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Deloitte Research Centre | Sixth issue | 1Q 2017

Russia through a lensMacroeconomic outlookKey Russian macroeconomic indicators in 1Q 2017

Page 04

Innovations in Russia’s power industryRussia’s power industry players are currently prepared to invest in “conservative” technologies

4

Innovations in the mining industryRussia’s resources industry adheres to a conservative approach towards disruptive.

Page 16

Virtual realityBy late 2016 the virtual reality market was set to reach a record of USD 1 billion

Page 18

Russia through a lens

02

03


Content

04Russia in figuresMacroeconomic outlook (GDP, inflation, trade indicators, currency rate, Central Bank key rate, top-pricing, etc.)

14Research Centre market analysis"Innovations in Russia’s power industry""Innovations in the mining industry""Virtual reality"

21Global windTop news about China-Russian relations

23Contacts

22Useful stickers regarding innovations in Russia

20Top M&AsTop-5 deals in Russia

Page 12 Page 14 Page 18

We are pleased to present the latest edition of Russia Through a Lens, the macroeconomic journal produced by 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 key findings.

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

Designed by the Deloitte Design Group, Moscow

mailto:cisresearchteam%40deloitte.ru?subject=

Russia through a lens | Russia in figures

04

Russia in figuresGDPGDP per year

The data for the period from 2011 includes changes related to the implementation of the international methodology for housing services evaluation, the evaluation of capital consumption taking into account its current market value, and the conformation of data on exports and imports with the data presented

in the balance of payments developed according to the methodology provided by the Sixth Edition of the Balance of Payments and International Investment Position Manual (BPM6) introduced by the International Monetary Fund.

Forecasts for 2017:

Central Bank

Russian Academy of Sciences Institute of Economic Forecasting (IEF RAS)

Standard & Poors

Eurocomission World Bank

International Monetary Fund

JPMorgan EBRD

+0.5 to +1%

+1.6% +1.4% +0.8% +1.5% +1.1% +1.2% +1.2%

Additional information:

• The Ministry of Economic Development forecasts +1.7% in 2018, +2.1% in 2019

• The Institute of Economic Forecasting of the Russian Academy of Sciences (IEF RAS) forecasts in 2018: +1.2%, +2.1% in 2019

150, 000

130, 000

110, 000

90, 000

70, 000

50, 000

30, 000

10, 000

0

21,61026,917

25%

33,248

24% 24%

41,277

–6%

38,807

19%

46,309

29%

59,698

12%

66,927

6%

71,017

12%

79,200

5%

–2.8%83,233

3.2% 0.6%–0.2%85,881 86,366

50%

30%

10%

–10%

–30%

–50%

–70%

–90%

–110%

–130%

0.7%1.3%3.5%4.3%4.5%–7.8%

5.2%8.5%8.2%

2005 2006 20102008 2012 2015 2007 2011 20142009 2013 2016 2017F*

GDP, bln RUB GDP growth (at current prices) GDP volume indicesSource: Rosstat, Ministry of Economic Development (*forecast)


05

InflationInflation, %

Forecast:

Source 2017

International Monetary Fund 4%

World Bank 4%

Analytical Credit Rating Agency (AKRA) 4.3%

Bloomberg 4.6%

Inflation in February 2017*: 4.6%Inflation target** in 2017: 4%

*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 (Central Bank).

14.0

12.0

10.0

8.0

6.0

4.0

2.0

0.02006 2007 2008 2009 2010 2011 2012 2013 2014* 2015 2016 2017 2018 2019 2020

9.0

13.3

8.8

8.8

6.16.6

6.5

12.9

12.2

5.4 4.4

4.14.04.0

4.0

5.85.6

Rosstat (Fact) Central Bank (forecast) Ministry of Economic Development (forecast)

11.911.4


06

Trade structurePeriod January 2017

• Foreign trade turnover: USD 38.4 billion (+42.4 percent YoY)

• Trade balance: surplus of USD 12,6 billion (+USD 4.0 billion YoY)

