Annual Results presentation
For the full year 2006 Disclaimer
These materials may not be copied, published, distributed or transmitted. These materials do not constitute an offer to sell or the solicitation of an offer to buy the securities to be offered in connection with the offering. Those securities have not been, and will not be, registered under the United States Securities Act of 1933 (the "Securities Act") and may not be offered or sold in the United States except pursuant to an exemption from the registration requirements of the Securities Act.
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This presentation contains forward looking statements, including statements about OAO Cherkizovo Group's beliefs and expectations. These statements are based on OAO Cherkizovo Group's current plans, estimates and projections, as well as its expectations of external conditions and events. All projections, valuations and statistical analyses are provided to assist the recipient in the evaluation of the matters described herein. They may be based on subjective assessments and assumptions and may use one among alternative methodologies that produce different results and, to the extent that they are based on historical information, they should not be relied upon as an accurate prediction of future performance. Forward-looking statements involve inherent risks and uncertainties and speak only as of the date they are made. A number of important factors could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements.
Certain information presented herein (including market data and statistical information) has been obtained from various sources which OAO Cherkizovo Group considers to be reliable. However, OAO Cherkizovo Group makes no representation as to, and accepts no responsibility or liability whatsoever for, the accuracy or completeness of such information.
2 About Cherkizovo Group Cherkizovo Group – The Integrated Meat Producer
2006 Sales: US$630m 2006 EBITDA: US$76m
Meat Processing Poultry Pork 2006 Sales: US$452m 2006 Sales: US$151m 2006 Sales: US$27m 2006 EBITDA: US$34m 2006 EBITDA: US$36m 2006 EBITDA: US$9m
05-06 Revenue • 10% • 29% • 48% Growth
Market Position • # 1 nationwide • # 1 in the Moscow • #1 greenfield in Russia poultry market
Key Products • Sausages, salamis, • Chilled / frozen poultry • Live hogs, pork carcasses, ready-to-cook products fresh pork cuts
Key Brands** *
Production • 8 plants • 2 clusters • 4 plants Facilities • Total capacity (t.p.a): • Total capacity (t.p.a): • Total capacity (t.p.a): 203,000+ ** 70,000+ *** 50,000+ ****
Employees • 7,877 • 3,828 • 755
Source: IKAR, Company, Financials: audited financial statements
* Pork brands to be developed on the basis of existing key brands in meat processing and poultry segments ** Includes sausages and ready-to-cook products *** Petelino and Vasilievskaya combined capacity **** Live weight
4 2006 Business Highlights Growth story
• Successful IPO on The London Stock Exchange and RTS • Construction of State of the Art pork production complexes in Lipetsk and in Tambov • Lipetsk delivered its first pork to market in December. Since then more than 900 tonnes live-weight have been delivered • Successful 5-year Rouble bond placed at 8.85%, one of the lowest rates in the industry • Extensive program to modernise storage and distribution facilities under way: new or completely refurbished facilities are now operating in St Petersburg, Ekaterinburg, Samara, Kazan, Ufa, Perm and Saratov • Divisional management strengthened with appointments of new COO and Poultry Division Manager • Beginning of implementation of Oracle ERP system
