The Russian Composites Market

1. The Russian Composites Market JEC International Composites Summit Paris, March 30th, 2011

2. Background on Bautex • German-Russian Production Company • 25.000 tons annual glassfiber consumption • HQ in Moscow, branch office in Wladimir • Plant in Gus-Khroustalnij, Russia • > 40.000 m2 production area • Plant in Pabianice, Poland • Plant/ distribution center in Germany, Thuringia • 500 employees • Annual growth > 50%

3. Background on Bautex • Glassfiber Fabrics • roofing fabrics • fassade cladding meshes • grinding wheel meshes • wall covering • roving fabrics • asphalt reinforcement meshes • Moulding Compounds • bulk • sheet

4. Background on Bautex • BauTex is working without corruption • Further growth esp. in the field of composite materials • BauTex as a docking station/ platform for partner companies in similar or downstream applications • Provider of infrastructure, production base, Russia Know-How • Looking at joint venture potentials • www.bautex.ru

5. Outline of presentation • Key points on Russia & the Russian Economy • Key Russian industry sectors • The Russian Composites Market • Challenges to investments in Russia • Future prospects

6. Outline of presentation • Key points on Russia & the Russian Economy • Key Russian industry sectors • The Russian Composites Market • Challenges to investments in Russia • Future prospects

7. Brief profile of Russia • Largest country in the world/ long distances/ 9 time zones • Strong academic, technological and industrial legacy • Enormous natural resources – gas, oil, minerals, world biggest oil producer • Population of 142 mln offers large potential markets e.g. automobiles • Large construction programs with government encouragement • Harsh climatic conditions present opportunities for composites • Strong metal tradition and industry base, steel is key (russ. stal) • Composites so far relatively underdeveloped especially local resin production

8. Sustained Russian growth:running at 7% p.a. up to 2008 • After the crisis of 2000, the Russian economy had many years of good growth averaging around 7% until the financial crisis of 2008/ 09 • This growth was helped by the growing funds that Russia was receiving in payment for oil and gas • The recession of 2009 was brutal with a GDP reduction of 8% but the economy recovered in 2010 to show a 4% growth • Forecasters are estimating that the Russian economy will grow in the 4 % range for the coming years

9. Foreign Currency Reserves &Trade Balance recovering Russian Foreign Currency Reserves • Russia has become the world’s biggest oil producer. • The oil price expected to hit $ 200/ bbl this year • Russia has enjoyed a positive and growing trade balance over recent years which is growing again after the 2009 drop Russian Imports and Exports Source : Deutsche Bank

10. FDI into Russia needs to recover FDI Inflows to BRIC countries • FDI inflows to Russia spiked in 2008 at just over $70 bln and then plummeted in 2009, in 2010 down to 40 or $ 14 bln ? • Some recovery took place in 2010 but the government expects levels of $60 - 80bln in the next years • this would bring FDI close to the Chinese levels • Russia is attracting slightly more FDI inflow than India and Brazil Source : IIF reported by Deutsche Bank, Feb 2011

11. Outline of presentation • Key points on Russia & the Russian Economy • Key Russian industry sectors • The Russian Composites Market • Challenges to investments in Russia • Future prospects

12. Key Russian industry sectors • Automotive Industry • Pipe Industry • Aerospace Industry • Railway Industry • National Projects • Olympic Winter Games Sochi 2014 • World Football Cup 2018

13. The Russian Automotive Industry • New light vehicle sales grew in Russia at an ACGR of 24% from 2005 to 2008 • In 2008, before the crisis, there was talk that Russian light vehicle sales would supersede Germany’s by 2010 ( Germany being the largest country car market in Europe) • However the market saw a drop of some 50% in 2009 but recovered by over 30% in 2010 and sales prospects remain good for the future • 2012 sales to be 2,9 mio units ACGR +24% ‘05 - ‘08

14. The Russian Automotive Industry • Continous growth of localization is a prerequisite for reduced customs duties on import parts !!! • Foreign carmakers have stepped up efforts for J/Vs with Russian firms • 300.000 units p.a. make companies eligible for a range of incentives • The Sollers/ Ford J/V was announced in Feb 2011. The goal is to reach a target of at least 300.000 vehicles p.a. • Volkswagen and GAZ plan a joint venture to produce 300.000 cars p.a.180.000 at Kaluga VW plant, 120.000 in N.Novgorod at GAZ • BCG expects Russia to be the 6th largest global auto market by 2020 with sales of 4 mio units p.a.

15. The Russian Automotive Industry • The Russian government, seeing that imports of foreign cars were rising very fast, has imposed high import duties on imported cars to encourage local production • In 2010 the share of cars sold - but produced by foreign companies in Russia - reached parity with the cars produced in Russia by local companies

16. Most major foreign producers are invested in production in Russia • As shown on the map there are four main clusters for automotive production in Russia • Most of the world’s leading car producers have invested in production in Russia, partially motivated by the government’s heavy import duties on cars : Source : AEB/E&Y

17. The Russian Construction Industry • Overall Russian construction grew by an ACGR of 17% between 2005 and 2008 • The drop of 15% was due to a buffering by the state which is directly involved in constructing houses and in various infrastructure projects e.g. Sochi • Early in 2011, the prime minister has announced house construction targets which for a 50% increase in spending, some of which is supposed to come from private investors

18. The Russian Pipe Industry • Russia’s large distances combined with the size of the oil and gas industries means Russia is a huge consumer of steel piping • The corrosive environment means that pipes often have to be changed as often as every three years • There is certainly a large potential opportunity for composite pipe but steel is a very established material in Russia while composites are at their beginning • There are several small diameter filament winders in Russia but the industry needs strong promotion of the benefits of composites as well as ensuring standards are established and respected.

