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ABH Miratorg Report 2013

1t o t h e c o n t e n t

Addresses of Ma nagement

Address of the Chairman of ABH Miratorg Board of Directors

Dear Ladies and Gentlemen,

Miratorg Agribusiness Holding is steadily developing: it has improved its performance against key operating

indicators, launched new high-tech production facilities, achieved the highest financial performance

in the industry, and the positive trends it has seen in its core business lines reinforce the consistency

of the Company’s long-term strategy.

Our purpose and the Company’s mission is to improve the quality of people’s life by developing the meat consumption culture in our country and supplying consumers with high-quality, Russian-produced and affordable food products.

Despite the high market volatility, adverse economic environment and increased competition, owing to the expansion of foreign market players after Russia’s accession to the WTO (World Trade Organization), we have succeeded in moving closer to attaining this objective by progressing in line with our business plan and consistently meeting our commitments to investors, the state, partners, employees and, above all, to our customers and consumers.

The Company has strengthened its leading position as the largest pork producer and now ranks

second in Russia in terms of meat production, by increasing production by 31.5% to 356 thousand tons in live weight. This was achieved by reaching full capacity at our new pig complexes in the Kursk region and increasing the efficiency of our pig farming division. Miratorg’s share of domestic pork production has increased to 13.7%; we have secured our position as a backbone company in the Russian meat market.

Consolidated financial statements of ABH Miratorg LLC: revenue grew by 11% to hit a record figure of 53 bln rubles and we recorded the highest net profit in the industry of 9.5 bln rubles at the end of 2013. In many respects this performance is the expected result of our long-term strategy to increase the of depth and the production of high

value-added products, targeted at the retail market and end consumer.

We have launched a high-tech case-ready complex, with an output of 72 thousand tons of pre-packed meat for consumers at the Korocha Slaughterhouse and meat-processing plant (SK Korocha, CJSC) in the Belgorod region. Furthermore, in 2013 Miratorg-Zapad – the most up-to-date Russian plant in the Kaliningrad region, producing frozen ready-to-cook semi-finished products such as chicken nuggets, burgers and ready meals–increased its production to 23 thousand tons of products, which are experiencing high demand from consumers.

Once the new processing complexes reach their planned capacity in 2014, the share of the products under our in-house brands – Miratorg,

ABH Miratorg Report 2013 ABH Miratorg Report 2013

2 3t o t h e c o n t e n t t o t h e c o n t e n t

Addresses of Ma nagement Addresses of Ma nagement

ChairmanABH Miratorg Board of Directors A.V. Linnik

“ Miratorg’sstrategyisfocused

onthediversificationofits

businessinthreekeyproduct

lines:poultry,porkandbeef,

withavertically-integrated“from

fieldtocounter”modelineach

segment. ”

Gurmama, Mirandia, Vitamin – will significantly gain share of the total volume of Company sales, which will contribute further to our improvement in financial performance and strengthen the Company’s position in the highly-volatile meat market.

Miratorg’s strategy focuses on business diversification in three key product lines: poultry, pork and beef, with a vertically-integrated “from field to counter” model in each segment. The Company is the largest investor in Russia’s agribusiness sector with investments of over 110 bln rubles. We are succeeding in creating from scratch agribusiness sub-industries – effective and high-tech industry segments, providing jobs for over 16,500 people throughout the country, mainly in rural areas.

In 2014 the pig farming division will reach full capacity: processing 3 mln units per year, equating to 380 thousand tons of meat in live weight. Miratorg’s ongoing long-term expansion will be supported by projects that will be profitable this year: broiler chicken production with an output of 100 thousand tons a year and a real breakthrough on the domestic meat market – the highest production output in Europe of high-quality beef, with an annual output of 130 thousand tons of the best quality Aberdeen Angus cattle meat.

All element of our production chain have already reached the full capacity: we have created a breeding stock of 110 thousand units, launched 9 new farms in the Bryansk region, increasing

the total number of farms to 33, and have housed the first cattle at a feedlot where 45 thousand cattle can be kept at the same time.

The project for doubling cattle production, approved by the Government of the Russian Federation, will help us to build over another 30 farms and increase the overall Aberdeen Angus cattle herd to 500 thousand, bringing a total of 200 thousand hectares of land back into agricultural use and creating thousands of new jobs.

The state’s support of our Holding Company’s endeavours to develop domestic meat production, enhance the quality of life of people in our country and reduce Russia’s dependency on imports is the key factor behind the successful implementation of the Company’s large-scale projects, which require multi-billion investments with a payback period of over 10 years. Our continuous constructive cooperation with the largest banks and development institutions also brings benefits: by creating new production facilities and investing in the real economy, the Holding Company not only fully meet its commitments to creditors but also stimulates growth in related industries.

Miratorg will continue to find ways to expand the export potential of its products: we have proved that we are able to compete successfully with global industry leaders in and outside the Russian market, both in terms of quality and cost. In 2013 the Company supplied over 4 thousand tons of pork to Hong Kong. This is

a positive development and we will continue to develop our distribution to external markets where demand for high-quality meat is steadily growing.

By launching a meat processing complex and a beef facility in the Bryansk region in the second-half of 2014, we will have completed our aim to create a diversified portfolio of assets. Our next efforts will be focused on increasing output to full capacities within the framework of the existing sectors, implementing lean production in all divisions and improving business efficiency in order to maintain our product cost at a competitive level.

Miratorgisaware

ofitsresponsibilityto

society.Wearebuilding

along-termbusiness

inRussiaandweare

certainthat,despite

alldifficulties,wewill

keepaccomplishingour

mission–to feed people.



Addresses of Ma nagementAddresses of Ma nagement

Address of ABH Miratorg President

Dear Ladies and Gentlemen,

The strategy of Miratorg’s stable growth is built on three basic elements: human capital, the best technology and highly effective

vertically integrated production “from field to counter”.

The Company is approaching another important stage in its organic development – business diversification in its four key sectors: in 2014 the pork production facilities will reach full capacity, the production of frozen semi-finished products will be doubled, the poultry division will launch its first products and consumers will be able to buy in shops high-quality beef produced at Miratorg’s cattle slaughter and processing complex, the largest in Russia.

We are rapidly growing and within a very short period of time we have succeeded in demonstrating a performance we can be proud of. Now our main target is to achieve maximum operating efficiency across the whole Company and within each element of our production chain.

Russia’s accession to the WTO resulted in strong global players being able to access our market, increased competition between domestic producers and the expected cutback of government support – these challenges can only be addressed

by improving labour efficiency, reducing costs, using the most advanced technology and, consequently, controlling the Company’s production cost. Integrating a lean production system and culture is crucial to achieving this.

In cooperation with leading international consultants the Company developed and, in 2013, started implementing the lean production and continuous improvement (kaizen) strategy in all production chain elements. We launched pilot projects at the SK Korocha, Miratorg-Zapad and Bryansk Meat Company and have already obtained the first results, identifying how we can lower costs, reduce surplus stock, eliminate production bottlenecks and improve the consistency of our product quality.

We understand that labour efficiency depends not only on technology, but, primarily, on the attitude of people towards their work. Therefore, it is of paramount importance for us to focus on the training of our personnel, who already number

over 16,500 employees and who will continue to grow in the medium term. In the Bryansk region alone, we will create 3,000 new jobs by 2016.

The main challenge for the Company’s management is to encourage all employees to understand their responsibility for the end result of their work and to inspire employees to do their work better every day, at lower costs and to a higher quality standard.

Our consultants will help to train internal coaches, who will set about integrating the lean production system at all Miratorg’s enterprises. We are building a corporate culture of transparency to change and encouraging the ambition to always find the best solution. The continuous improvement system will involve all employees: from an ordinary operator to the Holding Company’s chief officer. This is a crucial factor for succeeding in improving costs, reducing bottlenecks, using our time and resources

more efficiently and removing unnecessary and redundant processes.

ABH MiratorgPresidentV.V. Linnik

“ Weexpectthecompleteintegrationofthelean

productionsystemtotake3to5years,but

weareconfidentitisalreadyhavingapositive

effectonourbusinessefficiency.Byreinforcing

theuseofadvancedtechnologywithgreater

employeeinvolvementandmoreconsistently

organizedprocesses,wewillmoveto

afundamentallynewlevelofdevelopmentby

layingthefoundationfortheCompany’slong-

term,sustainablegrowth. ”


6 7

We supply consumers with a wide range of high-quality products at affordable prices, controlling

the product cost and consistently reducing expenses.

0

About the Holding Company

The largest investor in Russian agribusiness:

over

110bln rubles

Page 12

Business footprint:

17Russian regions

Page 10Developed distribution network:

16,000customers

Page 62

Responsible employer: over

16,500employees

Page 65

The leading operator in the food market

Page 13

No. 1 pork producer

Page 34

Address of the Chairman of ABH Miratorg Board of Directors

Address of ABH Miratorg President

About the Company

6 About the Holding Company

8 Board of Directors

10 Business Footprint

12 Major Milestones of ABH Miratorg’s Development

14 Business Model

16 Financial Performance Overview

18 Overview of the Russian Meat and Meat Products Market

20 Production

24 State Support Measures

26 Import

28 Epizooty

29 Prices

30 Further Development of Livestock Farming

Performance Overview

32 Crop Growing

36 Feedstuffs Production

40 Poultry Production

44 Pig Farming

48 Beef Production

52 Meat Processing

56 Production of Semi-Finished Products

60 Transport and Warehouse Logistics

64 Foodstuffs Distribution

68 Corporate Social Responsibility

Today Miratorg Agribusiness Holding, established in 1995, is one of the leading meat producers and suppliers on the Russian market. The Company’s mission: “Together we enhance the quality

of life by creating a meat consumption culture.”

