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Thai firm in major Russian poultry acquisition

By Vladislav Vorotnikov , 28-Jul-2015

Charoen Pokphand Foods is to invest US$680 million in the purchase of two poultry farms in Russia
Charoen Pokphand Foods is to invest US$680 million in the purchase of two poultry farms in Russia

Thailand-based company Charoen Pokphand Foods (CPF) is to invest US$680 million in the purchase of two major poultry farms in the Leningrad Oblast of Russia, according to an official company report. The deal includes the Severnayay and Voiskovitsy farms, which jointly produce 180,000 tonnes (t) of poultry per year. 

During the past decade, Agro Invest Brinky BV, which runs both poultry farms, has invested nearly US$200m in modernising their facilities, which has increased the production capacity of both assets by nearly sixfold.

Industry observers welcomed the deal, stating that CPF had chosen a good time to enter the Russian market with such a major acquisition, but suggested that the overall purchase cost might be too high.

“Severnaya is one of the largest poultry farms in Russia, with a good local market”, said Daria Snitko, deputy head of the Center for Economic Forecasting at Russia’s Gazprombank. “However, US$680m is significantly above the [average] market rate.

“If you were to build a poultry farm from the ground up, then investing in production capacity of around 100,000t would amount to about RUB5bn (US$85m). That said, production at the poultry farms is organised according to the highest Western standards, and this could have added value to the price of the transaction.”

According to CPF, total revenues for the two poultry farms last year was RUB16.9bn (US$289mn) compared with RUB12bn (US$205m) in 2013. Net profit was RUB5.1bn (US$87m) compared to RUB1.3bn (US$22m) a year earlier.

In a statement from the company, CPF’s president and CEO Adirek Sripratak said the deal would give CPF an opportunity to expand into the Russian market, providing the company with a strong presence in Moscow and St Petersburg.

Other industry participants agreed with him. “For CPF, purchasing these assets is a strategic move, which opens access to the retail sector and provides the company with a popular brand,” said Viktor Linnik, president of Russia’s largest meat producer Miratorg.

According to experts from Russian analytical agency SovEcon Vadim Syzov, this deal could start a major consolidation trend in the Russian market. With the overall size of Russia’s poultry market, at 4 million tonnes per year, CPF’s share will amount to about 5%.

In 2014, CPF’s management disclosed plans to invest up to US$2bn in Russia between now and 2020, so it is likely that this deal is not the last it will make in the country’s industry. However, since then, CPF’s investment plans may have been amended, following the devaluation of the Russian ruble at the end of last year.

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