Overview of the Russian and CIS February 2017 Contents

Foreword...... 1

Executive summary and key findings...... 2

Key considerations...... 3

Russian economy...... 4

Current state of the global automotive market...... 6

Russia in the context of the global automotive industry...... 8

Passenger car and LCV market...... 10

Truck market...... 14

Bus market...... 16

Localization and production of automotive components...... 17

Dealership networks...... 20

Car loan market...... 22

CIS automotive markets...... 24

EY’s services for the automotive industry...... 27

Contacts...... 28 Foreword

Alexei Ivanov Andrey Tomyshev Partner, Senior Manager, CIS Transaction Advisory Head of the CIS Services Leader Automotive Group

The Russian automotive industry is going through challenging times. The current macroeconomic situation has changed the auto market landscape and is holding back the recovery in auto sales. At the same time, the Russian market has high growth potential and in the next few years is expected to show signs of improvement, driven by stronger macroeconomic performance.

This report presents an analysis of the current state and future development of the Russian and CIS automotive industry. We believe it will successfully move away from stagnation to sustainable growth driven both by the commitment of most international players to develop business in and by government support for the industry.

We would be glad to share with you our market expertise and assist you in meeting your business needs and identifying investment opportunities, and provide risk, operational and cost management advisory services. Executive summary and key findings

After a sharp rebound Key findings: in 2010–11, the Russian • Despite a significant drop in car sales • The commercial vehicle market has automotive market during the crisis, we remain positive been largely captured by Russian about the long-term prospects for players, who increased their share slowed down in 2012 the Russian auto market due to the during the crisis. The truck market is and has been facing a population’s low level of vehicle more sensitive to economic downturns ownership, the aging car fleet and major than the passenger car fleet, although it decline in sales since international players’ dedication to can recover more quickly in the future. 2013 in the face of а business development in Russia. • Our positive outlook for the Russian bus weaker macroeconomic • In 2016, sales continued to decline market is based on the considerable along with real GDP, finally hitting age of vehicles used for passenger environment. the bottom. The share of domestic transportation, as well as government car brands continued to grow, with a support. In 2016, sales of decreasing share of imports. • International OEMs continue to localize passenger cars and light • The market recovery may start in 2017, their production, although the process with passenger car sales growing to is being largely hindered by the lack commercial vehicles reach 2 million vehicles by 2020, and of a high-quality pool of second-tier (LCVs) totaled 1.4 million further growth to follow. (and lower) suppliers. This can be • The main drivers of growth will be the addressed by targeted government units. ruble exchange rate, oil prices, auto support for Russian companies, loans interest rates, the effectiveness of consolidation of their production The forecasts suggest government support measures and the facilities, and cooperation with foreign potential to reduce vehicle ownership players to gain access to advanced that the market may costs. technologies. begin to recover in 2017, • Russia still has a lower auto loan • The secondary market for automotive with passenger car sales penetration rate than the western components and spare parts has countries. However, a gradual decrease declined more slowly than the growing to reach 2 million in the CBR’s key interest rate, the automotive market, backed by the vehicles by 2020, and growing role of automakers’ captive growth of the vehicle fleet even during banks and the overall recovery of the crisis. further growth to follow. consumer lending will ramp up the share • The other CIS markets have declined of credit in car sales and boost growth in due to a weaker macroeconomic the automotive market. environment and devaluation of the • The crisis has forced some dealers to national currencies. saw the exit the market or close dealership highest volume of cars sold in 2016, centers. This trend is largely explained while Uzbekistan remained the largest by lowering margins due to weak automotive producer. business diversification and high levels of debt. It is also accompanied by industry consolidation and an increase in the market share of major players. To maintain their business for the long term, dealers need to transform the business model and better diversify their products and services, as well as invest in areas of the business such as the sale of used vehicles and financial products.

2 | Executive summary and key findings Key considerations

Key issues Manufacturers Suppliers Retail and distribution How will • Focus on vehicle • Cooperate with market entrants and • Align the car brand portfolio with the demand for ownership costs expand geographically current macroeconomic environment and vehicles • Take advantage of modern • Help build capabilities in the auto the trend toward localized production and mobility information technology component industry • Be flexible with manufacturers and be evolve? and telematics • Satisfy the demand for basic goods capable of quickly switching from one car that meet automotive standards brand to another • Take advantage of opportunities in • Encourage manufacturers to develop the after-sales segment more offerings using modern information technology and telematics

How will • Implement changes to • Analyze factors that have the • Maintain a balance between selling products need meet the needs of end most potential, such as efficiency, vehicles and related service packages to adapt? consumers and the emission reduction, fuel efficiency • Develop and maintain communication conditions in which the or safety technologies mechanisms to retain customers’ loyalty vehicles are to be used • Develop low-cost products with • Focus on the subcompact, consumer qualities required in a premium and SUV certain region segments

How will • Enhance marketing • Incorporate sustainability into the • Develop sales techniques and marketing business activities to promote core business strategy for long-term strategy using social media and the models need to brand recognition revenue growth Internet adapt? • Cooperate with new • Diversify business to reduce the risk of players in order to a decline in consumer demand (trade leverage their technology in used cars, sale of used cars on a and experience commission basis, sale of insurance • Optimize the portfolio, policies, loans and other products) expand into the CIS and • Analyze the cumulative profit margin non-CIS markets over the vehicle’s life-cycle as a tool for managing the business • Expand through M&A

What are the • Strengthen positioning of • Form strategic alliances with • Consider a multi-brand retail and new market the manufacturers’ captive car manufacturers to enhance distribution strategy dynamics? banks cooperation at the advanced phase • Develop new areas of business and new • Actively develop and of the R&D process ways of winning customers, such as implement telematics taxi services, automotive logistics and solutions operating leases

What are the • Monitor compliance with • Use enterprise management • Evaluate the distribution footprint and value chain localization programs and systems that enable transparency of opportunities to expand into regions with issues and requirements cooperation across the supply chain high growth potential implications? • Monitor changes in tax • Leverage special economic zones and customs legislation (SEZs) for new production facilities • Develop the second-tier (and lower) supplier segment to ensure proper localization and establish a complete value chain

