TOP 100 EMERGING COMPANIES OF THE RUSSIAN CONSUMER MARKET UNVEILED

New Study Reveals Most Promising Targets for Investment, Marketing and Growth

Moscow - Comstar, Gloria Jeans, Daria, Gotek, Ochakovo and Bistroff are Russian companies with little in common except that they are all among the most promising up-and-coming firms in Russia's multi-billion dollar consumer goods and services market, according to a study released today.

The first-of-its-kind study, conducted by Moscow-based Interactive Research Group (IRG), identifies and provides detailed information and analysis on the 'Top 100' most competitive and well-run domestic companies focused on the growing pocketbooks of Russia's 145 million consumers.

"If you're looking for dynamic Russian companies to invest in, lend to, acquire, merge with or market to, look no further," said Greg Thain, Chairman of Interactive Research Group (IRG). "This research reveals some of the most exciting and potentially rewarding investment and sales opportunities in Russia in the coming decade."

Of the 100 companies named, 42 produce or sell fast-moving consumer goods, 15 are consumer service providers, 12 are retailers, eight are in agriculture and food production, and seven are wholesale distributors. Among other sectors represented in the list are wholesale distributors, pharmaceuticals, restaurants, telecommunications, furniture and electronics. More than half of the companies are headquartered, and have production or retail facilities in the Moscow and St. Petersburg regions.

According to the report, the major domestic financial and industrial groups, such as Interros, Alpha, Rusal and Sibneft, have stakes in only 14 of the companies. Approximately 25% of the firms have at least some minority foreign shareholders.

Thain said these 100 companies reflect the tremendous growth of Russia's consumer market. Previous studies conducted by IRG peg the Russian consumer market at USD 260-275 billion in 2002, up 15% from 2001. And, according to official Russian figures, individual real incomes increased by 8.5% in 2001 and 8.8% in 2002.

"Consumer demand in Russia is on the rise as real incomes increase, most significantly in Moscow and St. Petersburg. This is evident not only in the quantity, but also the quality of goods and services demanded by Russians," said Evgeniy Gavrilenkov, Chief Economist of Troika Dialog investment bank.

"It is increasingly common for consumers to pay premiums for well known brand names and product quality guarantees," added Gavrilenkov. "Up-scale shopping centers and brand name boutiques are common in the larger cities. In this consumer environment, corporate and product image, as well as sophisticated advertising and marketing, play ever more important roles," he said.

Companies' Annual Sales Growth at 25% in 2003

The overwhelming majority of the companies report significant growth rates in 2002. Two examples include Moscow-based perfume and cosmetic retailer, Arbat Prestige, with a 70% increase in sales from 2001 to 2002; and, EFKO, an agricultural and food manufacturing and distribution firm, which reported 79% growth in sales last year. IRG forecasts that the average sales growth of the Top 100 companies will be 20-25% in 2003.

Thain noted that not all the companies in the Top 100 list had posted positive sales growth in 2002. "We consider Tchaikovsky Textile in the Perm region to be one of the best Russian texile companies, but it had declining sales last year. However, because of its progressive management, significant market share and regularly updated product line, we believe it has significant growth potential and could be an attractive company for investors and marketers."

"Quantitative information, such as sales volume and income growth, alone will not identify the most effective Russian companies," explained Thain. "In choosing our Top 100 companies, we also examined the companies' management, commitment to transparency and good corporate governance, investment policies, marketing and distribution networks, and development and growth plans."

"A big obstacle to evaluating many of these companies is their frequently complex and clouded ownership structures," Thain said. "More than half of the Top 100 companies are, in fact, holding companies, with an intricate web of operating companies and legal entities. This, in my mind, is one of the main constraints on their future development and growth."

The study found that few of the companies publish consolidated financial statements. Financial information from official sources was found for less than 45% of the Top 100 companies. Thain noted that there is evidence that this too may be changing. "Many of the companies already have begun or have plans to reorganize their structures to become more transparent and attractive for investors."

Increased Transparency Essential to Further Growth

"Russian companies can increasingly claim improved operational efficiency and better strategic management, however, current corporate governance practices often remain at the box-ticking level and act as a main barrier to attracting investments," said Sebastian Molineus, Project Manager, Russia Corporate Governance Project, International Finance Corporation, The World Bank Group. "This is particularly true for mid-cap companies in Russia's regions, where awareness of the imperative to achieve real transparency is growing at a slower pace."

Nevertheless, most companies on the Top 100 list say they plan to seek external financing to fund future growth. According to the study, the majority will be looking to traditional bank financing from either Russian or foreign banks, and 43% will seek corporate bond financing.

More than one third are exploring plans to attract foreign investors and 21% are seeking Russian investors. About 15 of the top 100 companies intend to conduct Initial Public Offerings (IPOs) on either the Russian or western stock markets. IRG forecasts that as many as one in ten of these companies will go to market in the 2003-04 timeframe.

"The Top 100 companies come from different market segments and different regions with a variety of ownership structures, business models and marketing strategies. However, they all have solid prospects for long-term growth and development, and virtually all are or will be seeking additional growth capital," said IRG's Thain.

Only one of the 100 companies included in IRG's report, pharmacy chain 36.6, is currently listed on stock exchanges in Russia or abroad. "The goal is to bring attention to some of Russia's most sophisticated, successful and rapidly growing companies which are not currently discussed in the international press or investment banking publications," said Thain. "The management of these companies are certainly a 'Who's Who'of Russia's future business leaders."

Background

The 'Top 100 Emerging Companies of the Russian Consumer Market' study report contains detailed profiles of all companies chosen for inclusion in the 'Top 100' as well as original research and collected information on major characteristics and trends of the consumer market, including its size, growth rates, structure and comparisons with experience and developments in Eastern and Western Europe and the United States. IRG researchers collected the information from public sources including media publications, free databases and corporate websites of selected companies and verified information where possible with financial analysts, journalists and representatives of the companies themselves.

The sponsors of the project include Deloitte & Touche, Bank Societe Generale, and Altium Capital. The information partner is The Moscow Times. The organizational partner is The PBN Company.

The list of the top 100 companies in Russia’s emerging consumer market, by sector: