Current market situation Premium and super-premium

Current market situation • • Premium and super-premium segments are increasing market share. Chained players maintained their leading positions in beauty specialist retailing • The strongest growth is in the largest cities of the country • Personal care products have the highest increase in volume terms. • Advanced and sophisticated products are in increasing demand • Sun care and baby care maintained notable growth due to the low consumer base • Sales of beauty and personal care positively affect by the improved economic situation in the country. • Strong growth of demand was underpinned by the vast number of new added-value launches with increased purchasing power • Increasing number of people start using niche products, such as anti-agers, medicated skin care and men’s grooming products. Growing hygiene awareness and consumer education drive sales of sun protection and niche oral care products, such as dental floss and mouthwashes. • Highest increase in sales of premium products is in fragrances. • The new legislation resulted in increased costs and time required for introducing new products to the market. • Moscow remained one of the most important and competitive markets for the leading companies active in the beauty and personal care market in Russia. • Domestic companies barely compete with multinationals in Moscow. • Russian beauty and personal care market is far from saturation. The personal care market in • Russia is gradually approaching saturation. Brand reputation remain another key factor, when choosing cosmetics and fragrances in Moscow.

Market evolution Expected 4% constant value CAGR Premium cosmetics demonstrate further growth to increase market share in coming years. • Sun care, baby care and fragrances are predicted to see the greatest increases over 2011 -2015 • The Russian economy is well-placed for further growth in coming years • The beauty and personal care environment is predicted to see a steady 4% constant value CAGR over 2011 -2015 • Consumers will become more demanding and seek better quality products, greater sophistication and product cross-benefits. • Domestic players will face increasing pressure to survive the tough competition posed by the multinationals. • Beauty specialist retailers will continue to expand enjoy the growing number of customers • •

Distribution characteristics Over the review period health and beauty retailers increased their distribution share to 33% Rive Gauche, L’Etoile, Ile de Beaute and Douglas maintained their leading positions in beauty specialist retailing Distribution via the Internet in Moscow accounts for a major proportion of total Internet distribution of beauty and personal care in the country Leading chains such as Rive Gauche, L’Etoile and Ile de Beaute developed a Beauty and Personal Care Russia very strong presence in the capital GUM – one of the leading department stores in Moscow

Who are the consumers that buy beauty products in the retail distribution? Who buys what? • Consumers with good spending power, confident in the stability of their personal financial situation; • Consumers who are willing to pamper themselves and prefer more advanced and sophisticated products; • Women who consider beauty products as necessities; • Number of people using niche products, such as anti-agers, medicated skin care; • Men, who use men`s grooming products; • People with good hygiene awareness and consumer education buy in increasing frequency sun protection and niche oral care products, such as dental floss and mouthwashes; • Urban consumers with high living standards who seek better quality products, greater sophistication and product cross-benefits. • Consumers who visit beauty specialist retailers, attracted by glossy stands, various promotions and the possibility to obtain professional advice from the beauty shop consultants. • People who take care of their health; • Women in Moscow consider “looking good” as a key competitive factor when searching for a job or when looking for a partner. • Consumers are more open to innovations: using i. Phones and smart phones and prefer using innovative cosmetics.

Consumers (habits, preferances, expectations) With the recovery of spending power, consumers are shifting back to more expensive brands Consumers are willing to pamper themselves, purchasing products they could not afford during the crisis Consumers become more demanding and seek better quality products, greater sophistication and product cross-benefits Consumers tend to trust the long-proven quality of brands Consumers living in the largest city of the country are more open to innovations than their counterparts living elsewhere in the country

Main competitors

Fundamental characteristics which define the global and the local market 1. Healthy value growth on post-recessionary market. 2. Economic expansion drives up consumer spend 3. Direct selling does not meet expectations 4. Non-direct channels enjoy recovery 5. Russian beauty and personal care environment well-placed for further growth

Growth opportunities 1. The Russian beauty and personal market is far from saturation 2. Further premiumisation will be the most important trend 3. Beauty specialist retailers are expected to go on with expansion

Threats 1. The personal care market in Russia is gradually approaching saturation 2. Government is showing little willingness to collaborate ( industry might face related to new legislation is poor collaboration between interested market participants)

The main competitors and their purposes Provides branded products and services of superior quality and value that improve the lives of the world's consumers. Calina The main purpose is to create brand leaders on the Russian Concern OAO beauty and personal care market Avon the purpose of the company is to be the best in satisfying Products ZAO requirements of women in the market of beauty , service and self - expression Lush The main purpose is to create effective products from fresh organic fruit and vegetable, the finest essential oils and safe synthetics.