Russian PAM's for vertical markets 2010

P R E PA R E D BY S E R G E Y S L E P T S OV

RUSSIAN VERTICAL MARKETS Q3 2010

RUSSIAN VERTICAL MARKETS 2010S. SLEPTSOV

• Report was prepared, basing on analysis of UN Comtrade, Rosstat, Customs statistics, industrial data, and information from enterprises and media, by neighbouring markets assumptions, and grey market estimations.

• Market forecasts were based on key economic indicators from IMF, WB,WEF, OECD, OPEC, WHO, and analysis of politic, cultural and sporting events, expected to be held within 5 year period, investments and M&A plans.

• Done by Sergey Sleptsov in non working time, and for non profit, but for self-education goals.

• The main goal was to understand my potential in estimation of all vertical markets and subsegments, to learn more about the markets I did not covered before, to grow as an expert in all parts of the economy.

• I fully understand that some of my estimations and forecasts are far from ideal, but it was a first step of self-improvement.

• For 99% of the content it’s a quantitative report.

METHODOLOGY


DISCRETE MANUFACTURING MARKET IN RUSSIA (RUSSIAN MANUFACTURING FOR LOCAL MARKET, IMPORT AND GREY IMPORT) BY SEGMENT 2008-2013 B RUB.

Energy machinery will drive the growth. Out of age equipment of Russian power plants, strong necessity for the new capacity, new export possibilities with customs duties decrease due to WTO accession will support the growth on two digits level.



Consumer and mining will drive the growth of industrial equipment market. Resource oriented economy will invest into oil&gas development, as after crisis consumer demand recovery will drive food processing plants modernization, retail segment development

with new stores establishment.



Investments focus on infrastructure projects like Sochi 2014 will undoubtedly lead to slowdown of state investments later, that will affect national programs like Healthcare development. Lack of investments will make an impact on citizens earnings, so big consumer

spends like buying new cars will be smaller then in after crisis time.


DISCRETE MANUFACTURING market – Estimations for 2012-2013

WTO accession will dramatically increase imported machinery equipment for Agriculture and food processing industries, for energy manufacturing, while IT, medical equipment, machine tools are at high level for now. Passenger cars and Locomotives and trucks for

railroad import will be smaller then 30% due to assembling plants established in Russia solely by foreign manufacturers, like in automotive industry, or as JV’s for Locomotives, commercial vehicles.


• Mining industry is driving the economy – lack of innovations, special innovation centers are far from Manufacturing needs.

• WTO accession – share of imported manufacturing goods will significantly increase.

• Innovation are coming after establishing foreign enterprises in automotive segment, agriculture machinery, locomotives manufacturing JV’s

• 2013 expected slowdown – Sochi, Asia Pacific summit, Kazan investments will be finished.

DISCRETE MANUFACTURING market in Russia - Qualitative


RUSSIAN DISCRETE MANUFACTURING ENTERPRISES INVESTMENTS BY TYPE OF EQUIPMENT. 2008-2013 M RUB.

Investments in IT, Electric infrastructure, Industrial Automation will be done primarily by foreign enterprises in automotive segment, also by foreign companies, who established harvesters, tractors assembling, by local energy manufacturing companies like “Silovie

Machini”, also its expected investments in Aerospace segment.


RUSSIAN FOOD AND TOBACCO ENTERPRISES INVESTMENTS BY TYPE OF EQUIPMENT. 2008-2013 M RUB.

Food processing plants will invest into modernization, due to growing competition in industry. Companies are eager to strengthen market shares they got after the crisis, but many of them are still under lack of finance pressure, what prevents innovations and

modernisation.


• High taxes and prices for raw materials.• Cost of electricity, significant debt.• Lack of innovations• Underdeveloped quality control and testing

infrastructure• Talent problems.• Sales, distribution, logistics undeveloped.• Lack of financing in necessary volumes, terms

and at affordable interest rates.• Lack of infrastructure in Ural, Siberia, Far East.

FOOD PROCESSING in Russia - Qualitative


RUSSIAN PULP AND PAPER ENTERPRISES INVESTMENTS BY TYPE OF EQUIPMENT. 2008-2013 M RUB.

Slowdown of spend for modernisation is expected in line with economy slowdown after 2011-2012.


• Advertising expenses growing in Russia – more paper handouts.

• Move from wet markets to supermarkets with more packaging.

• Lack of innovations• Growing of FMCG manufacturing• Increased capacity is needed as reforms to secure

investments.• Remote location of forest resources, high investments

needs to develop infrastructure.• Poor investments environment, coupled with

implementation and operating risks hinder the projects.

