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Business Plan

September 2015

MAGNAT CHILLED PORK PROJECT

TABLE OF CONTENTS

I. EXECUTIVE SUMMARY .......................................................................................................................... 1

Integrated Pork Production ........................................................................................................................ 1

Location Advantages ................................................................................................................................. 1

Market Opportunity .................................................................................................................................... 1

High Yield Production Plan ........................................................................................................................ 2

Experienced Leadership ............................................................................................................................ 2

Public Support ........................................................................................................................................... 2

Revenue and Earnings Potential ............................................................................................................... 3

Project Economics ..................................................................................................................................... 3

Financing Requirement ............................................................................................................................. 4

II. MEAT PRODUCTION INDUSTRY IN RUSSIA ....................................................................................... 1

Pork Production ......................................................................................................................................... 7

Pork Sector Structure ................................................................................................................................ 9

Pork Imports ............................................................................................................................................ 10

Customs Regulation of Meat Imports ...................................................................................................... 12

Pork Production and Consumption in the Central Federal District and Ivanovo Region ........................ 13

III. PROJECT LOCATION ......................................................................................................................... 15

Ilyinsky District, Ivanovo Region .............................................................................................................. 15

Advantages of Project Site ...................................................................................................................... 15

IV. MARKETS AND DEMAND .................................................................................................................. 19

Meat Consumption in Russia................................................................................................................... 21

Market Volume of Chilled Pork ................................................................................................................ 23

V. COMPETITION ...................................................................................................................................... 26

Price Competition .................................................................................................................................... 27

Regional Price Competition ..................................................................................................................... 29

Sales Channels ....................................................................................................................................... 29

Characteristics of Consumers ................................................................................................................. 31

Competition from Imports ........................................................................................................................ 31

Central Federal District Pork Production Projects ................................................................................... 31

Ivanovo Region Pork Production Projects ............................................................................................... 32

VI. PROJECT DESCRIPTION ................................................................................................................... 34

Vertically Integrated Pork Production ...................................................................................................... 34

Project Location ....................................................................................................................................... 34

Government Approval and Support ......................................................................................................... 35

Implementation Plan ................................................................................................................................ 36

Management Team ................................................................................................................................. 36

Project Participants .................................................................................................................................. 37

Expansion Strategy ................................................................................................................................. 38

VII. PLAN OF PRODUCTION .................................................................................................................... 40

Pig Breeding Operations ......................................................................................................................... 40

Slaughterhouse Operations ..................................................................................................................... 46

Staffing Plan ............................................................................................................................................ 50

VIII. PRODUCTION ECONOMICS ............................................................................................................ 52

Pig Breeding Complex Production Assumptions ..................................................................................... 52

Slaughterhouse Production Value at Capacity ........................................................................................ 53

Pig-breeding Complex Operating Costs .................................................................................................. 56

Slaughterhouse Operating Expenses ...................................................................................................... 59

Fixed Asset Maintenance Costs .............................................................................................................. 60

Administrative and Other Expenses ........................................................................................................ 60

IX. PRODUCTS .......................................................................................................................................... 63

X. SALES AND MARKETING ................................................................................................................... 64

Supply Agreements ................................................................................................................................. 64

Target Markets ........................................................................................................................................ 64

Distribution Channels .............................................................................................................................. 65

Marketing Plan ......................................................................................................................................... 65

Pricing ...................................................................................................................................................... 65

Competitive Advantages .......................................................................................................................... 65

XI. OWNERSHIP AND LEADERSHIP ...................................................................................................... 66

XII. FINANCING PROPOSAL.................................................................................................................... 69

Investment Budget ................................................................................................................................... 69

Capital Requirement ................................................................................................................................ 70

Financial Risk Mitigation .......................................................................................................................... 70

XIII. PROJECTED FINANCIAL PERFORMANCE .................................................................................... 71

Projected Operating Revenue and Expenses ......................................................................................... 71

Meat Products Trading ............................................................................................................................ 72

Costs Related to Financing ..................................................................................................................... 72

Tax Expenses .......................................................................................................................................... 73

Other Incomes and Expenses ................................................................................................................. 73

XIV. PROJECT EVALUATION .................................................................................................................. 76

Project Economic Indicators .................................................................................................................... 76

Project Risks ............................................................................................................................................ 77

XV. APPENDICES ..................................................................................................................................... 79

Appendix I: Project Manager Address .................................................................................................... 79

Appendix II: Certificates of land ownership ............................................................................................ 80

Appendix III: Letters of Intent and Quotations from Contractors ............................................................ 84

Appendix IV: Sanitation Standards ......................................................................................................... 85

Appendix V: Customer Purchase Agreements ....................................................................................... 86

Appendix VI: Financial Projections ......................................................................................................... 88

Appendix VII: Construction Project Investment Schedule .................................................................... 102

Appendix VIII: Term Sheet from Sberbank of Russia .......................................................................... 102

LIST OF TABLES

Table I: Pork Production Indices - 2005 Comparison ........................................................................... 8

Table II: Pork Production Indices - 2014 Comparison .......................................................................... 8

Table III: Target Consumers of Chilled and Frozen Pork ..................................................................... 30

Table IV: Technological Parameters for Pork Cooling ......................................................................... 49

Table V: Facilities Plan ............................................................................................................................ 51

Table VI: Pig Breeding Unit Production Matrix ..................................................................................... 52

Table VII: Boning Products - Annual Quantities and Value ................................................................ 53

Table VIII: Offal Products - Monthly Quantities and Value ................................................................ 54

Table IX: Total Value from all Production Categories .......................................................................... 56

Table X: Water Consumption - Pig Breeding Unit .............................................................................. 57

Table XI: Forage Ingredients - One Pig Breeding Unit ....................................................................... 58

Table XII: Slaughterhouse Natural Gas Requirement .......................................................................... 60

Table XIII: Pig Breeding Unit Staffing Budget ....................................................................................... 61

Table XIV: Slaughterhouse Staffing Plan .............................................................................................. 62

Table XV: Chilled Pork Supply Agreements .......................................................................................... 64

Table XVI: Construction and Initiation Costs by Facility ..................................................................... 69

Table XVII: Total Construction and Initiation Costs ............................................................................. 70

Table XVIII: Projected Sales and Costs after Investment Stage - Summary ..................................... 71

Table XIX: Total Investment Schedule ................................................................................................... 72

Table XX: Pig Breeding Complex - Implied Cash Flow Summary ..................................................... 74

Table XXI: Slaughterhouse Operation - Cash Flow Summary........................................................... 75

Table XXII: Economic Indicators for Chilled Pork Project ................................................................... 76

LIST OF CHARTS

Chart I: Meat Production in Russia - 1995-2014 .................................................................................... 6

Chart II: Russia Pork Production .............................................................................................................. 7

Chart III: Historic and Forceast Pork Production by Producer Segment ............................................. 9

Chart IV: Russian Pork Market by Producer ......................................................................................... 10

Chart V: Pork Resources in Russia ........................................................................................................ 11

Chart VI: Pork Imports ............................................................................................................................. 12

Chart VII: Hog Population - 2007 to 2014 ............................................................................................. 13

Chart VIII: Regional Pork Production by Carcass Weight ................................................................... 14

Chart IX: Structure of Pork Production in Ivanovo Region ................................................................. 14

Chart IV (A): Pork Resources in Russia ................................................................................................. 20

Chart X: Historic and Forecast Meat Consumption in Russia ............................................................. 22

Chart XI: Meat Consumption in Central Federal District ...................................................................... 24

Chart XII: National and Regional Pork Consumption ........................................................................... 25

Chart XIII: Pork Producer Brand Name Recognition ............................................................................ 26

Chart XIV: Wholesales Pork Selling Prices in Russia - 2008-2014 ................................................... 28

Chart XV: Retail Pork Prices in Russia - 2008-2014 ........................................................................... 28

Chart XVI: Consumer Preferences for Chilled and Frozen Pork .......................................................... 30

Chart XVII: Consumer Preferences for Meat Packaging ...................................................................... 31

Chart XVIII: Pig Breeding and Slaughterhouse Staffing Mix .............................................................. 50

Chart XIX: Mix of Pig Breeding Expenses ............................................................................................. 58

Chart XX: Slaughterhouse Expense Mix ................................................................................................ 59

LIST OF EXHIBITS

Exhibit I: Ivanovo Region, Ilyinski District ............................................................................................ 16

Exhibit II: Ilyinski District, Ivanovskaya Town and Magnat Operations Sites ................................... 17

Exhibit III: Magnat Pork Production Sites in Ilyinski District ............................................................... 18

Exhibit III (A): Magnat Pork Production Sites Development ................................................................ 19

Exhibit IV: Operation Site Description .................................................................................................... 35

Exhibit V: Corporate Organizational Structure ..................................................................................... 37

Exhibit VI: Proposed Project Contractors ............................................................................................. 38

Exhibit VII: Project Implementation Schedule....................................................................................... 39

Exhibit VIII: Example Stalls for Keeping, Farrowing and Milking......................................................... 42

Exhibit IX: Example Growing and Fattening Pens ................................................................................ 43

Exhibit X: Example Feed Transport System.......................................................................................... 45

Exhibit XI: Slaughtering and Pre-processing Steps ............................................................................. 48

Exhibit XII: Boning Step .......................................................................................................................... 49

Magnat Chilled Pork Project | Business Plan

September 2015 1

I. EXECUTIVE SUMMARY

Integrated Pork Production

Magnat CJSC has been organized to produce chilled porkmeat through an integrated pig breeding and slaughter operation located in Ivanovo Region in European Russia. The planned capacity of each of four planned pig breeding units is 75,000 head of pigs each year. The Slaughterhouse is designed to process up to 316,880 pigs per year at maximum capacity. We expect to produce 24,396 tons of porkmeat annually in the form of fresh chilled pork sides, boned pork and offal composed of lung, heart and liver organs. A total of twenty months will be required to construct the planned facilities, acquire brood sows, initiate breeding and grow the first group of pigs for slaughter. We expect to realize sales of tradable pigs within twenty-eight months and our first chilled porkmeat in thirty months after beginning construction. We have secured two sites for the pig breeding and slaughterhouse operations. A well qualified design, engineering and construction firm has been selected. We have also chosen reliable suppliers of high quality equipment for both the pig breeding and slaughterhouse operations. After securing financing we are prepared to promptly begin construction and initiate production. With an estimated wholesale value of annual production at full capacity near US$164 million, we plan to sell our porkmeat products in Russia’s principal metropolitan markets of Moscow and St. Petersburg as well as local and regional markets near our production site in Ivanovo Region. Through our preliminary marketing efforts we have entered into agreements with four separate customers in the meat wholesale and distribution sector in Russia. Together these agreements require us to deliver 73,000 tons of fresh chilled pork annually beginning in the year 2017.

Location Advantages

For the Pig Breeding Complex we have chosen 44.0 hectares of agricultural land in the Ilyinsky District of western Ivanovo Region. It will be possible to maintain all required sanitary protection zones at this site. Likewise we have chosen a nearby site comprised of 8.6 hectares of agricultural land for construction of the Slaughterhouse. Both sites are near electric power and gas distribution networks

The area’s economy is diversified across light manufacturing of textiles, agricultural products and tourism. Most of the region’s population lives in urban centers and are experienced in manufacturing, assembly and commercial agriculture processes, providing a ready resource of qualified workers.

We believe the sites present optimal location from which to distribute our products. The area is served by paved roads that connect to major highways leading in all directions. We will have easy access by refrigerated truck to major wholesale and retail food markets in the Moscow and St. Petersburg metropolitan areas as well as local and regional markets.

Market Opportunity

We believe current market conditions present a particularly compelling opportunity for the type of modern pig breeding and pork production operations we have designed. The meat production market in Russia is highly fragmented. None of the top producers have a dominant competitive position and none have significant brand recognition among consumers. The meat processing segment suffers from overproduction of porkmeat products at the lower end of the market. We believe this leaves room for a new competitor that is committed to bringing high quality products to the market and to developing a premium brand. Particularly as the Russian economy returns to economic vigor, we believe consumers will increasingly demand wider choice and higher quality of meat products.


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We believe it is timely to bring new porkmeat supply to Russia’s food market. There is currently a shortage of high-quality porkmeat in the market. Even in the large chain stores, Russian consumers often get defrosted imported meat in the guise of fresh meat. What is more, the level of consumption of fresh chilled meat is growing as income levels rise in the wake of the world recession in 2009 to 2010. Consumers are gaining an understanding of the goodness of fresh meat consumption instead of processed meat foods such as sausages and frankfurters. Although meat consumption in Russia is on the rise, it remains below historic highs in the 1990s and per capita meat consumption is below world averages in developed countries. We believe that this gives us latitude to launch our meat production business and reach a position of strength with high quality products before the market reaches maturity. Both regional and local markets are characterized by low penetration rates of high quality porkmeat products. Consumption of meat in the Moscow region is higher than in other regions, approximately 65 kilograms per person per year compared to 61 kilograms average for the country as a whole. Indeed, about 20% of meat consumption volume in the country is accounted for by the greater Moscow metropolitan area. Domestic producers supply a minor portion of the meat consumed in the Moscow area, leaving the region greatly dependent on imports. What is more, saturation of the market for chilled porkmeat in the immediate area around our planned pork production site in Ivanovo Region is estimated at 27%, providing us with significant opportunity to capture market share in the local market.

High Yield Production Plan To supply our meat processing facility with a reliable supply of high quality live weight pigs, we plan to rely on advanced pig growing practices developed in Canada which are noted for pedigree breeding sows and an early weaning term for piglets. The initial stock of breeding sows for our operation will be delivered directly from Canada. Our pig breeding operation also benefits from the use of modern equipment from Denmark for securing and feeding both brood sows and piglets. Each of the four units of our Pig Breeding Complex will be designed to house up to 3,000 productive sows. Following prudent animal husbandry principals, the typical sow can produce as many as 24 to 25 piglets per year. Based on typical litter size and our planned herd size, each unit of the breeding operation could produce approximately 75,000 pigs for slaughter each year. This production level could yield 7,920 tons of live weight pigs annually from each unit of the complex.

Experienced Leadership Our management team led by Mr. Alexey Savraskin has extensive experience in both pig breeding and slaughterhouse operations. Our team members bring to the company expertise in engineering, construction and agricultural production. Specialists of the team have brought to successful realization similar projects in Russia’s Krasnodar Territory, Belgorod Region, Orenburg Region and Vladimir Region.

Public Support Magnat LLC and the Ivanovo Regional government have entered into a working agreement for the development of the Magnat Chilled Pork Project. The shortage of meat in Russia has been recognized by the federal government as a matter of national security. Persistent deficit of animal breeding against the background of structural shortcoming of the sector and threatening demographic changes in rural territory has led policy makers in Russia to raise animal breeding development to a level of national safety. Continued low meat production at current low levels and the risk of disruption in the food supply is deemed a threat to national security. Thus government agencies have been providing support for agricultural projects within the bounds of the national program Development of Agribusiness Industry. Beginning in 2006, the Russian government has made pork production a national priority. Over US$8 billion was invested into the industry through the National Priority Project on Agricultural Sector Development in the years 2006 through 2007 and the State Program of Agricultural Development in the


September 2015 3

years 2008 through 2014. Approximately 750 swine-breeding facilities are either put into operation or reconstructed. In 2010, Russia adopted a new Food Safety Doctrine, calling for 85% self-sufficiency in total meat and poultry by 2020. The policy calls for innovation in domestic meat production, development of the retail market for food, modernization of materials and technology, and support of small agricultural businesses. Consequently, domestic pork production has been increasing in Russia. Nonetheless, pork production in the country still falls short of levels achieved in the early 1990s. What is more Russia has trailed Europe and North America in terms of efficiency and effectiveness of pork production operations.

Revenue and Earnings Potential While we expect to record sales as early as the first year of the project plan through our porkmeat trading operation and in the second year from sales of our own chilled pork. The pig breeding and slaughterhouse operations are estimated to begin generating positive cash flow beginning in the third year of the project. In Year 4, the first full year of operation after the construction and commissioning of our facilities and equipment, we estimate a pretax profit of US$77.69 million on US$ 227.74 million in total sales of pork meat products. We expect profit margins to trend higher over time and that profits will be driven principally by higher sales volumes as we penetrate new markets and add new customer relationships. We expect sales of porkmeat products to ramp to US$437.97 million in Year 8 of the projection period, providing US$168.19 million in pretax income through a gross margin of 38.40%.

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Year 4 Year 5 Year 6 Year 7 Year 8

Do

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in M

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ns Sales

Earnings Before Taxes

Gross Margin

Project Economics We have evaluated our operations on a stand alone basis using live weight and tradable pig prices in the open market. We estimate the four planned units in our Pig Breeding Complex can generate sufficient cash flows to result in an internal rate of return near 29.5% for that portion the required investment to completed the facility. The planned Slaughterhouse operation is estimated to have an internal rate of return of 56.28%. We estimate that the present value of respective future cash flows discounted at a rate of 8%.


September 2015 4

Economic Indicators Pig Breeding

Complex Slaughterhouse

Operation

Internal rate of return 29.5% 56.28%

Net present value US$285.1 million US$220.3 million

Payback period 5.08 Years 3.42 Years

Discounted payback period 5.42 Years 3.5 Years

Profitability index 3.57 8.79

Budget Item Required

Investment in US$ % Share of Total

Budget

Initial expenditures $354,838.71 0.19

Construction costs $152,910,337.11 81.89

Purchase of investment sites $1,870,967.74 1.00

Design, engineering, survey works, preliminary permits $4,720,322.58 2.53

Utility hook-up (electicity and gas) $4,467,741.94 2.39

Building and assembly jobs $85,542,695.94 45.81

Purchase and installation of equipment $48,341,363.25 25.89

Personnel training $90,322.58 0.05

Purchase of pedigree livestock $7,876,923.08 4.22

Operating expenditures $25,131,187.91 13.46

Organization of trading activity $5,000,000.00 2.68

Organizational and management costs of the project $3,330,774.19 1.78

Total

$186,727,137.92

100.0%

Financing Requirement We estimate the required funding to implement the Magnat Chilled Pork Project is US$186.7 million. The largest element of our budget is related to the construction of our Pig Breeding and Slaughterhouse facilities, which is expected to require US$152.9 million or 81.9% of the the budget. Building and assembly work is expected to require approximately US$85.5 million or 45.81% of the total budget. The purchase and installation of equipment will require US$48.3 million or 25.9% of the budget. Construction cost estimates of the four units that comprise the Pig Breeding Complex reflect an assumed 15% discount compared to estimates of a single unit facility. The founder of Magnat have invested more than US$ 1.5 million in the project in the form of the project sites and cash for covering initial costs and for covering costs for designing works. The first site composed of 44.0 hectares has been purchased from Illyinski District and ownership documentation is available. The second site composed of 8.6 hectares and currently owned by Illyinski District has been reserved. One of largest banks in Russia is willing to finance up to 80% of the project budget, it is about US$130.7 million, term sheet from the bank is available. The balance of the required capital is about US$53.0 - US$56.0 million could be sourced from a joint venture partners we look for.

In according to Term Sheet from the bank we could execute this project by stand alone business Units (subprojects). A budget of the first one is about US$48-US$49 million. For its construction US$19.0- US$20 million is required from potential equity partner.


September 2015 5

Current Status of the Project

A procedure of Due Diligencer of the project has been completed by Sberbank of Russia. Term Sheet

from Sberbank is available. Sberbank is ready to finance up to 80% of all project costs.

Designing works have been completed in June 2015. We expect getting all permits for construction in September 2015 for official applying for governmental financing support which is granted by our laws. We look for equity partner to be financed totally.


September 2015 6

II. MEAT PRODUCTION INDUSTRY IN RUSSIA Beginning in the early 1990s through 2001, meat production in Russia was in steady decline. A tepid recovery begain in 2002, but by 2007 meat production still had not recovered to levels observed in 1992. In 1992, 9.3 million tons of meat of all kinds were produced in Russia, whereas in 2007 a total of 5.7 million of tons were produced. In 1992, Russia was in fourth place in the world in terms of the absolute volume of meat production, leaving Russia inferior only to China, the United States and Brazil. By 2008, Russia had slipped to eighth place among other meat producing countries in the world. The fate of Russia meat production is also told in the population of livestock. Over the past nineteen years the number of farm animals has deeply reduced. From 1995 to 2014 the number of cattle declined from 52.2 million to 21.4 million animals. The pig population eroded from 32.5 million in 1995 to 19.6 million head in 2014. The population of sheep and goats was reduced from 51.4 million in 1995 to 20.9 million head in 2014. The Russian Federation’s Ministry of Agriculture has developed a “Strategy for the Development of the Food and Processing Industry through 2020.” It is aimed at increasing production output; modernizing and expanding capacities; enhancing competitive recovery; and creating conditions for greater import substitution; and boosting Russia’s export potential. To this end, a total of 778 billion rubles will be invested from 2013 to 2020. It is expected that by 2020 investment will grow by 1.2 times over the level in 2013 with the goal of increasing food production by 1.3 times over the 2013 by the year 2020.

Chart I: Meat Production in Russia - 1995-2014

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1995 - 2003 - 2006 2007 2008 2009 2010 2011 2012 2013 2014

Other

Mutton

Poultry

Pork

Beef

Tons in Thousands Source: Rosstat, Ministry of Agriculture and Solev Marketing Research

The commercial meat production segment has been under pressure in recent years, driving a considerable number of livestock breeders into poor financial condition. There have been a number of bankruptcies. This has resulted in an underdevelopment of market infrastructure, a decrease in stock selection and breeding. Private farms, which produce over half of the meat and poultry in Russia, have also declined. An irregular flow of investment into the sector is one of principal factors contributing to the


September 2015 7

reduction of production of meat animal breeding in the commercial segment. Furthermore, there has been a decrease in the rural population, as working age people move to urban areas for better jobs. If the meat production of agricultural enterprises remains unchanged over the next ten years, total meat production is not expected to keep pace with population increases. Meat production could fall down. Russia domestic production may meet up to 70% of the country’s meat and poultry requirement and be forced to import the balance. Persistent deficit of animal breeding against the background of structural shortcoming of the sector and threatening demographic changes in rural territory has led policy makers in Russia to raise animal breeding development to a level of national safety. Continued low meat and poultry production at current low levels and the risk of disruption in the food supply is deemed a threat to national security.

