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BEST RUSSIANBRANDS 2007Ranking byBrand Value

Interbrand Zintzmeyer&Lux

BEST RUSSIAN BRANDS 2007 2

CONTENTS

Our approach and experience

The Best Russian Brands League Table

Breakdown by industry and trends

Selected brand profiles

Top four decliners

New entrants

Appendices

5

12

17

20

26

32

34


THE BEST RUSSIAN BRANDS 2007

Interbrand Zintzmeyer & Lux in cooperation with Business Week magazinepresents the third annual ranking of 40 most valuable Russian brands arranged bybrand value. We firmly believe that brands are not only intangible substance but areeconomic assets and must be managed as such. That is what makes our approachvaluable and informative for those who own and manage brands. Effective brandmanagement is based on brand value management.

For seven years, Interbrand has been ranking the Best Global Brands in partnershipwith BusinessWeek magazine. Brand values were determined using the methodInterbrand pioneered 20 years ago and has since used to value more than 5000brands. The same brand valuation methodology has been employed to arrive at thetop 40 most valuable Russian brands.

To qualify for the Best Russian Brands league table study, the company to whichthey belong must be transparent so there is publicly available marketing andfinancial data. The brand must be of Russian origin and made to be used in Russia,regardless of whether it’s owned by Russian or international company. Berecognizable outside of its primary customers. Also, the brand must not be amonopoly, not as itself, nor in its sector of industry. These criteria eliminateheavyweights such as Gazprom, Alrosa, MGTS as monopoly brands, numerousbrands from tourism and media, since the companies they belong to are nottransparent. Interbrand only ranks the strength of individual brand names, notportfolios of brands, which is why some master brands of main Russian holdingsare not present. Airlines are not ranked because it’s difficult to separate theirbrands’ impact on sales from factors such as routes and schedules. And this yearInterbrand removed pharmaceutical brands from the ranking, because consumerstypically relate to the product, rather than to the corporate brand.

Top Russian valuable brands show robust growth in 2007, with the top 40 brandsgaining 23% in value over the last year’s top 40. The share of the leading 10 brandsin the top 40 was reduced from 80% to 77%. There are a lot of changes in thisrating in comparison with the previous year due to the fact that Russian companiesare becoming more open and B2C client oriented market in Russia is developingrapidly.

While in previous years the table has been dominated by oil and telecom brands,we continue to see growth in sectors like Beverages, Media and Retail. With theshift of focus onto embracing the consumer, it is encouraging to see more Russiancompanies acknowledge the need for branding and make significant long-terminvestments in their brands.

We hope you enjoy this report and that it provides valuable information in thecreation, management and measurement of your brands. We would like tocongratulate the brands that are featured in our 2007 brand league table and wishyou every success in your exciting journey forward.

Sincerely,

Nicola StanischManaging DirectorInterbrand Zintzmeyer & Lux, Moscow


WHY THE RANKING IS IMPORTANT

The Best Russian Brands study provides a brand value that is a top-line measure ofeconomic performance driven by the brand, stating what the particular brand isworth overall and among competitors. Brand value brings to marketing what“revenue goals” or “financial hurdle rates” bring to other aspects of the business..

The payoff comes when one looks behind the number – a single number only tellsyou so much. It’s important to understand what drives brand value: intangibleearnings (the cash flow of a business not associated with tangible assets such asequipment or materials), the role of brand (a measure of how much brandinfluences purchasing decisions) and brand strength (a benchmark of a brand’srelative risk compared to competitors).

Understanding the drivers of brand value can inform management action, fromoverall business strategy to specific marketing tactics. It’s an easy-to-understandmetric to help brand owners determine where they are, where they’re going andhow to get there. It helps to make branding a more important aspect of globalbusiness management.

It tells you whether you are investing adequately into your brand. Putting aneconomic value on a brand (overall and by segment) can help make a strongbusiness case for marketing investments, overall and across a company’s portfolio.

It tells you whether you have a marketing strategy that positions your brand aroundthe right messages. Your customers make decisions every day between you andyour competitor; analyzing the role of brand in those decisions helps focus yourstrategy on the attributes that differentiate your brand from others and strengthenyour relationship with your best customers, ensuring future earnings.

It tells you whether you have the right short-term tactics to drive value. By analyzingthe strength of your brand, you can target marketing campaigns to the mostvaluable customers and against your most formidable competitors, driving short-term sales.

There are many insights from this ranking, but the core message is clear: brandsare important assets requiring proactive and consistent investment, management,and measurement.

OUR APPROACHAND EXPERIENCE


HOW WE DID IT

Criteria For Consideration

Using our database of Russian brands, populated with critical information over thepast 20 years of valuing brand and more than 30 years of consulting withorganizations, Interbrand formed an initial consideration set. All were then subjectto the following criteria that narrowed candidates significantly:

- There must be substantial publicly available financial data.

- The brand must be Russian origin and made for Russia using independently if it’sowned by Russian company or international company.

- The brand must be a market-facing brand.

- The brand must not be a monopoly brand as in a whole as in its sector of industry.

- The Economic Value Added (EVA) must be positive.

- The brand must not have a purely b2b single audience with no wider publicprofile and awareness.

