Ukrainian story of Stora Enso: heard first hand

The bi-weekly business report by Bonnier

UKRAINE

| No 10 | 3 February 2011 | Creating transparency in emerging markets since 1991 | www.news2biz.com |

”Empty market niches allow new players to avoid competition. Svitlana Zhgun, Novus marketing director PAGE 7

MANUFACTURING Turkey's Boydak buys furniture factories from Poles in Ukraine and Russia PAGE 3 FINANCE Austria's Erste Group creates central hub for real estate services PAGE 4 FOOD & AGRICULTURE Mriya Agro Holding gets USD 25m loan from EBRD to buy land PAGE 5 PROPERTY & CONSTRUCTION US Wyndham chain has discovered the need for 3-star hotels in Ukraine PAGE 6 RETAIL & SERVICE McDonald's launches McCafé chain, regions to follow Kyiv opening PAGE 8 IT & MEDIA Fast-expanding Estonian SmartAD looking at Ukrainian market PAGE 9 TRANSPORT & LOGISTICS Austrian Airlines increases interest in Ukraine International Airlines PAGE 11 ENERGY & ENVIRONMENT Swedish Capital Oil sells off Ukrainian daugther company PAGE 13 ECONOMY & POLITICS Ukraine and Belarus waging a beer war: Belarus forces price hike PAGE 14

Meet only Nordic woman entrepreneur in Ukraine Clara Bodin is the only Nordic woman entrepreneur who has set up her own business in Ukraine. Having moved to Ukraine in 2002, she is now offering an innovative service that allows SMEs to hire and pay Ukrainian stuff via her company which takes care of all the bureaucracy. PAGE 9

Lithuanian BT Invest to expand food retail chain Lithuania's BT Invest is planning to open five new food supermarkets this year, expanding its Novus Ukraine grocery retail chain to 21 stores. Novus is looking to expand its turnover by 70-80% this year. PAGE 7 Most important updated key figures in this issue Real estate, wages PAGE 16 Trade, stocks PAGE 17 Current account, regions PAGE 18 SEE ALL KEY FIGURES PAGES 16–18

EVENTS PAGE 15 ▶ INTERAGRO 2011 ▶ Agro Animal Show 2011 ▶ Prospects for Swiss SMEs ▶ Real estate, construction summit ▶ Logistics Innovation Forum ▶ Food Industry Forum

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Stora Enso to realise that huge potential of Ukrainian market Since Ukrainian per capita consumption of paper is still only one sixth of that in Western Europe, the development potential of the Ukraine's paper market is immense, says Elena Marinovskaya, head of the Ukrainian unit of Stora Enso, a global manufacturer of paper products. PAGE 2

Elena Marinovskaya: 2012 will be a peak year for paper consumption. Photo: Stora Enso

Ukrainian coal output grows, good year coming The Ukrainian mines expanded their coal production by 4.1% last year to over 75m tonnes. It is the private sector that has increased its output most over the past years, while state-run collieries are showing lower productivity. This year, experts expect coal output to increase further. PAGE 12

Coal output up againAnnual output of coal available and

coke of coking coal in Ukraine, in m/t

60

70

80

90

2003

2004

2005

2006

2007

2008

2009

2010

Source: State Statistics Committee

2 | No 10 | 3 February 2011 | © Bonnier Group/Äripäev | UKRAINE

MANUFACTURING

PAPER PRODUCTION Ukrainian story of Stora Enso: heard first hand Stora Enso, a global manufacturer of paper, packaging and wood prod-ucts, has been officially present in Ukraine since 2004.

Having experienced the eco-nomic boom enjoyed by the country in 2006-2007 and the severe reces-sion, which hit Ukraine in 2008-2009, the company's Ukrainian rep-resentation has, according to its head Elena Marinovskaya, become stronger and looks forward to 2012 as a new peak of business activity – and thus paper consumption – in Ukraine, one of the two host coun-tries of the UEFA Euro 2012.

news2biz has asked Elena Mari-novskaya to tell about Stora Enso's operations in Ukraine and its poten-tial to capture the immense Ukrain-ian market. Arrival "Stora Enso started promoting its key products, such as newsprint and book paper, magazine paper, fine paper, consumer board, industrial packaging and wood products, right upon the launch of its office," she says.

"Since the development of any sector is closely connected with the overall economic situation in the country, we have long been monitor-ing both the Ukrainian paper market

and the nation's entire economic de-velopment."

Market "Ukraine is a very attractive market for the European paper and card-board manufacturers, as imports ac-count for 70% of the paper and board consumed in the country.

Elena Marinovskaya: 50% of Ukraine's demand is filled by Rus-sia and Finland, its largest suppli-ers. Photo: Stora Enso

"When Ukraine gained its inde-

pendence in 1991, it had virtually no own facilities for newsprint produc-tion and very limited capacities for offset paper production, as all the largest Soviet paper mills and almost

the entire raw material base re-mained in Russia."

"Now, some 50% of Ukraine's demand is filled by Russia and Finland, its largest suppliers, with the remaining half covered by Po-land, Germany, Sweden, Austria, China and other countries." Partners and competitors "Stora Enso is a traditional supplier of the globally renowned consumer board producers, tobacco manufac-turers and confectioneries also oper-ating in Ukraine. Meanwhile, fine and magazine paper has been tradi-tionally supplied to Ukraine via wholesale traders."

” The immense potential of the Ukrainian market impels its players to increase their sales. Elena Marinovskaya, head of Stora Enso representative office in

Ukraine

"We are a global leader in paper

production, so our arrival on this market was natural and awaited for by both Stora Enso and the local pa-per producers. They do not see us as their competitors, as our goods have virtually no analogues in this coun-try."

"We guarantee high quality of our products, render information and technical assistance and intro-

duce centuries-old traditions and values of the Finnish paper manufac-turing to the young Ukrainian mar-ket.

"This is one of the reasons for the permanent demand for Stora Enso's products, which remained rather high in Ukraine even amid the se-vere crisis."

Crisis "The global recession has brought down demand for paper both glob-ally and locally. This has been espe-cially the case with the glossy maga-zines, the least essential thing for the crisis-ridden society." Fact

30-33 kg is the annual per capita con-sumption of paper products in Ukraine

"On the other hand, the down-turn has urged people's demand for relevant and useful information, so the newspaper segment has man-aged to maintain its position."

"As far as the packaging paper and board is concerned, steady or-ders have been secured by the de-mand from Ukraine's leading to-bacco producers and confection-aries."

Potential "Ukraine is a big country and con-sumes a total of around 1.4m-1.6m


tonnes of paper, cardboard and pa-per products a year. Still the nation's annual per capita consumption re-mains very low, just 30-33 kg, com-pared with 40-45 kg in Russia, 100 kg in Poland and up to 200 kg in Western Europe, the USA and Ja-pan."

"So the development potential of the Ukrainian market is immense and this impels its key players to continuously increase their sales."

Group With the two companies' roots traced back many centuries, Swe-den's Stora and Finland's Enso merged in December 1998 to form the world's second-largest forest products manufacturer in terms of capacity.

Its annual production capacity is 12.7m tonnes of paper and board, 1.5bn sq.m of corrugated packaging and 6.9m cub.m of sawn wood products, including 3.1m cub.m of value-added products.

Stora Enso’s key figures:▶ Sales totalled EUR 8.9bn in 2009 ▶ Total paper and board annual capacity 12.7m tonnes and 6.9m cub.m of sawn wood products ▶ Some 27,000 employees ▶ Strong global marketing network ▶ Listed on NASDAQ OMX Helsinki and Stockholm

The company's sales in 2009

were EUR 8.9bn, with an operating

profit excluding non-recurring items and fair valuations of EUR 320.5m. Steady climb by Stora Enso's stock Stock price of Stora Enso, NASDAQ OMX Helsinki, in EUR

8,54

0

2

4

6

8

10

Feb

10M

ar 10

Apr 1

0

May

10

Jun

10

Jul 1

0

Aug

10

Sep

10

Oct 1

0

Nov 1

0

Dec 1

0

Jan

11

Feb

11

Source: Bloomberg

The group has some 27,000 em-

ployees and 88 production facilities in more than 35 countries world-wide, and is a publicly traded com-pany listed in Helsinki and Stock-holm. Its customers include publish-ers, printing houses and paper mer-chants, as well as the packaging, joinery and construction industries. We have talked to

Elena Marinovskaya [email protected]

Tel + 380 44 494 44 77

REGIONAL EXPANSION Turkey's Boydak buys furniture factories in Ukraine and Russia Turley's Boydak Holding is about to acquire 100% shareholdings in Forte Ukraine and Forte Russia, the furni-ture factories based in the cities of Artemivsk (Donetsk region, eastern Ukraine) and Vladimir (near Mos-cow, central Russia) respectively,

from their current owner, Forte, one of the leading Polish manufacturers and exporters of furniture.

The two parties signed a letter of intent in December 2010 and expect to finalise the deal in late February this year after receiving regulatory approvals.

"The process of this issue is still continuing and we will inform you about related topic after the process has finished," says Ulas Ozturk, the chief of Boydak's organisation and decision services department, to news2biz.

In the meantime, the Antimo-nopoly Committee of Ukraine has al-ready given the green light to the deal, while Forte explained its sale motives.

According to the information re-vealed by the Polish company, the sale of its Ukrainian and Russian fac-tories would improve its consoli-dated balance sheet. The value of the two factories stood at PLN 49.593m (around USD 16.32m) as of late November 2010.