5 Financial Highlights Strong performance
• Net Income from continuing operations increased by 92% year-on-year to US$33.2 million (2005: US 17.3m)
• Adjusted EBITDA increased by 15% year-on-year to US$76.1 million (2005: US$66.0m)
• Adjusted EBITDA margin remained stable at 12%
• Gross margin increased to 24% (2005: 23%)
• Gross profit increased by 19% to US$149.1 million (2005: US $124.9m)
• Turnover increased by 16% to US $630.0 million (2005: US $544.9m)
6 2006 Results Group Financial Performance Solid performance with focus on operational efficiency and margins
• Revenue grew by 16%: 2006/ • increase in average price of meat processing 2006 2005 2005 products due to the change of the product mix • poultry prices slightly decreased (1%) due to avian Sales, US$ '000 629,985 544,897 16% flu, offset by 36% volume increase Gross Profit, US$ '000 149,050 124,860 19% Gross Margin, % 24% 23% • increase in price for pork Adjusted EBITDA, US$ '000 76,064 65,997 15% • Improvements in operational efficiencies Adjusted EBITDA Margin, % 12% 12% Net Income from Continuing • Adjusted EBITDA grew 15%, EBITDA margin remained at Operations, US$ '000 33,196 17,303 92% 12% • Net income from continuing operations increased by 92% • Impressive margins in the pork business
Sales Dynamics (US$‘000) Adjusted EBITDA dynamics (US$‘000) Net Income Dynamics (US$‘000)
33,196 16% 629,985 76,064 544,897 65,997 15% 35,000 92% 700,000 27,362 80,000 14% 600,000 18,467 70,000 12% 30,000 17,303 151,021 500,000 60,000 12.1% 12.1% 10% 25,000 117,121 50,000 400,000 8% 20,000 40,000 300,000 6% 15,000 30,000 451,602 10,000 200,000 409,309 20,000 4% 100,000 10,000 2% 5,000 - - 0% - 2005 2006 2005 2006 2005 2006 Meat processing Poultry processing Pork processing Adjusted EBITDA Adjusted EBITDA margin (right axis) Net income from continuing operations
8 Meat processing division Moving to high margin products
• Sales grew by 10%: 2006/ 2006 2005 2005 • average price increased by 15% Gross Sales, US$ '000 453,194 410,179 10% • increased share of premium products Sales, US$ '000 451,602 409,309 10% Gross Profit, US$ '000 81,913 73,363 12% • Gross margin remained stable at 18% despite of raw Gross Margin, % 18% 18% materials price increase Adjusted EBITDA, US$ '000 33,669 34,538 -3% Adjusted EBITDA Margin, % 7% 8% • Increased share of retail chains Division Profit, US$ '000 8,091 11,026 -27%
• Continuing regional expansion program
Sales Dynamics (US$‘000) Adjusted EBITDA dynamics (US$‘000) Division Profit (US$‘000)
451,602 34,538 33,669 11,026 10% -3% 500,000 409,309 170 12,500 -27% 8% 40,000 7% 8,091 400,000 160 8% 10,000 161 155 150 30,000 300,000 6% 7,500 140 20,000 200,000 4% 5,000 130 10,000 100,000 120 2% 2,500
- 110 - 0% - 2005 2006 2005 2006 2005 2006 Revenues, US$ '000 (left axis) Volumes, tonnes '000 (right axis) Adjusted EBITDA Adjusted EBITDA margin (right axis) Division profit
9 Regional Expansion Regional expansion and increased share of modern distribution chains
Storage Facilities Locations Meat processing Retail chains: +3% 2005 2006
Wholesale Retail Wholesale Retail 64% Saint Petersburg Chains 62% Chains 12% 15%
Retail Retail 24% 23%
Kazan Saratov Perm Ekaterinburg Poultry Samara Ufa Retail chains: +8% Wholesale 26% 2005 2006
Wholesale Wholesale 26% Retail 20% Poultry storage facility Chains Retail Retail 39% Chains Chains Pork and Meat processRetailing storage facility 39% 47% New and upgraded facilities35% Existing distribution network covers regions Retail Retail 33% with ~80% of total Russian population 35%
