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Good company for companies951 - p. 1 Investment Opportunities in Russia Jan Dewijngaert, GimvMarch 2009.

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Presentation on theme: "Good company for companies951 - p. 1 Investment Opportunities in Russia Jan Dewijngaert, GimvMarch 2009."— Presentation transcript:

1 Good company for companies951 - p. 1 Investment Opportunities in Russia Jan Dewijngaert, GimvMarch 2009

2 Good company for companies951 - p. 2 Russia: Economic and Business Outlook Serious deterioration expected this year: Source: Economist Intelligence Unit GDP5,6%-3,0%1,5% Private consumption11,4%-2,5%1,2% Fixed investment10,3%-7,0%2,8% Real wages10,5%-2,5%0,0% Inflation15,1%10,0%8,0% Budget surplus/deficit3,6%-7,5%-2,8% Current account surplus/deficit5,9%-3,0%0,2% Rouble/$ (year end)29,437,037,5

3 Good company for companies951 - p. 3 Russia: Economic and Business Outlook To put things into perspective: The situation in the rest of the world is not any better The outlook in CEE has sharply deteriorated in recent weeks Rouble and oil prices seem to stabilise Russia could quickly rebound (cfr. also 1998 crisis)

4 Good company for companies951 - p. 4 Russia: Economic and Business Outlook Why the recession in Russia could be over shortly: Oil price may rise to $/barrel in 2009 No Rouble crash expected Lower Rouble will improve competitive position of local procedures Increased public spending supported by high reserves Low level of household and government debt

5 Good company for companies951 - p. 5 Russia vs. USA Source: Troika Dialogue, Jan 2009

6 Good company for companies951 - p. 6 Current vs. ’98 crisis There are striking similarities… Stock market crash Flight of foreign capital Devaluation of the rouble Lack of bank finance Budget and current account deficits Negative GDP growth Economy still heavily dependent on oil/gas and minerals

7 Good company for companies951 - p. 7 RTSI vs. DJ EURO STOXX 50

8 Good company for companies951 - p. 8 Current vs. ’98 crisis … but also important differences Government debt+/- 6% of GDPVery high Corporate debt+/- 500 bn $+/- 50 bn $ Foreign currency reserves+/- 380 bn $< 20 bn $ UnemploymentRelatively modestHigh Oligarchs Forced to restructure, consolidate or sell Emerged stronger

9 Good company for companies951 - p. 9 Deals in Russia (July 2007 – August 2008) Source: Deloitte

10 Good company for companies951 - p. 10 Deals in Russia vs. CEE (July 2007 – August 2008) Source: Deloitte Services (other) Real estate & development Transportation Retail & distribution Financial services ICT Horeca Food & drinks Construction materials Manufacturing Energy % CEERussia

11 Good company for companies951 - p. 11 Private Equity in Russia Historically, PE returns in Russia have been very high The period directly following the ’98 crisis has proven to be fantastic from a PE perspective Net returns as at 31 Dec 2006 Three years Five years Ten years Since inception Russia/CIS (*)57,5%21,7%13,4%12,9% Central & South-eastern Europe (*)36,2%14,9%9,6% EVCA all private equity13,0%5,4%11,0%10,8% (*) Net returns for EBRD’s portfolio of funds

12 Good company for companies951 - p. 12 Type of investment: Russia vs. CEE Source: RVCA (2006), EVCA (2007) RussiaCEE Early stage11,4%12,9% Expansion75,6%4,4% Turnaround/Replacement12,9%4,4% Buyout-78,8%

13 Good company for companies951 - p. 13 Type of exits: Russia vs. CEE Source: RVCA (2006), EVCA (2007) RussiaCEE IPO6%3% Trade sale88%56% Buyback-6% Secondaries6%24% Other-11%

