Anastasiia Ivanova Olga Kotelnikova Alina Luchinina Tatiana Rubtsova Current Strategy of Ryazan Capital Bank Does Not Support the Goal of Maximizing Return on Equity

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Team: Anastasiia Ivanova Olga Kotelnikova Alina Luchinina Tatiana Rubtsova Current strategy of Ryazan Capital Bank does not support the goal of maximizing return on equity

20% Financial Maximize Return on Equity, 2012, % RCB’s current strategy of results ROE 15% 10% growth led to far lower 16% 12% profitability in comparison 5% 7% 1% Revenue 0% with competitors Top 3, Tier I, Tier II, RCB average average average Although RCB revenue constantly grew at a higher pace Market share Customers Customer comparing to market… …customer survey has Satisfaction 80% 60% shown low customer 40% satisfaction with bank 20% operations 0% 2008 2009 2010 2011

RCB revenue growth Bank service revenue growth Internal Operating Financial Operating margin is steadily …while share of provisions for NPL has Processes Efficiency Health recovering… grown sharply during last 5 years RUR, mln RUR, mln

IT excellence

Employee Performance

Learning  Absence of trainings and  …While because o high staff & Growth Workforce career perspectives has led to turnover, employees are Knowledge high staff turnover… unqulified

Sources: Market Line database 2 Current strategy of Ryazan Capital Bank does not support the goal of maximizing return on equity

20% Financial Maximize Return on Equity, 2012, % RCB’s current strategy of results ROE 15% 10% growth led to far lower 16% 12% profitability in comparison 5% 7% 1% Revenue Costs 0% with competitors Top 3, Tier I, Tier II, RCB average average average Although RCB revenue constantly grew at a higher pace Market share Customers comparing to market… …customer survey has Customer 80% 60% shown low customer Satisfaction 40% satisfaction with bank 20% operations 0% 2008 2009 2010 2011

IT excellence

Employee Performance

Learning  Absence of trainings and  …While because o high staff & Growth Workforce career perspectives has led to turnover, employees are Knowledge high staff turnover… unqulified

Sources: Market Line database 3 Optimal solution out of several strategic options is focus on low risk borrowers. Macroeconomic conditions suggest the target market is corporate business

Strategic options of the bank depend on the range of products it offers and the borrowers it targets

Targeting high risk borrowers is Low Risk Quality of borrowers High RCB needs to unsustainable, as increase in risk Risk focus on specific leads to high provisions and NPL market segment growth. Narrow “The selected” “Risky special” and target borrowers Covering broad market is Market with high difficult, as resources are creditworthiness. Broad “All the trustworthy” “Everyone welcome” limited. Taking into consideration macroeconomic conditions, one should target the corporate business – the base for future growth

Oil prices will fall Both corporate and retail crediting will fall. We need to finance USD/barrel business: if it has financial resources, it will be able to grow and pay its Government employees more. Then population’s consumption will rise. (budget) income will decrease GDP growth will decrease Real income of population will decrease

Ruble is going to weaken Costs of Nominal import will RUR/USD income will Inflation will rise, increase, but rise increasing with slower costs of Political risks make situation worse. pace production Long-term forecast is around 2%.

Source: EIU Economic and Commodity Forecast, December 2013, RBC, Agency of Economics Forecasting 4 New strategy involves two steps: developing SME business and cross-selling retail products to SME employees

RCB’s strategy is sustainable profitable growth as a regional bank by supporting SMEs and their staff in increasing their wealth

“Growing together with clients!”