10 Poultry division Increasing sales nationwide
• Sales grew by 29%: 2006/ 2006 2005 2005 • volumes grew by 36%
• despite a 1% decrease in price influenced by the Gross sales, US$ '000 155,682 127,641 22% Sales, US$ '000 151,021 117,121 29% residual negative effect of news on avian flu Gross Profit, US$ '000 56,841 48,049 18% Gross Margin, % 37% 38% • Raw material cost optimization and improved production Adjusted EBITDA, US$ '000 36,210 28,258 28% efficiencies Adjusted EBITDA Margin, % 23% 22% Division Profit, US$ '000 20,943 15,812 32% • Market in 2H06 showed an upward trend for poultry prices
Sales Dynamics (US$‘000) Adjusted EBITDA dynamics (US$‘000) Division Profit (US$‘000)
151,021 36,210 20,943 175,000 80 28% 29% 25,000 32% 117,121 40,000 28,258 24% 150,000 70 15,812 69 23% 20,000 125,000 60 30,000 23% 22% 100,000 50 15,000 51 22% 75,000 40 20,000 21% 10,000 50,000 30 20% 10,000 5,000 25,000 20 19% - 10 - 18% - 2005 2006 2005 2006 2005 2006 Revenues, US$ '000 (left axis) Volumes, tonnes '000 (right axis) Adjusted EBITDA Adjusted EBITDA margin (right axis) Division profit
11 Poultry Facilities – Production Efficiencies Constant commitment towards improvement of operational performance
KPI Benchmarking Analysis
Average 2006 Average 2005 Differential Average liveweight, gr. 1,948 1,892 + 3.0% Yearly flock turnover, times 7.10 6.68 + 6.3% Hatch,% 76.71 77.18 -0.6% Livability, % 92.90 92.30 + 0.6% Average growing period, days 40.30 40.54 -0.6% Meat yield, % 71.74 71.15 +0.8% Average fodder conversion rate, kg per kg of weight gain 1.98 2.06 -3.9%
12 Pork division Rising star
• Favorable price environment: pork prices increased by 19%: 2006/ • Ban of Brazilian and Polish imports impacted further 2006 2005 2005 growth of pork prices Gross sales, US$ '000 27,816 24,297 14% • High beef prices contributed to increase in pork and Sales, US$ '000 27,361 18,467 48% poultry consumption in Russia Gross Profit, US$ '000 10,307 3,466 197% Gross Margin, % 37% 14% • Avian flu contributed to additional growth in pork Adjusted EBITDA, US$ '000 9,077 2,130 326% Adjusted EBITDA Margin, % 33% 9% • Existing facilities improved operational efficiency and margins Division Profit, US$ '000 6,759 (76) • Lipetsk delivered its first pork to market in December • Launch of state of art facilities in Tambov, similar to Lipetsk • Launch of another two modules in Lipetsk
Sales Dynamics (US$’000) Adjusted EBITDA dynamics (US$’000) NET IncomeDivision Dynamics Profit (US$’000) (mln. US dollars)
27,361 9,077 6,759 30,000 16 33% 48% 10,000 326% 35% 7,500 18,467 14 N/A 25,000 30% 6,500 12 8,000 20,000 25% 5,500 12.0 10 2,130 11.2 6,000 4,500 15,000 8 20% 3,500 6 4,000 15% 10,000 9% 2,500 (76) 4 10% 5,000 2,000 1,500 2 5% 500 - - - 0% (500) 2005 2006 2005 2006 2005 2006 Revenues, US$ '000 (left axis) Volumes, tonnes '000 (right axis) Adjusted EBITDA Adjusted EBITDA margin (right axis) Division profit
13 Lipetsk Update
Lipetsk (4 modules) • planned capacity – c. 46,000 tons live weight annually
• four new integrated pig breeding farms, each for 4,800 brood-sows
• capacity to grow approximately 440,000 pigs annually
• total expenditures US$ 150 million: US$ 40 million invested in 2005 Tambov (2 modules) • planned capacity – c. 23,000 tons live weight annually
• construction of two new integrated pig breeding farms started in 2H06
• capacity to grow approximately 220,000 pigs annually
• the project is supported by Tambov administration (infrastructure development)
14 Production Efficiencies 2005 vs 2006 Impressive Results of Old Russian Pork Farms