Owing to the rigorous use of best global practices and the most advanced technology and the high competencies of the management team and personnel, the Holding Company is demonstrating excellent production and financial performance. In terms of business efficiency, ABH Miratorg is highly competitive with European enterprises: its performance against key production indicators is at the same level as leading global producers and is far superior to the average performance in Russia.

Page 37

All ABH Miratorg’s enterprises conform to international environmental standards. The Holding Company aims to protect the environmental, actively engages in the social life of the regions where it operates and strictly abides by its business ethics principles.

Page 67

ABH Miratorg’s business model supports the Company’s stable development in an extremely competitive environment and in a highly volatile raw materials market.

Page 14

ABH Miratorg is one of the Russian Federation’s strategic agro-industrial businesses. Today

over 16,500 specialists work for the Company. The Holding Company invests significantly

in the development of human capital and seeks to continuously improve the professional growth of its personnel and to create new jobs, primarily,

in rural areas of Russia.

Page 64

About the Compa nyAbout the Compa ny



Vadim Alekseevich Kotenko

Igor Aleksandrovich Kholopov

Viktor Vyacheslavovich Linnik

Alexander Aleksandrovich Nikitin

Alexander Vyacheslavovich Linnik

Nadezhda Valerievna Golubeva

Board of Directors

Vadim Alekseevich Kotenko

Vice President for Finance, ABH Miratorg

Born in 1977

Education: Graduated in Economics, Accounting and Control from the Kaliningrad Trade and Economy College in 1998. Graduated from the Baltic Institute of Economics and Finance, specializing in Accounting, Analysis and Audit in 2003.

Duties: Has been working at ABH Miratorg since 2005. Duties include: management of the finance division, development and implementation of the investment strategy.

Involved in the design of a common strategy for the holding development and the organization of current business processes, including the supervision of the lean production system integration in the Company.

Igor Aleksandrovich Kholopov

Vice President of ABH Miratorg

Born in 1968

Has worked in IT since 1991. Joined ABH Miratorg as IT Director in 2005.

Duties: In charge of development and implementation of the Holding Company’s information systems development strategy, organizing updating and upgrading the Holding Company’s IT structure.

Nadezhda Valerievna Golubeva

Head of the HR Management Department

Born in 1977

Education: Higher education in psychology. In 2009, completed an MBA course.

Has worked in HR management since 2000, and at ABH Miratorg since 2006. Was appointed Head of the HR Management Department in 2010.

Duties: In charge of development and implementation of human resources management policies, including all HR sectors: team building, motivation, training and development systems, organizational efficiency.

Alexander Aleksandrovich Nikitin

Vice President of ABH Miratorg

Born in 1961

Education: Physics Engineer. In 1984, graduated from the Applied Physics Department of the Moscow Engineering & Physics Institute (MIFI). From 1986 to 1992: design engineer. From 1991 to 1997: managerial positions in trade and logistics companies in FMCG.

Has been employed at ABH Miratorg since 1997. From 2000 to 2007: General Director of ABH Miratorg. Year 2007 to the present: Vice President of ABH Miratorg.

Duties: In charge of the Holding Company’s development, analysis of potential new business development, monitoring of main factors influencing the implementation of the Company’s development strategy and investor relations.

Alexander Vyacheslavovich Linnik

Chairman of ABH Miratorg Board of Directors

Born in 1967

Has worked in FMCG since 1992.

Duties: In charge of operations management of ABH Miratorg, organization of efficient interaction between business units, control over the achievement of business plans, building an efficient management team and running the risk management system.

Viktor Vyacheslavovich Linnik

President of ABH Miratorg

Born in 1967

Has worked in FMCG since 1992. Winner of the Stolypin National “Agrarian Russian Elite” Prize in 2007, nominated for “Agrosuccess of the Year”.

Duties: Strategic development, business planning of the Holding Company’s enterprises, new business development, cooperation with government authorities and public organizations.




Business Footprint

Production Sales

Kaliningrad region

Miratorg-Zapad Meat Processing Plant

4 cattle farms

Moscow region

Production of frozen vegetables and berries

Kursk region

8 pig complexes, a grain company

Bryansk region

33 cattle farms, vertically integrated broiler chicken production, a feedstuffs

mill, a feedlot

Belgorod region

19 pig complexes, a pig slaughterhouse facility,

a meat processing complex, a grain

company, feedstuffs mills

Regions within the network:

1. Kaliningrad region

2. Leningrad region and Saint-Petersburg

3. Tver region

4. Yaroslavl region

5. Moscow region and Moscow

6. Vladimir region

7. Bryansk region

8. Kaluga region

9. Tula region

10. Ryazan region

11. Nizhny Novgorod region

12. Chuvash region

13. Sverdlovsk region

14. Tyumen region

15. Kursk region

16. Belgorod region

17. Voronezh region

18. Lipetsk region

19. Penza region

20. Ulyanovsk region

21. Samara region

22. Chelyabinsk region

23. Novosibirsk region

24. Volgograd region

25. Rostov region

26. Krasnodar Territory




Major Milestones of ABH Miratorg Development

Importer: 1995–2003

The largest pork producer: 2004-2010

The leading meat market operator: 2010-2013

1995

2003

2010

1997

2004

2010

1999

2005

2011

2000

2007 2008 2009 2010

2012 2013 2013 2013

ABH Miratorg started its operations in the Moscow region as a supplier of food products: raw meat, meat products and dairy products.

Adopted a new development strategy: vertically integrated meat production “from field to counter”.

Launch of a high-quality beef production project. A vertically integrated production facility, the largest in Europe: 110 thousand herd of specialized Aberdeen Angus breeding stock cattle, a feedlot for 45 thousand cattle, a meat processing complex with an output of 130 thousand tons of meat per year.

Opened a branch in Kaliningrad to improve effective management of commodity flow.

First investment made in agricultural assets. Established a grain company in the Belgorod region.

Launch of the broiler chicken meat production project in the Bryansk region with an investment of over 20 bln rubles. A vertically integrated production facility with an output of 100 thousand high-quality chilled products per year.

Established exclusive relations with Sadia, Brazil’s largest producer or meat and semi-finished meat products.

Started construction of pig complexes, feedstuffs mills and meat processing complex in the Belgorod region.

Stocking of the first cattle farms in the Bryansk region. The Company became the largest importer of breeder cattle in Russia. The Holding Company received its credit rating from the international agency Fitch Ratings and issued the first bonded loan for 3 bln rubles to finance a large-scale investment program.

Established exclusive relations with Minerva, a leading beef producer in South America.

Launched automated low-temperature distribution centers in the Moscow and Saint-Petersburg regions. Opened branches in Yekaterinburg and Rostov-on-Don.

Launched pilot production at the SK Korocha, the largest Russian pig slaughter and pork slaughterhouse and processing enerprise, with a capacity of 3 mln pigs.

The Holding Company produced 116 thousand tons of pork and was ranked in the top 5 largest producers in Russia. The Company launched its in-house Willima and Gurmama brands. Became a supplier of the McDonalds restaurant chain in Russia.

Miratorg became the largest pork producer in the county: 137.6 thousand tons in live weight and a 8.2% share of industrially produced pork in the domestic market.

The Holding Company became the largest investor in Russia’s agribusiness sector – with investments in projects exceeding 90 bln rubles. Miratorg launched the most advanced plant of its kind in Russia, for the production of frozen semi-finished meat products: nuggets, burgers, ready meals.

Miratorg completed its planned investment in the pork divisiion: the Company put into operation 4 new pig complexes and launched the high-tech case-ready complex for the production of a wide range of pre-packed meat and semi-finished meat products for consumers.

Completion of the construction of all facilities of the vertically integrated production chain under the Poultry project: from feedstuffs mill to automated processing plants.

Completion of the key milestone for the high-quality beef production project: stocking of 33 farms in the Bryansk region, creation of the breeding stock, delivery of the first cattle stock to the feedlot.

