russia through a lens - deloitte united states · 2020-02-08 · 03 russia troug a lens contents 04...

Russia through a lensDeloitte Research Centre | 10th issue | 1Q 2018

Macroeconomic outlookKey Russian macroeconomic indicators in 1Q 2018

Page 04

Kids recreational services market in RussiaThe key drivers of the market are a flexible approach to sales and demographic growth

8

Oil and Gas Industry BarometerThe base for future growth: maintaining performance indicators and keeping up with the pace of technology

Page 26

Integration of advanced information systemsDigitalisation boosts operating efficiency of oil companies

Page 28

Россия: сквозь призму последних событий

02

03

Russia through a lens

Contents

04Russia in figuresMacroeconomic outlook (GDP, inflation, trade indicators, currency rate, Central Bank key rate, commodity price dynamics etc.)

18Research Centre market analysis • Kids recreational services market in Russia

• Oil and Gas Industry Barometer

• Integration of advanced information systems

33Global windTop news: China and RussiaTop news: Europe and Russia

35Contacts

34Useful stickers

32Top M&A

We are pleased to present the latest edition of Russia Through a Lens, the macroeconomic journal produced by the Deloitte Research Centre in Moscow.

Established in December 2015, the journal is published quarterly and falls under the Research Centre’s monitoring activities.

In Russia Through a Lens, we focus on current key trends in the Russian economy and present our research in the following fields:

• Russia in figures: statistical analysis • Research Centre market analysis • Top M&As

If you have any questions or suggestions regarding this research, please do not hesitate to contact us at:[email protected]

Created by the Deloitte Design Group, Moscow

Russia through a lens | Russia in figures

04

Russia in figuresGDPGDP dynamics

Source: Rosstat, (*forecast) Institute for Economic Forecasting of the Russian Academy of Sciences (IEF RAS)

Source: Rosstat, (*forecast) Central Bank of Russia

Q1 GDP (at constant price 2011), bln RUB

According to the Central Bank, the GDP growth rate will amount to 1.5–1.8 percent in Q1 2018. Consumer demand continues to expand due to a wage increase and growth in retail lending. Investment activity has also increased. Under these circumstances, the output of most commodity groups has significantly increased. It is expected that the expansion of aggregate demand will drive ongoing production activity without excessive inflation pressure.

Source: "What the Trends Say. March 2018", bulletin of the Department of Research and Forecasting of the Central Bank

“This year [2018], Russia's GDP may increase by 2 percent, following a 1.5 percent growth in 2017.” Maxim Oreshkin, Minister of Economic Development of the Russian Federation

According to the Ministry of Economic Development of the Russian Federation, in annual terms, Russia's economic growth sped up to 2.0 percent in January. GDP growth accelerated mostly due to the recovery in industrial production, which, in annual terms, grew by 2.9 percent in January.

Source: “Overview of the Economy. March 2018” by the Ministry of Economic Development

GDP, bln RUB GDP growth, % (at current prices)

GDP volume indices, %

1.5

33,2

48

60,2

83 83,3

87

41,2

77 68,1

64 85,9

18

38,8

07

73,1

34 92,0

82

26,9

17 46,3

09

79,2

00 96,8

00

2009

2013

2017

2006

2010

2014

2018

*

2007

2011

2015

2008

2012

2016

24.6 19.38.3

24.213.1

3.0-6.07.3

23.5 30.2

5.3

8.2 4.5 0.75.2 3.7 -0.2-7.81.88.5 4.3 -2.5

7.2 5.1

12,5

64 13,3

86 14,0

86

13,7

17

14,1

15

14,0

25

12,4

55

14,2

92

14,0

94

11,6

26

12,9

62

14,3

59

14,3

05

2009

2013

2017

2006

2010

2014

2018

*

2007

2011

2015

2008

2012

2016

1.2


05

Inflation rate, %

GDP forecasts

Inflation rate forecasts

Source 2018 2019 2020

Economist Intelligence Unit +1.7% +1.8% +1.6%

The Ministry of Economic Development

+2.1% +2.2% +2.3%

Central Bank +1.5% -

+2.0%

+1.5% -

+2.0%

+1.5% -

+2.0%

IEF RAS +1.2% +2.4% +2.3%

Standard & Poor's +1.8% +1.7% +1.7%

Moody’s +1.6% - -

Source 2018 2019 2020

European Commission +1.6% +1.5% -

World Bank +1.7% +1.8% -

International Monetary Fund +1.7% +1.5% +1.5%

European Bank for Reconstruction and Development

+1.9% +1.5% -

Gaidar Institute +1.5% +1.4% +1.6%

Organisation for Economic Cooperation and Development

+1.9% +1.5% -

Inflation in January–March 2018*: 0.8 percent Inflation target** in 2018: 4.0 percent

*The inflation figure is the consumer price growth rate over the corresponding month of the previous year.

**The inflation target is set for the consumer price growth rate over the corresponding month of the previous year (Source: Central Bank).

“If it [inflation] stagnates at 2–2.5 percent, we will take measures to raise it to 4 percent. Even if the transition from a neutral to a low rate will be required to achieve this.” Elvira Nabiullina, Governor of the Bank of Russia

Fact Central Bank (*forecast)

Ministry of Economic Development (*forecast)

Source 2018 2019 2020

International Monetary Fund 3.8% 4.0% 3.9%

World Bank 4.0% 4.0% -

Vnesheconombank 3.9% 3.8% 3.8%

Bloomberg poll (consensus) 4.0% - -

Economist Intelligence Unit 3.8% 4.5% 4.7%

2006

2010

2014

2018

*

2007

2011

2015

2019

*

2020

*

2008

2012

2016

2009

2013

2017

11.9

6.1

12.9

8.8

6.5

9.08.8

11.4

13.3

6.6

5.4

4.03.52.5

4.0

4.04.0 4.0

Inflation


06

Trade structurePeriod: 2017

• Foreign trade turnover: USD 587.6 billion (+24.7% YoY)

