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Presentation
May , 2015
DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI(P) 148/04/2014
Russia-2015: Assessing the new paradigm
Yaroslav Lissovolik | (+7) 495 933-9247 | [email protected]
Deutsche Bank Markets Research
Markets Research Deutsche Bank Yaroslav Lissovolik | (+7) 495 933-9247 | [email protected]
May , 2015 1
Labor productivity–real wages, selected countries
Source: OECD, Deutsche Bank
Labor vs. wages – accumulating imbalances
Source: Rosstat, Deutsche Bank
Labor prod-ty in OECD and selected countries
Source: OECD, Deutsche Bank
GDP, labor productivity vs. real wages growth
Source: Rosstat, Deutsche Bank
100
120
140
160
180
200
220
240
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Labour productivity, 2002=100 Real wages, 2002=100
Labor market: productivity vs. wage growth
-10%
-5%
0%
5%
10%
15%
20%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
% y
oy
Labour productivity, % yoy Real wages, % yoy GDP growth
-20
-15
-10
-5
0
5
10
2007 2008 2009 2010 2011 2012 201320
07=0
Russia Germany United States Japan Korea
0
10
20
30
40
50
60
70
80
90
100
Nor
way US
Bel
gium
Net
herla
nds
Den
mar
kIre
land
Fran
ceG
erm
any
Sw
itzer
land
Sw
eden G
7A
ustri
aE
uro
area
Aus
tralia
Finl
and
Spa
inIta
lyC
anad
aU
KE
UO
EC
DIc
elan
dS
love
nia
Japa
nN
ew Z
eala
ndS
lova
k R
epub
licIs
rael
Gre
ece
Por
tuga
lC
zech
Rep
.K
orea
Turk
eyE
ston
iaH
unga
ryP
olan
dLa
tvia
Rus
sia
Chi
leM
exic
o
US
D, c
urre
nt p
rices
, cur
rent
PP
Ps
GDP per hour worked
Markets Research Deutsche Bank Yaroslav Lissovolik | (+7) 495 933-9247 | [email protected]
May , 2015
Import substitution potential: constrained by high capacity utilization and aged capital
2
Capacity utilization vs. employment level, %
Source: Rosstat, Deutsche Bank
Structure imports by country to Russia, 2013
Source: UNCTAD, Deutsche Bank
Share of imports across industries
Source: Ministry of Industrial Trade, Kommersant, Deutsche Bank
Structure of Russian imports, 2013, USD340bn
Source: UNCTAD, Deutsche Bank
Machinery and transport
equipment42%
Miscellaneous manufactured
articles14%
Manufactured goods13%
Chemicals and related products
12%
Agriculture and food products
13%
Crude materials, inedible, except
fuels3%
Mineral fuels, lubricants and
related materials2%
Other1%
0% 20% 40% 60% 80% 100%
Total all products
Agriculture and food products
Crude materials, ex. fuels
Mineral fuels and related materials
Chemicals and related products
Manufactured goods
Machinery and transport equipment
Miscellaneous manufactured articles
EU NO CA US AUS JP Other
0%
20%
40%
60%
80%
100%
Mac
hine
en
gine
erin
g
Hea
vy
Mac
hine
ry
Ligh
t in
dust
ry
Ele
ctro
nics
Med
icin
e &
P
harm
a
Food
M
anuf
'ng
Domestic production Imports
90
92.5
95
97.5
100
50
55
60
65
70
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Capacity Utilization (%) Employment (%) (RHS)
Markets Research Deutsche Bank Yaroslav Lissovolik | (+7) 495 933-9247 | [email protected]
May , 2015 3
Public infrastructure: decrepit and in need of repair
Infrastructure segment Main features
Railways Railcar park (years) average age 16 years vs. useful economic life of 38 years Locomotives (years) average age 27 years vs. useful economic life of 35 years Average speed of cargo trains 220km per day Bottlenecks (km) 7,600km or 8.9% of total
Highways Hard surface (%) 80% of total Up to international standards 5% to total Requiring capital repairs 65% of total Bottlenecks, km 13,000km or approximately 27% of total
Housing Rundown rate (%) 3.00% Housing stock 2000-2012 CAGR 1.5%, 2005-2012 CAGR 1.8% Floor space per capita, sq,m 23.4
Public utilities Fully depreciated 40.8% in 2012
Source: Rosstat, Ministry of Transport, Ministry of Economy, Vedomosti, Kommersant, Deutsche Bank
Markets Research Deutsche Bank Yaroslav Lissovolik | (+7) 495 933-9247 | [email protected]
May , 2015
Top-down modernization: megaprojects
Sochi provided an important impetus to growth in Southern Russia
Another infrastructural “hot spot” is the Russian Far East (one of the most depressed regions in Russia currently). Overall, about RUB560bn are to be directed to the renovation of Trans Siberian and Baikal-Amur railways.
