Transcript Slide 1

Investment Opportunities in Russia
Jan Dewijngaert, Gimv
March 2009
Good company for companies
951 - p. 1
Russia: Economic and Business Outlook
Serious deterioration expected this year:
2008
2009
2010
GDP
5,6%
-3,0%
1,5%
Private consumption
11,4%
-2,5%
1,2%
Fixed investment
10,3%
-7,0%
2,8%
Real wages
10,5%
-2,5%
0,0%
Inflation
15,1%
10,0%
8,0%
Budget surplus/deficit
3,6%
-7,5%
-2,8%
Current account surplus/deficit
5,9%
-3,0%
0,2%
Rouble/$ (year end)
29,4
37,0
37,5
Source: Economist Intelligence Unit
Good company for companies
951 - p. 2
Russia: Economic and Business Outlook
To put things into perspective:
•
The situation in the rest of the world is not any better
•
The outlook in CEE has sharply deteriorated in recent weeks
•
Rouble and oil prices seem to stabilise
•
Russia could quickly rebound (cfr. also 1998 crisis)
Good company for companies
951 - p. 3
Russia: Economic and Business Outlook
Why the recession in Russia could be over shortly:
•
Oil price may rise to 45-55 $/barrel in 2009
•
No Rouble crash expected
•
Lower Rouble will improve competitive position of local procedures
•
Increased public spending supported by high reserves
•
Low level of household and government debt
Good company for companies
951 - p. 4
Russia vs. USA
Debt/GDP 2009F
%
140
120
100
80
60
40
20
0
Government
Corporate
Russia
Household
Financial
USA
Source: Troika Dialogue, Jan 2009
Good company for companies
951 - p. 5
Current vs. ’98 crisis
There are striking similarities…
•
Stock market crash
•
Flight of foreign capital
•
Devaluation of the rouble
•
Lack of bank finance
•
Budget and current account deficits
•
Negative GDP growth
•
Economy still heavily dependent on oil/gas and minerals
Good company for companies
951 - p. 6
DJ EURO STOXX 50
02
17
03
20
06
21
08
24
11
27
11
.0
3
.1
2
.1
0
.0
7
.0
5
.0
2
.1
2
.0
9
.0
7
.0
4
.0
2
.2
0
.2
0
.2
0
.2
0
.2
0
.2
0
.2
0
.2
0
.2
0
.2
0
.2
0
09
08
08
08
08
08
07
07
07
07
07
RTSI
2000
4000
1500
3000
1000
2000
500
0
Good company for companies
DJ EURO STOXX 50
RTSI vs. DJ EURO STOXX 50
3000
5000
2500
1000
0
RTSI
951 - p. 7
Current vs. ’98 crisis
… but also important differences
2009
1988
+/- 6% of GDP
Very high
Corporate debt
+/- 500 bn $
+/- 50 bn $
Foreign currency reserves
+/- 380 bn $
< 20 bn $
Relatively modest
High
Forced to restructure,
consolidate or sell
Emerged stronger
Government debt
Unemployment
Oligarchs
Good company for companies
951 - p. 8
Deals in Russia (July 2007 – August 2008)
Energy
Manufacturing
Construction materials
Food & drinks
Horeca
ICT
Financial services
Retail & distribution
Transportation
Real estate & development
Services (other)
0
1
2
3
4
5
6
7
8
9
Source: Deloitte
Good company for companies
951 - p. 9
Deals in Russia vs. CEE (July 2007 – August 2008)
Energy
Manufacturing
Construction materials
Food & drinks
Horeca
ICT
Financial services
Retail & distribution
Transportation
Real estate & development
%
Services (other)
0
5
10
15
CEE
20
25
30
Russia
Source: Deloitte
Good company for companies
951 - p. 10
Private Equity in Russia
•
•
Historically, PE returns in Russia have been very high
The period directly following the ’98 crisis has proven to be fantastic from a PE perspective
Net returns as at 31 Dec 2006
Three
years
Five
years
Ten
years
Since
inception
Russia/CIS (*)
57,5%
21,7%
13,4%
12,9%
Central & South-eastern Europe (*)
36,2%
14,9%
9,6%
9,6%
EVCA all private equity
13,0%
5,4%
11,0%
10,8%
(*) Net returns for EBRD’s portfolio of funds
Good company for companies
951 - p. 11
Type of investment: Russia vs. CEE
Russia
CEE
Early stage
11,4%
12,9%
Expansion
75,6%
4,4%
Turnaround/Replacement
12,9%
4,4%
-
78,8%
Buyout
Source: RVCA (2006), EVCA (2007)
Good company for companies
951 - p. 12
Type of exits: Russia vs. CEE
Russia
CEE
IPO
6%
3%
Trade sale
88%
56%
-
6%
6%
24%
-
11%
Buyback
Secondaries
Other
Source: RVCA (2006), EVCA (2007)
Good company for companies
951 - p. 13
Private Equity in Russia
New opportunities are arising…
•
•
•
•
Downturn in the business cycle
Marginally feasible businesses will disappear
Best performers stay in business and find great expansion opportunities…
…via organic growth and M&A
While at the same time:
•
•
•
Less competition from oligarchs, bank captives, global PE houses and hedge funds
Valuations are becoming more attractive
The number of leads is rising
This should result in attractive returns
Good company for companies
951 - p. 14
Valuation Multiples (EV/EBITDA)
Company
Industry
2007
2009E
LUKOIL