• Trade balance: surplus of USD 130.6 billion (+USD 26.5 billion YoY)

• Exports: USD 359.1 billion (+24.8% YoY)

• Imports: USD 228.5 billion (+24.5% YoY)

Share of energy products in total exports, % (January 2006 – January 2018)

Source: Federal Customs Service

Period: January 2018

• Foreign trade turnover: USD 49.2 billion (+26.3% YoY)

• Trade balance: surplus of USD 18.0 billion (+USD 4.9 billion YoY)

• Exports: USD 33.6 billion (+29.1% YoY)

• Imports: USD 15.6 billion (+20.7% YoY)

Percentage in Exports to non-CIS countries

53.0

35.5

55.3

39.542.347.0

33.2

41.844.0 43.6

40.9

54.2

32.6

Percentage in Exports to the CIS countries

2006

2010

2014

Jan-

20

18

2007

2011

2015

2008

2012

2016

2009

2013

2017

68.072.7

66.469.6

74.5

63.270.3 70.8 73.472.4 73.0

62.0

70.8

“To some degree, the sanctions had been contributing to a drop in trade turnover between Russia and the West for a certain period of time, but this has served as a good impetus for our businesses to actively start developing new projects as they launch new industrial products. We can see the results: exports, and not just in commodities or energy, grew by about 19 percent last year [2017].”Denis Manturov, Russian Minister of Industry and Trade


07


08

Exports to the CIS countries (January–December 2017):

Percentage of exports to the CIS countries

In monetary terms YoY

In physical terms YoY

Categories

Energy products

33.2% 29.4% 5.3%

-2.3% Crude oil

35.7% Oil products

36.1% Coal

-21.2% Electricity

0.9% Natural gas

Metal products 12.2% 31.7% 11.0%

11.1% Ferrous metals

56.8% Ferroalloys

18.7% Flat iron non-alloy steel

12.7% Semi-finished products of iron or non-alloy steel

Chemical products

14.9% 22.0% 6.6%

-18.4% Products of inorganic chemistry

-5.5% Pharmaceuticals

12.4% Products of organic chemistry

36.9% Fertilizers

10.3% Plastics

51.3% Perfumery and cosmetic products

Machinery and auto

17.3% 27.9% n/a

25.0% Mechanical equipment

20.4% Electrical equipment

13.6% Passenger cars

31.7% Trucks

56.0% Ground transportation

Food and agriculture products

10.1% 14.6% 9.3%

35.0% Poultry meat

4.6% Fish

-11.9% Milk

-1.2% Cheese and curds

9.2% Sunflower oil

Timber, pulp and paper products

4.3% 23.4% 9.6%

5.2% Lumber

20.4% Cellulose


09

Exports to non-CIS countries (January–December 2017):

Percentage of exports to non-CIS countries



Categories

Energy products

63.2% 27.1% 1.7%

-1.3% Crude oil

1.4% Diesel fuel

10.3% Coal

6.8% Natural gas

-26.0% Motor gasoline

Metal products 10.2% 28.8% -2.0%

-6.3% Cast iron

16.2% Copper and copper alloys

-4.3% Aluminium

-6.5% Ferroalloys

-5.5% Semi-finished products of iron or non-alloy steel

Chemical products

5.4% 12.2% 5.5%

22.4% Products of inorganic chemistry

15.3% Plastics

4.1% Rubber

-8.2% Organic chemistry

6.1% Nitrogen fertilizer

Machinery and auto

6.4% 9.8% n/a

-5.9% Electrical equipment



29.3% Optical instruments and apparatus

-38.8% Trucks


5.1% 23.4% 23.3%

Timber, pulp and paper products

3.2% n/a 6.1%

11.8% Lumber

-2.1% Cellulose

-3.6% Rough wood


10

Imports from CIS countries (January–December 2017):

Percentage of imports from the CIS countries



Categories

Energy products 4.6% 49.4% 7.8%


26.4% Pipes

36.5% Flat rolled products of iron or non-alloy steel

Chemical products

13.5% 18.5% 15.7%

8.7% Inorganic chemistry

-19.3% Organic chemistry

12.9% Plastics

Machinery and auto

22.0% 19.2% n/a

250.0% Railway equipment


-14.6% Optical instruments and apparatus



23.7% Trucks


22.5% 18.8% n/a

26.6% Fish

25.8% Milk

-1.6% Cheese and curds

-9.5% Butter

-21.5% Citrus

9.9% Poultry meat

Textiles and footwear 7.1% 14.2% 21.4%


11

Imports from non-CIS countries (January–December 2017):