PULP AND PAPER in Russia - Qualitative


RUSSIAN CHEMICAL AND PETROCHEMICAL ENTERPRISES INVESTMENTS BY TYPE OF EQUIPMENT. 2008-2013 M RUB.

Investments will be mainly concentrated within new Gazprom investment priorities and in Oil Refinery.


• Petrochemicals production became more profitable then crude oil export.

• Growing domestic demand for chemical products – consumer market, localization in automotive industry, harvesters, tractors production, localization of pharmaceuticals.

• Fertilizers export profitability• Industrial equipment is out of age, lack of innovations,

Machinery equipment for chemical industry - outdated• Lack of logistics infrastructure.• Sales, Marketing, Distribution are far from ideal. Risk

of competition from Middle East refineries.

CHEMICAL AND PETROCHEMICAL in Russia - Qualitative


RUSSIAN METALLURGY ENTERPRISES INVESTMENTS BY TYPE OF EQUIPMENT. 2008-2013 M RUB.

Investments of Metallurgy into IT and industrial equipment is expected as moderate since huge investments were done in 2000-2008 period.


• Domestic demand growth – construction and automotive.

• Price growth, quality growth, more companies on IPO.• Expectations of growth in Aerospace, Shipbuilding,

Energy manufacturing, Transportation manufacturing.• Aluminium demand decrease.• Expected growth of machines and equipment import

after WTO accession.• Decrease in investments into infrastructure from 2013.• Bad quality of some raw materials, impact on quality.

METALLURGY in Russia - Qualitative


RUSSIAN AGRICULTURE INDUSTRY ENTERPRISES INVESTMENTS BY TYPE OF EQUIPMENT. 2008-2013 M RUB.

Government investments into Agriculture with expected custom duties relief after WTO accession will be key factors.


• Russia support to agriculture has been on a steady increase since 2000.

• The WTO accession generates a number of challenges, mostly related to market access for meat and meat products.

• Despite the high prices and additional domestic support, milk production is projected to remain insufficient over the projection period due to low productivity level.

• Projections show a shift from the area planted with cereals to oilseeds area, driven by stronger demand for oilseeds and less governmental influence in oilseeds than in cereals production.

• Hot summer 2010, growth of railroads tariffs.• Not enough sales, marketing, IT, logistic infrastructure.

AGRICULTURE in Russia - Qualitative


RUSSIAN MINING ENTERPRISES INVESTMENTS BY TYPE OF EQUIPMENT. 2008-2013 M RUB.

Gazprom investment program and East Siberia deposits development will require new extraction equipment.


• Export growth to Europe.• Demand growth in Utilities, Metallurgy, Chemical.• Service companies innovations to prevent

extraction decrease.• Coal internal and external decrease.• East Siberia deposits development.• Legal difficulties for foreign investors.• Lack of financing, railroad tariffs growth.• Innovations are still not sufficient.

MINING in Russia - Qualitative


RUSSIAN CONSTRUCTION ENTERPRISES INVESTMENTS BY TYPE OF EQUIPMENT. 2008-2013 M RUB.

Investments will mainly focus on a biggest infrastructure projects in Sochi, Vladivostok, Kazan.


• Moscow expansion.• Skolkovo Innovation Centre.• Russian Hospitality market robust growth.• Sochi 2014, World Cup 2018.• Retail infrastructure growth.• Residential real estate growth.• Impact of 2009 crisis is still significant – tougher

finance conditions, a lot of frozen development.

CONSTRUCTION in Russia - Qualitative


RUSSIAN UTILITIES ENTERPRISES INVESTMENTS BY TYPE OF EQUIPMENT. 2008-2013 M RUB.

New generation companies as the electricity network operators will require investments into modernization of outdated infrastructure.


• Facilities suffered for decades from under investments.• Sajano-Shushenskaya hydro electric power plant, and

Kalininskaya nuclear power plant accidents.• Russian gas turbines production is non competitive.• Lack of investments into wind, solar, biofuel energy

projects.• Fragmented information system between participants.• New electricity production companies entering the

market.• RAB tariffs are still not implemented.

UTILITIES in Russia - Qualitative


RUSSIAN TRANSPORTATION ENTERPRISES INVESTMENTS BY TYPE OF EQUIPMENT. 2008-2013 M RUB.

ERP, CRM software, IT integration projects is a key issue for Russian Railways.


• Growth in metallurgy and coal, positively impacted on railroads.

• Growth of competition between airlines, European LCC’s entering Russian market.