The sale of its Ukrainian and Rus-sian furniture factories would im-prove Forte's consolidated balance sheet. Photo: Forte

Forte Ukraine was established in 2001. In February 2002, the com-pany started producing furniture. Currently the factory produces over 300 types of furniture. The factory receives timber from the Lviv, Ivano-Frankivsk and Kharkiv regions, with auxiliary materials (glass, mirrors, packages, etc.) supplied locally from the Donetsk region.

Forte Ukraine's net profit came to UAH 2.307m (USD 289,890) in 2009 compared to the net loss of UAH 433,000 in 2008. The company generated revenues of UAH 11.829m in 2009.

Fact

16.3m USD was the value of Forte's Ukrain-ian and Russian assets as of late November 2010.

Polish Forte was founded in

1992. Apart from its Ukrainian and Russian assets, it has four furniture factories and a number of trade companies in Poland.

Registered in 1957, Boydak Holding today manages 27 compa-nies in eight economic sectors, in-cluding furniture manufacturing. It has more than 11,000 employees and 2,000 distributors. We have talked to

Ulas Ozturk [email protected]

Tel +90 (352) 207 18 00 (switchboard)


FINANCE

STRUCTURE CONSOLIDATION Austria's Erste Group creates central unit for all real estate services Erste Group Immorent AG (EGI) is the new umbrella organisation for all of the real estate services of Im-morent AG, Erste Group Bank AG and their respective subsidiaries in CEE/SEE.

The new unit provides its clients with a "one-stop-shop", covering the full real estate value chain for com-mercial and residential projects, which particularly in Ukraine in-clude lending, leasing, project de-velopment, as well as construction services.

The new structure allows to access a comprehensive range of real es-tate services from one central hub. Photo: Erste Group

The new structure allows project

developers and businesses to access a comprehensive range of real estate services and local experts from one central hub. The new management

structure of Erste Group Immorent is effective as of 1 January 2011.

The same logic of restructuring has been followed in the Ukrainian unit.

Starting with January, the EGI Ukraine management team consists of Mikhail Merkulov (former CEO of Immorent Ukraine) and Sergiy Kry-shuk (former board member of Im-morent Ukraine) as well as Yulia Galchun (head of real estate busi-ness in Erste Bank Ukraine).

Mr. Merkulov and Mr. Kryshuk will continue in their positions as CEO and board member of Erste Group Immorent Ukraine, while Yulia Galchun will cover significant business areas within the new orga-nisational setup.

Additionally, Mr. Merkulov will act as regional director within the EGI-Group, providing strategic busi-ness development support for a number of subsidiaries of Erste Group Immorent within CEE/SEE.

"By combining real estate busi-ness activities of Immorent and Erste Group, we maximize the synergies of our companies for our customers. This will enable us to offer both strong expertise, targeted to clients’ needs, and an efficient product mix for real estate finance from a single source," Mikhail Merkulov is quoted as saying by the bank's press release.

Erste Group Immorent Ukraine (EGI Ukraine) focuses on commer-cial real estate, including prime business centres and retail proper-ties, as well as hotels. In 2011 EGI

Ukraine plans to increase its portfo-lio by EUR 40m.

Central unit’s features:▶ Unit formed from Immorent AG, Erste Group Bank AG and their re-spective subsidiaries in CEE/SEE ▶ New unit is a central hub of real estate services and expertise ▶ Erste Group Immorent ranks among top three lending and leasing portfolios in CEE/SEE

Erste Group Immorent AG has a

workforce of 866 people in 12 coun-tries in SEE/CEE and manages a leasing and lending portfolio of EUR 13bn (as of 30 September 2010).

Erste Group Immorent AG is pre-sent in Austria, the Czech Republic, Slovakia, Hungary, Croatia, Slove-nia, Serbia, Bulgaria, Romania, Ukraine, Montenegro and Poland.

The new management board for Erste Group Immorent AG comprises Peter Tichatschek (as CFO/COO/CRO), Richard Wilkinson (responsible for lending and leasing) and Gerald Antonitsch (responsible for project development and infra-structure).

SEGMENT EXPANSION Rinat Akhmetov’s SCM pumps up its banking arm Following the merger of the First Ukrainian International Bank (FUIB) and Dongorbank in November last year (see news2biz UKRAINE no.6, page 3), System Capital Manage-

ment (SCM) of Ukraine's richest man Rinat Akhmetov, which is the owner of both lenders, has taken a new step towards forming an own banking empire.

The Donetsk-based SCM has bought a 100% stake in Renaissance Capital, a small retail bank (no. 104 in terms of assets among the 176 lenders operating in Ukraine) oper-ating in the segment of consumer fi-nance under the Renaissance Credit brand, from Russia's Renaissance Group.

SCM's banking business in Ukraine is presented by FUIB, Dongorbank and, now, Renaissance Capital. Photo: SCM

The transaction fully complies

with SCM's banking development strategy, according to its press secre-tary Anna Terekhova, and aims at consolidation and yield increase.

"For SCM banking is the top pri-ority, so we are interested in ex-panding this area and entering new financial market segments, in par-ticular retail and POS-lending," she says to news2biz explaining that Renaissance Capital is a retail bank with a strong growth potential and


impressive track record in the Ukrainian market's consumer lend-ing before the downturn.

"It has a well established con-sumer finance infrastructure and a professional team," Anna Terekhova continues. "Its integration into SCM's banking business will allow us to expand the Group's portfolio in fi-nance sector, enter a new market segment, improve the growth poten-tial of our business and make it more diversified.”

” Renaissance Capital's integration into SCM's banking business will allow us to expand the Group's portfolio in finance sector, enter a new market segment, improve our business's growth potential and make it more diversified. SCM press secretary Anna Terekhova

While looking for investment op-

portunities, SCM had, according to her, considered various options but preferred Renaissance Capital be-cause of its efficient retail lending model.

"We are acquiring an established business including the client base and a credit portfolio," she empha-

sises adding that SCM has all the necessary resources and expertise to develop this area now, with the first signs of economic recovery.

Renaissance Capital has a spe-cialised retail network, a product line, risk management system and a professional team," Anna Terekhova says pointing out that it will remain a separate legal entity operating within the SCM Group's banking business.

SCM is 100% owned by Rinat Akhmetov and owns and controls as-sets in mining and metals, power generation and distribution, tele-communications, banking, insur-ance, media, as well as in retail and real estate.

SCM Group includes Metinvest Holding, DTEK, VegaTelecom Group, Segodnya Multimedia, TRK Ukraina, ESTA Holding, Ukrainsky Retail and other assets.

The Group's banking business in Ukraine is presented by FUIB, Dongorbank and, now, Renaissance Capital.

Renaissance Group unites in-vestment and financial service com-panies focused on high-opportunity emerging markets. Renaissance Credit is the Group's retail business established in 2003. It is presently one of the 100 biggest banks in Rus-sia and serves more than 4m clients in the country.

In Ukraine, Renaissance Capital started operations in 2005, when Renaissance Group purchased Leader Bank. Today the lender's re-gional network spans Ukraine's 17

regions including the Crimea and consists of 31 branches. The bank has shown positive results in 2010, posting UAH 4.432m in profits over January-September 2010. We have talked to

Anna Terekhova [email protected]

Tel: +380 62 381 50 37

FOOD & AGRICULTURE

WORKING CAPITAL FACILITY Mriya Agro Holding gets EBRD's USD 25m credit Mriya Agro Holding, a Frankfurt-listed major Ukrainian agricultural producer operating in the country's western part, has received a working capital facility worth USD 25m from the European Bank for Reconstruc-tion and Development (EBRD).

The project will provide financ-ing for inputs needed for agricultural production, as well as crops stored at certified warehouses.

"With the help of the EBRD's loan, we will be able to sustain the growth of our operations, ensure our market expansion and competitive-ness by bringing new land into pro-duction and increasing the crop yields," says Olena Glemba, Mriya head of investor relations, to news2biz.

Many primary agricultural pro-ducers experience problems with the availability of even simple working capital financing, according to EBRD director for agribusiness Gilles Met-

tetal. The main reason for this is the lack of credible security.

Mriya plans to expand its land bank from 220,000 ha to 650,000 ha by the end of 2013. Photo: Mriya

To tackle this issue, the EBRD

and the International Finance Cor-poration (IFC, the World Bank Group) are launching a new initia-tive to develop Crop Receipts, which will allow farmers to use the crop in the ground as security and which is based on legislation successfully used in Brazil. This instrument, if implemented, should enable more lending to primary agriculture, a sub-sector which currently receives extremely limited debt financing. Long-term stratregy Mriya was founded in 1992 as a family-owned farm with around 50 ha of land. Now, the company is Ukraine's seventh-largest primary agricultural producer growing wheat, barley, sugar beet, rapeseed, potatoes, and other crops on the 220,000 ha of land spread across Ternopil, Khmelnytsky, Chernivtsi and Ivano-Frankivsk regions.


Last year, Mriya was about to is-

sue Eurobonds for a total of USD 300m, but postponed the emission due to the "poor debt market condi-tions".

The same year, IFC announced its intention to invest USD 75m (a working capital facility of USD 25m, a subordinated credit of USD 25m and a warrant acquisition for the same amount) in Mriya in order to increase the company's grain pro-duction, land bank and staff.

