AUTOLOCATOR

FLEET MANAGEMENT INDUSTRY ANALYSIS / RUSSIA / JULY 2011

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TABLE OF CONTENT

3 4 8 10 13 14

Current Trends

Automotive Industry

Fleet Management Industry

Key Market Players

Price Monitoring

Conclusion

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Current trends
According to market analysts, international navigation market will continue to grow. As stated by ABI Research, it will reach $140 billions by 2014. Key drivers (in addition to Military Forces) will be Automotive Industry and Mobile Network Operators. Similar situation will have place in Russia.
International market segmentation 2011
Military forces, 16%
Exact time services, 1%

Automotive industry, 51%

As Russian Government continues to force the de-velopment of GLONASS project, the main growth within the telematics industry is observed in the market sectors that are being tenderly looked after by Government.
In 2010 the sales volume of Tracking Systems in Russia increased by almost 300% (from ~90k to ~370k) comparing with 2009. This trend will continue in 2011/2012. The key driver is the implementation of the Government Decree # 641 "Equip-ment of automotive motor vehicles by GLONASS or GLONASS/GPS navigation systems" (25.08.08) and the Federal Law # 23 "About the navigation ac-tivity" (14.02.2009).

Mobile applications, 15%

Geodesy and cartography, 7% Aviation

industry, 1%

Marine
navigation,

10%

Source: ABI Research

Sales of GPS Tracking Systems / Russia

GLONASS terminals GPS terminals

400,000 300,000 200,000 100,000 0 2008 2009

2010
Source: GLONASS/GNSS Forum (www.agff.ru)

In 2011/2012 only the leading market players (Sys-tem Integrators) expect substantial sales growth. The main reasons are the following:
No subscription fee
No extra charge for the Software development (in order to meet client's individual requirements) Client base: large-scale pro-government enterprises

dency to lower retail prices and swift business development in Russia, we believe that the growth rate in SMB sector will exceed this parameter in corporate sector within 2 year. Competition in the industry will become much more intense though.

SMB sector (Fleet Management solutions for Small and Medium-scale business) also demonstrates a steady growth. Most medium/small-scale companies do not experience the need for Fleet Management Systems at the moment. This can be explained by the following facts:

High retail price of equipment High subscription fee

In general, these companies use illegal trade schemes that lead to low level of accounting and reporting.

Russian Fleet Management market is immature and not well structured yet. This results in ab-sence of accurate statistical and quantitative da-ta. On that account this report should be consid-ered only as an expert opinion.

These companies do not face problems that can be solved by Fleet Management Systems. Taking into account that there is an obvious ten AUTOLOCATOR 2011

1. Automotive industry
According to "Development Strategy of automotive industry in Russian Federation 2020", the market will continue to grow. By 2020 an overall fleet should exceed 50 mln cars. June 2011 shows the recovery on the Russian market is now well established. The first half of 2011
40%

Low working efficiency Legislation imperfection

These facts make us confident that the future growth in automotive industry will be driven by production of foreign brands in Russia.
Foreign brands share
34%

saw sales of new cars and light commercial vehicles in Russia increase by 56% compared with the same period in 2010 or by 441,959 more sold units, ac-cording to the AEB Automobile Manufacturers Committee (AEB AMC). Russian market is tracking ahead of our latest forecast of 2.35m units for the full year. Nevertheless, Russian automotive industry experiences a number of problems. Ministry of Industry and Trade defines the following major issues:

35% 30%
26%

25% 20% 15% 10% 5%

1% 4% 8% 9% 14% 16% 18%

0%

2002

2003

2004

2005

2006

2007

2008

2009

2010

Source: PwC

Weak variety of models Low investments in production Low productivity, technological retardation Weak automotive components industry Low budgeting of R&D Low investment attractiveness

Parameter
Macroeconomic GDP, billions RUB Population, mln Able-bodied population Automotive industry share in GDP Domestic market, thousands Sales of new cars Sales of light commercial vehicles Sales of trucks Sales of buses Automotive fleet Cars and LCV's Trucks Buses # of cars per 1000 people

2009
32,723 142 68.5 0.98%

2010
38,743 141.9 66.4 0.57%

2020F
63,366 134.2 67.9 2.38%

Sorce data
Ministry for Economic Development RosStat Ministry for Economic Development Ministry for Economic Development

2,801 210 171 20.3

1,400 102 44 11.4

3,600 350 190 26.6

Ministry of Industry and Trade Ministry of Industry and Trade Ministry of Industry and Trade Ministry of Industry and Trade

32 5.2 0.9 225

33.2 5.4 0.9 229

52 9 1.6 363

Ministry for Economic Development Ministry for Economic Development Ministry for Economic Development Ministry for Economic Development
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Sales of new cars in Russia, mln