The project with an investment of 24 bln rubles was supported

at the top government level: Vnesheconombank provided loan

financing for over 20 bln rubles and the loan agreement was signed

personally by Vladimir Putin as the Chairman of VEB’s

Supervisory Board



15t o t h e c o n t e n t t o t h e c o n t e n t

14

Business Model

Crop growing

381,000 ha

of pastures and croplands

Transport and warehouse logistics

40,000 pallet capacity

Distribution

16,000 customers

Meat processing

3 plants

Feedstuffs production

4 mills

Poultry farming

7 broiler poultry farms

Pig farming

27 pig complexes

Beef production

37 farms



17t o t h e c o n t e n t t o t h e c o n t e n t

Key financial indicators of the audited consolidated statements for 2013–2012 (millions of rubles)

2013 2012 Change, %

Fixed assets 40,793 41,341 –1.3%

Non-current biological assets 3,979 3,732 6.6%

Current biological assets 6,363 4,795 32.7%

Inventory 8,195 8,176 0.2%

Advances issued, trade and other accounts receivable 14,665 11,264 30.2%

Loans issued 15,187 9,491 60.0%

Long-term borrowings 32,395 34,314 –5.6%

Short-term borrowings 32,447 24,022 35.1%

Advances received, trade and other accounts payable 6,507 14,832 –56.1%

Balance sheet total 97,531 89,862 8.5%

Revenue 53,683 48,136 11.5%

Cost (33,720) (28,739) 17.3%

Net gain/(loss) on initial recognition of agricultural produce and from changes in fair value of biological assets 1,040 (1,285) Gross profit 21,003 18,112 16.0%Gross profit margin, % 39.1% 37.6% 4.0%

Selling and administrative expenses (6,822) (4,896) 39.3%

Sales profit 14,181 13,216 7.3%

Financial expenses, net (2,807) (1,883) 49.1%

Other expenses, net (1,615) (196) 724.0%

Profit before tax 9,759 11,137 –12.4%

Profit tax (144) 62

Profit for the period 9,615 11,199 –14.1%

EBITDA calculation**:

Profit before tax 9,759 11,137 –12.4%

Finance expenses, net 3,465 2,815 23.1%

Finance income (658) (932) –29.4%

Depreciation 2,707 2,167 24.9%

EBITDA** 15,273 15,187 0.6%EBITDA margin**, % 28.45% 31.55% –9.8%

* The financial performance overview is given on the basis of the audited consolidated financial statements of LLC ABH Miratorg and its subsidiaries, prepared under IFRS. The financial statements were audited by the international audit firm PriceWaterhouseCoopers (PWC).

** EBITDA – Earnings before Interest, Taxation, Depreciation and Amortization. The Group’s calculation may differ from the calculation applied by other companies; consequently, data comparability may be limited.

About A BH Miratorg LLC


18 19Crop Grow ing Crop Grow ing

t o t h e c o n t e n t t o t h e c o n t e n t



O ver v iew of the Russia n Meat a nd Meat P roducts Ma rketO ver v iew of the Russia n Meat a nd Meat P roducts Ma rket

Production

Total livestock and poultry production

According to the preliminary estimates of the National Meat Association, in 2013 the total output of cattle and poultry production for slaughter across all categories amounted to 8,494.8 thousand tons in carcass weight (according to the data of the Federal State Statistics Service, 12,202.1 thousand tons in live weight), which is 404.5 thousand tons more than in 2012.

Poultry accounted for 45%, pork for 33%, and cattle for slightly over 19%. The percentage share of pork in the overall production of cattle and poultry for slaughter went up by 2% whereas the percentage of beef production went down by 1%. In 2013

the percentage share of poultry meat in the overall volume of cattle and poultry production by carcass weight remained at the same level as in 2012.

Pork

In 2013 pork production by carcass weight across all categories amounted to 2,829.6 thousand tons, which is 10.6% higher than the figure of the previous year. This is a significant difference to the previous year when the production growth rate by carcass weight was only 5.4%.

As of 1 January 2014 the pig livestock in all categories of Russian farms amounted to

19,186 thousand units, which is 2%, or 370 thousand units, higher than in the previous year.

In 2013 pork production by carcass weight in private and peasant farms decreased to 842 thousand tons, which is 12.8% or 124 thousand tons less than in 2012.

As of 1 January 2014 the pig livestock in private and peasant farms was 4,474.8 thousand units, which is 12.9% or 662.17 thousand units less than the pig population in this category as of 1 January 2013.

The steady reduction of the pig livestock and pork production in private and peasant farms has been a constant trend of the last few years. One of the main reasons has been the impact of

the epizootic outbreak of African swine fever and, as a result, tighter veterinary controls regarding the transportation of products from pig farms and the refusal of meat processing plants to continue using raw materials of unknown origin.

Demographic changes in rural areas, increasing competition from industrial pig farming and the difficult economic conditions for production in 2012 due to price increases in feedstuffs and a sharp, deep fall in the prices of pigs and pork caused a decline in production in the private and peasant farm economies. According to experts’ estimates, the pig livestock in these economies will continue to decline in the coming years.

In 2013 the output of pork production in agricultural organizations amounted to 1,987.4 thousand tons by carcass weight, which is 24.7, or 393.7 thousand tons more than in 2012.

As of 1 January 2014 the level of livestock in agricultural organizations increased by 7.5%, or 1,031.9 thousand units, to 14,711 thousand units against the previous year.

Last year’s excellent performance in the industrial pig farming sector is the result of continuing structural and technological modernization: from 2006 to 2013 the percentage share of agricultural organizations of the pork production output rose steadily for 8 years from 35% to 72%. owing to the implementation of a variety of investment projects as part of the “Agribusiness Development” Priority National

Project and the State Program for Development of the Agricultural Industry over 2008-2012.

Alongside this, there was also significant improvement in the growth rates of technological modernization in pig farming According to the data of the National Union of Pig Producers, at the end of the last year new and modernized enterprises accounted for more than 95% of the industrial production output and for more than 65% of the total output. However, according to experts of the National Union of Pig Producers, the extent of modernization varies considerably from enterprise to enterprise and, in the future, it will be necessary to replace some of them with new production facilities. It is also worth noting that the growth in industrial production in the pig farming industry in 2013 is the knock-on effect of investments made during a favourable period of 2010-2012. Experts forecast that the effect will also be observed in 2014. They do not exclude that from 2015 there may be a sharp decline in production growth as, following Russia’s accession to the WTO, the level of investment has significantly decreased. Potential investors have put several major projects on hold and are unwilling to launch new projects until the implications of Russia’s accession to the WTO can be accurately evaluated.

In order to increase the investment potential of the pig farming industry, industry unions and associations are proposing that support measures are extended. One notable suggestion is the payment of

a direct subsidy per kg of pork production in live weight to make up for the adverse impact of the WTO.

Another contributing factor to the good performance of the pig farming industry in 2013 was the increase in the profitability of industrial pork production, due to two key events:

• A noticeable reduction in prices of grain and feedstuffs. For example, in the period from the end of December 2012 to the end of December 2013 wheat Class 3 prices in the Central Federal District, which is the key pig farming center, dropped by 24.4% to 7,900 RUB/t.

• A one-off payment of 5.7 bln rubles to pork producers to compensate for the growth in the cost of feedstuffs was awarded by the Government of the Russian Federation. The compensation is larger than the one paid to the cattle breeding sub-industry, and confirms the special priority given to the pig farming industry.

Poultry Meat

According to the preliminary estimates of the National Meat Association, in 2013 poultry meat production across all farming categories amounted to 3,816.8 thousand tons by carcass weight, which is 5.3% or 192 thousand tons more than in the previous period.

In 2013 poultry livestock in all farming categories amounted to 492,500 thousand heads, which is 0.7% or 3,400 thousand heads less than in 2012.

The largest pork, beef and poultry importers (%)

total import volume

1.625mln t

8.8% Miratorg

5.8% Rubezh Group of Companies

4.6% Sterh Corporation

3.2% Globex Foods

2.8% Agroimport

Other



Poultry meat production in private and peasant farms amounted to 362.2 thousand tons by carcass weight, which is 2.1% or 7.9 thousand tons less than in 2012.

As of 1 January 2014 the livestock in private and peasant farm economies equaled 97,870.2 thousand heads, which is 2.1% or 2,061.2 thousand heads less than in 2012.

As is the case for pork, the decline in poultry production and livestock in farming units is, primarily, due to demographic changes in rural areas, the development of industrial agriculture and creation of new jobs in a number of regions, the low level of profitability from production in this category, the strengthening of state requirements for raw materials and food product safety, and

the escalation of competition from industrial agricultural enterprises and holding companies.

In 2013 poultry meat production in the industrial sector amounted to 3,454.7 thousand tons, which is 6.1% or 200 thousand tons more than in 2012. As of 1 January 2014 the poultry livestock in agricultural organizations reduced to 394,581.1 thousand heads, by 0.3% or 1,340.02 thousand heads.

The decline in growth rates in industrial poultry meat production against 2012 is due to: the high market saturation; the end of an active investment period; a reduction in the number of new commissioned capacities; the escalation of competition in domestic and external markets and, as a result, the bankruptcy of small and several large

inefficient businesses; and the limited possibilities to enter external markets. However, it is worth noting that the industrial poultry farming sector accounts as a whole for about 91% of total poultry meat production. This is, undoubtedly, a positive factor in terms of competitiveness with respect to import products.

Itisworthnotingthat

oneofthekeyevents

inthepoultryfarming

industryin2013was

theone-offpaymentof

3.8blnrublestopoultry

meatproducersas

compensationfortheprice

increaseoffeedstuffs,

awardedbydecision

oftheGovernmentof

theRussianFederation.

Beef

According to preliminary estimates, beef production output in 2013 amounted to 1,632.1 thousand tons by carcass weight, which is 0.6% or 9.4 thousand tons less than in 2012.

As in 2012, in 2013 the cattle livestock in Russia continued to fall, dropping by 2.3% or 466.8 thousand units in absolute terms to 19,514 thousand units. The reduction in breeding stock was 2.7%, or 238.2 thousand units in absolute terms to 8,645 thousand units.

Beef production in private and peasant farm economies fell in 2013 by 0.8%, or 8.6 thousand tons, to 1,099.5 thousand tons by carcass weight. This reflects the recent trend of private and peasant farms holding a high

share of beef production (around 67%-68%) against a simultaneous gradual reduction in cattle meat production volumes in this economic category.