Back then, Mriya declared its ambitions to build three grain eleva-tors, purchase new machinery and expand the available land bank.

Having received the borrowed funds now, Mriya will most likely earmark them for achieving the lat-ter goal – to expand the land bank to 650,000 ha by the end of 2013, as well as to refinance its debts totaling some USD 75m.

Largest investor The EBRD is the largest financial in-vestor in Ukraine. As of 31 Decem-ber 2011, it had committed over EUR 6bn through 264 projects. In the agribusiness sector alone, the EBRD has directly committed more than EUR 6bn in over 400 projects across Central and Eastern Europe (CEE) and the Commonwealth of Independent States (CIS) since 1991.

The EBRD, owned by 61 coun-tries and two intergovernmental in-stitutions, is supporting the devel-opment of market economies and

democracies in countries from Cen-tral Europe to Central Asia. We have talked to

Olena Glemba [email protected]

Tel +380 44 220 13 70 (switchboard)

PROPERTY &

CONSTRUCTION

HOTEL MANAGEMENT Gone with the Wyndham: US chain to operate 3-star hotels in Kyiv, other cities The Ukrainian HoReCa (Hotel, Res-taurant and Catering) sector has seen the arrival of a new interna-tional player in the run-up to the UEFA Euro 2012 football tourna-ment.

The US-based Wyndham Hotel Group, one of the world's largest hospitality companies, and the Ukrainian developer DeVision have signed a 15-year franchise contract for the operation of a new three-star hotel under Wyndham's Ramada En-core brand within DeVision's Domos-fera mixed-use complex to be erected at Kyiv's southern gateway.

The franchising model is widely used by Wyndham Hotel Group out-side the US market and thus it is planning to eventually open its Ra-mada Encore hotels also in other Ukrainian cities, such as Donetsk, Odesa and Lviv, according to Wynd-ham Hotel Group International vice-president for Central and Eastern Europe Christian Michel.

In the meantime, the Kyiv-based Ramada Encore hotel is likely to start operations already next year, as Domosfera's 23-floored edifice that the hotel will share with a class B of-fice centre is due to be completed in Q4 2011.

With its 264 standard rooms and 61 service apartments, the new hotel will have a gross built area (GBA) of 26,350 sq.m, a little larger than that of the office centre (24,600 sq.m).

In addition, Domosfera will com-prise a mega-mall occupying three interconnected buildings (GBA of 66,570 sq.m and the gross leasable area (GLA) of 33,876 sq.m) and a 1,100 slot parking, which will be fully launched in Q2 2012.

Domosfera: a multi-use complex at Kyiv's southern gateway Total area 117,520 sq.m Hotel 26,350 sq.m Office centre 24,600 sq.m Mega Mall 66,570 sq.m Parking 1,100 slots Opening 2012

Source: DeVision

The mixed-use complex has been

developed on a 12.77 ha plot of land since 2007.

DeVision plans to invest around USD 120m in the project, with 80% of the funds to be covered by a bank loan.

"Initially, in the environment of a buoyant economy and growing de-mand for office facilities in Kyiv's outskirts, the development concept

of Domosfera's phase four envisaged the class В+ business centre to stand alone," says Ekaterina Starun-skaya, Domosfera's marketing direc-tor, to news2biz.

"However, taking into account the project's particulars, its location and changed market conditions, it was decided in 2009 to update the concept so as to build a facility, which would combine the office and hotel zones and also feature restau-rants, conference halls and an un-derground parking for 60 cars."

Domosfera's concept was updated in 2009 so as to combine the office and hotel zones. Photo: DeVision

"An experienced developer our-

selves, we realised the necessity to attract an experienced partner, pref-erably an international operator, to give the project a new turn," she goes on.

"Having scrutinised the market's new trends and capacity, we noticed the saturation of the high-class lodg-ing niche and the low supply of well-furnished three-star hotels," she points out.

"Many Ukraine's and Kyiv's newly constructed midscale segment hotels


are rather small, with the remaining capacities being obsolete," Ekaterina Starunskaya claims. "At the same time, there are virtually no three-plus-star hotels capable of accom-modating a large number of visi-tors."

According to her, the bulk of Kyiv's three- and four-star hotels are actually of a lower international level today, so it is a globally re-nowned brand that can guarantee a hotel's true standard.

"We believe that the involvement of Wyndham Hotel Group has made our project even more attractive and contributed to its future success," she asserted.

” We noticed saturation of the high-class lodging niche and low supply of three-star hotels. Ekaterina Starunskaya, Domosfera's marketing director

DeVision entered Kyiv's real es-

tate and development market in the early 2000s as First Ukrainian De-velopment. Since December 2008, the company has been operating un-der its present name.

As of today, DeVision has a unique portfolio of real estate pro-jects with the total area of more than 1m sq.m estimated at over USD 1.3bn.

The company is set to expand its hotel segment and plans to build a Riverside Plaza hotel and office cen-tre (GBA of 43,158 sq.m) in down-town Kyiv by 2012. The project en-visages the construction of a four-plus- star Sheraton hotel with 239 rooms and 80 service apartments, office and trade spaces, as well as a parking for 147 cars.

Wyndham producing stable revenues Quarterly revenues of Wyndham Worldwide Corporation,

in m USD

1065

0200400600800

10001200

1Q 0

9

2Q 0

9

3Q 0

9

4Q 0

9

1Q 10

2Q 10

3Q 10

Source: Wyndham quarterly earnings releases

Wyndham Hotel Group, one of

three principal components of Wyndham Worldwide, encompasses nearly 6,500 hotels and 541,000 ho-tel rooms on six continents. All ho-tels are either independently owned franchises or managed by a Wynd-ham Hotel Group subsidiary.

Ramada Worldwide offers nearly 900 hotels and 105,000 rooms in over 45 countries. We have talked to

Ekaterina Starunskaya [email protected]

Tel +380 44 220 01 56, +380 67 328 27 05 (mobile)

RETAIL & SERVICES

NETWORK EXPANSION Lithuania's BT Invest to channel EUR 50m in food retail expansion in Ukraine Lithuania's BT Invest is planning to open five new food supermarkets this year in Ukraine to expand its Novus Ukraine grocery retail chain to 21 stores.

The chain's 17th supermarket with the floor space of 3,500 sq.m is scheduled to open on 12 February 2011 in Boryspil, the Ukrainian capi-tal's suburb mostly known as the place of the Kyiv international air-port.

So the new Novus store will be a part of the AeroMall shopping and leisure centre with the GBA of 20,509 sq.m and GLA of 15,295 sq.m.

With Novus format varying from the neighbourhood stores to the hypermarkets, that of the super-markets prevails. Photo: Novus

In addition, two stores will open

in Kyiv and two in Ternopil, western

Ukraine, and Sevastopol, the Cri-mea, respectively.

To finance the announced expan-sion, the company is going to raise up to EUR 50m within the next two years. So far, the chain has been de-veloped organically, according to Svitlana Zhgun, its marketing direc-tor.

Today, BT Invest has six outlets in Sevastopol, four in Kyiv and the rest in the cities and towns of central and western Ukraine.

The chain's 16th store opened on 28 January this year on Kyiv's left bank. With its GBA and net floor space of of 8,400 sq.m and 4,600 sq.m respectively, this is the largest Novus hypermarket. It has 30 pay desks and features the range of goods exceeding 80,000 items. In-vestment in its construction made up around USD 10m.

” Since the market capacity is low, it has a lot of empty niches allowing new players to avoid competition. Svitlana Zhgun, Novus marketing director

Although Novus format varies

from the so-called neighbourhood stores (from 800 sq.m) to the hypermarkets (up to 7,000 sq.m), that of the supermarkets (3,000 sq.m) dominates the chain.


Still, as Ukraine has been in-

creasingly globalising, according to Svitlana Zhgun, the neighbourhood stores will be giving way to super-markets, those to hypermarkets and the latter to shopping malls.

"Furthermore, the Ukrainian cus-tomers tend to lodge increasingly higher demands on the quality of the offered goods and services," she says to news2biz. "But we are set to meet all the requirements by applying European trading standards and us-ing broad experience of our Lithua-nian top managers."

"By opening the new stores and improving operations of the existing ones this year, we want to increase the network's annual turnover by 70-80% on 2010 to UAH 850-900m," Svitlana Zhgun states.

"The Ukrainian food retail mar-ket is far from saturation now, which allows its players to intensively de-velop their chains," she says. "Since the market capacity is still low, it has a lot of empty niches allowing the new players to avoid direct com-petition with rivals." Fact

70-80% is Novus' expected turnover growth this year.

BT Invest was founded in 2007

by Raimondas Tumenas and late Igor Bezzub, the former sharehold-ers of Sandora, the Ukrainian juice

producer which has been sold to Pepsi.

The new Ukrainian company started its activity in February 2008 with the acquisition of Raytsentr, a small retail chain in Western Ukraine. That was followed by the purchase of Alen, Sevastopol's larg-est network of food stores with the total area of around 27,000 sq.m.

Apart from Novus, BT Invest also develops real estate projects in both Ukraine and Lithuania. We have talked to

Svitlana Zhgun [email protected]

+380 44 585 41 70, + 380 50 417 72 88

NEW MARKET FORMAT McDonald's launches McCafé chain in Ukraine On 14 February 2011, McDonald's Ukraine will open its first McCafé coffee shop in the country. The new chain development will start in Kyiv to be followed by regional expansion into the largest Ukrainian cities.