2014 - 2015 2016 - 2018 Product portfolio • Corporate business Developing SME segment actively Maintaining SME business growth Providing individual solutions to large Providing individual solutions to large companies companies • Retail business Optimizing existing loan portfolio Growing retail business actively Increasing non-interest income by using strong links with employees of Going digital SMEs (cross-selling) Growth Supporting growth by gradual geographical expansion to key regions Operational efficiency Investing in staff, modernization of Improving cost efficiency offices & IT system Financial health Restoring financial stability Increasing capital to finance active Improving risk management development of retail business

5 In corporate business, RCB should focus on small and medium enterprises, as they will develop and be the growth driver of the market SME segment is developing faster than large clients business, but RCB underperforms in both of them SMEs have big potential for development in Russia Loans to large companies +21% Russia bn RUR RCB +58% 1,0 35.000 30.248 28.406 30.000 0,5 25.000 20.658 19.089 5 8 7 6 Entrepreneurship climate in 92 0,0 0 Russia 2009 2010 2011 2012 is improving (Doing Business 2014 Rating) 111 Loans to SMEs +75% Russia RCB needs to focus on SME segment offering both +130% RCB short and long term loans on competitive conditions bn RUR 6.943 (see example in Appendix 1). By 2018 SME loans 1,0 7.000 6.056 should account for 75% of corporate loan portfolio. 6.000 These clients will form the customer base for further 4.705 0,5 5.000 development in retail. 4.000 3.015 1 2 2 2 RCB should continue to work with large corporate 0,0 0 clients on individual basis. 2009 2010 2011 2012

Sources: RCB, Central Bank of Russia, Sberbank, SME Bank, Opora Rossiyi 6 In retail portfolio, RCB should focus on perspective mortgage and credit cards market and decrease share of stagnating car loans

Light commercial vehicles market stagnates that diminishes RCB possesses unbalanced retail loan portfolio, comparing growth of car loans to peers from Tier I and Tier II, and should rebalance it

4 USD, bn 50% 50% 100% 11% 50% 120% 2 0% -69% -50% 100% 0 -100% 5% 2% 3% 2008 2009 2010 2011 2012 Credit sales Cash sales Credit sale growth 80% 44% Mortgage market in Russia is unsaturated that gives high 63% potential to develop 60% Mortgage loans, % GDP 93% 40%

50% 20% 28%

0% 2% 5% RCB Tier I Tier II Car loans Personal loans Mortgages Credit cards Non-mortgage loans, % GDP Credit card market has the highest potential among consumer loans  RUR, bn RCB’ s portfolio consists mostly on car loans that 4000 CAGR makes it vulnerable to shrinking of this market; 3000 = 32% 2000  RCB ignores other possibilities to attract borrowers, 1000 such as growing markets of mortgages and credit 671,3 837,4 0 205,8 192,9 227,6 367,8 cards, that may lead to opportunities loss. 2008 2009 2010 2011 2012 2013 Credit cards Other personal loans

Sources: Alfa Bank Annual Report 2012, EY Automotive Survey 2013, Central Bank Reports, Tinkoff Credit System Report 2013 7 RCB needs to look for new financing opportunities to cover the gap between loans and deposits, as deposit market is projected to slow down

Loans at RCB portfolio has been growing faster than deposits, Moreover, RCB deposit portfolio growth is far beyond resulting in unavailability to cover issued loans market growth

RUR, mln Market deposits 35 3,000 2,546 RCB deposits 30 2,500 +39% 25 1,910 2,000 +143% 20 1,277 1,500 13.434 15 1,084 0,849 1,000 11.061 10 9.250 5 0,500 6.999 5.524 0 0,000 18 16 19 24 25 2008Y 2009Y 2010Y 2011Y 2012Y

Loans Deposits Deposits/Loans 2008 2009 2010 2011 2012 Because of current license revocation of several banks, extremely RCB deposit rates are lower than average in the market, low trust level to commercial banks will decrease even more meaning attracting less customers

“Do you trust Russian financial institutions?” RCB Tier II

Tier I Interest rate, % 4,0% 5,0% 6,0% 7,0% 8,0% 9,0% 10,0% To attract new deposits RCB should: Adjust deposit rates to those of the competitors; Sell bank warranties on the security of the deposits; Introduce new products:  Investment deposits / “income cards”