14 Good company for companies951 - p. 14 Private Equity in Russia New opportunities are arising… Downturn in the business cycle Marginally feasible businesses will disappear Best performers stay in business and find great expansion opportunities… …via organic growth and M&A While at the same time: Less competition from oligarchs, bank captives, global PE houses and hedge funds Valuations are becoming more attractive The number of leads is rising This should result in attractive returns

15 Good company for companies951 - p. 15 Valuation Multiples (EV/EBITDA) CompanyIndustry E LUKOILOil & GasLKOH GazpromOil & GasGAZP UralkaliChemicalsURKA SilvinitChemicalsSILV MagnitConsumer/RetailMGNT Wimm-Bill-DannConsumer/RetailWBD AeroflotInfrastructure & TransportAFLT Source: Antanta Capital

16 Good company for companies951 - p. 16 Deal flow in Russia

17 Good company for companies951 - p. 17 ERF portfolio: Strata Partners Sector:Fitness Investment date:Feb 2007 Transaction type:expansion Strata Partners Company Background: 3rd largest & fastest growing fitness clubs operator in Russia; 2 brands, 33clubs as of 1Q09, good locations; Target customer groups by monthly income per person: $2,000+ for Orange Fitness, $1,000+ for City Fitness; Company historically has a low bank leverage Strategy adopted to focus on own clubs and only use franchise at remote locations Launched 19 new clubs after investment, approaching 2 top players in Russia. Corporate governance and financial reporting were improved. ERF bought out the third shareholder together with management. Exit discussions advanced, but unclear if realized given financial crisis. Developments since investment Rapidly growing industry, but penetration still low: years of high growth ahead; Business idea: develop 2 strong brands in top & medium segments, create strong base in Moscow and expand in regions, with 50 clubs by 2010; Strong, highly motivated and experienced management; Exit strategy: trade sale Investment Rationale:

18 Good company for companies951 - p. 18 ERF portfolio: BASK Sector:Outdoor wear Investment date:Oct 2007 Transaction type:expansion BASK Company Background: BASK Group is the leading local player in the Russian outdoor wear and equipment market. The Group manages the clothing and accessories brand BASK. In addition, well reputed international brands are distributed. The Group has its own retail chain with 6 stores operating in Moscow, which sell proprietary brands, international brands distributed by the Group and other outdoor merchandise. Introduction to Western outdoor retailers to advice on the Group’s retail activities sourcing & overall strategy. Three new retail outlets opened: Moscow, Nizhniy Novgorod & a web-store. Most likely a store will be opened in St Petersburg shortly. Corporate governance and financial reporting system have been improved. External consultants from the field attracted. Company should be able to weather the storm even with little or no bank finance available Developments since investment Both the sporting goods and outdoor markets have shown impressive growth in recent years and similar performance is expected in the coming 5 years. The two founders have a long-term experience in the industry. The objective is to make the Group the undisputed №1 local player in the Russian outdoor clothing and equipment market. The main exit strategy is a trade sale. Investment Rationale:

19 Good company for companies951 - p. 19 ERF portfolio: PTI Sector:Ingredients Investment date:Oct 2008 Transaction type:expansion PTI Company Background: PTI is the leading Russian producer and distributor of soy products, spices and flavourings, which are sold to food processors in Russia and the CIS. The Company has 20 distribution centres in Russia and the CIS and sells both its own brands and imported ingredients. The Company has a customer base of more than 2000 clients in the meat, dairy, softdrinks and confectionery industries. Legal restructuring has been completed & the investment was executed recently. Started working on corporate governance and financial reporting Implemented a “cash quality of earnings” policy, which should make it possible for the company to execute its investment plan with little to no bank finance Developments since investment The food & beverages sector in Russia has shown rapid growth recently and is expected to continue growing the coming 5 years End-consumers are expected to get more quality & health conscious, whereas increased competition forces producers to pay more attention to product appearance, taste, etc. while keeping costs low. The Company has the potential to become the undisputed №1 in the industry in Russia and the CIS. Exit strategy: trade sale or IPO. Investment Rationale:


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