Although McCafé's format does not call for separate premises for the newly opened coffee shops and lodges them within the existing McDonald's restaurants instead, this does not mean that McCafé will just automatically spread over the avail-able McDonald's chain.

"We are not going to open the new coffee shops everywhere, as it is the restaurants' location and visitors that will be taken into account first of all," says McDonald's Ukraine's PR director Mikhail Shuranov to news2biz.

McCafé's format does not call for separate premises for the newly opened coffee shops. Photo: McDonald's

By launching the new format, the

company is, according to him, ex-pecting to attract those people, who had not visited McDonald's before proffering traditional coffee houses.

Still McCafé will differ from the traditional cafés, as the former en-visages self-service, lack of strong drinks and a rather short selection of coffee sorts (up to 10) and pastry items (up to 20).

Spreading concept "The area of a coffee shop will be chosen individually for each outlet, but the reference point is around 30 sq.m," Mikhail Shuranov says.

McCafé's first ever shop was opened in 1993 in Australia. Since then, McCafé network has spread out globally with its number of shops exceeding 1,200 in Europe alone. In the USA, McCafé is respon-sible for 6% of the Golden Arches' total revenues.

Globally, McDonald's generated USD 24.08 bn (plus 5.7% on 2009)

in revenues and USD 4.9bn (plus 8.6% on 2009) in net profits last year.

” We are not going to open the new coffee shops everywhere, as it is the restaurants' location and visitors that will be taken into account first of all. McDonald's Ukraine's PR director Mikhail Shuranov

In Ukraine, McDonald's opened

its first restaurant back in May 1997, being the first international fast-food operator to have appreciated the huge potential of the almost 50-million European market (see new2biz UKRAINE no.1, page 8).

Since then, the company has in-vested more than USD 100m in own funds in the development of its na-tion-wide network and indisputable dominance on the Ukrainian fast food market.

McDonald's advance brought the fast-food culture into Ukraine and catalysed the birth of a handful of locally-owned fast-food chains.

However, the global downturn screened out the least professional players, while McDonald's was forced to change its tactics after 2008 and shifted emphasis from


launching new sites onto revamping existing ones.

In late December last year, McDonald's opened its 70th restau-rant in the country (see new2biz UKRAINE no.8, page 8). We have talked to

Mikhail Shuranov [email protected]

Tel: + 380 44 230 09 22

IT & MEDIA

INTERNET ADVERTISING Estonian SmartAD network eyes Ukraine following Baltic expansion The Internet advertising network SmartAD, operated by the Estonian marketing company Against All Odds, is planning to enter the Ukrainian and Belarusian markets once its Baltic expansion is over.

This year, a year after establish-ing its subsidiary in Latvia, the com-pany is set to win a foothold on the Lithuanian market, but is not going to stop there.

"Lithuania was a logical step in our development, as we are now present in both Estonia and Latvia, and want to cover all the Baltics with our services," says Dag Ainsoo, member of the board of Against All Odds, to news2biz.

"We need to have offices in all the three countries in order to help our customers to run coordinated pan-Baltic campaigns."

SEB's student loan campaign ban-ner distributed via SmartAD net-work. Picture: SmartAD

However, "Lithuania is not the

final stop for us – we also look at the markets of Ukraine and Belarus," he states.

"The further expansion will be unlikely to take place this year, as we are currently too busy with the Lithuanian office," Dag Ainsoo ad-mits. "One country per year is a manageable speed of expansion."

SmartAd's office in Lithuania is expected to be functional in the next few months.

"For the current year, our plans are modest, but in longer perspec-tive we want to claim 10% of the lo-cal Internet advertising market," says Ainsoo.

SmartAD already claims to be the largest Internet advertising network in Estonia.

The Latvian SmartAd unit is 80% owned by Against All Odds, and the Lithuanian one 100% owned.

"We included one Estonian inves-tor while expanding to Latvia; the original 50:50 ownership has now changed to 80:20," says Ainsoo.

"We want to include outside capi-tal also in Lithuania, and have a pre-liminary agreement with an interna-tional investment fund regarding in-vestment," he reveals.

” Lithuania is not the final stop – we also look at Ukraine and Belarus. Dag Ainsoo, Against All Odds' board member

SmartAD is a result-oriented Internet advertising network, estab-lished by three Estonians in 2008.

By analysing the characteristics of websites and using SmartAD software, the ads will be placed in a way that results in better reach to target audience of the marketing campaign, while also increasing the revenue of websites.

The consolidated turnover of Against All Odds reached EUR 0.32m in 2009. For 2010, Dag Ain-soo expects the company's turnover to reach EUR 0.45-0.48m.

We have talked to

Dag Ainsoo [email protected]

Tel +372 5661 7127 (mobile)

RECRUITMENT & CULTURE Clarus Eastern Europe refocused after crisis Clara Bodin is Swedish, she is from Värmland in the eastern part of Sweden. In Kyiv, her home since 2002, she is a woman of firsts – she is the youngest member of the Swedish Business Community and she is also the only Nordic woman entrepreneur who has set up her own business in Ukraine.

Her business is Clarus Eastern Europe, a company that now has a staff of eleven including Ms Bodin, who is CEO, and her 50/50 partner, expat Dutchman Joop Allers, who is the financial manager.

Finding right people "Following the Orange revolution in late 2004 and early 2005, there was a lot of focus on Ukraine and foreign companies started setting up shop here in significant numbers," ex-plains Ms Bodin to news2biz.

"I knew from previous experience that companies would be ready to pay for recruitment services, so our first focus was to help businesses that were starting up to find the right people for the job," she contin-ues.

This reporter has written about Nordic businesses setting up shop in Eastern Europe since 1996 and the most common explanation for a suc-cess story is that "we found the right person for the job" – just as the most frequent explanation offered when something is not a success is that


"we did not find the right person to shoulder the job." So, no doubt that Ms Bodin's services are at the centre of expanding Nordic en-trepreneurship to Ukraine.

Crisis meant SME focus "But then the financial crisis came, companies simply stopped coming to Ukraine. I think we have had two new arrivals in Ukraine since 2008, one Dutch and one Polish, where be-fore the crisis we had 4 start-ups per month. So we had to refocus," Ms Bodin recalls, adding that the drought in foreign companies setting up shop in Ukraine still has not sub-sided.

Ms Bodin's background in recruit-ment is somewhat arbitrary, whereas her interest in the CIS is not. Photo: Clarus Eastern Europe

Clarus has founded two dedi-

cated subsidiaries, one that focuses on student recruitment and em-ployer branding and the other focus-ing on HR-Audit, outstaffing and payroll outsourcing.

"We are focussing on SMEs that do not have the resources to imme-diately establish a subsidiary in Ukraine. We help them find and re-cruit typically one or two staff and they are put on our payroll – we pay the salaries, take care of formal em-ployment and all the bureaucracy while at the same time they work representing our client exclusively, whom we then bill on a regular ba-sis. This is a service for which we have high hopes," says Ms Bodin.

” Following the Orange revolution, foreign companies started setting up shop here in significant numbers… But then the financial crisis came, companies simply stopped coming to Ukraine. Clarus Eastern Europe's Clara Bodin

At the same time, Clarus Eastern

Europe still provides the classic re-cruitment services like vacancy fill-ing, executive search and headhunt-ing.

Ms Bodin's background in re-cruit-ment is somewhat arbitrary whereas her interest in the CIS is not. While at high school in Karlstad

in Värm-land at age 17 in 1994, she felt that she wanted to do something that no other Swedish high school student did and wanted to learn a language out of the ordinary. So she spent a year as a high school student in a Russian high school near Mos-cow.

From Karlstad to Kyiv In 2002 she graduated from Uppsala University where she studied inter-national economics focussing on Eastern Europe and Russian lan-guage.

Already before graduating she got a job offer to work at the Swed-ish Trade Council in Kyiv. It was only after finishing her tenure there in late 2003 that she got into re-cruitment, because she was hired by the Swedish network installer and service provider Relacom for their start-up in Ukraine.

"They needed someone to help them with local recruitment and I was a Swede who understood the language so I was just told to get started," Ms Bodin recalls.

When she finished her contract with Relacom she knew that she wanted to start her own business and she knew that companies are ready to pay for re-cruitment ser-vices.

The clash of cultures She has lived in Ukraine since 2002 and likes it there, which she thinks has something to do with her com-

ing to Russia and Ukraine al-ready in her formative years. She describes the experience in Ukraine for many expat Swedes and Nordic people in general as a clash of cultures.

"You cannot expect people who have lived all their life here to be like people are in Sweden. I have worked with some of my staff for over three years before I had man-aged to develop them enough so they take own decisions, think for themselves and stand out, but this is a long process," she says.

Ukraine is not cheap Also, Ms Bodin challenges the fixed idea that working in Ukraine should be cheap.

"A CFO in Sweden gets SEK 60,000-70,000 per month. So, when Swedes go to Ukraine they think that everything is much cheaper here and they want to pay a CFO SEK 20,000. But the truth is that a CFO will require almost the same as in Sweden, because the supply of fi-nancially capable people with inter-national experience and the com-mand of English is so low that this is just the going rate," she says.

"And you should never forget that you get what you pay for."

In Ukraine, it takes time Also another factor, which Nordic companies tend to be irritated by, is that in Ukraine everything takes time.