These criteria exclude brands such as Gazprom, MGTS, Alrosa, RZD which aremonopoly brands, leading brands in tourism and media which are privately held, orsome brands from the mining, energy, metal industries as not a market-facingbrand and as having a purely b2b single audience with no wider public profile.

Methodology

The Interbrand method for valuing brands is a proven, straightforward and profoundformula that examines brands through the lens of financial strength, importance indriving consumer selection and the likelihood of ongoing branded revenue. Ourmethod evaluates brands much like analysts would value any other asset: on thebasis of how much they’re likely to earn in the future. There are three corecomponents to our proprietary method:

Financial Analysis

Our approach to valuation starts by forecasting the current and future revenuespecifically attributable to the branded products. The cost of doing business(operating costs, taxes) and intangibles such as patents and management strengthare subtracted to assess what portion of those earnings is due to the brand. Allfinancial analysis is based on publicly available company information. Interbrandculls from a range of analysts’ reports to build a consensus estimate for financialreporting.

Role of Brand Analysis

A measure of how the brand influences customer demand at the point of purchaseis applied to the intangible earnings to arrive at Branded Earnings. For this study,industry benchmark analysis for the role brand plays in driving customer demand isderived from Interbrand’s database of more than 5,000 prior valuations conductedover the course of 20 years. In-market research is used to establish individual brandscores against our industry benchmarks.

Brand Strength Score

This is a benchmark of the brand’s ability to secure ongoing customer demand(loyalty, re-purchase and retention) and thus sustain future earnings, translatingbranded earnings into net present value. This assessment is a structured way ofdetermining the specific risk to the strength of the brand. We compare the brandagainst common factors of brand strength, such as market position, customerfranchise, image and support.


INTERBRAND’S BRAND VALUATION METHODTHREE SIMPLE INPUTS

1Branded Earnings

2Role of Brand

3Brand Strength


Forecasted current and futureearnings specifically attributable tothe brand

FINANCIAL

A measure of how particular brandinfluences customer’s decision-making at the moment of purchase

ROLE OF BRAND

A benchmark of the brand’s ability tosecure on-going customer demand(loyalty, re-purchase, retention)

BRAND STRENGTH

BRAND VALUE CALCULATIONS

Role of BrandAnalysis

Year 1 Year 2 Year 3 Year 4 Year 5

Brand Earnings

Branded Revenues

Economic Value Added

BrandValue

Brand Strength Analysis= Discount Rate

ILLUSTRATIVE

INTERBRAND’S BRAND VALUATION METHODOLOGYSIMPLE, PROFOUND & TRANSPARENT


HISTORY

Interbrand pioneered the development of brand valuation techniques in 1988 for Rank Hovis McDougall (RHM), who was resisting a hostile takeoverbid. The company needed to demonstrate that their value had been severely underestimated and hired Interbrand to quantify the value of RHM’sportfolio of brands.

• Our approach is the industry standard, endorsed by

Academics – Government bodies

Auditors – High courts

Accountancy firms – Management consultants

Analysts – Stock exchanges

Advertising agencies – Tax authorities

Banks

• Interbrand completed more than 5000 brand valuations

• Valuation services used by more than 400 leading companies

• We’ve conducted brand valuations in all industry sectors


WHY INTERBRAND?

Accepted standard across the industry: Interbrand invented brand valuationalmost 20 years ago and has continued to innovate its methodology toremain the “gold standard” across the industry. We have been recognizedby a range of constituencies that include academics (such as HarvardUniversity), accountants (such as Accountants’ Digest), business journalists(such as BusinessWeek), and even our competitors.

Measures brand as a financial asset: Our definition of brand value, as thecurrent and future earnings driven by the brand, gives management adefensible approach to quantify the value of an intangible asset much likethe valuation of tangible assets.

Incorporates rigorous analytic techniques: Our brand value methodology isbuilt on accepted practices in both finance and marketing. In finance weapply established principles of Economic Value Added (EVA) and NetPresent Value (NPV). In marketing we utilize the latest analytic techniquessuch as structural equation modeling (SEM) and choice modeling toquantify brand measures in an objective way. Our consultants stay on topof the latest industry trends and often pioneer new techniques for theindustry.

Provides a diagnostic tool for on-going measurement: The methodologyallows for not only measurement, but also management of the brand. Thevarious inputs to the model provide insights into the drivers of brand valuethat inform both strategy and tactics that ultimately maximize shareholdervalue. We work with our clients to leverage insights gained from theanalysis to develop on-going brand valuation metrics and tracking tools.Many of our clients conduct on-going brand valuations (yearly as well asquarterly) and incorporate these measures into their performancemanagement systems.

Focused on actionable results: These diagnostic tools and strategic insightslead to recommended actions. We work with clients to identify both shortand long-term actions that will protect and grow their brand value basedon the various insights gained from the analyses in the brand valuationmodel.

Customized to fit specific client needs: Finally, we tailor brand valuation foreach client based on its specific branding and business needs. Our brandvaluation methodology provides a framework in which the various inputs tothe model can be analyzed based on available data and to the level ofgranularity most relevant for each client.