• Exports: USD 25.5 billion (+43.6 percent YoY)

• Imports: USD 12.9 billion (+40.1 percent YoY)

Imports from non-CIS countries (period Jan 2017):

Source: Federal Customs Service


Imports from CIS countries (period Jan 2017):

Percentage in imports from non–CIS countries

In monetary terms YoY

In physical terms YoY

Categories (in physical terms) YoY

Textiles and footwear 7.5% 29.9% 18.3%

Metal products 5.3% 34.4% 36.8% • Ferrous metals (39.5%) • Pipes (–24.3%)

Chemical products 18.9% 37.1% 17.5% • Soap and detergents (17.1%) • Perfume beauty products (14.8%) • Fertilizers (63.7%)

Machinery and auto 47.3% 46.5% N/A

Food and raw materials for food production

14.0% 23.4% 18.2%

• Beef (–5.6%%) • Pork (–3.6%) • Coffee (11.2%) • Fish (12.3%) • Butter (74.8%)

Percentage in imports from CIS countries




Energy products 4.8% 27.0% 12.4%

Metal products 16.7% 160.0% 120.0% • Pipes (88.6%) • Flat rolled products of iron

or non-alloy steel (180%)

Chemical products 13.5% 56.3% 23.7%

• Inorganic chemistry (19.3%) • Plastics (51.9%) • Pharmacy (–34.2%) • Fertilizers (22.8%)

Machinery and auto 20.8% 100.0% N/A • Optical instruments and apparatus (–0.3%) • Cars (69.3%) • Trucks (11.1%)


23.7% N/A –9.2%

• Milk (–18.1%) • Cheese and curd (–5.7%) • Butter (–1%) • Poultry meat (53.2%)

Textiles and footwear 7.2% 61.6% 92.7%

Share of energy products in total exports to non-CIS/CIS countries (January 2006–January 2017)

Source: Federal Customs ServicePercentage in Exports to non-CIS countries Percentage in Exports to CIS countries

80

70

60

50

40

30

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Jan

32.6

43.639.5

54.2

42.343.6

55.3

40.947.0

53.0

35.5

62.070.266.4

73.069.6

73.472.772.4 74.570.868.070.3

44.0


07


Exports to non-CIS countries (period Jan 2017):

Percentage in exports to non–CIS countries




Energy products 70.2% 49.6% 15.6%

• Crude oil (8.6%) • Oil products (27.4%) • Coal (29.8%) • Natural gas (21.9%) • Electric power (–13.8%) • Motor gasoline (–9.7%)

Metal products 9.1% 66.4% 12.0%

• Copper and copper alloys (120%) • Flat iron non-alloy steel (–3.6%) • Aluminum (17.6%) • Semi-finished products

of iron or non-alloy steel (8.7%)

Chemical products 4.1% 2.9% 16.1%


Food and raw materials for their production

4.4% 38.9% 41.9%

Timber, pulp and paper products 2.8% N/A –3.7%

• Lumber (31.5%) • Plywood (10.4%) • Cellulose (–13.6%) • Rough wood (3.7%)

Exports to CIS countries (period Jan 2017):

Percentage in exports to CIS countries




Energy products 43.6% 20.5% n/a

• Oil products (21.2%) • Coal (47.9%) • Electrical energy (–15.5%) • Natural gas (–8.8%)

Metal products 11.6% 78.7% 78.1% • Ferrous metals (79.4%) • Semi-finished products

of iron or non-alloy steel (46.5%)

Chemical products 13.0% 16.3% –2.6%

• Products of inorganic chemistry (–39.2%) • Products of organic chemistry (8.6%) • Fertilizers (55.1%) • Rubber (43.5%)



9.5% 38.3% 5.1% • Fish (20.1%) • Cheese and curd (–2.2%) • Sunflower oil (11%)

Timber, pulp and paper products 3.9% 49.4% 57.3%

• Plywood (55.8%) • Newsprint (29.2%) • Lumber (15.9%) • Cellulose (7.6%)