As of 1 January 2014 the cattle livestock in private and peasant farm economies amounted to 10,274.1 thousand units, which is 1.8% or 196.76 thousand units less than the comparable figure in the previous year.

Beef production in agricultural organizations went down in 2013 by 0.1%, or 0.7 thousand tons, to 532.7 thousand tons by carcass weight.

Cattle livestock in agricultural organizations also reduced by 3% or 270.02 thousand units in absolute terms.

Private and peasant individual farms

Agricultural organizations and private businesses

Beef production trends (by carcass weight) by economic category (thousand tons)

Pork production trends (by carcass weight) by economic category (thousand tons)

Poultry production trends (by carcass weight) by economic category (thousand tons)

653

1,301

2,530

600

1,424

2,885

625

1,656

3,288

1,052

1,049

310

1,705

2,350

2,840

1,025

1,003

319

1,625

2,427

3,204

1,016

903

337

1,641

2,559

3,625

2010 2010 20102011 2011 20112012 2012 20122013 2013 2013

635

2,040

3,489

997

790

328

1,632

2,8303,817




The share of the industrial sector in overall beef production remains at an extremely low level – around 33% – and this is the reason why the industry is still uncompetitive in relation to imports.

However, it is worth noting that in the period of 2008-2012 there were significant positive changes in the cattle meat production sub-industry. From 2008 to 2012 the meat and mixed breed cattle livestock grew from 500 thousand units to 1.9 mln units, the meat and mixed breed beef

production output increased from 66 thousand tons to 280 thousand tons and the beef meat share grew from 2% to 10%.

The decision to single out an individual “Beef Cattle Breeding Development” Sub-Program within the State Agricultural Development Program between 2013-2020 was of special importance for raising investment funds.

Despite very difficult production conditions in 2013, the meat and mixed breed cattle livestock

in Russia increased by 90-100 thousand units, which confirms the effectiveness of the existing state support measures of the new State Program

Currently a number of large- and medium-scale projects are being implemented, which will help to partially replace falling dairy beef production volumes and to improve the supply of specialized breed cattle meat for the developing retail market and HORECA, where the deficit of high-quality beef is especially noticeable.

State Support Measures

In order to secure the stable development of Russian agriculture as a key priority of Russia’s economic development, as per Decree No. 717 dated 14 July 2012, the Government of the Russian Federation approved the State Program for the Development of Agriculture and Regulation of Markets of Agricultural products, Raw Materials and Foods between 2013-2020. This State Program comprises two sub-programs related to the cattle breeding industry, namely the “Development of the Sub-Industry of Cattle Breeding, Processing and Marketing of

Livestock Products” Sub-Program and the “Beef Cattle Breeding Development” Sub-Program.

Within the framework of the first sub-program, the level of financing from the federal budget for 2013 was 57.7 bln rubles. Resources to be allocated to the sub-program in 2014 amount to 62 bln rubles, which is 7.5% higher than the funding level in 2013.

The level of financing from the federal budget within the framework of the second sub-program for 2013 was 6.8 bln rubles. In 2014 the level of funds will amount to 7.1 bln rubles, which is 4.4% higher than

the state support volume for the meat cattle breeding industry in 2013. A key element of this sub-program is the increase in the level of financing throughout the period of the State Program 2013-2020.

The main industry support instruments within the framework of these sub-programs are:

• funding of a part of the interest rate on investment loans for the construction and reconstruction of beef farming and cattle breeding facilities;

• support of economically significant programs of the regions of the Russian Federation.

At present the subsidy paid to meat producers from the federal budget for the payment of interest on investment loans is 2/3 of the refinancing rate of the Russian Central Bank for beef farming and 100% for beef cattle breeding.

Economically significant regional programs play a major role in supporting the Russian cattle production industry. Such programs include subsidizing regional budgets to co-fund the regions’ expenditure commitments related to the implementation of regional programs. For example, as per Directive No. 2437-r dated 20 December 2013 the Government of the Russian Federation authorized the distribution of subsidies totalling 726.35 mln rubles for cattle production development among the constituent entities of the Russian Federation. As per Directive No. 2436-r dated 20 December 2013 the Government of the Russian Federation authorized subsidies totaling 2 bln rubles for beef cattle breeding development.

In addition, in mid-April 2013 a meeting was chaired by the Chairman of the Government of the Russian Federation, D.A. Medvedev, to discuss the need

for additional state measures to support the cattle breeding industry in Russia.

Themeetinghelped

todeterminethelevel

oftheone-offpayment

tocompensatefor

increasedcosts

inconnectionwiththeprice

increaseoffeedstuffsfor

egg,poultrymeat,pork

anddairyproducers.

Theone-offcompensation

paymentamounted

to15blnrubles,ofwhich

5.7blnrubleswere

allocatedtosupportthepig

breedingindustryand

3.8blnrublestosupport

thepoultrybreeding

industry.

Another significant topic, which was found repeatedly on the state agenda in 2013, was the development of a strategy to help Russian meat producers gain access to external markets. As per the Order of the Government of the Russian Federation No. DM-P13-9589 (Item 53) dated 31 December 2013, the Ministry of Economic Development and Trade of Russia forwarded a revised draft “Support of Access to Foreign Markets and Support of Exports” Plan of Activities

(the “roadmap”) to different departments and industry unions for approval. The first edition of the Plan was adopted as early as June 2012. However, today the “roadmap” clearly needs to be revised and amended to ensure the successful promotion of Russian non-resource exports in foreign markets. For example, in the earlier edition of the “roadmap” the export of agricultural raw materials and foodstuffs was omitted, which appears to be a serious shortcoming. Exports of agricultural products are a crucial export sector in most developed and in many developing countries. However, in order to implement a successful foods export incentive program, just taking steps to simplify customs procedures and to increase the efficiency of trade representation is simply not enough; and this was the main focus of the “roadmap.” Instead a set of steps and measures are needed, not only to simplify formalities on the border but also to consider veterinary and hygiene aspects, in order to build trust with potential importers of Russian products. Owing to the efforts of the industry unions, at the meeting of 6 February 2014, the Chairman of the Government of the Russian Federation, D.A. Medvedev, ordered the Ministry of Economic Development and Trade of Russia to consider adding such activities to the “roadmap” before 15 May 2014 in order to support and promote agricultural exports.




Import

In 2013 there was an increase in the imports of basic meat categories, mainly owing to the growth in imports from Belarus, excluding pork.

For example, imports of poultry products grew approximately by 7% to 547.6 thousand tons.

Imports of chilled and frozen beef grew by 10.2% to 724 thousand tons. If the imports of frozen semi-finished beef products are also taken into consideration, total beef imports grew by 7.6% to reach 830 thousand tons.

As compared with the previous year, imports of pork, edible and inedible pork by-products and fat from all countries, including Belarus, decreased by 17.4% to 1,011.4 thousand tons, which

was, certainly, a positive factor in helping to stabilize the pork market after the explosive growth of imports in the first months after Russia’s accession to the WTO.

Pork imports last year, excluding edible and inedible by-products and fat, shrank by almost 16.2% to approximately 643 thousand tons. This is a deviation from the steady growth trend for pork imports seen in recent years. Pork by-products imports, in turn, went down by 36.8% to 108 thousand tons against 2012, which is due to the intensive development of the pre-processing sector in the Russian Federation and the growth in supply of domestic poultry meat at affordable prices. Large volumes of pork imports are

due to the growth in supply to the Kaliningrad Special Economic Zone, which is exempt from tariff quotas. More than 140 thousand tons of pork and by-products were imported in this region.

A key factor affecting foreign trade , which had a positive effect on the balance of pork and poultry imports, was the Decision of the Eurasian Economic Commission’s Collegium No. 57 dated 26 March 2013 “On Amending the List of Goods Originating and Imported from Developing and Least Developed Countries, Granted Import Tariff Preferences”. Owing to this Decision, fresh, chilled or frozen pork and poultry meat and edible by-products were excluded from the List of Goods Originating and Imported from

Developing and Least Developed Countries, Granted Import Tariff Preferences. Before this Decision (26 April 2013) came into force, there were still significant imports of pork above the tariff quotas at a preferential rate of 48.75%, above which the over-quota imports drastically shrank. Pork imports at the high rate in the period from January 2013 to the end of April 2013 were 30.6 thousand tons, and imports at the high rate in the period from May to December 2013 were 23.6 thousand tons. Pork imports at the high rate for the whole year in 2013 were 54.2 thousand tons, which is 66% lower than in 2012.

Whilst on the topic of CIS and the Customs Union, it is worth having a close look at trade relations with Ukraine and Belarus. In Ukraine, supplies are made under an Agreement for Free Trade in CIS; meat from Belarus is imported within the Customs Union without any quota limits. The meat

production business in these countries is developing. Not only are export volumes growing, the meat production business is also expanding geographically. According to the preliminary estimates of the National Meat Association, in 2013 Ukraine increased its poultry meat and by-products exports by 1.8 times to 145 thousand tons, with these products being supplied to more than 45 countries worldwide. Ukraine’s share of total Russian poultry meat imports grew from 6.5% (30.3 thousand tons) in 2012 to 8.9% (39.5 thousand tons) in 2013. The percentage share of pork supply from Ukraine, on the contrary, went down from 2.7% (19.2 thousand tons) in 2012 to 0.7% (4.2 thousand tons) in 2013. The percentage share of chilled beef supply from Ukraine grew in 2013 from 20.3% (8.2 thousand tons) to 28.3% (11.3 thousand tons), whereas the percentage of frozen beef supply from Ukraine was virtually unchanged.

