Cherkizovo Group OJSC completes the acquisition of two greenfield pork complexes in the Penza and Lipetsk regions

November 8, 2010

OJSC Cherkizovo Group (LSE: CHE) one of Russia's leading integrated and diversified meat producers, today announces the completion of the acquisition of two greenfield pork farms.

Cherkizovo Group has successfully completed the purchase of two new greenfield pork complexes in the Penza and Lipetsk regions of Central Russia in line with the announcement of the deal in March this year, thereby significantly expanding the Group’s high margin Pork division. As previously stated, the total cost of the transaction was US$100 million, of which approximately US$19.2 million was paid in cash. Under the terms of the transaction, the Group has assumed the acquired entities' outstanding debt, totalling US$80.8 million. There is currently no further capital expenditure planned for either site. The deal is executed at around 4x EV/EBITDA multiple which is below market average and is value accretive for the Company and its shareholders.

It is expected that, in the current year, production at the new sites will be approximately 50% of their full capacity. The complexes are expected to reach their full combined capacity of 25,000 live-weight tonnes in 2012, resulting in an increase of almost 30% in Cherkizovo Group's pork production compared to 2009.

The Memorandum of Understanding (MoU) to acquire the controlling interest in the two pork production farms was signed in March 2010 and approved by independent members of the Board in a meeting held on 3rd June 2010.  

The financial and production results of the two farms will be consolidated in the Group’s results for the full year 2010, as the deal is a combination under common control.

Together with the recently announced Greenfield construction of 3 new complexes in Tambov, Voronezh and Lipetsk with a combined capacity of 37,500 live-weight tonnes, overall Group production in the pork segment is expected to increase approximately 180% compared to 2009 levels and reach approximately 153,000 live-weight tonnes in 2013, thus placing Cherkizovo Group in the top league of producers in Russia.

Sergey Mikhailov, CEO of Cherkizovo Group, said:

“We continue to deliver on our strategy of prioritizing the development of the Group’s Pork business. The aggressive growth of this business demonstrates our effort to further enhance our leading position in the still highly fragmented Russian pork market, and we are delighted to have acquired these sites. Going forward, Cherkizovo will continue to lead the consolidation and development of the Russian meat sector".