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Nearly RUB 750 Billion of Brand Value at Risk from COVID-19 Pandemic

20 August 2020
  • The top 50 Russian brands could lose up to RUB 743.5 billion worth of brand value as a result of the COVID-19 pandemic
  • Sberbank dominates the Brand Finance Russia 50 2020 ranking as Russia’s most valuable brand for the fourth consecutive year
  • Aeroflot has become the nation’s strongest brand, followed closely by Sberbank and MTS – the only two other Russian brands securing the elite AAA+ rating
  • The nation’s fastest-growing brand this year, PIK’s brand value has increased over 50%
  • Among six new entrants, Tinkoff Bank is the only banking brand to join the ranking, while Evraz (34th) and Metalloinvest (47th) present themselves as viable competitors to incumbent top Russian mining brands

View the full Brand Finance Russia 50 2020 report here

The top 50 Russian brands could lose up to RUB 743.5 billion worth of brand value as a result of the COVID-19 pandemic, according to the latest Brand Finance Russia 50 2020 report.

Looking beyond Russia, the value of the 500 most valuable brands in the world, ranked in the Brand Finance Global 500 2020 league table, could fall by an estimated US$1 trillion as a result of the Coronavirus outbreak.

Brand Finance has assessed the impact of COVID-19 based on the effect of the outbreak on enterprise value, compared to what it was on 1st January 2020. The likely impact on brand value was estimated for each sector. The industries have been classified into three categories – limited impact (minimal brand value loss or potential brand value growth), moderate impact (up to 10% brand value loss), and heavy impact (up to 20% brand value loss) – based on the level of brand value loss observed for each sector in the first quarter of 2020.

David Haigh, CEO of Brand Finance, commented:

The COVID-19 pandemic is a major global health threat and its impact on global markets is very real. Worldwide, brands across every sector need to adapt to the reality changed by Coronavirus, with a massive impact on their business activities, supply chains, and revenues in a way that eclipses the 2003 SARS outbreak. The effects will be felt well into 2021.

Sberbank – One-Stop Shop

Sberbank has maintained its leading position in the annual Brand Finance Russia 50 ranking of the nation’s most valuable brands, with a staggering brand value of RUB 840.2 billion.

Sberbank continues to exceed its customers’ expectations by actively expanding its digital ecosystems platform. Through strategic partnerships and M&A activity, Sberbank has become a one-stop shop for its customers, as it expanded its Consumer and IB services into logistics, shopping, entertainment, corporate education, healthcare, legal, and business services. Such diversification creates convenience to Sberbank’s customers and helps to reduce revenue volatility in the long run. Moreover, integration of business processes creates opportunities to further reduce the costs, as synergies are created between various departments. Integration of other services in Sberbank’s product offerings was successful due to the strong brand image of Sberbank.

David Haigh, CEO of Brand Finance, commented:

Sberbank has earned unparalleled trust in its domestic market and is a bedrock of the Russian financial system. The bank is an excellent example of how customer relationships can build a compelling brand that commands great loyalty.

Aeroflot – Nation’s Strongest Brand

Aside from calculating overall brand value, Brand Finance also determines the relative strength of brands through a balanced scorecard of metrics evaluating marketing investment, stakeholder equity, and business performance. Along with the level of revenues, brand strength is a crucial driver of brand value.

According to these criteria, Aeroflot has retained the title of the world’s strongest airline brand and has also become the strongest brand in Russia, with a score of 92.1 out of 100 and a corresponding AAA+ rating. Sberbank (91.6) and MTS (90.9) follow closely as the only two other Russian brands to have secured the elite AAA+ brand strength rating. Aeroflot is one of just a few airline brands across the globe that have recorded an improvement in brand strength year-on-year, a testament to the brand’s exceptional reputation and popularity among its core customers. Aeroflot’s strong brand will put it in a strong position to help the business recover from a turbulent 2020.

