Work completed on biggest commercial real estate development project in Latvia
SCA has wrapped up its 7-month work on Z-Towers, the biggest commercial real estate development project in Riga, Latvia. The project is executed by Towers Capital Management (TCM) and S.P.I. Group, both controlled by Yuri Schefler, international alcoholic beverage tycoon who became a real estate investor some time ago. The project foresees construction of two 30+-story towers in the very center of Riga, offering commercial (office, retail, etc.), and residential real estate, surrounded by a vast territory with a number of buildings with historical significance. The gross building area exceeds 130,000 sq.m.
SCA was invited as contruction was nearing completion, to check correspondence of expected investment returns to established industry benchmarks; build a detailed financial model of the project, comprising all business segments; develop a KPI system; enhance the project concept and business model; and work out various documentation and procedures for respective business segments.
Work on aggregating historical financial and other information since the project was conceived before the 2008 financial crisis proved strenuous, but we are happy to have assembled an easy-to-use, easy-to-play-with financial model, allowing to test different scenarios and operating model options. We wish the TCM and S.P.I. team all the very best, and will be happy to support them in any further aspects of this project!
SCA advises strategic investor on acquisition of stake in industrial-scale raspberry grower
SCA has served as the buy-side advisor in the acquisition of a stake in a large industrial-scale raspberry grower in the Central European part of Russia by a strategic investor in the food industry. The target and buyer both wish to remain undisclosed. SCA acted as a buy-side advisor, with Partner, Head of M&A Advisory and Corporate Finance Sergey Trofimov leading this M&A advisory project.
The target company is the leading raspberry grower in Russia, working on a B2B model, and successfully competing against imported products. The company also has its own plant research and breeding institute, and pays significant attention to its breeding base. It also has its own processing facility, and is a major supplier to food processing plants, restaurants, grocery stores and supermarkets. The investor aims to help the company further scale its business by starting a network of raspberry growing collectives in nearby villages, and further on, in other regions.
Forensic study, restructuring project finalized for major foreign-funded jewelry maker in Russia
Strategic Choice Advisory has finished a nearly year-long series of projects with a Russia-based middle-to-premium segment jewelry manufacturer with a vast wholesale sales network across the country. The Russian entity has been funded by investors from the Middle East region, a large international gold processing, smelting and refining company.
Return on investment was much lower than expected, and despite the Russian entity mostly staying out of the red (technically...), shareholders were deeply dissatisfied and concerned. In addition, there was certain suspicion about possible embezzlement of funds and other dubious activities on the part of the company's Russian management. SCA thus set about to investigate.
Inviting a renowned jewelry sector expert to work alongside our financial analysis, management consulting and due diligence team, we closely examined every single transaction executed by the company, comparing it to benchmarks for corresponding gold and other precious metals, gemstones, and finished jewelry items. Also, we performed thorough market trend analysis and forecasting, building several scenarios in our detailed financial model.
In process, we also invited promising jewelry designers to help revamp the company's product range, as we considered it to be rather backward and economically inefficient, all the while maintaining the company's commitment to use only natural gemstones in its products. The company's website, positioning, marketing strategy and sales policies all required thorough redoing and upgrade.
Our forensic study did plausibly confirm severe violations by the company's management, for which we developed remedies, including stringent control mechanisms (both on the supply chain and sales side), and bringing in a duly empowered shareholder representative into the company's management structure. Costs were reduced considerably, despite obvious objections from the company's management team (now stripped of much of their powers).
Despite the generally unfavorable market environment, we advised against closing down the company, preferring to tough it out until consumer demand recovers from the "Western sanction crisis". As a result, already over the last several months, the company has stopped being loss-making, and has managed to increase sales and improve its market prospects. Further steps to improve financial performance will now be undertaken by the shareholders.
SCA concludes project with Chinese B2B logistics, equipment import major Huasheng International
Strategic Choice Advisory has completed its work with the Moscow office of Huasheng International, the leading Chinese B2B equipment importer into Russia. Per our contract, we seconded one of our senior project managers to lead strategic development at Huasheng, as the company continues expanding its overall service range and boosting market standings. Several key strategic initiatives were thus developed, assessed and substantiated over this period.
