Gruppa Cherkizovo : Cherkizovo Group (LSE:CHE; MOEX:GCHE) Announces Financial Results for the First Quarter of 2015

Moscow, May 22, 2015 - Cherkizovo Group (LSE:CHE; MOEX: GCHE), Russia's largest meat and feed producer, announces its financial results for the first quarter ending March 31, 2015. Starting from January 1, 2015, the Group has changed reporting currency from US Dollars to Russian Rubles, comparative information was correspondingly represented.

Highlights

• Revenue increased by 30% to RUB 17.1 billion from RUB 13.2 billion in 1Q14;
• Gross profit increased by 43% to RUB 4.7 billion from RUB 3.3 billion in 1Q14;
• Gross margin increased to 28% from 25% in 1Q14;
• Adjusted EBITDA* increased by 52% to RUB 3.0 billion from RUB 2.0 billion in 1Q14;
• Adjusted EBITDA margin increased to 17% from 15% in 1Q14;
• Net income amounted to RUB 2.0 billion in 1Q15, representing a 138% increase from an underlying net income** of RUB 874 million in 1Q14.
• Net margin was at 12%;
• Net debt*** was RUB 25.7 billion as of March 31, 2015;
• The effective cost of debt was 3.2 % (1Q14: 3.2%);
• EPS was at RUB 47.4 (1Q14: Underlying EPS**** was at RUB 19.9);
• CCR (Cash Conversion Ratio) was 122%;

Business Developments

• All construction works at the biggest hatchery in Europe (Eletsprom, 240 mln eggs p.a.) are completed. The launch of the hatchery is scheduled for June;
• The equipment worth more than EUR 40 million for the hatchery, feed mill and slaughtering facility has been delivered to the construction site of the Tambov Turkey project;
• The sowing campaign completed in Voronezh, Lipetsk, Orel, and Tambov Regions. The company increased its operating land bank from 60,000 ha to 90,000 ha in 2015.
• Group acquired a pork finisher in Lipetsk region in March 2015 for RUB 250 mln;
• The Innovative Data Centre was launched;
• A unique line of ready-to-cook chilled chicken products was launched;
• The cycle of audits of certification FSSC 22000 (Food Safety System Certification) was completed on all poultry complexes by the end of March 2015;

Commenting on 1Q results, Sergei Mikhailov, CEO of Cherkizovo Group, said:

"Despite the very challenging economic situation in Russia and the slowdown in consumer demand, Cherkizovo Group continued to its robust growth. Rouble revenue increased by 30% and EBITDA increased by more than 50% as a result of adding production in the poultry division and a strong market environment in the pork division.

We substantially increased our poultry sales due to the acquisition of Lisko Broiler in 1Q 14 and launch of the first Eletsprom poultry facility in 4Q 14. In the meat processing division, we increased sales of ready-to-cook products and bone-in meat made of pork supplied by the Company's own farms.

We are recovering from the African Swine Fever outbreak at two of our pork complexes in December and January. No new ASF cases were discovered at our facilities. The affected facilities will be relaunched after the quarantine by the end of the year. Due to rapid growth of the pork division, we start the construction of new pork complexes in Voronezh Region.

Cherkizovo Group continues to increase its vertical integration in the grain division. In this year's growing season, we sowed 90,000 hectares in the Central Black Earth region and we expect to increase harvests by more than 50% to 400,000+ tonnes of grain (vs. 240,000 tonnes in 2014). As a result, the Group's self-sufficiency in grain will reach 30%.

At the recent Annual General Meeting, a decision was made to pay dividends of more than RUB 2.5 billion (or RUB 54.6 per ordinary share)."

***

About Cherkizovo Group

Cherkizovo Group (LSE:CHE; MOEX:GCHE) is the largest meat and feed producer in Russia and one of the top three companies serving Russia's poultry, pork and sausages markets. The Company's most well-known brands include Cherkizovo, Petelinka and Kurinoe Tsarstvo. Chairman of the Board Igor Babaev and his family control 65% of Cherkizovo Group, and free float on LSE and MOEX amounts to 35%.

Due to its vertically integrated structure, which includes agricultural land, grain storage facilities, feed production, livestock breeding, growing and slaughtering as well as meat processing and distribution, Cherkizovo has consistently delivered sustainable revenue and profit growth. In 2014, Cherkizovo's US GAAP consolidated revenue reached RUB 69 billion, the Group produced more than 800 thousand tonnes of meat and processed meat products as well as 1.4 million tonnes of feed.

Cherkizovo's strategy includes both organic growth and consolidation of the Russian meat market. Within the last decade, Cherkizovo has invested more than RUB 50 billion into the development of Russia's agriculture sector.