WE HAVE LED OVER 5,000 BRANDVALUATION ASSIGNMENTS

BEST RUSSIAN BRANDSLEAGUE TABLE


TOP 10 BRANDS


11-20 BRANDS


21-30 BRANDS


31-40 BRANDS

BREAKDOWNBY INDUSTRYAND TRENDS


BREAKDOWN BY NUMBER

BREAK DOWN 2007

100T BACCO

100FURNITURE

0

3

1

0

0

1

0

0

1

1

5

7

1

5

4

3

6

2005

35TELECOM

10PERSONAL CARE

10ENERGY

10GAS

1

1

2

4

0

0

1

5

7

3

4

1

5

20062007

2INSURANCE

0WHITE GOODS

1STEEL

2RETAIL

4OIL

2METAL

2MEDIA

3FOOD

5FINANCIAL SERVICES (BANKS)

3CONFECTION RY

5BEVERAGES

1AUTOMOTIVE

5ALCOHOLIC BEVERAGES

INDUSTRY BREAKDOWN

TRENDS2005-2007


BREAKDOWN BY BRAND VALUE (in USD millions)

BREAK DOWN 2007

1300TOBACCO

1800FURNITURE

0

10.107

399

0

0

688

0

0

163

186

500

2.405

80

340

459

73

2.176

2005

10.61313.795TELECOM

410PERSONAL CARE

730ENERGY

1890GAS

43

424

337

2.624

0

0

169

696

1.347

449

447

32

2.291

20062007

321INSURANCE

0WHITE GOODS

334STEEL

446RETAIL

2.218OIL

323METAL

517MEDIA

631FOOD

1.376FINANCIAL SERVICES (BANKS)

525CONFECTIONERY

614BEVERAGES

138AUTOMOTIVE

3.173ALCOHOLIC BEVERAGES

INDUSTRY BREAKDOWN

TRENDS2005-2007

SELECTEDBRAND PROFILES

(SIGNIFICANT GROWTH 06-07)


The best brand from 2006 Rating also confirmed its status at current TOP 40.This success is based on the most effective marketing activity of the brand.

Unprecedented loud and successful for the Russian market rebrandinginfluences the first place in 2006. Then it was the brightest branding projectwhich attracted all authorities and left another branding projects of 2005very far behind.

In 2006 Beeline didn’t have visible changes. So at this time the victory ofBeeline is a proof of right direction of branding policy after rebrandingproject. Beeline brand has a range of characteristics confirming absolutesuccess such as bright, aware, client oriented, directed to the targetaudience, advanced, contemporary.

Tat the base of success in 2006 were effective advertising campaigns, newproducts and good quality of services. The advertising was strongly emotionoriented, compared to their main competitor - MTS. We also notesuccessful BTL advertising.

Domination in the points of sales and high quality of advertising allow thebrand to have the biggest share of loyal customers in its industry. It is thisindicator and not a size of client base that becomes most important in theprocess of mobile market saturation.

+24%


MTS is the largest mobile operator in Russia and CIS (app. 76 millionsubscribers on 09.2007). MTS’ financial position is strong enough and keepsincreasing the number of subscribers. During 2006 the company focusedmostly on low-budget segments - thus the company image (“respectableoperator for respectable people”) was lost.

The most significant event in 2006 was rebranding of Sistema Telecomholding and MTS was a part of this project. Convergence idea is a uniqueand progressive idea at the Russian market. Rebranding was reallynecessary for MTS, because their corporate style was outdated. MTSmessage was rightly perceived by authorities – this is an announcementfrom the position of simplicity, clarity and accessibility.

New corporate style distinguishes MTS from its nearest competitiveenvironment. Simultaneously there were some troubles with consistent andclear communication of the new set of brand values that leads to the shift ofattention to the company logotype.

Rebranding did not lead to radical changes in MTS image perception, butthere are positive trends in perception of MTS as a brand, which strives forself-improvement and evokes interest. As far as the emotional driver is thekey when choosing the operator, the movement towards high brandemotionality creates additional competitive advantages in future undercondition of effective communication.

+16%


Lukoil is the most international brand founded in Russia. Robust expandingof the Lukoil brand is the base of its success.

In 2006 Lukoil was very active in the USA retail market. It merged Americanretail businesses, branded their gasoline stations that operated under suchbrands as Mobil, Texaco and many others.

Besides Lukoil was very active in Finland and other international markets.

In Russia Lukoil continued expanding its network of gasoline stations andshown the market some new product sub-brands among lubricants. Thelaunch of these lubricants’ product brands was very successful and got theLukoil brand added value.

+27%


Megafon is one of top 3 telecommunication brands in Russia. Because ofvery tough competition every one of them tries to be unique in order to sell.

Megafon in 2006 made repositioning not rebranding. It developed andrealized a new brand concept. The basic directions for Megafon wasmaximum mobility. The basic idea is of constant moving (“We make theworld move”).

Megafon shifted the key image of white-collar young workers (youngcareerist) to the image of yappy on whom future is dependent.

The idea developed in the new design applications. For example two maincolours (green and purple) were changed to the full colour range. Clearimages were changed to images of the world, moving people, lifecirculation.

These changes let Megafon rise in the Interbrand Rating by four places.