In the longer term, the most important event will likely be the 2018 FIFA World Cup…
… as well as development of new Moscow areas.
4
Russia’s megaprojects
Source: Ministry of Finance, Deutsche Bank
0
200
400
600
800
1 000
1 200
1 400
1 600
1 800
2 000
2008-2012 2008-2013 2008-2014 2013-2018 2013-2017 2014-2022 2012-2025
APEC 2012 Kazan Universiade 2013
Sochi 2014 World Cup 2018 Far East Development
Central District Hub Development
New Moscow
RU
Bbn
Actual expenditure Planned expenditure
Markets Research Deutsche Bank Yaroslav Lissovolik | (+7) 495 933-9247 | [email protected]
May , 2015
Number of bureaucrats in Russia
5
Source: Rosstat, Deutsche Bank
0
5
10
15
20
25
30
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
per 1
,000
em
ploy
ed
mn
Number of bureaucrats per 1,000 employed (RHS)
Markets Research Deutsche Bank Yaroslav Lissovolik | (+7) 495 933-9247 | [email protected]
May , 2015
Labor market bottlenecks
6
Skilled employees shortage
Note: survey carried out in 2013 Source: Russian Union of Industrialists and Entrepreneurs, Deutsche Bank
What career would you like your children to chose
Source: Levada (May-14), Deutsche Bank
0
5
10
15
20
25
Law
yer,
Eco
nom
ist,
Fina
ncie
r
Hig
h-te
ch, I
T
Doc
tor
Ent
repr
eneu
r
Ban
k C
EO
Arm
y st
aff
Eng
inee
r
Spo
rtsm
en
Sho
p ow
ner
Arti
st
Pol
itici
an, m
inis
ter
Aca
dem
ic
prof
esso
r, le
ctur
er
Ski
lled
wor
ker
Sch
ool t
each
er
Soc
iolo
gist
, m
arke
tolo
gist
, PR
Farm
er
Prie
st
Oth
er
0%
10%
20%
30%
40%
50%
60%
70%
80%
Skilled workers Mid-career professionals Executives
% o
f th
ose,
who
ans
wer
ed "y
es"
Is there a deficit (difficulty in hiring) of personell?
Source: Rosstat, Deutsche Bank
Employment structure, 2013
Source: Rosstat, Deutsche Bank
Salaries’ distribution across sectors, 2013
0
10 000
20 000
30 000
40 000
50 000
60 000
70 000
Fina
ncia
l ser
vice
s
Min
eral
ext
ract
ion
Pub
lic s
ervi
ce,
arm
y, in
terio
r …Tr
ansp
ort a
nd
tele
com
sR
eal E
stat
e in
term
edia
tion
Fish
ery
Util
ities
Rus
sia
Con
stru
ctio
n
Man
ufac
turin
g
Hea
lthca
re
Edu
catio
n
Ret
ail a
nd
who
lesa
le tr
ade
Hot
els
and
rest
aura
nts
Agr
icul
ture
RU
B/m
onth
Agriculture7%
Mineral extraction
2%
Manufacturing15%
Utilities3%
Construction8%Retail and
wholesale trade18%
Transport and telecoms
10%
Financial services
9%
Public employees, army, interior
security7%
Education9%
Healthcare8%
Other4%
Markets Research Deutsche Bank Yaroslav Lissovolik | (+7) 495 933-9247 | [email protected]
May , 2015
Trust is not at high level in Russia….