Pork Production The National Union of Swine Breeders based in Moscow, Russia reports that pork production declined dramatically through the 1990s and in the early years after the turn of the century. In 1992, Russia produced 2,984 thousand tons of pork by slauther weight. By 2005, pork production had declined to 1,520 thousand tons. This was due in part to inefficiencies in commercial pork operations. In past years Russia trailed Europe and North America in terms of efficiency and effectiveness of pork production techniques. We believe this presents a particularly compelling opportunity for the type of modern pig breeding and pork production operations we have designed.

Chart II: Russia Pork Production

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2 000

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3 500

1992 - 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Tons in Thousands Source: National Union of Swine Breeders, Moscow, Russia

Beginning in 2006, the Russian government has made pork production a national priority. Over US$8 billion was invested into the industry through the National Priority Project on Agricultural Sector Development in the year 2006 through 2007 and the State Program of Agricultural Development in the year 2008 through 2014. Approximately 750 swine-breeding facilities were either put into operation or reconstructed. Consequently, domestic pork production has been increasing in Russia. Nonetheless, pork production in the country still falls short of levels achieved in the early 1990s. In 2013, according to preliminary estimates by Rosstat, the Russia pork market grew by 5% and reached a volume of 2.8 million tons. This was a result of increasing of domestic production compared to the prior year.


September 2015 8

Table I: Pork Production Indices - 2005 Comparison

Index Unit of

Measure Europe, North

America

Russian Agricultural Enterprises

Russian Private Farming

Pigs reared per sow per year Head 27 18 14

Meat production per sow per year Kilogram 2,190 1,400 1,082

Average daily gain of fatteners Grams 778 520 334

Fattening feed conversion rate Kilograms 2.76 5.6 Up to 8

Pre-slaughter period Days 160 200 270

Slaughter meat yield % 79% 69% 57%

Lean meat yield % 63% 52% 46% - 48%

Source: National Union of Pork Breeders, Moscow, Russia

Table II: Pork Production Indices - 2014 Comparison

Index Unit of

Measure Europe, North

America Russia High-

Efficiency Russia

Effective Russia Low-

Efficiency

Pigs reared per sow per year Head 27 25 24 18

Meat production per sow per year Kilogram 2,190 2,100 2,016 1,400

Average daily gain of fatteners Grams 778 760 680 520

Fattening feed conversion rate Kilograms 2.76 3.0 3.6 5.6

Pre-slaughter period Days 160 168 175 200

Slaughter meat yield % 79% 75% 73% 69%

Lean meat yield % 63% 60% 58% 52%

Source: National Union of Pork Breeders, Moscow, Russia

Commerical production represented 60% of total pork production in 1992, but by 2005, that share had declined to 28%. In stark contrast, so-called “farm yard” production of pork remained flat during from 1992 to 2005 at 1,100 thousand tons. Thus as a share of total pork production, the market share of individual farms increased from 40% in 1992 to 72% in 2005. However, since 2005, the share of pork production from private farms has fallen both in total volume and as a percentage of the total market. By 2014, private farms produced 833 thousand tons or approximately 30% of total production in that year. The decline in pork production by private farming units must be replaced by so-called industrial or commercial pork producers. The renaissance of commercial pork production in Russia has come on the heals of improved animal husbandry practices as well as the adoption of pork breeds with excellent genetics. The National Union of Swine Breeders reports that in 2005 only 5% of commercial pork producers were using breeds with enchanced genetics. Only 9% were using modern animal husbandry practices. The 86% balance of commercial producers were still using outdated farming and legacy pig breeds. By 2014, the situation


September 2015 9

reversed. As much as 80% of commercial pork producers were using modern practices and enhanced breeds. As a consequence of these changes, the Russian pork production sector has achieved results closer to averages achieved in Europe and North America.

Chart III: Historic and Forceast Pork Production by Producer Segment

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1992 - 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 … 2020

Private

Commercial


Pork Sector Structure The pork production market in Russia is highly fragmented. In 2014, the fifteen largest commercial pork producers in Russia provided only 44% of total production by live weight. The 56% balance of total production was provided by hundreds of commercial and private farm producers. Market consolidation is expected in coming years. The National Union of Swine Breeders predict that the top fifteen producers will represent 65% of the total market.


September 2015 10

Chart IV: Russian Pork Market by Producer


In 2014, approximately 19.6 million pigs were sent to slaughter and subsequent dressing into various porkmeat cuts. Approximately 5 million or 20% of these pigs were slaughtered at private farms in essentially ‘back yard’ conditions. About 12.9 million or 68% of these pigs were slaughtered at plants lacking in modern sanitary or veterinary practices and without deep dressing capacity. Included in this group were about 3.82 million pigs or 20% of the total that were handled at outdated plants that cannot be modernized. Only about 2.3 million or 12% of pigs sent to slaughter in 2014, were handled at plants using modern sanitary and veterinary practices. A significant difference in slaughter practices today compard to the past is that slaughterhouses were built for proprietary use by meat processing plants. Of course, today these slaughterhouses and meat processing plants are physically outdated. In fact, only 6%-8% of the meat processing plants in Russia have slaughterhouses that can produce the quality products meeting European standards. To revive them in the same form is economically unreasonable. That is why today the main aim is creating of a whole sector which is at the intersection of agriculture, including animal breeding and meat processing in the form of slaughter productions and slaughtering of livestock.

Pork Imports According to data of Federal Customs Service of Russia, in 2014 imports of fresh and frozen pork meat in Russia (excluding poultry, liveweight, offals and pork fat ) were 379.0 (42.0% less in compare with previous year) thousands tons in spite of quotas and high tariffs imposed by Russian authorities. This compares to 2013, when imported pork meat totaled 653.0 thousands tons inslauther weight. The reduction of import was caused by a number of restrictions were imposed by Rosselkhoznadzor on import of pork as from particular enterprises as from countries, whose production doesn't meet Russian veterinary and sanitary standards. So, for example, one of key suppliers of pork to Russia were USA (11,25% of the total amount of import). Now import of pork from this country got under a ban of


September 2015 11

Rosselkhoznadzor and, now the share of the USA in the total amount of import of pork to Russia made only 0,3%. Imports of the highest quality meats to the Moscow market originate principally in Germany and imports to St. Petersburg arrive from Lithuania and Finland. Meats in lower quality categories are imported principally from Belarus and Ukraine. Nowday a share of import of meat from Ukraine is declined up to zero Prices of prime meat products, even with custom duty, are lower than prices of domestically produced meat. Russia is among countries with the highest growth in food inflation in Europe. Prices of meat and meat foods in Russia for the period 2007 to 2014 grew by 30.0%, while in the European Union meat prices increased only 5.1%. Imports of porkmeat has increased over the past six years from 585,000 tons in 2006 to 802,000 tons in 2012. The National Union of Swine Breeders estimates porkmeat imports could decline to approximately 439,000 tons by 2020 as domestic production increases. Domestic production oflive weight pork was measured at 2.55 million tons in 2013 and at 2.8 million tons in 2014. The National Union of Swine Breeders would like to increase this amount up to 3.2 million tons by 2020. Expiration date of fresh chilled meat is three days on meat that has been packed without vacuum packing. The expiration date of well-packaged fresh meat can be as long as twenty-one days. Therefore only a small portion of imported pork is a chilled meat. More than 90% of imported pork is frozen at its origination point. Russia still strongly depends on import of pork from one side and at the same time it makes pork production in Russia very attractive for investors.

Chart V: Pork Resources in Russia



September 2015 12

Chart VI: Pork Imports


Customs Regulation of Meat Imports Russian government has been trying to create conditions to increase domestic meat production. Restrictions on the importation of meat into the country have been imposed since 2003. For example, in 2013 quotas on import of pork in Russia were about 430,000 tons, a reduced level from 515,000 tons in 2005. The main countries importing pork to Russia are Brazil, Denmark, USA, Germany, Lithuania and Finland. Main importers of meat are wholesale trading companies. In recent years real imports have exceeded the quotas. Russia joined the World Trade Organization (WTO) in September 2012. That membership is expected to have an impact on Russia’s pork industry policies. Nonetheless, after joining the WTO, Russia’s import quotas are unchanged. However, customs duties on imports within the quota have been reduced to zero from 15%. Duties on imports over the quota have been reduced from 75% to 65%. The duty on live pigs for slaughter, which are imported to Russia on an out-of-quota basis, is reduced to 5% after joining the WTO from 40% previously. The duty on pork by-products, which is also an out-of-quota category, has been reduced to 15% from 25%. However, pork derivatives such as fat-back, by-products and live pigs are not included in the quota basis. These items have been protected from customs duties since 2010. Now after joining the WTO duties on pork derivatives are returned to 2006 levels. The reduction in import controls after Russia joining the WTO is expected to have a particular impact on the importation of live pigs into Russia. However, the situation is opposite. By estimates of the Federal Customs Service 80 thousand tons of pork in live weight was imported in Russia by the end of 2009. This indicator was 4 thousand only b the end of 2013 being reduced annually, to 53 thousand tons in 2010, to 47 thousand tons in 2011 and to 17 thousand tons in 2012. In 2013 and 2014 such amount was near zero. Probably such situation could be explained by barriers established by Rosselkhoznadzor and by situation connected with crisis in Ukraine.


September 2015 13

Pork Production and Consumption in the Central Federal District and Ivanovo Region The most populous of the eight federal districts in the Russian Federation, the Central Federal District (CFD) has at its center the metropolitan area of Moscow. Over 80% of the population in the Central Federal District resides in urban areas. Along with the Ivanovo District where we propose to locate our operations, we expect the CFD to be a principal market for our chilled pork products. The CFD represents over one-third of national retail sales of meat and is our principal geographic market. The hog population in the CFD grew in the period between 2007 and 2011, but experienced a 15% decline in 2012 to 5.1 million head. But in 2013 and 2014 we could see a 14.8% growth again. Growth patterns differed in neighboring Invanovo Region where hog populations decreased in 2008 by as much as one-third. The decline continued through 2011. However, in 2012 the situation reversed and the hog population increased by 15% as in the CFD, but in 2013 and 2014 we could see a reduction of hog population by 11.8% to 15.7 thousand heads.

Chart VII: Hog Population - 2007 to 2014

Central Federal District Ivanovo Region

Source: Rosstat

Pork production in carcass weight in the CFD grew at a relatively rapid pace in the period beginning 2007 and ending 2014. Contributing to the growth was a number of large commercial pig operations were commissioned in 2009 and 2013. According to preliminary estimates by Rosstat, in 2013 and 2014 pork meat production grew by 30% and output exceeded 860.0 thousand tons. In 2013 and 2014, production of fresh pork in the CFD increased by 29%, reaching 489,200 tons. Fresh pork production in the Ivanovo Region began developing in 2010, reaching 523,400 tons in 2014. Historically, frozen pork has been produced in smaller volumes than fresh pork. However, beginning in 2011, production of frozen pork has been growing and has increased almost seven-fold over the last five years. In 2014, production of frozen pork in CFD reached 60.0 thousand tons, it is 7%-8% of total amount of frozen pork produced in the CFD.

The majority of pork produced in the Ivanovo Region, where we intend to locate our facilities, comes from individual farms. That said, the share of individual farms as a percentage of total production is declining. This is also the general trend in the CFD. Rosstat estimates 24% of pork production in the Ivanovo Region is from agriculture organizations or commercial farms. The share of individual farms in the total production of pork in live weight is decreasing, while the share of agricultural organizations is increasing. In 2014, the share of individual farms was 65%, which was 300 basis points less than in 2012 and the share of agricultural organizations grew during this year by 300 basis points to 26%.


September 2015 14

Chart VIII: Regional Pork Production by Carcass Weight Central Federal District Ivanovo Region

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Chart IX: Structure of Pork Production in Ivanovo Region

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III. PROJECT LOCATION

Ilyinsky District, Ivanovo Region We propose to locate our pork operations in the Ilyinsky District of the Ivanovo Region. Ivanovo is a federal subject of Russia with a population near 1.1 million people, most of whom live in urban centers. It is positioned in the central part of European Russia. The famed Volga River flows through the north. The most developed segment of the Ivanovo economy is textiles, including clothing and shoes. Textile business dates backs three centuries and today the region produces nearly half of Russia’s domestic apparel and shoes and one-third of the country’s cotton. At least half of the region’s industrial workers are occupied in the production of clothes and shoes. Ivanovo City is known as the “City of Printed Cotton” and is sometimes referred to as the Russian Manchester. The Ivanovo economy has diversified into manufacturing of durable goods, including mobile cranes, looms, automotive parts and machine tools. Woodworking, pulp and paper production has also become important and benefit from heavy forestation in the area. The food industry is also important. Sausage, canned meats, milk, mayonnaise, flour, cereal and pasta are among the most significant food products. Ivanovo has a relatively well developed travel industry, which capitalizes on the moderate climate with warm summers and slightly frosty winters. The old artistic trades of lacquer work and miniature painting are still practiced and benefit from health trade with tourists. The communities of Ivanovo City and Kineshma are the two principal transportation hubs in the area. The main highways are the M7 Volga and the A113 Kostrama. There are over 500 kilometers of railways in Ivanovo. The Volga River provides connection to inter-regional and international shipping. There is freight port in Kineshma and five other river ports. Ilyinsky District is an administrative center of Ivanovo Region at its western-most edge. About one-third of the 9,700 population lives in the urban center. It is positioned approximately 200 kilometers from Moscow and 700 kilometers from St. Petersburg.

Advantages of Project Site Implementation of our project requires purchasing a site for the construction of pig-breeding complex and the Slaughterhouse. We have identified two parcels of land appropriate for our planned operations in the Ilyinsky District which can be connected to electric power and gas distribution systems. It would also be possible to maintain all required sanitary protection zones. For the Pig Breeding Complex we have acquired 44 hectares of agriculture land from the local government. Likewise we have reserved a nearby site comprised of 8.6 hectares of agricultural land for construction of the Slaughterhouse. The two sites provide the required distance between breeding and slaughterhouse operations and are linked by a well-maintained paved road. We believe the sites present optimal locations for our pork production business. The locations provide easy access to local and regional markets, including the Moscow region. Saturation of the market for chilled porkmeat in these areas is estimated at 27%, providing us with significant opportunity to capture market share. We have already purchased the 44-hectare parcel. We continue to discuss the remaining 8.6-hectare site with its current owner, the administration of Illyinsky District.


September 2015 16

Exhibit I: Ivanovo Region, Ilyinski District

Ivanovo Oblast in Western Russia Ilyinski District in Western Ivanovo District

Source: Wikipedia


September 2015 17

Exhibit II: Ilyinski District, Ivanovskaya Town and Magnat Operations Sites

Source: Google Earth and Magnat Annotations

Scenes along P152 northwest and southeast of Ivanovskaya Town near Magnat Pig Breeding Complex and Slaughterhouse


September 2015 18

Exhibit III: Magnat Pork Production Sites in Ilyinski District

Source: Google Maps and Magnat Annotation


September 2015 19

Exhibit III (A): Magnat Pork Production Sites Development

Source: Group of Companies «Spektr” , General Contractor for Design Works


September 2015 20

IV. MARKETS AND DEMAND The market in Russia for fresh chilled pork is estimated at US$15.5 billion to US$18. billion annually. Russia is experiencing an acute shortage of domestically produced porkmeat, which is estimated today as 1.6 million tons of fresh chilled pork per year. The value of the shortage is estimated at US$6.6 billion to US$7.2 billion each year. During recent years the growth in demand for meat products exceed growth in domestic production. As a consequence there has been an increase in the share of imports for home consumption. This deficit is partly covered with imports, the share of which usually was about 40% according to official data. By official sources share of imports of porkmeat has been reduced on 42% in 2014. But according to unofficial sources it is more than 50% of all meat consumption in Russia was imported including porkmeat as in previous years. Current level of pork consumption in Russia is about 3.3 - 3.4 million tons per year. Taking into account a normal level of meat consumption in Russia potential Russian meat market capacity 11.0 million tons per year, 4.4 million of which is pork meat. Russian current level of pork production is about 2.8 million tons in according to official information sources. About 833 thousands ton of this amount was produced by private farmers, quantity of which is decreased constantly. Thus, this confirms the current shortage of pork in Russia is 1.6 million tons according official data. According to unofficial information sources real capacity of domestic production in Russia is about 1.5 million tons per year. This data are confirmed by data from official information sources which provide us with information about produced pig livestock in Russia. Thus, in 2014 by all farmers were produced 19,6 million hogs in Russia, 4 million from this amount were produced by individual and small private farms. This total amount is correspond to 1.5 million tons pork meat in a slaughter weight. This means Russia has been continuing to import more than half all consumed pork meat. Taking into account this information Chart IV will looks another way.

Chart IV (A): Pork Resources in Russia

Thousands of tons Source: Expert Analitical Center of Agribusiness, Moscow, Russia


September 2015 21

This information indicates the enormous potential of market of fresh chilled pork meat by qualified, commercial producers. 2010 Russia adopted a new Food Safety Doctrine, calling for 85% self-sufficiency in total meat and poultry by 2020. The policy calls for innovation in domestic meat production, development of the retail market for food, modernization of materials and technology, and support of small agricultural businesses. Imported raw meat has often been of poor quality and handled under inadequate sanitary and hygienic properties. Russia has banned feed made of genetically modified organisms but has had little control over monitoring the use of such feed. Historically there has been limited veterinary supervision of widely- spread diseases among foreign animals with long latency periods, such as encephalopathy of cattle (mad cow disease). Under these conditions meat imports had lead to unpredictable consequences. In recent years, Russia has made a serious effort to monitor and restrict the importation of low quality or potentially harmful meat products. For example, in August 2010, Russia’s food safety watchdog, the Veterinary and Phyto-Sanitary Surveillance Service or Rosselkhoznadzor, imposed restrictions on meat imports from seven plants in the U.S., Brazil, Argentina and Poland, citing safety concerns. The same agency put temporary restrictions on imports of Swiss cattle as the result of a certain virus in Switzerland. The agency also imposed restrictions on Dutch poultry as the result of an outbreak of avian influenza. In January 2013, Rosselkhoznadzor imposed temporary restrictions on chilled beef, pork and poultry meat products from Germany due to the lack of appropriate safety assurance system. In the same month, Rosselkhoznadzor sent warning letters to regulators in the U.S. and Canada detailing tougher measures on ractopamine that will require certification that exports to Russia are free of the feed additive. In 2014 according to official information sources imports of pork meat has been reduced on 42% but at the same time Russian level consumption does not changed. A reduction of import of pork meat from the USA, Ukraine and the European Union was replaced with import from other countries and with so-called "gray" or semi-legal import.

Meat Consumption in Russia Despite considerable volumes of meat imports, the average meat consumption in Russia still remains at low levels. In the early 1990s consumption of all types of meat was 75 kilograms per person, whereas in 2003 the amount had declined to 44 kilograms per person. In the years since, there has been a recovery to 48 kilograms in 2005 and then to 61 kilograms meat consumption per person in 2010. In 2014 the level of meat consumption in Russia reached 65-67 kilograms per person. This level of meat consumption puts the country near the rank of less-developed countries with protein deficit for majority of population groups. To restore protein consumption in Russia to the level during the late 1980s and early 1990s, annual consumption of meat must be increased by 1.5 million tons from the current 10.4 million tons per year to 11.9 million tons per year. To achieve recommended standard of full protein consumption of 90 kilograms of meat and meat products per person per year, annual consumption of meat in Russia must be increase by 2.92 million tons to 13.32 million tons per person per year. It is noteworthy that consumers have shifted the types of meat consumed away from beef to greater amounts of poultry and pork. In 1990 approximatey 43% of meat consumed in Russia was beef. That portion had declined to 36% by 2000 and was estimated at 19% in 2014. Poultry consumption increased from 18% of total meat consumed in 1990 to and estimated 39% in 2014. Pork consumption has a percentage of total meat consumed has remained fairly consistent at 35% to 36% of total meat consumed in Russia. The National Union of Pork Breeders estimates that meat consumption in Russia will increase over the next five years to approximately 12.0 million tons per year in 2020. This would represent per capita meat consumption of 80.8 kilograms per person. Pork is expected to represent as much as 40% of the meat served on Russian plates while beef is expected to shrink to 17% of meat servings. According to Rosstat,


September 2015 22

per capita pork consumption in Russia increased by 4.5 kilograms from 18.0 kilograms in 2007 to 22.5 kilograms in 2014. Consumption of meat in Moscow region is higher than in other regions, approximately 70 kilograms per person per year compared to 65-67 kilograms average for the country as a whole. About 20% of meat consumption volume in the country is accounted for by the greater Moscow metropolitan area. Domestic producers supply a minor portion of the meat consumed in the Moscow area, leaving the region is greatly dependent on import. Policy makers have made an effort to weaken this food dependence, stimulate development of capital for agricultural companies. However, the majority of this effort has been to support distribution channels rather than production. Domestic delivery of meat to the capital has grown 2.3 times for last five years due to these policy and investment efforts. Nonetheless, domestic producers are still only meeting 61% of the demand for meat in the Moscow market.

Chart X: Historic and Forecast Meat Consumption in Russia

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Source: National Union of Swine Breeders, Moscow, Russia

Market Volume of Chilled Pork The value of the pork market in Russia is estimated from US$15.5 billion to US$18.0 billion. Total market volume of meat in 2014 was estimated at 10.6 million tons, 36% of which is porkmeat, it is approximately 3.4-3.5 million tons. In that year 2.8 million tons of porkmeat was produced in Russia and about 635 thousands tons including liveweght, offals and pork fat were imported. Approximately 833.0 thousands tons from total amount porkmeat produced in Russia were from from private farms, which produce most part of pork meat for themselves and sell their surplus basically through private not organized outlets. Quantity of pork produced on private farms is constantly decreasing. A share of 25%-30% of chilled and frozen pork meat was produced by commercial farms. Producers of products of deep meat processing (sausages, HoReCa products, canned meat and etc.) form about 30%-40% of total Russian demand for pork meat. This information indicates the enormous potential of market of fresh chilled pork meat by qualified, commercial producers. During the five years ending 2014 the market for pork has grown almost by 20%-25%. According to research by the Institute of Agricultural Marketing, pork market growth averaged 3%-4% through 2014. The recent economic crisis has changed the dynamics of consumption. However, level of fresh meat shortage at the market in Russia remained almost unchanged. Despite global financial crisis, it is expected that sales growth will continue for another few years. It is possible to state that the Moscow market of fresh pork will experience a deficit if there is a growth in demand for porkmeat products. The National Union of Swine Breeders hopes that domestic production of pork meat will supply an increasing portion of total domestic demand for pork products over the next decare. Imports of pork products are expected to decline slowly but steadily over this period from a total of 379,000 tons in 2014 to 287,000 tons in 2020. Domestic production is expected to increase from 2.8 million tons in 2014 to an estimated 3.3 million tons in 2020. Indeed, the group has predicted that Russia will be able to export pork products before the end of the current decade. According to data collected by Rosstat, in 2014 the Central Federal District (CFD), our principal target market, accounted for approximately 35% of the national volume of meat consumption with Moscow


September 2015 24

representing approximately two-thirds of CFD consumption. In 2014, meat purchases in the CFD grew by 5% compared to the prior year. Pork represented approximately 38% of meat consumed in the CFD. Pork consumption is second to poultry as the preferred meat. While growth in meat purchases has slowed in recent years, during the past couple of years, the growth rate of meat retail sales in the Ivanovo Region, our second largest target market, has exceed growth rates in the CFD, reaching 12% annual growth in 2014. An analysis of retail sales in the CFD by quarters reveals clear seasonal fluctuation . Heaviest sales fall in the second quarter ending in June. The least sales are typically in the third quarter ending September. The fourth quarter ending in December represents the second best market period. However, in the Ivanovo Region, where we plan to locate our production facilities, maximum retails sales are recorded in the third quarter.