Percentage of imports from non-CIS countries



Categories

Textiles and footwear 5.8% 24.8% 14.8%


10.2% Flat iron non-alloy steel

73.2% Pipes

Chemical products

18.3% 19.0% 2.5%

8.6% Organic materials

13.8% Rubber

4.2% Plastics

4.5% Pharmaceuticals

6.7% Paint

Machinery and auto 51.8% 28.6% n/a



24.1% Electrical equipment

21.2% Optical instruments and apparatus

-1.1% Passenger cars

64.0% Trucks


11.5% 14.1% 8.3%

3.6% Butter

14.3% Cheese and curds

5.2% Meat

19.1% Fish


12

EUR vs. RUB USD vs. RUB

RUB vs. EUR, RUB vs. USD

USD forecast (average per year), RUB

EUR forecast (average per year), RUB

Source: Central Bank of Russia


Euro US dollar

01-Ja

n-20

15

01-Ja

n-20

16

01-Ja

n-20

17

01-Ja

n-20

18

01-A

pr-2

015

01-A

pr-2

016

01-A

pr-2

017

01-Ju

l-201

5

01-Ju

l-201

6

01-Ju

l-201

7

01-O

ct-2

015

01-O

ct-2

016

01-O

ct-2

017

01-A

pr-2

018

100

90

80

70

60

50

40

Average 2015EUR 68.0USD 61.3



Average Q1 2018EUR 69.9USD 56.8

Source 2018 2019 2020

Ministry of Economic Development 64.7 66.9 68.0

Gaidar Institute 58.9 58.8 58.1

IEF RAS 58.4 59.8 61.0

Economist Intelligence Unit 60.6 60.4 61.0

Source 2018 2019 2020

IEF RAS 67.5 66.6 67.1


Currency rate

+12%

Q1

20

17

Q1

20

18

Ma

r-20

17

Ma

r-20

18

69.9 70.3

62.6 62.0

+13% -3%

Q1

20

17

Q1

20

18

Ma

r-20

17

Ma

r-20

18

56.857.1

58.6

58.0

-2%


13

Central Bank of Russia key rate, %

Forecast of the key rate year-end, %


“The key rate approximates the range that has been classified as ‘neutral’, i.e. where the monetary policy does not contribute to the decrease or the acceleration in inflation with respect to the target. I would like to remind you that currently the target is 6-7 percent for the key rate.”Elvira Nabiullina, Governor of the Bank of Russia

Indexes (daily): January 2014–March 2018

Source: Moscow Exchange

MICEX Index, RUB RTS Index, USD

Russia's credit ratings

Agency Rating Outlook Date

S&P BBB- Stable 23 Feb 2018

Moody's Ba1 Positive 25 Jan 2018

Fitch BBB- Positive 23 Feb 2018

The global credit agency Standard & Poor's (S&P) upgraded Russia's foreign currency sovereign rating to 'BBB- ' from 'BB+' on 23 February 2018.

On 23 March 2018, the Central Bank reduced the key rate by 0.25 percentage points to 7.25 percent.

Source 2018 2019 2020

IEF RAS 6.25 5.75 5.25


“Economic recovery will likely be supported by the rebound in oil prices, a moderate expansion of domestic demand backed by gradual monetary easing, and the global economic upswing. At the same time, adverse demographics and low productivity continue to weigh on Russia's long-term growth potential.” Standard & Poor’s

01-Ja

n-20

14

01-Ja

n-20

15

01-Ja

n-20

16

01-Ja

n-20

17

01-A

pr-2

014

01-A

pr-2

015

01-A

pr-2

016

01-A

pr-2

017

01-Ja

n-20

18

01-Ju

l-201

4

01-Ju

l-201

5

01-Ju

l-201

6

01-Ju

l-201

7

01-O

ct-2

014

01-O

ct-2

015

01-O

ct-2

016

01-O

ct-2

017

2 3002 1001 9001 7001 5001 3001 100

900700500

The Central Bank’s key rate, indexes and credit rating

01-A

pr-2

018

5.50

9.50

14.00

10.509.00

7.00

10.50

12.50

10.008.50

7.50

17.00

11.509.75

8.258.00

15.00

11.00

9.25 7.75

01-Ja

n-20

14

01-Ja

n-20

15

01-Ja

n-20

16

01-Ja

n-20

17

01-A

pr-2

014

01-A

pr-2

015

01-A

pr-2

016

01-A

pr-2

017

01-Ja

n-20

18

01-Ju

l-201

4

01-Ju

l-201

5

01-Ju

l-201

6

01-Ju

l-201

7

01-O

ct-2

014

01-O

ct-2

015

01-O

ct-2

016

01-O

ct-2

017

7.50

7.25

01-A

pr-2

018


14

Nickel forecast, USD/t Copper forecast , USD/t

Nickel and copper

“Copper, nickel and other energy metals will outperform in the next commodity up-cycle driven by electrical vehicles and renewable energy.”Erik Sardain, Managing Partner Victorem Capital

Nickel, LME, USD/t Copper, LME, USD/t

Source 2018 2019

Goldman Sachs 11,000 -

World Bank 10,559 11,039

Morgan Stanley 10,858 -

International Monetary Fund 9,360 9,557

Source 2018 2019

Goldman Sachs 8,000 -

World Bank 6,118 6,187


Pan Pacific Copper 7,280 7,720

JPMorgan 7,405 -

Merrill Lynch 6,260 -

Source: Finam Holdings

Jan-

2015

May

-201

5

Sep-

2015

Jan-

2016

Jan-

2017

May

-201

6

May

-201

7

Sep-

2016

Sep-

2017

Feb-

2015

Jun-

2015

Oct

-201

5

Feb-

2016

Feb-

2017

Jun-

2016

Jun-

2017

Oct

-201

6

Oct

-201

7

Jan-

2018

Dec

-201

6

Dec

-201

7

Mar

-201

8

Mar

-201

5

Jul-2

015

Nov

-201

5

Mar

-201

6

Mar

-201

7

Jul-2

016

Jul-2

017

Nov

-201

6

Nov

-201

7

Feb-

2018

Apr

-201

5

Aug-

2015

Dec

-201

5

Apr

-201

6

Apr

-201

7

Aug-

2016

Aug-

2017

,15,

165

12,6

00

10,3

30

8,61

0 9,96

5

8,46

5

8,95

010,5

15

10,5

20

14,0

95

12,0

15

10,0

45

8,53

0

10,9

60

9,31

5

9,37

5

10,4

25 11,8

50 13,4

90

10,0

55

12,6

45

13,3

90

12,3

95

11,0

40

8,85

5

8,49

5

10,0

20

10,6

35

10,2

20

11,1

70

11,3

85

13,7

45

13,9

50

10,0

60

8,82

0

9,42

5

9,45

5

9,77

0 11,7

95

5,50

8

6,03

4

5,23

0

4,49

9 6,00

4

4,56

7

5,67

5

4,88

0 6,49

8

5,93

0

5,76

8

5,10

6

4,66

6 6,01

2

4,84

7

5,96

8

4,87

2 6,93

8

7,05

7

5,53

0 7,26

4

6,66

5

6,07

5

5,19

0

4,57

1

4,81

6

5,85

4

4,91

0 6,38

2

5,87

9

6,78

0

6,92

0

6,35

3

5,14

1

4,70

7

5,03

1

5,72

8

4,60

3

6,84

1

Maximum for the period


Minimum for the period

14-year minimum

Top pricing (nickel and copper)


