1. AUTOLOCATORFLEET MANAGEMENT INDUSTRY ANALYSIS / RUSSIA / JULY 2011prepared by

2. THIS PAGE IS INTENTIONALLY LEFT BLANK2 AUTOLOCATOR 2011 3. TABLE OF CONTENT3 Current Trends4 Automotive Industry8 Fleet Management Industry 10 Key Market Players 13 Price Monitoring 14 Conclusion AUTOLOCATOR 20113 4. THIS PAGE IS INTENTIONALLY LEFT BLANK4 AUTOLOCATOR 2011 5. 21Current trendsAccording to market analysts, international naviga-tion market will continue to grow. As stated by ABIInternational market segmentation 2011Research, it will reach $140 billions by 2014. KeyMilitarydrivers (in addition to Military Forces) will be Auto-forces, 16%Automotivemotive Industry and Mobile Network Operators. Exact time industry, 51%Similar situation will have place in Russia. services, 1%As Russian Government continues to force the de-Mobileapplications,velopment of GLONASS project, the main growth 15%within the telematics industry is observed in the Geodesy andmarket sectors that are being tenderly looked after cartography, 7%by Government. Aviation industry, 1%Marine navigation,In 2010 the sales volume of Tracking Systems in 10%Russia increased by almost 300% (from ~90k to Source: ABI Research~370k) comparing with 2009. This trend will con-tinue in 2011/2012. The key driver is the implemen-tation of the Government Decree # 641 "Equip-ment of automotive motor vehicles by GLONASSSales of GPS Tracking Systems / Russiaor GLONASS/GPS navigation systems" (25.08.08)GLONASS terminals GPS terminalsand the Federal Law # 23 "About the navigation ac- 400,000tivity" (14.02.2009).300,000In 2011/2012 only the leading market players (Sys- 200,000tem Integrators) expect substantial sales growth.100,000The main reasons are the following:0 No subscription fee200820092010 No extra charge for the Software development (inSource: GLONASS/GNSS Forum (www.agff.ru)order to meet clients individual requirements) Client base: large-scale pro-government enterprises dency to lower retail prices and swift business de-SMB sector (Fleet Management solutions for Smallvelopment in Russia, we believe that the growthand Medium-scale business) also demonstrates arate in SMB sector will exceed this parameter insteady growth. Most medium/small-scale compa- corporate sector within 2 year. Competition in thenies do not experience the need for Fleet Manage- industry will become much more intense though.ment Systems at the moment. This can be ex-plained by the following facts: High retail price of equipment High subscription fee In general, these companies use illegal trade schemes Russian Fleet Management market is immaturethat lead to low level of accounting and reporting. and not well structured yet. This results in ab- These companies do not face problems that can besence of accurate statistical and quantitative da-solved by Fleet Management Systems. ta. On that account this report should be consid-Taking into account that there is an obvious ten- ered only as an expert opinion. AUTOLOCATOR 2011 5 6. 211. Automotive industryAccording to "Development Strategy of automotive Low working efficiencyindustry in Russian Federation 2020", the market Legislation imperfectionwill continue to grow. By 2020 an overall fleetThese facts make us confident that the futureshould exceed 50 mln cars. growth in automotive industry will be driven by production of foreign brands in Russia.June 2011 shows the recovery on the Russian mar-ket is now well established. The first half of 2011 40%Foreign brands sharesaw sales of new cars and light commercial vehicles 35%34%in Russia increase by 56% compared with the same30%25% 26%period in 2010 or by 441,959 more sold units, ac- 20% 16% 18%14%cording to the AEB Automobile Manufacturers 15%10%8% 9%Committee (AEB AMC). Russian market is tracking 5%1% 4%ahead of our latest forecast of 2.35m units for the 0% 2002 2003 2004 2005 2006 2007 20082009 2010full year. Source: PwCNevertheless, Russian automotive industry experi-ences a number of problems. Ministry of Industryand Trade defines the following major issues: Weak variety of models Low investments in production Low productivity, technological retardation Weak automotive components industry Low budgeting of R&D Low investment attractivenessParameter 20092010 2020F Sorce dataMacroeconomicGDP, billions RUB32,723 38,743 63,366 Ministry for Economic DevelopmentPopulation, mln 142141.9134.2RosStatAble-bodied population 68.5 66.4 67.9 Ministry for Economic DevelopmentAutomotive industry share in GDP0.98%0.57%2.38% Ministry for Economic DevelopmentDomestic market, thousandsSales of new cars 2,8011,400 3,600 Ministry of Industry and TradeSales of light commercial vehicles210102 350 Ministry of Industry and