Per a separate contract, we also looked into the company's plans to expand the product range and boost sales of auto components and spare parts at the Ulyanovsk factory, recently launched by Chinese car major BAIC (Beijing Automotive Industry Holding Co., Ltd.). Huasheng is a co-investor in the auto component plant, and has developed a corresponding expansion proposition to BAIC. We were tasked with reviewing and customizing this proposition, taking into account the specifics of the review and approval process for such projects in China. Going forward, we will keep cooperating with Huasheng to support their expansion on the Russian market.
JGC Corporation announces launch of greenhouse business in Khabarovsk region
Leading Japanese engineering company JGC Corporation, together with its local partner Energoimpuls+, have announced the start of first phase vegetable production at their greenhouse business JGC Evergreen in Avangard accelerated economic development zone in Russia's Khabarovsk region. The greenhouse area makes up 2.5 ha, as the product range includes cucumbers, tomatoes, and greens. Investment in the facility made up around RUB 560mn (around USD 14mn at corresponding exchange rates over the period). Further plans may include boosting the area to 10 ha in phases, and expanding the sales network in the Far East beyond Khabarovsk region.
SCA conducted a feasibility study for the first phase of the project in 2013-2014, examining also the next production phase and sales expansion to Primorsky Krai. Originally, we analyzed the regional vegetable markets of three potential target regions in the Far East, selected the optimal region for starting production and sales, compared operating model options, performed financial modeling with special attention paid to different energy resource options, and developed the sales policy.
Also, we evaluated on-site conditions and the proposed local partner Energoimpuls+ (giving a very positive assessment), whose brownhouse area JGC eventually acquired. We must also note the decisive role played by Russian deputy PM, presidential envoy to the Far East Mr. Yuri Trutnev, whose support was instrumental in solving certain energy supply issues and helping the project get off the ground. We hope JGC Evergreen's business turns out to be highly successful and expands further to meet the pressing need for fresh vegetables year-round in this region!
SCA finishes new type power plant feasibility study, CapEx program review for state power major
Staregic Choice Advisory's energy sector team has completed its work on three projects for a leading Russian state corporation in the energy sector, making presentations to the corporation's management board. One of the projects involved a feasibility study of a brand new type of power plant, that is developed by the corporation. Although the overall conclusion was negative, we outlined conditions and requirements that can make it economically feasible. The corresponding R&D institute of the corporation where we worked will continue exploring the possible solutions now. Another, related project concerned waste utilization, which turned out to offer much higher investment returns, and will now be pursued by the corporation.
The third project we have completed was a review of the corporation's investment program in Russia and other markets. We built a detailed financial model for all of the corporation's capital expenditure (CapEx) projects, analyzed the effectiveness of funding mechanisms, looked into the reasons and possible remedies for frequent power plant launch delays, and made corresponding conclusions and recommendations for the management board.
SCA hosts seminar on innovative technology development at Slava technology park in Moscow
Strategic Choice Advisory held a discussion seminar "Innovative Technologies: Trends, Opportunities, and Success Factors" at Slava technopark in Moscow on Sep 30, 2015. The technopark, owned by the Moscow city government and major VEB bank, has become a successful example of new technology development in Russia. It currently houses around 70 innovative technology companies, divided into several industry clusters. Most of the residents have already commercialized their products, quite a few are exporting various products, while some have already grown to become medium-sized enterprises and Russian market leaders.
SCA has been cooperating with Slava technopark for several years now, and closed an investment deal there in 2013, in the biotechnology sector. Our consultants have been speaking at various events at Slava technopark, and this time, five of our staff members made speeches for the technopark's residents and business partners. Among the topics we covered were latest trends, drivers and opportunities in innovations, as well as success factors in working with investors. Special attention was paid to the country specifics of innovation development systems in the Asia Pacific region, as well as possible priorities for cooperation. We are very thankful for our cooperation with Slava technopark, and are happy to support its residents in their business expansion.