Despite headwinds in the industry, Aeroflot had managed to capitalise on its strong brand to achieve extraordinary financial performance before the COVID-19 crisis, recording a 6% rise in brand value to RUB 107.8 billion. The brand’s revenue was boosted by a combination of increased demand over the course of 2019 and its strategic pricing, both of which have protected the brand as ground handling and airport costs continue to rise.

David Haigh, CEO of Brand Finance, commented:

Aeroflot, which was well on track to achieve its strategy 2023 at the beginning of the year, will no doubt rely on its long-established and respected brand to defend its market share and to rise up to the challenge that COVID-19 poses.

Fastest-Growing Brands

After successful acquisition of Morton Group in 2017, PIK Group has become the largest real estate developer in Russia, and reaping the benefits of the acquisition, it is the fastest-growing brand in Russia this year, up 51% to RUB 33.5 billion and jumping 10 ranks up to 30th. Like most prominent companies in Russia, PIK is looking ahead to create value to its shareholders by further expanding its offerings.

As the result of extraordinary financial performance, Yandex Group – Russia’s largest search engine – has increased its brand value by 31%, making it the third fastest growing brand in the ranking, following PIK and Slavneft which recorded a 32% increase year-on-year. Yandex.Taxi revenues grew at an astonishing 98%, making it one of the most prominent growth segments after Bets and Media Services within the Group.

Prominent New Entrants

Tinkoff Bank – Russia’s only neobank – has entered the ranking for the first time, managing to secure 39th position. The bank has achieved above average familiarity scores, as well as scored relatively high on innovation and quality of services.

Evraz – London-listed mining company and a constituent of the FTSE 100 index – has been valued by Brand Finance for the first time in 2020. The company is the most valuable new entrant to the top 50 this year, taking 34th place in the ranking, and presenting itself as a viable competitor to other Mining, Metal & Steel companies – NLMK, Severstal, and another new entrant – Metalloinvest. With shifting preferences among shareholders towards ESG investments, mining companies have to ensure that – besides profitability – appropriate systems of checks and balances are in place regarding environmental concerns.

Brand Strength & Brand Value Analysis

As part of this year’s ranking, Brand Finance has conducted additional analysis on brand strength, brand value, and creation of value for key stakeholders among the top 50 most valuable Russian brands.

One important observation relates to the fact that companies with higher brand strength tend to have lower cost of goods sold to revenue ratio. This could be caused partially due to the better relations with suppliers, effective management, and ability to attract and retain cost effective talent to the company. This effect is more prominent in industries like telecoms and retail.

The matrix below unveils some important observations regarding brands in the Brand Finance Russia 50 2020 ranking. In the upper left quadrant are the brands that have managed to achieve high brand strength, but this was not yet translated into higher brand value. Such companies have high potential to capitalise on its brand strength gains and increase the value of its brands in the future.

Sberbank, Aeroflot, MTS and a few other brands in the upper right quadrant are in the sweet spot and continued investment in brand development will ensure their continued presence in this segment.

Brands in the lower right quadrant achieved high brand value, but for this situation to continue in the future, management should dedicate additional resources for brand development. Stronger brand recognition will help to build customer loyalty and attract talent.

The lower left quadrant consists of brands that have a lot of unrealised potential in brand strength and brand value alike. Management of these companies should prioritise development of strong and recognisable brands, as this will help to drive their branded business value in the long term.

View the full Brand Finance Russia 50 2020 report here

Note to Editors

Every year, Brand Finance values 5,000 of the world’s biggest brands. The 50 most valuable Russian brands are included in the Brand Finance Russia 50 2020 report.

Brand value is understood as the net economic benefit that a brand owner would achieve by licensing the brand in the open market. Brand strength is the efficacy of a brand’s performance on intangible measures relative to its competitors.

Additional insights, charts, and more information about the methodology, as well as definitions of key terms are available in the Brand Finance Russia 50 2020 report.

Data compiled for the Brand Finance rankings and reports are provided for the benefit of the media and are not to be used for any commercial or technical purpose without written permission from Brand Finance.