KPI Benchmarking Analysis
Average 2006 Average 2005 Differential
Average marketable pig slaughter weight, kg 113 105 +8% # of farrows per year 2.28 2.18 + 5% # of pigs per farrow 11. 06 10.00 + 11% Livability, % 76.00 75.30 + 1% Average fattening period, days 195 209 -6% Annual pork (live weight) yield per sow, kg 2,175 700 +211% Average fodder conversion rate, kg per kg of weight gain 3.5 4.3 -19%
Source: Company, Rossvinoprom
15 New Facilities – Production Efficiencies Comparison with Russian peers – Feel The Difference
KPI Benchmarking Analysis Average Russian Average Lipetsk pork farm pork farm Differential Average marketable pig slaughter weight, kg 114 110 -4% # of farrows per year 1. 80 2.30 + 28% # of pigs per farrow 7. 80 13.00 + 67% Livability, % 62.00 79.00 + 27% Average fattening period, days 274 180 -34% Annual pork (live weight) yield per sow, kg 993 2,598 +162% Average fodder conversion rate, kg per kg of weight gain 4.4 3.3 -25%
Source: Company, Rossvinoprom
16 Cherkizovo Group – Income Statement
US$m 2006 2005 Growth, %
Net Sales 630.0 544.9 16% Cost of Sales (480.9) (420.0) 14% Gross Profit 149.1 124.9 19% Gross Margin 24% 23% Operating Expenses (100.1) (81.3) 23% % of Sales 16% 15% Operating Income 49.0 43.6 12% Operating Margin 8% 8% Depreciation 24.5 20.2 22% % of Sales 4% 4% Adjusted EBITDA 76.1 66.0 15% Adjusted EBITDA Margin 12% 12% Other expenses, including financial (11.1) (16.9) (35%) Pretax Profit* 37.9 26.7 42% Taxation (2.4) (8.0) Effective tax rate 6% 30% Net Income (Loss) from Continuing Operations 33.2 17.3 92% Net Income (Loss), Total 30.2 17.1 77%
*before minority interest and extraordinary gain
17 Cherkizovo Group – Balance Sheet
US$m 2006 2005 Growth, %
Cash and Equivalents 107.0 5.2 1,961% Trade Accounts Receivable 62.8 31.8 98% Inventory 89.1 55.8 60% Other Current Assets 62.2 48.2 29% Total Current Assets 321.1 141.0 128%
Plant, Property and Equipment 353.5 250.0 41% Other Non-current Assets 51.3 32.8 56% Total Non-current Assets 404.8 282.8 43% Total Assets 725.9 423.8 71%
Trade Accounts Payable 37.5 47.2 -21% Short-term Debt 104.0 90.6 15% Other current liabilities 31.1 43.3 -28% Total current liabilities 172.6 181.1 -5% Long-term debt 262.7 143.9 83% Other non-current liabilities 21.3 21.8 -3% Total non-current liabilities 284.0 165.7 71% Minority interest 18.9 14.5 30% Shareholders’ equity 250.4 62.5 301% Total Liabilities and Shareholders’ Equity 725.9 423.8 71%
18 Cherkizovo Group – Cash Flow Statement
US$m 2006 2005 Growth, %
Net Income from Continuing Operations 33.2 17.3 92% Depreciation 24.5 20.2 22% Adjustments to Non-cash Items (6.0) 1.0 n/a Changes in Net Working Capital (84.9) (24.9) 241% Cash Flow from Discontinued Operations (2.0) 0.6 Net Operating Cash Flow (35.2) 14.2 n/a
Purchases of PP&E (112.9) (76.5) 48% Other Investing Cash Flow (9.1) 5.8 Cash Flow Used in Discontinued Operations (0.2) (0.4) Net Investing Cash Flow (122.2) (71.1) 72%
Proceeds from / (Repayment of) Debt 111.8 63.8 75% Proceeds from Shares Issued 146.2 Cash Distributed to Shareholders (1.0) (4.8) Cash Flow from Discontinued Operations (0.8) 0.8 Net Financing Cash Flows 256.2 59.8 329%
Exchange rate difference 3.0 (0.1) Net Increase in Cash and Equivalents 101.8 2.8 Opening Cash Balance 5.2 2.4 Closing Cash Balance 107.0 5.2
19 Debt Better Capital Structure