"Even trivial matters like setting

up a bank account take a very long time here – there is always another set of forms to be filled out and signed and stamped. The bureauc-racy is overwhelming and it just takes time in the start up phase and it takes time in the everyday busi-ness. That is the way it is."

Living more than eight years in Kyiv, she also notes that Ukrainians and Western Europeans are getting similar in many ways. One such as-pect is appearance.

” Even trivial matters like setting up a bank account take a very long time here – there is always another set of forms to be filled out and signed and stamped. Clarus Eastern Europe's Clara Bodin

"When I started, we had to teach

people how to dress at job inter-views with Western executives. And it wasn't just that women had to dress less flamboyantly in order to be taken seriously, it was also that the men had to wash up and get out of the dirty work clothes," she ex-plains.

But Ms Bodin underlines that this has changed a lot for the better. She attributes this to the fact that the

experience from the Soviet days when you could get nothing in the shops is becoming more distant, but also to more hands-on facts like the spread of fashion retailers like Zara and Marks & Spencer (which means that Westerners and Ukrainians are basi-cally wearing the same clothes) as well as the spread of whitegoods re-tailers from 2006-2007 which had made the automatic washing ma-chine available to growing numbers of Ukrainians.

You have to live in Ukraine to make these connections. We have talked to

Clara Bodin [email protected]

Tel +380 67 967 33 36 (mobile)

TRANSPORT & LOGISTICS

AIR ALLIANCES Austrian Airlines increases interest in UIA, remainder being eyed by competitors Austrian Airlines has expanded its shareholding in Ukraine Interna-tional Airlines (UIA or MAU, to give it its Ukrainian acronym) to 32.45%, having bought a 9.93% stake in the Kyiv-based air carrier from the European Bank for Reconstruction and Development (EBRD).

"The EBRD sold its stake in the Ukrainian airline at the end of last year," Anton Usov, EBRD principal adviser, says to news2biz. "It was sold to Austrian Airlines, because the

Austrian company held an option for the acquisition of that interest."

Austrian Airlines held an option to buy 9.93% in UAI. Photo: Austrian Airlines

UIA's principal stockholder re-

mains the Ukrainian government, who has, through the country's State Property Fund, been seeking to sell the airline's 61.58% stake for at least UAH 250m (about USD 31.3m) to one of its current shareholders.

In the meantime, the Ukrainian Aviation Group (UAG), which con-solidated three formally independent Ukrainian airlines in September last year (see news2biz UKRAINE no. 3 page 12,), is reportedly prepared to pay twice more, UAH 516.84m (USD 65m) for the state-run stake in UAI.

The birth of monopoly After the last year's consolidation, UAG, which is associated with the financial and industrial group of Dnipropetrovsk-based oligarchs Igor Kolomoisky and Gennadiy Bo-goliubov (conventionally called Pri-vat), has allegedly concentrated 60% of the domestic airlines market and the only thing which seems to be

able to stop its expansion is Privat's own fear of being found the market monopolist.

Sooner or later the 61.58% stake in UIA will be acquired though, ei-ther by UAG or another alliance. Inevitable consolidation On the global scale, the past couple of years (2008-2010) have seen per-haps the highest number of alliance agreements closed by the interna-tional air carriers throughout the en-tire history of aviation.

Even the global players, such as Air France and KLM, British Airways and Iberia, have realised that joining efforts amid the global recession and severe competition would help them reduce their fares, widen their offer ranges and maintain their market positions.

According to local and interna-tional experts, Ukraine is bound to follow the same path and the last year's alliance, which has reportedly improved its members' overall per-formance results, is just the first sign of the trend.

Fact

65 USD million is the price UAG is ready to pay for 61.58% in UIA.

As a matter of fact, there are just

three players remaining on the Ukrainian market now: UAG, UIA and the Hungarian low-cost carrier


WizzAir. The latter two companies will hardly be able to fight the con-stantly growing competition on their own and will most likely be taken over by larger players.

Largest connection network Established in 1992, right after Ukraine gained independence, today UIA offers more European direct services from Ukraine than any other airline, operating 300 scheduled flights per week with onward con-nections across the globe.

Through its partner network UIA serves over 3,000 destinations offer-ing the best same-day connections. UIA has more than 40 representative offices in Ukraine and abroad; its commercial network covers 70 coun-tries. We have talked to

Anton Usov [email protected]

Tel +380 44 277 11 00 (switchboard)

FORWARDING Sweden's Ukraine forwarder Ytrans waiting for break Y for Ukraine you could say, refer-ring to the Cyrillic spelling of the country's name.

You could also say Y for Ystad, a town in Southern Sweden with a large port and one that is of the ut-most importance for the country's connection to Poland and Ukraine and the rest of Eastern and Central Europe due to the Ystad-Swinoujscie ferry connection.

You should definitely say Y for Ytrans, a forwarding company

founded in 1985, which is situated in Ystad and for which transports to and from Ukraine provide the better part of the turnover.

Despite its massive experience in Ukraine, Ytrans and its head Inge-mar Andersson are still waiting for a new birth. Photo: Ytrans

The first offices of Scandinavian

companies in Eastern and Central Europe started appearing in the countries in the late 1980s, together with the political changes, and the big wave came in the mid- and late nineties.

But by then Ytrans was already a veteran in Ukraine. The company started its office in Kyiv already in 1985, the same year that Mikhail Gorbachev became general secretary of the Communist Party of the Soviet Union.

Still despite the massive experi-ence in the country, Ytrans is still waiting for a new birth.

"We have an office with two staff in Kyiv, but we are still waiting for a return to the levels of business that we saw before the Orange revolution in 2004/2005," says Ytrans head In-gemar Andersson to news2biz.

He took over Ytrans in 2007 and runs it in parallel with his other Ys-tad-based forwarding company In-tertranspedia that both focus on transports to Eastern and Central Europe – with Poland as the largest total market.

"Ytrans today turns over app. SEK 55m annually, and of this SEK 30-35m stem from transports to and from Ukraine. You could say that this is fair enough, but volumes be-fore 2004/05 were much higher and we are still waiting for them to re-turn to that, but as of yet there is no indication that they will," says Mr Andersson.

” Volumes before 2004/05 were much higher and we are still waiting for them to return to that level. Ytrans head Ingemar Andersson

The reduced volume has also

meant that Ytrans Ukraine now only is present in Kyiv, whereas before the company also had a presence on the Polish-Ukrainian border at Dorohusk-Jagodin.

Ytrans has also closed its Polish office in Swinoujscie in 2008 be-cause the practical need for an office so relatively close to home disap-peared following Poland's EU acces-

sion and the increased usage of the internet in the company.

Mr Andersson founded Inter-transpedia on 1 January 2000 to-gether with colleagues from a large Swed-ish forwarder that has now been taken over by Danish DSV.

"It used to be a family business and now they have something like 21,000 employees. We wanted to have a company where individual em-ployees could still make a differ-ence and provide the personal ser-vice that used to be the focus in the business," says Mr Andersson.

Intertranspedia has an annual turnover of app. SEK 125m. We have talked to

Ingemar Andersson [email protected]

Tel +46 411 298 51 (direct)

ENERGY &

ENVIRONMENT

COAL PRODUCTION Ukraine enjoys expanded annual output, expects faster growth this year The Ukrainian mines expanded their aggregate 2010 coal production by 4.1% on 2009 to 75.231m tonnes, according to the country's ministry of power engineering and coal in-dustry.

In terms of individual coal pro-duction, coking coal output shrank by 6.2% year-on-year to 24.182m tonnes, while that of thermal coal


grew by 9.9% y/y to 51.049m ton-nes last year.

As far as the producers' affiliation is concerned, the state-run collieries of the coal ministry managed to in-crease their output by just 0.2% to 38.45m tones.

Specifically they produced 7.458m tonnes of coking coal (down 17.8% on 2009) and 30.995m tones of thermal coal (up 5.8% y/y).

Coal output expands slightly in '10 Annual output of coal available and coke of coking coal in Ukraine,

in million tonnes

60

70

80

90

2003

2004

2005

2006

2007

2008

2009

2010

Source: State Statistics Committee of Ukraine

In 2009, Ukraine's overall coal

production dropped down by 7% on 2008 to 72.219m tones. That year, all the 140 state-run Ukrainian col-lieries produced 38.440m tonnes of coal (down 15.3% on 2008), while the 20 private ones mined out 33.863m tonnes of the product.

As a result, the private sector in-creased its share in the total domes-tic output from 43% to almost 47%.

The only plausible excuse for the state-owned mines' lower productiv-ity is that the industry's best enter-

prises have long ago found them-selves in the private hands.

This year, as the Ukrainian steel production volume is expected to expand by 14.5% y/y to 37.4m ton-nes, according to the sector analysts, this is likely to result in the growing coal output.

OIL Capital Oil sells off Ukrainian daughter firm The Swedish First North listed oil prospecting and production com-pany Capital Oil has sold off its Ukrainian daughter company LLC Capital Oil Ukraine to Ukrainian Ai-kon LLC.

The Ukrainians will pay 0.5m EUR for the Capital Oil Ukraine, less than the announced minimum of SEK 5m. The payment will take place in rates during 2011 and the sum will be paid in full by the end of 2011.

Aikon has ceded its rights to Capital Oil Ukraine to a company called Ollreidco Enterprises Limited.

news2biz has asked Capital Oil CEO Leif Larsson what kind of a company this is and what the impli-cations are from this, but he declines to comment.