Overview of the Russian and CIS automotive industry | 3 Russian economy

In 2015, Russia’s real Russian economic indicators were largely foreign direct investment is expected affected by the restrictions, coupled to surge. Russia’s long-term investment GDP fell by 3.7% under with the sudden drop in oil prices. This attractiveness depends heavily on the pressure of economic severely weakened the Russian ruble and developing the legislative framework increased the cost of borrowing. On the and reducing government involvement restrictions and plunging positive side, the new economic reality in the economy, as well as introducing oil prices. All sectors of made Russian assets more attractive to new technologies in production and the Russian economy potential investors. In the coming years, management. were largely affected Consensus forecasts of nominal and real GDP growth in Russia by external factors, as a result of which the 2,500 4.3% 5% 3.4% industrial production index 4% declined by 4.5% and 2,000 3% 1.3% 1.5% 2% purchasing power dropped 0.5% 1.0% 1,500 1% on the back of lower real %

–0.6% 0% wth, o S$ billio n

disposable income. U 1,000 –1% Gr

–2% The decline in Russian –3.7% GDP slowed to 0.6% in 500 –3% –4% 2016 and an economic 2,027 2,167 2,227 2,027 1,327 1,227 1,402 1,530 0 –5% recovery is expected 2011 2012 2013 2014 2015 2016 2017F* 2018F* in 2017. Nominal GDP Real GDP growth

Sources: MED, EIU, Oxford Economics, World Bank, CEEMEA, IMF, EY analysis, the Development Center of the Higher School of Economics

*F — Forecast

4 | Russian economy Projected key macroeconomic indicators

2011 2012 2013 2014 2015 2016 2017F* 2018F*

Population, million 143.2 143.3 143.4 146.3 146.4 146.7 147.0 147.2

Real GDP growth, % 4.3% 3.4% 1.3% 0.5% –3.7% –0.6% 1.0 1.5%

GDP per capita, US$ 14,177 15,016 15,537 14,276 9,279 8,853 10,294 11,140

Inflation, % 8.4% 5.1% 6.8% 7.8% 15.5% 7.1% 5.1% 4.4%

Industrial Production Index, % 5.0% 3.4% 0.4% 1.7% –4.5% 0.4% 1.1% 1.7%

Brent crude oil price, US$ per barrel 110.9 112.0 108.9 98.9 52.7 44.1 52.9 56.6

Unemployment rate among economically active 6.5% 5.5% 5.5% 5.2% 5.6% 5.9% 5.9% 5.8% population (annual average), %

Exchange rate RUB/US$ (annual average) 29.4 30.8 31.8 38.4 60.9 66.8 62.5 63.1

Exchange rate RUB/€ (annual average) 40.9 39.6 42.3 51.0 67.5 74.1 66.1 66.9

Sources: BMI, MED, EIU, Oxford Economics EIA, Bloomberg, EY analysis, CEEMEA, the Development Center of the Higher School of Economics

*F – Forecast

Overview of the Russian and CIS automotive industry | 5 Current state of the global automotive market

Over the past decade, In 2015, the global passenger car and LCV In 2016, sales in the US remained flat, market grew by 2%, followed by a further whereas in Eastern Europe and Latin sales of passenger cars increase in 2016 of 4% to reach 92.8 America they dropped by 1.8% and 11.5%, and light commercial million units, primarily due to increased respectively. This trend is attributed sales in (10.8%), (7.3%), and to a lingering economic slowdown or vehicles (LCVs) have Western Europe (6.3%). This growth was downturn in the major economies of Latin grown by approximately sparked by the drop in oil and fuel prices, America (Brazil and ), as well economic revival in the West European as the recession and depreciation of local 30%. In 2008 through markets after the Eurozone debt crisis, currencies in Russia and other countries 2013, this growth was the continued urbanization and rising under the pressure of low world oil prices vehicle ownership rate in China (especially and economic restrictions. largely driven by emerging in small towns), and accelerated economic markets, whereas today it growth. is accelerated by Western Europe, China and India.

6 | Current state of the global automotive market Industry growth prospects Capacity utilization and expected sales growth by country in 2017–20 World car sales are set to rise in the near future, largely as a result of the 120% rebounding markets in Eastern Europe and Latin America and significantly stronger % 100% UK USA South Korea demand in India. In 2017, worldwide sales 016,

, 2 Spain of passenger cars and LCVs are forecast 80% te Germany Turkey to rise to 94 million units, up 1.33% from Japan France China 2016. The weaker growth is attributed 60% Italy India to a temporary slowdown of demand in China. 40% age utilization ra

er Brazil Russia The surge in global demand for vehicles Av 20% will be fueled by low oil prices, resulting The circle represents the size of the market in physical terms as of 2016 in an estimated sales rise of another 0% 5–7 million units in the years between –5% 0% 5% 10% 15%20% 2017 and 2022. Expected average annual sales growth in physical terms in 2017–20

The Eurozone economy has largely Source: LMC Automotive become accustomed to the UK’s determination to exit the EU, although The automotive industry in highly facing the risks of economic slowdown there is still no agreement on the terms developed countries, such as Japan, and tighter limits on car ownership in of the exit. The uncertainty will continue South Korea and Australia, has no big cities. The developed markets are to affect business decisions in the coming significant growth potential. Moreover, primarily trying to renew the car fleet years, giving rise to a potential risk of with Japan’s population shrinking and and are more dependent on consumer stagnation in the automotive market in aging, automobile demand may be in a preferences. both the UK and the Eurozone in the event downtrend. of a ‘hard’ Brexit. Apart from stimulating demand, the drop Growth in the Russian automotive market in oil prices may lead to some changes In the short and medium term, the will be underpinned by economic recovery in the market structure. Lower vehicle currently underpenetrated Indian auto and higher purchasing power. ownership costs will encourage consumers market will become a major contributor to switch to larger cars. At the same time, to global demand growth, driven by Building infrastructure for the growing the sales growth in electric vehicles and an improving national economy and vehicle fleet is becoming a key challenge lightweight materials is expected to slow. increased consumer spending. for developing countries. China is still

Overview of the Russian and CIS automotive industry | 7 Russia in the context of the global automotive industry