7
Aggregate level of trust (govt+business+media)
Source: Edelman, Deutsche Bank
Trust to Business
Source: Edelman, Deutsche Bank
Trust to mass media
Source: Edelman, Deutsche Bank
Trust to Government
Source: Edelman, Deutsche Bank
0
10
20
30
40
50
60
70
80
90
UA
EIn
dia
Indo
nesi
aC
hina
Sin
gapo
reN
ethe
rlan…
Bra
zil
Mex
ico
Mal
aysi
aC
anad
aA
ustra
liaFr
ance US
Ger
man
yIta
lyS
. Afri
caH
ong
Kon
gS
. Kor
ea UK
Arg
entin
aP
olan
dR
ussi
aS
pain
Sw
eden
Turk
eyIre
land
Japa
n
% o
f res
pone
nts,
who
trus
t
0
10
20
30
40
50
60
70
80
90
100
UA
EIn
dia
Chi
naIn
done
sia
Sin
gapo
reN
ethe
rlan…
Sw
eden
Rus
sia
UK
Ger
man
yA
ustra
liaC
anad
aM
alay
sia
Fran
ceH
ong
Kon
gU
STu
rkey
Japa
nB
razi
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exic
oS
. Kor
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olan
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lyS
pain
Irela
ndA
rgen
tina
S. A
frica
% o
f res
pone
nts,
who
trus
t
0
10
20
30
40
50
60
70
80
90
UA
EIn
done
sia
Indi
aB
razi
lM
exic
oC
hina
Mal
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aN
ethe
rlan …
S. A
frica
Sin
gapo
re US
Italy
UK
Sw
eden
Aus
tralia
Pol
and
Japa
nC
anad
aA
rgen
tina
Ger
man
yFr
ance
Rus
sia
Hon
g K
ong
Spa
inTu
rkey
Irela
ndS
. Kor
ea
% o
f res
pone
nts,
who
trus
t
0
10
20
30
40
50
60
70
80
90
Indo
nesi
aU
AE
Chi
naIn
dia
Net
herla
n…S
inga
pore
Mex
ico
Bra
zil
S. A
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Fran
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. Kor
eaIta
lyS
pain
Can
ada
Mal
aysi
aG
erm
any
Rus
sia
US
Aus
tralia
Pol
and
Hon
g K
ong
Arg
entin
aU
KS
wed
enIre
land
Japa
nTu
rkey
% o
f res
pone
nts,
who
trus
t
Markets Research Deutsche Bank Yaroslav Lissovolik | (+7) 495 933-9247 | [email protected]
May , 2015
SME support Tax breaks for SMEs Access to public procurement for SMEs Lending to SMEs from the NWF Investment stimulation Use of NWF in financing infrastructure projects
(from 2014) Development of PPPs Tariff freezes Tax exemptions for security holders Credit affordability Business climate De-offshorization Regulation control – Federal Antimonopoly
Service reform Higher dividend payments from state-owned
enterprises
8
Government’s short-term reform agenda
Efficiency improvement in public sector Cost efficiency incentives for state-owned
corporations Public expenditure optimization Reduction in the bureaucratic headcount Privatization
Markets Research Deutsche Bank Yaroslav Lissovolik | (+7) 495 933-9247 | [email protected]
May , 2015
Source: IFC, World Bank, Deutsche Bank
Doing Business in Russia: getting better, but slowly
The World Bank and the IFC carry out a joint project to evaluate the ease of doing business in Russia.