Still in the talks "The focus still is to complete the negotiations regarding production cooperation with Ukrainian inter-ested parties to provide future prof-itability and positive cash flow for

Swedish Capital Oil," Mr Larsson says in a statement.

He adds to news2biz that the in-terested parties remain the same and the negotiations are ongoing.

Capital Oil has cooperated with the Ukrainian companies regarding exploration in Western Ukraine. CEO Leif Larsson focusses on nego-tiations. Photo: Capital Oil

Capital Oil has cooperated with

the state and municipal Ukrainian companies Bogorodchanynaftogas and Zakhidukrgeologia regarding exploration in license blocks Kubash-Lukva, Maydan and Gorodok near Ivano-Frankivsk in Western Ukraine.

However, already in connection with Capital Oil's 2009 report, the investments in Ukraine and the two projecting licences in Western Ukraine were written down to 0 be-cause Capital Oil did not have the capital to develop them into a pro-duction phase.

In July-August 2010, a directed share issue took place whereby the Swedish registered company Misen

Enterprises, which represents Ukra-inian interest, took over 22% of the share capital in Capital Oil and be-came its main owner. In December, at an extraordinary AGM, it was de-cided not to liquidate Capital Oil.

” The focus is to complete the negotiations to provide future profitability for Capital Oil. Capital Oil's Leif Larsson

The idea, it seems, is that Ukrain-

ian interested parties, like the inves-tors behind Misen, should have an interest in gaining access to a West-ern stock listing (which Capital Oil has) against them moving oil and gas production into Capital Oil.

Whether this is a viable way out for Capital Oil remains to be seen.

The basin near Ivano-Frankivsk was one of the first oil deposits to be exploited in Europe, as early as the middle of the 19th century. Deposits as shallow as 1,000 metres were ex-ploited. From 1960s the focus of the Soviet oil and gas industry moved to Siberia and the Ukrainian oilfields were ignored. Still, the basin has a very good oil potential and interest has grown as of late. We have talked to

Leif Larsson [email protected]

Tel +46 708 40 82 71 (mobile)


ECONOMY & POLITICS

TRADE WARS Ukrainian-Belarusian beer war: SUN InBev and Obolon surrender, Carlsberg manoeuvres On 27 January 2011, SUN InBev Ukraine, one of the largest players on the Ukrainian beer market, re-sumed its exports to neighbouring Belarus, which were suspended on 1 January same year as a result of the restrictions imposed by the Belaru-sian authorities on the Ukrainian beer import.

Baltic Beverages Holding AB (ВВН), part of the Carlsberg Group, in-creased its ownership in Olivaria, the third largest Belarusian brew-ery, to 67.8%. Photo: Carlsberg

The export deliveries resumed af-

ter SUN InBev Ukraine signed an agreement with Belgospischeprom, the state-run Belarusian food indus-try concern authorised to determine the minimum prices of the beer im-ported to Belarus, said Denis Khrenov, SUN InBev Ukraine's di-

rector for legal issues and corpora-tive relations, at a new conference in Kyiv.

According to him, the beer manufacturer was forced to come to terms with the Belarusian side, as otherwise it could have lost that market. He did not reveal details of the signed agreement, but in the course of the negotiations preceding the bargain the Belarusian "partners" called for a 64% hike in the price for the Ukrainian-made beer sold in Belarus.

” Ex-works price of the Ukrainian beer should be equal to that of Belarusian. Belarusian officials

Thus SUN InBev Ukraine became

the first, but not the last Ukrainian beer producer to have succumbed to the Belarusian pressure.

Just days after the signing of the "historic agreement", Ukraine's larg-est beer exporter Obolon followed SUN InBev's example and struck its own deal. According to Viktoria Ali-mova, Obolon vice-president for de-velopment, the company appeared to be more persistent in fighting its interests and agreed to increase its beer prices by "just" 49%.

The Belarusian authorities had long been attempting to put a bar-

rier on the way of the Ukrainian beer to their market. In April 2010, they began an anti-dumping investi-gation aimed to expose the allegedly unfair competition from the Ukrain-ian breweries.

By licences only Having failed to prove anything and dismissed the case, the Belarusian side announced the introduction of import licences for the Ukrainian beer imports.

The licences are effective from 1 January 2011 to 31 December 2012 and may be granted only to those Ukrainian producers, who are pre-pared to increase minimum prices for their products.

The Ukrainian beer manufactur-ers, from their side, blamed their opponents for having adopted a dis-criminating stance towards solely Ukrainian producers, as the beer im-ports from other countries were not subject to any sort of restrictions.

On 20 December 2010, Belgos-pischeprom demanded the Ukrainian manufacturers to increase their fac-tory prices by 30%, but on 6 January 2011, when the Ukrainian breweries were forced to halt their deliveries to Belarus and entered into negotia-tions, the Belarusian state body re-vealed the new "price tag" – 64%.

Production costs differ At the same time, Belgospischeprom declared its determination to reduce the share of imported beer in Bela-

rus from the present 30% to 5% by 2015.

"Ex-works price of the Ukrainian beer should be equal to that of Bela-rusian", maintain Belarusian offi-cials.

"But the beer production is cheaper in Ukraine, as the local in-gredients such as barley and malt are cheaper than those in Belarus, where their prices are fixed by the government," strike back Ukrainian brewers.

"In addition, the beer produced at large Ukrainian factories, such as Obolon, which is one of the largest in Europe, will always be cheaper that that made at much smaller Bel-arusian breweries just because of the scale economy," they added.

” The beer produced at the large Ukrainian factories will always be cheaper that that made at much smaller Belarusian breweries just because of the scale economy. Ukrainian brewers

According to Galina Korenkova,

head of the association of the Ukrainian brewers UrkPyvo, the main reason behind the Belarusian stance is the plans of the country's government to soon increase pur-


chasing prices for barley by 41%. If this is so, this will inevitably result in higher prices for both malt and the final product, beer. In such a case, the demand to make the Ukrainian beer more expensive is a sort of preparation to the coming price hike. Carlsberg's manoeuvre "We are ready to increase our prices by 10-15%, but not by 60% or more as demanded by the Belarusian side," said a source at Slavutich, one of the breweries controlled by Carls-berg Group in Ukraine, in the first half of January 2010. "We believe that the 60% price increase would mean a 70% sales drop on the mar-ket."

On 17 January 2011, Baltic Bev-erages Holding AB (ВВН), which also belongs to the Carlsberg Group, officially announced the increase of its ownership in Olivaria, the third largest Belarusian brewery, to 67.8%.

Buying into local brewery Earlier, in the summer of 2010, BBH increased its holdings in Olivaria from 30% to 47%. The second major shareholder of Olivaria Brewery is the European Bank for Reconstruc-tion and Development (EBRD), with the remaining shares owned by indi-viduals.

As a result of the transaction, Olivaria has become "a full member of the Group and can obtain further access to the international expertise

within sales and marketing as well as brewing technologies." Ukraine is one of the largest players on the Belarusian beer market. Ac-cording to both Belarusian sources and UkrPyvo, Ukrainian breweries exported 43m litres of beer (esti-mated at around USD 17m) to Bela-rus from January to November 2010, or almost a third of the country's to-tal beer import of 131m litres during the same period. Fact

43m litres of beer was exported from Ukraine to Belarus from January to November 2010.

Ukraine's overall beer production

in 2010 grew by 3.3% on 2009 to some 3.1bn litres, according to the preliminary data. The volume is still 3.1% lower than that of 2008 (3.2bn).

This year, the Ukrainian beer market can grow by 5-10% com-pared with 2010 and reach the re-cord volume of the pre-crisis 2007, according to SUN InBev Ukraine's marketing director Kostiantyn Kly-menko. EVENTS INTERAGRO 2011 7th International specialised exhibition of the remunerative highly effective agri-culture. Date: 2 – 4 February 2011

Venue: KyivExpoPlaza exhibition center, 2-B, Saliutna Str., Kyiv General organiser: Kyiv International Contract Fair Co-organisers: German associations of producers of agricultural machinery, VDMA, French agency of international development of enterprises UBIFrance. Contacts: [email protected], Tel: +380 44 490 6469 http://interagro.in.ua/ Agro Animal Show 2011 International exhibition of the effective animal husbandry and poultry Date: 2-4 February 2011 Venue: KyivExpoPlaza exhibition center, 2-B, Saliutna Str., Kyiv Organiser: Kyiv International Contract Fair Co-organisers: IFWexpo Heidelberg GmbH, French Agency for International Development of Enterprises (UBI-FRANCE). Contacts: [email protected] Tel: +380 44 490 6469 www.animal-show.kiev.ua/index.php?lang=en Ukraine: Investment and Export Opportunities for Swiss SMEs Free Trade Agreement Switzerland – Ukraine: New Prospects? Seminar Date: 10 February Venue: Osec, Stampfenbachstrasse 85, 8006 Zürich Tel. 044 365 51 51, [email protected], www.osec.ch

Organiser: Osec Contact: Eva Gasser [email protected] Tel. +41 44 365 52 17, Registration deadline: Monday, 7th Feb-ruary 2011

Ukrainian Real Estate & Construction Summit 2011 (URECS-2011) Date: 15 – 17 February (URECS-2011). Venue: Hotel Intercontinental, Kyiv Organiser: Adam Smith Conferences Contacts: Lyudmyla Durneva [email protected], Tel: +44 20 7017 7444,