After breaking the 2008 In 2015, car sales were down 36% The market potential is also underpinned according to AEB statistics, due to the by the fact that foreign companies are record in 2012, passenger economic decline, sharp devaluation of carrying on with their plans to expand car and LCV sales in the Russian ruble, growing loan rates, local production capacity, including falling real household disposable income the development of new plants and Russia have been sliding and depressed consumer sentiment. production of auto components. Though since 2013 as a result The decline slowed in 2016, to 11% plunging sales suspended the output year-on-year. Car prices grew 40% on of certain brands and models, as well of the deteriorating average between 2014 and 2016, while as triggering lower capacity utilization macroeconomic situation. sales of passenger cars and LCVs almost rates, companies that have localized their reached their 10-year low (1.4 million production do not intend to abandon their units) in 2016. business development plans. The major exception is General Motors, which has Russia’s auto market ranked fifth in stopped assembling Chevrolet and Opel Europe in 2016 after Germany, the and mothballed its St. Petersburg plant UK, France and Italy. In the long term, indefinitely. A number of new market however, Russia will remain one of the players, including those from China, most attractive markets. are working on their plans to enter the Its growth will be largely driven by the Russian market. population’s low level of vehicle ownership The following facts show that the market and the aging car fleet. In 2016 passenger has strong potential: car density in Russia was 358 units per 1,000 adults, which is 42% lower than • Almost 20 major local and international in Western Europe (615 units) and 55% manufacturers operating in Russia lower than in North America (776 units). • Annual capacity of over 3 million cars, with prospects to increase by 2020 The average age of a passenger car in Russia is 12 years (there have been no • Nearly 100 localized global suppliers, significant changes in this since 2012), many of which have several production with foreign vehicles being on average sites much younger than local ones (10 years • About 600 local suppliers servicing versus 16 years). The car fleet’s age Russian assembly lines structure reveals the need to replace • Passenger cars sold through some obsolete and worn out vehicles. 4,000 dealers.

8 | Russia in the context of the global automotive industry Russian automotive manufacturers are New passenger car and light commercial vehicle (LCV) market looking to substantially increase their in leading economies exports, partially as an alternative to the China shrinking domestic market. USA Growth in the domestic automotive industry is supported by government Japan policies aimed at creating new, and expanding existing, production facilities, Germany as well as attracting additional investment India to the industry. 2018F** 2017F** The government significantly increased UK 2016 its support to the industry in 2015–16. 2015 The 2013 program for subsidizing car Brazil 2014 loan interest rates and the 2014 vehicle France scrappage program were both resumed in 2015–16, and supplemented by Canada car leasing subsidies as well as direct subsidies for vehicle procurement by South Korea public sector entities. Italy The government has voiced its willingness to maintain its substantial support for the Russia industry in the future. It has announced Spain that the program for subsidizing car loan interest rates and leasing will continue in CEE* 2017, and there is a plan to complement these with new programs aiming to Turkey subsidize demand among certain Others groups of consumers, such as first-time car buyers, buyers of family cars, and 01510 5220 5 30 others. Export support measures will be million units enhanced. Source: LMC Automotive * CEE — Central and Eastern Europe ** F — Forecast Car density by country, including Russia’s expected auto market growth by 2020 60,000 USA

Germany 50,000

France UK 40,000 South Korea Japan

a*, US $ Spain

pit Italy 30,000 Russia 2020

Turkey Russia

GDP per ca 20,000

China Brazil The circle represents the size 10,000 of the market in physical terms India as of 2016

0 0 100 200 300 400 500 600 700 800 900 1000 Number of cars per 1,000 adults Sources: LMC Automotive, Oxford Economics, EY analysis * Based on Purchasing Power Parity (PPP), in 2016 prices

Overview of the Russian and CIS automotive industry | 9 Passenger car and light commercial vehicle (LCV) market

Sales of new passenger The slump in sales was primarily caused Russian dealerships. As a result, the by the devaluation of the Russian ruble, number of cars registered in Russia in cars and LCVs decreased more expensive car loans, lower business 2015–16 was lower than the number of by 35.7% and 11.0% activity and purchasing power, as well as cars sold to dealerships. The difference the turbulent geopolitical situation. amounted to 0.2 million cars in 2015, in 2015 and 2016, narrowing to 0.1 million in 2016 as prices Ruble devaluation has reduced car prices adjusted to the ruble devaluation. Once respectively, according to denominated in foreign currency and prices fully adjust to the devaluation over encouraged exports of cars by cross- AEB statistics. time, sales to dealerships should almost border consumers (mostly from CIS match the number of registered cars. countries) who purchased them from

Sales of new passenger cars and LCVs in Russia, 2012–16

3,500

3,000 2,734 2,584 2,500 2,316 2,000

1,500 1,482

ousand units 1,308

Th 1,000

500 205 193 175 119 118 0 2012 2013 2014 2015 2016 LCVs Passenger cars

Sources: AEB, LMC Automotive

10 | Passenger car and light commercial vehicle (LCV) market Analysis of passenger cars and LCVs by Passenger car and LCV sales structure in Russia by origin, % brand indicates that Russian and localized foreign brands dominate the market, 21% 20% with their share increasing 5 percentage points in 2015–16. This was achieved due to the price advantage of automakers with production facilities in Russia, able to adopt a more flexible pricing policy in 45% 2013 2014 response to ruble devaluation. 50% At the same time, sales of Russian brands 30% as a share of the total fleet are declining, 34% since obsolete , Izh and Moskvich models are no longer in production and 23% 26% are being replaced by lower-priced foreign brand vehicles. This trend is building up as more foreign companies develop localized production and new lower-priced foreign subcompact and compact SUVs come on 2015 2016 the market.

The share of premium brands is set to 54% 23% 57% 17% grow. This shift in demand is due to the smaller share of cars in the aggregate spend of people who buy premium Russian brands Foreign brands Localized foreign brands cars. Against a backdrop of declining purchasing power, premium car owners Sources: LMC Automotive, EY analysis can maintain absolute levels of car running costs similar to their pre-crisis level for Breakdown of major passenger car brands in Russia, % longer than other car owners. Those sales were further fueled by the conversion of 17% 16% ruble savings into foreign currency assets, including into luxury vehicles, and more 32% 31% brands from premium manufacturers 7% 8% coming on to the market. However, the share of premium brands in the 2013 2014 structure of total vehicle sales in Russia 8% 8% remains modest, accounting for only 5% 10% of the market, which is far behind 7% 8% 8% 4% the comparable figures for developed 3% 6% 6% 6% 7% countries. For example, in Europe the 6% 7% premium segment captured 19% of the 18% market in 2016. Given the above, the 20% 25% share of premium brands is likely to keep 28% growing in the long term.