01. The export of electrical equipment has grown significantly due to increased supplies of military electrical equipment to countries such as Iran, Angola and Algeria (Source: Central Science Research Institute “Electronica”)

02. Energy exports have grown considerably thanks to Gazprom’s record deliveries in Germany, France and Turkey, and have almost doubled in terms of oil supplies to Germany and China in January 2017 (Source: Federal Customs Service)

“The record result clearly demonstrates a significant increase in demand for Russian gas in Europe and our ability to ensure its reliable export in the required volume”–A. Miller, Gazprom (Source: RBC)

03. The export of metals has increased due to growing global demand for aluminum and a large supply of copper to Greece in January. (Source: Federal Customs Service).

01. The export of ground transportation has increased primarily due to an increase in the supply of passenger cars, engines for trucks and spare parts three times to Kazakhstan and one and a half times to Belarus. (Source: Federal Customs Service)


08

EUR-RUB USD-RUB

EUR and USD vs. RUB, Jan 2014 – Mar 2017

Currency rate

USD-RUB forecasts (average per year)

EUR-RUB forecasts (average per year)

Ministry of Economic Development

Ministry of Finance

Gaidar Institute, Ranepa and RFTA (base scenario)

Apecon (Economic Forecasting Agency)

IEF RAS

2017 RUB 67.5 RUB 67.5 RUB 64.1 RUB 59.5 RUB 62.5

2018 RUB 68.7 RUB 68.7 RUB 63.4 RUB 58.7 RUB 60.0

2019 RUB 71.1 RUB 71.1 N/A N/A RUB 58.0

IEF RAS

2017 RUB 68.8

2018 RUB 66.0

2019 RUB 63.8

Source: Central Bank of Russia

100.00

80.00

60.00

40.00

20.00

0.00

82.53

Q1 2016 Q1 2016

74.73

March 2016

March 2016

78.1370.36

Q1 2017 Q1 2017

62.5858.64

–22%–24% –21% –18%

March 2017

March 2017

62.0058.01


1009080706050403020100

1-Ja

n-14

1-Fe

b-14

1-M

ar-1

41-

Apr

-14

1-M

ay-1

41-

Jun-

141-

Jul-1

41-

Aug-

141-

Sep-

141-

Oct

-14

1-N

ov-1

41-

Dec

-14

1-Ja

n-15

1-Fe

b-15

1-M

ar-1

51-

Apr

-15

1-M

ay-1

51-

Jun-

151-

Jul-1

51-

Aug-

151-

Sep-

151-

Oct

-15

1-N

ov-1

51-

Dec

-15

1-Ja

n-16

1-Fe

b-16

1-M

ar-1

61-

Apr

-16

1-M

ay-1

61-

Jun-

16

1-Ju

l-16

1-Au

g-16

1-Se

p-16

1-O

ct-1

61-

Nov

-16

31-D

ec-1

61-

Jan-

1725

-Jan-

171-

Feb-

1726

-Feb

-17

1-M

ar-1

7 31

-Mar

-17

Euro US dollar

Average 2014USD 38.6EUR 51.0




09

Central Bank of Russia key rate, %

Indexes (daily): Jan 2014 – Mar 2017

Russia's Credit Ratings

Central Bank key rate, Indexes and Credit Rating