In 2013 (DB 2014) Russia made significant progress climbing from 111 position to 92 and attaining the best results across BRICS
From 2015 the Ranking has changed and Russia is now ranked #62 rising by 2 positions from revised 2014 ranking
President Putin set the task for the Russian government to climb in the rankings to 50th position by 2015 and 20th by 2018.
9
Ease of… 2011 2012 2013 2014 2014 2015 Chg Doing Business 124 120 111 92 64 62 up 2 Starting a business 106 111 100 88 58 34 up 24 Dealing with construction permits 179 178 180 178 172 156 up 16 Getting electricity 183 183 188 117 141 143 down 2 Registering property 51 45 46 17 17 12 up 5 Getting credit 96 98 105 109 55 61 down 6 Protecting investors 108 111 113 115 97 100 down 3 Paying taxes 107 105 63 56 48 49 down 1 Trading across borders 166 160 162 157 154 155 down 1 Enforcing contracts 19 13 10 10 14 14 n/c Resolving insolvency 60 60 53 55 62 65 down 3
Markets Research Deutsche Bank Yaroslav Lissovolik | (+7) 495 933-9247 | [email protected]
May , 2015
Russia’s growth to be sourced from regions
10
Top 30 GRP per capita regions, 2012
Source: Rosstat, Deutsche Bank
Russia vs. Moscow FAI growth, 1999-2014
Source: Rosstat, Deutsche Bank
Contribution to GDP by largest regions, 2012
Source: Rosstat, Deutsche Bank
Russia vs. Moscow GRP growth, 1999-2013
Source: Rosstat, Deutsche Bank
Moscow22%
Tyumen region10%
Moscow region
5%
St. Petersburg5%
Sverdlovsk region
3%
Krasondar territory
3%Tatarstan
3%
Krasnoyarsk territory
3%
Others46%
0
300
600
900
1 200
1 500
Tyum
en re
gion
S
akha
lin re
gion
C
huko
tka
Mos
cow
Y
akut
ia
Kom
i Rep
ublic
M
agad
an
St.
Pet
ersb
urg
Kra
snoy
arsk
terri
tory
K
amch
atka
A
rkha
ngel
sk re
gion
Le
ning
rad
regi
on
Tata
rsta
n M
urm
ansk
regi
on
Bel
goro
d re
gion
To
msk
regi
on
Rus
sia
Mos
cow
regi
on
Sve
rdlo
vsk
regi
on
Per
m te
rrito
ry
Kha
baro
vsk
terri
tory
O
renb
urg
regi
on
Irkut
sk re
gion
V
olog
da re
gion
S
amar
a re
gion
K
alug
a re
gion
A
mur
regi
on
Prim
orye
B
ashk
orto
stan
K
alin
ingr
ad re
gion
N
ovgo
rod
regi
on
Kra
sond
ar te
rrito
ry
RU
B'0
00
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
1998 2000 2002 2004 2006 2008 2010 2012
% y
oy
Russia averge GRP, %yoy Moscow GRP, % yoy
-30%
-20%
-10%
0%
10%
20%
30%
1998 2000 2002 2004 2006 2008 2010 2012 2014
% y
oy
Russia, fixed investments , %yoy Moscow, fixed investments, % yoy
Markets Research Deutsche Bank Yaroslav Lissovolik | (+7) 495 933-9247 | [email protected]
May , 2015
Investment climate across Russia’s regions
11
Pilot research of Russia’s regions investment climate, 2014
Source: Agency for Strategic Initiatives, Russian Union of Industrialists and Entrepreneurs, Deutsche Bank
Region Aggregate Regulatory environment Insitutions for business
Intrastructure and resources SME support
1 Kaluga region I 1 1 1 1 2 Ulyanovsk region I 2 1 4 1 3 Krasnoyarsk territory I 1 2 1 3 4 Tatarstan I 2 3 2 1 5 Kostroma region I 2 2 3 2 6 Tula region II 2 2 3 3 7 Krasnodar region II 1 4 2 4 8 Tomsk region II 3 4 3 2 9 Altai region II 3 1 4 5
10 Vladimir region III 4 3 3 4 11 Rostov region III 3 4 2 5 12 Chelyabinsk region III 4 4 3 2 13 Leningrad region III 5 1 2 5 15 Samara Region IV 4 4 5 1 16 Khabarovsk territory IV 5 3 3 3 17 Moscow IV 5 3 2 4 14 Yakutia IV 5 4 3 1 18 Sverdlovsk region V 4 5 2 4 19 Stavropol region V 4 5 4 2 20 Saint Petersburg V 5 5 2 3 21 Primorsk territory V 5 5 5 5