Exports from Belarus are growing steadily. For example, chilled beef supply from Belarus in 2013 increased by 32.5% to 98.7 thousand tons against the previous period, and frozen beef supply to Russia more than doubled to 43.5 thousand tons. The supply of pork and other pig products, on the contrary, significantly reduced by 30.7% to 41.7 thousand tons, in particular live pigs supplies, which dropped by 43.4% (to 5.1 thousand tons). This is due to the temporary pig import restrictions, introduced at the end of August 2013, across the entire Republic due to the detection of two African Swine Fever (ASF) areas in Belarus. However as of 21 October 2013 the Federal Agency for Veterinary and Phytosanitary Supervision lifted the temporary restrictions for the transportation of pigs and pig products from enterprises of the Minsk region; as of 30 December 2013 the temporary restrictions of the supply of pig products from a number of enterprises of the Brest region

Top 5 frozen beef exporters’ share of total imports to Russia, 2013 (thousand tons)

Dynamics of the imports of pork and advanced processing pig products (thousand tons)

Total imports

514.5

Pork import

Fat import

Edible by-products

Inedible by-products

Live pigs in carcass weight

1,0341,2431,2151,2002010

2011

2012

2013

682 268 177 24 | 49

717 270 170 20 | 38

767 287 148 22 | 19

643 261 101 7 | 2258.6% Brazil (301.6 thousand tons)

27% Paraguay (138.8 thousand tons)

6.8% Uruguay (35.2 thousand tons)

4.8% Australia (24.4 thousand tons)

2.8% Argentina (14.6 thousand tons)




were also lifted. Considering the 22% reduction in Belarus’ pig livestock and the shortage of raw materials for its local meat processing plants, we expect pork imports from Belarus to continue to decline.

Unlike beef imports, poultry meat imports from Belarus did not grow so strongly – only by 10% to 105 thousand tons. There is every reason to expect Belarusian producers to maintain their

position on the Russian market, by forcing out, primarily, imports from countries further afield.

Epizooty

In 2013, 86 epicenters of African swine fever (ASF) among swine were registered in 13 constituent entities of the Russian Federation. 76 of these were detected in private farm holdings, 2 at peasant farms, 2 in holdings of private businesses, and 6 at large pig raising enterprises. 12 facilities infected with the ASF virus were also registered.

All swine infection epicenters detected in 2013 were clear of infection by the end of the year (86 ASF epicenters, of which 2 in North Osssetia-Alania, 35 in the Voronezh region, 15 in the Volgograd region, 6 in the Moscow region, 5 in both the Smolensk and Rostov regions, 4 in each of the Yaroslavl, Tver and Tambov regions, 2 in each in the Pskov and Tula regions, and 1 each in the Saratov and Belgorod regions).

The 12 (swine) facilities infected with the ASF virus were also clear of the virus

by the end of 2013, of which 5 were in the Moscow region, 3 in the Voronezh region, 2 in the Volgograd region, and 1 in each of the Rostov and Tver regions.

All ASF epicenters registered in 2013 among swine and facilities were clear of the virus by the end of the year.

As far as wild bores are concerned, in 2013 21 ASF incidents and 93 facilities infected with the ASF virus were registered in the territory of 10 constituent entities of the Russian Federation. By the end of the year the 21 incident areas in wild fauna (representing all locations detected in 2013) and 45 virus-infected facilities were virus-free. As of 1 January 2014 there were 48 facilities infected with the ASF virus in Russia (wild fauna).

As per Decree No. 677 dated 7 August 2013 the Government of the Russian Federation set

up a Government Commission for the Prevention of the Spread and Elimination of the African Swine Fever in the Territory of the Russian Federation (the control headquarters), which comprises representatives of the Ministry of Internal Affairs, the Ministry of Agriculture of Russia, the Ministry of Economic Development and Trade of Russia, the Ministry of Justice of Russia, the Federal Agency for Veterinary and Phytosanitary Supervision, the Ministry of Natural Resources of Russia and others. The Commission was headed by the Deputy Chairman of the Government of the Russian Federation, A.V. Dvorkovich.

Prices

The downward trend in prices for Category I and II commodity pigs reached its bottom in the middle of April 2013 (58-59 RUB/kg in live weight) and turned upwards again.

At the end of December 2013, prices for Category I commodity pigs in the Central Federal District were 4.4% higher (73.8 RUB/kg inclusive of VAT) than in December 2012. Prices for Category II commodity pigs, in turn, grew over a comparable period by 5.7% to 72 RUB/kg inclusive of VAT.

The price trends for pig semi-carcasses completely followed the trends of commodity pig prices. At the end of December 2013 the price for Category I pig semi-carcasses in the Central Federal District was 114.5 RUB/kg inclusive of VAT, which is 2.2% higher than in December 2012. In December 2013 prices for Category II pig semi-carcasses were 110.9 RUB/kg inclusive of VAT, which is 1.8% higher than in December 2012.

For virtually the whole year pork imports from USA were banned owing to the detection of the ractopamine additive in pork meat. For the same reason, several Canadian companies were also temporarily prohibited from supplying pork to Russia, which impacted, primarily, supply and export prices. These restrictions had a positive effect on wholesale pork price trends in Russia and

helped counterbalance the effect of the cancellation of preferential imports from Brazil.

Following the suspension of pig product supplies from the European Union as of 28 January 2014 owing to the detection of African Swine Fever (ASF) in the EU, experts expect prices for this meat category to continue rising in the domestic Russian market in the short term. Price trends for commodity pigs and semi-carcasses in the medium to long term will depend, in many respects, on whether a fall in imports can be replaced by supply from other countries, for example, Brazil, USA and Canada, once their product safety has been confirmed. On the whole, by the end of the year we expect prices for commodity pigs to be at 80-85 RUB/kg, which will increase the profitability of the production sector, taking into consideration the cost of feedstuffs as compared with 2013.

In 2013 the weighted average prices for poultry meat (carcass) were characterized by a relatively low volatility and a downward trend: at the end of December 2013 the weighted average price for GOST broiler carcasses was 75.6 rubles, which is 15.4% below the level of December 2012. The drop in poultry meat prices is due to increasing competition on the internal market and the limited possibilities for Russian poultry products to enter

external markets. In the near future it is firmly predicted that company market shares will continue to change as low-tech and small commodity producers exit the market. The concentration of poultry production in the Central and Southern Federal Districts will grow more rapidly compared with other regions.

Formostoftheyear,beef

priceswereunderpressure

fromthegrowingsupply

fromBelarusandlowpork

pricesinthefirstandlast

quartersoflastyear.




Further Development of Livestock Farming in Russia

Pork

According to the estimates of the National Meat Association, the Russian pork market in 2014 will be influenced by the following key factors:

• further epizootic outbreaks of ASF, both in Russia and in EU;

• the decision of the Federal Agency for Veterinary and Phytosanitary Supervision dated 28 January 2014 to suspend the supply of pork and other pig products from the EU to Russia is likely to remain in effect for a continuous period of time. Experts expect it to have a positive effect on the pig production economy in Russia owing to the growth in demand for domestic pigs and processed products; vertically integrated companies with their own pre-processing facilities will benefit most of all;

• the development of the federal budget’s debt in relation to the subsidizing of interest rates on investment loans;

• the knock-on effect on production growth as a result of the investments made during the favourable period of 2010-2012;

• high rates of decline in production in private farms and the enactment as of 1 May 2014 of the Customs Union’s Technical Regulation “On the Safety of Meat and Meat Products” (CU TR 034/2013) prohibiting the marketing of home-slaughtered meat.

According to the preliminary estimates of the National Meat Association, the pork production increase in 2014 may near 5%, which is below the figure of 2013 (10.6%). Moreover, pork imports are expected to decline owing to: the (probably, long-term) discontinuation of supply from EU and Ukraine due to ASF; the limited supply of pork and other pig products from USA, Canada and Brazil and the reduction in supply from Belarus owing to the decrease in the Belarusian livestock and production volumes. Consequently, we can expect a balanced demand and supply, which will keep prices at acceptable levels for investors.

Poultry meat

The production of poultry is anticipated to continue to grow in Russia in 2014, although, according to the outlook of the National Meat Association, its growth rates are likely to slow down compared with 2013 (5.3%). This is due to high market saturation, more intense competition as a result of increased supplies from Ukraine and Belarus, and the limited possibilities for Russian poultry products to enter external markets.

Poultry meat production will grow, mainly, owing to the commissioning of a number of new poultry enterprises, including large ones. In 2014 import poultry supplies to Russia are expected to decrease, especially mechanically recovered poultry meat.

Prices on the Russian poultry meat market will be dependent in many respects on pork prices. However, it should be noted that at present there are no reasons to indicate any significant price increases in this sector in future. On the whole, the fact that prices have stayed the same this year may be regarded as a positive factor, given their steady decrease over the last 2.5 years.

Beef

As mentioned above, the cattle production business will be characterized by two different trends: the dairy cattle livestock in the dairy farming industry is expected to continue to decline, whereas the specialized meat and mixed breed cattle stock in the beef farming industry is expected to continue to grow.

ABH Miratorg’s largest and most technically advanced Russian plant for cattle slaughter and pre-processing will start operating in 2014. When the plant reaches full capacity, it will increase the supply of high-quality Russian beef on the Russian retail market and in the HORECA segment.