Sources: Central Bank Reports, National Agency of Financial Research survey 8 RCB should partner with asset management company to introduce open-end mutual funds in its product portfolio to create new income channel Growing trend in open-end mutual funds’ net assets Nevertheless, few Tier 2 banks offer investment value and net inflow shows their future potential products like mutual funds to their clients % of Tier 2 banks offering investment services NAV 113 Mutual funds 120 Net inflow 20 95 None 100 83 87 10 13% 75 Brokerage 80 38% 0 25% 60 47 -10 40 20 -20 63% 0 -30 Depositary

2008 2009 2010 2011 2012 2013 *Sum may not equal 100%, as some banks offer several services Moreover, among various investment products mutual Acting as a mutual funds agent, RCB can create funds are crucial to retain customers in the long run new profit sources and extend its customer base Effective time period of investing, years Introduction of open-end mutual funds in bank’s product portfolio will lead to the following Current accounts 0-1 advantages: •Additional income from asset management Deposits 0,5-2 company’s commission •Customer attraction and retention Mutual funds 2 - 10 •Opportunities for cross-selling: - investment deposits Pension insurance > 10 - loans secured by mutual funds shares

Sources: eXceeding eXpectations analysis, investfunds.ru, Absolut bank annual report 9 Geographical expansion should continue to support growth, but market potential for both corporate and retail segments should be taken into account The key regions for RCB in terms of assets and However, there are other regions with big income are Ryazan, Moscow and Vologda potential for both corporate and retail segments

Moscow Average income, th. RUR 27% St. Petersburg 49.000 31% Moscow Vologda Moscow region 29.000 10% 8% Arkhangelsk Murmansk 28.000 14% 13% Tver 27.000 Syktyvkar St. Peterburg 4% 4% 4% 4% Rostov 26.000 5% 5% Ryazan 25.000 Samara 24.000 Kazan 26% 25% Krasnodar Arkhangelsk 23.000 Perm Nizhny Novgorod 2% 3% Belgorod 6% 6% 22.000 Nizhny Novgorod 2% 2% Yaroslavl Makhachkala 21.000 Krasnodar Weighted assets Operating Income Kaluga Ufa 20.000 RCB should: Petrozavodsk 19.000 •Increase its operations in high potential regions – Vologda Yaroslavl Moscow and St. Petersburg 18.000 Ryazan Rostov Tver •Expand to high potential regions – Kazan, Samara, 17.000 Ufa, Perm 16.000 •Keep operations in low potential regions significant 15.000 for RCB - Vologda 0,0 0,5 1,0 1,5 2,0 2,5 5,5 6,0 15,5 •Leave low potential regions that do not contribute Investment attractiveness much to the portfolio – Tver and Yaroslavl (Expert Rating)

Sources: Expert Rating Agency, Rosstat 10 RCB should reconsider sales channels budgeting, as well as clients perception of day- to-day operations to implement offered strategy successfully Sales channels structure should be reconsidered in order to …that will lead to new budget structure support new product portfolio… split by channels

Product 120% Products Sales Product Sales Channels 100% share 80% 40% Corporate 50% 66,09% 55% 20% 10% 15% products 60% 8% 25% 40% 6% Retail products 33,70% 10% 30% 35% 30%5% 255%% 25% 25%10% 7% 8% 20% 29% 18% Investment 8,43% 0,21% 5% 5% 80%80% 5% 10% 5% 100%% 0% products Costs 2012 Costs 2018

Branches Cross-sell Call-center Internet DSA DSA Internet Call-center Cross-sell Branches Value gap analysis of bank operations by clients has shown that the most critical area is staff performance, while other areas also require attention points* Internet banking Mobile banking Branches Staff performance 6 5 4 3 2 1 0 User-friendliness Product portfolio Product portfolio Design Common Image Waiting time Staff attentiveness Staff expertise available available