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Media Contacts

Konrad Jagodzinski
Konrad Jagodzinski
Communications Director
Brand Finance
Florina Cormack-Loyd
Florina Cormack-Loyd
Associate Communications Director
Brand Finance

About Brand Finance

Brand Finance is the world’s leading brand valuation consultancy. Bridging the gap between marketing and finance, Brand Finance evaluates the strength of brands and quantifies their financial value to help organisations of all kinds make strategic decisions.

Headquartered in London, Brand Finance has offices in over 20 countries, offering services on all continents. Every year, Brand Finance conducts more than 5,000 brand valuations, supported by original market research, and publishes nearly 100 reports which rank brands across all sectors and countries.

Brand Finance is a regulated accountancy firm, leading the standardisation of the brand valuation industry. Brand Finance was the first to be certified by independent auditors as compliant with both ISO 10668 and ISO 20671, and has received the official endorsement of the Marketing Accountability Standards Board (MASB) in the United States.

Methodology

Definition of Brand

Brand is defined as a marketing-related intangible asset including, but not limited to, names, terms, signs, symbols, logos, and designs, intended to identify goods, services, or entities, creating distinctive images and associations in the minds of stakeholders, thereby generating economic benefits.

Brand Strength

Brand strength is the efficacy of a brand’s performance on intangible measures relative to its competitors. Brand Finance evaluates brand strength in a process compliant with ISO 20671, looking at Marketing Investment, Stakeholder Equity, and the impact of those on Business Performance. The data used is derived from Brand Finance’s proprietary market research programme and from publicly available sources.

Each brand is assigned a Brand Strength Index (BSI) score out of 100, which feeds into the brand value calculation. Based on the score, each brand is assigned a corresponding Brand Rating up to AAA+ in a format similar to a credit rating.

Brand Valuation Approach

Brand Finance calculates the values of brands in its rankings using the Royalty Relief approach – a brand valuation method compliant with the industry standards set in ISO 10668. It involves estimating the likely future revenues that are attributable to a brand by calculating a royalty rate that would be charged for its use, to arrive at a ‘brand value’ understood as a net economic benefit that a brand owner would achieve by licensing the brand in the open market.

The steps in this process are as follows:

1 Calculate brand strength using a balanced scorecard of metrics assessing Marketing Investment, Stakeholder Equity, and Business Performance. Brand strength is expressed as a Brand Strength Index (BSI) score on a scale of 0 to 100.

2 Determine royalty range for each industry, reflecting the importance of brand to purchasing decisions. In luxury, the maximum percentage is high, while in extractive industry, where goods are often commoditised, it is lower. This is done by reviewing comparable licensing agreements sourced from Brand Finance’s extensive database.

3 Calculate royalty rate. The BSI score is applied to the royalty range to arrive at a royalty rate. For example, if the royalty range in a sector is 0-5% and a brand has a BSI score of 80 out of 100, then an appropriate royalty rate for the use of this brand in the given sector will be 4%.

4 Determine brand-specific revenues by estimating a proportion of parent company revenues attributable to a brand.

5 Determine forecast revenues using a function of historic revenues, equity analyst forecasts, and economic growth rates.

6 Apply the royalty rate to the forecast revenues to derive brand revenues.

7 Discount post-tax brand revenues to a net present value which equals the brand value.

Disclaimer

Brand Finance has produced this study with an independent and unbiased analysis. The values derived and opinions presented in this study are based on publicly available information and certain assumptions that Brand Finance used where such data was deficient or unclear. Brand Finance accepts no responsibility and will not be liable in the event that the publicly available information relied upon is subsequently found to be inaccurate. The opinions and financial analysis expressed in the study are not to be construed as providing investment or business advice. Brand Finance does not intend the study to be relied upon for any reason and excludes all liability to any body, government, or organisation.

The data presented in this study form part of Brand Finance's proprietary database, are provided for the benefit of the media, and are not to be used in part or in full for any commercial or technical purpose without written permission from Brand Finance.

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