Moscow Zero Coupon Yield Curve OFZ Zero Coupon Yield Curve Consumer Bonds SibAgroGroup 12.0% AiF Volshebni Krai Cheremushki Debt portfolio (%) 11.5% Otech.Lekarstva-2 Rosinter-3 11.0% Belgrankorm-1 Natur Produkt-2 Rosinter-2 10.5% Nefis-1 Inmarko US$235m US$367m 10.0% 100% Baltimor-3 EFKO-2 9.5% Nidan-1 90% 9.0% Ochacovo-2 Cherkizovo 80% 70% 61% Nutrinvesthld-1 72% 8.5% 60% 8.0% 50% Yield 7.5% Rusagro 40% -11% Baltika-1 30% 7.0% 20% 39% 28% 6.5% 10% 6.0% 0% 5.5% 2005 2006 5.0% ST debt LT Debt 4.5% Arnest Fin 4.0% 0 365 730 Duration, days Cost of debt (%)*
• Switch from short-term to long-term debt: improved maturity
7.0% 6.7%
• Improved interest coverage ratios (+2.6%) 6.0% -1.9 % 4.8% 5.0% • Increased portion of subsidized debt (low interest) 4.0% 3.0% • EBRD loan refinanced on June 30, 2006 2.0% • 5-year Rouble bond issued at 8.85%, one of the lowest rates in the 1.0% 0.0% industry 2005 2006
20 Capital Expenditures
Capital Expenditure, US$m
120 • Meat processing:
101 • maintenance capex, equipment 100 • transport 86 • regional expansion - storage facilities 80 57 • Poultry: 40 60 • increased capacity in Penza and Moscow
• additional poultry places
40 • new fodder plant 28 29 2 37 • Pork: 20 16 • 1H06 Lipetsk – two additional modules launched in 15 February 10 9 - • 2H06 Tambov – two new modules launched in July 2004 2005 2006
Meat Processing Poultry Pork
21 Investment Highlights
1 Sizeable market opportunity 2 Government support 3 Vertically integrated / diversified meat producer 4 Sustainable profitability profile 5 Market-leading portfolio of brands 6 Leading distribution network and diversified customer base 7 Well-invested production assets 8 Strong management team
22 Meat Market Growth and Potential
• $25 bln market, 7.4% 06-10E CAGR Annual Per Capita Meat Consumption, kg (2005E)
110 100 • Russia is a “meat eating” country 100 94 85 Biological norm – 90 kg 90 78 80 +53% • Low per capita consumption 70 63 59 60 50 +32% 40 30 20 Austria USA France Poland Russia USSR (1988)
Source: Euromonitor, Meat Union of Russia, WHO Shift in Russian Meat Market Structure Russian Meat Market Growth
9.5 MMT 35 ‘06-’10 CAGR 7.4% 32.5 30.0 8.5 MMT 30 28.0 32% 26.1 ‘00-’05 CAGR 27.9% 23.6 24.4 31% 25 5.8 MMT 20 18.2 26% Pork 34% 15 12.8 32% 10.1 9.4 8.5 8.6 8.8 9.0 9.2 9.5 10 8.0 5.8 6.9 6.4 6.9 7.5 Beef 39% 42% 5 37% Poultry 27% 0 2000 2001 2002 2003 2004 2005 2006E 2007E 2008E 2009E 2010E 2000 2005 2010E MMT $ Bn
Source: Meat Union of Russia Source: Meat Union of Russia
23 Consolidation Potential
Processed Meat (1) Pork (2) Poultry (3)
2006 2006 2006
Prodo 8.4% Pryoskolie 7.4% Chekizovo 5.2% Cherkizovo 6.7% Prodo 4.8% Prodo 7.2% Chicken Kingdom 6.6% Eksima 4.1% Zavolzhskiy 3.3% Miratorg 3.2% Tsarisyno 2.9% Bankirskiy Dom SPb 6.3% OMPP 3.4% Permskiy 2.5% Other 74.5% Povolzhskoe 2.0% Other 72.0% Dimov 2.7% Kochetkov 5.2% Ariant 2.0% Import 1.9% Vostochniy 1.9% Other 45.6% BEZRK Siberian Belgrankorm 5.2% SPK 1.6% Agro Group 1.8% Siberian Tavr 1.5% Cherkizovo 1.6% Agro Group 4.6% TD Resurs Geo 4.0%
Top 3 producers’ share: Top 3 producers’ share: Top 3 producers’ share: Russia – 14% Russia – 14% Russia – 23% Spain – 34% Europe – 60% France – 50% USA – 38% USA – 58% USA – 55%
Source: Meat Union Source: Institute of Agricultural Marketing Source: Institute of Agricultural Marketing
Fragmented market creates a platform for organic growth and consolidation
(1)(1) In value terms (US$ sales) (2)(2) In volume terms (slaughter weight) (3)(3) In volume terms (live weight)
24 Government Support
• Still far below compared to Government Subsidies vs. Meat Sales western countries 40% 34%
30% • Favourable tax regime for 20% agriculture 20% 10% 6%
• Subsidized debt, effective cost of 0% debt reduced by 40% Russia US Europe Source: OECD, FAOstat • Direct subsidies Profit Tax Rate for Agriculture Producers, %