11% 2015 2% 2016 11% 3% 4% 4% 11% 6% 5% 11% 5% 6% 8% 6% 7% 9%

LADA KIA Toyota Chevrolet Hyundai Renault Nissan Skoda Other

Sources: LMC Automotive, EY analysis

Overview of the Russian and CIS automotive industry | 11 Production and market Despite the downturn, foreign automotive Car manufacturers are building their balance companies are not leaving the Russian supply chains on a global level by setting market and some auto manufacturers are up production facilities in different According to LMC, Russia produced planning to build new auto plants2: countries, taking into account proximity 1,125,000 passenger cars and 106,000 • Haval is building a plant with an annual both to the outlet market and to raw LCVs in 2016. Capacity utilization capacity of 150,000 vehicles in the materials. Russia’s geographical position decreased along with demand and Tula region, which is scheduled for offers both of these advantages, making exports, according to customs statistics, commissioning in 2018. it possible to manufacture for the local forcing companies to focus on cutting market and increase exports by leveraging • LIFAN is planning to launch the costs and enhancing business processes. local resources and ruble devaluation. construction of a plant with an annual According to official statistics from the Federal Customs Service (FCS), exports capacity of 60,000 vehicles in the Russian manufacturers are looking to of passenger cars amounted to 133,000 Lipetsk region in 2017. boost their exports too by increasing their units in 2014, dropping to 100,000 • Mercedes-Benz is planning to build assembly capacity and partnering with units in 2015. The estimate of exports a new plant with an annual capacity foreign distributors. The initiative has for 2016 is 66,400 units1. Key reasons of 25,000 vehicles in the Moscow region strong government support, including that caused auto manufacturers to by 2019. subsidized product transportation, reduce their exports include dwindling adaptation and certification for export purchasing power in CIS countries and markets. There is also a plan to provide the introduction of a recycling levy in government support for setting up Kazakhstan in 2016. warehouse and service facilities abroad. Government agencies estimate that Russia’s car export potential may grow Share of premium brands in total sales to 200,000–300,000 units per year by 12% 2020.

10%

8% Automotive market

6% 10% development prospects 9% 8% When it comes to market development 4% 7% 7% prospects, the year 2017 may see an 2% upturn in market activity if the base case 0% scenario holds up owing to an overall 2012 2013 2014 2015 2016 economic recovery. Our forecast is that

Sources: LMC Automotive, EY analysis Russian brands and localized foreign brands will capture the largest market share. Passenger car and LCV market Future sales of vehicles will depend on the 69% 5,000 65% 70% following factors: 4,500 • Movements in the exchange rate of 52% 60% 4,000 the Russian ruble, oil prices and real 3,500 50% household disposable income 2,939 2,778 3,000 2,491 35% 40% • Access to auto loans, and interest rates 33% 2,500 30% • The volume and effectiveness of 2,000

ousand units 2,080 1,601 2,132 1,426 government support measures Th 1,500 1,822 20% 2013 2014 2015 • The expansion of transport 1,000 1,320 1,231 10% infrastructure and potential savings on 500 1,120 936 731 365 244 vehicle ownership costs 0 0% 2012 2013 2014 2015 2016 • The localization rate of the auto Import of passenger cars and LCVs companies, which impacts the cost and Production of passenger cars and LCVs prices. Sales of passenger cars and LCVs The market recovery will be driven by Capacity utilization (right axis) significant deferred demand that has Sources: AEB, AUTOSTAT analytic agency, FCS, EY analysis accumulated since the beginning of the market decline in 2013.

1 The annualized amount, derived by multiplying the actual amount of export sales for January–November 2016 by 12/11 2 http://haval.ru/media/press/haval_tula.html, http://tass.ru/ekonomika/3574495, http://www.rbc.ru/business/13/01/2017/5878c19a9a7947f6d45a67a0?from=main

12 | Passenger car and light commercial vehicle (LCV) market Actual and projected sales volumes of passenger cars and LCVs in Russia The used car segment appears to be one of the most promising, since its decline 3.5 has been slower than that of the new car 2.9 3.0 2.8 market. This segment shrank from 6.9 2.5 2.5 2.2 million units in 2014 to 5.7 million units 2.0 in 2015 and, further, to 5.3 million units 2.0 1.7 1.6 1.5 (6.2%) in 2016. The coming years will 1.5 1.4 Million units see the segment grow due to the average 1.0 1.41.3 length of car ownership decreasing 0.5 following the recovery from the crisis, 0.0 2012 2013 2014 2015 2016 2017F*2018F*2019F* 2020F* meaning that there will be a higher supply Sales Registrations of used cars, including, in particular, a higher proportion of cars under five Sources: AEB, AUTOSTAT analytic agency, LMC Automotive, EY analysis years old. * F — Forecast Government support Fleet of passenger cars and LCVs in Russia The government is planning to maintain 60.0 substantial spending on subsidizing 47.3 48.3 49.5 50.0 44.8 45.5 46.0 46.6 car demand in 2017 by extending the 40.6 43.1 40.0 programs for subsidizing both car loan 30.0 interest rates and leasing, as well as by 20.0 launching new programs that target Million units certain groups of consumers: “My First 10.0 Car”, “Family Car”, etc. The total spending 0.0 2012 2013 2014 2015 2016 2017F*2018F*2019F* 2020F* approved by the government to support Russia’s fleet the automotive industry in 2017 is RUB 60 billion. Sources: AEB, AUTOSTAT analytic agency, LMC Automotive, EY analysis * F — Forecast However, direct subsidizing of demand does not address the fundamental drawbacks in the industry that arise It should be noted that if the conservative scenario holds true from excessive capacity, low localization, and a persistent quality gap between and stagnation of the economy continues, sales may decline in 2017, domestic and foreign products, including causing a slower market recovery. ! automotive components. The industry support program is therefore being designed to include extra measures to Approved measures to support the automotive market in 2017 build up exports, develop the supplier base, promote R&D, and secure Maximum amount Description technological independence. of financing The development of the automotive Subsidies for organizations to partially reimburse costs related to the RUB 17.5 billion production of wheeled vehicles industry will also stand to gain from reducing the tax burden on motorists, Subsidies for organizations that operate in the auto manufacturing industry RUB 7.4 billion enhancing transport infrastructure, to partially reimburse interest costs and taking other measures to reduce Programs “My First Car”, “Family Car”, “Russian Truck”, “Russian Farmer”, RUB 17.4 billion ownership costs. At the same time, it is “My Own Business”; programs to support sales of natural gas-powered crucial to develop capacity for collection vehicles and electric vehicles for urban public transport, and purchases of and scrappage of old fleet in order to school buses and ambulances trigger its renewal. Subsidizing interest rates on car loans RUB 10.0 billion*