15

Gold forecast, USD/oz Aluminium forecast, USD/t

“From 23 of March 2018 the United States imposed additional duties of 25 percent on steel and 10 percent on aluminum on imports from all countries of origin except Canada, Mexico, Australia, Argentina, South Korea, Brazil and member countries of the European Union.”Source: U.S. Customs and Border Protection

Source 2018 2019

Goldman Sachs 1,250 1,375


Morgan Stanley 1,269 1,265

Credit Suisse 1,375 -

Oxford Economics 1,311 1,323

Citigroup 1,350 -

Source 2018 2019

Goldman Sachs 2,000 1,950


Morgan Stanley 2,116 -


Oxford Economics 1,924 -

Merrill Lynch 2,380 -

Gold and aluminium


Aluminium, LME, USD/t Gold, COMEX, USD/oz

Jan-

2015

May

-201

5

Sep-

2015

Jan-

2016

Jan-

2017

May

-201

6

May

-201

7

Sep-

2016

Sep-

2017

Feb-

2015

Jun-

2015

Oct

-201

5

Feb-

2016

Feb-

2017

Jun-

2016

Jun-

2017

Oct

-201

6

Oct

-201

7

Jan-

2018

Dec

-201

6

Dec

-201

7

Mar

-201

8

Mar

-201

5

Jul-2

015

Nov

-201

5

Mar

-201

6

Mar

-201

7

Jul-2

016

Jul-2

017

Nov

-201

6

Nov

-201

7

Feb-

2018

Apr

-201

5

Aug-

2015

Dec

-201

5

Apr

-201

6

Apr

-201

7

Aug-

2016

Aug-

2017

1,86

4

1,74

0

1,57

2

1,51

5

1,82

1

1,55

7

1,93

1

1,67

3

2,10

6

1,81

5

1,69

1

1,48

1

1,57

2

1,92

1

1,62

6

1,92

3

1,73

7

2,16

1

,2,2

10

1,68

8

,2,2

80

2,00

5

1,78

5

1,62

0

1,44

9

1,52

1

1,96

1

1,64

0

1,91

8

1,73

1

2,04

6

,2,1

32

1,92

0

1,60

5

1,50

1 1,67

2 1,91

8

1,61

5

2,12

8

1,28

4

1,19

2

1,11

4

1,12

2

1,21

1

1,21

7

1,27

1

1,31

9

1,28

3

1,21

4

1,17

4

1,14

2 1,24

5

1,24

5

1,32

3

1,24

1

1,27

7

1,27

0

1,34

7

1,15

2 1,30

5

1,32

5

1,18

7

1,09

5

1,07

1 1,23

3

1,25

2

1,35

7

1,27

6

1,17

7

1,27

8

1,31

4

1,18

2

1,14

2

1,06

1 1,29

5

1,26

5

1,31

3

1,32

5





Top pricing (gold and aluminium)


16

Brent oil and natural gas


Brent crude oil, ICE, USD/bbl Natural gas, NYMEX, USD/mmbtu

OPEC and non-OPEC oil giants, including Russia, have agreed to extend oil output cuts (stipulated by the agreement dated December 2016) until the end of 2018 in an effort to clear the global supply glut and keep prices buoyant.

“We are working to shift from a year-to-year agreement to a 10–20 year agreement. We have agreement on the big picture, but not yet on the detail.” Mohammed bin Salman, Saudi Crown Prince

Natural gas forecast, USD/mmbtu Brent crude oil forecast, USD/bbl

Source 2018 2019

World Bank 3.12 3.25

Economist Intelligence Unit 3.14 3.35

Source 2018 2019 2020

US Energy Information Administration

63.4 62.7 -

World Bank 58.0 59.0 60.0

Standard & Poor’s 55.0 55.0 -

European Central Bank 63.0 64.0 65.0

Goldman Sachs 62.0 - -

IEF RAS 62.0 64.0 67.0

JPMorgan 70.0 - -


Central Bank of the Russian Federation (Urals)

61.0 55.0 50.0

Jan-

2015

May

-201

5

Sep-

2015

Jan-

2016

Jan-

2017

May

-201

6

May

-201

7

Sep-

2016

Sep-

2017

Feb-

2015

Jun-

2015

Oct

-201

5

Feb-

2016

Feb-

2017

Jun-

2016

Jun-

2017

Oct

-201

6

Oct

-201

7

Jan-

2018

Dec

-201

6

Dec

-201

7

Mar

-201

8

Mar

-201

5

Jul-2

015

Nov

-201

5

Mar

-201

6

Mar

-201

7

Jul-2

016

Jul-2

017

Nov

-201

6

Nov

-201

7

Feb-

2018

Apr

-201

5

Aug-

2015

Dec

-201

5

Apr

-201

6

Apr

-201

7

Aug-

2016

Aug-

2017

2.68

2.62

2.53

2.22

3.16

2.28

3.09

2.90

3.02

2.71

2.82

2.31

1.70

2.77

2.96

3.04

3.00

2.91

2.96

3.74

2.72

2.73

2.66

2.71

2.25

1.95

3.19

2.84

2.83

3.34

3.06

2.65

2.72

2.68

2.35

2.14

3.28

2.87

3.05

53

65

48

36

55

50

51

50 57

62

63

50

37

56

50

49

49

61

69

57 64

69

55

52

45

40

54

43

53

52

63 65

67

53

38

47 52

47 53

Top pricing (oil and gas)





Russia through a lens | Research Centre market analysis

17


18

Research Centre market analysis

Kids recreational services market in Russia

The demand is highest in Novosibirsk (97 percent) and Kazan (95 percent).