Agency Rating Outlook Date

S&P BB+ Positive Mar 17 2017

Moody's Ba1 Stable Feb 17 2017

Fitch BBB- Stable Oct 14 2016


31-Ja

n-14

28-F

eb-1

431

-Mar

-14

30-A

pr-1

431

-May

-14

30-Ju

n-14

31-Ju

l-14

31-A

ug-1

430

-Sep

-14

31-O

ct-1

430

-Nov

-14

31-D

ec-1

431

-Jan-

1528

-Feb

-15

31-M

ar-1

530

-Apr

-15

31-M

ay-1

530

-Jun-

1531

-Jul-1

531

-Aug

-15

30-S

ep-1

531

-Oct

-15

30-N

ov-1

531

-Dec

-15

31-Ja

n-16

29-F

eb-1

631

-Mar

-16

30-A

pr-1

631

-May

-16

30-Ju

n-16

31-Ju

l-16

18-A

ug-1

630

-Sep

-16

31-O

ct-1

630

-Nov

-16

31-D

ec-1

631

-Jan-

1728

-Feb

-17

31-M

ar-1

7

9.5 10.5

5.57.0 7.5 8

17.015.0

12.511.5 11.0 10.5 10.0 9.75

14.0

20.018.016.014.012.010.08.06.04.02.00

Source: Moscow Exchange

Source: Financial Time

MICEX Index, RUB RTS Index, RUB

31-Ja

n-14

28-F

eb-1

431

-Mar

-14

30-A

pr-1

431

-May

-14

30-Ju

n-14

31-Ju

l-14

31-A

ug-1

430

-Sep

-14

31-O

ct-1

430

-Nov

-14

31-D

ec-1

431

-Jan-

1528

-Feb

-15

31-M

ar-1

530

-Apr

-15

31-M

ay-1

530

-Jun-

1531

-Jul-1

531

-Aug

-15

30-S

ep-1

531

-Oct

-15

30-N

ov-1

531

-Dec

-15

31-Ja

n-16

29-F

eb-1

631

-Mar

-16

30-A

pr-1

631

-May

-16

30-Ju

n-16

31-Ju

l-16

18-A

ug-1

630

-Sep

-16

31-O

ct-1

616

-Nov

-16

31-D

ec-1

6 31

-Jan-

1728

-Feb

-17

31-M

ar-1

7

25002300210019001700150013001100900700500

“We have indeed discussed different variants including maintaining the rate, analyzed the cut scope. A final decision of a 0.25% cut was unanimous. The regulator does not rule out returning to key rate cuts by 0.5 percentage points in the future”, Head of the Central Bank of Russia Elvira Nabiullina said.

The Central bank will estimate further inflation dynamics and may gradually cut the key rate in the second and third quarters of this year. The next meeting of the regulator’s board of directors devoted to the key rate is scheduled for April 28.

After a two-year recession, S&P expects that Russia will return to positive economic growth this year. They anticipate growth to average 1.7 per cent between 2017 and 2020, up from a contraction of 0.2 per cent last year.

The positive outlook indicates that the ratings agency could lift its ratings if the Russian economy continues to adapt to the relatively low price environment while maintaining its strong net external position and low government debt burden.

The refinancing rate is 9.75 percent (from 27 March 2017)


10

Top-pricing (nickel, gold, aluminium)

Nickel forecast:

