The company begins building two new pork farms in the tambov and voronezh regions
OJSC Cherkizovo Group (LSE: CHE), one of Russia's leading integrated and diversified meat producers, commences construction of two new greenfield pork farms in the Tambov and Voronezh regions.
As part of Cherkizovo Group’s dynamic development strategy in the Pork segment, the Company has begun the construction of two new greenfield pork farms in the Tambov and Voronezh regions of Central Russia.
The total consideration for the planned investments is expected to be approximately US$110 million, of which approximately 20% will be funded by Cherkizovo and the remaining approximately 80% by bank loans.
The new best-in-class integrated multi-site complexes will house 4,800 sows and will each have an estimated full capacity of 12,500 tonnes of live-weight pork per year. The plans for each complex include separate breeding, rearing and fattening facilities, equipped with state-of-the art technology. The farms will be populated with our own parent stock, using sows from the high yielding and efficient pork breed, DanBred.
Cherkizovo plans to launch the new sites’ breeding facilities in the first half of 2011 and the rearing and fattening facilities will become operative during 2011.
The complexes are expected to reach their full combined capacity of 25,000 live-weight tonnes by the end of 2012.
Taking into account the recently announced acquisition of pork complexes in the Lipetsk and Penza regions, the Group's overall pork production capacity in 2012 will total an estimated 140,000 tonnes per year.
The new sites are close to Cherkizovo Group's existing pork production and processing facilities in the Penza and Tambov regions, and near the Company’s high quality fodder production plant in the Lipetsk region; their proximity is expected to deliver substantial cost and scale synergies within the high margin Pork division.
Cherkizovo has been able to begin construction thanks to the co-operation of the Tambov and Voronezh regional administrations, which undertook infrastructure projects to ensure the provision of utilities and road access to the sites. The regional administrations also supported the development in terms of subsidising interest rates on credits and granting tax benefits, such as corporate profit tax benefits.
Sergey Mikhailov, CEO of Cherkizovo Group, said:
“The Company is very pleased to be continuing its successful investment in its high margin Pork business. The Russian pork market remains highly fragmented; only 53% of production is on an industrial level*, while greenfield production is even lower. Our preference for greenfield construction allows us to build highly efficient new farms that meet modern international standards.
Our leading position in Russian pork production is supported by our investments into greenfield pork farms in Lipetsk and Tambov, as well as the acquisition of new pork farms in the Penza and Lipetsk regions. Our new greenfield constructions in Tambov and Voronezh will further develop our market leadership and significantly contribute to Russia’s national food security supply programme. The Pork segment has great potential in terms of domestic supply and import substitution, as well as in the opportunity arising from the increasing share of pork meat in total meat consumption. Government initiatives to support domestic production are playing an important role in the development of the agricultural sector, and the continued implementation of such measures will help to ensure sustainable increases in productivity.
We will continue to rapidly develop our Pork business and will work to realise the potential of our other segments. We see significant opportunities for Cherkizovo Group to leverage its scale, vertically integrated structure and operational efficiency to further consolidate the Russian meat market.”
*Data from the National Pork Union