RCB Tier II

*points for Tier II banks were assigned according to banki.ru survey, while points for RCB were assigned according to information given 11 RCB should invest and create opportunities for operations excellence

Because sellers are main drivers of revenue, it is necessary Motivation system of sellers should be based both on base to analyze ratios for sellers in different offices salary in accordance to the region and on KPI

Employee compensation Income/seller Opex/seller 60,00 50,00 (KPI achieved- KPI Base salary 40,00 planned) * $ 30,00 20,00 Salary in banks, rosstat 2012 Yaroslavl 45770 KPI for sellers and tellers 10,00 N.Novgorod 28512 0,00  New accounts per seller Krasnodar 15846 Ryazan 33757  New accounts per tellers Rostov 21022 Tver 28887  Existing current accounts Arkhangelsk 31252 per operations employee  Total system of remuneration should be reconsidered and be Vologda 18506 St.Petersburg 34158  balanced in all the branches Moscow 31287 Customers per employee  Branches with high ratios should share their experience 0 20000 40000 60000  Customer attrition rate IT system as an important part of operations excellence RCB should introduce new IT system and plan its expense should be analyzed according to the benchmark with other banks

Internet and  Investment into  Poor system OPEX mobile technology structure banking superiority IT IT share in OPEX  Absence of  Investment into Database centralized advanced database database

Automated  Only manual  Investment into banking process ABS 2013 2014 2015 2016 2017 2018 system

12 To meet capital requirements, RCB should establish proper risk management system From 2014 Central Bank introduces new capital In RCB high borrowers’ risk is compensated by high requirements according to Basel III interest rates in comparison with Tier 1 & 2 banks Capital Car Tier 1&2 Risk-weighted assets loans RCB  Common Equity Tier 1 Limit – 5% Personal Tier 1&2  Tier 1 Capital loans RCB Limit – 5,5%, from 2015Y – 6%  Total Capital Limit –10% Interest rate, % At the same time high risk leads to an increase High interest rates lead to higher credit risk capital in NPL and high provisions requirements and raise risk-weighted assets, while high provisions reduce residual earnings being part of capital +71% Capital

Provisions, bn RUR bn Provisions, Risk-weighted assets

2008 2009 2010 2011 2012 RCB should install proper risk-management based on scoring system and reduce risk premium to lower interest rates in order to attract high-end customers and create sound loan portfolio

13 Proposed measures will be implemented during the next two years and will increase operating profit by 9 times by 2018

Most actions will be implemented within next 2 years

2013 2014 2015 2016 2017 2018 Actions Q1Q2Q3 Q4Q1Q2Q3 Q4Q1Q2Q3 Q4Q1Q2Q3 Q4Q1Q2Q3 Q4Q1Q2 Q3Q4 ABS introduction Centralized database Front- and back office programs Mobile banking applications (IOS, Android) Internet banking for retail and corporate clients Branch rebranding Current situation analysis New design creation and implementation Staff motivation program New motivation system Trainings & learning Risk management system Revision of current credit risk policy New policy based on new requirements Product portfolio optimization New regions expansion

14 Implementation of proposed initiatives will improve key financial indicators significantly and generate 3,74 bn RUR NPV Financial ratios ROE and ROA will increase by At the same time net interest margin will rise by 2018 26%

ROE 7,4% Net interest margin ROA +26,2% 7,2% 6,2% 6,4% 5,7% 5,3% 5,9% 1,4% 1,0% 0,7%

2012 2013 2014 2015 2016 2017 2018 2013 2014 2015 2016 2017 2018

Operating profit is gradually increasing as well, Proposed initiatives will lead to positive NPV while the efficiency ratio is declining generation of 3,74 bn RUR till 2018

Operating profit, bn RUR Assumptions: Efficiency ratio 1. Initial investments 9X will consist of NPV automated banking 86% 87% 2,9 3 81% 80% 100% system embedding 72% 67% 3,74 billion RUR 2 55% and branch 50% rebranding and will till 2018 1 account for 0,078 bn 0,3 RUR 0 0% 2. WACC = 12% 2012 2013 2014 2015 2016 2017 2018