Chart XI: Meat Consumption in Central Federal District

Poultry; 44%

Veal; 2%

Pork; 38%

Lamb; 2%

Beef; 11% Other; 3%

Source: Rosstat.


September 2015 25

Chart XII: National and Regional Pork Consumption Russia Per Capita Central Federal District by Total Volume

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September 2015 26

V. COMPETITION The meat production market in Russia is highly fragmented. The top five producers represent no more than one quarter of the total national market. The meat processing segment suffers from overproduction at the lower end of the market. We believe this leaves room for a new competitor that is committed to bringing high quality products to the market and to developing premium brands. Particularly as the market returns to economic health, we believe consumers will increasingly demand wider choice and higher quality of meat products. We believe other pig breeding and pork production operations in the Central Federal District (CFD) and Ivanovo Region well represent our most significant competition. The top ten producers (including deep meat processing: sausages, sausages, canned food etc.) in the CFD and Ivanavo Region represent 74% and 87% of total production in each region, respectively . The top ten producers along with regional market share are the following: Ivanovo Region Central Federal District

1. Sovhoz Teplichnyiy JSC 32.0% Pork Complex Korocha JSC 37.2% 2. Rodnikovsky Engineering Plant JSC 10.0% Myasokombinat Bobrovsky Ltd. 10.6% 3. Luhskoe District Consumer Society 9.4% Obukhov Meat, Ltd. 4.9% 4. Dzerzhinsky Breeding Plant 9.0% Vladimir Pig Production Co. CJSC 4.2% 5. Leninsky Put Breeding Plant 8.1% Stupino Ostankino CJSC 3.6% 6. Sintez Ltd. 6.7% Klinsky Meat Processing JSC 3.5% 7. Rodnikovsky Plemzavod Ltd. 3.7% Pushkinsky Ltd. 3.1% 8. Ivanovskoe JSC 3.7% Cernozoem Meats Ltd. 2.3% 9. Vozrozhdenie 2.8% Akekseevksy Meat-Poultry JSC 2.3% 10. Ivagroprom Ltd. 2.3% Gubkinsky Meat Processing JSC 2.2%

Chart XIII: Pork Producer Brand Name Recognition

Source: Institute of Agricultural Marketing


September 2015 27

A situation on the market of chilled pork meat is different. The list of largest producers of chilled pork meat with its share of the market is following:

1. Miratorg 11,4% 2. ООО «GC AGRO-BELOGORIE» 5,6% 3. GC «GC CHERKIZOVO» 5,5% 4. ООО «KoPITANIYA» 3,0% 5. GC «Rusagro» 2,7% 6. ООО «PRODO Menegement» 2,6% 7. ZAO «Agrarnaya Gruppa» 2,5% 8. GK «KOMOS GROUP» 1,9% 9. ZAO «EKSIMA» 1,9% 10. ООО «Kamskiy Becon» 1,7% 11. Other producers 22,4%

A fragmentation of the market of high quality chilled pork is higher than of the market of products of deep processing. Only 6%-8% of Russian producers have equipment for high quality chilled pork production. In Russia none of the pork producers can claim significant name or brand recognition among consumers. A survey made by the Institute of Agricultural Marketing revealed that over 80% of consumers could not name at even one pork producer. The producer with the greatest name recognition, Klinskiy MyasoPtitsa Combine Co. Ltd. was known by only 6.2% of survey respondents. The largest producer of chilled pork meat Miratorg was known by only 3%-5% of survey respondents. Lack of brand awareness is attributed to its standing as a product of little importance to consumers. Pork producers compete principally on the basis of quality and price. Competitors depend upon their length of presence in the market, product lines and the entrenchment of their distribution relationships. The meat processing plant Welcome Trading House has the product line with the widest variety. The plant produces over sixty kinds of pork products. The entrance of new competitors to the Russia market is typically met with limited reaction by incumbents. The relatively small total volume of pork production and the deficit relative to porkmeat demand leave room for new competitors without significantly impacting competitive alignment.

Price Competition Since between 65% and 70% of the cost of meat production is related to feed, all meat producers highly sensitive to the price of feed. Unfortunately, none of the pork producers have pricing power in the Russian market. Selling prices for top quality pork sides at chain store such as Auchan and Crossroads is approximately 178-185 rubles (US$2.7- US$2.85) per kilogram. The selling price of the second category pork is 130-150 rubles (US$2.0- US$2.3) per kilogram. The average price for boning products in the same trading networks is 272 rubles (US$4.18) per kilogram. Retail prices for pork are increasing. One of the principal factors in the consumer market is growth of real income in Russia. According to provisional data of Rosstat (Federal Service of State Statistics) in 2013, real income grew by 30% compared to real income in 2009.


September 2015 28

Chart XIV: Wholesales Pork Selling Prices in Russia - 2008-2014

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Chart XV: Retail Pork Prices in Russia - 2008-2014

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Regional Price Competition In the Central Federal District (CFD) retail prices for pork, except for boneless meat, grew in 2008 and 2009 by 16% and 13%, respectively. In 2010, the price decreased slightly by 4% both in the CFD and on a national scale. Growth continued in 2011 and accelerated in 2012-2013, reaching 231 rubles (US$3.55) per kilogram. In 2014 retail prices for pork except for boneless meat rose dramatically up to 300 rubles (US$4.61) per kilogram. Such growth was caused by political situation between US and Russia. As compared with the CFD, all pork products except boneless meat in Ivanovo Region were generally cheaper. The largest difference was 10% recorded in 2010. The discrepancy narrowed in 2012 to 8.8% and in 2014 to 6.9%. In the last couple of years the rate of price increases has been different in Ivanovo than in the CFD. In 2012, the price growth rate in Ivanovo Region was 5% while only 4% in the CFD. However, in 2014 the Ivanovo price growth rate was lower at 5% compared to 6% increase in the CFD Boneless pork was also cheaper in the Ivanovo Region during the five year period ending 2013. In 2014, retail prices for boneless pork grew 6% over the prior year, reaching 345 rubles (US$5.3) per kilogram. The Ivanovo price was 10.6% less than in CFD. This compares to a 12.6% difference in the previous year. As with bone-in product prices there was been a difference in growth rates between the two regions. In 2011, the rate of growth was higher than in Ivanovo Region at 6% compared to a growth rate of 3% in the CFD, while in 2014 Ivanovo grew at a slower pace of 5% compared to 6% price growth in the CFD.

Sales Channels There are a half dozen significant pork meat wholesalers in Ivanovo region market, but two command the majority of the market. The largest is Rustorg Ltd., which we estimate owns 58% market share. The second largest wholesaler is HOLOD Ltd. with 32% market share. Isida Ltd., Klondayk Plus Ltd. and Iv Obl Mayaso Product Ltd. together represent 10% of the market. Porkmeat along with all other meat products are distributed to consumers through trade networks. Such networks in Russia are divided into two caterories: 1) retail chains selling pork sides and 2) retail chains selling boned pork products. Examples of those selling pork sides include France’s Groupo Auchan, SA and OAO Magnit. X5 Retail Group NV and Metro Group of Germany are examples of sellers of boned pork products. Chains are the highest cost segment of the marketing channel, requiring logistics expenditures and a large number of staff for merchandizing, customer services and management. These food retailers are among the most modern retail food chains. While they are significant in size in terms of total revenue, such high-end chains represent only a small portion of the Russian food and grocery market. X5 and Magnit are the two largest food chains in Russia with US$15.4 billion and US$11.4 billion in sales, respectively, in 2014. Auchan and Metro are third and fourth in Russia by sales of US$7 billion and US$5.4 billion in 2014, respectively. The fifth largest food retailer is OAO Dixy. These five companies represent just 13% of Russia’s food retailing market. X5 has been the country’s largest food retailer since 2006 when its predecessor Perekriostok acquired Pyaterochka Holding and then the Karusel chain in 2008 and discount network Kopeyka in 2010. Metro Group has had a presence in Russia since 2001, extending its base to over 100 large stores by the end of 2010. The years 2012 - 2014 was characterized by a considerable expansion of selling space in retail food chains. Traditional retail and markets were only able to preserve their positions in small populated centers where chains find it unprofitable to open supermarket sized facilities. The development of retail chains leads to a predominance of low prices over quality. In 2012 - 2014, the retail markup was as much as 60%. Accordingly, companies working with federal chains experienced a decline in profitability. Producers were impaced by an increase in costs associated with promoting meat products through organized retail chains and by the increase in discounts expected by large retail chains from a range of 5% to 10% to a range of 20% to 25%.


September 2015 30

Many large meat producers such as Miratorg are developing their own retail networks. A retail channel promotes greater brand value characterized by unique products, freshness, quality and low prices. Company stores allow producers greater freedom in selecting assortment, fixing prices and promoting their products and give them the possibility to study consumer behavior. Company stores, along with trade pavilions and itinerant trade, have become a successful marketing channel for Byelorussian producers who are aggressively capturing the Russian market. As federal networks have strengthened their positions on regional markets, their policy toward regional producers has also changed. Chains prefer vendors that offer more favorable terms to the detriment of local producers. For example, the national chain Auchan requires that the share of any one local vendor cannot exceed 20% regardless of the regional market position of the vendor.

Table III: Target Consumers of Chilled and Frozen Pork

Consumer Income – Rubles Per Month

< 30 Years of Age 30 to 50 Years of Age > 50 Years of Age

< 13,000 2.9% 7.4% 4.1%

13,000 – 19,0000 10.8% 12.35 5.2%

19,000 – 30,000 5.4% 8.0% 1.7%

30,000 – 40,000 2.9% 5.1% 1.3%

>40,000 4.7% 23.6% 4.7%

Total 26.7% 54.6% 17.0%

Source: Rosstat, Ministry of Agriculture and Solev Marketing Research

Chart XVI: Consumer Preferences for Chilled and Frozen Pork

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September 2015 31

Chart XVII: Consumer Preferences for Meat Packaging


Characteristics of Consumers According to a research of the Institute of Agricultural Marketing, 93% of residents of Moscow region buy pork. We believe this major metropolitan area is our principal market. The most active consumers of pork are those in the age range of 30 years to 50 years of age with incomes more than 30,000 rubles. Women are typically the buyers of chilled pork but men are the largest consumers. Surveys have determined that chilled pork is the preferred type of pork. As can be expected the higher the income the higher is the preference for chilled pork. At least half of consumers prefer porkmeat without bones. We believe the most promising consumer group is composed of women in the 30 years to 50 years age group with an income of more than 36,000 rubles. In the metropolitan areas there is a fast tempo of life and a constant shortage of time. This leads consumers to seek products that will allow them to optimize their budget and time. Thus they patronize modern retail stores such as chain stores. They are also concerned for their health and the health of their families. When choosing products they are more likely to trust domestic producers as a source for more natural and chemically free food products.

Competition from Imports We believe import regulations are a critical factor in the pork production market. Regulatory authorities (Rosselkhoznadzor) in Russia have had a tendency to toughen controls of imports in various categories of goods in order to protect domestic production. We believe customs regulation is a risk for importers and therefore a benefit to new entrants to Russia’s domestic meat industry like us. Historically imports have not eliminated meat shortages in Russia. In fact, imports have frequently meant putting low quality products onto store shelves. Russian consumers have often been deceived by defrosted imported meat sold as fresh chilled meat. Even very large, well-known chain stores engage in this practice and realize profits by selling low priced inports at prices reserved for premium products. Our project is designed to yield a product with quality on par with that of Western producers. Yet costs of our end products will be significantly lower than prices on imported products. This will allow to us to establish a competitive price against imported porkmeat.

Central Federal District Pork Production Projects Hog raising remains an attractive sector for large companies. Nonetheless, in the spring of 2012, the OJSC Cherkizovo Group announced its intention to temporarily suspend investment into new projects in the pork segment in connection with Russia’s joining of World Trade Organization (WTO). Cherkizovo has


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seven large hog units, whose aggregate ouput is 115,000 tons of pork. Cherkizovo Group has other projects that are nearing implementation stage. Thus by 2014 its total capacity is estimated to have reached 153,000 tons per year. In 2012, APK AGROECO LLC commissioned three modern commercial hog units in Pavlovsky, Novokhopersky and Kalacheyevsky districts in Voronezh Region. The current total livestock population is 130,000 heads. The APK AGROECO project is one of the largest in the region and was included in the social and economic development program scheduled for 2012 to 2016. It is expected that in the spring of 2013, the second phase of the project will be launched to complete construction of two more hog units and a feed factory. Plans include expanding the annual designed capacity of already operating units to 42,000 tons. OJSC Rosselkhozbank has opened a credit line with a limit of over 8 billion rubles for Miratorg Holding for the construction of ten hog units in Kursk Region. The ten units are estimated to have an aggregate annual output of 66,000 tons of meat. Total project cost is estimated at 11 billion rubles. .Such an increase of capacity is needed for fully satisfying the holding’s own production in Belgorod Region. After these units are commissioned, Miratorg’s Russian market share is expected to increase from 12% to 15%. As an Asian Swine Flu preventative measure, Miratorg plans a veterinary and sanitary recycling plan, producing meat and bone meal with an annual capacity of 9,700 tons and with a possibility of increasing it to 22,500 tons. The capacity of the processing plant will be 42,000 tons a year with a possibility to increase it to 98,000 tons. These facilities are expected to be commissioned in 2015-2016. Miratorg supplies meat both to own chains and to large shopping centers. The company is following a strategy of earning profit through high turnover speed in its production facilities. In August 2012, Rusagro has announced its plans for building a hog unit in Tambov Region with an annual design capacity of nearly 90,000 tons of pork in live weight. The first phase was planned to be commissioned in 2014. The facilities will use internally produced feed, for which a feed factory is being built in the city of Zherdevka, Tambov Region. The facility is estimated to have a capacity of 290,000 tons and a grain elevator with 120,000 tons capacity. The meat business of Rusagro is represented on the Russian market by OJSC Belgorodsky Bacon that has production facilities in Shebekensky and Volokonovsky districts in Belgorod Region. This company, which is among the country’s five largest pork producers, annually puts out over 62,000 tons of pork by live weight. By 2014, the group of companies Agro-Belogorye is planning to increase its production of pork by one-and-a-half times or up to 155,000 tons by live weight through the construction of five new hog units. Four of these will appear in the west of Belgorod Region and one in the east. Each unit is estimated to have a capacity of 11,000 to 12,000 tons of pork annually.

Ivanovo Region Pork Production Projects Petrovsky Sovkhoz, a closed joint-stock company, initiated a project to redesign and convert a pork production facility. The project was undertaken in accordance with the Priority National Project Development of the Agri-industrial Complex in the Russian Federation. Located in the Gavrilovo-Posadsky District, the project was estimated to require two billion rubles, of which 790 million rubles is expected from government support. The hog unit has a capacity of 70,000 head per year. The facility uses modern European technology for a full production cycle of breeding, growing and fattening. The project was stopped. Final products of Mikoyan company which was a customer of the project are products of deep processing, such as sausages and etc. They solve their problem with raw materials due to low-quality import acted. Therefore such decision was probably reasonable. The Borodino Group of Company was incorporated in 1994 as a producer of beverages with financial support and interst from Petroff-Bank and the insurance company Elkos. In 2006, the Borodino Group entered the food retail market with the Productoria supermarket chain noted for neighborhood stores. The affiliate that managed the chain was declared bankrupt in 2011. An associated investment project


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involved building four production modules for raising 100,000 head of pigs annually in Gavrilovo-Posadksy Municipal District in Ivanovo Region. The production was valued at 2.6 billion rubles. Besides our proposed pig breeding and slaughterhouse operation, several other projects have been approved and recommended for implementation in Ivanovo Region by the Interdepartmental Council for the Placement of Productive Forces and Investment. Those projects include the following:

Slavyanka LLC - Redesign and modernization of livestock houses for fattening up to 10,000 pigs per year valued at 29.9 million rubles

Levy Bereg LLC - Construction of a hog breeding unit with an output of 150,000 head per year valued at 7.5 billion rubles per year

Ivanovo Meat Processing Plant (Ivanovsky Myasokombinat) - Largest producer of sausage, cooked sausage, semi-smoked sausage, ham, sowbelly, prefabricated meat, ground meat, and smoked and roasted poultry in the region


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VI. PROJECT DESCRIPTION

Vertically Integrated Pork Production

We intend to produce and market high-quality chilled pork products in the Russia domestic market. We plan to build and operate a pig breeding operation to supply pigs for our nearby slaughterhouse where our porkmeat products will be cut, cooled and packed. The planned capacity of each Pig Breeding Unit will be 75,000 pigs tons annually. Our principal end-products will be fresh chilled pork sides, boned pork meat and pork offal. Based on an eight-hour, single shift working day, we expect to produce 24,396 tons of fresh chilled pork per year, mostly it will be highest quality boned pork production. The estimated value of expected porkmeat products is US$157.7 million annually including value-added tax.

Magnat will be a vertically integrated producer of porkmeat in the highest quality categories. We plan to use advanced world-class technologies in our pig breeding and slaughterhouse operations. These practices should support production of porkmeat products that compare favorably with world meat standards. The Magnat operations will be located in Ilyinsky District in the Ivanovo Region. Our operations are strategically located near the major metropolitan areas were of Moscow and St. Petersburg where there are current porkmeat supply shortages. We plan to deliver our products via trade networks.

We expect our entrance into the market to be facilitated by supportive local and federal government policies that encourage domestic meat production. Due to the lack of strong incumbent brands we expect little resistance to the entrance of a new competitor. Through our pre-marketing efforts we have entered into agreements to supply chilled pork to four customers. The four agreements require us to deliver up to 73,000 tons of chilled pork meat per year beginning in 2017. We expect to continue our pre-marketing efforts with other customers in the food distribution and retail sales.

Project Location

We have chosen sites for the location of our pig breeding and slaughterhouse operations in the Ilyinski District of the Ivanovo Region. The pig breeding operation is to be situated on a 44-hectare parcel near Osipovo Village. We have chosen a nearby location for the slaughterhouse comprised of 8.6 hectares near the community of Ilinskoe-Hovanskoe. The 44- hectare parcel is already owned by OJSC Magnat. Certificates of land ownership are available. The 8.6-hectare parcel has been reserved for Magnat.

The site for our pig breeding operation is within 5.5 kilometers of an electrical power connection and 6.5 kilometers of a gas power networks. We have already obtained technical plans to connect to both electrical and gas power networks.

The chosen locations afford easy access to transportation. The nearest paved highway is 850 meters. A railway services the Town of Teykovo approximately 53 kilometers away and the Town of Rostov in the Yaroslav Region approximately 45 kilometers away. The sites are located approximately 200 kilometers from Moscow, 700 kilometers from St. Petersburg and 75 kilometers from the City of Ivanovo. The location configuration was chosen to assure compliance with sanitation requirements, which are 1,000 meters for the Pig Breeding Complex and 300 meters for the Slaughterhouse. We also took into consideration the optimum arrangement to allow for production expansion and slaughterhouse efficiencies. Separate location of the Pig Breeding Complex and Slaughterhouse makes it possible to source pigs for slaughter from multiple breeder sites.


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Exhibit IV: Operation Site Description

Pig Breeding Site

Zoning Agricultural

Size Approximtely 44 hectares

Location Ilyinski District, Ivanovo Region, Russia

Nearest population center Settlement of Osipovo, 1,200 meters

Current owner Administration of Ilyinski District

Utilities

Electric power supply 2 * 10 MW ~ 5.5 kilometers from site

Gas supply 10,000 cubic meters/hour ~ 6.5 kilometers from site

Transportation Access

Asphalt-paved highway 850 meters from site

Railway 53 kilometers to Teykovo Town, Ivanovo Region 45 kilometers to Rostov Town, Yaroslav Region

Slaughterhouse Site

Zoning Agricultural

Size 8.6 hectares

Location Ilyinski District, Ivanovo Region, Russia

Nearest population center Settlement of Ilinskoe-Hovanskoe, 1,000 meters

Current owner Administration of the Ilyinski District

Utilities

Electric power supply 2 * 10 MW, ~ 1.1 kilometers from site

Gas supply 10,000 cubic meters/hour ~ 1.2 kilometers from site

Transportation Access

Asphalt-paved higher 50 meters from site

Railway 53 kilometers to Teykovo Town, Ivanovo Region 45 kilometers to Rostov Town, Yaroslav Region

Source: Magnat CJSC

Government Approval and Support Magnat OSCJ and the Ivanovo Regional government have entered into a working agreement for the development of the Magnat chilled pork project. The shortage of meat in Russia has been recognized by the federal government as a matter of national security. Government agencies have been providing support for agricultural projects within the bounds of a national program entitled the Development of Agribusiness Industry.


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Implementation Plan Our project is divided into two elements: 1) the Pig Breeding Complex and 2) the Slaughterhouse. Successful completion of the project depends upon several intergral components, including 1) technology of production, 2) construction of production buildings and structures, 3) legal support of the project, 4) financing of the project and 5) organization and management. Execution of our project has been divided into four principle steps. Key activities are shown for each.

