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Radio Report

By E. Nikitenko
April 1, 2003

Hello, everybody! You're tuned to NewMarket on the World Service of the Voice of Russia.

The insatiable Moscow utilities have again raised the price of heating, hot and cold water and cable.

The same cannot be said for similar fast growth now seen in other parts of the former Soviet Union, Odling-Smee added.

"Many CIS countries have started growing just as rapidly as the Baltics, but we are much more concerned about the sustainability of this performance."

After several years of monitoring the Russian consumer goods and services market, the Moscow-based Interactive Research Group, IRG, has published its study, providing detailed information and analysis of the TOP-100 most competitive and well-run domestic companies.

This country's multi-billion dollar consumer goods and services market caters for 145 million customers.

Speaking to journalists and representatives of different Western businesses both present at the news conference on the 1st, and would-be investors, IRG Chairman Greg Thain, who has been living here in Moscow for over a decade, said: "If you're looking for dynamic Russian companies to invest in, lend to, acquire, merge with of market to, look no further. This research reveals some of the most exciting and potentially rewarding investment and sales opportunities in Russia in the coming decade."

The Top-100 companies listed are engaged in production or sales of fast-moving consumer goods, or service providers, retailers, producers of agricultural product and all types of food, telecommunications, electronics, furniture, beer and alcohol, snacks cereals and groceries, textiles, clothes, pharmaceuticals, building materials, transport and tourism, media, sports packaging, and wholesale distributors. More than half of them are headquartered and have production or retail facilities in the Moscow and St.Petersburg regions. About a quarter have at least some minority foreign shareholders.

Previous studies assessed the 2002-consumer market here amounting to 260- to 275 billion dollars, which reflected a growth of 15 per cent over the year 2001.

According to Evgeni Gavrilenkov, Chief Economist of Troika Dialog investment bank, "Consumer demand here is on the rise as real incomes increased by 8.5 per cent in 2001 and 8.8 per cent last year. It is increasingly common for consumers to pay premiums for well-known brand names and product quality guarantees. Up-scale shopping centres and brand name boutiques are common in the larger cities, and in this consumer environment, corporate and product image as well as sophisticated advertising and marketing play ever more important roles" — he added.

International Finance Corporation's Sebastian Molineus, Project Manager for Russia Corporate Governance Project, stressed that operational efficiency and better strategic management have significantly improved here. However current corporate governance practices often remained at quite a low level, which was a main barrier to attracting investment. And that is particularly true of mid-cap companies in many regions of this country. To remind you, Russia is a federation of 89 regions.

More than one-third of the companies on the Top-100 list are exploring plans to attract foreign investors and 21 per cent are seeking Russian investors. About 15 intend to conduct Initial Public Offerings (IPOs) on either the Russian or western stock markets, and IRG forecasts that as many as one in ten of these will go to market in the 2003-2004 timeframe.

The IRG report is a 250-page breakdown of the 100 most promising companies. And some of the most recognizable names in business, such as MTS, Baltika and Wimm-Bill-Dann were deliberately excluded from this list.

"We are very unhappy that the foreign press in Russia only seems to know the names of few Russian companies," said Greg Thain.

The guide is sponsored by Deloitte & Touche, which works for several of the companies profiled, French bank Societe Generale and international corporate financier Altium Capital. It details enterprises that specialize in everything from tires to drugs, and sports clubs to restaurants.

Thain said the companies in the report were selected for having a healthy bottom line, sage financial management and aggressive expansion plans.

This year, sales growth expected of the 100 companies is between 20 percent and 25 percent. Meanwhile, 13 of the 100 are planning to go public within the next two years and 40 percent have announced plans to issue bonds.

To give you just a few other names except those you may already know, the list has cosmetics firm Kalina, food companies Cherkizovsky and Parnas-M, mobile phone retailer Euroset, MVideo, tire maker Amtel, Russian Textile, publishing house ProfMedia and the Rosinter restaurant chain.

Not everything about these companies is transparent, however. Thain said that only 45 percent of the information in the database came from the companies themselves.

Thain said companies like Kalina and Maisky Chai, which makes popular brands of tea, were giving global giants Procter & Gamble and Unilever a run for their money, something they are not used to in other markets.

"Russia is a much more sprightly market — it is forming very quickly. It's not so much aggressiveness, the market is merely extremely active," said Unilever spokeswoman Julia Goshko.

"This is a contribution we are making to society — we want to publicize Russian companies in the eyes of foreign investors," said IRG analyst Dmitry Alenouchkine.

He added that the report will be posted on IRG's web site, www.intrg.com, where it can be downloaded for free. It will be updated and expanded periodically - probably, on a weekly basis

Calling the study " a wake-up call", IRG decided to present 70 copies of its report to foreign investors at the 6th Annual Russian Economic Forum in London opening on the 2nd.

And according to Galina Fonaryova of the Ministry for Economic Development and Trade, there could be discrepancies in statistical data obtained officially and from independent sources, and comparing them was important for the government and market operators, as well as for would-be entries on the consumer goods market, which has become more attractive than heavy industry now.

According to Deputy Foreign Minister Viktor Kalyuzhny, who was previously Minister for Fuel and Energy Production, Russian firms will continue working in Iraq.

The main line of his current Ministry's activities was to return the process of solving the Iraqi crisis to the UN Security Council. Then it will be possible to solve the problems of Iraqi debts to us. Otherwise US would re-distribute Iraqi resources as they see fit, Kalyuzhny thinks.

Russian oil companies are not yet the sufferers due to the military action, as the global market keeps consuming all that is produced. Every company that did business with Iraq had its share of risks due to the UN sanctions, so the losses so far are those forecasted and planned. Besides, Kalyuzhny writes in an article in the Vremya Novostei daily, every major Russian oil producer has its share of business with the United States. Say, LUKoil has been a steady operator on the US market, YUKOS is the only direct Russian supplier of oil for the United States fuel reserves. British Petroleum is the owner of our Siidanko and TNK oil firms, and Britain is the US ally. There's no ignoring these facts, Kalyuzhny writes.

And that's NewMarket this time. Thanks for listening. And it's bye from me, E.N.