Rusagro’s results in 2020
Rusagro’s Meat Business was launched in 2008 as a vertically integrated business for livestock breeding and production of pork products sold under the Slovo Myasnika (Butcher’s Word) brand. Assets of the Business are located in the Central Russia in the Tambov Region and the Belgorod Region. In 2021, the Business plans to launch of a pig farm in the Far East of Russia in the Primorye Territory.
Production of live pigs
Rusagro manages 19 commercial pig-breeding complexes and five breeding farms for herd reproduction. In 2020, the average annual livestock of productive sows amounted to 104 thousand heads. With the size of available livestock, the production approximates 300 thousand tonnes of pork in live weight for slaughter per year, depending on the current production indicators. The pig farms of the Company comply with the international standards and use the latest science and technology achievements in pig breeding and feeding. These pig farms are modern highly-automated environmentally safe production facilities, giving close attention to the observance of biosecurity requirements and having a manure removal and waste handling system in place.
Compound feed production
The need for livestock compound feed is fully covered by three in-house feed mills with an annual production capacity of 900 thousand tonnes. The mills have been operating a total of five production lines, preparing the granular compound feed formulas for livestock of all life stages. About 50–60% of grains are provided by the Rusagro’s Agriculture Business. The production technology laboratories ensure high accuracy of chemical, technical, and bacteriological analyses.
The storage capacity at the elevator in 2020 was 220 thousand tonnes, including 60 thousand tonnes in the Primorye Territory. Moreover, the Meat Business has “sleeves” for storing grain with a simultaneous storage capacity of 410 thousand tonnes. With in-house storage facilities, the Company can purchase ingredients at the most optimal time during periods of low prices.
Production of meat products
Slaughtering and meat processing shops of the Company offer all stages of processing and production of finished goods: slaughter line, deboning area, chilled small and large cuts area, offal production area, and technical waste recycling area. In 2020, the slaughter capacity was 545 heads per hour, deboning capacity – 435 heads per hourThe maximum annual slaughter and deboning capacity depends on the labour efficiency and the number of shifts, which may vary depending on the supply of live pork (own pork and purchased pork) and the demand for finished products . The main categories of products include carcasses, large and small cuts, chilled semi-finished products and offal. The Meat Business has the Food Safety Management System in place that reduces risks at all production stages and respects the principle of compliance with the technical regulation On Meat Safety. The majority of animals for slaughter originate from the Company’s own pig farms (99% in 2020).
The waste recycling shop ensures deep processing of slaughter and deboning waste. Thus, blood is used to produce blood meal, while livestock losses, cut-offs and bones or spoilage – to produce meat & bone meal and feeding fat or inedible fat. Some of the products are formulated into feed, and some are sold to other companies.
Since 2016, the Company has been selling the meat products under own trademark, Slovo Myasnika (Butcher’s Word). In 2017, Slovo Myasnika brand was ranked first in the Forbes’s new brand ranking for brand concept. In 2020, the brand’s portfolio included 60 items (+5 year-on-year), which were delivered to the largest federal retail chains X5 (Perekrestok, Pyaterochka, and Karusel), Magnit, Verniy, BILLA, Diksi, Lenta, as well as to non-chain retail stores.
To meet global rising demand for alternative meat protein, in 2020 Rusagro started to explore opportunities to use plant protein to develop new product range.
In 2020, Rusagro invested RUB 8.8 billion, down 19% against the previous year. The bulk of the funds (90%) was allocated to business development, which is associated with the implementation of the vertically-integrated cluster project in the Primorye Territory – the procurement of equipment for the meat processing plant and the formation of the reproductive herd. Pork production in the Primorye Territory will begin in 2021 with time to full capacity – until 2024. Part of the funds was spent to complete the project for the construction of new pig farms in the Tambov Region – they were launched in 2019 and reached full capacity in 2020 – and to implement the project for the expansion of slaughtering capacities until 2021, with the first stage finished in 2019.
To support the current capacities of the Meat Business, the Company spent 10% of its budget. Maintenance investment in 2020 was halved year-on-year due to the lack of capital-intensive maintenance projects in 2019.
With the increased number of sows and improved production indicators, Rusagro produced 2.6 million pigs for sale in 2020, which is up 23% year-on-year. Due to the improvement of these indicators, the Company raised livestock production in the reporting period by 26% (+64 thousand tonnes) – up to 308 thousand tonnes of pork in live weight, among them 186 thousand tonnes (+34%) in the Tambov Region and 122 thousand tonnes in the Belgorod Region (+17%). The boosted productivity of meat processing shops, despite the difficulties arising from the coronavirus epidemic, translated into the respective increase in the number of animals sent for slaughter. So in 2020, the total number of pigs for slaughter amounted to 2.3 million, up 22% year-on-year. Three quarters of these animals, i.e. 1.7 million pigs (+15%), were further subject to deboning.
The number of pigs for slaughter includes 28 thousand outsourced live pork, which is equivalent to 1% of the total number of pigs for slaughter
Rusagro also increased the volume of compound feed production to meet the growing needs in 2020. With the improved performance of the plant in the Tambov Region and the commissioning of the feed mill acquired from KapitalAgro in the Belgorod Region, the production volume grew by 18% to 886 thousand tonnes.