Source 2017

Goldman Sachs USD 11,000

Morgan Stanley USD 11,657

World Bank USD 11,000

IMF USD 10,954

Source: Finam Holdings

2,300

2,100

1,900

1,700

1,500

1,300

1,100

900

Gold and aluminium

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

1,706

1,246

1,329

1,2851,289

1,251

1,3281,284

1,2881,207

1,1741,151

1,7541,784

1,8001,829

1,8911,988

2,097

1,950

2,0372,014

1,8531,864

1,8151,785

1,920

1,7401,691

1,6201,605

1,5721,481

1,449

1,5011,572

1,521

1,672

1,557

1,6261,640 1,615

1,6731,737

1,277

1,731

1,177

1,688

1,946

1,9211,821

1,1521,211

1,2451,253

1,515

1,1831,284

1,2141,187

1,1821,192

1,1741,095

1,1421,114

1,142

1,071 1,0611,122

1,2451,233

1,295

1,2171,323

1,357

1,313

1,319

Maximum for the period

Minimum for the period

Nickel

21,000

19,000

17,000

15,000

13,000

11,000

9,000

7,000

Maximum for the period

12-year minimum

13,98014,677

15,911

18,325

19,25019,040

18,50518,800

16,26515,740

16,275

15,15015,165

14,095

12,395

13,950

12,60012,015

11,040

10,06010,330

10,045

8,8558,820

8,6108,530

8,495

9,425

8,4659,315

10,635

9,770

10,515

Nickel, LME, USD/t Source: Finam Holdings

Jan-

14Fe

b-14

Mar

-14

Apr

-14

May

-14

Jun-

14Ju

l-14

Aug-

14Se

p-14

Oct

-14

Nov

-14

Dec

-14

Jan-

15Fe

b-15

Mar

-15

Apr

-15

May

-15

Jun-

15Ju

n-15

Jul-1

5Au

g-15

Sep-

15O

ct-1

5N

ov-1

5D

ec-1

5Ja

n-16

Feb-

16M

ar-1

6A

pr-1

6M

ay-1

6Ju

n-16

Jul-1

6Au

g-16

Sep-

16O

ct-1

6N

ov-1

6D

ec-1

6Ja

n-17

Feb-

17M

ar-1

7

Jan-

14Fe

b-14

Mar

-14

Apr

-14

May

-14

Jun-

14Ju

l-14

Aug-

14Se

p-14

Oct

-14

Nov

-14

Dec

-14

Jan-

15Fe

b-15

Mar

-15

Apr

-15

May

-15

Jun-

15Ju

n-15

Jul-1

5Au

g-15

Sep-

15O

ct-1

5N

ov-1

5D

ec-1

5Ja

n-16

Feb-

16M

ar-1

6A

pr-1

6M

ay-1

6Ju

n-16

Jul-1

6Au

g-16

Sep-

16O

ct-1

6N

ov-1

6D

ec-1

6Ja

n-17

Feb-

17M

ar-1

7

10,425

11,17010,055

9,965

10,960

10,000

Source: Rusal.com

“The situation is complicated. Since the price does not yet cover the growth of inflationary costs I will not mention the next year in figures, but it will definitely be more complicated than this one.”

V. Soloviev. Rusal CEO


11

Source 2017

Morgan Stanley USD 1,300

World Bank USD 1,150

Goldman Sachs Group USD 1,200

Source 2017 2018

Goldman Sachs Group USD 1,600 N/A

World Bank USD 1,700 USD 1,734

Morgan Stanley USD 1,620 USD 1,764

IMF USD 1,913.4 USD 1,939.8

Gold forecasts:

Aluminium forecasts:

Source: Aluminium Insider

Speculations that China will cut aluminium and alumina production in several provinces to cope with air pollution were behind the 12% boost aluminium prices enjoyed in January and February. The aluminium price has been moving around a 21-month high in February and early March, surpassing US$ 1900/tonne. However, when the Chinese government officially announced that the anti-pollution measures were scheduled for next winter upward pressures on the aluminium price subsided. On February 17th, the Chinese Ministry of Environmental Protection (MEP) ordered aluminium industry producers to temporarily close 30% of aluminium smelting and 50% of alumina refining capacity in provinces Shandong, Shanxi, Hebei and Henan between November 2017 and March 2018.

Uncertainties are swirling over what exactly will happen and just how decisive China’s government will be in implementing those measures. That is the reason why most analysts expect the aluminium price to ease in the second and third quarter, before rebounding again in the final quarter. Still, most analysts do not expect significant production cuts in China, and neither do they forecast substantial price growths. Based on previous cases when the government pledged to reduce aluminium production or investments in aluminium industry, many analysts are sceptic that this time China will actually be strict in the implementation of proposed measures.


12

Natural gas forecasts:

Crude oil forecasts:

Source 2017 2018

U.S. Energy Information Administration USD 54,62 USD 57,18

World Bank USD 55 USD 60

Central Bank of the Russian Federation USD 40

Ministry of Economic Development USD 48 USD 52

Standard & Poors USD 51.58 USD 50

IMF USD 51.2 USD 53.1

European Central Bank USD 56.4 USD 56.5

Goldman Sachs USD 59 USD 55

IEF RAS USD 55 USD 59.3

Top-pricing (oil, gas)

Source 2017 2018

World Bank USD 3 USD 3.5

Standard & Poors USD 3.25

EIU USD 2.7 USD 3.3

120

110

100

90

80

70

60

50

40

30

20

10

0

6

5

4

3

2

1

Brent oil, natural gasMaximum for the period

Minimum for the period

Source: Finam Holdings Natural gas, NYMEX, USD/mmbtu Brent crude oil, ICE, USD/bbl

