OJSC CHERKIZOVO GROUP (“THE COMPANY” OR “THE GROUP”). TRADING UPDATE FOR THE FIRST HALF 2010

August 11, 2010

Cherkizovo OJSC (LSE: CHE), one of Russia's leading integrated and diversified meat producers, today issues a trading update for the first half of 2010. 

Poultry Division
Total sales volumes in the poultry division in the first half of 2010 increased by 8% to approximately 99,860 tonnes of slaughter weight compared to approximately 92,840 tonnes in the first half of 2009.
Prices for Cherkizovo poultry sales increased by 5% in dollar terms from $2.19 per kg in the first half of 2009 to $2.30 per kg in the first half of 2010 (excluding VAT)?. Prices in rouble terms decreased by 4% from 72.32 roubles per kg in the first half of 2009 to 69.11 roubles per kg in the first half of 2010 (excluding VAT), this reflected normalization of prices from the unusually high levels in 2009. The start of the third quarter saw an upward trend in prices for poultry sales, as the summer holiday season progresses. Going forward, we expect poultry prices to remain relatively strong for the remainder of the financial year. 

Pork Division
First half sales volumes in the pork division increased by an impressive 75% to approximately 37,160 tonnes of live weight, this compared favorably to approximately 21,250 tonnes in the first half of 2009. This growth reflected increased production as Cherkizovo’s new farms start to reach their forecasted target levels.  

Prices increased by 5% in dollar terms from $2.28 per kg of live weight in the first half of 2009 to $2.40 per kg of live weight in the first half of 2010 (excluding VAT)*. In rouble terms prices decreased by 4% from an exceptionally high level of 75.41 roubles per kg in the first half of 2009 to 72.07 roubles per kg in the first half of 2010 (excluding VAT). The third quarter has so far seen stable prices in the division and we expect them to remain largely flat going forward. 

Meat Processing Division
In the first half of 2010, the Company witnessed a recovery in demand for the division’s products, as sales volumes in the meat processing segment increased by 8% to approximately 66,200 tonnes from approximately 61,550 tonnes in the first half of 2009.
Division prices in dollar terms increased by 13% from $3.37 in the first half of 2009 per kg to $3.81 per kg in the first half of 2010 (excluding VAT)*. Average prices in roubles increased by 3% from 111.42 roubles in the first half of 2009 to 114.66 roubles in the first half of 2010 (excluding VAT).
Commenting on the performance, Sergey Mikhailov, CEO of Cherkizovo Group said:  

“In the first half of 2010 Cherkizovo performed strongly across all segments, reflecting the increased demand for our products, primarily driven by the decrease in imports and subsequent demand for high quality domestic meat. To date, the adverse weather conditions and fires in Central Russia, have not affected any of Cherkizovo’s poultry or pork farms. Accordingly, we expect to achieve targeted levels of production for 2010.  

In the poultry division, we are seeing the benefits from last year’s large-scale projects to increase capacity, and we also expect to start launching new production sites in the second half of the year. The Pork division has enjoyed significant growth and we are pleased with progress to date.  We are now concentrating on a rapid volume growth phase as we leverage our state of the art production advantages. Meat processing continues to see demand returning to pre-crises levels as consumer confidence continues to improve. 

Poultry and pork pricing in the first half of the year increased to healthy levels towards the end of the second quarter, and we expect the pricing environment for our products to remain positive throughout the current financial year as the demand for quality domestic meat further grows.
While the unusual weather conditions in Central Russia have produced a worse than expected grain harvest, we welcome the measures taken by the Government to mitigate the impact. In particular, the ban on grain exports and expected sale of grain from the intervention fund should lead to a stabilization of prices in the domestic market, where prices are at the time mostly speculative. However, possible aggressive grain price increases, which from an operations perspective will predominantly affect the 4th quarter of this year, may also lead to domestic meat price inflation.  In the event of sustained extraordinary grain price increases, we reasonably anticipate that the Government will intervene with additional subsidy measures for grain and livestock producers.”