4.5

Stagnation
4

Growth

Post-crisis restoration

Market Stabilization

3.6 3.4 3.5 3.3 3.5

3.6

3.6

Economic crisis
3 2.8 2.8 2.4 2.5 2.2

3.1

2.4

2 1.8 1.3 1.5 1.1 1 1 0.8 0.7 0.5 1 0.8 0.9 0.9 1 1.4 1.8

1.4

0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011F 2012F 2013F 2014F 2015F 2016F 2017F 2018F 2019F 2020F

Source: Ministry of Industry and Trade

Sales of Light Commercial Vehicles in Russia, thousands

500

Stagnation
450

Growth

Post-crisis restoration

Market Stabilization

400

Economic crisis
350
324 282 304

343

350

300
229 257

250
198 209 210

200
176 167 170 126 88 110 99 107 163 146

150

138

134

146

145

132

149

100

50

0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011F 2012F 2013F 2014F 2015F 2016F 2017F 2018F 2019F 2020F

Source: Ministry of Industry and Trade

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Sales of Trucks in Russia, thousands

300

Post-crisis restoration
250

Market Stabilization

Economic crisis
200
179 174 171 161 146 125 90 106 89 92 88 128 169 174 182 186

150

100

56

63

50

0
2003 2004 2005 2006 2007 2008 2009 2010 2011F 2012F 2013F 2014F 2015F 2016F 2017F 2018F 2019F
2020F

Source: Ministry of Industry and Trade

Sales of Buses in Russia, thousands

40

Post-crisis restoration
35
33.1

Market Stabilization

30

Economic crisis
25 25.7 23.7 22.5 19.7 21.1 20.3 18.4 24.8 26.6 22

25

20

18.3

15.9

15
11.4

13.6

11

10

0
2004 2005 2006 2007 2008 2009 2010 2011F 2012F 2013F 2014F 2015F 2016F 2017F 2018F 2019F
2020F

Source: Ministry of Industry and Trade

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Automotive Fleet
In 2010 automotive fleet in Russia exceeded 39 mln motor vehicles. 8,1 mln of them are commercial vehicles. Private cars are excluded from the estimation, because their owners are not potential users of Fleet Management Systems.

Commercial Fleet Structure / 2010 (mln) Trucks Buses LCV Total: 5.4 0.9 1.8 8.1

Commercial Fleet Structure / 2010 (mln) Corporate Fleet Public Conveyances Small/Medium-scale business Total:
Source: RosStat

4.0 2.0 2.1 8.1

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2. Fleet Management Industry analysis

Fleet Management Industry is on early stages of de-velopment. While in the US and Europe the key motivating factor to install a Tracking system is the need for increased efficiency, Russian companies are looking for assets control. Having regard to the business conditions in Russia, we think that the economic effect of Fleet Management System will be much higher than in Europe and USA. Consequentially, we forecast a higher level of penetration on the Russian market.
6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00%
CorporationsPro-government Small and enterprises medium scale business 1.20% 0.50% 5.20%

Penetration of Fleet Management Systems

Key issues: A level of penetration remains very low (3% in Russia, 12% in the US) Inefficient logistics (that means more possibili-ties to reduce costs)

Quantity of installed units (thousands) Level of penetration (right scale) 1600 1400 1200 1000 800 600 400 200 0 20.0% 15.0% 10.0% 5.0% 0.0%

Stimulating efforts of Russian Government will keep strong demand for Fleet Management Systems for the next 2-3 years.

Industry forecast:
Average annual growth rate in the industry will be around 44% till 2014. Level of penetration will reach 17.8% by the end of 2014.
The highest growth rate will be observed among progovernment enterprises. But in terms of quanti-ty of installed units, huge corporations will keep the lead. In the sector of Small/Medium Business com-petition will become tougher because big market players (who now specialize in system integration) will enter SMB sector in search for additional sources of revenue. Several companies have already developed Web-based Fleet Management Solutions with annual subscription fee (acting as a service provider / outsourcing). This business model is widely exploited in the US and Europe even by huge corporations. Nevertheless, big Russian companies prefer to mine this data without assistance. Mobile Network Operators have also initiated this move. MTS and Beeline have developed a very in-

Source: Investment Bank "Otkrytie"

teresting offer to consumers:

Hardware price doesnt exceed RUB 6,000 ($215)

Monthly payment RUB 300 ($11) No charge for Software and Cartography.

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Cumulative number of installed Tracking units, thousands

2009 Corporations Pro-government enterprises Small/Medium-scale business Total Source: Investment Bank "Otkrytie" 206 24 11 241 2010 307 43 17 367 2011F 428 77 30 535 2012F 581 135 51 767 2013F 753 244 82 1079 2014F 948 402 124 1474

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3. Key Market Players

Fleet Management market in Russia is highly consolidated. 3 market leaders (M2M-Telematics, Russian Navigation Technologies and E.N.D.S) control almost 70% of the market. Analysts and official representatives of these companies provide different estimation of the market share. According to market research of investment bank Otkrytie RNT is the absolute leader with 24% market share. E.N.D.S. holds 16%, M2M-Telematica 9%. Reasearch.Techart draws another picture: M2MTelematica is the leader; "RNT is the fol-lower. We are likely to believe that these compa-nies are almost identical in terms of revenue and quantity of installed telematics units (~70-75k units). The rest 30% of the market is distributed be-tween small players. The overall number of telematics service providers exceeds 300 compa-nies.