Top 5 reasons parents send their children to camp:

have sent their children to camp within the last two years.

8 out of 10 respondents

Entertainment and recreation

Athletic development

Health improvement and treatment

Education and cultural development

Language learning

has sent their children to international camps only.

The most popular session duration is 14 days.

The average price for 14 days is RUB 45,000.


Top 5 destinations:

1

25

4

3

SpainBulgaria

Turkey

Czech Republic

Germany

8 out of 10 respondents send their children to local camps.

have only sent their children to Russian camps.


The demand is highest in Perm (84 percent), as well as among parents with children aged 10-12 years (78 percent) and 16-17 years (80 percent).

Current demand


19

tend to change camps after the second or third visit.

prefer sending their children to the same camp.

2.6 out of 10 respondents


have not sent their children to a camp within the last two years.


Top 5 reasons parents do not to send their children to camp:

Financial limitations or limited access to social benefits

More preferable options available for children’s recreation

Concerns over camp security and safety

Concerns over health while at camp

Kid not willing to go

send their children to camp at least once a year.


High-income households most often report sending their children to camps – 1.3 times a year. There are two other groups of respondents who most often send their children to camps: parents who send their children to language camps (1.4 times a year) and parents whose children go to a camp for sessions that last from 6 to 8 days (1.5 times a year).

Therefore, the demand drivers include short camp sessions, as well as language learning, education, and cultural development opportunities.


20

Potential demand

have plans to send their children to camp within the next two years.

have plans to send their children to Russian camps only.

have plans to send their children to international camps only.

9 out of 10 respondents 6.5 out of 10 respondents 2 out of 10 respondents

The most popular session duration is 14 days.

The average price for a 14-day session is RUB 50,000.

Top 5 potential destinations:

UK

The highest potential demand is in Kazan (100 percent), Novosibirsk (97 percent), and St. Petersburg (97 percent), as well as among the parents who prefer changing camps after their children visit a camp two or three times.

The key driver is the child’s experience at the camp.

The highest potential demand is among those who prefer sending their children to the same camp (87 percent), as well as among respondents from Perm (75 percent) and the Volga Federal District (73 percent).

The key driver is having an experience sending children to Russian camps.

1

2

35

4

SpainBulgaria

Turkey

Czech Republic

do not have plans to send their children to a camp within the next two years. However, they note that they could change their mind under certain circumstances.


Top 5 reasons parents change their minds in favor of sending children to camp:

Subsidies

Kid willing to go

More affordable prices

Acquaintances among the camp staff

Other children going to the same camp


21

Subsidized recreational programs for children

Top 6 issues with subsidized camp programs:

Top 5 issues facing parents who use their own money to finance a camp session:

have used full or partial subsidies to finance a camp for their children.

are ready to send their children to camp even if there is no longer subsidized support

6 out of 10 respondents 8 out of 10 respondents

Issues when paying for a camp

Processing times

Children having difficulties communicating with other children

No loans available to finance a camp session

Kid not willing to come back to a camp

Limited number of camps with subsidized enrollment

Poor transportation services (out-of-date vehicles)

Lack of publicly available official state documents or inspection certificates (e.g. certificates issued by the Federal Service for the Oversight of Consumer Protection and Welfare)

Limited information on camps in Russia

Uncomfortable transportation (e.g. packed buses, too many stops, etc.)

Lack of information on international camps


22

The competitiveness of Russian camps

Drivers undermining the competitiveness of Russian camps

Drivers boosting the competitiveness of Russian camps

Top 5 reasons for selecting a Russian camp:

have plans to send their children to an international camp within the next two years.

send their children to local camps that are not far from where the family lives.


Top 5 reasons for selecting an international camp:

Language learning facilitated by native speakers

Different climate conditions

More engaging programs (e.g. cultural exchange, seeing new places, etc.)

More comfortable accommodation

More relevant offers in terms of value for money

The camp is not far from where the family lives

The camp is accessible by a means of transport most convenient for the parents (e.g. by bus, train, private car)

Regular communication with camp representatives

Camp access control, daily camp site patrolling (including by night), camp leaders constantly present and 24/7 video surveillance

Affordable prices; no situations where children are left with limited funds for extra expenses while staying at camp


23

Top 10 issues related to camps in Russia

High prices

Limited number of camps with subsidized enrollment

Red tape in obtaining a subsidy

Tour operators having limited information on the current situation at camps

Limited information on the subsidy process

Untimely information on subsidy opportunities

Subsidy processing times

Limited information on a camp of interest

Lack of publicly available official state documents or inspection certificates (e.g. certificates issued by the Federal Service for the Oversight of Consumer Protection and Welfare)

Limited information on camps in Russia

Current quality offered by camps in Russia

Long-term track record

Location close to woods, park, etc.

Positive personal experience cited by parents or their acquaintances

Sufficient meals

Engaging entertainment program with recreational activities

Lack of efficient language learning programs

No common chat for parents, camp leaders, and the camp principal to communicate with each other

No online reports on “how it went during the session”

Lack of engaging/focused courses developed in cooperation with leading universities and/or companies

Lack of appropriate equipment at the camp (PCs, payment terminals, ATMs, etc.)

Top 5 advantages of Russian camps:

Top 5 disadvantages of Russian camps:

believe that Russian camps do not offer value for money.

believe that camp offerings are overpriced in terms of price vs quality.



24

Nutrition and meal service

Staff and communication

Transportation

considerations when selecting a camp:

Top 3

Top 10 considerations when selecting a camp:

Constant availability of medical personnel with appropriate professional skills and qualifications

Regular communication with your child

Clean rooms and camp site, with regular cleaning

Sufficient meals

Comfortable eating area (comfortable seating, clean place, etc.)

Professional security guards on constant duty

Taste and food quality

Qualified and friendly camp administrators

Qualified transportation attendants

Availability of information about the camp including general information, meals, etc.