• Talents shortage.• New innovative trucks manufacturing plant is

under construction.• Export growth through seaports. Infrastructure

growing both on Baltic and Black sea.• Investments into railroads are not enough.• JV’s in high speed trains manufacturing.

TRANSPORTATION in Russia - Qualitative


RUSSIAN COMMUNICATIONS ENTERPRISES INVESTMENTS BY TYPE OF EQUIPMENT. 2008-2013 M RUB.

Internet boom, mobile and fixed lines operators networks expansion will require new datacenters, software and communications equipment.


• Communications networks growth. Regional expansion of mobile operators. MVNO growth.

• Rostelecom consilidation.• New services introduction, customer approach

development.• Internet providers infrastructure growth.• Pay TV development.• Consistent localization of telecom equipment.• Russian Post service development.• Legal issues, high taxes, corruption – barriers for

foreign investors.

COMMUNICATIONS in Russia - Qualitative


RUSSIAN RETAIL ENTERPRISES INVESTMENTS BY TYPE OF EQUIPMENT. 2008-2013 M RUB.

Flourishing of retail business, with opening new supermarkets, retail chains development will spur needs of industrial equipment and IT infrastructure.


• Internet retail growth.• Biggest retail chains expansion into the regions.• After crisis focus on savings rather then spend.• Increasing consolidation of the market by market

leaders.• Russian grocery market is expected to become largest

in Europe.• Non food segments will grow faster then food segments.• Infrastructure and logistics are not sufficient.• Foreign retail chains are not put Russia into business

plans. Few stores are situated mainly in Moscow, St. Petersburg, Kazan.

RETAIL in Russia - Qualitative


RUSSIAN SERVICES ENTERPRISES INVESTMENTS BY TYPE OF EQUIPMENT. 2008-2013 M RUB.

Hospitality, tourism, automotive services will migrate to new ERP, CRM software.


• According to the plans of WTO accession, Russia is planning to liberalize its treatment of financial , express delivery, distribution and other services companies.

• Hospitality, tourism to Russia, internal tourism are growing.• Trend to move to official dealers in automotive segment.• Internet penetration is growing very fast, with additional

value added services development.• Innovations and skilled personnel is still a problem.• There is no single information resource aimed on service

providers quality.• Services market is mostly non-tax paying market.• Problems for foreign service providers in entering Russian

market.

SERVICES in Russia - Qualitative


RUSSIAN HEALTHCARE ENTERPRISES INVESTMENTS BY TYPE OF EQUIPMENT. 2008-2013 M RUB.

IT education and services will grow faster than other segments, though they started from low level.


• Announced plans for development primary healthxare system in Russia.

• Development of standards of medical services in Russia and one-channel.

• Development of public-private partnership (PPP).• Development of Import Regulations.• Pharmaceuticals registration procedure is complicated and expensive.• development of common criteria and federal education programms for

medical and pharmaceutical training, determination of a list of specialties in healthcare.

• Lack of finance in the segment. Ridiculous low salaries of main medical stuff, especially in the regions

• The legislation is vague concerning the precise delineation of responsibilities of the

• federal level toward the regional, as well as of the regional level toward the municipal.

HEALTHCARE in Russia - Qualitative


RUSSIAN GOVERNMENT (FEDERAL, LOCAL) AND EDUCATION INVESTMENTS BY TYPE OF EQUIPMENT. 2008-2013 M RUB

Government plans of IT infrastructure update both at regional level and for Ministries to enhance management efficiency.


• United government purchasing information system implementation.

• Regional development coordination projects.• Outdated educational infrastructure.• Education system unification.• High levels of corruption.• Big disproportion between Moscow and St. Petersburg and

other Russian regions.• No transparency in spending.• IT infrastructure in schools and universities much more

outdated, then in developed and fast developing countries..

PUBLIC and EDUCATION in Russia - Qualitative


RUSSIAN BANKING AND INSURANCE ENTERPRISES INVESTMENTS BY TYPE OF EQUIPMENT. 2008-2013 M RUB.

Consolidation of banking segment and regional expansion of VTB, new products and services from Sberbank will require additional investments into IT infrastructure.


• Consumer credits and deposits growth.• Banking consolidation.• Compulsory insurance implementation.• Insurance companies networks development.• Foreign insurance companies entered Russian

market.• Banking profitability decrease.• Retail insurance dumping.• Growing of those who do not intend to pay for

credits (19%)..

FINANCE and INSURANCE in Russia - Qualitative


Thank You!

Documents

Russian PAM's for vertical markets 2010