Poland and Russia – The Biggest Players in CEE – The Opportunities, Challenges, Economies, Businesses and People ICTF International Credit Professionals Symposium, Cracow 14-16/05/2017

■ Arkadiusz Taraszkiewicz – Senior Manager RS1,

2

Agenda

3

Economy

4

Spendings for army / defence as % of GDP (2015)

Source: Stockholm International Peace Research Institute , 2015

Which country spends more for army?

Polska 15

2.0% of GDP

Oman

16.2% of GDP

1

3.3% of GDP

USA 10 Rosja 6

5.4% of GDP

■ Total value of GDP of CEE in 2016 estimated for

2.325, 01 bn EUR

■ Poland and Russia together constitute 70% of the

region GDP

5

Russia and Poland in CEE – role and weight in the region

Share in total GDP ( value) of CEE in 2016

Share in total population ( number)) in CEE in 2016

■ Size of markets does matter!

■ Poland and Russia represent 65% of total population of

CEE ( over 347 mio people)

■ GDP per capita POL 10,9k eur, Russia 9k eur

6 ICTF International Credit Professionals Symposium, Cracow 14 16/05/2017

Economy performance and outlook

■ In Russia oil-and-gas sector accounted for 16% of

GDP, 52% of federal budget revenues and over 70%

of total exports

■ Observed recovery in Russia ( oil prices). Consumer

demnad remain problematic

■ Currency exchange rates.

Poland import

Trade between Poland and Russia can be considered as low, but potential is very high

7

Trading with…

Russia import

Poland export

Russia export

15th 23th

22th 19th

Source: tradingeconomics.com

■ Import from Russia to Poland is in fact

limited to oil & gas

■ Poland imports mainly semi finished

goods required for the production in

electroniic, machinery and automotive

indistries as well as finished goods

■ In Russia major import is related to core

sectors for Russia ( mining, oil, steel)

■ Embargo on food imposed by Russia

decreased to minimum polish food

export. Polish producers quicly adapted

to the new conditions increasing export

to other markets

■ Anyway, the situation in longer run can

be problematic for polish producers, as

Russia is developing own food sector to

cover domestic needs. Soon we can

expect export expansions of the

products

8

Trading with….

Russia - import by category

Poland - import by category

Source: tradingeconomics.com

9

Business & People

10

Doing business

29th

131st 24th

40th

Source: transparency.org

11

Infrastructure and logistics Russia is the biggest country in the world ( 50 times bigger then Poland)

Poland Russia

km railways 20,228 87,157

km rivers tracks 102,000

Country area km2 17,075,400

km roads ( expressways) 1,145,000 (806)

UK

16,512

3,199

243,610

394,428 (3,497) 423,997 (3,050)

3,659

322,575

Infrastructure in capital cities – subway…

Warsaw Metro

Business in Russia

13

Business in Poland

Rosomak

AWT 100 PZL Świdnik KGHM

14

People

15

Abramowicz

Forbes : 3,5 bn EUR w 2016

Kulczyk Investments, Oil, Highways..

„Phoenix 2”

90m lenght Kulczyk

“Pelorus”

100m US-$ Ship’s crew: 40

Forbes: 9 bn EUR w 2015

Steel, mining

Owner of Chelsea London

16

Risk assessment

17

Payment practices barometer

■ From 2010 upward trend of insolvencies. However in 2016 the number decreased by 3,8%, but it is still 15% above pre

crisis 2013.

■ Retail and wholesale trade, Construction and Commercial services – these sectors brings 70% of all insolvencies

■ Location wise the highest number of insolvencies was recorded in Amur, Kemerovo, and Volgograd regions.

■ Consumer demand is still weak ( real personal incomes are declining 9 quarters in row)

■ Credit risk – overdue credits are growing, Jan-Dec 2016 increase by 13,6% vs 2015, reaching 43bn eur ( 6,3% of all trade

credits). Highest growth recorded in Construction +37%; Paper production +15%, mining +20% sectors.

18

Insolvencies - Russia

■ There is positive trend in insolvencies observed in Poland; 807 (2014), 750 (2015) and 606 (2016).

■ However 2016 was the first year of new restructuring law. Registries show that for such solution applied 212 companies.

■ The highest number of insolvencies was recorded in Masovian, Malopolska and Zachodniopomorskie regions.