+23%


Under the strategic re-branding program, Vneshtorgbank and itssubsidiaries with more than 50% participation, which are located in Russia,other CIS countries, Europe, Asia and Africa, from October, 24, 2006 startedoperating under a single VTB brand. Vneshtorgbank`s retail business hasbeen developing in Russia under VTB 24 brand.

The Development Strategy of the VTB Group focuses on turning it into aleading national banking group and envisages further development of theGroup as a universal lending institution engaged in all key segments of thebanking market, including corporate banking, SME financing, householdlending and investment banking services.

Vneshtorgbank`s re-branding was an important stage in the DevelopmentStrategy of the Bank aimed at building a powerful international financial VTBGroup. A single brand of the Group was an important tool for ensuringfurther business efficiency and bigger share of the VTB Group in the Russianand international banking markets. It has been enabling the Group tocompete on equal footing with major international banks and to address themost pressing public and commercial issues, among them: developing keyRussian industries, implementing national top-priority projects, making thenational financial sector stronger and more competitive, attracting biggerlending and investment to the Russian economy and handling transactionsof Russian companies in foreign markets.

A transition of all the members of the Group to a common brand gave themundeniable competitive advantages compared to operating under differentbrand names. All this influenced high growth of the brand value.

+40%

TOP 4 DECLINERS


2007 TOP DECLINERS

-71%

-25%

-14%

-10%


Slavneft was founded by Russian and Belorussian government in 1994. Afterprivatization in 2002 Slavneft became a private company.

During the last years Slavneft has been one of the top 10 Russian oilcompanies with vertical integrated organization structure including mining,refinement and sale. Slavneft has had a wide network of gasoline stationsand also manufactured and promoted retail oil products (mobile oil, etc.). SoSlavneft was pretty client oriented brand and took the 5th place in ourprevious Brand League Table.

But at the moment Slavneft lost its independent and now only plays a role asa supplier for the shareholders which are TNK-BP and Gazprom Neft.

Also Slavneft essentially reduced its retail network (gasoline stations) and sodecreased client orientation.

At the moment Slavneft is mainly mining supplier for the global players andnot an independent company.

Eventually the Slavneft brand value lost 71% for the year and in 2007is $192 m in compare with $637 m in the previous year.

-71%


Historically the world of steel had been one of over capacity and overproduction. Long term price decline and price volatility resulted in poorreturns. Boom and bust was very much a feature of the industry.

Today the world of steel is a global industry, both for suppliers andcustomers. The industry is modernizing, innovating and investing, withsignificant growth in developing economies and a huge demand from Chinain particular. There is high demand and high global prices.

The whole industry is re-shaping itself. There is rapid consolidation, with trueglobal players emerging. The future of steel is less about mining andproducts, and much more about sophisticated technology and value add.Successful players in the future will focus on, and better understand, theworld of the end- customers.

In this rapidly changing world there are winners and losers.

Severstal had and has a clear ambition to grow and become one of theleading players in the world. Severstal is already on its way to become aglobal business. Severstal has made significant acquisitions, they haverestructured the group, and they want to continue to grow. The one thingthat is holding Severstal back is its brand.

There are a lot of problems with brand architecture, with clear brandplatform and brand strategy. Severstal needs a global brand to speak with aclear voice, to get them noticed and better understood. A powerful brandthat supports a powerful ambition.

-25%


Beer market is that market where the question of having a brand isobligatory condition of being a player of this market. At the moment beerproduct is at first a brand and other qualities such as gustatory senses playonly the second role. Difficulties or weaknesses of beer branding connectwith unwillingness and fear of owners to find new, uncial technology andmanufacture innovation products. Based on only emotional branding it’s verydifficult to strong customer loyalty.

Bochkarev is a nice case as the best case in creating the brand and as anopposite not good case in managing the brand. At the start of entering themarket when it wasn’t so over saturate the choice of brand value was widerthan now but for Bochkarev there was chosen capacious value named“traditions”. Positioning and emotion value was successfully realized in suchad message as “Bochkarev is a real beer”. The brand in consumers mindbecame a standard of beer. Almost momentary popularity is a perfectconfirmation of rightly chosen strategy. But later the market has been beingin the process of filling, a lot of European strong brands which activelypromoted its traditionalism and its methods’ compliance with the standardsof the Middle Ages.

This situation influenced reduction of Bochkarev sales. Middle classpreferred the Western traditions as really Russia is not a native land for suchdrink as beer. So Bochkarev lost its traditional values and couldn’t find newvalues. Communication became not clear and degraded for customers.Eventually brand started loosing its market positions and value.

-14%


J7 is the oldest juice brand on the Russian market. It was founded in the mid90s. At that time this brand was one leader on the market.

But times are changing. At the moment there are a lot of new strongRussian juice brands on the market. And they passed ahead J7 as byawareness indicators as by sales.

What are the causes? The first of them is the name of the brand. Englishpronunciation and Latin spelling for the Russian FMCG brand is not a goodchoice. As confirmation we can see that the J7 awareness indicators hasn’tbeen changing for a lot of time. They’ve stopped reducing.

The second issue links with inconsistent communication. At first the brandwas positioned as a juice for all family. The next concept was completelynew and named as “J7 is adventure”. J7 sponsored very popular TV project“The Last Hero”. And now after brand’s renovating J7 has started with newcommunication concept “Life is a play”. Eventually the brand doesn’t haveclear perception for customers.