Pre-Investment Period. - Purchase of investment sites and legalization of constitutive documents for purchased sites - Official registration of preliminary permissions - Implementation of engineering and survey work - Development of design estimates - Examination of the project and obtaining of building permits

Investment period - Implementation of building and assembly jobs; - Purchase and installation of equipment;

Start of production - Implementation of balancing and commissioning - Adjustment of all production processes - Production with full power

Replacement of top management at the onset of production

Management Team The management team includes the following positions:

General Manager and Project Manager - Overall project management - Execution on approved plan and budget

Chief Financial Officer and Chief Accountant - Optimization of financial flows of project - Timely reporting to fiscal authorities - Preparation of investment reports - Monitoring of project budget - Capital raising activities

Lawyer - Legal execution of all contracts - Timely and complete registration of project permits and documentation

Production Manager of Pig Breeding and Slaughterhouse - Selection of production technology - Tenders and submission of proposals to contractors and equipment suppliers - Control of conformity with building designs and selected technologies - Control of building construction for technology compliance - Monitor of equipment installation - Hiring and training of personnel

Construction Manager and Construction Engineers - Provide preliminary permits and technical conditions for connection of electricity and gas

supplies - Monitor design and construction process to ensure timely completion - Carry out tenders and submit proposals for selection of construction contractors - Monitor construction progress

Specialists of the team have experience of successful realization of similar projects in Krasnodar Territory, Belgorod Region, Orenburg Region and Vladimir Region.


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Exhibit V: Corporate Organizational Structure Source: Magnat CJSC

We plan to compensate the management team with a combination of 50% salary and 50% bonus. Bonuses shall be paid according to the results of project implementation. The director of construction will be paid a bonus based on funds saved through early delivery of the facilities into operation based on funds saved. We plan to pay production managers from profits in the first year of operation. The financial officer’s bonus will be determined based on savings in cash flows and our legal counsel on the basis of accelerating permitting and other legal work ahead of plan goals.

Project Participants The proposed porkmeat project and the establishment of Magnat CJSC has been spearheaded by our management company, Magnat LLC. Magnat was established in September 2009 in Moscow, Russia. It is 100% owned by a single shareholder, Alexey Savraskin. Our group has a successful experience in agricultural project design, construction and launch. We have selected United Construction Technology (UCT) based in Russia as our prime contractor. UCT has a extensive experience in building and starting pig breeding, slaughterhouses and other industrial projects. Its customers include both Russian and foreign customers. We have completed a letter of intent with UCT (www.unitedconstruction.ru). A cost schedule and project description has been drafted. Skiold International of Denmark (www.skiold.com) will supply the equipment for the Pig Breeding Complex. Skiold has a long experience in the production and delivery of the pig breeding equipment both in Russia, and worldwide. It is considered a world leader in the pig farm equipment industry. A letter of intent, a business offer have been completed and a supply agreement has been drafted. We have selected EMF Lebensmitteltechnik-Anlagenbou GmbH to build and equip our Slaughterhouse operation. Based in Germany EMF has extensive experience in the production and delivery of equipment for slaughterhouses and other food producting complexes. EMF has customers in Russia and worldwide. Genesus based in Canada (www.genesus.com) is a world leader in the supply of pig breeding stock. We have executed a letter of intent with Genesus to supply breeding stock for our pig breeding operation. We plan to use an advanced manure processing and utilization system for our Pig Breeding Complex. We expect to source this equipment from a Russia supplier, Biokompleks (www.biokompleks.ru). The company has lengthy experience in the delivery of waste handling systems for pig-breeding and other animal husbandry operations. The delivery systems all have required certificates and permissions from relevant regulatory authorities in the Russian Federation. A letter of intent has been executed. The proposed agreements with these companies have been used as basic data for our business planning as well as calculations of all financial performance and economic feasibility of the project.

General

Manager

Chief Financial Officer

Production Manager

Pig Breeding

Production Manager

Slaughterhouse

Construction Director

Lawyer Administrator

Construction Engineers

Sales Director


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Exhibit VI: Proposed Project Contractors

Source: Corporate Websites

Expansion Strategy The capacity of the Slaughterhouse is planned to be 3.5 times more than the capacity of each pig-breeding unit. We believe this is economically reasonable as it allows for incremental expansion. We propose to build four pig breeding such units over the first three years of our proposed project. We also plan to establish a pig breeding farm which can ensure the supply of pedigree stock for our pig breeding operations as well as pedigree stock for sale. We also plan to enter into feed production. At much as 75% of the expenses in a Pig Breeding Complex relate to feed. A captive crop production operation could help reduce feed costs. We also plan to build of granary for feed storage.


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Exhibit VII: Project Implementation Schedule

Activity Month 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Site Purchase

Registration of Permits

Exploration, Land Measure

Utility Technicals

Electricity

Gas Supply

Design Estimates

Project Passes Expertise

Obtain Building Permits

Construction

Pig Breeding Complex

Fattening Building

Utilities

Dung Removal

Gilt, Boar Buildings

Growing Building

Slaughterhouse

Construction

Equipment Install

Commissioning

Pig Breeding Launch

Import First Boars/Gilts

Breeding, Farrowing

First Pig Batch Growth

First Batch to Slaughter

External Sales

Slaughterhouse Launch

Staff Training

Production Start-up

Source: Magnat CJSC


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VII. PLAN OF PRODUCTION

Pig Breeding Operations Live pig production technologies are aimed at growing maximum quantity of the highest quality in the shortest possible time and at minimal production costs. Breeders and genetecists have worked for many years to improve pig breeds for the best biological characteristics. At the core of all pig breeding efforts are pedigree sows and boars. Typically four primary pig breeds are used in modern pig breeding: Yorkshire, Large White, Landrace and Durok . Crossbreeding of these breeds yields tradable pigs with the desired characteristics. The most important biological characteristics of pigs are:

Multiple pregnancy - pigs with good genetics produce on the average13 to14 live piglets, and sometimes up to 20

Short term of pregnancy - 114 day

Early maturation – achievement of live weight of 100 kilograms within 150 days

Weight gain after maturation - weight gain of at least one kilogram for every 2.7 feed units applied during fattening period after maturation

Slaughter yield and nutritional quality of meat – at least 70% slaughter yield of growing-fattening pigs; no more than 60% to 62% water content; minimum of 2,500 calories per kilogram of medium quality pork

Panthophagy - application of dry feed

Adaptation to climatic conditions - easy adaptation to different climate zone and feed conditions We plan to rely on advanced pig growing technologies developed in Canada and Europe. The main difference between the Canadian approach to growing pigs and Europe technology is the term of weaning of piglets. Under European practices piglets are typically weaned in 28 days to 30 days, while in Canada the weaning interval has been reduced to 19 days to 21 days. The initial pig breeding operation is divided into five principal steps:

Delivery and quarantine of initial breeding stock

Insemination and expectation

Farrowing

Growing

Fattening Delivery and Quarantine of Breeding Stock The initial stock of breeding sows for our operation will be delivered from Canada. We have determined that the most suitable weight of these sows will be at the average of 50 kilograms. At this weight we expect to save on transport services and still be able to grow the pigs to proper insemination age within 4 months. At a lower live weight the time to insemination will be increased, thereby increasing operating expenditures. What is more at the larger size and maturity it is easier to evaluate and select pigs of the best quality. The delivered animals will be placed in quarantine pens for thirty days. A blood examination will be made to look for disease. If the blood examination is negative the pigs will be removed from quarantine. The population will be vaccinated under a plan approved by the Veterinary Service. The animals will remain in this section until they reach an average live weight of 120 kilograms. Then they will be moved to a section for empty sows, where they will be inseminated.


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Insemination The first impregnation of sows takes place at the age of seven to eight months and at weights of not less than 120 kilograms. Sows are bred for three to five years before being sent to slaughter. A sow can have an average of 2.3 to 2.5 farrowings per year. Average litter size is 12 piglets Therefore, on average a sow has 30 or more piglets per year. Piglet loss in the farrowing section is 10% to 12%. Pig loss in the growth stage is 4% to 5% while losses in the fatteing stage are 2% to 3%. Summing losses in these consequtive stages means that one sow can give up to 26 tradable pigs per year that eventually complete the fattening stage. We intend to use artificial insemination to impregnate sows since this is the most advanced method leading to sow pregnancy. Through the practice of artificial insemination the required ratio of boars to sows is reduced from 1:25 to 1:100. Sows are held in pens for insemination approximately 30 days on average. Typically pregnancy is achieved in 85% of sows undergoing artificial insemination. We will use an ultrasonic apparatus to check pregnancy. Pregnant sows are moved to expectation pens and then to the farrowing section. Farrowing Pregnant sows are moved to the farrowing section approximately 5 days to 7 days before they are expected to deliver piglets. During farrowing, the operator should control the whole process and, if necessary, provide obstetrics. Piglets are born with an average weight of 1.2 kilograms. No more than 12 to 14 piglets should be left under one sow. Sows often bear up to 18 piglets, so it is necessary to practice removal and evulsion by nest in the first day after farrowing. Nest mass is observed for maximum uniformity. Special attention should be given to piglets on the first day of their lives to avoid pinching that can lead to asphyxiation. When the piglets are three days to five days of age all necessary veterinary procedures are carried out, including castration, cutting of tails and injection of iron-containing drugs. The piglets should be trained to eat dry feed beginning at five days of age. This prepares the piglets for weaning from a sow and avoids feed stress. A feeding rack located on the side wall of farrowing section should be filled twice daily (morning and noontime) with the initial fodder mix. Fresh fodder in the amount that the piglets can eat in about two to three hours (approximately 20 grams) should be made available to avoid feed clogs and spoilage. Piglets are removed from the farrowing pens for weaning in approximately 19 days to 21 days following the Canadian pig husbandry practice. Sows are again returned to insemination section. Sows typically return to fertility in five days. Weaning and Growing After weaning at approximately 19 days to 21 days of age, piglets are moved to clean, dry pens the growing section. To ensure optimal growth piglets are frequently resorted after initial placement in growing pens. Since the piglets have not yet learned to eat from self-feeders, feed should be sprinkled on concrete floor using the same dry feed the piglets ate while with the sow. Such feeding is carried out during first week the piglets are in the growing area. Water should be poured in a feeding pan until the piglets learn to drink from snout drinking bowls. At weaning the average live weight will be approxiately six kilograms. Piglets are held in the growing section for approximately 60 days. During this period their daily weight gain will be in a range of 400 grams to 500 grams. At the conclusion of the growing period the they are expected to reach a live weight near 30 kilograms.


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Fattening Fattening of pigs is a final phase of production at the pig-breeding complex. Fattening section requires the least labor, because all systems are mechanized and automated. The ultimate goal of fattening of pigs is to produce high-quality meat in a short time with the least expenses. Biological characteristics of animal organism should be taken into account in order to organize fattening in proper way. Different fattening strategies are used depending upon the animals age, sex, pedigree qualities and keeping facilities. Each animal has its own characteristics and biological regularities at different periods of life. Growth rate gradually increases from the moment of birth to a certain period, after which it begins to slow down. Different tissues grow and develop with different intensity. Thus, muscle tissue of piglets grows and develops faster than adipose tissue. By the age of six months growth of muscle tissue slows down and growth of adipose tissue – speeds up. Thus, correlation of fat and protein in body of an animal varies considerably during different periods. Older pigs have more fat and calorie content of meat is high. Younger pigs have less fat and calorie content is lower. Therefore, pigs should be fed until they reach the weight of not more than 115 kilograms in order to get as much lean meat as possible.

Exhibit VIII: Example Stalls for Keeping, Farrowing and Milking

Keeping Stalls for Idle and Gestating Sows Farrowing Stalls for Pregnant Sows

Milking Pen for Sows Source: Skiold


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Exhibit IX: Example Growing and Fattening Pens

Growing Pens for Young Pigs Fattening Pens for Pig Groups

Source: Skiold

Keeping of Sows Empty and pregnant sows should be kept in individual pens with the length of 2.5 meters and width of 0.65 meters. The height requirement is variable from 0.5 meters at the entrance of the pen to 1.1 meters near the feeding-rack. Pens should be made of galvanized steel pipes. Pens can be arranged in a row and the feeding-rack should be installed along the full length. Slotted floors made of concrete should be made in the rear of the pen. Fodder should be delivered by a line-washer conveyor with individual volumetric dividers, the volume of which is from 1 kilogram to 6 kilograms. Sows should drink from drinking bowls installed in a pipe above the rack. Milking sows should be kept in individual pens. The width of the pen is 1.9 meters and the length 2.4 meters so that the total area will be at least 4.56 square meters. Height of the partition in pens holding piglets is 0.5 meters. The height of the sow’s pen should be 1.1 meters. Part of the floor in the defecation zone should be overlapped with cast-iron grating while the rest is a solid concrete floor. Infrared heating lamps and heated floors should be made in a rest zone for the piglets. A sow should drink from snout drinking bowl set in the feeding-rack. The piglets are provided a nipple drinker set in the defecation zone. A small part of the pen is a feeding area for the piglets where they are fed manually. from special feeding-rack for piglets. Construction of farrowing pen minimizes the need for the presence of personnel during farrowing. Well constructed pens also ensure the safety of piglets during and after farrowing through a rest zone for piglets. A a specially constructed barrier allows the piglets free access to the sow but prevents the sow from entering the piglet rest zone. Furthermore, personnel also have free access to the piglets. Dry feed should be given to sows in the farrowing pens by line-washer conveyor with individual volumetric dividers. Keeping of Piglets Between 22 and 25 piglets can be kept together in growing pens. Walls of machines and doors are made of plastic, bearers and fixtures are made of stainless steel. Floors of machine are partly overlapped with plastic gratings. In the rest zone of piglets floor is heated, also brooder is used. Piglets should be fed with dry mixed fodders from the hopper self-feeders installed in the partition of the pens. Feeding-racks are


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made of a plastic hopper and a stainless steel feeding pan. Two types of dry feed can be put in the hopper feeders. An automatec drinking apparatus is composed of a tray with a nipple that the animal can trigger with their snout. Young pigs should be fattened in group pens, holding between 17 head and 20 head in each. Walls and doors of the pens are made of plastic, while the angles and fixtures are made of stainless steel. Floors of machines are fully slotted. Pigs should be fed with dry fodder from the hopper feeding-rack with a capacity of 70 kilograms. Two types of dry feed should be put in hopper self-feeders. Pigs should drink from snout drinking bowls installed in each pen. Feeding of Pigs We expect to get the full genetic potential of our pigs through the use of proper feeds. Feeds should satisfy animals with nutrients and should have optimum correlation of ration price and nutrients supply during the animals growth, reproductive vigor and milk producing capacity. To reach the highest indices in pig breeding, feeds should be of high quality and free of toxic substances. Feeds of poor quality have negative influence on growth, reproduction and general health of the animals. Poor foods can lead to disease and abortion at different stages of pregnancy. Toxins in feeds are usually generated by fungi hyphomycetales, which grow at temperatures ranging from zero degrees Centrigrate to 60 degrees Centigrade and humidity near 20% to 25% or higher. Normally, a healthy grain contains 1,000 to 50,000 fungi per gram. Toxins may appear before and after harvest as well as during storage. If toxins are suspected, it is necessary to analyze the feed and dispose of contaminated grain. In some cases it is possible to decontaminate the feed of fungi and toxins. Along with good feeding, access to water is very important. Dehydration leads to reduction in feed consumption, reduces milk production of sows and contributes to disease. Amount of water should be regulated according to different conditions: state of health, age of animal, environment temperature. Water demand increases during hot weather. Water containing a lot of electrolytes also increases water demand. A large quantity of water is needed especially by sows, because of production of embryos and milk. Water demand of lactating sows depends on the number of sucking pigs. Any water restriction of lactating sows will have significant negative impact on quantity of milk and weaning weight of piglets. Thus drinking systems should allow the pigs to drink as much as they want. Feed Production Technology We plan to build new modern feed plant for feed storage and preparation. We expect to mix a variety of grains, including wheat, barley, corn, soybeans, cake of soybeans or sunflower, fish and meat- and -bone meal, animal and vegetable fats, dry vitamin and mineral additives. All ingredients for mixed fodders will be delivered to the feed storage building by motor transport. Trucks with feed ingredients for the mixed fodders will undergo weight control at the gate of the pig-breeding complex before unloading at the feed preparation building. Grains and cake are dumped to a storage pit and other components are unloaded at warehouse. Grain is moved by noria for further processing, including removal of metallic debris by using a magnetic separator, and then to storage feeding hoppers. From the storage hopper grain goes to cleaning. At this stage of the process all remained dirt such as weed seeds, straw andstones, is removed. The next stage is crushing in a disk crusher and mixing. Except for the sieve step, cake is processed in a similar manner as the grain. Fish flour, animal and vegetable fats and dry vitamin and mineral additives from the warehouse also go to lower capacity feeding hoppers and then to the mixer. Mixing of components takes place at the final stage of animal feed preparation.


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Each stage of growing of pigs requires a specific feed formula in which the percentage of each feed ingredient is changed. Finished feeds from feed preparation house are transported by feed-truck to buildings housing our pigs. There finished feeds are put into the feed hoppers of feed distribution system. Dry Feed Distribution A particular feed distribution system has been created for transportation and dosing of dry feed in the form of flour, crumbs or granule. It starts from collection from hopper and ends with delivery at the pen. Due to modular design, the system has broad possibilities of application in pig breeding production. The system includes hoppers for storage of dry feed, receiving cones, a line-washer conveyor, turning device, sensors to cut off of feed, volumetric dividers of dry feed and a control device. Mixed fodder from hoppers of finished feed is loaded into volumetric dividers with capacity of 4.0 liters to 12.0 liters. The volumetric dividers which are located in individual pens. After all feeders are filled the supply of forage is automatically stopped. The line-washer conveyor works as a loader of feed to group growing pens for the piglets. In turn it loads the hopper feeders with a capacity of up to 70 kilograms that are placed in the pens. After filling, all types of forage feed hoppers will be automatically stopped. The line-washer conveyor has a diameter of 63.5 millimeters to deliver up to 2,100 kilograms per hour. It has a simple control panel to control all types of systems, including systems of feeders with manual distribution. System will alert the operator with a siren or lamp if a failure happens at feeding line.

Exhibit X: Example Feed Transport System

Source: Skiold

hopper self-feeder


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Veterinary Services The technology of pig production relies on disease prevention at the Pig Breeding Complex. The better the prevention effort, the less veterinary treatment will be and the higher quality the finished product. . In order to prevent widespread infectious diseases, quarantine regulations will be strictly observed at the Pig Breeding Complex. Purchased animals are kept in quarantine for six weeks. Twenty-four hours must pass between two visits of one person to different farms. All items brought in from outside must be washed and wrappings of medicines thrown away. Farm cats will not be allowed to leave the farm. Food wastes cannot be used as pig feed. Pest control against flies and rodents will be strictly enforced at the pig breeding farm. For rodent control traps with poisoned, regularly updated baits are used. These baits are placed around a building in every 50 meters. Prevention of fly growth is made by placing of special blends. Furthermore, all visitors and workers must wash hands and change clothes before entering farm. All animal deaths will be investigated under a thorough clinical examination, including opening of internal organs, tissue examinations and blood analysis. Feed and water are checked frequently during production in order to facilitate the diagnosis of diseases and determine the cause of animal death. Body temperature of pigs is checked to control their health. Healthy pigs have various average body temperatures: from birth to 12 weeks, 39.0° C to 40.0° C; from 3 to 6 months 38.7° C to 39.3 ° C; more than 6 months 38.5° C to 39.1 ° C. Proper animal husbandry requires forced killing of pigs with partial paralysis, uterine prolapsed, bone fracture, diarrhea, pneumonia, brain fever and other terminal cases. Such a step may not be taken until a treatment program has been attempted for at least two weeks. Selection Breeding of pigs, as well as breeding of any other species of animals, is based on selection. The best specimens of the population should become parents of next generation. The primary goal of pig breeding is improving profitability. This requires that pigs grow fast with effective application of feeds. Meat consumers have strict quality demands, including a preference for lean meat. This factor should affect selection purposes. Breeding power and milking capacity of sows, piglet vitality and shapely legs are particularly important. Artificial insemination plays central role in selection, as it gives an opportunity to move genetic progress effectively with wide use of the best pedigree material. The use of artificial insemination, as well as specific stimulation of sows before insemination and in the process of insemination, is considered economically reasonable.

Slaughterhouse Operations We propose to use a slaughterhouse production line supplied by EMF Lebensmitteltechnik-Anlagenbou GmbH of Germany. The system can be divided into four stages: 1) slaughtering and pre-processing; 2) cooling, 3) boning and 4) packing Slaughtering and Preprocessing In the slaughtering and pre-processing of pork the animals are typically transported by truck from the growing section to a place of slaughter. Transportation of livestock often leads to a stress condition, which is accompanied by a significant loss of live weight and slaughter weight. It has an impact on fatness and sometimes leads to the death of animals in transit because of metabolic disorders. Depth of stress increases with distance and lengthier time of transportation. Proper organization of transportation


September 2015 47

of animals in modern trucks at fixed distances, creation of appropriate conditions for preslaughter, adequate rest for the animals help ensure normal physiological state of animals. This improves quality of meat and avoids meat loss. The goal of pre-slaughter keeping is to reduce of pre-slaughter stress of animals. Animals are placed in pen where they can move about freely and rest after transportation. The pre-slaughter keeping pens should be equipped with heated floor and sprinklers. Animals in pre-slaughter control undergo inspection by the Veterinary Inspection Service. If sick animals are found, the Veterinary Service determines possibility of further use of the animal. After inspection and approval by the Veterinary Inspection Service, the animals are washed under a shower at a water temperature between 20 degrees Centigrade and 25 degrees Centrigrade. The animals should be washed at least five minutes. Knocking is the method used to kill the animal for slaugher. It must be carried out quickly and efficiently to avoid stress, which causes an increase in adrenaline levels in the blood and stress on the cardiovascular system. Two methods of knocking of pigs can be used depending on capacity of the company: 1) knocking by electric current with tongs at 250 Gts to 2,400 Gts or by V-shaped clamp at 300 volts to 780 volts or 2) knocking by gas using carbon dioxide. Knocking of animals before slaughtering provides more complete exsanguination of the carcasses because the heart and lungs continue to work. It also creates safer working conditions for workers. After knocking, the animal is suspended on a hanging rail to facilitate exsanguination. A single knife stroke is made to the heart with hollow knife from the bottom of the neck under the chest. One of the main prerequisites for obtaining of high-quality products from carcasses is complete removal of bristle. The maximum smoothness is achieved by effective multistage clearing by means of special equipment, including a singe furnace and wash machine. Next the internal organs are removed in step called evisceration. Efficiency, hygiene and quality of evisceration depend to a considerable degree on the accuracy of certain working operations. The process of removing the white and red organs is optimized by means of conveyors bringing carcasses at individual workstations in a continuous mode. The entrails are removed in a specified sequence: 1) removal of eyes and auricles; 2) cutting the abdomen cavity; 3) removal of white organs such as the stomach and intestines; 4) removal of red organs such as the heart, lungs, liver, spleen, kidney; and 5) veterinary control of red and white organs. Work starts from separation of head and legs from the body barrel. The rectum should be cut around the anus. Then the abdominal cavity should be dissected in the middle by an incision from the groin to sternum. Bladder, intestines, stomach and liver should be taken out. After this the breast bone should be dissected and the lungs together with trachea and heart should be taken out. Carcasses should be parted to pork sides along spine. After this step the carcasses undergo veterinary inspection and control. The final step of slaughter involves the weighing and classification of the carcasses. Following the slaughter stage, the carcass is sent to be cooled.