15 The project was prepared by team

Tatiana Rubtsova Alina Luchinina Anastasia Ivanova Olga Kotelnikova

[email protected] [email protected] [email protected] [email protected] 8 906 279 4249 8 904 633 6445 8 965 059 8749 8 911 818 7829

High Quality Graduate School of Management, SPbSU Graduate School of Management, SPbSU Graduate School of Management, SPbSU Graduate School of Management, SPbSU Master in Corporate Finance Master in Corporate Finance/ CEMS MIM Master in Corporate Finance/ CEMS MIM Master in Corporate Finance/ CEMS MIM Education Exchange semester in EmLyon Business School (France) Exchange semester in Erasmus University, Exchange semester in Louvain School of Exchange semester in Copenhagen Business Exchange semester in Turku University of Rotterdam School of Management Management (Belgium) School (Denmark) Applied Sciences (Finland) (Netherlands)

Handle Group – financial analyst Internships: EVLI Corporate Finance – analyst (M&A) Internships: Diverse Internships: .Deloitte – consulting Strategy&Operations, Internships: .Colgate-Palmolive - Finance Department Experience .Colgate-Palmolive – Finance Department .Maersk Line - Finance Department .TransCreditBank– crediting large corporate .Consulting company “Alt” .Oodji Company – Finance Department .UniCreditBank clients Consulting project for Indesit .Rosno Allianz – corporate clients Consulting project for Sberbank of Russia Consulting project for Indesit Consulting project for Ahlers

Winner: Winner: Winner: Winner: Multiple Victories .Changellenge Cup SPb 2013 .Changellenge Cup SPb 2013 .Changellenge Cup SPb 2013 .Changellenge Cup SPb 2013, .Scientific Conference “State Order” and .KPMG International Case Competition 2013 .KPMG International Case Competition 2013 .Changellenge Cup Technical 2013, “Social Advertising” Saint-Petersburg Stage Saint-Petersburg Stage .KPMG International Case Competition 2013 2nd place: 2nd place: 2nd place: Saint-Petersburg Stage .Changellenge Cup Russia 2013 .Changellenge Cup Russia 2013 •Changellenge Cup Russia 2013 2nd place: .Changellenge Cup Russia 2013

16 Appendix 1. Key products’ description

Retail SME Product Consumer Mortgage Car loan Credit card Short-term Long-term loan Loan amount 750,000 – 100,000 – 50,000 – 10,000 – 150,000 – 300,000 – 30,000,000 4,000,000 1,000,000 100,000 RUR 15,000,000 150,000,000 RUR RUR RUR RUR (10,000,000 RUR with collateral) Loan 2 years – 25 6 month – 5 From 3 Up to 6 Up to 1 year 1 year – 5 duration years years month to five month years years Commission None None None None None None

Application Three days Two days One day One hour Two days One week review time Initial 10% 15% n/a n/a n/a n/a payment Interest rate 10,5%- 14% 11,5%-15% 17%-22,5% 20%-30% From 12,75% From 13,25%