Logistics Innovation Forum 2011 Date: 16 February 2011 Venue: Hospitalna, 4, Hotel Rus, Kyiv, Organiser: Business Summit Contacts: [email protected] Tel.: +38 (044) 362-82-64, 383-56-43 www.summitbiz.com.ua Food Industry Forum The fourth annual international confer-ence Date: 17.02.2011 Venue: Hospitalna, 4, Hotel Rus, Kyiv, Organiser: Meeting Point Ukraine Contacts: Olesya Kreminskaya [email protected]


KEY FIGURES

CONSUMER PRICE INDEXcolumn A: 100 = current 12 months; column B: 100 = previous month

Sep '10 Oct '10 Nov '10 Dec '10

Sector A B A B A B A B

Food, non-alcohol 113.2 104.4 113.0 100.5 111.4 100.1 110.6 101.0

Alcohol, tobacco 121.8 105.5 122.1 101.6 122.1 101.1 122.1 100.8

Clothing, footwear 103.1 100.4 102.6 100.7 102.3 100.4 102.2 100.2

Housing, water, fuels 116.6 100.2 114.1 100.4 113.7 100.5 113.7 100.3

Transport 103.1 99.6 103.4 100.0 103.3 100.7 106.6 101.6

Communications 91.4 99.8 91.1 99.6 91.1 99.9 91.1 99.9

Gross CPI 110.5 102.9 110.1 100.5 109.2 100.3 109.1 100.8


PRODUCER PRICE INDEXOn monthly basis Jun '10 Jul '10 Aug '10 Sep '10 Oct '10 Nov '10 Dec '10

100 = previous month 99.5 99.8 100.9 100.1 102.4 99.7 100.9

100 = same month prev year 125.5 124.4 123.3 119.2 119.8 118.9 118.7

Year 2004 2005 2006 2007 2008 2009 2010

100 = previous year 120.5 116.7 109.6 119.5 135.5 106.5 120.9

Note: Producer prices are prices of industrial goods excluding VAT and other taxes.


CONSTRUCTION PRICE INDEXOn monthly basis May '10 Jun '10 Jul '10 Aug '10 Sep '10 Oct '10 Nov '10

100 = previous month 101.9 101.3 101.8 100.7 100.9 103.2 101.1


Year 2003 2004 2005 2006 2007 2008 2009

100 = previous year - 120.2 125.6 123.5 123.1 135.3 111.3

Market volume in current prices, UAH m New residential buildings in 1,000 m2

2000

3000

4000

5000

6000

7000

Mar

10

May

10

Jul 1

0

Sep

10

Nov

10

600

1000

1400

1800

2200

2600

3000

3400

Q3 '0

9

Q4 '0

9

Q1 '10

Q2 '10

Q3 '10


REAL ESTATE PRICESNew flats, average price in Kyiv, UAH/m2

12000

12500

13000

13500

14000

14500

15000

May

09

Sep

09

Jan

10

May

10

Sep

10

Jan

11

Number of transactions on secondary market

Mar '10 Apr '10 May '10 Jun '10 Jul '10 Aug '10 Sep '10 Oct '10

Kyiv 345 350 378 321 376 390 407 389

Source: realt.ua, Blagovest Real Estate Agency

RETAIL TRADEat current prices Sep 2010 Oct 2010 Nov 2010 Dec 2010

Turnover in UAH m 47,110 51,682 47,744 53,603

Index 100 = previous month 96.6 109.7 92.4 112.3

Index 100 = same month prev year 102.4 102.1 107.5 96.8

Year 2007 2008 2009 2010

Turnover in UAH m 318,725 449,308 442,793 529,883

Index 100 = previous year - 141.0 98.6 119.7


SENTIMENT INDICATORSConsumer confidence index

020406080

100120

May

09

Jul 0

9Se

p 09

Nov 0

9Ja

n 10

Mar

10M

ay 10

Jul 1

0Se

p 10

Nov

10

Note: threshold of optimism = 100. Source: GfK

Ukraine, International Centre for Policy Studies.

Business outlook index

Q4 2010 120.0

Q3 2010 115.4

Q2 2010 121.8

Q1 2010 115.6

Q4 2009 104.4

Note: National Bank of Ukraine has con-

ducted a business outlook survey for a

longer period of time, but publishes the

index only since the end of 2009.

Source: National Bank of Ukraine

Commercial, average rent price in Kyiv,

USD/m2; period 24-31 Jan 2011

Centre

- office 21.69

- retail space 38.25

Right coast (without centre)

- office 14.94


Left coast

- office 12.57


INDUSTRIAL OUTPUT INDEX On monthly basis Jun '10 Jul '10 Aug '10 Sep '10 Oct '10 Nov '10 Dec '10

100 = previous month 99.5 102.9 101.5 102.9 104.8 97.8 104.7


Year 2004 2005 2006 2007 2008 2009 2010

100 = previous year 112.5 103.1 106.2 107.6 94.8 78.1 111.0


GROSS WAGEScolumn A: average monthly wages in UAH; column B: indexed average wages, 100=2005

Q2 2010 Q3 2010 Q4 2010

Sector A B A B A B

Industrial production 2,519 313 2,682 333 2,823 350

Finance 4,545 564 4,727 586 5,006 621

Construction 1,689 210 1,915 238 ,2061 256

Public administration 2,707 336 2,975 369 3,016 374

Real estate activities 2,367 294 2,525 313 2,740 340

Hotels and restaurants 1,460 181 1,518 188 1,546 192

Transport, communications 2,661 330 2,889 358 2,855 354

National average 2,227 276 2,332 289 2,435 302

Note: Wage accruals per pay-roll; Source: State Statistics Committee of Ukraine

INFLATION

-5%

0%

5%

10%

15%

20%

25%

Dec

08

Feb

09

Apr

09

Jun

09

Aug

09

Oct

09

Dec

09

Feb

10

Apr

10

Jun

10

Aug

10

Oct

10

Dec

10

Year-on-year Month-on-month



TRADE Ukrainian exports and imports according to commodity groups

EXPORTS in USD bn IMPORTS in USD bn

Jan-Nov 2010 Share Jan-Nov 2009 Share 2009 Share Jan-Nov 2010 Share Jan-Nov 2009 Share 2009 Share

Non-precious metals, metal products 15,776 34,2 11,678 32,8 12.824 32.3% 3,678 6,8 2,425 6,0 2.681 5.9%

Mineral products 6,135 13,3 3,382 9,5 3.891 9.8% 18,877 34,9 13,904 34,4 15.675 34.5%

Machinery 5,074 11,0 4,450 12,5 5.003 12.6% 7,248 13,4 5,537 13,7 6.270 13.8%

Agricultural food products 8,626 18,7 8,509 23,9 9.529 24.0% 5,030 9,3 4,365 10,8 4.952 10.9%

Chemical products 3,091 6,7 2,279 6,4 2.501 6.3% 5,679 10,5 4,729 11,7 5.316 11.7%

Light industry products 0,923 2,0 0,961 2,7 1.032 2.6% 2,380 4,4 1,698 4,2 1.817 4%

Wood, wood products 1,615 3,5 1,353 3,8 1.469 3.7% 1,839 3,4 1,455 3,6 1.636 3.6%

Other goods 4,890 10,6 2,991 8,4 3.454 8.7% 9,357 17,3 6,305 15,6 7.088 15.6%

TOTAL 46.1 100% 35.6 100% 39.7 100% 54.1 100% 40.4 100% 45.4 100%


Ukraine's eight largest markets for trade of goods, ranked according to Jan-Nov 2010 in USD bn

EXPORT IMPORT

No Country Jan-Nov

2010Share 2009 Share No Country

Jan-Nov

2010Share 2009 Share

1 Russia 12,132 26,3 8.495 21.4% 1 Russia 19,742 36,5 13.236 29.1%

2 Turkey 2,629 5,7 2.127 5.4% 2 China 4,165 7,7 2.734 6.0%

3 Italy 2,168 4,7 1.228 3.1% 3 Germany 4,111 7,6 3.852 8.5%

4 Belarus 1,661 3,6 1.259 3.2% 4 Poland 2,542 4,7 2.170 4.8%

5 Poland 1,615 3,5 1.213 3.1% 5 Belarus 2,272 4,2 1.693 3.7%

6 Germany 1,384 3,0 1.248 3.1% 6 USA 1,569 2,9 1.286 2.8%

7 India 1,199 2,6 1.152 2.9% 7 Italy 1,244 2,3 1.140 2.5%

8 China 1,199 2,6 1.434 3.6% 8 Hungary 1,136 2,1 0.678 1.5%

CURRENCY National Bank average rates

as of 03 February 2011, change 20 Jan

100 USD 794,1700 ↓

100 EUR 1096,1929 ↑

100 GBP 1286,7624 ↑

100 DKK 147,0433 ↑

100 SEK 123,7029 ↑

100 NOK 139,0402 ↑

1,000 JPY 97,5695 ↑

100 LVL 1562,6413 ↑

100 LTL 317,4794 ↑

10 RUB 2,6992 ↑

100 USD/EUR against UAH

900,00

1000,00

1100,00

1200,00

1300,00

28 Ja

n18

Mar

06 M

ay24

Jun

12 Au

g30

Sep

18 N

ov03

Feb

700

750

800

850

900EUR (left)

USD (right)