Top 3 considerations before taking a final decision about sending a child to a camp:

The major issues occur at these stages:

Top 5 concerns when sending a child to a camp in Russia:

do not decide on a camp until discussing it with their children.

report having issues when sending their child to camp.


Camp visit

Testimonials and public opinion

Discussion with child

Low quality accommodation

Low quality meals

Potential health problems while at camp

Lack of on-site supervision over children by camp leaders/administration

Poorly qualified personnel

Selecting a camp

Doing paperwork

Obtaining a subsidy

Staying in a camp

Selecting a camp


25

Loyalty

Loyalty indices by Russian industry, 2015–2017

Source: NAFI Research Center, Alhorum, Oy-li, Retently

Car sales

Shops and supermarkets

Training and consulting services

Insurance

Banking

Telecommunications

Healthcare, private clinics

Camps for children

Restaurants and cafes

Online commerce

Hotels

Construction and maintenance

60

50

40

35

30

25

25

22

20

20

19

15

say that their children would like to go back.


Net Promoter Score is 22 percent, which is similar to NPSs in the industries such as healthcare, restaurants/cafes, and online commerce.

are likely to recommend the camp to their friends and acquaintances.


say that their children have positive experiences from camps they have visited in Russia.


3 out of 10 respondents would be ready to send their children to the same camp, subject to certain improvements.

Almost every tenth respondent does not feel ready to send his or her children to the same camp.

are ready to send their children to the same camp.



26

Oil and Gas Industry Barometer

0.7*

-1

0.4

0

1

0.7*

0.4

0.4

0.4

The current state of affairs in Russia’s O&G industry

The current state of affairs in an archetypal Russian O&G company

The outlook for the Russian O&G industry

The outlook for an archetypal Russian O&G company

0,7*

-1

0,4

0

1

0,7*

0,4

0,4

0,4

Market sentiment

Expectations for companies’ key performance indicators

Expectations relating to the industry trends

Interviews with experts show that the representatives of the O&G industry are optimistic about both the current state of affairs and the outlook for the industry.

We polled our experts regarding the key areas of investment in 2018. The absolute majority is not going to invest in other industries and will remain ‘faithful’ to the O&G industry, particularly to the refining business.

Our O&G experts expect the market to grow slightly in 2018.

The representatives of the O&G industry do not expect costs to change in the key operation areas such as seismic exploration, exploration drilling, or the number of filling stations. No increase in product investments or service range expansion is anticipated either.

Experts expect an insignificant increase in production drilling costs.

• Operating costs

• Cost of capital

• Headcount

• Average salary

• Revenue

• Profit

When speaking on the topic of oil demand in Russia in 2018, our O&G experts expect it to remain flat compared to the current levels.

The CEOs of O&G companies expect the global demand for oil to increase slightly.

The local demand for gas is likely to increase slightly. While the global demand for gas is set to grow significantly.

Our O&G experts believe that the oil and gas prices in 2H2018 are set to remain at the level of the end of 2017 or early 2018.

to stay at the 2017 level slight growth

0,7*

-1

0,4

0

1

0,7*

0,4

0,4

0,4

2017 2018

0,7*

-1

0,4

0

1

0,7*

0,4

0,4

0,4

refining business

oil services

exploration

production

0,7*

-1

0,4

0

1

0,7*

0,4

0,4

0,4


27

Drivers and barriers for the industry

Technology and green initiatives

Our O&G experts singled out the following most sought after technologies in the industry:

Companies allocate up to 1 percent of the revenue to R&D for leading-edge technology development and plan to increase investments to 1-5 percent of the revenue.

Overall, our O&G experts view the operations of companies in the area of green initiatives as rather active while the significance of environmental risks remains high. However, the efficiency of environmental risk management is seen as average, at most.

Big data processing

applications

Full automation of business process

chains

Cloud-based information technologies

Russian investments

State subsidies

Loans from foreign banks

Top 5 barriers to industry development in 2018:

• Deficiencies of government regulation of the industry

• Growing field development costs

• Corruption

• Constrained accessibility of foreign capital

• Lack of high technology

Top 5 drivers of industry development in 2018:

• Investments in technology development

• Business development through organic growth

• Launch of new products/services on the market

• Cost cutting

• Short-term capital optimization and operating model revision

Sources of financing

Top 3 sources of financing:


28

Integration of advanced information systems

According to the annual CFO survey conducted by Deloitte CIS Research among the leading Russian companies, both 2016 and 2017 saw oil and gas respondents name cost control as their top strategy. This suggests an obvious approach – analysing the cost structure to apply operational control.

This approach relies on innovative data solutions and technologies to cut down well costs across the board – construction, operation, and maintenance. At the same time, the sophistication of basic technologies and increased amounts of data generated at each stage drive the need for technology solutions, with data analysis efficiency remaining the same.

Technology's path to optimisation

Well construction and maintenance is the largest cost item for the oil and gas industry. Today’s low oil prices, geopolitical instability, limited access to external technologies, production cuts under the OPEC+ agreement, stricter environmental regulations and the evolution of shale technology make cost saving a priority.

This can be achieved by the gradual digitalisation of production assets, with the integration of various solutions increasingly playing an important role. The oil and gas sector needs industry standards to speed up the digital integration.

Both theory and practice have shown that digital technology can be broadly applicable to both new and old depleted assets. Digital solutions can deliver a significant boost to asset performance, generating additional cash flows along with cost savings.Dmitry Kasatkin, Lead Analyst, Deloitte CIS Research

Costs are here to stayRussia is clearly witnessing a trend for declining oil production efficiency. The 11 percent growth in output during 2007–2016 required a boost of 42 percent in investment in terms of constant prices, as well as an increase of 37 percent in new wells commissioned, a growth of 79 percent in operational drilling and a 4.5 time ramp-up in horizontal drilling. In other words, each tonne of oil increasingly takes more drilling at a higher cost because of drilling methods. According to some estimates, keeping the existing pace of oil production would require an average annual investment increase by 2-2.5 percent, with no inflation added. This brings cost management into focus.