September 2015 48

Exhibit XI: Slaughtering and Pre-processing Steps

Source: EMF Lebensmitteltechnik-Anlagenbou

Right: Knocking Step

Left: Immobilization on

Hanging Rail

Below: Singing, Washing and Veterinary Inspection


September 2015 49

Cooling Three methods are basically used to chill pork. We plan to use high-speed cooling, also called shock cooling or interrupted high-speed coolin. In a process of high-speed cooling immediately after slaughter, carcasses are passed through a tunnel and exposed to a certain temperature with air flows fixed by refrigeration technique. Since there is a continuous flow of animal carcasses into the tunnel, the refrigerator thermal load must be optimized over time to keep a constant air temperature in refrigerator. The temperature at the surface of the carcass gets reduced quickly to -20 degrees Centigrade. This is conductive to reduce up to 40% of the heat from the carcass and a significant reduction of mass loss as compared with other methods of high-speed cooling. In addition, cooling time is shortened and requires less space. In high speed cooling of pork sides the ambient temperature is typically of -10 degrees Centigrade to -6 degrees Centrigrade. The air rate ranges from two meters per second to three meters per second. Carcasses typically are in the tunnel for two hours. After cooling the carcasses are transferred to the refrigeration room where the ambient temperature ranges from -1 degrees Centigrade to +2 degrees Centigrade and the air rate ranges from 0.1 meters per second to 0.3 meters per second.

Table IV: Technological Parameters for Pork Cooling

Cooling Method

Air Temperature

Degrees Centigrade

Air Speed Meters

perSecond

Time of Cooling Hours

Specific Cooling Power Heat/Sq. Meter

% Mass Loss

Chill - 1 to +2 0.3 to 0.8 14.0 to 16.0 230 to 250 1.6

High-speed cooling

Tunnel of blast cooling -10 to -6 2.0 to 3.0 1.5 to 2.0 400 to 500

Additional coolhouse room -1 to +2 0.1 to 0.3 12.0 to 14.0 100 to 120 1.0

High-speed blast cooling

Tunnel of blast cooling -25 to -30 0.5 to 1.5 0.5 to 1.5 600

Compensatory room +4 to +6 0.1 8.0 60 0.85 to 1.0

Source: EMF Lebensmitteltechnik-Anlagenbou

Exhibit XII: Boning Step Source: Magnat CJSC

• hindleg • ham • brisket • shoulder


September 2015 50

Boning Boning is usually accomplished in two stages: 1) butchery to juncture and 2) separating meat from bones. Butchery to junctures is made on a pre-cutting tables standing in parallel or by means of semiautomatic disk saws. Cutting is done with hand disc saws, stationary band saws or disc blades depending on the capacity of the production. Packing The object of the packing alternatives is to: 1) to sell a product and 2) to keep the product fresh as long as possible. Production in the form of pork sides is sold without packing. The expiration date of such products is two to four days. Therefore, these products must be sold to a buyer before to slaughter. The balance of production will require packing after the boning step. There are different technologies of packing of fresh meat. Vacuum packing increases the expiration date of the product up to a range of 20 days to 25 days. Packing in modified atmosphere (MA) increases an expiration date up to 15 days. It is reasonable to pack pieces of meat weighing 5 kilograms to 7 kilograms in vacuum packing. These pieces are not a commodity for consumer. They are bought by distribution networks for further processing into smaller pieces. It is reasonable to pack in MA-packing products for end users. We propose to purchase packing machines that will enable us to use either vacuum or modified atmosphere packing.

Staffing Plan Normal operation comes after production start and the onset of full capacity production. At least six months before this point, the project team begins preparation for transfer of operations to a new management team. The project team organizes the system of production management. One of management systems will be the motivational framework for the staff. All management systems will be aimed to obtain maximum economic effect from operation of production. We expect to employ approximately 57 people in each Pig Breeding Unit, with 42 positions dedicated to production, 8 to security and 7 to administrative functions. In our Slaughterhouse, the planned staffing level is significantly higher in each Pig Breeding Unit, where we expect to employ 115 people. Approximately 76 positions are dedicated to production, 8 to security, 9 to sales and 14 to administrative functions.

Chart XVIII: Pig Breeding and Slaughterhouse Staffing Mix

Source: Magnat CJSC


September 2015 51

Table V: Facilities Plan Pig Breeding Unit

Building Quantity Building Area in Square

Meters Total Area in Square

Meters

Fattening building 8 2,160 17,280

Growing building 3 2,160 6,480

Farrow building 2 2,160 4,320

Insemination and waiting building 2 and 5 2,160 5,400

Boar building 1 1,200 1,200

Building of young gilt 1 2,160 2,160

Insulator 1 400 400

Mixed-fodder plant 1 540 540

Weighing room 1 60 60

Sanitary inspection room 3 130 390

Laboratory 1 40 40

Sanitary slaughterhouse 1 250 250

Permanent accommodation and offices 1 450 450

Passing galleries 7 70 490

Slaughterhouse

Building Quantity Building Area in Square

Meters Total Area in Square

Meters

Main building 1 4,400 440

Sanitary slaughterhouse 1 250 250

Auxiliary Facilities

Source: Magnat CJSC

Facility Quantity

Weigh bridge 1

Security station 2

Section of barns 1

Permanent accommodation and offices 1

Disinfection barrier 2


September 2015 52

VIII. PRODUCTION ECONOMICS

Pig Breeding Complex Production Assumptions Each Pig Breeding Unit will be designed to house up to 3,000 productive sows. The average sow is able to bear from 26 to 30 piglets per annum. Following prudent animal husbandry principals, the typical sow can produce as many as 30 to 32 piglets per year. The average slaughter weight of pigs is 110 kilograms. Based on 28 piglets per sow each year and our planned herd size for each Pig Breeding Unit, at capacity we could produce 84,000 pigs per year for slaughter yielding 9,240 tons of meat in live weight. At the price of 120 roubles (US$1.85) per kilogram the value of this production level would be 1.108 billion roubles( US$17.05 million) or 110 roubles (US$1.69) per kilogram a value of 1.016 billion roubles (US$15.63 million). If we assume 30 piglets per sow we could produce as many as 90,000 animals per year or 9,900 tons of live weight per year. At the prices of 120 roubles (US$1.85) and 110 roubles (US$1.69) per kilogram, the value of this production level is estimated at 1.188 billion roubles (US$18.28 million) and 1.089 billion roubles ($16.75 million), respectively. Based on a range of 24 to 25 piglets per year from each sow and our planned herd size, we estimate each pig breeding unit as designed could produce approximately 75,000 pigs for slaughter each year. This production level could yield 7,920 tons of live weight pigs per year. Assuming a wholesale price of 120 roubles (US$1.85) per kilogram, we estimate the potential value could reach be 950.400 million roubles( US$14.62 million). Assuming a price of 110 roubles (US$1.69) per kilogram, the estimated value could be 871.2 million roubles (US$13.4 million), it is very conservative estimation.. In calculating the potential cash flows from our project we applied the assumption of 24 to 25 piglets per sow per year and the wholesale price of 110 roubles (US$1.69) per kilogram. We estimate the total annual value of each pig breeding unit will be approximately 950.400 million roubles( US$13.4 million). We expect to begin breeding sows within thirteen to fourteen months of initiating construction. Pig breeding can quickly ramp to full capacity with the delivery and completion of quarantine of the first batch of breeding sows. Our financial projections reflect the construction of four pig breeding units, the first which is completed within thirty months from the on-set of construction. We expect to complete the second unit within two years and the third and fourth units are planned within two and a half years.

Table VI: Pig Breeding Unit Production Matrix

Herd Size Piglets Per

Sow Total Pigs

Average Slaughter Weight in Kilograms

Meat in Tons

Price per Kilogram

Value in Millions

3,000 24 - 25 75,000 110 7,920.0 US$1.85 US$14.62

3,000 24 - 25 75,000 110 7,920.0 US$1.69 US$13.40

3,000 28 84,000 110 9,249.0 US$1.85 US$17.05

3,000 28 84,000 110 9,249.0 US$1.69 US$15.63

3,000 30 90,000 110 9,900.0 US$1.85 US$18.28

3,000 30 90,000 110 9,900.0 US$1.69 US$16.75

Financial Projection Assumptions

3,000 24 - 25 75,000 110 7,920.0 US$1.85 US$14.62

Source: Magnat CJSC


September 2015 53

Slaughterhouse Production Value at Capacity As designed the maximum processing performance of the Slaughterhouse is 120 head per hour. Given the capacity of the refrigerators we plan to use, the maximum duration of a work shift will be ten hours. Our business plan provides for twenty-two working days per month. Thus the Slaughterhouse is able to process up to 316,880 pigs per year or approximately 34,848 tons in live weight. This would yield approximately 24,045 tons of pork sides based on the assumptions that the average pig will yield approximately 70% porkmeat and 30% offal. Assuming 100% of the porkmeat qualifies as first category quality, at a price of 178.0 roubles (US$2.74) per kilogram for pork sides in the first category, we estimate our annual receipts could be 4.28 billion roubles (US$65.8 million). We estimate that approximately 85% to 100% of the porkmeat could go to the boning step as described in Section VII of this document. Quantity and price of products of the boning process are presented in a Table VII below. We estimate the value of our boning products could be US$78.6 million per year. Approximately 30% of the typical pig is offal of the first and second category, including fats, endocrine raw materials and surrogates for medical products. Quantity and price of these products are presented in Table X on the next page. We estimate the total weight of offal, fats, medical products will be 900,240 kilograms valued at US$ 691,318 per month or US$8.3 million per year. At base prices the estimated total sales value of all Slaughterhouse products at full capacity utilization is estimated at US$96.8 million per year.

Table VII: Boning Products - Annual Quantities and Value

Description of Boned Product % of Total Production

Production Quantity in Kilograms

Price per Kilogram in US$

Value in US$

Trimmed tenderloin 0.5 64,120.32 5.77 608,873.41

Brisket with rib 8.2 1,051,573.25 4.79 8,300,849.59

Hip part 14.3 1,833,841.15 4.92 14,849,787.35

Bladebone part 6.1 782,267.90 4.85 6,243,380.43

Cervical-subscarpular part 4.8 615,555.07 6.46 6,544,455.26

Breast with rib 11.4 1,461,943.30 4.25 10,220,108.21

Mincemeat 22.6 2,898,238.46 4.81 22,962,371.78

Whiskers 2.7 346,249.73 1.59 907,706.98

Fat and fat scraps 7.2 923,332.61 2.30 3,496,352.81

Ragout 8.2 1,051,573.25 1.42 2,450,435,30

Bone 4.0 512,962.56 0.62 522,958.75

Skin 8.1 1,038,749.18 0.71 1,210,275.97

Tendon and cartilage 1.7 218,009.09 0.71 254,008.54

Losses 0.2 25,648.13 0.00 0.00

Total 78,571,564.37

Source: Magnat CJSC


September 2015 54

Table VIII: Offal Products - Monthly Quantities and Value

First Category Offal % of Total Production

Quantity in Kilograms


Value in US$

Head 3.91 113,546.40 0.44 50,222.45

Tongue 0.21 6,098.40 5.15 31,397.38

Food liver 1.30 37,752.00 1.96 74,139.12

Heart 0.28 8,131.20 2.80 22,729.83

Processed kidney 0.24 6,969.60 1.24 8,631.58

Meat trimmings 0.97 28,168.80 0.88 24,918.55

Head meat 0.99 28,749.60 1.15 33,062.04

Brains 0.06 1,742.40 0.44 770.68

Total 231,158.40 245,871.63

Second Category Offal % of Total Production



Value in US$

Larynx 0.25 7,260.0 0.97 7, 064.54

Lungs 0.29 8,421.60 0.76 6, 406.89

Trachea 0.12 3,484.80 0.44 1, 541.35

Gullet meat 0.09 2,613.60 0.71 1, 849.62

Ears 0.44 12,777.60 1.50 19, 215.54

Cleaned legs 1.43 41,527.20 0.88 36, 735.60

Processed stomach 0.68 19,747.20 1.06 20, 962.41

Washed meat and bone tail 0.07 2,032.80 0.71 1, 438.60

Total 97,864.80 95, 214.56

Fats % of Total Production



Value in US$

Pluck liver 0.04 1,161.60 0.71 822.06

Fat membrana 0.02 580.80 0.71 411.03

Caul fat 0.73 21,199.20 0.71 15, 002.51

Kidney fat 0.56 16,262.40 0.71 11, 508.78

Fat trimmings from carcasses 0.11 3,194.40 0.71 2, 260.65

Total 42,398.40 30, 005.02


September 2015 55

Table VIII Offal Products continued:

Inedible By-Products % of Total Production



Value in US$

Toes 0.05 1,450.00 0.00 -0-

Food liver 0.43 12,487.20 0.00 -0-

Non-food trimmings 0.24 6.969.60 0.00 -0-

Stomach membrana 0.16 4,646.40 0.00 -0-

Hog wool 0.07 2,032.80 0.00 -0-

Blood 3.35 100,188.00 0.00 -0-

Gall sac 0.01 290.40 0.00 -0-

Breeding organs 0.50 14,520.00 0.00 -0-

Non-food trimmings 0.60 17,424.00 0.00 -0-

Spleen 0.15 4,356.00 0.00 -0-

Hooves 0.05 1,452.00 0.00 -0-

Condemned material 0.22 6,388.80 0.00 -0-

Total 172,207.20 -0-

Casing % of Total Production



Value in US$

Set of casing 6.12 177,724.80 1.77 314,436.18

Bladder with lining 0.22 6,388.80 0.41 2,599.75

Total 184,113.60 317,035.93

Medicinal Products % of Total Production



Value in US$

Endocrine material 0.23 6,679.20 0.41 2, 717.92

Special material 0.04 1,161.60 0.41 472.68

Total 7,840.80 3, 190.60

Losses % of Total Production



Value in US$

Gastric contents 0.80 23,323.00 0.00 -0-

Dung 3.50 101,640.00 0.00 -0-

Losses and exhalation 1.09 31,653.60 0.00 -0-

Losses 0.28 8,131.20 0.00 -0-

Total 164,656.80 -0-

Total Offal Products 691,317.75

Source: Magnat CJSC


September 2015 56

Table IX: Total Value from all Production Categories

Production Description of goods Value in US$

Pig Breeding Unit Pigs in live weight 55, 846, 153.85

Slaughterhouse

Pork sides in first category 9, 937, 434.39

Pork sides in second category 0.00

Products of boning 78,571,564.37

Offal in first category 2,950,459.04

Offal in second category 1,142,574.78

Fats 360,060.26

Casings 3,804,431.22

Medical products 38,287.23

Total

152,650,965.62

Source: Magnat CJSC

Pig-breeding Complex Operating Costs Feed Costs Feed costs will be the principle expenses of the Pig Breeding Complex, representing approximately 75% of total costs. The indicator that characterizes efficiency of production is feed conversion, calculated as the amount of feed used for production per kilogram pork in live weight. The industry average feed conversion ratio is 2.92. Using this industry average we can estimate how much feed will be needed for the production of 75,000 pigs per year per breeding unit. 75,000 Pigs Per Year per Unit X 110 Kilograms Average Slaughter Weight X 2.92 Feed Conversion Ratio X 107% Gross up for Transportation Losses During Production and Transportation = 25,776,300 Kilograms of Feed We estimate the feed requirement at our pig breeding operation will be approximately 26 thousand tons annually. We plant to construct a mixed-fodder plant to prepare feed for at least seven different formular appropriate for the age categories we expect to house in our Pig Breeding Complex. To estimate the variable costs such as heating, power consumption and water supply for the pig breeding operation, we used approximate calculations for the type of design and facility configuration we have chosen. Besides ambient heating, hot water supply (domestic and production) should be taken into account when making heating calculations. The facilities of the Pig Breeding Complex must be kept at various optimum temperatures:

Buildings of insemination / expectations, farrowing, growing must be kept at a temperature range of 22 degrees Celsius to 28 degrees Celsius

Sanitary inspection rooms, fattening rooms, permanent accommodation and offices must be at a minimum temperature near 18 degrees Celsius

Feed preparation house must be kept at a minimum temperature near 7 degrees Celsius


September 2015 57

As a rule, to heat a building housing pigs, heating boilers with capacity of 800 kilowatts to 1.5 megawatts are needed, depending on the 1) climatic zone in which the facility is located; 2) number of heated buildings; 3) construction, of which building are constructed. A variety of fuels can be used in boilers, including natural gas, liquid fuel, straw or organic waste. Required power, fuel type and duration of the heating season (climatic zone) determine cost of heating. We estimate heating expenses will be approximately 0.45% to 0,6% of total expenses, costing in a range of 236,000 roubles (US$3,630) to 247,000 rubles (US$3,800) per month. Power Supply To estimate power supply expenses we have taken into consideration the total power of all energy consumers, including equipment, lighting and household devices as well as the occasions of simultaneous use of equipment. For the Pig Breeding Complex this indicator is from 0.8 megawatts to 1.2 megawatts. At a cost of 3.20 rubles per kilowatt of electricity (US$0.049), the approximate energy expense at each Pig Breeding Unit is estimated to be approximately 404,460 rubles (US$6,192.00) per month. Water Consumption To estimate expenses connected with supply of water, the approximate calculation of water consumption will be given. We estimate the monthly expenses for water supplies for each Pig Breeding Unit will be about 263,066 rubles (US$4,047.17) per month. Veterinary Service We expect to spend from 6.1 thousand rubles to 7.2 thousands rubles (US$110.7) on veterinary services in each pig as the pigs grow to slaughter weight. We estimate the monthly cost will be approximatley 1,780 thousand rubles (US$27,38).

Table X: Water Consumption - Pig Breeding Unit

Water Consumption Liters/Day Cubic

Meters/Year

Boars 25 172

Empty and pregnant sows 25 23,646

Milking sows 60 13,956

Young gilts 15 1,675

Weaned piglets 5 20,620

Fattening pigs 15 112,506

Total 172,575

Dry Season Adjustment +25% 1 215,718

Cost of One Cubic Meter Water, US$ 0.23

Source: Magnat CJSC


September 2015 58

Chart XIX: Mix of Pig Breeding Expenses

Source: Magnat CJSC

Table XI: Forage Ingredients - One Pig Breeding Unit

Forage Ingredient % Total Volume

Quantity in Tons

Price /Ton in Rubles

Price/Ton in US$

Total in US$

Barley 5.03% 1306.98 7,500 115.38 150, 805.02

Wheat 39.26% 10206.35 8,000 123.08 1,256,166.07

Rye 0.00% 0.00 6,000 92.31 0.00

Maize 27.82% 7233.44 9,000 138.46 1,001,553.55

Oats 0.85% 221.58 5,500 84.62 18,748.74

Fried soya 14.61% 3797.84 28,000 430.77 1,635,994.73

Salt 0.26% 68.01 3,800 58.46 3,975.83

Barley without husk 0.00% 0.00 10,000 153.85 0.00

Alternative 4 0.00% 0.00 11,160 171.69 0.00

Sunflower cake 6.34% 1647.19 15,000 230.77 380,121.67

Soya cake 0.00% 000 30,000 461.54 0.00

Pea 0.00% 0.00 12,000 184.62 0.00

Fish flour 1.76% 458.79 41,000 630.77 289,387.62

Meat-and-bone meal 2.34% 608.88 21,000 323.08 196,714.24

Fodder yeast 0.00% 0.00 13,000 200.00 0.00

Vegetable oil 0.01% 2.11 46,000 707.69 1,494.46

Monobasic calcium phosphate 0.79% 204.13 33,000 507.69 103,634.53

Fodder chalk 0.02% 6.06 4,200 64.62 391.62

Konvet -1 0.00% 0.00 279,380 4,298.15 0.00

Konvet-2 0.73% 190.70 224,480 3,453.54 658,586.74

Konvet-3 0.18% 47.95 212,280 3,265.85 156,585.05

Konvet-concentrate-2 0.00% 0 7,500 1,283.06 0.00

Mixing expenses

361.8 5.57 144,720.00

Transport expenses

132 2.03 52,800.00

Total

26,000.00 6, 051,679.87

Source: Magnat CJSC


September 2015 59

Slaughterhouse Operating Expenses Live Pigs The principal resource requirement for our Slaughterhouse will be live weight pigs. The cost of the pigs will represent approximately 80% of total Slaughterhouse operating expenses. Base on our planned maximum capacity of 120 head per hour, a ten-hour working day and five-day work week, we estimate the annual requirement would be 316,880 pigs per year with a live weight of approximately 34,848 tons. At full capacity utilization we estimate the annual expenses for live weight pigs would be approximately US$100.7 million annually composed 100% of first category animals and none for second category animals. This is based on prices in the open wholesale market and not on the costs we expect to incur in our captive pig breeding operation. 316,800 Slaughterhouse Capacity Per Year X 110 Kilograms Average Slaughter Weight X 100% Production Mix - First Category X US$1.85 Average Price Live Weight - First Category = US$64,468,800 Annual Live Weight Cost - First Category Pigs X 0% Production Mix - Second Catergory X US$1.46 Average Price Live Weight - Second Category = US$ -0- Annual Live Weight Cost - Second Category = US$64,468,800 Total Cost Live Weight Pigs

Chart XX: Slaughterhouse Expense Mix

Source: Magnat CJSC

Natural Gas Given the design estimates have not been completed for the Slaughterhouse, we used approximate calculations to estimate costs for heating, power consumption and water supply for the Slaughterhouse. We expect to use natural gas to heat the Slaughterhouse and for other functions. At full capacity of 120 head per hour we estimate 1,734,165 cubic meters of gas will be needed per month. Gas costs will be approximately 11 million rubles (US$169,230.76) per month assuming a gas price of 6.17 rubles per cubic meter (US$0.095).