Sales for the first quarter of 2015 increased by 30% to RUB 17 130.7 million from RUB 13 165.2 million in 1Q14. Gross profit increased by 43% to RUB 4 748.6 million from RUB 3 324.1 million in 1Q14. Operating expenses as a percentage of sales were flat at 16%. Net income increased by 138% to RUB 2 079.8 million (1Q14: underlying net income of RUB 873.7 million**).

Adjusted EBITDA increased by 52% to RUB 2 980.1 million from RUB 1 965.7 million in 1Q14. Adjusted EBITDA margin increased to 17% for 1Q15 vs 15% in 1Q14.

Sales volume for the first quarter of 2015 increased by 20% to 108 168 tonnes of sellable weight (1Q 2014: 90 328 tonnes). The significant increase is explained by the Lisko acquisition in March of 2014 and launch of the first Eletsprom production facilities in 4Q 2014. The average price (all prices hereinafter are net of VAT) increased by 24% to 96.49 RUB/kg from 77.93 RUB/kg in the first quarter of 2014. Compared to the price of 100.86 RUB/kg in the fourth quarter of 2014, the price in the first quarter of 2015 decreased by 4%.

Total sales in the division increased by 46% to RUB 10 287.3 million (1Q14: RUB 7 040.2 million). Gross profit increased by 42% to RUB 2 107.8 million (1Q14: RUB 1 489.5 million). Gross margin slightly decreased to 20% (1Q14: 21%).

Operating expenses as a percentage of sales decreased to 11% from 14%. Operating income increased by 76% to RUB 942.0 million (1Q14: RUB 535.1 million ), and operating margin amounted to 9% (1Q14: 8%). Profit in the division increased by 82% to RUB 1 112.2 million (1Q14: RUB 612.6 million).

Adjusted EBITDA increased by 59% to RUB 1 417.6 million (1Q14: RUB 890.0 million), and adjusted EBITDA margin rose to 14% in 1Q15 vs 13% in 1Q14.

Sales volume in the first quarter of 2015 decreased by 11% to 36 100 tonnes of live weight from 40 352 tonnes in the first quarter of 2014. The average price increased by 34% to 98.29 RUB/kg in the first quarter of 2015 from 73.55 RUB/kg in the first quarter of 2014. Compared to the price in the fourth quarter of 2014 of 96.90 RUB/kg, the price in the first quarter of 2015 increased by 1%.

Total sales in the division increased by 20% to RUB 3 636.0 million (1Q14: RUB 3 022.4 million). The segment reported gross profit of RUB 1 537.2 million in 1Q15 (1Q14: RUB 893.0 million). Gross margin in 1Q15 was at 42%. (1Q2014: 30%).

Operating expenses as a percentage of sales increased to 6% from 5% in 1Q14. The division generated operating income of RUB 1 335.3 million (1Q14: RUB 751.5 million).

Profit in the division more than doubled to RUB 1 313.0 million (1Q14: RUB 638.6 million).

Adjusted EBITDA amounted to RUB 1 522.8 million (1Q14: RUB 1 012.8 million), and adjusted EBITDA margin was 42% (1Q14: 34%).

Sales volume increased by 28% to 37 846 tonnes from 29 670 tonnes in the first quarter of 2014 on the back of increased sales of ready-to-cook products and bone-in meat, all made from the meat of supplied by the Company's own farms. The average price increased by 11% to 168.85 RUB/kg in the first quarter of 2015 from 152.52 RUB/kg in the first quarter of 2014. Compared to the price of 174.15 RUB/kg in the fourth quarter of 2014, the price in the first quarter of 2015 decreased by 3%.

Total sales in the division increased by 39% to RUB 5 774.6 million (1Q14: RUB 4 161.4 million), gross profit was flat at RUB 789.7 million (1Q14: RUB 789.9 million), and gross margin went down to 14% (1Q14: 19%), due to high raw meat price.

Operating expenses as a percentage of sales decreased to 12% from 16%. The division generated Operating income of RUB 80.0 million (1Q14: RUB 143.3 million). Operating margin decreased to 1% (1Q14: 3%). The division profit increased by 40% to RUB 65.4 million (1Q14: RUB 46.8 million).

Adjusted EBITDA decreased by 22% to RUB 183.5 million (1Q14: RUB 233.9 million), and adjusted EBITDA margin was at 3% (1Q14: 6%).

The Group's Capital Expenditure on property, plant and equipment and maintenance amounted to RUB 2 040.0 million (1Q14: RUB 1 375.4 million). Of that, RUB 495.2 million was invested into the Poultry division, mainly into the construction of the hatchery and the grain storage in the Lipetsk region (Eletsprom project). In the Pork division, RUB 534.0 million was mainly invested into purchase of the equipment for the finisher complexes in the Voronezh region. The Meat Processing division received RUB 110.7 million of investments. In the Grain division, RUB 298.0 million was invested into the purchase of the equipment. The Feed Processing division received RUB 527.8 million of investments.

