Cherkizovo Group invests in swine nucleus unit and acquires active land bank in the Black Earth Region to secure grain supply

July 26, 2012

Cherkizovo Group invests in swine nucleus unit and acquires active land bank in the Black Earth Region to secure grain supply.

Cherkizovo Group (LSE: CHE), Russia’s leading integrated and diversified meat producer announces the acquisition of a set of agricultural assets in Central Russia. Acquired assets include a swine nucleus unit, grain storage facilities and an active land bank in one of the most fertile regions of Russia.

Cherkizovo Group announces the acquisition of a set of agricultural assets of Voronezhmyasoprom. Assets acquired include a swine nucleus unit in Voronezh region; grain storage facilities in Voronezh and Penza regions with a total capacity exceeding 200 000 tonnes; a feed mill (under construction), and a land bank of approximately 30 000 ha in Voronezh region. These assets will further strengthen Cherkizovo’s leading positions in the Russian meat market, ensuring biological security in pork production, more efficient cost management and an enhanced level of vertical integration within the Company.

Acquired assets include:

The acquired assets were appraised by independent appraiser Baker Tilly. The legal due diligence was performed by an independent legal counsel, Hannes Snellman. As a related-party transaction, the deal was approved by all three independent members of the Board of Directors. The completion of the transaction is subject to approval by the anti-monopoly authorities.

The Enterprise Value (EV) of the acquired assets is 4.46 billion roubles, for which Cherkizovo Group will assume total debt of 2.8 billion roubles. The balance will be paid through a combination of 795,000 treasury shares of Cherkizovo Group, and 1.26 billion roubles 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 foundations 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, whilst 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 a significant supply of grain, will give the Company greater flexibility in its purchasing strategy and enable Cherkizovo to hedge against unfavorable conditions in the grain market. The acquisition of these agricultural assets marks a major milestone in the Company’s strategy for growth and development”.

Cherkizovo Group (LSE:CHE) is the largest meat manufacturer in Russia, with 2011 revenues of circa $1.5 billion. It is also one of the top three companies serving Russia’s poultry, pork and meat processing markets. Its vertically integrated structure includes grain storage facilities, feed production, livestock breeding, growing and slaughtering as well as meat processing and integrated distribution. Due to its vertically integrated structure Cherkizovo has consistently delivered sustainable revenue and profit growth. Cherkizovo’s strategy includes both organic growth and investment in new projects, driving the consolidation of the Russian meat market. Cherkizovo shares are quoted at LSE and RTS/MICEX.