4.9

4.6

4.4

4.84.6

4.4

3.8

4.0 4.1

3.9

4.0

2.7 2.7 2.7 2.72.5

2.32.3

2.4

1.7

2.7

2.6

2.72.82.9

106

2.02.1

2.3

3.0

2.8

3.0

3.3

2.92.9

3.2

2.2

109108 108

109112

68

53

62

55

6765

63

5248

50

45

38 36 3740

47 50 50 5043 49

4752

57 55 565253

106103

95

86

58

2.8

3.1

3.7

Jan-

14Fe

b-14

Mar

-14

Apr

-14

May

-14

Jun-

14Ju

l-14

Aug-

14Se

p-14

Oct

-14

Nov

-14

Dec

-14

Jan-

15Fe

b-15

Mar

-15

Apr

-15

May

-15

Jun-

15Ju

n-15

Jul-1

5Au

g-15

Sep-

15O

ct-1

5N

ov-1

5D

ec-1

5Ja

n-16

Feb-

16M

ar-1

6A

pr-1

6M

ay-1

6Ju

n-16

Jul-1

6Au

g-16

Sep-

16O

ct-1

6N

ov-1

6D

ec-1

6Ja

n-17

Feb-

17M

ar-1

7


1313


Russia through a lens | Research Centre market analysis

14

Innovations in Russia’s power industry

Research Centre market analysisToday, innovation-hungry companies in the core segments of the global power industry are able to clearly define their needs, which are mainly related to new disruptive renewable power generation technologies. No less pressing is the task of developing new electric power storage and transmission technologies. Meanwhile, Russian companies are only beginning to understand the need to develop such technologies and are making their first tentative steps in this direction. Judging by the demand from Russia’s power industry players, they are currently prepared to invest in “conservative” technologies such as upgrading existing capacities, accident management, and digitalisation. Undoubtedly, the specific nature of Russia’s power market should be taken into account. There are three main reasons why the companies are not willing to proactively develop and implement disruptive technologies: 01. Geography: in vast, remote, northern

regions, it is not feasible to invest in renewable energy sources due to high infrastructure costs and excessive demand for electric power;

02. Personnel: although the wages in the Russian power industry are in line with the national average, 60 percent of employees are over the age of 40, which makes the power industry the oldest sector by employee age after agriculture and medicine. Enterprise management inefficiencies should also be noted;

03. Legacy issues: a vast infrastructure, mostly consisting of obsolete assets. The restructuring of the RAO UES assets negatively affected the industry, leading to the fragmentation of already obsolete infrastructure.

The bulk of the demand for innovation in the power industry comes from manufacturing companies striving to reduce power consumption, as electric power generation costs in Russia are twice as high compared to the rest of the world. This trend may turn out to be very convenient for electricity producers who, in turn, are well aware of the importance of cooperation with major manufacturing companies, their core electricity consumers.

Smart grids

Predictive analytics

Battery and grid capacity ramp up

Clean traditional energy

Electric vehicles Alternative energy

NEEDS:

TRENDS:

RELEVANT TECHNOLOGIES:

DIGITALISATION, EFFICIENCY ENHANCEMENT

Energy storage

Energy generation

Energy transmission

Smart gridsHigh-capacity batteries

Alternative energy source efficiency enhancement


1515



16

Innovations in the mining industrySimilarly to the agriculture and power industry, Russia’s resources industry generally adheres to a conservative approach towards disruptive technologies. In many aspects, this stems from the enormous burden of social responsibility carried by resource companies. Plenty of Russian metallurgical and chemical companies are local economic mainstays and are responsible for providing jobs to local workers. Today, this means the selective rejection of automation and sophisticated technologies that can be handled only by highly qualified specialists. Currently, the “traditional” industries are experiencing a shortage of such specialists (the same applies to regional professional education institutions). However, in contrast to the power industry and agriculture, specialists from the metallurgical and chemical industries stand out as aware of the importance of disruptive technologies and the urgency of implementation. Mostly, this stems from the fact that the global competition (where Russian industry players are among the leaders) centres on the quality of value-added products. At first glance, this would directly apply to the processing of raw materials rather than extraction. However, given that the majority of these companies are vertically integrated, cost reduction and efficiency enhancements remain a priority at all production stages. The solution lies in the implementation of the latest, sometimes disruptive, technologies.