17 Appendix 2. Forecast of the loan portfolio structure 2013-2018

Retail loans 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Car loans 0 3,71 12,13 18,93 19,24 18,75 17,22 14,41 10,18 4,59 % of Total 0% 85% 90% 93% 79% 65% 51% 38% 24% 10% Personal loans 1,71 0,67 1,3 1,49 2,50 3,80 5,41 7,32 9,44 11,47 % of Total 100% 15% 10% 7% 10% 13% 16% 19% 22% 25% Mortgage - - - - 2,44 5,76 10,06 15,34 21,41 27,52 % of Total - - - - 10% 20% 30% 40% 50% 60% Credit cards - - - - 0,24 0,48 0,78 1,15 1,57 2,29 % of Total - - - - 1% 2% 2% 3% 4% 5% Total retail 1,71 4,38 13,43 20,42 24,38 28,79 33,53 38,35 42,81 45,86 Growth 156% 207% 52% 19% 18% 16% 14% 12% 7% % Total loans 21% 30% 61% 70% 63% 57% 50% 43% 37% 30% Corporate loans 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 SME loans 1,3 1,81 1,61 2,27 3,81 7,13 14,88 26,95 45,75 80,26 % of Total 0,20 0,18 0,19 0,26 0,32 0,40 0,48 0,56 0,65 0,75 Large loans 5,32 8,45 7,03 6,43 8,1 10,6 15,9 20,8 25,1 26,8 % of Total 0,80 0,82 0,81 0,74 0,68 0,60 0,52 0,44 0,35 0,25 Total corporate 6,63 10,26 8,64 8,7 11,92 17,76 30,81 47,74 70,82 107,01 Growth 55% -16% 1% 37% 49% 73% 55% 48% 51% % Total loans 79% 70% 39% 30% 31% 35% 46% 54% 61% 70% Total loans 8,34 14,64 22,07 29,12 38,44 50,74 66,98 88,41 116,70 152,87 Growth 76% 51% 32% 32% 32% 32% 32% 32% 31%

18 Appendix 3. Forecast of the funding sources 2013-2018

Funding

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Deposits 15,83 18,7 23,94 24,72 33,4 45,1 60,7 81,6 109,5 146,8

% of Total 0,94 0,88 0,87 0,70 0,73 0,77 0,80 0,83 0,87 0,9

Other funding 1 2,56 3,44 10,67 12,2 13,8 15,3 16,4 16,9 16,3

% of Total 0,06 0,12 0,13 0,30 0,27 0,23 0,20 0,17 0,13 0,1

Total funding 16,83 21,26 27,38 35,39 45,7 58,9 76,0 98,0 126,4 163,1

Growth 26% 29% 29% 29% 29% 29% 29% 29% 29%

19 Appendix 4. Interest rates conditions for loans and deposits. Forecast for non- interest income from mutual funds

Interest rates loans Car loans 13,25% Personal loans 19,75% Mortgage 12,25% Credit cards 25% SME loans 14% Large 8,3%

Interest rate deposits 2013 2014 2015 2016 2017 2018 Deposits 7,25% 7,50% 8% 8,25% 8,50% 9%

Mutual funds 2013 2014 2015 2016 2017 2018 № of branches 21 21 21 21 21 21

№ of people attracted per month per branch 6 8 10 13 16 20 № of people attracted per year 1512 2016 2520 3276 4032 5040 № of people left 302,4 403,2 504 655,2 806,4 1008 Net amount of people 1210 1613 2016 2621 3226 4032

Net asset value 6048000 9676800 14112000 20966400 29030400 40320000 Premium (1,5%) 90720 145152 211680 314496 435456 604800 Discount (2%) 120960 193536 282240 419328 580608 806400 Basic Remuneration (3%) 181440 290304 423360 628992 870912 1209600 Total remuneration, bn RUB 0,0004 0,0006 0,0009 0,0014 0,0019 0,0026