Also there are another causes such as competitors’ activity, lost inreputation, etc. which influence serious problems in sales.

-10%

NEW ENTRANTS


NEW ENTRANTS

GrowthBrand Value

2007 (m)Rank

New$35711

New$30114

New$29415

$25317

$24818

New

New

New$23020

New$21522

Re-entry$13829

$11632

$11033

New

New

New$10934

$7936

$7040

New

New

APPENDICES


FREQUENTLY ASKED QUESTIONS

What is brand value?

Why value brands?

How does Interbrand derive the value of brands?

What was the basis of the financial assessments?

What was the basis for the marketing assessments?

What was Businessweek’s role in the Best Russian Brands ranking?

Why are certain brands not on the list?

Certain strong Russian brands are missing. Were they considered?

Within certain large industry sectors there are no brands that appear on thelist. Why?

What new industries appear on the league table for the first time and why?

What are criteria for the Russian brands to be presented in Best GlobalBrands ranking?

Was there a limit to the number of brands included from any one industry?

Are there any brands that have a sufficient brand value but did not makethe list?

How did you take account of the fact that brands are run throughfranchisees?

What is the relationship between the following terms: brand awareness,brand equity, brand share and brand value?

Do the valuations reflect the underlying state of the economy?

How should one understand the brand value as a % of marketcapitalization?

How does brand value rank against ad spending?

Is it possible to recognize brand value on a balance sheet?

What is Interbrand’s view on brands appearing on balance sheets?

Why is Interbrand an expert in assessing brand value?

Does Interbrand conduct other brand studies?

What is the difference between the valuations in Best Russian Brands andconsulting valuations for clients?



What is brand value?

Brand value is the dollar value of a brand, calculated as Net Present Value(NPV) or today’s value of the earnings the brand is expected to generate inthe future. Like any other financial value, brand value is at a point in timebased on the assumptions and information available at that point in time.Brand value is calculated according to the most widely accepted and usedvaluation principles. This makes brand value comparable to business - andall NPV-based asset values.

The valuations of brands appearing in the Best Russian Brands (BRB) arecalculated in their current use to their current owner. They, therefore, donot necessarily represent the potential purchase, extension or licensingvalue of the brands.

Why value brands?

The purpose of these valuations is to demonstrate to the businesscommunity that brands are very important business assets and in manycases the single most valuable company asset. We also aim to show thatbranding and marketing are key business issues that have directshareholder value impact. Through six years of publishing Best GlobalBrands in Businessweek magazine we have created the world’s mostsignificant and influential brand and marketing study. In fact, theBusinessweek/Interbrand best global brands ranking was the third mostsought-after benchmark report by CEOs and CFOs. And in Russia at thethird time we are creating the Russian most valuable brands based on thesame method as we create Best Global Brands League Table.

How does Interbrand derive the value of brands?

Our valuation approach is a derivative of the way businesses and financialassets are valued. It fits with current corporate finance theory and practice.There are three key elements and they are detailed below:

Financial Forecasting

We identify the revenues from products or services that are generated withthe brand. From these Branded Revenues we deduct operating costs,applicable taxes and a charge for the capital employed to derive IntangibleEarnings. Intangible Earnings are the earnings that are generated by all ofthe business’s intangibles such as brands, patents, R&D and managementexpertise. This is a prudent and conservative approach as it only rewardsthe intangible assets after the tangible assets have received their requiredreturn. The concept of Intangible Earnings is therefore similar to value-based management concepts such as economic profit or EVA (EconomicValue Added is Stern Stuart’s branded concept). Based on reports fromfinancial analysts we prepare a forecast of Intangible Earnings for six years.

Role of Branding

Since Intangible Earnings include the returns for all intangibles employedin the business, we need to identify the earnings that are specificallyattributable to the brand. Through our proprietary analytical frameworkcalled role of branding, we can calculate the percentage of IntangibleEarnings that are entirely generated by the brand. In some businesses (e.g.fragrances or packaged goods), the Role of Branding is very high as thebrand is the predominant driver of the customer purchase decision.



However, in other businesses (in particular b2b) the brand is only onepurchase driver amongst many and the Role of Branding is therefore lower.For example, people are buying Microsoft not only because of the brandbut mostly because the company has an installed base of 80% of themarket and it would be for most users extremely difficult to switch theirexisting files to a new software platform. In the case of Lukoil people buynot only because of the brand, but also because of the location of thepetrol stations.

For each of the brands (and categories) we have assessed the Role ofBranding. The Role of Branding is derived as a percentage - thus if it is50%, we take 50% of the Intangible Earnings as Brand Earnings. If it is10%, we only take 10% of the Intangible Earnings.

Brand Strength

For deriving the net present value of the forecast Brand Earnings, we needa discount rate that represents the risk profile of these earnings. There aretwo factors at play: firstly, the time value of money (i.e. $100 today is morevaluable than $100 in five years because one can earn interest on themoney in the meantime); and secondly, the risk that the forecast earningswill actually materialize. The discount rate represents these factors as itprovides an asset-specific risk rate. The higher the risk of the futureearnings stream, the higher will be the discount rate.