TradeSales of trucks17144 190 Ministry of Industry and TradeSales of buses 20.311.4 26.6 Ministry of Industry and TradeAutomotive fleetCars and LCVs 32 33.2 52 Ministry for Economic DevelopmentTrucks5.25.4 9Ministry for Economic DevelopmentBuses 0.90.9 1.6Ministry for Economic Development# of cars per 1000 people 225 229 363 Ministry for Economic Development6 AUTOLOCATOR 2011 7. Sales of new cars in Russia, mln4.5 StagnationGrowth Post-crisis restoration Market Stabilization 43.63.63.63.43.53.53.3 Economic crisis3.1 3 2.82.82.4 2.42.52.2 2 1.8 1.81.4 1.31.41.51.1 1 11 0.80.90.910.80.70.5 019951996 1997 1998 1999 200020012002200320042005 2006 2007 2008 2009 20102011F 2012F 2013F 2014F 2015F 2016F2017F2018F2019F2020FSource: Ministry of Industry and Trade Sales of Light Commercial Vehicles in Russia, thousands 500 StagnationGrowth Post-crisis restoration Market Stabilization 450 400Economic crisis 350 343 350324304 282 300 257 229 250 198210209 200176 167 170163138 134 145 132 149146 146 150126 88110 107 99 100 50019951996 1997 1998 199920002001200220032004 2005 2006 2007 2008 2009 20102011F 2012F 2013F 2014F 2015F 2016F 2017F2018F2019F2020FSource: Ministry of Industry and Trade AUTOLOCATOR 2011 7 8. Sales of Trucks in Russia, thousands300 Post-crisis restorationMarket Stabilization250 Economic crisis186200 179182 174 171 174 169161 146150 12512890 10689 92881005663 500 2003 20042005 200620072008 20092010 2011F2012F 2013F 2014F 2015F 2016F 2017F 2018F2019F 2020FSource: Ministry of Industry and TradeSales of Buses in Russia, thousands40 Post-crisis restorationMarket Stabilization3533.130 Economic crisis26.6 2525.7 23.7 24.825 22 22.5 21.119.720.318.4 18.320 15.91513.6 11.41110 5 0 20042005 200620072008 200920102011F 2012F2013F 2014F 2015F 2016F2017F 2018F 2019F 2020FSource: Ministry of Industry and Trade8 AUTOLOCATOR 2011 9. Automotive FleetCommercial Fleet Structure / 2010 (mln)In 2010 automotive fleet in Russia exceeded 39 mlnmotor vehicles. 8,1 mln of them are commercial ve-Trucks5.4hicles. Private cars are excluded from the estima-Buses 0.9tion, because their owners are not potential users ofLCV 1.8Fleet Management Systems.Total:8.1Commercial Fleet Structure / 2010 (mln)Corporate Fleet 4.0Public Conveyances2.0Small/Medium-scale business 2.1Total:8.1Source: RosStat AUTOLOCATOR 20119 10. 212. Fleet Management Industry analysisFleet Management Industry is on early stages of de- Penetration of Fleet Managementvelopment. While in the US and Europe the keySystemsmotivating factor to install a Tracking system is the 6.00%need for increased efficiency, Russian companies 5.20% 5.00%are looking for assets control. Having regard to the 4.00%business conditions in Russia, we think that the 3.00%economic effect of Fleet Management System will2.00%be much higher than in Europe and USA. Conse- 1.20%0.50% 1.00%quentially, we forecast a higher level of penetration0.00%on the Russian market. CorporationsPro-governmentSmall andenterprises medium scalebusinessKey issues: A level of penetration remains very low (3% in Russia, 12% in the US) Inefficient logistics (that means more possibili-Quantity of installed units (thousands) ties to reduce costs) Stimulating efforts of Russian Government willLevel of penetration (right scale) keep strong demand for Fleet Management Sys- 160020.0% tems for the next 2-3 years. 1400 120015.0%Industry forecast: 1000Average annual growth rate in the industry will be80010.0%around 44% till 2014. Level of penetration will 600reach 17.8% by the end of 2014. 4005.0%200The highest growth rate will be observed among00.0%pro-government enterprises. But in terms of quanti-ty of installed units, huge corporations will keep thelead. In the sector of Small/Medium Business com-Source: Investment Bank "Otkrytie"petition will become tougher because big marketplayers (who now specialize in system integration) teresting offer to consumers:will enter SMB sector in search for additionalsources of revenue. Several companies have already Hardware price doesnt exceed RUB 6,000 ($215)developed Web-based Fleet Management Solutions Monthly payment RUB 300 ($11)with annual subscription fee (acting as a service No charge for Software and Cartography.provider / outsourcing). This business model iswidely exploited in the US and Europe even by hugecorporations. Nevertheless, big Russian companiesprefer to mine this data without assistance.Mobile Network Operators have also initiated thismove. MTS and Beeline have developed a very in-10 AUTOLOCATOR 2011 11. Cumulative number of installed Tracking units, thousands 2009 20102011F 2012F 2013F 2014FCorporations 206307428 581 753948Pro-government enterprises2443 77135244 402Small/Medium-scale business 11 17305182124Total241367535767 10791474Source: Investment Bank "Otkrytie" AUTOLOCATOR 201111 12. 