Today, the digital economy is becoming widespread as it reaches across industries and geographies. Understandably, the oil and gas sector has a clear need for a set of solutions that reflect the nature of the industry. At the same time, the accumulation of global digital practices for the implementation of advanced oil and gas solutions will continue at a dynamic pace. This is also true for expanding the product mix and better service quality. Translating these practices into a local context is a practical task that is highly relevant for the Russian industry.Andrey Kolpakov. The Institute for Economic Forecasting, RAS


29

Integrating solutions needed for the implementation of technology requires an informed buy-in from key shareholders and the board. Focus should be on the practical application rather than on creating a buzz in the media.

The next important step is developing a strategy to integrate information systems and technologies. The 2017 CFO Survey conducted by Deloitte CIS Research among the leading Russian companies has identified key drivers and impediments to digitalisation in the oil and gas industry. Seventy-one percent of respondents named limited infrastructure availability and organisational deficiencies as key impediments while 100 percent cited market and competition as digitalisation enablers.

A strategy requires a comprehensive approach, including setting up a project team to bring together edge R&D providers, business stakeholders, and leading consultants. The project team will run health checks to analyse an organisation's environment and select best fitting solutions. Next comes the most important step – integrating technology in the production environment.

At the current stage, well construction and operation as part of the digital strategy is focused on the least. It is quite a different story with exploration: oil service providers engage more actively in business process transformation. With larger amounts of data available, they are better positioned for further development. However, Russia has a huge number of old and unused wells that could be refitted, with an ultimately positive impact on maintenance costs.

Systematic technology integration

The fourth industrial revolutionResearch evidence on Russian and international approaches to drilling management and oil well maintenance has demonstrated that a centralised digital platform (CDP) can unlock more efficiencies. The CDP is based on two leading concepts:• Platformisation, including digital business processes and a 360-degree integration• Technological modernisation, including automated operations and a combination of technology innovations

These approaches are most promising and popular in developed nations. The Russian oil service market is also moving in this direction. Platformisation and technological modernisation are key to the Fourth Industrial Revolution.With a global shift toward innovations driven by a combination of new technologies, automation, artificial intelligence and other disruptive solutions in nanotech, materials science, power accumulation, etc., oil companies need to rethink how they produce their products. The same applies to the future of the oil service market.Eleonora Krainova, Gubkin Russian State University of Oil and Gas


30

Deloitte has designed a model for gradual digital transformation that has a successful implementation track record. The implementation stages below are just the first step. The cycle should then be repeated for new wells, spreading thereafter across the entire production environment from exploration to sales to form a new business ecosystem. (Please see Digital transformation across the production process.)

Digitalisation model

Digita

l to p

hysica

l Physical to digital

Digital

CybersecurityDigital DNA

1. Equipment deployment An organisation first needs a set of automated

mechanisms based on hydraulic, pneumatic and power management systems to enable equipment monitoring and remain prepared for potential on-site incidents and emergencies.

2. Sensor deployment The equipment deployed is fitted with sensors.

3. Data transmission mechanismsSpecialist solutions are installed to transmit

sensor data to the data centre. This stage already provides an organisation with the capability for 24x7 asset monitoring and operational control. The organisation can proceed to the next stage as soon as it has established an efficient process for using new data and has seen the first performance improvements in the asset.

4. IntegrationThis stage involves capturing and synchronising

data from various sources, as well as implementing new standards and protocols.

5. AnalysisToday’s advanced solutions enable the processing

of large amounts of data at a fast speed.

6. VisualisationAt this stage, solutions are implemented

to visualise captured data and enable training and labour optimisation at the site. The industry is already active in using virtual technologies and augmented reality.

7. Automation of the decision-making for production processes

Driven by regular data inputs, self-learning applications can make decisions to improve the efficiency of production processes. These solutions can also provide analysis-based recommendations to support strategic decisions for a specific asset.Digitalisation efforts tend to stop here as companies, having seen some economic impact, elect not to consider further goals. However, traveling the full digitalisation cycle to achieve a real sea change along with earning the title of a leading technology-enabled company requires taking further steps.


31

Digital transformation across the production process As-is state and expected evolution by production stage

Stage Exploration Construction Operations

Phase

Viab

ility

as

sess

men

t

Seis

mic

ex

plor

atio

n

Expl

orat

ion

dr

illin

g

Plan

ning

Infr

astr

uctu

re

cons

truc

tion

Dri

lling

Dev

elop

men

t

Prod

ucti

on

Mai

nten

ance

From physical to digital environment

Equipment deployment

Sensor deployment

Data transmission mechanisms

Digital environment Integration

Integration

Analysis

Visualisation

Automated operational decision-making

From digital to physical environment

Robotics

Tailored approach to infrastructure

Virtualisation

As-is state Evolution expected over the next two years

Source: Deloitte

8. RoboticsAt this stage, the asset is fully or partially autonomous,

and decision support applications use mechanisms driven by processed data, adjusting processes for better efficiency.

9. Enabling a tailored approach to infrastructureOnce data have been accumulated, an organisation

can go on to build a data set to unlock real potential, including exploring opportunities for fine-tuning the existing equipment, as well as designing and developing new facilities and structures that are tailored to a specific asset.

10. VirtualisationVirtualisation delivers a final touch, generating virtual

copies of assets and bringing online a virtual environment with which to design and implement new solutions (organisations can also extend this to all assets). Apart from maximising value, the virtual environment also drives the transition to a new type of thinking – a digital ecosystem.


32

Top 5 M&AsTarget company Industry Bidder

companySeller company

Deal value (USD, mln)*

Additional information

Magnit OJSC (29.1% Stake)

Consumer: Retail

VTB Bank OAO Sergey Galitskiy (Private Investor)

2,442 Mr. Sergey Galitskiy resigned from the post of General Director of Magnit and as a member of its Board of Directors. VTB Bank and Magnit will continue with Magnit’s existing dividend policy.

