decline in gross profit.
“The typical post-holiday drop in consumer spending, along with seasonally lower meat consumption, mean that first quarter margins are generally the lowest of the year,” he said. “On top of that, overproduction of poultry in Russia pushed the average price down and depreciation of the Russian ruble had a negative effect on production costs. As a result of both of these factors, poultry was our worst performing segment during the quarter.”
However, he also said he believed poultry prices have now “bottomed out” in Russia and are beginning to turn around as “inefficient producers” exit the market.
It’s in that context, therefore, that Cherkizovo reports being “on track” to deliver on its target of increasing exports to 20% of total revenue over the next two years.
“Our strategic partnership with (the Spanish company) Grupo Fuertes, a major international player in the agricultural sector, will help the company further develop our export strategy,” it said, adding that continuing investment in infrastructure and new product development will pay off in the long run.
“Having built a solid growth platform, we are well positioned to deliver solid financial results in this difficult year.”
Over the past 10 years, Cherkizovo has acquired and expanded eight poultry factories in Central Russia, with a current combined production capacity of over half a million tonnes (live weight) a year, or more than 200 million broilers. The Poultry Division generates nearly half of Cherkizovo Group’s total revenue and half of the Group’s total profit.
In Q1 2016 terms, Cherkizovo Group revenue was RUB 18.5 billion (£190m) with gross profits for the quarter at RUB 3.1 billion (£32m).