To derive today’s value of a future expected earnings stream it needs to be‘discounted’ by a rate that reflects the risk of the earnings actuallymaterializing and the time for which it is expected. For example, $100 fromthe Beeline brand in five years requires a lower discount rate than $100from the Megafon brand in five years, as the Beeline brand is stronger

and therefore more likely to deliver the expected earnings.

The assessment of Brand Strength is a structured way of assessing thespecific risk of the brand. We compare the brand against a notional idealand score it against common factors of Brand Strength. The ideal brand isvirtually ‘risk free’ and would be discounted at a rate almost as low asgovernment bonds or a similar risk free investment. The lower the BrandStrength the further it is from the risk- free investment and so the higherthe discount rate (and therefore the lower the Net Present Value).

What was the basis of the financial assessments?

Published annual reports were used to examine the revenues, earnings andbalance sheets of the brand- owning companies. Analyst reports andexpert prognosis are used as the basis for identifying the specific brandrevenues and earnings and for forecasting future earnings.

What was the basis for the marketing assessments?

Unlike other brand value league tables, Interbrand does not rely on a singlesource of marketing information. Using a single brand study would limit thetype of information (usually limited to perceptual data) and the type ofcustomer (usually general public) that can be considered. Because manyleading brands operate in specific customer segments (especially b2b),only considering the general public can be very restrictive. Instead,Interbrand refers to a wide array of primary and secondary sources whichare applicable to each brand.



Moreover, Interbrand utilizes its network of valuation brand experts fromoffices around the world.

What was BusinessWeek’s role in the Best Russian Brands ranking?

BusinessWeek did not influence the selection of brands or thedetermination of any of the values. Their role was to publish the study andto tie the reported performance of brand value to some of the wider issuesaffecting these brands. They also provided the specific one-line commentsthat appear in the table. Interbrand is not responsible for these and they donot necessarily represent our views. BusinessWeek is our global partner inpublishing Best Global Brands ranking.

Why are certain brands not on the list?

This is a frequent question especially from companies who would expecttheir brands to be on the list. There are five reasons:

- The brand is not Russian origin.- The brand has a pure b2b single audience and has no wider public profileand awareness.- The company does not produce public data that enables us to identify thebranded business (the company has multiple brands or has unbrandedproduction).- The brand is not big enough (brand value below $70 million falls belowthe 40 brand ranking).- The business is driven by a number of intangible factors and it is difficultto separate the brand from the rest.- The brand is a monopoly brand.

Certain strong Russian brands are missing. Were they considered?

In each case there was a reason why they could not be evaluated based onpurely public data.

RTR - a unique media organization since it’s a government-ownedcorporation that is not supposed to generate a profit. There are, however,parts of it which are commercial and which do generate profits but theseare still the minority of the business. And also the company does notproduce public financial data.

Gazprom - is the biggest Russian company, “the face of modern Russia”and Russian property today. Obviously Gazprom is a monopoly brand andcannot be included in the BRB ranking.

Monopoly character or public available data are the most common causesthat the strong brands are missing. And Interbrand can evaluate thesebrands as a separate project.

Within certain large industry sectors there are no brands that appear on thelist. Why?

Airlines - there has clearly been significant investment in airline brands(and many of them are, by definition, global) but they are still operating insituations where the brand plays only a marginal role. In most cases, thecustomer decides based on price, route, schedule, corporate policy orfrequent flyer points. The brand may often only have a real impact when allthese other items are at parity. We have assessed the brand value forairlines by using internal data to strip out the impact of these other factors.



But from purely public information this is difficult to do reliably.

Energy - although there are many large energy brands that are highlyvaluable, at present none of these brands fulfill our criteria. They are ormonopoly brands or pure b2b single audience oriented.

Pharmaceuticals - there are no pharmaceutical brands in this year’s leaguetable. In the pharmaceutical industry, it is the product brand rather than thecorporate brand with which the consumer builds a relationship.

What new industries appear on the league table for the first time and why?

Media and metal industries appear on the league table 2007.

Two media companies - NTV and RBC - have entered the league table thisyear. It connects with our more detail view on before closed media industry.We studied the strongest brands in this industry and expanded the longlist. And we hope that media industry will become more open and we’ll seemore media brands in our ranking.

Two new brands from metal industry - Nornikel and RUSAL - are presentedin our current ranking. These brands are b2b brands but has a lot ofbusiness activities and are not oriented only one pure segment. So wedecided to include them in our long list. Nornikel and RUSAL manageeffectively their brands and build strong consistent and successful brands.

What are criteria for the Russian brands to be presented in Best GlobalBrands ranking?

The brands first of all must be global. What does it mean?

It means that minimum 30% of the branded business needs to be outsidethe home country to be considered global. However if the home country ofthe brand is small (e.g. the Netherlands) we required a higher percentage.For US brands, the overseas sales ratio can be smaller due to the size ofthe US market, which is nearly as big as all of Europe. Applying the one-third overseas sales requirement would penalize US brands for beingsuccessful in their domestic market.