Beef imports to Russia will be influenced in 2014 by three main factors: the ban on beef

imports from USA; the restricted supply of beef from the EU; and increasing competition with other meat types such as poultry and pork.

The gradual weakening of the ruble against the US dollar and euro is becoming a contributing factor to the competitiveness of Russian meat producers. With export prices maintained at the current level, the foreign trade cost of imported products will grow, which will help the prices for products of Russian enterprises.

Beef stock farming is not likely to see any significant inflow of investment in 2014 because of: investors’ uncertainty about the guarantee of current state support in the form of subsidies of interest on investment loans; the excessive supply of poultry; unclear prospects about Russia’s

negotiations for creating free trade zones with a number of countries and; the continuing threat of epizootic outbreaks of certain diseases, primarily, ASF. As a result, in 2015 the industry may be challenged by stagnating production volumes. Given the increasing rates of decline in pig livestock in private farms, pig production volumes in Russia may fall, which, given tariff quotas, will keep the prices at an acceptable level for investors.




Crop Grow ing Crop Grow ing

Crop growing is the starting point of the Company’s production process.

Our strategic target in this segment is to supply in full our internal raw material

requirements for the production of high-quality, safe and varied feedstuffs for all Miratorg’s

livestock divisions.

The quality of Miratorg’s meat consumed by Russians starts in the fields

Crop farming culture

381,000hectares – area

of cultivated land

1,200highly-trained

specialists

22million rubles –investment in

an agrochemical laboratory Total area of land

(thousand ha)Grain harvest (thousand tons)

Silage procurement volume* (thousand tons)

381+20.5%

512+72.4%

660+56.8%

131 176

2010 2010

216

228

123

2011 2011 2011

316

297

421

2012 2012 20122013 2013 2013

The Company owns and effectively manages one of the largest Russian land banks in the Belgorod, Kursk and Bryansk regions.

The quality of Miratorg’s meat sold in the Russian market starts in the fields where the Holding Company’s cereal farms grow wheat, triticale, barley, maize, peas, sunflowers and soybeans, and from pasture land perennial grasses and non-cereal crops – the ideal, environmentally-friendly stock feed.

Over 1,200 highly competent specialists work in the Holding Company’s cereal farms. We use the latest equipment, the most advanced technologies and unique approaches. Our crop farming culture starts with the careful and responsible treatment of land and the development of its potential for future generations.

The Company actively implements “precision agriculture” principles: soil is cultivated based on no-till technology, which prevents soil erosion. Owing to satellite field maps and agricultural machinery

with GPS navigation, we are able to manage our fields with maximum efficiency, fertilizing each area of the field highly accurately to an optimum level and minimizing the effects of machinery on the fertile soil layer. The Company’s seamless system, combining advanced technology and our experience and knowledge of land guarantees high annual crop yields and respect for our core agricultural asset – our land.

In order to develop farming technology further, the Company invested 22 mln rubles in an agrochemical laboratory in the Belgorod region, the most high-tech laboratory in Russia. The new laboratory has helped us to significantly improve our fertilization measurement accuracy, which, in turn, is contributing to greater efficiency in the use of fertilizers and control of costs: we know exactly the level required for all crops in every part of our fields.

A steady growth in the yields of basic crops (wheat, soybeans, barley, maize, peas, triticale, sunflowers, oats and rapeseeds)

is the tangible result of the Company’s long-term strategy for implementing the “precision agriculture” policy and the fine tuning of the entire production process in accordance with lean production principles.

Everydayourspecialists

inthefields,laboratories,

agronomistsandmachine

operatorsstrivetodotheir

workalittlebettereveryday

toproduceforyouhigh-

qualityanddeliciousmeat

madeinRussia.

* Silage procurement started at the same time as the launch of the cattle project.



Feedstu f fs P roduct ion Feedstu f fs P roduct ion

Feedstuffs are a prime element in the high-quality meat production technology. Balanced,

environmentally-friendly, safe, high-energy feed, rich in vitamins and microelements is a recipe for health and natural development of livestock at our farms.

Balanced feeding for our livestock

The development of our feedstuffs division – the expansion of production and the development of new food based on the geographical and climatic specifics of the regions where Miratorg breeds livestock – is a priority focus area of the Company’s long-term strategy.

Owing to a high level of technological infrastructure, automated production, the use of the latest techniques in the production organization and a balanced business model, we can provide our actively developing livestock breeding divisions in full with the feedstuffs they require.

The demand for high-quality feedstuffs to the highest biological safety standards is steadily growing. From 2014 the Company plans to increase its supply of feedstuffs to the open market.

Weappreciateour

consumers’loyalty.

Eachofour400highly

competentspecialists

workingatourfeedstuffs

millsistaskedevery

daywithacomplexand

importantjob–toproduce

high-qualityfeedstuffs,

thebasisforourhighest-

qualitymeat.

The most high-tech feedstuffs mill in Russia was opened in the Bryansk region

Mills capacity

Volume production

Ratio of feedstuffs production volume versus feedstuffs mills capacity (thousands tons)

1,460*1,400

278278

2010

630425

2011

1,100772

1,4601,067

2012 2013 2014 (plan)

* No new mills are planned to be commissioned, so the figure remains unchanged and indicates the maximum capacity.

1.46million tons –

divisional industrial capacity

450 highly-trained

specialists

100%level of feedstuffs

requirement produced internally



Pou ltr y P roduct ionPou ltr y P roduct ion

We believe that free choice is the basis for the development of the meat consumption culture in Russia and we seek to offer

our customers the widest range of high-quality meat products.

The most technically-advanced poultry

production in the country

The Company invested 20 bln rubles and three years of hard work to set up high-tech broiler poultry production facilities with the highest level of vertical integration in Russia: from feedstuffs made of corn grown ourselves to chilled semi-finished, pre-packed products for consumers.

The assets from this investment project are located in the Vygonichsky and Trubchevsky districts of the Bryansk region: a feedstuffs mill, 8 poultry sites, a hatching house, a broiler farm and a high-tech meat processing complex are already in operation. The poultry livestock numbers over 500 thousand.

In line with the business plan, the plant launched its first products at the beginning of 2014. The plant’s full capacity of 100 thousand tons of poultry meat a year will be reached after the launch of another 6 broiler farms and 4 poultry sites. In total, by the end of 2014 the Company plans to produce 30 mln commodity

broiler chickens. The automated poultry meat processing plant, the most technically-advanced in Russia, will produce more than 62 thousand tons of products – meat and a wide range of semi-finished products for retail and corporate customers.

Meat quality and safety come first for Miratorg. We use innovative solutions to keep our chickens healthy and to rear them in conditions as close as possible to the natural environment. Our poultry farms are built according to the Dutch PATIO technology which includes multi-tier modules, freedom of movement, a unique microclimate and lighting system and an automated feed and water supply. Not only do these elements create the best conditions for the natural growth of chickens but they also help us to attain efficiency performance levels on a par with leading global producers.

Innovative breeding technology guarantees poultry health and high-quality meat

Wehavedevelopedthemost

technically-advancedpoultry

meatproductionfacilities

inRussiafromscratch,as

weknow,fromexperience,

thathoweversaturated

orcompetitivethemarket

is,theconsumeralways

wantstochoosethebest.

AndtheCompany’smission

istodoitsbesttomake

thischoicesimpleand

convenientforthecustomer

andtomakeeachfamily’s

lifebetterbyoffering

Miratorg’shigh-quality

andaffordableproducts.

PATIO innovative technology

broiler chickens are grown in conditions as close as possible to their natural habitat. Chicks are hatched directly at the farm, thereby avoiding any stress caused by transportation from the hatchery to the site. Once hatched, chicks are supplied with feed and water immediately, which eliminates stress, increases the stock’s survival rate and improves weight gain during the first week of development.

Growing chickens without using genetically modified additives or growth promoters

feedstuffs are produced by using the most advanced equipment, with natural, environmentally-friendly raw materials. The feedstuffs quality is controlled by a laboratory with the latest equipment.

Humane treatment of poultry

owing to the use of preliminary gas stunning with a mixture of gases in a controlled atmosphere, birds are completely anaesthetized, which makes the slaughter process painless for chickens and eliminates the release of stress-related enzymes.

Over

20billion rubles –

total project investment

19poultry farms

and broiler farms

100,000tons of chilled meat and semi-

finished products a year



P ig Fa r ming P ig Fa r ming

Miratorg is the No. 1 pork producer in Russia. It is not an easy task to maintain a leading position in

this market segment – competition is high and the pig farming industry is developing intensely through

the rapid adoption of new technology and has already moved fundamentally to new, European-quality level.

Pork is the key business

Miratorg’s efficiency performance is comparable with the per-formance of German pig producers, the recog-nized leaders on the world market

Breeding sow stock (thousand units)

124+2.5%

55

2010

90

2011

121

2012 2013

We are proud to have always been at the forefront of this sector and to remain in this position, with our solutions and technology setting an example and the benchmark for the whole market. We know that improving the culture of nutrition in our large country requires collaborative efforts. We believe that by producing good-quality domestic pork we are helping all Russians to live a good and healthy life.

The high level of automation and biological safety of our farms make Miratorg’s high-quality pork affordable for all consumers.