24 24
18 18 18 18 High conversion of EBITDA to Net Income 12 12 12
6 6 6
0 0 0 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Source: Federal Law 39-FZ
25 Government Support: Quotas
• Russia is No.1 importer of poultry Import to Consumption, 2003-2010
and No.2 importer of beef 50% 47% 39% 40% 29% • Quotas introduced in 2003 30% 24% 21% 20% 23% 18% 20% 16%
• Poultry and pork imports to 10% decrease by 14% by 2009 0% 2004 2005 2010E Poultry Beef Pork
Source: Meat Union of Russia Domestic Production* & Quotas, 000 tons
2,000 6,000 5,000 1,500 4,000 Opportunity for domestic producers 1,252 1,000 1,090 1,131 1,171 1,212 3,000 2,000 500 467 476 485 494 502 1,000 0 0 2005 2006E 2007E 2008E 2009E
Pork Quotas (lhs) Poultry quotas (lhs) Domestic production (rhs)
Source: Government of Russian Federation, * production of poultry and pork, Meat Union of Russia
26 Vertical Integration
Grain and Soy bean Fodder Pork and Poultry Meat Processing Distribution
Quality and Lower dependence on Capture margins from Quality control and biological safety imports and suppliers value-added products cost optimization
Prodo Golden Tsaritsyno Rooster Grain 8 8 8 8 Fodder 9 9 9 8 Pork / Poultry 9/ 9 9/ 9 8 /9 8/ 8 Meat Processing 9 9 8 9 Centralized distribution 9 8 8 9
Capability for vertical integration (current asset base)
27 Attractive Profitability Profile
• Low cost components Selected Cost Components (2005) $/ton $/mcm c/kwh 406 5.6 – Cheaper wheat, labour, gas and 152 +56% 3.6 electricity +88%
81 +968% • Domestic price premium
38 – Quotas / custom duties Av. Wheat Price Av. Gas Price Av. Electricity Price – Limited transportability of chilled Rus s ia US Source: FAPRI, IKAR, EIA, Federal Tariff Service, Brokers’ reports meat Pork & Poultry Price Differential (2005)
3.00 2.56 +55% 1.95 2.00 1.65 +68% 1.16 $/kg 1.00 Sustainable profitability 0.00 Pork Poultry Russia US
Source: Meat Union of Russia, FARPI (prices for industrial producers)
28 Attractive Profitability Profile
Poultry: EBITDA Margin Meat Processing: EBITDA Margin
2005 2006 2005 2006
Cherkizovo 22.1% 23.3% Cherkizovo 8.4% 7.4%
US Spain
Goldkist Foods** 11.3% 1.6% Campofrio 9.0% 9.9%
Pilgrims Pride 10.2% 2.6% US
Tyson Foods* 9.9% n/a Hormel Foods 9.4% 9.9% Smithfield Foods 6.8% 5.4% Brazil Perdigao 12.7% 6.4%
* Poultry Segment only ** Acquired by Pilgrims Pride in Jan 2007 Source: Company financials: audited financial statements
29 Portfolio of Strong Brands
POULTRY MEAT PROCESSING • Covers the whole price National** Local National Local spectrum
• Powerful flagship brands Premium
# 1 in Moscow region – Petelinka – c. 40% of Poultry segment sales*
– Cherkizovsky – c. 55% Medium of Meat processing segment sales* • High brand awareness
– Petelinka – 80% in the Low Moscow region
* Present in more than 1 federal district *2006 In value terms Source: Company, SKAN Market
30 Supplier of Choice to Modern Retailers
• Modern retail is the fastest Modern Format Retailers Penetration growing distribution channel 100%
80% • Expansion of chains to drive our 60% 60% 77% +74% regional growth 40% 20% 40% 23% • Cherkizovo is a “single source of 0% 2005 2010E protein” Modern retail formats Othe r re taile rs Source: Business Analytica, Market Reports * Modern retail format includes supermarkets, hypermarkets, discounters; other – High quality retailers include general unbranded grocery stores, street kiosks and open markets Sales by Channel (2006) – Market-leading portfolio of brands and products Meat Processing Poultry Wholesale 20% Wholesale Retail Retail – Established logistics 62% Chains Chains 15% 47%