The second key driver for accessing global markets is cooperation with foreign industry players and the opportunity to share experience and knowledge relating to the implementation of innovations. Importantly, investments in R&D have significantly increased in the past five years. Higher education institutions, research and development institutes and manufacturing corporations are already cooperating on projects.

Entire production chain automation New materials

3D printing Power efficiency Environmental protection

Advisory analytics Virtual reality

Deep-ore processing

Deep monitoring equipment for all production stages

Personnel health

NEEDS:

TRENDS:


DIGITALISATION, ARTIFICIAL INTELLIGENCE

Geotech

Robotics

Predictive analytics

Process automation


1717



18

Virtual realityThere is no particular market for virtual reality (VR), but it may take shape in the medium term given the sufficient potential of this new technology. According to Deloitte’s estimates made in early 2016, by late 2016 the virtual reality market was set to reach a record of USD 1 billion (in revenue terms), with equipment sales accounting for USD 700 million. Deloitte’s experts believe that 2.5 million VR gadgets and 10 million games will be sold globally in 2016.

So far, VR devices have mainly been used in the gaming industry, while other industries continue to experiment with the implementation of this technology. According to Goldman Sachs (see Fig. 29), virtual reality may become a next generation technology platform, creating a new market without occupying a niche in a current market. There are strong prerequisites for this given that the technology’s potential is linked to computer capacity, which (based on Moore's law) doubles every 18 months. The investment rate is quite illustrative. In the past two years, investments in VR technologies reached USD 3.5 billion; in 2017, Facebook bought Oculus for USD 2 billion. Importantly, the technology is spreading globally, with the US debates

broadcast in 121 countries in VR format, Sotheby’s is starting to show premium real estate lots using the same technology and Audi presented a new car in Russia via a virtual show.

As of today, VR technologies are not extensively used in any industry except for gaming. However, Deloitte’s TMT specialists are convinced that virtual reality technology is worth developing.

Cybersport

Automatic content eneration

Cloud app data storage

Remote interaction

Social gaming

Technology quality enhancement

Technology availability

Application area expansion

New commercialisation methods

NEEDS:

TRENDS:


AUGMENTED REALITY PLATFORMS SOFTWARE

VIRTUAL REALITY

Mobile GamesAutonomous Other

Device quality enhancement

Unique product


1919



20

Top 5 M&As*

Target company Industry Bidder company Seller company Deal value (USD, mln)

Additional information

UVZ-Logistic LLC Transportation Trinfico Property Management

UBT Uralvagonzavod CJSC

1,358 The sale of UVZ-Logistic will improve the efficiency of Uralvagonzavod. The transaction is subject to approval of the Federal Antimonopoly Service. UVZ-Logistic has 37,500 rail cars.

RusHydro OAO (12.46% Stake)

Energy VTB Bank OAO 919 The acquisition will enable VTB to increase its investments in electric power sector. It allows RusHydro to repay its debt owed to RAO ES of the East Group, and improve the financial stability of the Far Eastern assets.

Bashneft ANK OAO (9.12% Stake)

Energy Rosneft Oil Company OAO

861 Pursuant to the transaction, Rosneft will own 102,432,459 shares, representing 69.3% of voting shares in Bashneft

MMC Norilsk Nick-el OJSC (Bystrin-sky GOK project) (39.32% Stake)

Mining Interros Company; ESN Group

MMC Norilsk Nickel OJSC

287 The stake sale by MMC Norilsk is in line with the corporate strategy of de-risking the project and focus on its core production chain.