Donskoy Tabak JSC

Consumer: Agrobusiness

Japan Tobacco Inc.

Ivan Savvidis (Private investor)

1,749 The acquisition enables JT to further strengthen its number one position in Russia. It will also enable JT to broaden its distribution network and enhance its competitiveness on the market by leveraging the salesforce and complementary product range of Donskoy Tabak.

Dixy Group (77.13% Stake)

Consumer: Retail

JSC Dixy Yug Prosperity Capital Management Limited

1,102 The repurchasing of its shares and possible delisting from the Moscow Exchange will enable Dixy to ride out an unsatisfactory business performance. It provides for an equal opportunity to Dixy’s minority shareholders to tender their shares in a fair, common way.

Eldorado Limited Consumer: Retail

M.Video Safmar Industrial & Financial Group JSC

794 The transaction is expected to realize the investment potential of M.Video and Eldorado. It will strengthen the market position of the combined entity on the consumer electronics market. It is expected to generate synergies in the form of additional EBITDA of up to RUB 18 billion (USD 314 million) in 2018–2020.

United Company RUSAL Plc (6% Stake)

Energy & Resources: Mining

Zonoville Investments Limited

The ONEXIM Group

658 With this acquisition, Zonoville and its associate SUAL Partners Limited together will hold a 26.5% interest in RUSAL. The transaction will lead to Onexim exiting from RUSAL.

(Russian companies)

*Public information on deal value

Source: Merger Market


33

Source: InvestinRussia.com

Global windTop news: China and Russia

Top news: Europe and Russia

26 March 2018China Minmetals eyes copper mineChina Minmetals, one of the largest metallurgical companies in China, is considering a stake in the Malmyzhskoe copper-gold field in Khabarovsk Krai. Exploration and mining licenses are held by IG Copper LLC (Canada) and Freeport-McMoRan (USA); however, investors are seeking a partner. The development of the Malmyzhskoe field is estimated at USD 1.5 billion. China is actively increasing its participation in copper assets alongside an electric car boom.

16 March 2018Gruppo Colorobbia to invest one billion rubles in a glass plantThe Italian company Gruppo Colorobbia has announced its intention to implement a major investment project in cooperation with North Glass Container Company LLC, which manages a glass plant in the Vologda Region.

06 March 2018Kronospan may build a plant in Novosibirsk RegionThe Austrian company Kronospan is considering the construction of a large timber processing complex in the Novosibirsk Region. Investment in the project is estimated at RUB 20 billion, the infrastructure cost – at over RUB 1 billion. It is expected that the plant will process 5 million cubic meters of timber.

13 February 2018Ding Dairy Farming to invest USD 302 million in dairy production in Russia's Far EastThe Russian Far East Agency and Ding Dairy Farming have signed a Memorandum of Intention according to which an investment plan for the construction of stock breeding facilities will be implemented at Mikhailovsky ADT in Primorsky Krai. The Chinese company has already invested USD 18.3 million in the construction of a farm in the region, as well as the purchase of a farm, cattle and land.

08 February 2018China to buy a stake in Amurmetal Torex Group, which owns Amurmetal, is negotiating the sale of the plant’s stake with a Chinese company.

06 February 2018China Railway Group Limited to build roads in Primorsky KraiThe parties are discussing the issues of the joint development of international transport corridors (ITCs) Primorye-1 and Primorye-2. The projects are intended to ensure northeastern Chinese companies’ access to the ports of Primorskiy Krai.

30 January 2018Chinese banks financed construction of polymer production in Kabardino-BalkariaChinese banks invested USD 1 billion in the first phase of polymer production in Kabardino-Balkaria. The financing amount was announced at over USD 12 billion for the period up to 2030.

18 February 2018French SNF to invest approximately RUB 3.5 billion in a petrochemical plant in SaratovThe French company SNF will invest about RUB 3.5 billion in the first phase of the construction of a polyacrylamide and acrylamide facility on the site of Saratovorgsyntez.

15 February 2018Enel Russia to build a wind farm in Rostov Region Investment in the project will amount to EUR 132 million; the projected capacity is over 90 MW. The wind farm will be able to generate about 300 GWh per annum.

29 January 2018Bulgarian shoe factory to open in Leningrad RegionA shoe factory will be constructed in the Leningrad Region by the end of 2019, which was fully initiated by the Bulgarian party. Investment will amount to approximately EUR 1 million. Apart from the shoe factory, investors are considering the construction of a dairy plant in the region.

17 January 2018Fortum's first industrial wind farm in RussiaThe Finnish energy company Fortum has launched the first 35 MW wind farm in Russia in the Ulyanovsk Region. It was put into operation in January 2018 on the wholesale electric energy and power market.


34

Useful stickers

100 RELIABLE RUSSIAN BANKS – 2018 FORBES MAGAZINE (in Russian)

THE BIGGEST TECH TAKEAWAYS FROM THE 2018 WORLD ECONOMIC

7 TAKEAWAYS FROM DAVOS

THE RICHEST RUSSIAN BUSINESSMEN IN THE FORBES RANKING – 2018 (in Russian)

https://www.bloomberg.com/graphics/pessimists-guide-to-2018/

https://www.reuters.com/article/us-en-ipo-pricing/russias-en-prices-ipo-at-14-per-gdr-valued-at-8-billion-idUSKBN1D30N0

http://fortune.com/2017/11/20/predictions-2018-future-business/

http://www.doingbusiness.org/reports/global-reports/doing-business-2018

Contacts

Joe [email protected]

Lora ZemlyanskayaResearch Centre [email protected]

Dmitriy KasatkinSenior Research [email protected]

Mikhail GordeevSenior Research [email protected]

Vladimir SokolovSenior Research [email protected]

Yulia AfanasyevaIntern [email protected]

Victoria PigalkinaIntern [email protected]

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