CREDIT The banks' net lending in UAH bn, loan stock by the end of period

Type of loan Q3 '09 Q4 '09 Q1 '10 Q2 '10 Q3 '10

- to private companies 457.52 462.21 453.58 463.28 488.24

- to households 252.33 241.31 229.34 221.32 218.76

- to others 15.76 15.25 14.76 13.48 14.65

Total 725.61 718.77 697.68 698.08 721.65


INTEREST RATESAverage weighted annual interest rates on credits Recipient, currency Jun 10 Jul 10 Aug 10 Sep 10 Oct 10 Nov 10

Companies, UAH 14.82% 13.90% 12.95% 13.62% 13.84% 13.20%

Companies, USD 11.26% 10.43% 9.71% 10.33% 9.58% 10.11%

Households, UAH 25.30% 24.61% 28.10% 27.48% 26.63% 25.93%

Households, USD 13.59% 11.39% 13.77% 10.69% 9.90% 11.17%

Kyiv Inter Bank Offered Rate (KYIVPrime) as of 3 January 2011

Overnight 1 week 1 month 3 months

1.65% 2.57% 4.01% 5.35%

Source: National Bank of Ukraine, Bloomberg

STOCK EXCHANGEPFTS Ukraine Stock Exchange main list

in alphabetic order

Price

02 Feb

Change

19 Jan

Change

end of '09

↑ Alchevskiy Metalurg. Kom 0,25 + 4% + 79%

↓ Azovstal 3,21 - 4% + 20%

→ Avdievsky Koksochim Zav 16,69 0% + 39%

↓ Centrenergo 18,24 - 2% + 92%

Dniproenergo - - -

Donbasenergo - - -

↓ Enakiyvckiy Metalyrginiy Zav 190,5 - 4% + 13%

↑ Interpipe Nizhnodniprovsky 8,4 + 3% - 9%

→ JSCB Ukrsotsbank 0,63 0% + 80%

↑ Krukivsky Carriage Works 38,73 + 6% -

↑ Mariupol Heavy Machineb. 10,27 + 8% -

↑ Motor Sich Jsc 3338 + 11% + 103%

↑ Poltava Gok 46,57 + 1% + 69%

↓ Raiffeisen Bank Aval 0,43 - 2% + 72%

Stirol Concern - - -

Sumske Nvo Im. Frunze - - -

Zakhidenergo - - -

↑ Ukrnafta 673,6 + 12% + 300%

↑ Ukrtelecom 0,58 + 7% + 26%

→ Yasynivskiy Koksohimichniy Z 5,14 0% + 53%

Note: PFTS index 100= 1 October 1997

Source: PFTS

PFTS index

1051.55 Change 19 Jan + 4% ↑

Change end of '09 + 91% ↑

PFTS closing index

the last three months

700750

800850900950

100010501100

3 Nov

3 Dec

2 Jan

1 Feb

MONEY SUPPLYin UAH m Jul '10 Aug '10 Sep '10 Oct '10 Nov '10

Monetary base 223,819 220,384 216,727 221,581 215,713

M1 269,281 271,303 275,424 277,682 276,374

Currency outside banks 175,080 175,103 174,814 175,226 173,332

M2 550,096 555,327 567,747 574,946 572,660

- Time deposits 280,815 284,025 292,323 297,264 296,286

M3 550,941 556,176 568,810 576,046 574,070

- Net foreign assets EUR bn 78,438 90,010 114,789 107,673 105,972

Monetary base: Ukrainian currency emitted by the central bank and money on accounts held

with it. M1= currency outside banks + demand deposits M2= M1+ time deposits (lnc in foreign cur-

rencies) Source: National Bank of Ukraine


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GDP at current prices

Period Real growth

year on year

GDP in UAH m

current prices

GDP per capita

in UAH

Current account

in % of GDP

Q3 2010 3.4% 303,705 - -

Q2 2010 5.9% 262,365 - 1.3%

Q1 2010 4.9% 218,125 - - 0.7%

Q4 2009 - 6.8% 261,730 - -

Q3 2009 - 16.0% 251,263 - -

2009 - 15.1% 914,720 19,862 - 1.5%

2008 2.3% 948,056 20,495 - 7.0%

Source: State Statistics Committee of Ukraine, National Bank of Ukraine

CURRENT ACCOUNT in USD m 2008 2009 2010 Nov 2010 Dec 2010

Trade balance - 16,091 - 4,655 - 8,397 - 1,003 - 1,205

Services, net 1,741 2,633 4,709 324 345

Direct investments, net 9,903 4,654 5,684 726 905

Current account balance - 12,763 1,801 - 2,558 - 559 - 815


KEY ECONOMIC DATA FORECAST 2010 2011 2012

Indicator IMF Swedbank IMF Swedbank Swedbank

GDP change 3.7% 4.0% 4.5% 4.3% 4.8%

Consumer prices (inflation) 9.8% 11.7% 10.8% 10.0% 8.5%

CA balance, % of GDP - 0.4% - 1.0% - 1.3% - 2.0% - 3.0%

Sources: IMF, Swedbank

REGIONAL DATAOutput

Jan-Dec 2010 *

Monthly wages (UAH)

Jan-Dec 2010**

Unemployment

Jan-Sep 2010***

New dwellings

2009

Ukraine's regions

Industry Agriculture Amount Index* in '000 % ‘000 m2 % to ‘08

Autonomous Republic of Crimea 110.6 98.5 1991 116.6 59.1 6.7 387.3 93.2

Cherkasy 117.1 105.0 1835 119.8 62.9 11.0 144.8 88.7

Chernigiv 99.8 86.9 1711 116.8 54.5 12.0 104.8 51.5

Chernivtsi 111.8 103.4 1772 116.3 35.2 9.9 164.8 45.2

Dnipropetrovsk 116.1 101.0 2369 120.7 116.6 7.5 170.4 38.9

Donetsk 114.8 101.6 2549 120.5 188.5 9.3 173.0 39.6

Ivano-Frankivsk 100.2 100.4 1927 118.4 47.4 8.7 380.6 73.7

Kharkiv 105.8 87.1 2060 114.2 96.4 7.6 427.5 192.0

Kherson 100.5 102.9 1726 116.5 47.5 9.6 75.2 32.7

Khmelnytsky 104.9 100.1 1786 117.4 54.1 9.4 266.1 86.3

Kirovograd 112.8 102.0 1815 118.1 43.5 10.0 66.5 51.8

Kyiv (Kiev) 107.9 100.1 2295 115.5 59.2 7.9 680.1 58.4

Lugansk 107.1 91.8 2271 121.2 78.0 7.7 35.1 14.1

Lviv 100.9 96.9 1942 116.5 92.2 8.3 391.6 50.2

Mykolayiv 110.3 101.0 2122 117.5 48.4 9.0 86.2 53.6

Odesa 102.8 108.7 2046 114.5 65.0 6.3 537.2 63.4

Poltava 112.6 91.8 2102 121.3 68.6 10.0 155.5 59.5

Rivne 129.6 102.0 1960 121.4 60.5 12.0 98.3 56.9

Sumy 93.5 91.7 1866 117.1 58.2 12.0 138.6 69.7

Ternopil 102.5 94.8 1659 117.5 50.8 11.0 146.2 48.0

Vinnytsia 106.5 102.8 1782 117.9 76.4 11.0 171.5 47.4

Volyn 126.7 101.5 1692 118.6 40.1 9.1 138.7 71.1

Zakarpattia 142.6 96.2 1846 118.2 52.5 9.5 169.2 43.0

Zaporizhzhia 107.8 101.9 2187 118.7 64.7 7.9 101.2 46.6

Zhytomyr 108.2 100.2 1785 119.6 60.8 11.0 88.8 35.9

National average 111.0 99.0 2239 117.5 1,772.3 8.7 6,399.6 61.0

* Index 100 = same period of the previous year. ** Data refer to enterprises with 10 and more employees; preliminary data.

*** ILO, working age

UNEMPLOYMENTRegistered unemployed (ILO), in ‘000 and % of population in working age

1000

1300

1600

1900

2200

2500

Q1 0

8

Q2 0

8

Q3 0

8

Q4 0

8

Q1 0

9

Q2 0

9

Q3 0

9

Q4 0

9

Q1 10

Q2 10

Q3 10

0

3

6

9

12

15 number (left) % (right)


GENERAL INFORMATIONPopulation: 45,700,395

Currency: Hryvnia (UAH)

In power: President Viktor Yanukovych. Most

seats in parliament Party of Regions (34%, PM

Mykola Azarov), Block of Y. Tymoshenko (31%).

Elections: 2012 parliamentary, 2015 presidential

Most important tax rates

Income tax: individual 15%, corporate 25%

VAT: 20%

Social tax: up to 35%

COUNTRY RATINGAgency rating outlook

Fitch Ratings B stable

Standard & Poor's B+ stable

Moody's Investor Service B1 stable

Source: Investment agencies

FOREIGN DIRECT INVESTMENT in USD m On quaterly basis Q2 '09 Q3 '09 Q4 '10 Q1 '10 Q2 '10 Q3 '10

in Ukraine 1,439.1 625.9 1,435.2 - 19.4 394.7 2,109.8

Ukrainian DI abroad 1.8 - 35.6 32.1 569.9 - 29.0 87.1

Year 2004 2005 2006 2007 2008 2009

in Ukraine 2,252.6 7,843.0 4,717.3 7,935.4 6,073.7 4,410.4

Ukrainian DI abroad 32.6 20.9 23.8 5,953.3 6.5 20.2


Ukrainian story of Stora Enso: heard first hand

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