SCA completes string of strategy and efficiency projects with Russian oil major Gazpromneft
Strategic Choice Advisory has successfully finalized its nearly-2-year-long work with Russian state-owned oil major Gazpromneft. The seven projects we have completed spanned all service business segments on a nationwide level, including oil product storage; transportation; wholesale, corporate and retail (gasoline station) sales; laboratory services (oil product testing), electrometry and metrology, as well as various other business units and divisions. Broadly, the projects can be grouped as follows:
Urals, Siberia, Western European Russia market analysis; competitiveness and attainable market share assessment; detailed financial model compilation; efficiency improvement program development, taking into account primary and secondary logistics options; oil product terminal and laboratory network modernization program
Staff management and motivation market practice analysis; motivation system improvement recommendations for key structural business units
Staff quantity model development for 6 main nationwide service, wholesale and retail divisions
Multi-functional gasoline station and rest area concept and financial model development, location selection on M1-M11 highways
The projects involved tedious financial modeling and development of efficiency improvement programs, which were debated with and substantiated for the client's management boards across all affected business units and divisions all over the country. Important business model and operational process changes were adopted by Gazpromneft as result of our work. The projects were performed hand-in-hand with oil&gas research & analysis specialist RPI, whose data, surveys and opinions served as important inputs for SCA's financial models, conclusions and recommendations. We are happy to have thus developed our expertise in this sector, and to continue servicing this vital industry.
SCA wraps up work on major railway infrastructure project for South Korean initiators, authorities
After working for almost two years on a major infrastructure project in Russia in the interests of private initiators and government authorities in the Republic of Korea, we are forced to suspend the project due to Western sanctions against Russia. The project called United Eurasia was originally conceived by former major shareholder, Chairman of Korean KOHAP petrochemical company Mr. Chang Chi-Hyeok, and later supported by a group of Korean engineering and other relevant companies. Project work was done in close coordination with and support from the Korean Presidential Administration, and Korean Transport Ministry together with Korea Railroad Research institute (KRRI).
This project foresees a major revamp of Russia's Transsiberian Railway (TSR), running across the country from its western European borders to Vladivostok in the Far East, and the Baikal-Amur Railroad (widely known as BAM in Russian) to faciliate greater cargo and passenger transportation between Asia and Europe. More specifically, it entails launch of higher-speed cargo transportation (at up to 180-200 km/h) through TSR, using KRRI's advanced technologies. Significant seaport, automobile transport and other logistiics infrastructure construction and upgrade is also foreseen by the project
Our work included the pre-feasibility study of the project (including work on the railway running through North Korea and the country's seaport infrastructure), which we completed in late 2013, and the project's presentation to relevant Russian (and Japanese) government authorities and transportation sector players. Thus, we prepared the presentation made by South Korean president Ms. Park Geun-Hye to Russian president Mr. Vladimir Putin during their meeting at the 2013 G20 summit in St. Petersburg, and Mr. Putin's subsequent visit to South Korea.
At the start of 2014, we also made the presentation to Russian Railways (RR) president Mr. Vladimir Yakunin, and detailed presentations to the railway monopoly's top management. Our financial model was reviewed thoroughly and received positive feedback by RR. The United Railway project received a generally positive review and willingness to step up negotiations from Mr. Yakunin in a personal response letter to Mr. Chang. On Mar 14, 2014, SCA helped organize RR's forum and other top-level meetings in Seoul, which drew significant interest and resulted in the signing of cooperation agreements.
Despite strong bilateral interest in the project, Western sanctions against Russia put a spoke in the wheels of the project, and we are now told by Korean authorities that the project has been put off until further notice. It is with much regret that we have to stop work for now, but we strongly believe the project remains highly relevant for all involved countries. We hope the geopolitical tensions can subside soon enough, allowing resuming work on project preparations.
SCA completes thorough risk assessment of Yamal-LNG project for co-EPC JGC Corporation
Strategic Choice Advisory has finalized the 360-degree risk assessment of the landmark Yamal-LNG project, developed by Russian oil&gas major Novatek, for Japanese JGC Corporation, which is a co-EPC of the project together with French Technip. JGC is responsible for the bulk of the USD 27bn project budget, which entails construction of LNG manufacturing and export infrastructure on Russia's Yamal peninsula, north of the Arctic circle, in several phases.