September 2015 60

Table XII: Slaughterhouse Natural Gas Requirement

Operating Area Cubic Meters per Month

Operating of singing furnace 30,720

Preparation of steam 11,700

Hot water supply

Production hot water supply 11,936

Domestic hot water supply 95,040

Heating of premises 17,000

Source: Magnat CJSC

Power Supply To estimate electricity expenses we assumed a standard range of 0.8 megawatts to 1.2 megawatts total power requirement for equipment, lighting, household devices in the Slaughterhouse and multiplied by a factor of 0.6 for simultaneous use of equipment. The assumed cost electricity is 3.45 rubles (US$0.114) per kilowatt. Thus, we estimate electricity expenses at Slaughterhouse will be around 1.2 million rubles (US$18,461.76) per month. Water Consumption We estimate that water consumption in the Slaughterhouse will be in a range of 48 cubic meters per hour to 54 meters per hour or in a range of 384 cubic meters to 432 cubic meters per shift. The monthly cost of water for the Slaughterhouse is estimated to be in a range from 200,000 rubles (US$3,000.77) to 230,000 rubles (US$3,540.0).

Fixed Asset Maintenance Costs The cost of maintain plant and equipment is impacted by equipment failure, failure to replace of frequently used and high-wear equipment components and improper operation of equipment. We believe choice of equipment provider is also very important in minimzing future fixed asset maintenance costs. To estimate expenses for maintenance we used the working experience of similar enterprises. We estimate the maintenance costs in each Pig Breeding Unit will total approximately 1,284,328.5 rubles (US$319,758) per month. This is based on an average cost of 205 rubles (US$3.15) per head and our planned breeding capacity of 75,000 pigs per year. In the Slaughterhouse we estimate maintenance costs will be 3,508,602 rubles (US$53,978.0) per month. This is based on an estimate of 0.75% to 1% of gross revenue.

Administrative and Other Expenses Expenses related to banking, professional services, computing and communications, transportation and other administrative functions are expected to be approximately 9% of total costs in the Pig Breeding Complex and 2% in the Slaughterhouse operation.


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Table XIII: Pig Breeding Unit Staffing Budget

Name of Departments and Positions Employees Fixed Salary per

Month US$

Administration

Executive director 1 3,538.46

Chief accountant 1 1,230.77

Accountant 2 615.38

Administrator 1 615.38

IT and communications specialist 2 615.38

Production

Director of production 1 3,076.92

Assistant director of production/production manager 1 1,846.15

Animal technician - selectionist 1 923.08

Accountant-storekeeper 1 461.54

Veterinary Service

Head veterinarian 1 923.08

Veterinarian or veterinary medical assistant 1 692.31

Insemination

Section manager 1 769.23

Operator 3 415.38

Farrowing


Operator 5 415.38

Growing


Operator 3 415.38

Fattening


Operator 3 415.38

Feed Preparation House


Operator 2 415.38

Service workers

Chief engineer 1 846.15

Tractor driver 2 307.69

Washer 3 307.69

Operator of boiler room 1 307.69

Mechanic 1 384.62

Power engineering specialist 1 384.62

Operator of separator room 1 307.69

Driver 3 384.62

Unskilled worker 2 307.69

Security

Chief security officer 1 769.23

Gatekeeper 7 384.62

Total 57 35,261.54


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Table XIV: Slaughterhouse Staffing Plan

Departments and Positions Persons Fixed Salary per

Month

Administration

Executive director 1 4,615.38

Assistant manager of general manager 1 2,769.23

Director of operations 1 3,076.92

Chief accountant 1 1,538.46

Accountant 4 2,769.23

Administrator 1 846.15

IT and communications specialist 3 1,846.15

Secretary 2 769.23

Sale department

Head of department 1 2,307.69

Shop assistant 8 7,384.62

Production

Veterinary service

Head veterinarian 1 1,230.77

Veterinarian/veterinary medical assistant 1 846.15

Slaughterhouse

Production foreman 1 1,076.92

Butcher 24 12,923.08

Refrigerating section


Operator 2 615.38

Boning


Boner 20 13,846.15

Packing


Operator 3 1,846.15

Support Personnel

Forwarding clerk-inspector 4 2,461.54

Acceptance inspector of livestock 2 923.08

Washer 3 923.08

Operator of boiler room 1 307.69

Operating engineer 1 769.23

Mechanic 1 538.46

Power engineering specialist 1 461.54

Maintenance of treatment facilities 2 615.38

Driver 3 1,384.62

Unskilled worker 2 615.38

Cleaning of premises 7 2,153.85

Storekeeper 2 615.38

Security 8 2,461.54

Total 115 76,846.15


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IX. PRODUCTS Magnat will be positioned as a producer of high-quality porkmeat and pork by-products. Our end products will be fresh chilled porkmeat in the form of pork sides weighing about 38.5 kilograms each, boned porkmeat in pieces weighing an average of 2.0 kilograms and offal composed principally of lung, heart and liver. We expect to market our products to retail food distribution networks of in Moscow, St. Petersburg and the immediate communities in the Ivanovo Region. Porkmeat is a nutricious and cost-effective source of protein, making it highly marketable in the Russia market where domestic meat production falls short of demand. The slaughter yield of growing-fattening pigs is approximately 70%, which compares favorably to a 50% to 60% yield from cattle. Porkmeat contains less water and has a higher calorie content. Beef and mutton both contain as much as 72% to 75% water, while porkmeat is typically only 60% to 62% water. A kilogram of medium-quality pork contains about 2,500 calories, whereas a kilogram of beef contains from 1,800 to 2,000 calories. A kilogram of lamb typically contains 1,500 to 1,800 calories. Fresh chilled pork is faster to market than beef. Softer and with less connective tissue than beef, porkmeat does not require aging by means of hanging. Porkmeat is red, transpierced with veins of fat. Lard is light-colored with a slightly granular structure. Lean pork has a light pink color with glittery appearance. High-quality pork is classified as P5E, where P stands for pale (colorless), 5 is soft and E is watery. We expect to produce up to 75,000 tradable pigs per year at each of our Pig Breeding Units, where we plan to use modern animal husbandry practices to achieve excellent farrowing, growing and fattening results. Based on the weight of a typical pig between 105 kilograms to 120 kilograms, we expect to yield approximately 7,920 tons of live weight pigs per year at each breeding facility. We estimate the wholesale value of the live weight pigs will be approximately US$60.9 million, including value-added tax. The live weight pigs will be sent to our Slaughterhouse for killing, cutting, cooling and packing. Based on an eight-hour work day, the Slaughterhouse could produce 24,396 tons of fresh chilled pork per year at value US$96.8 million, the value of which we estimate will be approximately US$9.9 million for pork sides and US$78.6 million in boned porkmeat including value-added tax. We note that our initial Slaughterhouse production rate will be less than maximum capacity utilization of the Slaughterhouse, which could potentially to process as much as 34,848 tons of live weight pigs per year. We believe 100% of the pork sides from our pig breeding operation will qualify as first category porkmeat. Pigs with a slaughter weight of 105 kilograms to 120 kilograms with fat thickness not more than 18 millimeters and a meat yield of not less than 70% will qualify as first category meat. Pigs with a slaughter weight of 105 kilograms to 150 kilograms with fat thickness not more than 30 millimeters and a meat yield of not less than 56% will be classified as second category meat.


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X. SALES AND MARKETING Our operations are located approximately 200 kilometers from Moscow in the Central Federal District and 75 kilometers from Ivanovo in Ivanovo Region. Close proximity to major metropolitan areas allows us to easily market our porkmeat products in the immediate vicinity of our homebase in the Ivanovo Region as well as in Russia’s major metropolitan area. We believe it is timely to bring new porkmeat products to Russia’s food market. There is short supply of high-quality porkmeat. Often a consumer gets defrosted imported meat in the guise of fresh meat even in big trade chain stores. What is more, the level of consumption of fresh chilled meat is growing as income levels rise in the wake of the world recession in 2009 to 2010 and world political situation in 2014. Consumers are gaining an understanding of the goodness of fresh meat consumption instead of processed meat foods such as sausages and frankfurters. Although meat consumption in Russia is on the rise, it remains below historic highs in the 1990s. We believe that this gives us time to plan and organize our meat production business and reach a position of strength with high quality products before the market has reach maturity.

Supply Agreements Through our pre-marketing efforts we have entered into agreements to supply chilled pork to four customers. The four agreements require us to deliver up to 73,000 tons of chilled pork meat per year beginning in 2017. We expect to continue our pre-marketing efforts with other customers in the food distribution and retail sales.

Table XV: Chilled Pork Supply Agreements

Customer Chilled Pork in Tons Begin Date

Prodtorg, LLC 12,000 2017 Meat Kings, LLC 25,000 2017 Akvaster, LLC 24,000 2017 Agora, LLC 12,000 2017 Source: Magnat, CJSC

Target Markets Our principal target markets will be food wholesale operators and food chains in the metropolitan areas of Moscow, St. Petersburg and other population centers. We also plan to market our products in the Ivanovo Region where our production facilities are located. In the future it may be possible to expand our marketing reach to central and northwest regions of Russia. Main target customers include the following:

Corporate buyers of intermediate porkside product and finished chilled pork product - Managers of chain retail categories - Mroduct manager of chain retail - Distribution companies for work with individual sales outlets; - Directors of small-chain stores - Directors, managers of individual sales outlets - Directors and managers of individual points HoReCa.

Consumers as end buyers of packed and not packed chilled meat. Because of low significance of food trademarks for buyers, a key to successful sales and marketing will have be the cultivation of interest and loyalty. The quantity of a possible price market is estimated to


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account for 80% of wholesalers’ choice. Variety of packaged products and convenience of logistics each account for 10% of wholesalers’ choices.

Distribution Channels Food retailers rely more and more on wholesale distribution networks to source meat products. Such distribution networks sell as much as 40% of the total meat products sold in Russia. Chain stores, which in particular rely on wholesale intermediaries for meat products, are growing in prominence in Russia. Our production facilities are located immediately adjacent to pave roads that connect to major highways leading to Moscow in the south, St. Petersburg in the northwest and Ivanovo to the east. We plan to take our products to market using leased trucks.

Marketing Plan We plan to approach our corporate customers with a series of marketing materials and sales strategies:

• Catalogues with a range of products • Negotiations with chains and payment of “entry” tickets • Negotiations with chains and bonuses according to results of sales • Participation in marketing activities of chains • Payment of merchandising of products

We plan to approach our distributor customers with a series of marketing materials and sales strategies:

• Catalogues and booklets with a variety of products • Leaflets • System of bonuses for implementation of plans • Allocation of budget for marketing activities and co-financing arrangements; • System of motivation, contests and bonuses for sale representatives according to distribution,

number of customers, sales volume, implementation of plans • Motivation programs for directors and heads of retail outlets and outlets of HoReCa.

There is little efficiency in attempting to reach consumer’s directly. Particularity of the product category of fresh and frozen meat, consumers have a low knowledge of producers and brands. However, we believe that merchandising support and price incentives for retail sales outlets could be effective in promoting our brand to consumers. We also plan to actively participate in exhibitions and fairs.

Pricing We plan to set the prices for our end-products based on prevailing market prices. In the financial projections detailed in this memorandum we have assumed an average price of chilled meat in the form of pork sides of 178.0 ruobles (US$1.85) per kilogram, including value-added tax and the price of boned meat products is 272.0 roubles (US$4.18) per kilogram and 305.0 roubles (US$4.69) per kilogram for boneless meat including value-added tax. This corresponds to recent wholesale prices of Russian producers.

Competitive Advantages We plan to strictly observe the world’s leading production technologies and use foreign pedigree meat breeds to launch our pig breeding operation. Accordingly, Magnat will be able to provide Russian consumers with needed chilled pork of European quality but at substantially lower prices. Our location near large metropolitan areas makes it possible to easily reach markets with high demand for porkmeat. We believe we can bring products to market at a lower cost than competitors in more remote regions.


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XI. OWNERSHIP AND LEADERSHIP Our team of professionals has extensive experience in the planning, design, construction and operation of pig breeding and slaughterhouse facilities in Russia and neighboring countries. We are putting this experience to work in executing on the Magnat Chilled Pork Project. Chief Executive Officer and Founder Alexey Nikolayevich Savraskin (41, widow, daughter 7 years old) Employment History: 2013 - Present Chief Executive Officer Russia Farm Land Partners 2010 - Present General Director of Magnat LLC and Magnat CJSC 2007 - 2010 Director General of Delimit Co. Ltd., Krasnodar 2006 - 2007 Development Director, TopDom, Moscow 2004 - 2006 Executive Director,Mikhailov and Partners, Moscow Higher Education: Military Engineering and Space Academy named after Mozhaisky, an engineer Specialization - Information Systems Additional education: Institute of Business and Business Administration, Moscow Degree of EMBA Specialization - Strategic Management Production Manager Gaponenko Vitaliy Nikolayevich (29, married with one daughter) Employment History: 2010 - 2012 Production Manager, Kubanskiy Becon LLC 2007 - 2010 Production Manager, Delimit Co. Ltd., Krasnodar 2004 - 2005 Production Manager, Pyatachok, Krasnodar Experience: - Development and implementation of pork production construction project with live weight

capacity of 72,000 heads per year. - Development and implementation of pork production construction project with live weight

capacity of 7,000 head per year Higher Education: Kuban State Agrarian University Specialization - Zoo-engineer Training and Practice Courses: Modern Pig Breeding, Denmark (Danish Farm Design A / S).


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Construction Manager Visotsky Alexey Vladimirovych (39, married with one daughter) Employment History: 2010 - 2012 Construction Manager, Viyibug LLC 2007 - 2010 Director of Construction, Delimit, Krasnodar 2006 - 2007 Medvedovskiy Meat Packing Plant Experience:

- Development and implementation of pork production construction project for Delimit with live weight with capacity of 72,000 heads per year

- Development and implementation of production expansion project at Medvedovskiy Meat-Packing Plant to modernize and increase production up to 130 tons per day

Higher Education: Kuban State Agrarian University, Specialization - Industrial and Civil Construction Chief Accountant Levchenko Ekaterina Fedorovna (31, not married) Employment History: 2010 - 2012 Chief Accountant, Kubanblagservice LLC 2007 - 2010 Chief Accountant, Delimit, Krasnodar 2004 - 2007 Accountant, Auditing Group Vash Sovetnik . Experience: - Development and implementation of production expansion project at Medvedovskiy Meat-

Packing Plant to modernize and increase production up to 130 tons per day Higher Education: Kuban State Technological University Specialization - Accounting and Auditing Consultant Christensen Steen (50, married with three children), a Danish citizen. Employment History: 2007 - 2012 Consultant, Ukraine 2006 - 2007 Consultant, Graakjaer International A/S, Denmark 2005 - 2006 Production Manager, BEZRK-Belgrankorm, Moscow; Consultant, Agripio, Denmark Experience:

- Construction project of pig-breeding complexes in Ukraine and Russia - Development of turn-key pig-breeding complexes in Denmark - Implementation of construction for BEZRK-Belgrankorm pig-breeding complex with capacity of

300 thousand heads per year - Implementation of 25,000-head construction project for Agripro in Moscow Region

Higher Education: Danish Institute of Business Management Herning Institute (HIH) Specialization - Economics and Business Operation


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Operational Director Potapova Larissa Vyacheslavovna. (51, married with one son) Work History: 2008 - 2012 Production Manager, Yujnouralskiy, Yekaterinburg 2006 - 2008 Production Manager, Orenburg Bacon, Orenburg Experience: - Implementation of production organization project for hybrid-breeding center Yujnouralskyi,

Yekaterinburg - Implementation of construction and startup of production project for Orenburg Bacon pig-

breeding complex with capacity of 100,000 heads per year

Higher education: VSHIZO Specialization - Zoo engineer Candidate of Agricultural Sciences


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XII. FINANCING PROPOSAL

Investment Budget

The Magnat Chilled Pork Project has two implementation phases: 1) construction of the Pig Breeding Complex and 2) construction of the Slaughterhouse. Calculation of the project budget was formed according to estimated calculations of similar projects. Our cost projections in U.S. dollars are based on an exchange rate of 65.00 rubles per U.S. dollar.

Total investment budget of the project is US$186.7 million, including required equipment, initial pig breeding stock, personnel hiring and training and other costs required to initiate the project and successfully reach commercial operation. Pig Breeding Complexes construction and production initiation is expected to require US$149.7 million and the Slaughterhouse an additional US$28.5 million. A budget allocation of US$33.5 million is made to support the preparatory period, the project management function and launch of our planned wholesale porkmeat trading activities.

Table XVI: Construction and Initiation Costs by Facility

Pig Breeding Complexes Required Investment

in US$ % Share of Total

Budget

Initial expenditures 103,226 0.07

Construction cost 129,320,546 86.40

Purchase of investment site 1,548,387 1.03

Design and engineering and survey works 3,983,226 2.66

Utility hook-up (electicity and gas) 4,129,032 2.76

Building and assemble jobs 73,524,598 49.12

Purchase and installation of equipment 38,168,058 25.50

Purchase of pedigree livestock 7,876,923 5.26

Personnel training 90,323 0.06

Operating expenditures 20,245,265 13.53

Total 149,669,037 100.0%

Slaughterhouse Required Investment

in US$ % Share of Total

Budget

Initial expenditures 25,806 0.09

Construction costs 23,589,791 82.78

Purchase of investment site 322,581 1.13

Design and engineering and survey works 737,097 2.59

Utility hook-up (electicity and gas) 338,710 1.19

Building and assembly jobs 12,018,098 42.18

Purchase and installation of equipment 10,173,306 35.70

Personnel training 0 0.00

Operating expenditures 4,879,930 17.13

Total 28,495,527 100.0%

Source: Magnat CJSC


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Table XVII: Total Construction and Initiation Costs

Foun Required

Investment in US$ % Share of Total

Budget

Initial expenditures $354,838.71 0.19

Construction costs $152,910,337.11 81.89

Purchase of investment sites $1,870,967.74 1.00

Design, engineering, survey works, preliminary permits $4,720,322.58 2.53

Utility hook-up (electicity and gas) $4,467,741.94 2.39

Building and assembly jobs $85,542,695.94 45.81

Purchase and installation of equipment $48,341,363.25 25.89

Personnel training $90,322.58 0.05

Purchase of pedigree livestock $7,876,923.08 4.22

Operating expenditures $25,131,187.91 13.46

Organization of retail activity $5,000,000.00 2.68

Organizational and management costs of the project $3,330,774.19 1.78

Total $186,727,137.92 100.0%

Source: Magnat CJSC

The largest element of our total budget is related to the construction of our Pig Breeding and Slaughterhouse facilities, which is expected to require US$152.9 million or 82.0% of the budget. Building and assembly work is expected to require approximately US$85.5 million or 45.8% of the total budget. The purchase and installation of equipment will require US$48.34 million or 25.9% of the budget. Construction cost estimates of the four units that complete the Pig Breeding Complex reflect an assumed 15% discount compared to estimates of a single unit facility.

Capital Requirement

The founder of Magnat have invested more than US$1.5 million in the project in the form of the project sites and cash for covering initial costs and for covering costs for designing works. The first site composed of 44.0 hectares has been purchased from Illyinski District and ownership documentation is available. The second site composed of 8.6 hectares and currently owned by Illyinski District has been reserved. One of largest banks in Russia is willing to finance up to 80% of the project investment budget, it is up to US$130.7 million, term sheet from the bank is available. The balance of the required capital of US$53.0-US$56.0 million could be sourced from a joint venture partners we look for. In according to Term Sheet from the bank the project could be financed by business units as separate subprojects. A total budget of first pig breeding complex is about US$48 – US$49 million. For this Unit an equity capital at value US$19.0- $US20.0 million is required from equity partner we look for.

Financial Risk Mitigation

The following assets could be used as collateral to off-set investor risk:

Shares of Magnat CJSC

Land assets transferred to Magnat by the founder as contributed capital

Rights to results of works under contracts

Buildings and structures

Equipment


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Additionally, it might be possible for the prime contractor to issue a bank guarantee on a specified value of the construction contract. The principal contractor might also provide a guarantee against substandard work or failure to meet scheduled deadlines.

XIII. PROJECTED FINANCIAL PERFORMANCE

Projected Operating Revenue and Expenses Based on a series of assumptions related to market demand, production capacity, capacity utilization, prevailing wholesale and selling prices, recent materials costs, utility rates, transportion and distribution expense, salary and labor rates, and other factors impacting potential sales and expenses, we have projected revenue, expenses and profits for our breeding and slaughter operations. Details of production and expense assumptions can be found in Section VIII Production Economics. Projected sales, expenses and profits are shown in Table XIX below in summary format for the first four years of operations after construction of both facilities are completed and full operations have commenced. A more detailed profit and loss presentation can be found in Appendix V at the end of this document. We expect the Pig Breeding Complex and Slaughterhouse operations to begin generating positive cash flow beginning in the third year of the project. Estimated cash flows are shown in summary format in Tables XXI and XXII at the end of this section. A more detailed cash flow presentation can be found in Appendix V at the end of this document.

Table XVIII: Projected Sales and Costs after Investment Stage - Summary

US$ in Millions Year 4 Year 5 Year 6 Year 7 Year 8

Live Weight Pigs Produced 300,000 300,000 300,000 300,000 300,000

Porkmeat Processed in Tons 35,000 35,000 35,000 35,000 35,000


Wholesale Value of Live Weight Pigs (1)

$73.8 $100.5 $114.0 $127.3 $142.0

Cost of Goods Sold $39.0 $45.2 $50.4 $55.5 $61.0

Implied Gross Profit $30.9 $49.8 $57.1 $64.2 $72.2

Operating Expenses $3.9 $5.5 $6.5 $7.6 $8.8

Slaughterhouse

Sales of Pork Products $141.7 $167.2 $191.2 $217.6 $247.6

Cost of Goods Sold (2) $96.0 $111.5 $125.5 $140.6 $157.7

Gross Profit $45.6 $55.7 $43.7 $50.4 $58.7

Operating Expenses $13.7 $17.0 $22.0 $26.6 $32.2

Earnings Before Income Tax $62.9 $88.6 $102.3 $116.4 $132.3

(1) Implied cash flow from operating activity based on wholesale value of live weight pigs beginning at US$1.85 in Year 1 and increasing at a rate of 11.0% per year.


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(2) Assumes cost per kilogram of live weight pigs of US$1.85 for Category 1. Does not reflect actual costs of captive Pig

Breeding Complex. Assumes annual increase of 11.0% per year.

Source: Magnat CJSC

Meat Products Trading In addition to breeding pigs and producing chilled pork products we plan to engage in meat trading, acting as an intermediaty between large and small wholesalers of pork, beef, chicken and lamb. Unlike the breeding and slaughterhouse operations, meat trading activities are short-term in nature. We expect to turn over our investments in 21 days to 22 days. Trading activities will be undertaken by our professional marketing personnel who will also represent Magnat in the sale of our chilled meat products. Thus our trading activities will not require additional personnel or investments beyond our plans and projections for penetrating the pork meat market. We plan to invest US$5.0 million in working capital for our meat products trading operations. We believe profit margins may range from 2% to 8%. For our projections we have assumed a monthly rate of return of 4% and that our trading activity reaches a level US$100 million per year.

