The credit rating of PJSC “Cherkizovo Group” (hereinafter, Cherkizovo, the Company, or the Group) is based on a strong business profile, which stems from a high assessment of vertical integration and good product diversification. The Company enjoys strong market positions.
The financial profile of Cherkizovo is characterized by a medium leverage, high profitability, and high liquidity, regardless a peak period in the debt repayment schedule in 2023 and the Agency's expectations of negative free cash flow (FCF) in 2024. An additional positive effect on the degree of the Group's vertical integration and profitability can be provided by the commissioning of an oil extraction plant, in connection with which ACRA has established a Positive outlook on the credit rating of Cherkizovo.
Cherkizovo is a group of enterprises that produce poultry, pork, and processed meat products. The Group also grows soybeans, wheat, maize, and sunflower, and produces feed mixtures.
KEY ASSESSMENT FACTORS
Strong business profile. ACRA continues to assess the diversification of Cherkizovo's business above the industry average. In 2021, the main shares in the revenue structure were retained by the poultry and meat processing segments. The Group's rating continues to be strongly supported by a high degree of vertical integration, which is based on the well-developed business areas like pig breeding, crop production, and feed production. ACRA notes the continuing trend towards strengthening the vertical integration of the Company, given the commissioning of the oil extraction plant in August 2022. All this allows Cherkizovo to mitigate the impact of price fluctuations on the main components of its prime costs.
The Company's business is growing while its profitability is maintained high. In accordance with ACRA's forecast, by the end of 2021, Cherkizovo's revenue increased by 23% to RUB 158 bln. In 2022, according to the Agency's expectations, the Company's revenue may exceed RUB 200 bln (+28%), this is confirmed by the results of the first half of this year. In 2023–2024, ACRA expects a 5–10% increase. The FFO before net interest and taxes in 2021 increased by 28% to RUB 28.8 bln. At the same time, on the back of growing revenues, ACRA expects a corresponding increase in FFO before net interest and taxes, which may exceed RUB 30 bln, corresponding to a high score for business size as per the Agency's methodology. The FFO before net interest and taxes margin remains high — by the end of 2021, it equaled 18%. In 2022–2024, ACRA expects an increase in this indicator after the oil extraction plant is commissioned. If the indicator exceeds the threshold of 20%, the Agency may revise the factor assessment. The expected growth of the Group's business and profitability was reflected in the Positive outlook.
Medium leverage and high interest coverage. The leverage almost did not change in 2021: the ratio of total debt to FFO before net interest amounted to 3.1x against 3.0x a year earlier. In the absence of major M&A transactions and a moderate dividend policy, ACRA assumes that the Group's leverage may decline below 2.5x in 2022–2024; however, according to the Agency's estimates, the indicator will remain at a medium level. The debt structure is stable — the debt was raised at a fixed rate, and it remains well diversified by lender; the share of foreign currency liabilities is minimal. The interest coverage remains high, which continues to be facilitated by subsidized interest rates and concessional lending. The ratio of FFO before net interest to interest was 9.1x in 2021. In 2022–2024, the Agency expects the ratio to be in the range of 7.0–10.0x.
High liquidity assessment with moderate CAPEX pressure on cash flow. Historically, the Company's CAPEX exerted moderate pressure on its cash flows: by the end of 2021, the ratio of capital expenditures to revenue was 12%. At the same time, after a slight decrease in the indicator in 2022, the Company expects a gradual increase in CAPEX in 2023–2024, when this ratio may return to the level of 2021, which in turn may negatively affect the Group's FCF. ACRA expects FCF in 2022 and 2023 at a near-zero but positive level (including due to the absence of current plans to pay dividends), while the FCF margin in 2024, according to the Agency's forecast, may go into negative territory. On the back of the peak of debt repayments in 2023, this has a negative impact on the liquidity assessment. At the same time, ACRA notes a significant amount of committed credit lines, which makes it possible to assess the overall liquidity level of Cherkizovo as high.
KEY ASSUMPTIONS
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Average annual revenue growth of 10–15% in 2022–2024.
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No major M&A deals.
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Continued access to external liquidity sources.
potential outlook or rating change factors
The Positive outlook assumes that the rating will highly likely be upgraded within the 12 to 18-month horizon.
A positive rating action may be prompted by:
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Average weighted ratio of total debt to FFO before net interest falling below 2.0x amid average weighted ratio of FFO before net interest to interest growing above 8.0x;
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Average weighted FFO before net interest and taxes margin exceeding 20% without any peaks in the debt repayment schedule;
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FCF margin consistently exceeding 5%.
A negative rating action may be prompted by:
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Average weighted ratio of total debt to FFO before net interest exceeding 3.5x;
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Average weighted ratio of FFO before net interest to interest falling below 5.0x;
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FFO before net interest and taxes margin below 10%;
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Materialization of biological or climate risks that can negatively impact the Company’s financial profile;
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Worsened access to sources of liquidity.
RATING COMPONENTS
Standalone creditworthiness assessment (SCA): a+.
Support: no.
ISSUE RATINGS
No outstanding issues have been rated.
regulatory disclosure
The credit rating has been assigned to PJSC “Cherkizovo Group” under the national scale for the Russian Federation based on the Methodology for Credit Ratings Assignment to Non-Financial Corporations Under the National Scale for the Russian Federation and the Key Concepts Used by the Analytical Credit Rating Agency Within the Scope of Its Rating Activities.
The credit rating of PJSC “Cherkizovo Group” was published by ACRA for the first time on August 31, 2020. The credit rating and its outlook are expected to be revised within one year following the publication date of this press release.
The credit rating was assigned based on data provided by PJSC “Cherkizovo Group”, information from publicly available sources, and ACRA’s own databases. The credit rating is solicited, and PJSC “Cherkizovo Group” participated in its assignment.
In assigning the credit rating, ACRA used only information, the quality and reliability of which was, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.
ACRA provided no additional services to PJSC “Cherkizovo Group”. No conflicts of interest were discovered in the course of credit rating assignment.