Net Debt at the end of the first quarter of 2015 was RUB 25 694.5 million compared to RUB 26 073.6 million at the end of year 2014. Total debt stood at RUB 27 124.5 million compared to RUB 27 752.5 million in 2014. Of total debt long-term debt was RUB 14 692.7 million or 54 % of the debt portfolio. Short-term debt was RUB 12 431.8 million, or 46 % of the portfolio. Cost of debt was flat at 3.2 % in the first quarter of 2015. The portion of subsidised loans and credit lines in the portfolio was 89% (1Q14: 92%). Cash and cash equivalents totalled RUB 788.7 million as of 31 March 2015.

The Group accrued subsidies for interest reimbursement of RUB 619.8 million which offset interest expense (1Q2014: RUB 440.7 million). The Group received RUB 426.6 million of subsidies in 1Q15

In 2015, Cherkizovo Group will focus on organic growth and investments in infrastructure projects that will make our business more efficient and less exposed to market volatility. Thus, in 2Q-3Q we plan to launch a hatchery for 240 million eggs a year and a grain storage facility with overall capacity of 200,000+ tonnes as part of the Eletsprom project, and the fully upgraded Dankov meat processing plant. The Company also plans to start construction of its own reproduction flock site and parent flock site. This will help the Group to reach self-sufficiency in hatching, replacing imported eggs.

The market pricing environment remains quite favorable. Despite the decrease in poultry prices, signaling of some oversupply on the market, the current price allows efficient producers to maintain a positive margin. Pork prices remain higher than expected, and there are currently no indications of a significant decline. However, the effect of the grain price increase in 4Q 2014 will be seen in 2Q-3Q, putting the pressure on the profitability of the poultry and pork divisions. For 2015 as a whole, Cherkizovo management expects production and revenue growth in all divisions, although margins will be lower than the record indicators last year.

For further information:

Alexander Kostikov, Head of IR and Communications
+7 495 788 3232 ext. 15019
a.kostikov@cherkizovo.com

Some figures in this press-release are rounded for a reader's convenience.

Some of the information in this press release may contain projections or other forward-looking statements regarding future events or the future financial performance of the Group. You can identify forward looking statements by terms such as "expect," "believe," "anticipate," "estimate," "intend," "will," "could," "may" or "might" the negative of such terms or other similar expressions. We wish to caution you that these statements are only predictions and that actual events or results may differ materially. We do not intend to update these statements to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. Many factors could cause the actual results to differ materially from those contained in our projections or forward-looking statements, including, among others, general economic conditions, our competitive environment, risks associated with operating in Russia, rapid market change in our industry, as well as many other risks specifically related to the Group and its operations.

*Non-GAAP financial measures. This press release includes financial information prepared in accordance with accounting principles generally accepted in the United States of America, or US GAAP, as well as other financial measures referred to as non-GAAP. The non-GAAP financial measures should be considered in addition to, but not as a substitute for, the information prepared in accordance with US GAAP.

Adjusted Earnings before Interest, Income Tax, Depreciation and Amortization ("Adjusted EBITDA"). Adjusted Earnings before Interest, Income Tax, Depreciation and Amortization ("Adjusted EBITDA"). Adjusted EBITDA represents income before income tax and non-controlling interests adjusted for interest, depreciation and amortization, foreign exchange differences and gains on bargain purchase as shown in the reconciliation in Appendix 1. Adjusted EBITDA margin is defined as Adjusted EBITDA as a percentage of our net revenues. Our adjusted EBITDA may not be similar to adjusted EBITDA measures of other companies; is not a measurement under accounting principles generally accepted in the United States and should be considered in addition to, but not as a substitute for, the information contained in our consolidated statement of operations. We believe that adjusted EBITDA provides useful information to investors because it is an indicator of the strength and performance of our ongoing business operations, including our ability to fund discretionary spending such as capital expenditures, acquisitions and other investments and our ability to incur and service debt. While depreciation and amortization are considered operating costs under generally accepted accounting principles, these expenses primarily represent the non-cash current period allocation of costs associated with long-lived assets acquired or constructed in prior periods. Our adjusted EBITDA calculation is commonly used as one of the bases for investors, analysts and credit rating agencies to evaluate and compare the periodic and future operating performance and value of companies within our industry. Adjusted EBITDA is reconciled to our consolidated statements of operations in Appendix 1.

** Underlying Net income is a net income adjusted for the Gain on bargain purchase of Lisko Broiler in the amount of 1.4 billion roubles

*** Net debt is calculated as total debt minus cash and cash equivalents, short-term bank deposits and long-term bank deposits.

**** Underlying EPS is calculated as Underlying Net income divided by the total number of shares outstanding for the period

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