Sales and prices
Following the expansion of production, Rusagro has been racking up the sales of meat products. In seeking to create the added value, the Company has been deliberately reducing the sales of live pigs (13% in 2020 and 47% in 2016) over the last five years to support the output of processed meat products and to promote sales of semi-finished products under own Slovo Myasnika (Butcher’s Word) brand. As for 2020 year-end results, the sales of pig products by the Meat Business totalled 220 thousand tonnes (up 25% year-on-year), and those of live pigs – 34 thousand tonnes (up 3% year-on-year). Total sales volume reached 254 thousand tonnes (+22%, or 46 thousand tonnes).
The increase in supply of the Company’s products matched the growth of demand, which determined the product mix. The half carcasses together with industrial products and large cuts recorded the largest increase in sales of deboning products (+17 thousand tonnes, or +51%, and +16 thousand tonnes, or +16%, respectively). Semi-finished products also enjoyed a noticeable growth (+8 thousand tonnes, or +49%) – the volume of their sales went up to 23 thousand tonnes.
In 2020, the average annual sale price of pork in live weight grew by 6% and stood at RUB 80 per kg, exclusive of VAT. The main reasons behind this growth include the wider demand of the largest producers for live pigs with concurrent temporary restrictions on the supply of the same due to the epizootic situation. And yet, with larger slaughtering and deboning capacities available in the market, the selling prices for their products did not show any considerable advance. Offal is the only exception; the rise of its price was driven by the high export alternative in Hong Kong and Vietnam directions, as well as by the increased demand from Mars and Nestlé, animal feed companies.
In 2020, consumer segment accounted for 25% of sales volumes and 37% of revenues of Rusagro’s Meat Business (excluding export sales). A two p.p. increase in both figures is associated with higher consumption of the Russian households during the pandemic.
In pursuing its strategy to conquer the retail market, including product mix updates and TV promotion, Rusagro expanded the position of its own brand of meat products, Slovo Myasnika (Butcher’s Word), on the Russian market. Sales of the products under this brand grew by 56% – from 13 to 20 thousand tonnes. The audit of retail trade in the Modern Retail channel conducted by AC Nielsen international agency showed that the market share of the Slovo Myasnika brand increased by 1.3 p.p. year-on-year and amounted to 8.1% (in 2017 – only 2%). According to Millward Brown, (prompted) brand awareness increased by 51 p.p. year-on-year – from 23% to 74% in the Central Federal District, which is the major sales market, and by 39 p.p. (from 19 to 58%) – in all Russia.
2020 witnessed a significant change in consumer habits amid restrictions and isolation, which drove up the consumption of the large cuts category and slowed down switching to value-added categories. With key partners working remotely, the consideration of issues on introducing new products and expanding the product mix was hindered. Despite these circumstances, we managed to timely agree on the listing of the new product mix for key customers and produce the desired results.
In 2020, Rusagro stepped up exports of meat products by 105% (+16 thousand tonnes) – to 31 thousand tonnes. The key factors contributing to this growth were the qualification of the large cut category in Vietnam, product-line expansion, and the increased customer base.
Almost half (44%) of the exported products were taken by half carcasses, 37% – by large cuts and bulk products, and 19% – by offal. As in past years, Belarus is the main export destination with a share of 56%. In 2020, Rusagro increased export capacity in this direction from 5 to 18 thousand tonnes due to the better competitive pricing of Russian pork as compared with the local prices of the CIS countries. Another seven thousand tonnes (+15%) were sold to Ukraine. Deliveries to Asian countries – Hong Kong and Vietnam – rose by 43% from four to five thousand tonnes. In 2020, Rusagro made the first supplies of large cuts of meat to Vietnam (one thousand tonnes).
In 2020, the revenues of Rusagro’s Meat Business grew by 26% (+RUB 6.6 billion) to RUB 32.4 billion thanks to the full capacity operation of new pig farms and an increase in the productivity of the slaughterhouse and deboning workshop, and successful export sales of meat products. Despite the growth in prices for grain crops, the Business experienced the 1 p.p. increase in - in profit margin – up to 20%, earnings before interest taxes depreciation and amortisation (EBITDA) reached RUB 6.5 billion, up 34% (+RUB 1.7 billion) year-on-year
In 2021, Rusagro plans to ramp up the production of pigs in live weight to about 2.8 million through higher utilisation of production capacities and increase in productivity. Improvements in herd management and genetic potential will be a boon to the production results of the Meat Business. On top of that, shipping commercial pigs from pig farms in the Primorye Territory is scheduled to commence in autumn. In the meantime, reaching the target indicators of the project to increase the efficiency of the slaughterhouse and deboning shop enabled by streamlining the production chain will preserve a high proportion of livestock sent to slaughter and deboning and step up the output of consumer meat products. The Company will further build up the potential of own brand sales and ramp up export deliveries in key markets, in particular to Vietnam. High prices for grain crops of the 2020 harvest and the low exchange rate of the rouble against key world currencies will have a detrimental effect on the Meat Business’s income in 2021.