Cherkizovo Group launches transformational agroindustrial project in Russia

April 21, 2011

Moscow, Russia — April 21, 2011 — Cherkizovo Group OAO (LSE: CHE), one of Russia’s leading integrated and diversified meat producers, is pleased to announce the implementation of the largest Russian agro-industrial project in the Lipetsk region.

Cherkizovo Group has begun implementing Russia’s largest agro-industrial project in the city of Elets, in the Lipetsk region, where it will construct a large-scale poultry production cluster. The project will boost the development of agriculture in the Central Federal district of Russia and significantly contribute to securing self-sufficient food supply in Russia as targeted by the government.

The project represents an entirely new agroindustrial business model, bringing production to a previously unsurpassed industry level. By undertaking construction of a large-scale integrated complex of this kind, Cherkizovo will introduce new standards of efficiency and competitive production for the future.

three-party agreement between the Ministry of Agriculture of Russia, the Lipetsk regional administration and Cherkizovo Group to construct the agro complex was signed in May 2009, and we are pleased to commence the main phase of the project, which is expected to be completed in 3 years.

The total investment in the project will be 19.5bn roubles, or approximately $685m, including VAT. Of that amount, 80% is loan funds, with a 10-year tenure, provided by Gazprombank.

The poultry production and processing cluster will include:

Poultry breeding
— construction of an incubation site with capacity of 160m incubation eggs per year
— construction of 5 broiler sites with capacity of 10m poultry places
— construction of 4 parent stock and reproduction flock sites for 900,000 heads;

Processing
— construction of a slaughtering and processing complex with capacity of 24,000 units per hour
— waste treatment and processing complex
— construction of multifunctional treatment and purifying facilities;

Feed production
— construction of a fodder complex with a capacity of 90 tonnes per hour, which will include storage facilities for 300,000 tonnes of grain and an oil processing complex. This will provide an increase in fodder output for the Group of approximately 512,000 tonnes per year and will increase storage capacity up to approximately 800,000 tonnes

The project also includes construction of office space, infrastructure and engineering facilities, including storage and warehouse facilities, housing and a logistics facility with capacity to store up to 50,000 tonnes of frozen products. The project will provide an additional 4,000 jobs in the region.

The complex, together with the technological processes, is being designed according to existing EU norms allowing Cherkizovo to gain certification of production consistent with that required for export should the company wish to export in the future. Construction and operations will also meet the latest environmental and health and safety standards.

Production is expected to start in 2013 and the site aims to operate at full capacity by the end of 2015.

The implementation of this project will allow Cherkizovo Group to increase sellable product output to 420,000 tonnes by 2015, while live-weight production is expected to increase to over 500,000 tonnes. In addition, the production of incubation eggs will increase to 315 m per year, thus reaching self-sufficiency at Group level.

The project allows for additional modular development of the infrastructure and offers significant potential for further growth, which will enable the Group to consider including additional capacity, including primary pork processing facilities in the project at a later stage.

The implementation of this project was facilitated by cooperation with the Government of Russia, the Ministry of Agriculture, and the Lipetsk regional administration, in particular through the provision of land plots and infrastructure and engineering assistance.

Sergey Mikhailov, CEO of Cherkizovo Group said: «This project confirms Cherkizovo Group as the leader in Russian agriculture and food production. This large-scale investment project will mark a transformational stage in our development. The new site will increase our production capacity to an entirely different level and allow Cherkizovo to draw competitive advantages from the proximity to our other existing production sites. Moreover, the strategic location of this innovative project will provide direct access for our quality products to the lucrative markets of Moscow and Central Russia. This is a unique project for Russia and we are very pleased to take up another opportunity to contribute meaningfully to the programme of security of food supply and to the overall development of the national economy».