Anatoly Chubais speaking at Stanford Faculty Club

1 Rusnano_Investment_Attractiveness_Short_ENG_F_AN.pptx

Anatoly Chubais, Chief Executive Officer March 29,2012 / Stanford Faculty Club

Russian innovative economy: is it real?


Current macroeconomic situation in Russia


16%

11%

6%

8%

40%

19%

After a sharp drop in 2009, Russian GDP has recovered and is now expected to continue growing

977942

905870

944

826764 444444

5

98

6

2015

1,102 1,059

2013

1,016

2011 2009

-8

2007

897

2005

GDP development and structure

Source: Federal State Statistics Service, OECD, EIU, IMF, Roland Berger Strategy Consultants

Services

Retail

Production

Natural resources

Construction

Other

GDP STRUCTURE, RUSSIA, 2010 [%] GDP DEVELOPMENT [USD bn]

Real GDP in 2005 prices [USD bn] Real GDP growth


Russian GDP (PPP): 6th in the world

Source: IMF

GDP (PPP), USD trillion

15,07

11,32

4,47 4,40

3,09 2,38 2,31 2,25 2,22 1,83

0

4

8

12

16

USA China India Japan Germany Russia Brazil UK France Italy


40%

19%

Economic indicators: facts and forecasts

Source: Federal State Statistics Service, Ministry of Finance of the Russian Federation, Bank of Russia

INFLATION [%] FINANCE AND DEBT

International reserves (as of 16.03.2012): $505.4 bn

National Wealth Fund and Reserve Fund,

aggregate amount (as of 01.03.2012): $152.2 bn

Gross government debt ,

% of GDP (2012, forecast): 14.1%

20,1

6 5

10

15

20

25


0

10

20

30

40

50

60

70

80

’09 ’08 ’07 ’06 ’05

+19%

p.a

’13F ’12F ’11F ’10

Foreign direct investment

24%

8%

6%

20%

13%

9%

8%

8%

3%

1% 100%

Manufacturing

Retail

Science

Natural resources

Real estate

Telecommunications

Others

Power, gas, oil

Financial sector

Construction

Source: Roland Berger Strategy Consultants

Foreign direct investment in Russia

STRUCTURE OF FDI, 2010 [%] FOREIGN DIRECT INVESTMENT IN RUSSIA [USD bn]

Foreign direct investment was growing strongly prior to the crisis – Expected to regain former level by 2013


Overall effect from accession of Russia to WTO is mostly positive for innovative industries

Source: CASE Research

WTO membership will aid Russia in its ambitious plan to innovate and modernize the economy, since:

imported inputs, particularly equipment, will become cheaper as a result of tariff reductions after

accession

the WTO «seal of approval» will render Russia more attractive for foreign direct investments

An additional effect for innovative industries: production growth rate by 6-7.5% per year


Russia’s modernisation: main policy challenge

”In our work to make our economy radically more

effective we also need to put in place incentives

and conditions for progress in a whole number of

different directions [...] This calls for large-scale

modernisation of production facilities in all

economic sectors”

Vladimir Putin, Feb 8, 2008: Dmitry Medvedev, Nov 12, 2009:

“In the twenty-first century, our country once

again needs to undergo comprehensive

modernisation. […] I see this as a question of our

country’s survival in the modern world”


RUSNANO: goals and outlook


Russian nanotech industry 2010-2015: late start, but huge potential

Ivory Tower

Minor League

Dominant

Niche

USA

Japan

Germany

S.Korea

Israel

Singapore

U.K.

Italy

Russia

Technology Development Strenght

Nan

otec

h A

ctiv

ity

Goal for Russia: move into the “major league” by 2015

Source: Lux Research, RUSNANO


RUSNANO: brief overview

Established in 2007 as a state corporation

Transformed into a joint-stock company in 2011

Resources:

Russian Federation’s asset contributions in RUSNANO: $ 4.1 bn

State guaranteed debt financing (bonds issuance): $ 5.7 bn


RUSNANO: brief overview

Tasks:

- commercialization of nanotech industry projects

- sales of Russian nano-enabled products by 2015 –

~ $ 30 bn per year

Terms of Financing:

- financing projects at early stage and stage of expansion

- ownership participation — no more than 50% - 1 share

Fund for Infrastructure and Educational Programs

Non-commercial organization

RUSNANO Joint-stock company

co-investment in nanotechnology industrial projects

and investment funds

investment in non-financial innovative infrastructure

and educational programs


RUSNANO’s key results: Funding Overall amount of project funding (progressive total), 2008 – 2011, $ billion