Our job was to do thorough risk assessment (financial, market, political and technological), as JGC was about to sign the EPC contract in March of this year. The flare-up of the Ukraine/sanction crisis caused significant worry, and we were asked to re-assess the project's key parameters in terms of technology/equipment availability and presence of alternative options, possible influence of sanctions on the sales contract portfolio, and other inputs. The financial modeling we performed for both the Yamal-LNG SPV and Novatek, in general, confirmed the project's viability and stress resilience, and JGC has now proceeded with commencing work on the project.
Work finalized on Japanese engineering major JGC Corporation's expansion strategy in Russia
SCA has completed work on leading Japanese engineering company JGC Corporation's market strategy and business model in Russia, started in February this year. Our job was to examine market prospects and demand for engineering services in oil&gas and petro/-gas chemical segments, as well as best practice in operating models for foreign companies' work with clients and cooperation with Russian counterparts.
We made detailed recommendations on preferred business model choices, made priorities among market segments, and a step plan for further penetration into the Russian engineering service market. This is our fourth project with JGC Corporation, which continues strengthening its positions in Russia in various sectors. The company has recently signed a Letter of Intent (LoI) with its local partner for a greenhouse project in Khabarovsk region, for which we performed feasibility analysis, business model selection, and step plan development.
SCA completes work on Federal Guarantee Fund establishment for Russian EconMin, CBR
SCA has completed development of the concept and operating model, business strategy, financial model, risk methodology, internal policy guidelines and other documentation for the establishment of the Federal Guarantee Fund (Credit Guarantee Agency). The work was conducted in the interests of Russia's Economy Ministry and Central Bank, together with our long-time partner ICG First advisory firm. The corresponding contract was signed in autumn 2013 with Moscow's SME support fund, which also oversees similar structures in other Russian regions, and we studied the fund's data and existing practices in our analysis.
In the course of the project, we examined best practices and KPIs in other countries where similar guarantee mechanisms are already in place. Our experienced banking sector team compiled a detailed risk management methodology and financial model, and developed a business plan covering staff requirements, expense items and business development priorities. We hope this work will help lay the foundation for bank guarantee market development in the Russian economy.
SCA office moving to World Trade Center in Moscow
Please be advised that we are starting to relocate our cozy office in a historical, perfectly furbished mansion on Gasheka str. (sigh...) to the World Trade Center (WTC) in Moscow to work on a series of projects in the oil&gas sector that we started late last year. We will be sharing premises with oil&gas market research & analysis specialist RPI. Part of SCA staff will stay at our address on Gasheka str., but is expected to move to WTC within a few months.
Our new address is World Trade Center, office 1404A, entrance 3, 12 Krasnopresnenskaya nab., Moscow, 123610, Russia. Our main office phone number thus changes to +7 495 778 4597. We look forward to seeing you at our new location and continuing our cooperation!
SCA, Meridian Capital, Japanese partners host 2nd Russia-Japan Innovation & IT Forum in Tokyo
Strategic Choice Advisory and our partner advisory firm Meridian Capital, together with Russian Cooperation Agency, Japanese IT association FIIF, Japan-Russia Association, and Hitotsubashi University hosted the 2nd Russia-Japan Innovation & IT Forum at the Russian Embassy in Tokyo on Nov 26, 2013. The forum gathered around 200 participants from innovative technology and IT sectors - companies, government officials, universities, R&D centers, VC funds, and other experts interested in learning about the latest trends in new technologies in Russia, and finding cooperation opportunities. more
The previous Forum was held on Feb 13, 2013, attracting much interest, and this time we hardly managed to accomodate all the participants at the Embassy premises. The lively discussions continued well into the evening, and people just could not leave, enjoying each other's company. We are very thankful to Embassy staff for a most wonderful banquet, and for bearing with everyone so they could continue their conversations.
We brought over from Russia a delegation of successful IT and innovative technology companies, some of which already supply their products to Japan, as well as other countries worldwide. We were especially honored to bring with us the Director of the Institute for Information Transmission Problems (IITP) of the Russian Academy of Sciences (RAS) Dr. Alexander Kuleshov, his colleagues, and several successful spin-off enterprises from IITP.
In the same week, we also arranged a busy itinerary all over Japan for Russian delegation members, who were meeting existing clients and potential new partners, and discussing cooperation opportunities. A number of promising acquaintances were made with esteemed Japanese business and thought leaders, and we are very happy to continue furthering our cooperation with Japan in innovation and IT!