Subsidizing the lease of wheeled vehicles RUB 10.0 billion

Total: RUB 62.3 billion

Source: Government of the Russian Federation * Including RUB 7.0 billion for loans issued in previous years

Overview of the Russian and CIS automotive industry | 13 Truck market

Truck sales depend on The medium- and heavy-duty truck In 2012–15, truck sales fell by 53% versus market3 is far more exposed to the a 46% drop in sales of passenger cars and the number of current negative economic trends than the LCVs. 2016 marked the beginning of a investment projects passenger car and LCV market, due to the recovery in the truck market, despite the susceptibility of the end-buyer companies’ shrinking passenger car and LCV market. in the oil & gas and investment programs to the crisis, The downturn is pushing demand other major buying significantly reduced freight traffic and towards Russian truck brands due limited access to debt financing for new to their price advantage, extensively industries, commercial investment and infrastructure projects. localized production and a higher freight volumes, as well as wholesale and retail New medium- and heavy-duty truck sales in Russia by brand, %

7% 4% turnover. 0% 2%1% 3% 7% 8% 6% 35%

7% 41% 2013 7% 2014

7% 8% 5%

28% 24%

1% 6% 1% 5% 2% 2% 4% 3% 3% 5%

7% 38% 8% 40% 2015 2016 11% 9%

28% 27%

KamAZ UralAZ Volvo Hyundai Others GAZ VW Group MAZ KrAZ

Sources: LMC Automotive, EY analysis

3 Medium- and heavy-duty trucks are vehicles with gross vehicle weight rating (GVWR) of over 6 tons

14 | Truck market resilience of their costs and prices to ruble Medium- and heavy-duty truck sales in Russia by origin, % devaluation. The Russian companies’ price advantage is further enhanced by the 7% 9% fact that they receive the majority of the government support. In addition, long- 18% term relationships with Russian metals 25% companies and significant purchase volumes give domestic manufacturers the 2013 2014 benefit of better prices for raw materials. In the short term, the truck market will feel the pressure of uncertainty over oil’s 68% upward trajectory and the freezing of 73% investment projects in the oil & gas and 6% 9% related sectors. The market recovery may gain momentum from the need to replace 16% obsolete vehicles and purchase new ones 14% in order to satisfy pent-up demand and re-launch investment projects that were 2015 2016 shelved. Along with the rebound in the freight sector and investment inflows, long-term market growth will be driven by the following factors: 78% 77%

• The insufficient fleet of reliable trucks Russian brands Foreign brands Localized foreign brands for long-haul freight transportation • The development of fleet management Sources: LMC Automotive, EY analysis and operating lease services, especially in the foreign brand segment Historical and projected sales of trucks in Russia (this process will accompany the 140 improvement in road quality, as well 130 as the enhancement of transport and 120 109 111 telecommunications infrastructure) 98 100 92 99 88 88 • The gradual development of a 86 80 80 76 77 69 71 70 dealership and service network in the 61 64 66 60 57 57

foreign brand segment, which will ousand units

stimulate growth in both sales and the Th 40 number of serviced vehicles. 20

0 2012 2013 2014 2015 2016 2017F*2018F*2019F* 2020F* Sales Production

Sources: LMC Automotive, EY analysis * F — Forecast

Overview of the Russian and CIS automotive industry | 15 Bus market

Bus production trends in Russia

60

50 9 40 10 11 9 30 30 23 23 20 19 ousand units Th 10 16 11 9 11 0 2013 2014 2015 2016* Buses Mini-buses Buses on truck chassis

Sources: Association of Russian Automakers Nonprofit Partnership, EY analysis * The sales structure for 2016 is estimated on the basis of historical data

In Russia, most buses are Bus sales in Russia, % purchased by municipal 13% 10% bus fleets. The economic crisis forced municipalities to significantly revise their 28% 2013 2014 budgets, which depressed 26% 62% the demand for buses and 61% their production volume.

5% 5%

21% 22%

2015 2016

74% 73%

Russian brands Foreign brands Localized foreign brands

Sources: Association of Russian Automakers Nonprofit Partnership, EY analysis

Similar to the light vehicle and truck In the long term, apart from general markets, Russian bus brands increased economic factors, the recovery in bus their share of the market in 2015. sales will be driven by the need to replace obsolete fleet. The average age of buses in Russia is over 15 years. Furthermore, the majority of older buses in the fleet are Russian brands.

16 | Bus market Localization and production of automotive components

Localization is required Localization processes are regulated Only a few Russian suppliers are able to by the industrial assembly regime and compete as they are. Others need foreign in order to minimize are stimulated by the import benefits partners to survive (through mergers, currency risks and to cut granted when localization increases. The license agreements or joint ventures), in number of M&A deals and joint ventures which case they would provide tangible down logistics costs at on the automotive component market has assets (land, buildings, communications) different supply chain been on the rise since 2013 due to new and access to their customer base in contract commitments. Russia, while their foreign partners would levels. provide technology. For most suppliers, At the same time, the actual localization the only opportunity lies in descending to rate has come short of expectations, the second or lower tier and consolidating mainly due to the lack of local suppliers their facilities to generate economies of complying with international requirements scale. for costs, quality and technology. The current situation suggests that 90% Turning to operating efficiency, the of the 600 Russian suppliers will have greatest effect may be achieved to terminate their business in the by upgrading the basic production foreseeable future unless they obtain types (casting, stamping, mechanical immediate government support or processing), and using numeric control assistance from foreign partners. The machines and high performance most underperforming segments include machinery. They also need to introduce the production of complex components, state-of-the-art management disciplines, i.e. transmissions, engines and improve supply chain and working capital electronics, which realistically can only management (the “Just-in-Time” system) be developed in cooperation with foreign and consolidate the production facilities manufacturers. of medium-size suppliers to generate economies of scale.

Overview of the Russian and CIS automotive industry | 17 The position of Russian automotive component suppliers

• Around only 10 suppliers are able to compete Competitive as they are. suppliers

• 35–60 suppliers need partners, joint ventures, license agreements or to sale Suppliers to strengthen their business. their positions through JV or LA • Consolidation is possible within limited product groups.

• More than 500 suppliers should descend to Suppliers to descend to the second another tier or leave the market. or lower tier or to exit the market • This segment has the highest potential for business consolidation.