Retail Retail 33% 23%
Source: Company data
31 Product Mix: Diversification and Growth
• Follows evolving consumer Diversified Product Exposure preferences 2006 Sales Por k • Single source of protein 4% Poultr y 24% • Reduced biological exposure Meat Processing 72% • Natural margin hedge
2006 EBITDA Por k 11%
Meat Processing 43%
Poultry 46%
Source: Company
32 Leading Distribution Network
Storage Facilities Locations • Network covers European Russia • Modern vehicle fleet – Poultry: 248 trucks c. 80% – Meat Processing: 319 trucks for the Moscow region and 304 trucks in other regions • Quality control (from farm to shelf in <24 hours) • Revenue and cost optimization • Key success factor / Major barrier to entry
Poultry storage facility Pork and Meat processing storage facility
% Population of the regions covered by distribution as % of total Russian population
33 Well-invested Production Assets
• Modern, best-in-class assets • State-of-art broiler and breeder farms and processing plants – Finest breeds – Latest technologies – Quality control throughout the production chain • Greenfield pork as opposed to acquisitions • First mover into eco and healthy products
Quality and cost efficiency
34 Strong Management Team
IGOR SERGEY LUDMILA ARTUR BABAEV MIKHAILOV MIKHAILOVA MINOSYANTS Chairman CEO CFO COO of the Board
• Joined Cherkizovsky • Joined the Company in • In 2002 - 2004, worked as • In 2000-2006, worked as MPP in 1988, appointed 2001 as director for financial analyst in the First Deputy President its general director in marketing General Mills Corporation for Finance and 1989, CEO of APK Canada (Toronto) Economics at Cherkizovsky since 1998 • Prior to that, founder of Cherkizvosky MPP aTelo • Prior to that, worked as • Graduated from telecommunications head of corporate finance • Prior to that worked as Krasnodar Polytechnic company in Washington division of Cherkizovsky Finance and Economics Institute in 1971 MPP Director of Birulovsky • BA from Georgetown Meat Processing Plant university (Finance and • BA from Finance Academy, Moscow; MBA Economics) from York University, • PhD in Economics from Canada the Moscow Plekhanov Institute for the National Economy
35 Board Structure
Chairman Igor Babaev
• 30+ years of experience in the Russian meat industry
Sergei Mikhailov Yuri Dyachuk Evgeny Mikhailov Musheg Mamikonian Juhl Esben Samuel B. Lipman
• CEO and • Head of Legal • Head of Project • Independent • Independent • Independent shareholder Development and member member member shareholder • President of Meat • Danish pork • American poultry Union of Russia consultant expert • 20+ years of • 15+ years of • Co-founder of experience in the experience in the Golden Rooster meat industry pork industry • 20+ years of experience in the poultry industry
36 Strategy Group Strategy
Consolidation of market share
High quality new Vertical premium Integration products
Leverage of Focus on core distribution regions network Synergies and knowledge sharing
38 Meat Processing
Refocus portfolio towards higher profitability products
Develop new quality products and category brands
Optimize raw materials inputs structure leveraging vertical integration
Consolidate market share via M&A in core regions
Increase share of regional direct / controlled distribution
39 Poultry – Focus on High Value-Added Products
Focus on modern retailers
Branding and semi-finished, precut carcasses
HoReCa
40 Strategy: Pork
High quality product and presentation, new market standard
Focus on modern retailers
Leader in processed pork meat
Greenfield projects
41 42