2008 2009 2010 2011

0,007

1,1

2,2

3,42

0,0003

0,6

1,4

3,4

RUSNANO Coinvestors


RUSNANO’s key results: Production

Novosibirsk

Aramil (Sverdlovsk region) Kazan

Novomoskovsk Izhevsk

Nizhni Novgorod

Moscow + Moscow region Karachev

2011: 13 new factories in 10 Russian regions

St.Petersburg


RUSNANO’s key plans: Production

Novosibirsk

Aramil (Sverdlovsk region) Kazan

Novomoskovsk Izhevsk

Nizhni Novgorod

Moscow + Moscow region Karachev

2012: 16 new factories in 9 Russian regions

St.Petersburg

Kaluga

Vladimir

Usolie-Sibirskoe (Irkutsk region) Nevinnomyssk (Stavropol region)

Novocheboksarsk

(Chuvashia region)

Valuyki (Belgorod region)


The most attractive market segments: Examples Pharmaceuticals and biotechnology

Energy efficiency

Electronics, photonics and optics

Construction materials


Pharmaceuticals and biotechnology


Estimated minimum size of the pharma and biotech sector in 2015 is USD 4,5 bn – 78% growth in vaccines is possible


Overview of pharma and biotech sub-sectors

+47%

2015 2011

3,00

14,001)

0,20

+78%

2015 2011

2,001)

0,601,00

+14%

2015 2011

Market attractiveness

MARKET 2011-2015

[USD bn]

KEY TRENDS

ATTRACTIVE-NESS

(BIO)PHARMACEUTICALS

(excl. vaccines) VACCINES MEDICAL SERVICES

> Strong medical need, especially in cardiovascular and oncology treatments

> Government aims to localize manufacturing due to currently high share of imported drugs (77%)

> Growth of vaccines market depends mainly on government plans for including new vaccines in National Immunization Calendar

> Unclear how many and what type of vaccines will be included

> Demand for IVD services is mainly driven by the commercial sector

> Significant R&D base, experienced scientific teams

> Clinical trials in Russia are high quality and less expensive and quicker than in the EU/US

3,00 min

max

0,50 min

max

> Upside potential > Strong CAGR > Government support

> Upside potential > Strong CAGR > Government support

> Moderate potential > Demand from

commercial segment

1) window of opportunity (potential)


RUSNANO has numerous ongoing projects in booming sectors – Successful localization projects are also underway


PHARMACEUTICALS SinBio BioBetter class of pharmaceuticals

Biodegradable nanocomposite materials

VACCINES NT Pharma Flu nanovaccines Technology based on pseudo-adenoviral nanofractions and special nanostructures

Investment projects in the sector – examples

COMPANY PRODUCT TECHNOLOGY

FINANCING:

>RUSNANO share of committed capital as per January 2012 – USD 1,1 bn >Private investors (in cooperation with RUSNANO) as per January 2012 – USD 1,6 bn

-

DIAGNOSTICS PET-Technology National chain of PET

diagnostic centers in Russia

Nuclear medicine, new diagnostic methods DIAGNOSTICS

PET-Technology National chain of PET diagnostic centers in Russia

Nuclear medicine, new diagnostic methods

TECHNOLOGY

TRANSFER

Domain Associates

Therapeutic products for the treatment of viral infections, cardiovascular diseases, cancer

GMP-standard manufacturing

TECHNOLOGY

TRANSFER

Celtic Pharma Innovative medications in hematology, endocrinology, cardiology, oncology

GMP-standard manufacturing


Energy efficiency


Power generation and energy accumulation will drive the sector up to USD 8 bn in 2015


Overview of energy efficiency sub-sectors

+31%

2015

2,90

2011

0,97

2015

3,16

2015

1,11

2011

0,46

+25% +7%

2015

1,07

2011

0,83


MARKET 2011-2015 [USD bn]

KEY TRENDS

ATTRACTIVE-NESS

ENERGY

ACCUMULATION

POWER GENERATION

ENERGY HARVESTING

AND CONVERSION

ENERGY DISTRIBUTION

> Opening up of the electric vehicles market

> Growth in demand for accumulators for power distribution companies

> USC technology power stations will be built in Russia from 2015

> Technology will account for more than 30% of total power capacity installed

> Growth driven by overall growth of advertising and construction markets

> Growth rate of non-residential property market 2011-2015 is 18.6%

> Growth driven by import substitution for power transformers and high level of overall investment in energy