Agro-Invest; Agro Invest Regions

Agriculture Volgo-DonSelkhozInvest LLC

Black Earth Farming Ltd

200 The transaction will enable AIRC and AIRMC to continue the operation of the business. It will provide continuity and stability to AIRC and AIRMC and to its employees. The sale will be a better alternative for the shareholders of Black Earth than continued long-term operations.

(Russian companies)

*Open information about deal value

Source: Merger Market


21

Global windTop news: China and Russia

28 March 2017Poly International intends to invest in the economy and science of the ArcticThe cooperation agreement is aimed at the implementation of projects in the development of the Murmansk transport hub, participation in the financing of investment projects in the Murmansk region, cooperation in the field of personnel training and the scientific field.

17 March 2017CRRC and the Sinara Group signed a production localization programThe Chinese corporation CRRC and the Sinara group, with the participation of representatives of RZhD and the Chinese Railways, signed a program for the phased localization of the production of high-speed rolling stock on the territory of the Russian Federation.

16 March 2017CCCC intends to enter into a project to export liquefied natural gas to SovgavanThe Chinese state corporation China Communications Construction Company is ready to become a co-investor of the construction of a transshipment complex for the export of liquefied petroleum gas in the Soviet Harbor.

15 March 2017Russia and China implement agro-projects worth $ 270 million in the Far EastA project has been developed for the construction of a plant for deep processing of soybeans and the production of soy protein isolate from soybeans grown in the Amur Region, the Jewish Autonomous Region, Primorsky and Khabarovsk Territories. The total investment in the projects is $ 270 million.

25 January 2017Chinese CRCC to build three metro station in MoscowChina Railway Construction Corporation, a state-owned company based in Beijing, sets to build three metro stations of the Third Interchange Circuit until the end of the year 2019.


22

Useful stickers regarding innovations in Russia

Russian VC market changes little, focus keeps on, but money shrivelsPwC and RVC, Russia’s government fund of funds for innovation, have published their sixth joint “MoneyTreeTM: Venture Market Navigator” annual report on Russia’s VC industry for 2016.

Skolkovo’s first unicorn? Cattle embryo startup impresses major Russian meat producerThe Skolkovo resident that Cherkizovo believes could be worth $1 billion or more is Artembryogen, which has developed technology that reduces the cost of producing farm animal embryos.

TouchBank Annual Summary Shows Russia is Ready for Digital InnovationsAt the beginning of 2017, Touch Bank made a deep dive into analyzing its current customer base to find out who and where in Russia prefer to self-manage their finances, how much money they are ready to save with the new bank and what are the spending habits of an average customer.

In Russia AI targets and shows digital out-of-home ads instead of humansIn Russia’s first, digital OOH advertising is posted by artificial intelligence. A system using machine learning technologies calculates the watching audience’s portrait and number in real time, puts together an individual media plan for each video screen and picks the necessary creative from a number of options based on the setup of the audience currently interacting with the advertising carrier.

The best way to influence people in the hi tech industry is informally

(In Russian)

How to find investments in Silicon Valley Russian start-ups need to learn not to hesitate, build up connections and count money.

(In Russian)

http://www.marchmontnews.com/Finance-Business/Central-regions/21771-Report-Russian-VC-market-changes-little-focus-keeps-on-but-money-shrivels.html

http://sk.ru/news/b/articles/archive/2017/03/28/skolkovo_1920_s-first-unicorn_3f00_-cattle-embryo-startup-impresses-major-russian-meat-producer.aspx

http://www.techbullion.com/russia-fintech-news-touchbank-annual-summary/

http://www.forbes.ru/tehnologii/338885-za-atlantiku-kak-nayti-investicii-v-kremnievoy-doline

https://1f.ai/ai-targets-dooh/

http://firrma.ru/data/interview/16280/


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ContactsJoe [email protected]

Lora ZemlyanskayaResearch Centre [email protected]

Dmitriy KasatkinResearch [email protected]

Mikhail GordeevResearch [email protected]

Vladimir SokolovResearch [email protected]

Artyom [email protected]

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