Talking about Fleet Management market it is very important to understand the difference in business models:
1. System Integrators develop Software and produce telematics equipment. They specialize in server solutions offering it to corporations and pro-government companies. The main sources of revenue are price markup on equipment, system implementation and the following regular technical support. These companies are usually considered as market leaders. 2. Service providers generally specialize in Webbased applications and offer Fleet Management solutions to Small/Medium-scale companies.
Their business model considerably differs the main source of revenue is a monthly subscription fee (from 300 to 1500 RUB per month).

Contenders

Market leaders
Autotracker (RNT) M2M-Telematica

System Integration

E.N.D.S.

Antor

TopPlan ITOB NOVA-IT Scout Autograph

Caesar Satellite Fleet Master Starcom Eshelon Kupol Golden Eye And etc.

AL Satellite M AL Chaser AL Truck D+

Niche players

Visioners

AL - AUTOLOCATOR products

Functionality
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Sales structure of GLONASS/GPS Terminals by company, 2010

others 31.2%

Geiser 1.1%

Hiton 2.3% Scout 3.1% Navigator 3.6% M2M-Telematica 41.0%

Autotracker 17.5%

Sales structure of GPS Terminals by company, 2010

M2M-Telematica 6.0% Autotracker 8.9%

Navigator 15.7%
others 48.8%

Scout 9.1% Auto Connex 3.6%

Autolocator 2.0%

Navsi 2.6%

C-Nord 3.3%

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4. Price monitoring
All Russian manufactures and telematics service providers are struggling for a chance to offer a best retail price for the telematics unit to a consumer. Its not a surprise; there is an obvious tendency to lower retail prices. Many Russian companies have found an easy way to reach this goal: they simply place orders for telematics units in China/Russia/Taiwan and etc. under their own brand. This inevitably leads to poor quality of hardware equipment. Its also important to mention, that theres still no quality standards, no quality controlling authorities in the telematics industry in Russia. Russian market is too young. Low retail price is one of the most important reasons why a number of internationally known companies were forced to leave the Russian market. GNSS Forum states that 75% of GLONASS/GPS Terminals cost less than 20,000 RUB ($560) in Russia. It seems almost impossible if we take into account the cost of GLONASS Module. Current average retail price of GLONAS/GPS Tracking System exceeds 20,000 RUB but has a tendency to de-crease.
8k-12k RUB ($230-340) 12-20k RUB ($340-560) >20k RUB (>$560)

Sales of GPS /GSM Tracking systems by price level

22%

30%

48%

Source: GLONASS/GNSS Forum www.agff.ru)

Sales of GLONASS/GPS /GSM Tracking systems by price level

12.5% 25.0%

62.5%

Installation cost differs from 0 to 13,000 RUB.

8k-12k RUB ($230-340)

12-20k RUB ($340-560)

>20k RUB (>$560)

Cost of GLONASS Module 800 $

580 $

Source: GLONASS/GNSS Forum (www.agff.ru)

600 $ 400 $ 200 $ - $

400 $ 325 $ 175 $ 75 $ 35 $

2006 2007 2008 2009 2010 2011

Source: Macro Group

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Conclusion
Fleet Management market in Russia demonstrates substantial sales growth. Market analysts predict that steady sales growth will continue in future. For the next two years initiatives of Russian Government will keep strong demand for Fleet Management Systems mostly among corporations and progovernment enterprises. Growth rate in SMB sector will be steady and in 2012 may exceed this parameter in corporate sector. Nevertheless, Fleet Management Solutions with moderate integration possibilities (ERP systems, ERA GLONASS infrastructure, intellectual transport systems) will be forced to leave the market. No matter what market sector you are in, integration abilities with Eco-systems (that are just being formed) will be the must in the nearest future. By our opinion, an exemplary Fleet Management system must meet the following requirements:

Idling Parking

Geo-zones Speed violation Driving style

Pricing
2 business models (with/without monthly subscription fee) will help to meet consumer's requirements in all market sectors: 1. Small/Medium-scale business Equipment price, RUB Subscription fee per year, RUB Installation cost, RUB 2. Large-scale business Equipment price, RUB Software, RUB Installation cost, RUB <20,000 ~300,000 ~3,000 <10,000 <6,000 ~3,000

Software
Integration with most ERP systems (1C, Oracle, SAP)

Various levels of reporting that can be easily configured by customer Remote technical parameters control Web-based or Locally installed application to let con-sumer choose the most comfortable option Data export

Hardware
GLONASS/GPS module GSM data transfer protocol FMS/CAN-BUS Emergency call Accelerometer Black box

Remote configuration

Reporting
Fuel consumption Working hours

Technical breakdown
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