We also wanted evidence that the brand was established in a wide numberof markets around the world. At the very least it needed to have asubstantial presence in at least one country in each of the following 4regions: North America, Latin America, Europe and Asia-Pacific. It alsoneeded to be managed consistently as a global brand. As an example, Wal-Mart is a valuable brand however it is not consistently branded as Wal-Martaround the globe. From the Russian brands we see that the best chancesto be presented in Global ranking has Lukoil.

Was there a limit to the number of brands included from any one industry?

No, however, one of the requirements of a leading Russian brand is that itis in fact leading. The mark of leadership is not just about market share butalso about behaving as a leader - setting trends, quality standards,authority, etc. Thus, there are brands that are in the top three of theircategory’s market share but did not make the cut; and there are brandsthat are not top three that did make the ranking. The rules described areguidelines and ultimately each brand was assessed for inclusion on its ownmerits.



Are there any brands that have a sufficient brand value but did not makethe list?

There are certainly strong Russian brands that have a value exceeding $70million but which did not make the list because they do not meet ourranking criteria. This would be true of many of the industrial and transportbrands, but also surprisingly true of a lot of media, hi-tech (IT&Internet)and leisure brands.

How did you take account of the fact that brands are run throughfranchisees?

This was an issue with some of the oil retail brands - Lukoil, TNK, Slavneft.We based our valuation on the earnings that the brand owner makes fromthe brand and an estimate of the earnings that the franchisees make fromthe brand (what is called a total- system view). as in all other valuations,these earnings were then reduced to take account of a return for the use ofthe tangible and other intangible assets.

What is the relationship between the following terms: brand awareness,brand equity, brand share and brand value?

Brand value is the only measure that looks at the economic benefit of thebrand to its owner. In other words, it is an end in itself. Brand awarenessand brand equity are a means to an end. Brand awareness is simplyknowledge that a brand exists, thus brand awareness may promptcustomers to consider buying a product. Brand equity is a measure ofcustomer perceptions of a brand; thus it may give a customer reason toprefer a product over the alternatives. Brand share is simply the marketshare achieved by the brand. Thus brand awareness, equity and share

are all measures of what a customer thinks or does, it is not an assessmentof the economic value created by those thought or actions.

Do the valuations reflect the underlying state of the economy?

Yes - in two ways. The forecasts are prepared with an overall view oneconomic growth at a point in time. The formula for converting the BrandStrength Score into a discount rate is tied to the underlying governmentbond yield.

How should one understand the brand value as a % of marketcapitalization?

The market capitalization represents the market’s valuation of all the equityof a company. In theory, the market capitalization is the value of alltangible and intangible assets owned by the company less all the debtowed by the company. The brand value/market capitalization relationshipcan be read in a number of ways:

- If the brand value percentage of market capitalization is low, it suggeststhat the business is driven by other kinds of assets (tangible andintangible) and that the brand is relatively unimportant. It could also meanthat the business is failing to leverage the brand as much as it should beand that investors should be concerned about that.

- If the brand value percentage of market capitalization is high, it suggeststhat the business is driven by the brand and that investors should take careof how the brand is being managed since this will have a very direct effecton shareholder value. It could also mean that the business is under-valuedby the market and that they are failing to reflect the true value of all theassets of the business of which the brand is one (but only one).



The comparison of brand value to market capitalization is mainly useful formono-branded businesses as the market capitalization relates to allcompany assets. For companies that own and operate under manydifferent brands such as Nestle a comparison with market capitalization isless useful.

How does brand value rank against ad spending?

It is not really appropriate to try to correlate these two. Brand value is ameasure of the output from a series of brand investments and initiativesover a long period of time. Advertising is one element in wide spectrum ofcommunications companies employ. Other communications includesponsorships, online, point of sale, customer service, and so on. In somecases brands are built with very little or no advertising as in the case ofPyaterochka where retail space and employees are the keycommunications channels.

Is it possible to recognize brand value on a balance sheet?

Several accounting standards - such as International accounting standards(IAS) 36 and 38, US GAAP, UK FRS 10 - allow and/or require therecognition of acquired goodwill, including brands on the balance sheet.The standards clearly identify brands as intangible assets with an infiniteeconomic life. This means unlike other intangible assets (e.g. patents,databases) or goodwill (e.g. training, workforce) brand value does not haveto be amortized through the income statement. However, they are subjectto an annual impairment test and their carrying value needs to be reducedif the value declined. The technique is consistent with the way in whichInterbrand has assessed brands for balance sheet inclusion - though ofcourse using more extensive and proprietary data.

Unfortunately the Russian accounting standard RSBU doesn’t let ourcompanies recognize brand value on a balance sheet.

What is Interbrand’s view on brands appearing on balance sheets?

We support the stance of the different accounting standards whichrecognize the value of brands on the balance sheet. Interbrand has beenleading the debate on this issue for many years. However, currentaccounting standards allow only for the recognition of acquired brands, notinternally developed brands. Also, the impairment test for brands on thebalance sheet allows only for a potential value reduction but not increase.The acquisition criterion means that the Gucci brand is recognized on thebalance sheet of PPR as an intangible asset while the Louis Vuitton branddoes not show up on the balance sheet of LVMH.

We conclude that the recognition of acquired brands on the balance sheetis a step in the right direction for providing shareholders with betterinformation about the assets they have invested in. However, it’s still notsufficient, as the value of internally generated brands cannot be discloseddespite making up the vast majority of the most valuable brands around theworld.