Oil & Gas
LKOH
3.52
2.35
Gazprom
Oil & Gas
GAZP
5.65
3.41
Uralkali
Chemicals
URKA
23.44
3.82
Silvinit
Chemicals
SILV
17.85
4.31
Magnit
Consumer/Retail
MGNT
14.31
5.55
Wimm-Bill-Dann
Consumer/Retail
WBD
8.42
4.63
Aeroflot
Infrastructure & Transport
AFLT
5.48
4.22
Source: Antanta Capital
Good company for companies
951 - p. 15
Deal flow in Russia
80
70
60
50
# leads 40
30
20
10
0
Jan
Feb
Mar
Apr
May
2007
Jun
Jul
2008
Aug
Sep
Oct
Nov
Dec
2009
Good company for companies
951 - p. 16
ERF portfolio: Strata Partners
Company Background:
• 3rd largest & fastest growing fitness clubs operator in Russia;
Strata Partners
• 2 brands, 33clubs as of 1Q09, good locations;
• Target customer groups by monthly income per person:
$2,000+ for Orange Fitness, $1,000+ for City Fitness;
Sector:
Fitness
Investment date: Feb 2007
Transaction type: expansion
• Company historically has a low bank leverage
Investment Rationale:
• Rapidly growing industry, but penetration still low: years of
high growth ahead;
• Business idea: develop 2 strong brands in top & medium
segments, create strong base in Moscow and expand in
regions, with 50 clubs by 2010;
• Strong, highly motivated and experienced management;
• Exit strategy: trade sale
Developments since investment
• Strategy adopted to focus on own clubs and only
use franchise at remote locations
• Launched 19 new clubs after investment,
approaching 2 top players in Russia.
• Corporate governance and financial reporting
were improved.
• ERF bought out the third shareholder together
with management.
• Exit discussions advanced, but unclear if realized
given financial crisis.
Good company for companies
951 - p. 17
ERF portfolio: BASK
Company Background:
• BASK Group is the leading local player in the Russian outdoor
wear and equipment market.
BASK
Sector:
Outdoor wear
Investment date: Oct 2007
Transaction type: expansion
• The Group manages the clothing and accessories brand
BASK. In addition, well reputed international brands are
distributed.
• The Group has its own retail chain with 6 stores operating in
Moscow, which sell proprietary brands, international brands
distributed by the Group and other outdoor merchandise.
Investment Rationale:
• Both the sporting goods and outdoor markets have shown
impressive growth in recent years and similar
performance is expected in the coming 5 years.
• The two founders have a long-term experience in the
industry.
• The objective is to make the Group the undisputed №1
local player in the Russian outdoor clothing and
equipment market.
• The main exit strategy is a trade sale.
Developments since investment
• Introduction to Western outdoor retailers to
advice on the Group’s retail activities sourcing &
overall strategy.
• Three new retail outlets opened: Moscow,
Nizhniy Novgorod & a web-store. Most likely a
store will be opened in St Petersburg shortly.
• Corporate governance and financial reporting
system have been improved.
• External consultants from the field attracted.
• Company should be able to weather the storm
even with little or no bank finance available
Good company for companies
951 - p. 18
ERF portfolio: PTI
Company Background:
• PTI is the leading Russian producer and distributor of soy
products, spices and flavourings, which are sold to food
processors in Russia and the CIS.
PTI
• The Company has 20 distribution centres in Russia and the
CIS and sells both its own brands and imported ingredients.
Sector:
Ingredients
Investment date: Oct 2008
Transaction type: expansion
• The Company has a customer base of more than 2000 clients
in the meat, dairy, softdrinks and confectionery industries .
Investment Rationale:
• The food & beverages sector in Russia has shown rapid
growth recently and is expected to continue growing the
coming 5 years
• End-consumers are expected to get more quality & health
conscious, whereas increased competition forces
producers to pay more attention to product appearance,
taste, etc. while keeping costs low.
• The Company has the potential to become the undisputed
№1 in the industry in Russia and the CIS.
• Exit strategy: trade sale or IPO.
Developments since investment
• Legal restructuring has been completed & the
investment was executed recently.
• Started working on corporate governance and
financial reporting
• Implemented a “cash quality of earnings” policy,
which should make it possible for the company to
execute its investment plan with little to no bank
finance
Good company for companies
951 - p. 19