Source: EY analysis

Secondary market for The share of Russian brand spare parts More than 70%–80% of the components has decreased to one-third of the total are sold in Russia through retail stores and automotive components market, mirroring the changes in the car spare parts markets, which stands in stark and spare parts fleet structure. contrast to Europe where this figure barely reaches 20%. The rest is sold through The downward trend on the secondary Tires, suspensions, brakes and steering authorized dealerships and independent market for spare parts is less apparent components dominate the Russian market service centers. compared with both car sales and due to the poor road surface and aging the primary market for automotive car fleet, which is not the case for Europe Practically all secondary market segments components, largely due to the rising where tires and oils are predominantly are dominated by imports, except for number of motor vehicles. The decline is in demand. In Russia, nearly half of the tires, since tire manufacturers are actively being driven by the diminished purchasing expenses incurred during the first three localizing production and developing power and increased mileage, as well as years of using a car are on oils, liquids, exports on the back of the ruble by savings through extending the service filters and other consumables. devaluation. It seems likely that this trend life of spare parts. will persist in the foreseeable future since Original spare parts comprise only there is no information on whether foreign 20%–30% of the total sales due to the players have any significant construction availability of cheaper non-original parts plans, while the quality of local products and counterfeit products, notably in the remains low. fast wearing parts segment.

18 | Localization and production of automotive components Russian secondary market for automotive components Structure of the Russian secondary market broken down by spare parts origin 1,200 1,110 1,091 1,056 Original parts 20–30% 1,011 1,001 1,000 902 Non-original parts (replica) 40–60% Counterfeit products 20–30% 626 676 800 644 573 640 511 587 Source: EY analysis 600 RUB billio n 368 123 400 116 107 105 116 104 60 57 57 51 57 54 52 71 47 54 56 59 60 200 35 77 35 65 72 70 74 76 46 85 124 139 148 127 122 125 0 2010 2011 2012 2013 2014 2015 2016E* Other components Suspension components Brake components Filters Oil and lubricants Tires

Sources: AUTOSTAT analytic agency, EY estimates * E — Estimate

Overview of the Russian and CIS automotive industry | 19 Dealership networks

Currently the number For many years, sales of new cars have in the UK this figure stands at around 40% been the key source of dealers’ income, and in some West European countries of dealership centers is whereas in the western market revenue is it is nearly 50%. In Russia, authorized on a downward slope, generated mainly from the sales of used dealerships mostly service new vehicles vehicles, maintenance and after-sales under three years of age and still under falling from 4,500 to services. Putting this into perspective, the warranty, whereas in Germany almost 4,000 in 2016. This is share of used cars sold through dealership 50% of vehicles under the age of eight are networks in Russia is roughly 10%, while serviced by authorized dealers. largely explained by lower margins owing to weak Comparison of the number of dealers and passenger cars and LCVs business diversification, sold in Russia high levels of debt and increased bankruptcy 3.5 4.54.5 4.6 2.9 2.9 4.4 4.4 3.0 2.7 risks. usand 4.2 o 2.5 2.8 4.0

1.9 2.5 4.0 s, th

V sales, million units 2.0 4.1 1.5 1.4 3.8

1.5 3.8 dealer

1.6 3.6 of 3.7

ar and LC 1.0 3.6 3.4 3.4 0.5

3.2 Number senger c

s 0.0 3.0

Pa 2008 2009 2010 2011 2012 2013 2014 2015 2016

Market volume Number of dealers, thousand

Sources: AutoBusinessReview, AEB, EY analysis

20 | Dealership networks During the downturn, some companies Maturity of the dealership network were unable to find funds to service loans that they raised in order to expand their 70,000 business before the ruble devaluation, 60,000 hence their new facilities have actually USA become an additional burden. According , US$ 50,000 to the survey of auto dealers performed Germany by EY in cooperation with the Association UK 40,000 France Japan Spain of Russian Automotive Dealers (ROAD), (PPP based*) Italy

57% of respondents in 2015 faced a debt/ pi ta 30,000 EBITDA ratio between 3 and 5x, while for Russia 22% of respondents this ratio exceeded 20,000 DP per ca 5x. More than half of dealers were in G China negotiations over their debt servicing 10,000 The circle represents the size India of the market in physical terms terms with creditors. as of 2016 0 At the same time, some large companies 020406080 100 120 140 160 are opening new centers and increasing Number of dealerships per 1 million adults their market share by purchasing vacated ones, which is driving industry Sources: LMC Automotive, Oxford Economics, EY analysis consolidation. * Adjusted for purchasing power parity, measured at 2016 prices

A comparison of Russia and western In the long term, an increase in GDP per countries shows a relatively low capita and number of vehicles in the fleet penetration rate of dealership centers: will not be sufficient to achieve the level of there are only 34 dealers per 1 million western countries. That would also require adults against 80-120 dealers in Western a transformation of the business model. It Europe. This means that the market has will be necessary to diversify products and growth potential that will be stimulated services, invest in sales of used vehicles, by the rebound of the economy and the and promote the sale of car loans, various automotive market, an increase in the insurance policies (in addition to auto size of the fleet and the higher vehicle-to- insurance), extended warranties and other population ratio. services. Effective management of profit growth requires the use of the cumulative profit margin over the car’s life cycle.

Overview of the Russian and CIS automotive industry | 21 Car loan market

In 2014, the share of Credit sales vs total sales of passenger cars in Russia (based on registration data) credit sales in total sales 3.0 50% dropped substantially 44.0% 2.9 41.8% 37.1% as a result of the 2.4 34.8% 35.2% 40% 2.5 deteriorating availability 2.3 1.8 30% of car loans, with higher 1.1 20% 1.2 1.0 1.3 1.3 interest rates and lower 0.8 Million units 0.6 real household disposable 0.6 0.5 10% income, and on the back of 0.0 0% Russian ruble devaluation. 2012 2013 2014 2015 2016 New car sales (left axis) In 2015–16, a positive New car credit sales (right axis) trend in the share of credit Credit sales share in total sales (%) sales resumed in response Sources: AUTOSTAT analytic agency, National Bureau of Credit Histories to the government As a result of the 2014 ruble devaluation, Commercial banks maintain by far the program for subsidizing the Russian car loan market has demon­ largest share among credit institutions car loan interest rates. strated­ stricter borrowing conditions and on the Russian car loan market, while the a growing share of credit sales in the used- West is dominated by the automakers’ car segment, in addition to higher interest captive banks. In the West, 75% of credit rates, growing overdue balances and sales are financed by captive lenders, larger loans. The potential of the used-car while in Russia the figure is about 20%. loan market rests on the following factors: This indicates that there are vast growth • Low sales of used cars in Russia prospects for captive lending, which is more beneficial to consumers in terms of • The loan penetration rate in the used- costs and other factors. In Russia, seven car segment, which is only a third of the captive banks have emerged over the past level of the new-car segment decade, increasing their share in total • The steady growth of used car sales via credit sales, except in 2015. dealers.