SCA serves as buy-side advisor for investment in PrimeBioMed by RVC and private shareholder
SCA has completed its work on the acquisition of a stake in PrimeBioMed (PBM) antibody and diagnostic test manufacturer by private investor Olga Lopayeva, who effectively becomes the company's biggest private shareholder, and of a controlling stake by Russian Venture Company (RVC). SCA acted as a buy-side advisor, with Partner, Head of M&A Advisory and Corporate Finance Sergey Trofimov leading this M&A advisory project.
PBM is the first Russian commercial-scale antibody manufacturer, and aims to obtain a significant market share in supplies to the laboratory diagnostic market in Russia. The company also has its own diagnostic laboratories, and conducts R&D at its premises in Slava technopark in Moscow. Its co-founder and CEO Dr. Aleksey Grachev has substantial international experience in biomedical research and management, and is a renowned expert in molecular biology and immunology. We wish the PrimeBioMed team all the best in achieving their bold goals!
SCA finishes Russia entry strategy for leading Japanese beauty and other functional drinks maker
SCA has completed its first project with one of the biggest Japanese banks - Mizuho Bank, in the interests of a leading Japanese soft drinks manufacturer working in Russia. The latter company also happens to be one of the biggest manufacturers of beauty drinks in the world, and has strong positions in energy drinks and other functional drinks. Plus, it has a vast vending machine network in Japan and other countries, including Russia's Far East region.
We examined the overall soft drinks beverages market, focusing on the abovementioned drinks, and estimated the possible market niches for the Japanese player. For this, working regularly in the beauty and wellness industry, we actually divided women into 11 types (very fascinating), and assessed the likely demand, purchase drivers and purchasing power. We also analyzed various operating models from distribution to vending, own shops, etc., and did financial modeling for each option.
We discovered that the price in Russia is likely to be X times higher than in Japan (cannot disclose the actual number, our apologies), and the bottom line would not quite work out. We thus recommended not to enter this market segment, unless certain criteria are met. We also analyzed energy and other functional drinks, as well as vending machines, and made corresponding conclusions. Our client has accepted our recommendations, and is now considering alternative entry options.
Fashion House Group launches its first outlet store in Russia, near Moscow
Belgian-British outlet store operator Fashion House Group (FHG) has opened its first outlet store near Moscow, close to Sheremetyevo international airport. The company is one of the first among a slate of investors rushing to open major outlet stores outside Russia's capital city. Gross leasable area (GLA) of Phase I makes up around 15.4thsd sq.m. GLA should be increased to about 28.5thsd sq.m. when Phase II is launched. Total investments in the project made up around EUR 87mn.
Over the past year, SCA conducted a feasibility study of the project, validating the concept and building a financial model, employing forecasting and pricing mechanisms, unique for the Russian market. We calculated catchment, footfall and turnover; assessed the expected income of each tenant store, and tied part of the rent to projected turnover and its annual increase. We worked on the project's financial structuring together with our long-time partner advisory firm ICG First, and alongside Magazin Magazinov trade realty advisor on the rent roll aggregations. We wish the FHG team all the very best in their expansion on the Russian market!
SCA and our Japanese partners host Russia-Japan IT Forum in Tokyo
Strategic Choice Advisory, together with Russian Cooperation Agency, and Japanese partners IT association Foreign Information Industry Forum (FIIF), and Japan-Russia association, held the first Russia-Japan IT Forum at the Russian Embassy in Tokyo on Feb 13, 2013. The event was held alongside FIIF's Annual Reception, which the Embassy graciously hosted together with the Forum, and gathered around 150 participants from the IT industry, government and investor circles (more).
SCA Managing Partner & CEO Andrew Afanasiev made a speech on "Russian IT Sector Trends and Prospects - Product, Sector Play via Synergistic Partnerships", detailing key opportunties and most effective partnership formats for Japanese and Russian IT enterprises (more). The speech also outlined overall new technology trends expected to further propel the IT industry in Russia. The event proved very fruitful in establishing new contacts for closer cooperation in the IT sector, and SCA is looking forward to arranging further events of this kind in Tokyo in the near future.