213. Key Market PlayersFleet Management market in Russia is highly con- Talking about Fleet Management market it is verysolidated. 3 market leaders (M2M-Telematics, Rus-important to understand the difference in businesssian Navigation Technologies and E.N.D.S) controlmodels:almost 70% of the market. Analysts and official1. System Integrators develop Software and pro-representatives of these companies provide differ-duce telematics equipment. They specialize inent estimation of the market share. According toserver solutions offering it to corporations andmarket research of investment bank Otkrytie pro-government companies. The main sourcesRNT is the absolute leader with 24% marketof revenue are price markup on equipment, sys-share. E.N.D.S. holds 16%, M2M-Telematica tem implementation and the following regular9%. Reasearch.Techart draws another picture:technical support. These companies are usuallyM2M-Telematica is the leader; "RNT is the fol- considered as market leaders.lower. We are likely to believe that these compa-2. Service providers generally specialize in Web-nies are almost identical in terms of revenue and based applications and offer Fleet Managementquantity of installed telematics units (~70-75k solutions to Small/Medium-scale companies.units). The rest 30% of the market is distributed be- Their business model considerably differs thetween small players. The overall number ofmain source of revenue is a monthly subscrip-telematics service providers exceeds 300 compa- tion fee (from 300 to 1500 RUB per month).nies. ContendersMarket leaders Autotracker (RNT) M2M-Telematica E.N.D.S. AntorSystem IntegrationTopPlan ITOBNOVA-IT ScoutAutograph Caesar Satellite Fleet Master Starcom Eshelon KupolAL Satellite M Golden Eye AL ChaserAL Truck D+ And etc.Niche playersVisioners AL - AUTOLOCATOR products Functionality12 AUTOLOCATOR 2011 13. Sales structure of GLONASS/GPS Terminals by company, 2010others31.2% Geiser 1.1% Hiton 2.3%Scout3.1% NavigatorM2M-Telematica3.6% 41.0%Autotracker17.5%Sales structure of GPS Terminals by company, 2010 M2M-Telematica 6.0%Autotracker 8.9% Navigator15.7%others48.8%Scout9.1%Auto Connex 3.6%AutolocatorNavsi C-Nord 2.0%2.6% 3.3% AUTOLOCATOR 201113 14. 14 AUTOLOCATOR 2011 15. 4. Price monitoringAll Russian manufactures and telematics service Sales of GPS /GSM Tracking systemsproviders are struggling for a chance to offer a bestby price levelretail price for the telematics unit to a consumer.Its not a surprise; there is an obvious tendency tolower retail prices. Many Russian companies have22% 30%found an easy way to reach this goal: they simplyplace orders for telematics units in Chi-na/Russia/Taiwan and etc. under their own brand.This inevitably leads to poor quality of hardware48%equipment. Its also important to mention, thattheres still no quality standards, no quality control-ling authorities in the telematics industry in Russia.8k-12k RUB12-20k RUB >20k RUBRussian market is too young.($230-340)($340-560) (>$560)Low retail price is one of the most important rea-Source: GLONASS/GNSS Forum www.agff.ru)sons why a number of internationally known com-panies were forced to leave the Russian market. Sales of GLONASS/GPS /GSMGNSS Forum states that 75% of GLONASS/GPSTracking systems by price levelTerminals cost less than 20,000 RUB ($560) inRussia. It seems almost impossible if we take into12.5%account the cost of GLONASS Module. Current av- 25.0%erage retail price of GLONAS/GPS Tracking Systemexceeds 20,000 RUB but has a tendency to de-crease. 62.5%Installation cost differs from 0 to 13,000 RUB.8k-12k RUB12-20k RUB >20k RUB($230-340)($340-560) (>$560)Cost of GLONASS ModuleSource: GLONASS/GNSS Forum (www.agff.ru)800 $580 $600 $400 $325 $400 $175 $200 $ 75 $ 35 $- $ 2006 2007 2008 2009 2010 2011Source: Macro Group AUTOLOCATOR 201115 16. 21ConclusionFleet Management market in Russia demonstrates Idlingsubstantial sales growth. Market analysts predict Parkingthat steady sales growth will continue in future. For Geo-zonesthe next two years initiatives of Russian Govern- Speed violationment will keep strong demand for Fleet Manage- Driving stylement Systems mostly among corporations and pro-government enterprises. Growth rate in SMB sectorPricing2 business models (with/without monthly subscriptionwill be steady and in 2012 may exceed this parame-fee) will help to meet consumers requirements in allter in corporate sector.market sectors:Nevertheless, Fleet Management Solutions with 1. Small/Medium-scale businessmoderate integration possibilities (ERP systems, Equipment price, RUB