Owing to our breeding facility with equipment from leading European manufacturers and our profound scientific approach to the organization of our production processes, Miratorg’s efficiency performance equals that of German pig producers, the recognized leaders on

the world market. The number of young commodity pigs per breeding sow has increased to reach 26.15 against 22.47 in Germany, and the average daily weight increase on feed has reached 800 grams against 753.

Our pig farming division comprises 27 high-tech pig complexes in environmentally-safe areas in the Belgorod and Kursk regions.

Increasing efficiency remains our key task. We are focused on developing the lean production system and increasing operational efficiency in order to reduce our meat cost, whilst at the same time maintaining its high quality and making it more affordable for millions of consumers throughout the country.

The Company has effectively achieved the objectives of its long-term strategy: in 2014 the pig farming division will

increase production by 9% to hit 390 thousand tons in live weight and will achieve its optimum level at the current stage of development.

Miratorg’shigh-quality

porkisaffordableforall

consumersowingto

themostadvanced

technologies,ahigh

levelofautomation

andthebiologicalsafety

ofourfarms.

Live weight

Carcass weight

Pork production (thousand tons)

Daily average pig weight (g/day)

356264

800

141138

2010

898

De

nm

ark

170130

2011

Fra

nce

796

281182

2012

Ru

ssia

400

2013

Bra

zil

830

Mir

ato

rg

Ge

rma

ny

763

124,000highly-productive

sows

356,000tons – pork production

in 2013

№1in the pork

industry



Beef P roduct ion Beef P roduct ion

The Company is creating Europe’s largest vertically integrated high-quality beef production complex. This project is unparalleled

in Russia, both in terms of its scope and the objective we aim to attain: to make beefsteak as affordable and customary as it has long been in USA, Great Britain, Canada, Australia

and Argentina – worldwide.

Breakthrough project

Our project is unparalleled in Russia in terms of technological equipment, efficiency, veterinary control levels and biological and industrial safety

The project, supported by the Government of the Russian Federation, the Ministry of Agriculture and Vnesheconombank was launched in 2010 in the Bryansk region. Its recipe of success: the specialized Aberdeen Angus beef breed that grazes on top quality open pastures in the moderate climate of the temperate zone of Russia, the Company’s unique competencies in the creation of vertically integrated businesses, the best international practices and highly skilled experts.

Cattle breeding is rightly said to be the most complex stock farming industry. A distinguishing feature of Miratorg’s project is that livestock is kept outdoors all the year round – in summer on vast pastures, and in winter in specialized winter areas supplied with wind-shelters, feeders and warm-water electric drinking stations. The cow gives birth to just one calf a year and growing a healthy calf, with a consistent feeding system and in safe conditions is not a simple task. We manage a herd of 180 thousand cattle, the largest in Europe, and are proud to match the performance of leading countries in the beef farming industry in terms of stock rearing and health and growth indicators.

The Company has put into operation the key production chain elements in the Bryansk and Kaliningrad regions: over 200 thousand ha of enclosed pastures with perennial grasses, 37 high-tech farms with the latest machinery and a feedlot where 45 thousand cattle can be kept at any one time.

Our project is unparalleled in Russia in terms of technological equipment, efficiency, veterinary control levels and biological and industrial safety. A slaughterhouse with an output of 400 thousand cattle a year will be in operation in July 2014 and will become the largest in Europe, representing a real breakthrough for our country in terms of the level of processing and the range of end products

From January 2014, the feedlot in the Bryansk region has been used for cows and small bulls that gain weight on a special grain diet to develop the famous marbled fatty veins. The first supplies of high-quality meat affordable for consumers on the Russian mass-market will be delivered as early as August 2014.

We are confident of our success in doubling the size of this project – a challenge that we are taking on in partnership with Vnesheconombank and with the support of the Government of the Russian Federation. Another

200 thousand ha of land, 30 new farms and additional feedlots in the Bryansk and Orel regions will increase the total Aberdeen Angus stock to 450 thousand.

Miratorghasalready

changedtheconsumers’

visionofthe“rightmeat”

thatRussiansshould

eatathomeandis

readytodoitagain–

bysupplyingthemarket

withatraditionalsteak

forthepeople:delicious,

high-qualityand

affordable.

200,000hectares

of agricultural land

110,000cattle – the largest

Aberdeen Angus cattle breeding herd

in Europe

130,000tons of high quality

beef a year



Meat P rocessingMeat P rocessing

Meat processing has a key role to play in Miratorg’s strategy to increase production volumes and extend

the range of the best Russian-produced meat products to improve the people’s

quality life.

Safe, delicious, convenient, for you

The SK Korocha is the largest and the most technically-advanced slaughter and meat processing enterprise in the country

The Company’s first meat processing complex – the SK Korocha – was launched at the beginning of 2009 in the Belgorod region. Today it is the largest and the most technically-advanced slaughter and meat processing enterprise in the country. A distinguishing feature of our complex is the level of production robotization and automation, unique in Russia, which can process virtually the whole pork carcass, producing over 300 products for retail and corporate customers.

In 2013 our production volume increased by 40% to reach 274.6 thousand tons of high-quality chilled pork and semi-finished products, including vinegar-pickled meat in cooking bags made using unique recipes.

In 2013 the enterprise, whose efficiency performance equals that of the leading world producers, launched Russia’s first high-tech complex for the production of case-ready consumer products, with an output of 72 thousand tons a year. The new production lines will enable a four-fold increase in the supply of high added-value products targeted at the retail market.

Using the most advanced systems help us to respond flexibly to consumer needs, constantly offering consumers something new to try. Miratorg’s chef is personally in charge of recipes; owing to the most up-to-date equipment and the best specialists in the industry, we can in a short time develop breakthrough products that are unique across the whole market, and which are changing the concept of meat dishes for millions of Russians.

The Company is utilizing its experience, best solutions and the most advanced technologies gained from its SK Korocha project, in the construction and equipping of other new meat processing assets: the poultry slaughter and processing plant and the cattle slaughter and processing complex, which will be put into operation in 2014 in the Bryansk region.

The SK Korocha has virtually reached its planned processing output of 3 mln pigs a year. Now the Company will focus on increasing the efficiency of the complex, reducing costs and fine-tuning the entire production chain. This is a main factor in controlling the product cost and, therefore, guaranteeing top quality and the most affordable products for our customers.

Meatshouldbesafe,

varied,nourishing,

deliciousandconvenient

foreverycustomer:

fromahousewife

planningacelebration

toaconfirmedbachelor

usedtospending

amaximumof20minutes

cookingdinner.

3,000,000hogs processed by SK Korocha

a year

274,000tons of chilled pork and semi-finished products a year

300products



P roduct ion of Semi-F in ished P roductsP roduct ion of Semi-F in ished P roducts

Miratorg-Zapad is unique in Russia in terms of the organization of its production processes, sanitary and hygiene safety standards

and technology. We are proud of our well-earned reputation as a reliable producer of high quality, semi-finished meat products,

whose quality meets leading global standards.

Fast, high quality,

varied

Miratorg-Zapad in the Kaliningrad region holds the leading position in the production of a wide range of semi-finished meat products

The demand for our products is steadily growing: in the second half of 2013 production volume grew by 30% against the first half of the year and one of the breaded production lines moved into round-the-clock production.

We produced 23 thousand tons of semi-finished products in 2013 and plan to increase the output by 60% to exceed 35 thousand tons in 2014.

Russian consumers greatly appreciate the quality and taste of our in-house branded products – Miratorg and Gurmana products, which hold leading positions on the market. They account for over 50% of the total production volume of the plant.

The number of major corporate customers, for whom Miratorg-Zapad produces semi-finished products according to unique, exclusive specifications, is also growing. It is not by chance that the world-famous Shake Shack restaurant chain, which opened its first restaurant in Moscow in December 2013, chose Miratorg

as an official supplier of its famous burgers using high-quality 100% natural Black Angus beef.

We can guarantee our customers European-level quality and compliance with top product safety standards: the complex was certified to IFS (International Food Standard) and SQMS (supplier quality management system) standards and was audited for the traceability of quality at all production stages – from receipt of raw materials to shipment of finished products to customers.

Miratorg-Zapad is one of a few Russian enterprises to have been assigned a European number, allowing it to supply products to European countries. Owing to the high level of automation, the effective production process organization and implementation of lean production principles, we are capable of competing on par with the leaders in the global food industry.

InRussiathismarketis

developingatanincredibly

rapidrateowing,inmany

respects,tofast-food

restaurants:McDonald’s,

BurgerKing,KFC,

PizzaHut,whichhave

introducedtotheRussian

consumeracompletely

newfoodcultureand

meatproductsthatcanbe

cookedintheminimum

timeandwithminimum

effort.

Sales volumes (thousand tons)

23+84%

5.2

2011

12.5

2012 2013

50 products

60,000tons of high quality,

semi-finished products a year

Our clients include –

МсDonald’s, Burger King,

KFC



T ra nspor t a nd Wa rehouse L og ist icsT ra nspor t a nd Wa rehouse L og ist ics

Delivering the product to the customer – easy to say but hard to do, especially, if your products are high quality, chilled meat and semi-finished

products with a maximum shelf life, even in high-tech packaging, of 21 days.

Just in time

The Company is constantly expanding its fleet of modern equipmentand developing its network of high-technology warehouses to guarantee the product quality to our customers

The Company’s meat processing plants are situated in the Kaliningrad, Belgorod and Bryansk regions and Miratorg’s high quality products are appreciated by customers across dozens of Russian regions: from the Urals to the Krasnodar Territory.