22 | Car loan market Loans issued by captive banks and their share Top banks in automotive lending, in aggregate car loans in Russia, year-end Q1 2016

25% 1,000 24 Alfa-Bank 900 21% 22 19% 20% 800 17%17% 18% 20 Credit Bank of Moscow 700 18 Promsvyazbank Cetelem RN Bank Rusfinance 600 15% , % Uralsib e 16 МС Bank Rus Raiffeisenbank at , RUB billion 500 Sberbank (excl. Cetelem) 14 Bank PSA Finance RUS VW Bank RUS Toyota Bank olio f 400 10% est r UniCredit Bank

rt 12 BMW Bank er VTB 24 300 Mercedes Benz Bank Rus Po 10 200 5% Gazprombank 8

100 ctual int Rosbank (excl. Rusfinance) 749935 915 712 622 A 6 0 0% 2012 2013 2014 2015 1Q2016 4 Car loan portfolio Captive banks’ share in aggregate car loans 2 0 Sources: CBR, Banki.ru, Frank Research Group 012345678910 11 12 13 14 Market share, % Universal bank Captive bank Share of credit sales by region in 2016, % Sources: CBR, EY analysis

Republic of Tatarstan 61% 59.4

Nizhegorodskiy reg. 57% 31.2

Republic of Bashkortostan 57% 43.7

Samara reg. 47% 33.9

Sverdlovsk reg. 47% 43.9

Rostov reg. 46% 35.3

St. Petersburg 44% 85.6

Krasnodar reg. 39% 48.7

Moscow reg. 37% 97.5

Moscow 25% 200

New car credit sales, % New car sales (thousand units)

Sources: National Bureau of Credit Histories, EY analysis

Overview of the Russian and CIS automotive industry | 23 CIS automotive markets

Car sales in Ukraine, The main reasons were the depreciation Kazakhstan of the national currencies, deterioration Kazakhstan, Belarus in the macroeconomic environment, The years 2015–16 saw a substantial and Uzbekistan plunged and declining purchasing power. Higher decrease in car sales in the wake of the imports of cars purchased from Russian autumn devaluation of the tenge, from from 476,000 in 2013 to dealerships partially offset the drop in 163,000 units in 2014 to 42,000 units 203,000 in 2016, based sales over this period, because currency in 2016. The decline in 2016 was also devaluation in some CIS countries against partially due to the introduction of the on vehicle registration the Russian ruble occurred later, together recycling levy, followed by the drop in data. Production fell with car prices denominated in foreign imports that it drove. currency becoming lower in Russia. dramatically as well — The most popular brands are LADA, Toyota, Hyundai and KIA (20%, 17%, 9% from 333,000 in 2013 to and 8%, respectively, in 2016), which 117,000 in 2016. shows that buyers tend to choose low-end models.

Movements in CIS currency exchange rates to US dollar

1 January 2014 = 100 100

90

80

70

60

Ind ex 50

40

30

20

10

0 y y y ch ch ch ust ust ust Ma Ma Ma July July July g g g ober ober ober April April April Jun e Jun e Jun e ruary ruary ruary Mar Mar Mar ember ember ember ember ember ember b b b Au Au Au Oct Oct Oct January January January ov ember ov ember ov ember Fe Fe Fe Dec Dec Dec N N N Sept Sept Sept 2014 2015 2016 Uzbekistan Belarus Ukraine Kazakhstan Russia

Sources: Bloomberg, EY analysis

24 | CIS automotive markets Asia Auto (which mainly assembles Ukraine Several manufacturers went bankrupt Chevrolet, Kia, Lada, and Skoda) and (e.g. Kremenchuk Automobile Plant in AgromashHolding (Hyundai, Geely, Up until 2014, Ukraine had been the 2014 assembling SsangYong and Great Peugeot, SsangYong, Toyota and other largest vehicle market in the CIS outside Wall), while others significantly decreased brands) remain the largest car makers and Russia, but the continuing economic output. are planning to build up their assembly recession caused an almost four-fifths For the automotive market to recover capacity and add new brands to the decline in passenger car and LCV sales in automotive lending needs to be restored manufactured product range in order to comparison with 2013, and by 2015 they together with a rebound in purchasing replace imports. amounted to 50,000 units. power and intensive government support In 2016, SemAZ and GAZ Group signed a The market started to recover in 2016, for local manufacturers. memorandum on the industrial assembly with sales growing 38%. Sales may of GAZ vehicles of the NEXT family, continue to grow, yet their amount and including light commercial vehicles and structure (by brand) will depend on Uzbekistan heavy duty trucks, starting in 2017. customs and tax regulation. In early 2016, additional duties were imposed on Russian In 2015-16 the passenger car and LCV Demand for vehicles is expected to and Uzbek imports, and, later in 2016, market in Uzbekistan remained essentially resume in 2017. excise duty was cut on imported vehicles unchanged, with 58,000 units sold in other than those produced in Russia. 2016. The national currency in Uzbekistan Discussions are being held to eliminate did not depreciate as dramatically as in Belarus duties on vehicles imported from other other CIS countries, and in 2015–16 real countries. If the elimination is approved, GDP was on an upward trend, growing 6% Passenger car sales in Belarus grew the sales of used foreign brands may in 2016. substantially in 2014 to reach 50,000 rise, arresting the growth in the new car vehicles, from 29,000 vehicles in 2013. market and the renewal of the heavily On the other hand, automotive production The main reason for that was the sharp aged car fleet (18 years on average). was down substantially ‒ to 94,000 increase in imports from Russia of cars vehicles in 2016, versus 249,000 vehicles purchased from Russian dealerships. In Historically, the bulk of Ukrainian demand in 2014 — as a result of lower exports to 2015 sales remained flat for the same for low-end brands was met by domestic Russia. General Motors Uzbekistan, which reason but then plunged in 2016. production. Brands in the middle and produces Chevrolet and Ravon (the former high price segments were imported Daewoo) is the main car manufacturer, The historically insignificant automotive primarily from Europe and Russia. During with annual output capacity of 250,000 production in Belarus increased more the recession, production in Ukraine vehicles. The output of Chevrolet fell as than 3.5 times in 2014 (up to 9,000 declined more significantly than sales. a result of this brand exiting the Russian vehicles) due to the increasing output of the Chinese Geely, assembled by CJSC Belgee. Its production facilities, with capacity to assemble 10,000 semi- knocked down vehicles a year, are located at the premises of the Avtogydrousilitel Borisov plant that was rebuilt in 2012. The assembled vehicles are sold in Belarus, Russia and Kazakhstan.