■ Almost half of all insolvencies are in Construction ( 135, drop vs 2015 by - 16%) and Retail and Wholesale trade (192,

increase vs 2015 by +13%)

■ From the legal type perspective, majority of insolvencies declared by Ltd ( Sp. z o.o.) 53% and private enterpreneurship

( PTY) 29% 19

Insolvencies - Poland

Source: Kuke, Upadłości 03/2017

UE - regulations

Financial services Dual use goods Specialistic technologies Military goods Financing of specific banks Sanctions related to persons

Exporters Financial Institutions

Insurers

UE-Firms

Companies: Ban on export of goods and services under

sanctions Application for licence

Insurer: Monitoring of buyers’ databases Consultations with customers

Local regulations Local companies

Local sanctions

Food embargo Agri products Fruits and vegetables Food products Machinery and equipment

Companies covered by sanctions

Underwritting in Russia - sanctions

20

Usually Group consists from large number of entities like ZAOs i OOOs.

Shareholders (persons) indicated in Trading Report very often are so called „nominated” sharholders.

Very often there are so called off shore companies (BVI, Bahamas, Cyprus, Delaware w US) .

Usually trade reports do not contain full picture of sharholders and grou structurue. There is only one way to get more info and reliable insight.

Visit the company

Example part of e-mail : „ attachmenets and basic explanations regarding Group results and structure of the Group”

“We can sign the financial data, but we can not reveal the identities of persons who signed it!”

21

Underwritting in Russia – financial data and ownership structure

Risk element

Example commentary of CFO

“This is what you need? We can change results if there is such necessity!”

Profits are minimized; Assets transferred to off shore companies.

No consolidated tax accounts.

Thus tax accounts not sufficient. Audited / consolidated accounts – hardly available.

Management consolidated accounts

22

Underwritting in Russia – analysis of financials

31-12-XXXX 31-12-YYYY

Moscow

St. Petersburg

Novosibirsk

Volgograd

Yekaterinburg

Kaliningrad

Chelyabinsk

Kazan

Samara

Perm

Omsk

Irkutsk

Karsnojarsk

Ulan- Ude Chita

Skovorodino

Belogorsk Kabarovsk

Vladivostok

Ust -Kurt

Tynda Konsomolsk -

on -Amur Sovetskaya Gavan

Nizhniy Novgorod

Atradius –

credit expousure

Chemical Automotive

Shipyards Wood

Air

Agriculture Steel

Electronics

2.000 km

9.000 km

Railways

Roads

23

Underwritting in Russia – visiting companies

■ In practice within one day you can reach

any company in Poland by public transport

or car.

■ Expousure of Atradius reflects

industralisation of Poland

Underwritting in Poland – visiting companies

Underwritting in Poland – payments

■ Action SA – top 3 IT distributor

in Poland, listed on WSE starts

restructuring procedure mid 2016

in order to protect itself against

Tax Office decisions ( return ca

80 mio PLN of VAT)

■ MGM, middle sized IT distributor

declares insolvency in 04/2017.

As the reason indicates freezing

by Tax Office 23 mio PLN VAT

return due to ongoing controls.

Company losses liquidity.

■ Reverse VAT - Implementation

of reverse VAT in construction

materials from 2017 ->

potentially negative impacy on

liquidity of subcontractors

26

Belastingdienst (Dutch Tax and Customs Administration

Underwritting in Poland –VAT in focus

Where to look for information

Info Russia Poland

Ready credit reports Spark Interfax, IGK… Bisnode, Creditreform…

Financial Data Rosstat ( Federal State Statistics Service); Federal Taxation Service, Central Bank,

KRS ( Court Registry)

Payment information n/a Paydex ( Bisnode) -

Legal data Rosstat, The Chamber of Commerce and Industry; The Bulletin of State Registration

Ceidg.pl – online check of private enterpreneurships Ems.ms.gov.pl; eKRS.pl

Debt Info / Court cases / Other related

Federal Arbitration Courts; Federal Baillifs Service

BIK

Insolvencies Rosstat COIG ( Centralny Ośrodek Informacji Gospodarczej)

27

■ It is estimated that both in Russia ad Poland 20-30% of oblidged companies do not publish financial data ( penalties size

and execution of them supports such behaviour. Planned more restrictive legislation.

■ Although during last years big progress in digitalisation of databases, still not all data are easy accessible .

■ Necessity to use other sources for the risk assessment ( monitoring industies formus, blogs, using geolocations or web

sentiments ratings)

Summary of challenges in risk analysis

Russia Poland

Financial data reliability and investigation on group structure Access to financial data

Lack of financials in registries – warning signal Politics, politics, politics

Ongoing consolidations in some sectors – analyse potential impact ( pharmaceutical, electronics, IT sectors)

Agressive actions of Tax authorities

Sanctions impact New restructuring law

Volatile RUB against USD/EUR Intensification of fraud transactions in certain sectors

Weak consumer demand Personal data protection law

Problems with financing Payment morality of polish companies

Sanctions still in place Not all securities are efficient

28

If something is not possible to be done, give

it to Poles

Thank you