June 14, 2012

Cherkizovo Group acquires agricultural assets in Russia

Russia's main meat producer, Cherkizovo, has acquired agricultural assets based in the country's regions of Voronezh and Penza, which include a swine nucleus unit, grain storage facilities and a land bank.

The swine nucleus unit in the Voronezh region houses Durco, Yorkshire and Landrace breeds producing gilts and boars. The facilities include a boar stud, a breeding facility with a capacity for 2400 sows, a nursery with a capacity for 10,000 piglets and a finishing facility with a capacity of 6,700.

Further acquisitions include a land bank of 30,000 hectares, of which 25,000 hectares is in active agricultural use; grain storage elevators in the Vorozenh and Penza region with a combined 210,000 tonne capacity; and a feed mill.

The acquired assets are valued at US$137 million. Cherkizovo takes on a debt of US$86.02 million, and is paying the remainder through a combination of treasury shares and US$38.7 million in cash.

Commenting on the transaction Sergey Mikhailov, CEO of Cherkizovo Group, said, "Cherkizovo has taken an important step to increase its operational efficiency and to build the foundation for further growth.

"Given the lack of high-quality, high-health breeding stock on the Russian market, this acquisition will enhance our genetic production and make a significant contribution to the sustainability of Cherkizovo's pork segment, while also making the Company's pork operations more cost-efficient. We have acquired a fertile land bank in the Black Earth region enabling Cherkizovo to secure its own grain supply, further increasing the degree of vertical integration. In addition, land plots will serve as a platform for further livestock breeding development. Grain storage elevators, capable of holding significant supply of grain, will give the Company greater flexibility in its purchasing strategy and enable Cherkizovo to hedge against unfavourable conditions in the grain market. The acquisition of these agricultural assets marks a major milestone in the Company's strategy for growth and development."