As the need for some formal statement about brand value (and the value ofother intangible assets) is becoming increasingly important we wouldadvocate some type of statement in the annual report on the intangiblebusiness assets including brands. Whether this happens in the traditionalbalance sheet or whether it happens in a new ‘Statement of IntangibleValue’ would be a secondary concern. N.B. there is a precedent for this inthe way in which the Cash Flow Statement was developed to complement,but not replace, the Profit & Loss Account.



Why is Interbrand an expert in assessing brand value?

In 1988, Interbrand developed and introduced the first valuation of aportfolio of brands that used a brand-specific valuation approach. Sincethen we have continuously updated and improved our valuation approachto make it the global industry standard of brand valuation. The Interbrandbrand valuation methodology is the widest endorsed and used valuationapproach around the world. Interbrand alone has valued more than 5,000brands in all industries worldwide.

Our valuations have been endorsed by leading academic institutionsincluding Harvard, Thunderbird, Columbia, Emory and St. Gallen. Ourvaluation approach has the highest depth of applications includingstrategic brand management, marketing budget allocation, marketing ROI,portfolio management, brand extensions, M&A, balance sheet recognition,licensing, transfer pricing and investor relations. Our valuations have beenaudited for inclusion on the balance sheet by all leading accounting firms.Also, many tax authorities and law courts around the world have acceptedour valuation approach.

Does Interbrand conduct other brand studies?

Since 2000, Interbrand has partnered with BusinessWeek to produce anannual study of the Best Global Brands, creating the world’s mostsignificant and influential brand and marketing survey. PRWeek magazineconducted a survey of the important rankings to senior executives. Theirsurvey concluded that the Best Global Brands study is regarded by seniormanagement as the third-most influential ranking. In addition to the globalstudy, Interbrand has established national or regional brand value leaguetables in Switzerland, Fance, Spain, Australia, Singapore, China, Taiwan,Mexico, Canada and Brazil.

What is the difference between the valuations in Best Russian Brands andconsulting valuations for clients?

The valuation methodology is the same, however, the level of detail and thedata input significantly differ. The BRB valuations are mostly consolidatedtop-line assessments based on publicly available marketing and financialdata. We recognize segment differences for diversified brands by productor service but not geography or any other classification (e.g. financialservices or technology). As the valuations are based on publicly availabledata, they are only as reliable as the data that the brand-owning companiespublish about themselves (in annual reports, analysts briefings, pressarticles, syndicated market research etc.).

Consulting valuations are based on detailed customer segmentations, aswell as in-depth marketing and financial analyses. They have a much higherlevel of accuracy and granularity. The purpose of a consulting valuationgoes well beyond assessing financial worth. It identifies and quantifiesvalue drivers, and helps the company to manage its brand to increase theshareholder value of the underlying business. However, if clients undertakeconsulting valuations we are in a much better position to identify publiclyavailable data that are likely to align the BRB valuation with the consultingvaluation. In cases where companies make our consulting valuationspublicly available, for example through a note in the balance sheet, thesevalues will also be published as the BRB ranking value.

Thank you.


ABOUT INTERBRAND

Creating and managing brand value

The Interbrand Brand Value Management Model TM

Brands do not become and remain successful on their own. Nor are theyensured ongoing leadership without proactive, diligent and detailedmanagement. Interbrand works collaboratively with clients to consistentlyand continually evaluate, create and manage their brand assets. We do thisby employing the following model.

The Brand Value Management model is a closed loop with neither aspecific beginning nor definite end. The model begins at a different pointfor every brand, based on business need. However, one aspect doesremain constant: once in progress, the model actually accelerates, bygenerating synergies and capturing new opportunities through carefullycrafted and integrated activities. It becomes an inexhaustible source ofenergy and competitive advantage for every brand.

Brand Value Management comprises three distinct, yet interrelated,phases: Evaluate, Create, and Manage - three phases where the brand andmarket opportunities are painstakingly examined, creatively brought to life,and thoroughly and holistically coordinated.

For over 30 years, Interbrand has worked with leading global brands tocreate and manage brand value through an integrated set of offerings. Weoffer brand and business strategy, brand valuation, quantitative andqualitative research, retail design, brand architecture and portfoliooptimization, naming, corporate identity design, packaging design,communications creation and online digital asset management tools.

Interbrand has 34 offices in more than 20 countries around the globe andclients from among the most respected businesses. Moscow office ofInterbrand was opened in 2005, March, 24. It provides a whole complex ofbranding services - Creating, Managing and Evaluating brands.

Interbrand is a wholly owned subsidiary of the Omnicom Group, theindustry leader in Marketing Communications.


CONTACT US

General inquiries:

Nicola StanischManaging Director IBZL MoscowTel: +7 495 787 [email protected]

Maxim ParfentchikovManaging Director IBZL MoscowTel: +7 495 787 [email protected]

Media inquiries:

Sergey SharyukovConsultant, Project Coordinator, IBZL MoscowTel: +7 495 787 [email protected]

Additional information on brands

www.interbrand.chwww.interbrand.comwww.brandchannel.com

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