Markets Research Deutsche Bank Yaroslav Lissovolik | (+7) 495 933-9247 | [email protected]
May , 2015
Russia’s 2010-2012 growth poles
12
Russia’s regional growth poles with highest GRP growth rates
Source: Rosstat, Deutsche Bank
KalugaBelgorodBryansk Moscow
NNovgorodregions
St.PetersburgLeningrad Vologda
KrasnodarRostov regions
SverdlovskPerm
Chelyabinskregions
Markets Research Deutsche Bank Yaroslav Lissovolik | (+7) 495 933-9247 | [email protected]
May , 2015
02/06/2015 11:24:19 2010 DB Blue template
Appendix 1 Important Disclosures Additional Information Available upon Request
For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr
13
Markets Research Deutsche Bank Yaroslav Lissovolik | (+7) 495 933-9247 | [email protected]
May , 2015 14
Analyst Certification The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s) about the subject issuer and the securities of the issuer. In addition, the undersigned lead analyst(s) has not and will not receive any compensation for providing a specific recommendation or view in this report. Yaroslav Lissovolik/ Artem Zaigrin
Markets Research Deutsche Bank Yaroslav Lissovolik | (+7) 495 933-9247 | [email protected]
May , 2015
Buy: Based on a current 12-month view of total shareholder return (TSR = percentage change in share price from current price to projected target price plus projected dividend yield), we recommend that investors buy the stock.
Sell: Based on a current 12-month view of total shareholder return, we recommend that investors sell the stock.
Hold: We take a neutral view on the stock 12 months out and, based on this time horizon, do not recommend either a Buy or Sell.
Notes:
1. Newly issued research recommendations and target prices always supersede previously published research.
2. Ratings definitions prior to 27 January, 2007 were:
Buy: Expected total return (including dividends) of 10% or more over a 12-month period
Hold: Expected total return (including dividends) between -10% and 10% over a 12-month period
Sell: Expected total return (including dividends) of -10% or worse over a 12-month period
Equity Rating Key
Equity Rating Dispersion and Banking Relationships
15
46 % 48 %
5 %24 % 23 %40 %
05
101520253035404550
Buy Hold Sell
Global Universe
Companies Covered Cos. w / Banking Relationship
Markets Research Deutsche Bank Yaroslav Lissovolik | (+7) 495 933-9247 | [email protected]
May , 2015 16
Regulatory Disclosures 1. Important Additional Conflict Disclosures Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/equities under the “Disclosures Lookup” and “Legal” tabs. Investors are strongly encouraged to review this information before investing.
2. Short-Term Trade Ideas Deutsche Bank equity research analysts sometimes have shorter-term trade ideas (known as SOLAR ideas) that are consistent or inconsistent with Deutsche Bank’s existing longer term ratings. These trade ideas can be found at the SOLAR link at http://gm.db.com.
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Markets Research Deutsche Bank Yaroslav Lissovolik | (+7) 495 933-9247 | [email protected]
May , 2015 17
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