High pork prices facilitate Cherkizovo Group to deliver outstanding results. This year might become the best in history of the company.

Following the results of 2014, the revenue of one of the country’s largest agricultural holdings, Cherkizovo Group, could rise by one-third to 70 billion roubles, and EBITDA could be 2.6 times higher, reaching 15 billion roubles. These figures were cited by Alexander Kostikov, a company representative, during teleconference yesterday. “These levels will be record highs for the company,” he said.

[After returning to “average profit indicators” in the second quarter], the company continues to show “strong performance”, according to comments to the group’s financial results for the first nine months of 2014, which were published yesterday. During this period, Cherkizovo’s net profits according to US GAAP jumped tenfold, to $228.1 million (8.1 billion roubles), and half of this sum is a “contribution” by the third quarter. EBITDA ended up 2.8 times higher as revenue grew by 15 per cent in dollar terms (EBITDA tripled and revenue increased by 29 per cent in rouble terms).

The pork division remains the position of Cherkizovo’s driver: in the first two quarters its EBITDA margin increased from 7 to 46 per cent. At the end of nine months it was 49 per cent (compared to 12 per cent for the same period in 2013). The division’s revenue also rose by 44 per cent.

“Such a substantial improvement in the third-quarter financial indicators is not related to the embargo [on imports of items including meat from several Western countries],” said Mr. Kostikov. “The low base effect plays a role”. After a “very challenging” 2013, average prices in this division rose to 95.97 roubles/kg in January-September, compared to 63.36 roubles/kg the year earlier, according to the company’s report. In addition, third-quarter pork prices were by 8 per cent higher than they were in the second quarter.

“The pork prices growth is common trend of the market as a whole,” said Sergey Yushin, head of the Executive Committee of the National Meat Association (NMA). “At the beginning of the year, Russia banned the import of pigs and pork from the European Union, being a major supplier of this type of meat to Russia. As a result, since then and through late September, pork prices have only gone up: early in the year, pork sides cost 110 roubles/kg, and peaked at 190–195 roubles/kg,” Mr. Yushin outlined. According to NMA data, pork sides now are sold for 170 roubles/kg.

This year, all pig farmers are doing well: the year is ending with record profits, according to the representative of a large agricultural holding from Belgorod Region. Rusagro, another large pork producer, is confirming the trend. According to the company’s operational report for the first nine months of this year, Rusagro’s revenue in the meat division increased by 2.5 times, reaching 12.5 billion roubles. In the third quarter, the group’s pork prices were by 1.5 times higher than before — 110 roubles/k, while the average price for pork in January-September was 97.2 roubles/kg.

However, according to Ludmila Mikhailova, Cherkizovo’s CFO, the company expects a slowdown in growth and fall in profitability in the fourth quarter. Cherkizovo’s management cites as reasons for this the sharp devaluation of the rouble, lower consumption and increased bank financing rates. Mr. Yushin also points out the market instability, saying that an additional reason to worry is an increase in the price of grain, comprising around 35 per cent of the pork cost. Mr. Yushin would not forecast its year-end price.

High pork prices will benefit for Cherkizovo.