Costs Related to Financing While we believe the economic viability of the Magnat Chilled Pork Project supports debt financing for 100% of the capital requirement, to complete the financial projections shown in Table XIX on the preceding page, we assumed a mix of 20% equity and 80% debt financing. It is assumed in the model that interest payments begin in the second month following completion of construction and launch of operations. The assumed interest rate is 13.0% throughout the projection period. Repayment of the principal begins three years after the planned completion of construction and launch of operations in the Pig Breeding Complex. This corresponds to the twenty-six month after the planned completion of construction and the Slaughterhouse. Payments of the principal will be effected in equal shares over nine years for the project The annual investment schedule is present in Table XX below and by quarter in Appendix VI at the end of this document. The amount of the debt financing was calculated based on the following:

Cost of construction and commission of four units in the Pig Breeding Complex and a Slaughterhouse

Working capital requirements to achieve break-even point

Implementation of costs for organization and management of the project

Coverage of all required tax payments

Coverage interest payments

Table XIX: Total Investment Schedule

US$ in Millions Year 1 Year 2 Year 3 Year 4 Total

Equity partner 3.1 19.3 28.1 5.5 56.0

Loan 1.1 47.7 69.0 12.9 130.7

Total 4.2 67.0 97.2 18.4 186.7

Source: Magnat CJSC


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Tax Expenses Our financial performance model takes into account all tax payments in accordance with tax legislation of Russian Federation. The tax payments include: 1) consolidated social tax, 2) valued-added tax, 3) income tax; and 4) estate tax. The system of taxation for the Slaughterhouse is general. However, for the Pig Breeding Complex general taxation rules apply only during the first three years of the project. In the ninth month when the pig breeding project is expect to be operational, we expect the project to be converted to single agricultural tax wherein the share of tax payments will be calculated at 6% of total gross income.

Other Incomes and Expenses In addition to income of operations highlights of the project realization, the project could provide the following income:

Credit from the federal budget in the amount of 2/3 of the financing rate, if the loan is from a Russian bank

Credit rate from the regional budget in the amount of 1/3 of the financing rate, if the loan is from a Russian bank from regional budget,

Indemnity of value-added tax during a twenty-seven months period beginning in the ninth month and ending in the thirty-six month


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Table XX: Pig Breeding Complex - Implied Cash Flow Summary

Pig Breeding Complex Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

Implied cash sources from operating activities (1) $0 $28 289 $17 255 313 $73 842 612 $100 527 620 $114 074 841

Total cash sources from capital raises, internal and other funds

$2 246 065 $7 055 840 $16 119 246 $15 012 332 $9 323 970 $7 861 387

Total cash sources from credits $611 568 $38 129 371 $68 229 756 $17 118 238 $0 $0

TOTAL CASH SOURCES $2 857 633 $45 213 501 $101 604 316 $105 973 181 $109 851 590 $121 936 228

TOTAL CASH USED FOR INVESTMENTS $2 857 633 $41 481 694 $68 237 175) $17 118 238 $0 $0

TOTAL PAYMENTS FOR OPERATIONS $0 $1 654 475 $18 590 790 $42 856 735 $49 462 080 $55 124 639

TOTAL CASH USED FOR FINANCING ACTIVITIES $0 $2 077 332 $9 796 030 $25 530 140 $32 636 711 $30 943 394

IMPLIED CASH FLOW FROM PIG BREEDING -$2 750 984 -$36 958 057 -$50 295 296 $28 024 883 $57 207 169 $63 193 247


Implied cash sources from operating activities (1) $127 275 449 $142 003 616 $158 436 109 $176 770 152 $197 225 788 $220 048 527

Total cash sources from capital raises, internal and other funds

$6 398 803 $4 936 220 $3 473 636 $2 011 052 $558 626 $0

Total cash sources from credits $0 $0 $0 $0 $0 $0


TOTAL CASH USED FOR INVESTMENTS $0 $0 $0 $0 $0 $0

TOTAL CASH USED FOR OPERATING ACTIVITIES $60 653 309 $66 673 003 $73 290 138 $80 564 007 $88 559 790 $97 349 135

TOTAL CASH FLOWS FOR FINANCING ACTIVITIES $29 237 314 $27 593 426 $26 015 951 $24 513 165 $13 068 792 $6 298 344

IMPLIED CASH FLOW FROM PIG BREEDING $70 634 595 $77 219 695 $84 845 268 $93 640 967 $103 782 687 $116 401 047



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Table XXI: Slaughterhouse Operation - Cash Flow Summary

Slaughterhouse Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

Total cash sources from porkmeat production $0 $0 $53 739 354 $141 709 142 $167 211 334 $191 203 265

Total cash sources from internal and other funds $1 125 723 $2 830 699 $3 564 841 $3 126 096 $3 969 261 $1 464 373

Total cash sources from credits and equity investors $1 313 631 $21 178 707 $0 $0 $0 $0


TOTAL CASH USED FOR INVESTMENTS $2 399 115 $21 178 707 $0 $0 $0 $0

TOTAL PAYMENTS FOR OPERATIONS (2) $22 242 $1 357 541 $41 175 456 $102 219 753 $119 504 516 $135 634 039

TOTAL CASH USED FOR FINANCING ACTIVITY $17 997 $1 473 158 $6 075 169 $16 774 182 $23 014 404 $25 965 313

TOTAL CASH FLOW FROM SLAUGHTERHOUSE -$2 427 140 -$22 400 919 $11 096 977 $30 618 216 $34 432 451 $36 416 314

Slaughterhouse Year 7 Year 8 Year 9 Year 10 Year 11 Year 12

Total cash sources from porkmeat production $217 595 527 $247 630 777 $281 811 868 $320 711 059 $364 979 603 $415 352 974

Total cash sources from capital internal and other funds $1 196 091 $927 809 $659 527 $391 245 $122 963 $0

Total cash sources from credits and equity investors $0 $0 $0 $0 $0 $0



TOTAL PAYMENTS FOR OPERATIONS (2) $153 447 433 $173 893 444 $197 430 799 $224 612 873 $256 109 844 $290 053 162

TOTAL CASH USED FOR FINANCING ACTIVITY $29 221 112 $32 905 707 $37 038 140 $41 626 919 $44 459 323 $50 363 633

TOTAL CASH FLOW FROM SLAUGHTERHOUSE $41 048 352 $46 261 968 $52 082 240 $58 519 549 $65 661 402 $74 936 179

(2) Assumes cost per kilogram of live weight pigs of US$1.85 for Category 1. Does not reflect actual costs of captive Pig Breeding Complex. Assumes annual increase of 11% per year. Source: Magnat CJSC


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XIV. PROJECT EVALUATION

Project Economic Indicators Economic indicators of the project are calculated for each of the businesses on a stand-alone basis to demonstrate the viability of each operation on its own. The evaluation of the Pig Breeding Complex is based on the implied proceeds as if our live pigs were sold in the wholesale market. We used an implementation period of twelve years and the assumption of credit at a rate of 13.0% per annuam. The assumed discount rate was 8.0% and the refinancing rate of 8,25%. The evaluation of the Slaughterhouse is based on an implementation period of eight years and an assumption of credit at a rate of 13.0% per annum. The assumed discount rate was 8.0% and a refinancing rate of 8.25%. To evaluate combined operation we used an implementation period of twelve years. The combined cash flow projections include our Pig Breeding Complex, Slaughterhouse as well as our proposed Meat Products Trading Activity and the flows of money related to the organization and operation of the project in entirety. The combined cash flow projection are shown in detail in Appendix VI of this report.

Table XXII: Economic Indicators for Chilled Pork Project

Economic Indicators of Pig Breeding Complexes Result

IRR 29.53%

NPV US$285.1 million

Payback period 5.08 Years

Discounted payback period 5.42 Years

Profitability index 3.57

Economics Indicators of Slaughterhouse Result

Internal rate of return 56.28%

Net present value US$220.3 million




Foun (1) Result






(1) Not taking into account the Retail Activity.


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Foun (2) Result






(2) Taking into account the Retail Activity.

Source: Magnat CJSC

Project Risks Business Model Risk As an integrated operation we believe that the Magnat Chilled Pork Project has less business risk than some of the other pork producers in Russia. The risks of inadequate, high-cost or poor quality source materials in the form of tradeable pigs for the Slaughterhouse are at least partially mitigrated by our control of a pig breeding operation. We also have the ability to further integrate our operations into feed production through the construction of a grain elevator, animal feed farms, organic fertilizer and biogas. Development Stage Risk During the investment stage of the project we are subject to risk associated with rising costs for equipment, construction materials and energy. The costs could exceed our projections and lead to a gap in the financing requirement compared to the amount of capital that we are able to raise. Additionally, unforeseen costs could arise during the construction period. Nonetheless, we believe the risks of price increases is low. We have based our estimates on detailed plans and designs that have been tested in previous undertakings and believe that the risk of unforeseen costs is nominal. In any construction project there is a risk of default by contractors. We have selected only contractors that have been proven qualified and competent through experience. Our work with contractors will be covered by bank letters of credit. We have also researched alternative contractors that could be selected in the event that any contractor is not able to complete the project. There is also a risk that the project will not be completed in a timely manner and will not keep pace with our timetable. Failing to meet deadlines could increase the overall cost of the project. Our project management team has a lengthy history of agricultural project planning, design and implementation. We have also chosen contractors with proven track records to timely project completion. Production Phase Risk We have selected a top pedigree pig for the sows we plan to use as the initial breeding stock. There is a risk that in transporting the sows to a new environment that there might be loss of lives. There is also a risk of disease. We plan to purchase insurance to reduce the risk of loss in breeding stock and the associated costs of replacement. We plan to employ modern animal husbandry practices in our pig breeding operation, including the practice of early weaning of piglets. There is risk in the adoption of new methods and processes that could results in the loss of lives, failure to thrive or low weight gain. To minimize risk associated with animal husbandry we have chosen management team members and consultants with significant experience in these methods. We also plan to conduct training programs for department and section head at existing European plants of similar profile. We also plan to compensate production managers


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with bonuses that are linked to production outcomes, aligning employee execution of best practices with compensation. There is a risk that selling prices will decline and our expenses will exceed sales. There is also a risk that we cannot sell the entire volume of chilled pork products anticipated from our Slaughterhouse. There is currently a shortage of porkmeat products in Russia. Thus, we believe the risk of selling price erosion is low. We also believe that demand is sufficiently keen to soak up our entire production volume. The cost of feed materials, water, electricity and other inputs to both our pig breeding and Slaughterhouse increase unexpectedly. Our business plan provides for a 12% annual increase in the cost of raw materials. Thus we believe that we have made adequate provisions for the cost increases. Operating Risk Several large Asian Swine Flu outbreaks took place in 2012 in Russia. This disease is difficult to control. At the pedigree pig unit Industrialny in Kuban, over 30,000 pigs were killed. Nearly 16,000 hogs at the Dankub unit in Krasnodar and over 33,000 hogs at the pedigree pig unit Zavolzhskoye of the agricultural holding Copitaniya in Tver Region were lost. Over 35 Asian Swine Flu incidents were recorded in 2012 in the South Federal District and one outbreak in Moscow Region. According to experts, the problem of Asan Swine Flue will continue to worsen and present a growing threat both to hog raising and the infrastructure of the meat and feed market. Government agencies responsible for ensuring the safety of food supplies may impose restrictions on the sale of pork meat. In December 2012, Rosselkhoznadzor (Federal Service for Veterinarian and Vegetation Sanitary Supervision) imposed a ban on the sale of pork at markets in the Ivanovo Region in connection with Asian Swine Flue cases recorded in the settlement of Nikulskoye. Two quarantine zones were established: in Nikulskoye and in another fifteen population centers located within five kilometers. The second zone included the cities of Ivanovo, Kokhma, Teikovo, Shuya and surrounding districts. Only large retail chains that do not procure local meat were allowed to sell pork. But in January 2013 the quarantine was canceled and the situation was normalized. We intend to use one of the best world genetics to reduce this risk more over we plan to insure hogs. Rising Costs Feed crop failure due to drought could lead to increase in prices for animal feed. Feed accounts for nearly 70% in the cost structure of pork. Growing prices for feed will reduce overall profitability in the industry and further increase the deficit of the working capital of cattle breeders. But usually in Russia such situation could be in short terms. In long term perspective growth of prices on meat is faster then on animal feed. To secure this risk we plan have our own feed plant and granary. Competition from Imports and Substitutes Domestic pork production was unable to satisfy the growing demand in Russia, the import of meat and meat products has grown rapidly. An increase in imports could have a dampening impact on prices for wholesale and retail pork. To reduce this risk we plan to produce world quality products.


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XV. APPENDICES

Appendix I: Project Manager Address

Company address : office 18, 101, Yuzhnobutovskaya street, Moscow 117042 Russia

Owner: Alexey Savraskin 100%


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Appendix II: Certificates of land ownership


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Translation of the Certificate

Russian Federation Unified Public Register of Real Property Titles and Transactions

CERTIFICATE

of State Registration of Title (Land Registry Title Deed) The Department of the Federal Service for State Registration, Cadastral Records and Cartography for the Ivanovo region Date of issue: August 22, 2013 Documents of title: state-owned land plot buy and sell agreement dated 14.11.2011 No. 50 Holder(s) of the right: Magnat closed joint stock corporation, Individual Taxpayer Number: 2702617431, Primary National Registration Number: 1103702011203, date of incorporation: 07.05.2010, registering authority: the Federal Tax Service Inspection for Ivanovo, KPP code: 370201001; address (location) of permanent executive body: Russia, Ivanovo region, Ivanovo, Sovetskaya St., 22A Type of the Right: Property Subject matter of the Right: land plot, category of land: agricultural land, permitted use: for construction of a pig breeding complex, land size 391 959 sq. m, land site address (location)^ Ivanovo region, Ilyinsky district, 0,8 km to the north-west from Osipovo village. Cadastral number: 37:06:020203:375 Valid (limitation) charges: no record which is evidenced by registration entry No. 37-37-01/218/2013-420 made in the Unified Public Register of Real Property Titles and Transactions on August 22, 2013.


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September 2015 83

Translation of the Certificate

Russian Federation Unified Public Register of Real Property Titles and Transactions

CERTIFICATE

of State Registration of Title (Land Registry Title Deed) The Department of the Federal Service for State Registration, Cadastral Records and Cartography for the Ivanovo region Date of issue: August 22, 2013 Documents of title: state-owned land plot buy and sell agreement dated 14.11.2011 No. 51 Holder(s) of the right: Magnat closed joint stock corporation, Individual Taxpayer Number: 2702617431, Primary National Registration Number: 1103702011203, date of incorporation: 07.05.2010, registering authority: the Federal Tax Service Inspection for Ivanovo, KPP code: 370201001; address (location) of permanent executive body: Russia, Ivanovo region, Ivanovo, Sovetskaya St., 22A Type of the Right: Property Subject matter of the Right: land plot, category of land: agricultural land, permitted use: for construction of a pig breeding complex, land size 121 852 sq. m, land site address (location)^ Ivanovo region, Ilyinsky district, 1 km to the north-west from Osipovo village. Cadastral number: 37:06:020203:376 Valid (limitation) charges: no record which is evidenced by registration entry No. 37-37-01/218/2013-418 made in the Unified Public Register of Real Property Titles and Transactions on August 22, 2013.


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Appendix III: Letters of Intent and Quotations from Contractors Biokompleks Letter of Intent Offer of Discount Quotation United Construction Technology Letter of Intent Offer of Discount Quotation Skiold Letter of Intent Quotation Danish Bank EMK Letter of Intent for Guarantee Genesus, Inc. Letter of Intent Letter of Discount Draft Contract EMF Letter of Intent Quotation


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Appendix IV: Sanitation Standards Sanitations Standards Correspondence from Biokompleks Biokompleks Waste Handling Paper


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Appendix V: Customer Purchase Agreements Agora, LLC Akvastar, LLC Meatkings, LLC Prodtorg, LLC


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Appendix VI: Financial Projections

Projected Value and Costs for Pig Breeding Complex in Years after Investment Stage: (Numbers in Million)

US $ in Millions Year 4 % Year 5 % Year 6 % Year 7 % Year 8 %


Implied Value of Live Weight Pigs (1) $73,84 100.0% $100,53 100.0% $114,07 100.0% $127,28 100.0% $142,0 100,00%

Costs and Expenses

Mixed fodders $32,43 43,92% $38,00 37,80% $42,52 37,28% $46,80 36,77% $51,45 36,23%

Labor compensation fund, expenses $2,45 3,32% $2,69 2,68% $2,96 2,60% $3,25 2,56% $3,58 2,52%

Medicaments $1,82 2,47% $2,00 1,99% $2,20 1,93% $2,42 1,90% $2,66 1,87%

Electric power $0,41 0,56% $0,45 0,45% $0,50 0,44% $0,55 0,43% $0,60 0,42%

Heating $0,25 0,34% $0,28 0,28% $0,30 0,27% $0,34 0,26% $0,37 0,26%

Water $0,27 0,37% $0,30 0,29% $0,33 0,29% $0,36 0,28% $0,39 0,28%

Implements and duplicate parts $1,32 1,78% $1,45 1,44% $1,59 1,39% $1,75 1,37% $1,92 1,35%

General and administrative expenses $3,90 5,29% $4,29 4,27% $4,72 4,13% $5,19 4,07% $5,70 4,01%

Unified agricultural tax $0,00 0,00% $1,18 1,17% $1,79 1,57% $2,39 1,87% $3,05 2,15%

Total Expenses $42,86 58,04% $50,64 50,37% $56,91 49,89% $63,04 49,53% $69,72 49,10%

Implied Net Profit from Pig Breeding Complexes

$30,99 41,96% $49,89 49,63% $57,16 50,11% $64,24 50,47% $72,28 50,90%



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Projected Profit from Slaughterhouse in Years after Investment Stage: (Numbers in Million)

US $ in Millions Year 4 % Year 5 % Year 6 % Year 7 % Year 8 %

Slaughterhouse

Sales of pork meet production $141,71 100.0% $167,21 100.0% $191,2 100.0% $217,6 100.0% $247,63 100.0%

Expenses for raw materials (1) $92,06 64,96% $106,50 63,69% $119,40 62,45% $133,22 61,22% $148,63 60,02%

Labor compensation fund, expenses $1,35 0,95% $1,50 0,90% $1,68 0,88% $1,87 0,86% $2,09 0,84%

Energy resources expenses $0,28 0,20% $0,32 0,19% $0,36 0,19% $0,40 0,19% $0,45 0,18%

Advertisment and marketing expense $2,70 1,90% $3,55 2,12% $4,53 2,37% $5,75 2,64% $7,30 2,95%

Administrative expenses

Maintenance, repair of equipment $1,58 1,11% $2,07 1,24% $2,65 1,38% $3,36 1,54% $4,27 1,72%

Building rehabilitation $0,83 0,59% $1,09 0,65% $1,39 0,73% $1,77 0,81% $2,25 0,91%

Professional services $0,08 0,06% $0,11 0,07% $0,14 0,07% $0,18 0,08% $0,22 0,09%

Logistics $1,24 0,88% $1,64 0,98% $2,09 1,09% $2,65 1,22% $3,37 1,36%

Bank services $0,10 0,07% $0,14 0,08% $0,17 0,09% $0,22 0,10% $0,28 0,11%

Other expenses $1,66 1,17% $2,18 1,31% $2,79 1,46% $3,54 1,63% $4,49 1,81%

Consolidated social tax $0,35 0,00% $0,39 0,00% $0,44 0,00% $0,49 0,00% $0,54 0,00%

Real estate tax $0,44 0,25% $0,44 0,23% $0,44 0,23% $0,44 0,22% $0,44 0,22%

Value -added tax $7,11 0,31% $8,59 0,27% $10,00 0,23% $11,55 0,20% $13,27 0,18%

Total administrative expenses $13,40 9,45% $16,66 9,96% $20,11 10,52% $24,19 11,12% $29,13 11,77%

Total expenses all production $109,78 77,47% $128,53 76,87% $146,07 76,40% $165,43 76,03% $187,60 75,76%

Earnings before taxes $27,78 20,38% $37,80 27,72% $45,12 33,09% $52,16 38,25% $60,02 44,02%

Income taxes $3,89 2,89% $7,56 4,68% $9,73 5,09% $11,82 5,43% $14,14 5,71%

Net profit after tax $23,89 19,64% $30,23 18,45% $35,39 18,51% $40,34 18,54% $45,88 18,53%

(2) Assumes cost per kilogram of live weight pigs of US$1.85 for Category 1. Does not reflect actual costs of live weight pigs produced at captive Pig Breeding Complex. Assumes annual increase of 11% per year.