> Industry leaders plan to localize transformer production in Russia

> High potential > Strong CAGR > Government support

> Upside potential > Huge future market

share

> Moderate potential > Strong CAGR > Government support

> Stable potential > Moderate CAGR


RUSNANO is already co-investor in a number of successful projects in the sector, Liotech and Nesscap already started production


SUPERCAPACITORS Nesscap Energy Inc

High-capacity energy accumulators

Carbon microwave steam activation of nanopore electrode structures

ACCUMULATORS Liotech Accumulators for electric vehicles and energy sector

High capacity lithium-ion batteries



FINANCING:

>RUSNANO share of committed capital as per January 2012– USD 0,9 bn >Private investors (in cooperation with RUSNANO) as per January 2012 – USD 1,28 bn

TRANSDUCERS Profotech Fiber optic metering

systems for power grids Nanostructured fiber-based optic current and voltage measurement and monitoring sensors

PHOTOVOLTAICS Hevel Solar modules Thin film technology


Electronics, photonics and optics


The electronics and photonics sector is highly attractive for investors – Estimated market potential of USD 5,7 bn in 2015


Overview of electronics and photonics markets

3,07

+61%

2015 2011

0,46 0,75

+18%

2015 2011

0,38 1,85

+98%

2015 2011

0,12



KEY TRENDS

ATTRACTIVE-NESS

INTEGRATED CIRCUITS

AND CHIPS OPTOELECTRONICS TELECOMMUNICATIONS

> Many areas of application, including transportation, pharmaceuticals, logistics, etc.

> Massive government support via ERA GLONASS project and implementation of RFID in all pharma products, transportation and postal systems

> Market is driven by LED, which will mainly be used for lighting systems

> Government support via the restriction of incandescent light bulbs and changes in construction rules involving the use of LED in new buildings

> Massive market growth mainly due to transition of mobile operators to 4G networks by applying LTE base stations

> Growth in fiber channel market is moderate and driven by the increasing number of broadband service users

> High potential > Strong CAGR > Government support

> Moderate potential > Moderate CAGR

> Stable potential > Moderate CAGR


RUSNANO has a track record of successful investments in the sector, IRE-Polus and Optogan are currently market leaders


OPTOELECTRONICS Optogan Light emission diodes High-brightness light-emitting diodes for a large variety of applications

PHOTONICS NTO IRE-Polus

Fiber lasers and telecommunications equipment in Russia

Fiber lasers

ELECTRONICS Crocus Tech-nology SA

Magnetoresistive

memory

Innovative memory production technology



FINANCING:



Construction materials


Total market volume of the sub-sectors with the biggest commercial potential is ~USD 14,6 bn, more than half of it - polymers and additives


Overview of construction materials sub-sectors

+86%

2015

1,20

2011

0,10

+15%

2015

8,87

2011

5,11

+11%

2015

0,21

2011

0,14



KEY TRENDS

ATTRACTIVE-NESS

LOW EMISSIVITY

GLASS

THERMAL

INSULATION

POLYMERS AND ADDITIVES

WATER TREATMENT MEMBRANES

> Tighter regulations on thermal resistance of windows for new buildings from 2016

> Share of low emissivity glass expected to grow

> Overall construction growth and changes in energy effic'y regulations for new buildings are driving market growth

> Great need for insulation for refurbishing existing residential stock

> Growth driven by overall construction growth

> Good prospects for increased application of new materials (composites, nano-additives, etc.)

> Demand for water treatment membranes mostly determined by governmental spending

> Strong need for refurbishing existing infrastructure

> Strong CAGR > Massive market

potential

> Large market volume > Stable market growth

> Mostly government financing

> Moderate growth potential

+16%

2015

4,30

2011

2,40

> Large market volume > Stable market growth > Increased application

of new materials


There are potentially interesting projects on the market – RUSNANO has invested in some of them, which are now successfully operating




ADDITIVES Unicom Additives for bituminous concrete and asphalt

Devulcanized rubber nanoparticles for bituminous concrete and asphalt additives production

COMPOSITES Galen Composite reinforcement and fittings

Reinforcement of polymer with basalt fibers

LOW EMISSIVITY GLASS

STiS Low emissivity glass Glass magnetron spattering in metal-oxide nanofilm vacuum

FINANCING:



КОНЦОВКА!!!


Russian innovative economy: it is real!

On your way to a great deal

Economy & Finance

Anatoly Chubais speaking at Stanford Faculty Club