19. The Russian Aerospace Industry • Russia had a strong aerospace industry prior to 1990 in both passenger and military planes • In 2006 the Russian government created the United Aircraft Corporation (UAC) which merged the aircraft activities of the three major producers, namely Sukhoi, Irkut and Tupolev • UAC currently has five major aircraft development projects underway including the regional Super Jet – 100 and the short/ medium range MS - 21 • The Russian Technologies State Corporation (RT) founded in 2007 is an umbrella for many aircraft related technology companies • RT has set aside funds for a new carbon fiber enterprise in Ulianovsk • Production facilities have been upgraded including the purchase in 2010 of 1 MAG CF tape layer

20. The Russian Railway Industry • Russia plans to build an expanded high-speed railway network with Sapsan trains • until 2017 Moscow - St. Petersburg660 km, € 15 bln • in total 3.000 km new HS-tracks until 2018 • for the Public-Private-Partnerships a concession-modell is foreseen:Design-Built-Finance-Maintain (DBFM) • www.hsrail.ru • a very old park of waggons of „electrichki“ the suburban trains, which need to be exchanged • Alstom bought 25%+1 in Transmash

21. Football World Cup 2018 • Russia will spend € 7 bln - € 14 bln on upgrades to infrastructure in the 13 host cities • 13 new stadiums with a lot of new seats • Russia needs to build or renovate an enormous amount of hotel rooms, FIFA said

22. Outline of presentation • Key points on Russia & the Russian Economy • Key Russian industry sectors • The Russian Composites Market • Challenges to investments in Russia • Future prospects

23. The Russian Composites Market • The Russian Composites Industry is focused mainly on glass fibre composites • There is only a very small production of carbon fibre and 2 of Basalt and natural fibre composites have yet to be seriously developed • Glass reinforcement fibre volumes (excl. yarns) have been publicly reported but glass fibre consumption takes place in both non-polymer and polymer based composites segments : • Mesh production (for façade cladding) • Fabric for bitumenous roofing • Veil production (for roofing and PVC flooring) • Geotextiles • Moulded polymer composite production • The composites segment in Russia, which was 156 kT in 2010 (based on 33% glass content) grew by an ACGR of 16% over the 2006 volume of 86 kT

24. The potential for growth of the Russian composites market can best be seen by comparing the 2010 per capita production of composites The US leads the world with a consumption of 8.6 kg/ person/ year The EU 27 produces 4.9 kg/ capita/ year China in spite of its fast growth in consumption of composite materials is only at a level of 2.5 kg/ person/ year Russia in 2010 was at a level of 1,1 kg per capita per year Per capita comparison Source : Connectra

25. 2010 status of key composite manufacturing processes in Russia

26. Outline of presentation • Key points on Russia & the Russian Economy • Key Russian industry sectors • The Russian Composites Market • Challenges to investments in Russia • Future prospects

27. Challenges and Hurdles to Success in Russia • High inflation of an average of 10% per year, 2011 expected 7 - 8%versus a very strong Russian Rouble • Coming years economy maybe stagnant • Cartels and price collusions because of a non-functioning anti-monopoly comittee • bad business climate because of corruption, permanent danger from executive organs such as tax inspection, customs, fire inspection etc. • unsecured investment conditions because of bureaucracy and a lot of red tape (missing one-window-stop) • very little support culture and attention to SME

28. Outline of presentation • Key points on Russia & the Russian Economy • Key Russian industry sectors • The Russian Composites Market • Challenges to investments in Russia • Future prospects

29. Future prospects for Composites in Russia • Challenges • Need for creating greater awareness of composites within industry • Life-time cost saving, a usual argument for composites replacing traditional materials, may be more difficult to sell in a country which thinks in terms of job maintenance and early replacement repeat jobs • Need for local production of high quality resins • The composite producers, represented by their association “Union of manufactureres of composite materials”, have recognized the importance of National Standards for the composite materials • a National Standard for “Pipes out of fiber-reinforced thermosets” ready to be inked

30. Future prospects for Composites in Russia • in 2011 another 20 National Standard projects shall be prepared, during the following years 30 - 40 p.a. • the All-russian Institute of Aviation Materials has prepared the following Standards: • carbon fiber fabrics, technical requirements and testing methods • nano-modified prepregs, types and main parameters • nano-composite materials, binding nano-modified polymers, types and main characteristics • these Carbon specification initiative by GOST showing the focus on catching up with progress on the international composite markets

31. Future prospects for Composites in Russia • Market potential • two new furnaces of glass fiber in Russia: 20 kT and 45 kT will give rise to new and additional applications because of client’s support and easier access • Given today’s low usage of composites in all major potential markets there appear to be good prospects for continued double digit growth of the composites market • especially in selected fields connected with oil & gas and with projects, which are strongly funded and supported by the state, such as infrastructure in roads, railway, aviaition and housing construction • given the pressure for localization the automobile industry will give strong growth incentives, esp. quality-wise

32. Thank you for your attention