The meat consumption culture is based on the assumption that the rib eye steak, pork chop or fried chicken that you eat is fresh, safe and, of course, tasty. To guarantee these requirements, Miratorg has built Russia’s largest logistics chain of high-tech, low-temperature, automated distribution centers and a special-purpose vehicle fleet.

Growth in cargo turnover at distribution centers is maintained owing to consumer demand for Miratorg’s products and the Company’s regional expansion. In 2013, the Company’s vehicle fleet, comprising over 860 units of special-purpose equipment and machinery, transported 3.7 mln tons of cargo, 2.1 times more than in 2012. The cargo included grain,

foodstuffs, livestock and, high quality chilled and frozen meat products.

Temperature-controlled trucks of various cargo capacity are equipped with powerful refrigerating systems that can maintain temperatures of -25°C to +20°C, which means we can guarantee meat quality, even if we have to deliver meat thousands of kilometers away from our production centers.

In 2013 the Company upgraded the on-board vehicle monitoring system: these up-to-date satellite sensors improve the accuracy of control over our trucks, help to select optimum routes and increase the safety of drivers and other road users.

Miratorg’s long-term strategy is focused on the intense development of its logistics infrastructure. This will allow the Company’s new farms and plants to operate to their full capacity and allow consumers to buy top quality, affordable meat in their nearest shop.

In line with our business plan in 2013 we opened a new distribution center at a cost of 200 mln rubles in the Voronezh region: low-temperature chambers are equipped with the latest automated loading and unloading system, which ensures compliance with European-level sanitary and hygiene standards with minimal manual labour.

The Company is continuing to increase the capacity of its warehouse network by opening in 2014 high-tech class A distribution centers in Nizhny Novgorod and Rostov-on-Don.

Theleanproduction

systemhelpsustoreduce

costsandmitigaterisks

inthetransportand

warehousedivisions:first-

classexperts,innovative

technologyand,aboveall,

responsibilityforourwork,

formtheframeworkofour

culture.

Warehouse cargo turnover (thousand tons)

Number of equipment units

787.9+26.3%

860+18.8%

601 637

2010 2010

638 709

2011 2011

624724

2012 20122013 2013

40,000 tons – storage capacity

of 6 distribution centers at any

one time

860 vehicles

3.7million tons

of cargo transported



Distr ibut ionDistr ibut ion

Miratorg is the leading operator in the Russian meat and semi-finished meat products market; the distribution of food products is the final link in the Holding Company’s production chain. The Company has been continually expanding its customer network since its establishment in 1995 and today it comprises over 16,000 partners: the largest retail chains, leading meat processing enterprises,

restaurants, hotels and catering companies.

Our shop window

Miratorg’s brands can be found in hypermarkets, supermarkets, convenience stores and specialized butcheries, in nearly all regions of Russia

Owing to its developed distribution network Miratorg’s products can be found in almost all regions of the country. Our brands can be seen in hypermarkets and supermarkets, convenience shops and specialized butcheries in Moscow, Saint-Petersburg, Kaliningrad, Yekaterinburg, Chelyabinsk, Rostov-on-Don, Krasnodar, Nizhny Novgorod, Voronezh, Volgograd, Novosibirsk, Samara, Tver, Yaroslavl, Vladimir, Kaluga and dozens of other cities and towns.

Our high quality, guaranteed freshness, excellent service and flexible customer approach are the fundamental business principles, which will allow us to develop further.

We constantly study the market and look to offer an appropriate range of meat products at affordable prices.

We continued to implement our long-term strategy to increase in-house product sales and reduce imports. Owing to the launch of the vertically integrated poultry and meat production facilities in 2014, the share of high quality, in-house meat and semi-finished products will grow in 2014 to account for 70% of the total sales of the Holding Company.

Themeatconsumption

culturecanexistonly

ifthereisastrong

relationshipbetween

sellerandbuyer,based

onmutualrespectand

thedesirenotonlyto

supplytheconsumerwith

ahighquality,affordable

productbutalsotocreate

therightenvironment

forsustainablegrowth–

builtontheprincipleof

reasonableandrational

choice.

In-house production volume (thousand tons)

In-house products (%)

292+37.1%

63165

49

2010 2010

147

46

2011 2011

213 58

2012 20122013 2013

434,000 tons of products

sold per year

16,000partners –

distribution network

Over

300products



Cor porate Soc ia l R esponsibi l ityCor porate Soc ia l R esponsibi l ity

Miratorg is a leading operator in the Russian food market. For us, corporate social

responsibility means, above all, doing our work well and supplying consumers with high quality,

affordable Russian-produced meat.

Miratorg – a growing company

We are reviving Russia’s rural areas by creating new jobs and giving our employees a stable and secure future

The motivation to develop and expand, by changing our surrounding world for the better, is an integral part of our corporate culture. Our approach to corporate social responsibility is based on the assumption that business plays an important part not only in economic life but also in the life of society as a whole, helping to address the most complex problems faced by the country.

Guided by responsible business conduct principles, Miratorg sees corporate responsibility as a must for the long-term stable development of the Company. We undertake to take care of consumers, employees and the environment and to promote the development of the regions in which we work and live.

The Holding Company is a major taxpayer in the regions where it operates. At the end of 2013 we paid 4.83 bln rubles of taxes, one third of which was paid to regional budgets.

Projects in the following key sectors are priorities for our Company: human capital development; environmental protection; support of the country’s rural regions; and culture, education and children’s sport.

Each year Miratorg creates thousands of new jobs, primarily in the agribusiness sector, by offering good salaries, social benefits and, most importantly security about the future for rural people. We open up possibilities for youth development, by creating, from scratch, modern high-tech agriculture, renewing respect for the land and promoting the prestige of the profession.

The Company plans to double the number of employees in the Bryansk region by creating over 3 thousand new jobs at the Company’s high-tech enterprises in the region by 2016. In total, within the framework of the implementation of the Holding Company’s agribusiness projects in

the region, more than 6 thousand people, mainly from rural settlements, will be given job opportunities. The average salary of a Miratorg employee in the Bryansk region in 2013 was 24,000 rubles against 20,900 rubles on average in the region and 18,465 rubles in the agribusiness industry.

As a private investor, Miratorg aims to develop efficient modern production facilities and new jobs. The construction of comfortable housing facilities, primarily in rural areas, is a necessary condition for attracting highly qualified experts and promising young specialists to the industry. The Company is actively implementing a housing construction program for its employees.

The Company extensively builds housing for its employees, by creating in rural areas not only comfortable conditions for work but entire social infrastructures needed for modern-day life.

3,000 new jobs

in the Bryansk Region by 2016

16,500employees

40%of jobs created in rural

communities


72t o t h e c o n t e n t

Miratorg has built its second corporate cottage village – Uyutny, in the Belgorod region.

The area of over 9 ha comprises 49 one- and two-storey cottages and 4 eight-apartment blocks. As part of the project a kindergarten for 100 children with a covered swimming pool, sports and music halls will be built. The total investment in the project will be over 500 mln rubles.

In the Bryansk region, since 2011 the Company has invested more than 224 mln rubles in the construction of housing for employees at 33 farms – over 60 comfortable cottages, ready to move into and fully equipped, from household appliances to Internet access and cable TV. We are changing the perception of rural life by providing stability, comfortable and safe conditions for work and living, which is of special importance for the youth.

Last year, we started a unique All-Russia “Miratorg Generation” Program aimed at attracting talented young people to the agribusiness industry. The project is targeted at undergraduates and graduates of higher education institutions, PhD and master’s degree students, who are ready to develop together with the Company, acquiring new knowledge and applying it in practice. We offer young people the opportunity to gain unique practical experience at up-to-date Russian enterprises in crop growing, pig farming and meat processing divisions and to realize their potential with the industry leader.

We actively cooperate with the leading Russian higher education institutions, by taking part in the development of specialized training programs and involving foreign partners, particularly, McDonald’s, Danish Crown, John Deer, IKEA in on-site training.

We are certain that our approach to continuous development and the desire to learn and use best working practices fully serve the interests of employees and the Company and lay the foundation for the success of our mission: developing the meat consumption culture in Russia.

Following best international practices, we focus on the continuous search for and implementation of the most effective environmental safety solutions. Miratorg uses the most innovative technology. We are certain that investments in clean, safe production are fully justified investments and are a key condition for the long-term stable development of the Holding Company. In 2013 we invested more than 7 million rubles in the modernization of treatment facilities at the Kurasovsky Pig Complex in the Ivnyansky District, where back in 2003 the history of the Company’s pig farming division started.

Our new meat processing assets in the Bryansk region are equipped with up-to-date biological safety systems and high-tech treatment facilities, ensuring compliance with the strictest sanitary waste utilization norms and standards.

Miratorg closely cooperates with non-governmental environmental institutions and specialized state

institutions by participating in environmental programs at federal and regional levels. We are certain that our approach of maximum cooperation and transparency is the best and only policy and we use it as the basis for the Company’s long-term development strategy.

Environmentalprotection

isanabsolutepriorityof

Miratorg:westrictlyabide

byenvironmentalstandards

atalltheCompany’s

productionfacilities.

Safe,environmentally-

friendlyproduction,

thecarefulhandling

ofnaturalresources

andanunderstanding

ofourresponsibilityto

thefuturegeneration

aretheCompany’s

fundamentalguiding

principles.

Cor porate Soc ia l R esponsibi l ity

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