20 Appendix 5. Forecast of interest and non-interest income and expenses 2013-2018

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Total retail 0,323 0,62 1,792 3,063 3,40 4,06 4,78 5,52 6,23 6,82 Car loans 0,00 0,53 1,62 2,84 2,55 2,49 2,28 1,91 1,35 0,61 % growth - 207% 75% -10% -3% -8% -16% -29% -55% Personal loans 0,32 0,10 0,17 0,22 0,49 0,75 1,07 1,45 1,86 2,26 % growth -70% 82% 29% 121% 52% 42% 35% 29% 21% Mortgage 0,30 0,71 1,23 1,88 2,62 3,37 % growth - 136% 75% 52% 40% 29% Credit cards 0,06 0,12 0,20 0,29 0,39 0,57 % growth - 97% 63% 47% 36% 46% Total corporate 0,764 0,99 1,054 1,103 1,20 1,88 3,40 5,49 8,47 13,44 SME loans 0,15 0,18 0,20 0,29 0,53 1,00 2,08 3,77 6,41 11,24 % growth 17% 12% 47% 85% 87% 109% 81% 70% 75% Large companies 0,61 0,82 0,86 0,82 0,67 0,88 1,31 1,72 2,07 2,21 % growth 34% 5% -5% -18% 31% 50% 31% 21% 7% Total loan income 1,09 1,62 2,85 4,17 4,61 5,94 8,18 11,01 14,70 20,26

Interest expense (bn RUR) 0,82 0,91 1,29 1,86 3,06 3,95 5,10 6,58 8,48 10,94 Deposits 0,77 0,80 1,13 1,30 2,42 3,38 4,86 6,73 9,31 12,84 % growth 4% 41% 15% 87% 40% 44% 39% 38% 38% Other funding 0,05 0,11 0,16 0,56 0,64 0,73 0,81 0,87 0,90 0,87 % growth 125% 48% 246% 14% 14% 11% 7% 3% -3% NII before provisioning 0,71 1,14 1,94 2,69 1,93 2,37 3,46 4,82 6,60 9,70 Provision expense 0,14 0,22 0,43 1,17 0,35 0,40 0,55 0,70 0,85 1,10 % growth 57% 95% 172% 43% 35% 32% 30% 28% 25% % operating income 0,52 0,31 0,33 0,68 0,19 0,18 0,20 0,19 0,19 0,17 NII 0,57 0,92 1,51 1,52 1,58 1,97 2,91 4,12 5,75 8,60

Net fee and commision income 0,095 0,117 0,019 0,034 0,036 0,039 0,043 0,046 0,051 0,057 Other non-interest income 0,087 0,181 -0,053 -0,118 -0,086 -0,039 -0,033 0,004 -0,011 0,043 Total non-interest income 0,182 0,3 -0,034 -0,08 -0,05 0 0,01 0,05 0,04 0,1

21 Appendix 6. Forecast of operating income, operating expense and net income 2013- 2018

Operating income (bn RUR) 0,27 0,71 1,31 1,73 1,87 2,19 2,81 3,62 4,59 6,37

164% 83% 32% 8% 17% 28% 29% 27% 39%

OPEX (bn RUR) 0,544 0,848 1,219 1,408 1,61 1,90 2,24 2,61 3,10 3,49

56% 44% 16% 15% 18% 18% 17% 19% 13%

Employee remuneration 0,312 0,525 0,696 0,741 0,82 0,96 1,14 1,36 1,62 1,80

% growth 68% 33% 6% 10% 18% 19% 19% 19% 19%

% of OPEX 57% 62% 57% 53% 50% 51% 51% 52% 52% 52%

Advertising 0,018 0,014 0,025 0,049 0,05 0,10 0,12 0,15 0,20 0,25

% growth -22% 79% 96%

% of OPEX 3% 2% 2% 3% 3% 5% 5% 6% 6% 7%

IT 0,07 0,09 0,15 0,19 0,28 0,35

% of OPEX (based on benchmark) 4% 4,7% 6,7% 7,3% 9% 10%

Other 0,214 0,309 0,498 0,618 0,68 0,75 0,82 0,90 1,00 1,09

% growth 44% 61% 24% 10% 10% 10% 10% 10% 10%

% of OPEX 39% 36% 41% 44% 42% 39% 37% 35% 32% 31%

Operating profit (bn RUR) -0,27 -0,13 0,09 0,32 0,25 0,29 0,57 1,02 1,50 2,88

Income tax 0,20 0,20 0,20 0,20 0,20 0,20 0,20

Net income 0,26 0,20 0,24 0,46 0,81 1,20 2,30