Source: Magnat CJSC


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Implied Cash Flows from Pig Breeding Complex


Beginning of period cash balance $0 $0 $0 $4 980 319 $25 448 388 $53 201 186

Beginning of balance raised credit and equity funds $0 -$13 001 710 -$53 060 806 -$67 269 677 -$67 269 677 -$67 269 677

Beginning of period balance internal funds $0 $13 001 710 $53 619 536 $83 533 529 $233 361 549 $548 969 979

Cash sources

Total cash receipts from operating activities (1) $0 $28 289 $17 255 313 $73 842 612 $100 527 620 $114 074 841

Cash from capital raises

Credit line with JV investor $611 568 $38 129 371 $68 229 756 $17 118 238 $0 $0

Need of internal funds $2 179 686 $3 894 037 $1 700 349 $0 $0 $0

Indemnity of VAT $66 379 $2 761 068 $10 527 309 $6 192 993 $0 $0

Subsidies $0 $400 736 $3 891 588 $8 819 339 $9 323 970 $7 861 387

Total cash recepits from capital raises $2 857 633 $45 185 211 $84 349 002 $32 130 569 $9 323 970 $7 861 387

TOTAL CASH RECEIPTS $2 857 633 $45 213 501 $101 604 316 $105 973 181 $109 851 590 $121 936 228

Payments and investments

Purchase of investment site $774 194 $774 194 $0 $0 $0 $0

Design work $1 397 677 $2 578 129 $7 419 $0 $0 $0

Building and assembly jobs $126 984 $20 944 953 $40 628 008 $12 774 647 $0 $0

Purchase and installation of equipment $477 057 $12 168 355 $20 266 695 $4 305 957 $0 $0

Other investment expenses $81 720 $5 016 063 $7 335 054 $37 634 $0 $0

TOTAL CASH USED FOR INVESTMENTS $2 857 633 $41 481 694 $68 237 175 $17 118 238 $0 $0


Implied Cash flows from Pig Breeding Complex continued on next page


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Implied Cash Flows from Pig Breeding Complex continued:


Payments for operations

Mixed fodders $0 $703 870 $12 463 885 $32 428 989 $37 999 406 $42 524 321

Labor compensation fund $0 $317 614 $1 599 438 $2 450 324 $2 693 513 $2 960 838

Medicaments $0 $159 630 $1 062 275 $1 823 385 $2 004 351 $2 203 278

Electric power $0 $22 652 $209 830 $412 414 $453 345 $498 338

Heating $0 $13 518 $130 650 $252 327 $277 370 $304 898

Water $0 $14 806 $137 155 $269 573 $296 328 $325 738

Implements and duplicate parts $0 $106 500 $753 279 $1 316 094 $1 446 713 $1 590 296

General and administrative expenses and other $0 $315 885 $2 234 280 $3 903 629 $4 291 054 $4 716 931

TOTAL PAYMENTS FOR OPERATIONS $0 $1 654 475 $18 590 790 $42 856 735 $49 462 080 $55 124 639

Payments related to financing activities

Total Payments according to credit $0 $2 077 332 $9 796 030 $25 530 140 $31 460 320 $29 155 643

Payments of percentage according to credit $0 $2 077 332 $9 796 030 $15 197 706 $13 732 035 $11 427 357

Payments of principal $0 $0 $0 $10 332 434 $17 728 286 $17 728 286

Unified agricultural tax $0 $0 $0 $0 $1 176 391 $1 787 751

TOTAL CASH USED FOR FINANCING ACTIVITIES $0 $2 077 332 $9 796 030 $25 530 140 $32 636 711 $30 943 394

Total expenses $2 857 633 $45 213 501 $96 623 996 $85 505 113 $82 098 791 $86 068 033

End of period cash balance $2 857 633 $45 213 501 $96 623 996 $85 505 113 $82 098 791 $86 068 033

End of period balance, internal funds $13 001 710 $53 619 536 $83 533 529 $233 361 549 $548 969 979 $940 848 858

Cash flows -$2 791 254 -$39 946 076 -$55 153 756 $28 879 971 $59 213 119 $65 023 838

Cumulative cash flows -$2 791 254 -$42 737 330 -$97 891 085 -$69 011 115 -$9 797 996 $55 225 842

Discounted cash flow -$2 661 926 -$35 462 171 -$45 872 602 $21 370 794 $41 500 899 $42 107 632

Cumulative discounted cash flow -$2 661 926 -$38 124 096 -$83 996 698 -$62 625 904 -$21 125 005 $20 982 626


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Beginning of period cash balance $89 069 382 $132 853 011 $185 526 418 $248 130 074 $321 834 107 $417 989 938

Beginning of balance raised credit and equity funds -$67 269 677 -$67 269 677 -$67 269 677 -$67 269 677 -$67 269 677 -$67 269 677

Beginning of period balance internal funds $940 848 858 $1 424 846 224 $2 010 632 051 $2 710 094 393 $3 536 591 314 $4 545 643 917

Total receipts from operating activities (1) $127 275 449 $142 003 616 $158 436 109 $176 770 152 $197 225 788 $220 048 527


Credit line, JV investor $0 $0 $0 $0 $0 $0

Need of interrnal funds $0 $0 $0 $0 $0 $0

Indemnity of VAT $0 $0 $0 $0 $0 $0

Subsidies $6 398 803 $4 936 220 $3 473 636 $2 011 052 $558 626 $0

Total cash from capital raises $6 398 803 $4 936 220 $3 473 636 $2 011 052 $558 626 $0



Purchase of investment site $0 $0 $0 $0 $0 $0

Design work $0 $0 $0 $0 $0 $0

Building and assembly jobs $0 $0 $0 $0 $0 $0

Purchase and installation of equipment $0 $0 $0 $0 $0 $0

Other investment expenses $0 $0 $0 $0 $0 $0



Implied cash flows from pig breeding operation continued on next page


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Operating expenses

Mixed fodders $46 802 440 $51 447 470 $56 553 507 $62 166 306 $68 336 161 $75 118 360

Labor compensation fund $3 254 694 $3 577 714 $3 932 794 $4 323 114 $4 752 173 $5 223 814

Medicaments $2 421 948 $2 662 321 $2 926 549 $3 217 002 $3 536 282 $3 887 250

Electric power $547 797 $602 165 $661 928 $727 623 $799 838 $879 220

Heating $335 159 $368 423 $404 988 $445 182 $489 365 $537 933

Water $358 066 $393 604 $432 668 $475 609 $522 812 $574 700

Implements and duplicate parts $1 748 129 $1 921 626 $2 112 343 $2 321 988 $2 552 440 $2 805 763

General and administrative expenses and other $5 185 075 $5 699 681 $6 265 361 $6 887 183 $7 570 719 $8 322 095

TOTAL CASH USED FOR OPERATING ACTIVITIES $60 653 309 $66 673 003 $73 290 138 $80 564 007 $88 559 790 $97 349 135

Paymens related to financing activities

Payments on credit lines $26 850 966 $24 546 289 $22 241 612 $19 936 934 $7 626 856 $0

Payment of percentage according to credit $9 122 680 $6 818 003 $4 513 326 $2 208 649 $240 071 $0

Payment of principal $17 728 286 $17 728 286 $17 728 286 $17 728 286 $7 386 786 $0

Unified agricultural tax $29 237 314 $27 593 426 $26 015 951 $24 513 165 $13 068 792 $6 298 344

TOTAL CASH FLOWS FOR FINANCING ACTIVITIES $29 237 314 $27 593 426 $26 015 951 $24 513 165 $13 068 792 $6 298 344

Total expenses $89 890 623 $94 266 429 $99 306 089 $105 077 172 $101 628 582 $103 647 479

End of period balance $132 853 011 $185 526 418 $248 130 074 $321 834 107 $417 989 938 $534 390 985

End of period balance, internal funds $1 424 846 224 $2 010 632 051 $2 710 094 393 $3 536 591 314 $4 545 643 917 $5 859 620 107

Cash flow $70 634 595 $77 219 695 $84 845 268 $93 640 967 $103 782 687 $116 401 047

Cumulative cash flow $125 860 438 $203 080 133 $287 925 401 $381 566 368 $485 349 055 $601 750 103

Discounted cash flow $42 242 340 $42 648 520 $43 275 328 $44 106 964 $45 142 133 $46 748 936

Cumulative discounted cash flow $63 224 966 $105 873 486 $149 148 815 $193 255 779 $238 397 912 $285 146 848


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Cash Flows from Slaughterhouse Operation

Slaughterhouse Cash Flows Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

Beginning of period cash balance $0 $0 $0 $10 053 570 $35 894 874 $64 556 550

Beginning of period balance internal funds $0 $8 461 452 $13 025 806 $57 162 905 $305 180 764 $632 664 733

Cash sources

Cash receipts from pork meat production $0 $0 $53 739 354 $141 709 142 $167 211 334 $191 203 265


Credit line and equity investor $1 313 631 $21 178 707 $0 $0 $0 $0

Internal funds (or JV partner) $1 125 723 $2 639 576 $1 880 597 $0 $0 $0

Indemnity of value-added tax $0 $0 $40 325 $1 270 479 $2 236 606 $0

Subsidies $0 $191 123 $1 643 919 $1 855 618 $1 732 655 $1 464 373

Total capital raises and credits $2 439 354 $24 009 406 $3 564 841 $3 126 096 $3 969 261 $1 464 373



Purchase of investment site $322 581 $0 $0 $0 $0 $0

Design work $737 097 $0 $0 $0 $0 $0

Building and assembly jobs $849 113 $11 131 210 $0 $0 $0 $0

Purchase and installation of equipment $464 519 $9 708 787 $0 $0 $0 $0

TOTAL CASH USED FOR INVESTMENTS $25 806 $338 710 $0 $0 $0 $0

Cash flow from Slaughterhouse continued on next page.


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Cash Flows from Slaughterhouse continued:


Payments for operating expenses

Expenses for raw materials (2) $0 $1 135 302 $37 124 419 $92 061 202 $106 502 184 $119 400 009

Labor compensation fund and other expenses $22 242 $214 592 $975 961 $1 347 346 $1 503 259 $1 677 214

Energy resources expenses $0 $3 442 $112 562 $279 131 $322 916 $362 023

Gas consumption expenses $0 $3 526 $115 309 $285 943 $330 797 $370 858

Water consumption expenses $0 $678 $22 168 $54 972 $63 595 $71 297

Advertisment and marketing $0 $0 $929 759 $2 695 824 $3 548 429 $4 526 185

Overall and administrative expenses $0 $0 $0 $0 $0 $0

Equipment maintenance and repair $0 $0 $543 551 $1 576 020 $2 074 466 $2 646 077

Building rehabilitation $0 $0 $286 080 $829 484 $1 091 824 $1 392 672

Professional services $0 $0 $28 608 $82 948 $109 182 $139 267

Logistics $0 $0 $429 120 $1 244 227 $1 637 736 $2 089 008

Bank services $0 $0 $35 760 $103 686 $136 478 $174 084

Other expenses $0 $0 $572 159 $1 658 969 $2 183 648 $2 785 344

TOTAL PAYMENTS FOR OPERATIONS $22 242 $1 357 541 $41 175 456 $102 219 753 $119 504 516 $135 634 039

Payments related to financial activities

Payment according to credit $12 214 $1 417 364 $2 924 004 $4 776 912 $5 770 775 $5 348 028

Payment of percentage according to credit $12 214 $1 417 364 $2 924 004 $2 879 968 $2 518 871 $2 096 123

Payment of the principal $0 $0 $0 $1 896 944 $3 251 904 $3 251 904

Taxes $5 783 $55 794 $3 151 165 $11 997 270 $17 243 629 $20 617 285

Consolidated social tax $5 783 $55 794 $253 750 $350 310 $390 847 $436 076

Estate tax $0 $0 $332 871 $443 828 $443 828 $443 828

Value-added tax $0 $0 $2 564 544 $7 108 090 $8 587 227 $10 002 461

(2) Assumes cost per kilogram of live weight pigs of US$1.89 for Category 1. Does not reflect actual costs of live weight pigs produce at captive Pig Breeding

Complex. Assumes annual increase of 11% per year. Cash flow from Slaughterhouse continued on next page:


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Income tax $0 $0 $0 $4 095 042 $7 821 726 $9 734 921

TOTAL CASH USED FOR FINANCING ACTIVITY

$17 997 $1 473 158 $6 075 169 $16 774 182 $23 014 404 $25 965 313

Total payments $2 439 354 $24 009 406 $47 250 625 $118 993 935 $142 518 919 $161 599 352

Balance at the end of the period $0 $0 $10 053 570 $35 894 874 $64 556 550 $95 624 837

Balance at the end of the period, internal funds $8 461 452 $13 025 806 $57 162 905 $305 180 764 $632 664 733 $984 738 510

Cash flow from Slaughterhouse -$2 427 140 -$22 400 919 $11 096 977 $30 618 216 $34 432 451 $36 416 314

Cumulative cash flow -$2 427 140 -$24 828 059 -$13 731 082 $16 887 135 $51 319 586 $87 735 900

Discounted cash flow -$2 310 127 -$19 899 791 $8 951 279 $23 240 544 $24 151 929 $23 552 780

Cumulative discounted cash flow -$2 310 127 -$22 209 918 -$13 258 638 $9 981 905 $34 133 835 $57 686 615



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Beginning of period cash balance $95 624 837 $131 747 908 $173 507 344 $221 509 799 $276 372 311 $340 905 709

Beginning of period balance internal funds $984 738 510 $1 389 852 293 $1 859 373 407 $2 400 792 711 $3 021 138 074 $3 737 395 387

Cash sources

Cash receipts from pork meat production $217 595 527 $247 630 777 $281 811 868 $320 711 059 $364 979 603 $415 352 974


Credit line and equity investor $0 $0 $0 $0 $0 $0

Internal funds (or JV partner) $0 $0 $0 $0 $0 $0

Indemnity of value-added tax $0 $0 $0 $0 $0 $0

Subsidies $1 196 091 $927 809 $659 527 $391 245 $122 963 $0

Total capital raises and credits $1 196 091 $927 809 $659 527 $391 245 $122 963 $0



Purchase of investment site $0 $0 $0 $0 $0 $0

Design work $0 $0 $0 $0 $0 $0

Building and assembly jobs $0 $0 $0 $0 $0 $0

Purchase and installation of equipment $0 $0 $0 $0 $0 $0




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Payments for operating expenses

Expenses for raw materials (2) $133 216 839 $148 632 537 $165 832 121 $185 022 021 $206 432 554 $227 638 233

Labor compensation fund and other expenses $1 871 300 $2 087 844 $2 329 447 $2 599 008 $2 899 762 $3 235 319

Energy resources expenses $403 915 $450 656 $502 806 $560 990 $625 907 $698 326

Gas consumption expenses $413 773 $461 655 $515 077 $574 681 $641 182 $715 369

Water consumption expenses $79 547 $88 752 $99 023 $110 481 $123 266 $137 528

Advertisment and marketing $5 747 007 $7 297 114 $9 265 323 $11 764 405 $14 937 551 $18 966 304

Overall and administrative expenses $0 $0 $0 $0 $0 $0

Equipment maintenance and repair $3 359 789 $4 266 005 $5 416 650 $6 877 652 $8 732 722 $11 087 993

Building rehabilitation $1 768 310 $2 245 266 $2 850 868 $3 619 817 $4 596 169 $5 835 786

Professional services $176 831 $224 527 $285 087 $361 982 $459 617 $583 579

Logistics $2 652 465 $3 367 899 $4 276 303 $5 429 725 $6 894 254 $8 753 679

Bank services $221 039 $280 658 $356 359 $452 477 $574 521 $729 473

Other expenses $3 536 619 $4 490 532 $5 701 737 $7 239 634 $9 192 339 $11 671 572

TOTAL PAYMENTS FOR OPERATIONS $153 447 433 $173 893 444 $197 430 799 $224 612 873 $256 109 844 $290 053 162

Payments related to financial activities

Payment according to credit $4 925 280 $4 502 533 $4 079 785 $3 657 037 $1 128 004 $0

Payment of percentage according to credit $1 673 376 $1 250 628 $827 881 $405 133 $44 036 $0

Payment of the principal $3 251 904 $3 251 904 $3 251 904 $3 251 904 $1 083 968 $0

Taxes $24 295 832 $28 403 174 $32 958 355 $37 969 882 $43 331 319 $50 363 633

Consolidated social tax $486 538 $542 840 $605 656 $675 742 $753 938 $841 183

Estate tax $443 828 $443 828 $443 828 $443 828 $332 871 $443 828

Value-added tax $11 546 657 $13 272 720 $15 188 592 $17 297 674 $19 596 556 $22 553 966

(2) Assumes cost per kilogram of live weight pigs of US$1.85 for Category 1. Does not reflect actual costs of live weight pigs produce at captive Pig Breeding

Complex. Assumes annual increase of 11% per year. Cash flow from Slaughterhouse continued on next page.


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Income tax $11 818 809 $14 143 786 $16 720 279 $19 552 638 $22 647 953 $26 524 655

TOTAL CASH USED FOR FINANCING ACTIVITY

$29 221 112 $32 905 707 $37 038 140 $41 626 919 $44 459 323 $50 363 633

Total payments $182 668 546 $206 799 150 $234 468 939 $266 239 792 $300 569 168 $340 416 795

Balance at the end of the period $131 747 908 $173 507 344 $221 509 799 $276 372 311 $340 905 709 $415 841 888

Balance at the end of the period, internal funds $1 389 852 293 $1 859 373 407 $2 400 792 711 $3 021 138 074 $3 737 395 387 $4 576 468 570

Cash flow from Slaughterhouse $41 048 352 $46 261 968 $52 082 240 $58 519 549 $65 661 402 $74 936 179

Cumulative cash flow $128 784 252 $175 046 220 $227 128 460 $285 648 009 $351 309 411 $426 245 590

Discounted cash flow $24 514 005 $25 510 410 $26 520 328 $27 515 940 $28 507 630 $30 023 818

Cumulative discounted cash flow $82 200 620 $107 711 030 $134 231 358 $161 747 298 $190 254 928 $220 278 746

Source: Magnat CJSC


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Cash Flows from Trading Activity

Trading Activity Cash Flows Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

Purchases $65,991,024 $112,988,662 $180,898,489 $289,624,309 $463,697,850 $742,395,197

Sales $65,510,665 $117,508,209 $188,134,428 $301,209,281 $482,245,764 $772,091,005

Cash Flow (1) -$5,000,000 $1,503,005 $3,762,689 $6,024,186 $9,644,915 $15,441,820

Cash Flow with Progressive Total -$5 000 000,00 -$3 496 994,88 $265 693,68 $6 289 879,30 $16 962 481,25 $33 021 974,15

Cash Flow (discounted) -$5 000 000,00 $1 132 368,97 $2 471 358,70 $3 342 134,09 $4 961 600,81 $6 267 928,71

Cash Flow (discounted) with Progressive Total -$5 000 000,00 -$3 867 631,03 -$1 396 272,33 $1 945 861,76 $6 907 462,57 $13 175 391,28

Trading Activity Cash Flows Year 7 Year 8 Year 9 Year 10 Year 11 Year 12

Purchases $1,124,693,705 $1,200,000,000 $1,200,000,000 $1,200,000,000 $1,200,000,000 $1,200,000,000

Sales $1,169,681,453 $1,248,000,000 $1,248,000,000 $1,248,000,000 $1,248,000,000 $1,248,000,000

Cash Flow (1) $33,003,367 $48,000,000 $48,000,000 $48,000,000 $48,000,000 $48,000,000

Cash Flow with Progressive Total $68 379 981,77 $116 379 981,77 $164 379 981,77 $212 379 981,77 $260 379 981,77 $308 379 981,77

Cash Flow (discounted) $11 540 846,33 $13 454 222,97 $11 525 398,94 $9 735 179,88 $8 223 032,27 $6 945 763,77

Cash Flow (discounted) with Progressive Total $24 716 237,61 $38 170 460,58 $49 695 859,52 $59 431 039,40 $67 654 071,67 $74 599 835,44

(1) Reflects investment of $5.0 million in working capital to begin wholesale pork meat trading operations in Year 1 at the beginning of the construction project.


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Summary Cash Flow

Summary Cash Flows Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

Pig Breeding Complex (1) -$2 791 254 -$39 946 076 -$55 153 756 $28 879 971 $59 213 119 $65 023 838

Slaughterhouse (2) -$2 427 140 -$22 400 919 $11 096 977 $30 618 216 $34 432 451 $36 416 314

Trading Activity -$5 000 000,00 $1 503 005,12 $3 762 688,57 $6 024 185,62 $10 672 601,95 $16 059 492,90

Organization and Management -$811 831,54 -$849 989,25 -$641 279,57 $0,00 $0,00 $0,00

Total Cash flow -$11 030 225,59 -$61 693 978,48 -$40 935 369,41 $65 522 372,44 $104 318 171,60 $117 499 645,40

Discounted Cash Flow -$10 783 884,39 -$54 891 602,78 -$34 469 955,47 $49 170 779,57 $73 082 988,24 $75 954 857,12

Cummulative Cash Flow -$11 030 225,59 -$71 912 372,53 -$111 997 752,69 -$45 834 100,68 $58 484 070,91 $175 983 716,31

Discounted Cummulative Cash Flow -$10 783 884,39 -$64 863 655,63 -$98 489 250,91 -$48 685 657,42 $24 397 330,82 $100 352 187,94

Summary Cash Flows Year 7 Year 8 Year 9 Year 10 Year 11 Year 12

Pig Breeding Complex (1) $70 634 595 $77 219 695 $84 845 268 $93 640 967 $103 782 687 $116 401 047

Slaughterhouse (2) $41 048 352 $46 261 968 $52 082 240 $58 519 549 $65 661 402 $74 936 179

Trading Activity $35 358 007,62 $48 000 000,00 $48 000 000,00 $48 000 000,00 $48 000 000,00 $48 000 000,00

Organization and Management $0,00 $0,00 $0,00 $0,00 $0,00 $0,00

Total Cash flow $147 040 954,97 $171 481 663,53 $184 927 508,36 $200 160 516,10 $217 444 089,10 $239 337 226,42

Discounted Cash Flow $87 586 911,35 $94 473 767,33 $94 255 750,46 $94 208 412,24 $94 504 350,22 $96 029 076,92

Cummulative Cash Flow $323 024 671,28 $494 506 334,80 $679 433 843,17 $879 594 359,27 $1 097 038 448,37 $1 336 375 674,79

Discounted Cummulative Cash Flow $187 939 099,29 $282 412 866,63 $376 668 617,08 $470 877 029,32 $565 381 379,54 $661 410 456,46

(1) Implied cash flow from Pig Breeding Complex operating activity based on wholesale value of live weight pigs beginning at US$1.85 in Year 1 and increasing at a rate of 11.0% per year.

(2) Assumes cost per kilogram of live weight pigs of US$1.85 for Category 1. Does not reflect actual costs of producing live weight pigs at captive Pig Breeding 6omplex. Assumes annual increase of 11% per year.


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Appendix VII: Construction Project Investment Schedule

Year 1 Year 2

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Internal Funds or Equity Partner $584 250,90 $674 349,46 $1 348 304,04 $475 757,54 $4 597 054,95 $3 393 005,11 $5 583 379,95 $5 716 358,65

Credit Line $0,00 $0,00 $0,00 $1 110 100,94 $11 627 844,88 $7 917 011,91 $13 027 886,55 $13 338 170,18

Total $584 250,90 $674 349,46 $1 348 304,04 $1 585 858,48 $18 027 666,49 $11 310 017,02 $18 611 266,50 $19 054 528,84

Year 3 Year 4

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Internal Funds or Equity Partner $12 296 169,53 $7 821 477,26 $4 237 625,26 $4 792 481,43 $2 943 226,18 $2 568 289,21 $0,00 $0,00

Credit Line $28 691 062,24 $18 250 113,60 $9 887 792,27 $11 182 456,67 $6 867 527,75 $5 992 674,82 $0,00 $0,00

Total $40 987 231,77 $26 071 590,85 $14 125 417,53 $15 974 938,10 $9 810 753,93 $8 560 964,03 $0,00 $0,00


September 2015 103

Appendix VIII: Term Sheet from Sberbank of Russia This confidential document is available by request for potential equity investor.