In 2015, CJSC Belgee’s output declined, whereas total output in the country grew due to the launch of Peugeot and General Motors assemblies at CJSC Unison. In 2016, the company signed a Memorandum of Understanding for vehicle assembly with Iran Khodro Company.

Overview of the Russian and CIS automotive industry | 25 market in 2015. Ravon replaced Daewoo Sales of passenger cars and LCVs in selected CIS countries, units as of mid-2016, yet it is still lagging in popularity among Russian consumers. 2016 2013 2014 2015 In 2H 2016, sales of Ravon in Russia (estimate) amounted to 1,800 vehicles, versus 8,600 Belarus 28,810 50,000 50,000 33,200 Daewoo vehicles sold in 1H 2016. Putting this into perspective, sales of Daewoo in Kazakhstan 163,911 162,542 145,915 42,092 Russia amounted to 20,500 vehicles in Ukraine 225,861 102,772 50,322 69,462 2015. Uzbekistan 57,500 58,100 58,773 57,782 Traditionally, domestically-produced brands dominate passenger car sales, Total 476,082 373,414 305,010 202,536 largely due to high import duties and excise taxes. Sources: LMC Automotive, BMI, AUTOSTAT analytic agency

Production of passenger cars and LCVs in selected CIS countries, units

2016 2013 2014 2015 (estimate)

Belarus 2,476 9,126 10,255 7,900

Kazakhstan 37,469 37,782 12,453 10,427

Ukraine 46,619 26,262 5,921 4,418

Uzbekistan 246,691 248,828 185,400 94,473

Total 333,255 321,998 214,029 117,218

Sources: LMC Automotive, BMI

26 | CIS automotive markets EY’s services for the automotive industry

EY applies a highly Our Global Automotive Center has EY has a global network of professionals over 8,000 professionals that deliver serving the automotive industry in Russia focused and integrated exceptional client service worldwide. and other countries. We offer our clients approach to providing EY’s Global Automotive Center is audit and review services, advise them dedicated to delivering insights and on tax issues faced by legal entities professional services for practical solutions in assurance, tax and individuals, assist in legal matters the automotive industry. and transaction support. We also offer and help them understand the specifics corporate finance, M&A, real estate, of local legislation, provide financial Our reputation as an information security and business risk solutions and due diligence services, industry expert has management advisory services. provide market overviews and develop developed as a result business strategy so that our clients can Our clients do business successfully in the CIS. Our of the strength of our key services include detailed market EY is a leader in serving automotive analysis and the preparation of forecasts, professionals. Teams of companies: business development and expansion EY industry consultants • EY is the leading auditor of the plans, feasibility studies, search for with substantial experience automotive businesses listed in the business partners, tax planning, analysis 2016 Forbes Global 2000, auditing 31% of customs regulation and verification of of working with the of the companies*. VAT settlements. automotive businesses • EY is the leading auditor of the EY is a member of the Association of and component producers automotive businesses listed in the European Businesses in Russia (AEB) 2016 Fortune 1000, auditing 33% of Autocomponents Committee. strive to develop optimal the automotive companies*. solutions and assist clients • EY is the leading auditor of the automotive businesses listed in the in their implementation. 2016 Russell 3000 Index, auditing 34% of the automotive companies**.

* Auditor data as of October 2016 ** Auditor data as of September 2016 Overview of the Russian and CIS automotive industry | 27 Contacts

Andrey Tomyshev Senior Manager, Head of the CIS Automotive Group Tel.: +7 (495) 755 9673 [email protected]

Alexei Ivanov Partner, CIS Transaction Advisory Services Leader Tel.: +7 (495) 228 3661 [email protected]

Olga Arkhangelskaya Partner, Head of the Transportation and Infrastructure Group in the CIS Tel.: +7 (495) 755 9854 [email protected]

28 | Contacts Overview of the Russian and CIS automotive industry | 29 EY | Assurance | Tax | Transactions | Advisory

About EY How EY’s Global Automotive Center can help your business EY is a global leader in assurance, tax, transaction and advisory The global recession reset the automotive sector landscape. As the services. The insights and quality services we deliver help build sector recovers, automotive companies across the value chain must trust and confidence in the capital markets and in economies the focus on profitable and sustainable growth, financial and operational world over. We develop outstanding leaders who team to deliver stability, investments in new technologies and seizing opportunities in on our promises to all of our stakeholders. In so doing, we play high-growth markets. If you lead an automotive business, you need to a critical role in building a better working world for our people, anticipate trends, identify implications and make informed decisions that for our clients and for our communities. support your business goals. Our Global Automotive Center enables our worldwide network of more than 8,000 sector-focused assurance, EY works together with companies across the CIS and assists tax, transaction and advisory professionals possessing powerful insights them in realizing their business goals. 4,500 professionals and deep sector knowledge. These insights, combined with our technical work at 20 CIS offices (in Moscow, St. Petersburg, Novosibirsk, experience in every major global automotive market, will help you Ekaterinburg, Kazan, Krasnodar, Rostov-on-Don, Togliatti, accelerate strategies and improve performance. Whichever segment Vladivostok, Yuzhno-Sakhalinsk, Almaty, Astana, Atyrau, Bishkek, of the automotive sector you are in — from component suppliers to Baku, Kyiv, Tashkent, Tbilisi, Yerevan and Minsk). commercial or light vehicle manufacturers or retailers — we can provide EY refers to the global organization, and may refer to one or assistance you need to realize your potential today and tomorrow. more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, © 2017 Ernst & Young Valuation and Advisory Services LLC. a UK company limited by guarantee, does not provide services to All Rights Reserved. clients. For more information about our organization, please visit ey.com. This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither EYGM Limited nor any other member of the global EY organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor.