Cherkizovo Group invests in swine nucleus unit, acquires active land bank in Black Earth region to secure grain supply

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 swine nucleus unit is located in the Voronezh region. The unit houses Duroc, Yorkshire and Landrace breeds and will produce purebred gilts and boars. The facilities include a boar stud, a breeding facility for 2400 sows, a nursery facility for 10 000 pigs and a finishing facility for 6700 pigs.
• The land bank of approx. 30 000 ha is located in Voronezh region, one of the most fertile agricultural areas of Russia. Approximately 25 000 ha is in active agricultural use for winter and spring crops.
• Grain storage elevators are located in Voronezh region (capacity of 150 000 tonnes) and Penza region (60 000 tonnes; can be increased to 90 000)
• The acquired assets were appraised by an 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 antimonopoly authorities.

The Enterprise Value (EV) of the acquired assets is 4.46 billion rubles, for which Cherkizovo Group will assume total debt of 2.8 billion rubles. The balance will be paid through a combination of 795 000 treasury shares of Cherkizovo Group, and 1.26 billion rubles 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 foundation 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, while 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 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».