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AUTOLOCATORFLEET MANAGEMENT INDUSTRY ANALYSIS / RUSSIA / JULY 2011

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TABLE OF CONTENT

3 Current Trends

4 Automotive Industry

8 Fleet Management Industry

10 Key Market Players

13 Price Monitoring

14 Conclusion

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Current trendsAccording to market analysts, international naviga-

tion 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 Auto-International market segmentation 2011

Militaryforces, 16%

motive Industry and Mobile Network Operators.

Similar situation will have place in Russia.As Russian Government continues to forcethe de-velopment of GLONASS project, themain growth within the telematics industry is

observed in the market sectors that arebeing tenderly looked after by Government.

Exact time

services, 1%Mobile

applications,

15%Geodesy and

cartography,7%

Automotive

industry, 51%

In 2010 the sales volume of Tracking Systems in

Russia increased by almost 300% (from ~90k to

~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 GLONASS or

GLONASS/GPS navigation systems" (25.08.08) and

the Federal Law # 23 "About the navigation ac-tivity"

(14.02.2009).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)

Aviationindustry, 1%

Marine

navigation,10%

Source: ABI Research

Sales of GPS Tracking Systems / RussiaGLONASS terminals GPS terminals

400,000300,000200,000100,000

02008 2009 2010

Source: GLONASS/GNSS Forum (www.agff.ru) Client base: large-scale pro-government enterprisesSMB sector (Fleet Management solutions for Small

and Medium-scale business) also demonstrates asteady growth. Most medium/small-scale compa-

nies do not experience the need for Fleet Manage-

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

that lead to low level of accounting and reporting.

These companies do not face problems that

can be solved by Fleet Management Systems.Taking into account that there is an obvious ten-

dency to lower retail prices and swift business de-

velopment in Russia, we believe that the growth

rate in SMB sector will exceed this parameter incorporate sector within 2 year. Competition in the

industry will become much more intense though.

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. AUTOLOCATOR 2011 5


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1. Automotive industry

According to "Development Strategy of automotiveindustry 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 mar-

ket is now well established. The first half of 2011

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 experi-

ences a number of problems. Ministry of Industry

and 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 attractiveness

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

40%35% 34%30%

26%25%20% 18%

16%14%

15%10% 8% 9%5% 4%

1%0%

2002 2003 2004 2005 2006 2007 2008 2009 2010Source: PwC

Parameter 2009 2010 2020F Sorce dataMacroeconomicGDP, billions RUB 32,723 38,743 63,366 Ministry for Economic DevelopmentPopulation, mln 142 141.9 134.2 RosStat

Able-bodied population 68.5 66.4 67.9 Ministry for Economic DevelopmentAutomotive industry share in GDP 0.98% 0.57% 2.38% Ministry for Economic DevelopmentDomestic market, thousandsSales of new cars 2,801 1,400 3,600 Ministry of Industry and TradeSales of light commercial vehicles 210 102 350 Ministry of Industry and TradeSales of trucks 171 44 190 Ministry of Industry and TradeSales of buses 20.3 11.4 26.6 Ministry of Industry and TradeAutomotive fleetCars and LCV's 32 33.2 52 Ministry for Economic DevelopmentTrucks 5.2 5.4 9 Ministry for Economic DevelopmentBuses 0.9 0.9 1.6 Ministry for Economic Development# of cars per 1000 people 225 229 363 Ministry for Economic Development6 AUTOLOCATOR 2011


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Sales of new cars in Russia, mln

4.5Stagnation Growth Post-crisis restoration Market Stabilization4

3.6 3.6 3.63.4 3.5

3.53.3

Economic crisis 3.13

2.8 2.82.4 2.4

2.52.2

21.8 1.8

1.3 1.4 1.41.5

1.11 11 0.9 0.91 0.8

0.7 0.80.50

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 2020FSource: Ministry of Industry and Trade

Sales of Light Commercial Vehicles in Russia, thousands500

Stagnation Growth Post-crisis restoration Market Stabilization450400

Economic crisis343 350

350304 324

282300

229 257250

198209 210

200167 170 176 163

134 132 146150 138 146 145 149

12688 110

99 107100500

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 2020FSource: Ministry of Industry and Trade

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Sales of Trucks in Russia, thousands300

Post-crisis restoration Market Stabilization250

Economic crisis186

200179 182

174 171 174169161

150 146128125

9089 92 88 106

10056 63

500

2003 2004 2005 2006 2007 2008 2009 2010 2011F 2012F 2013F 2014F 2015F 2016F 2017F 2018F 2019F 2020FSource: Ministry of Industry and Trade

Sales of Buses in Russia, thousands40

Post-crisis restoration Market Stabilization35

33.130

Economic crisis25 25.7 26.6

23.7 24.825

22 22.519.7 21.1

20.3 18.420 18.3

15.915 13.6

11.4 11

1050

2004 2005 2006 2007 2008 2009 2010 2011F 2012F 2013F 2014F 2015F 2016F 2017F 2018F 2019F 2020FSource: Ministry of Industry and Trade

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Automotive FleetIn 2010 automotive fleet in Russia exceeded 39 mln

motor vehicles. 8,1 mln of them are commercial ve-

hicles. Private cars are excluded from the estima-

tion, because their owners are not potential users of

Fleet Management Systems.

Commercial Fleet Structure / 2010 (mln)Trucks 5.4Buses 0.9LCV 1.8Total: 8.1Commercial Fleet Structure / 2010 (mln)Corporate Fleet 4.0Public Conveyances 2.0Small/Medium-scale business 2.1Total: 8.1

Source: RosStat

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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. Conse-

quentially, we forecast a higher level of penetration

on the Russian market.Key issues: A level of penetration remains very low

(3% in Russia, 12% in the US)

Inefficient logistics (that means morepossibili-ties to reduce costs)

Stimulating efforts of Russian Government will

keep strong demand for Fleet Management Sys-

tems 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 pro-

government 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. Severalcompanies 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-

Penetration of Fleet ManagementSystems

6.00%5.20%

5.00%4.00%3.00%2.00%

1.20% 0.50%1.00%0.00%

CorporationsPro-government Small andenterprises medium scalebusiness

Quantity of installed units (thousands)Level of penetration (right scale)

1600 20.0%14001200 15.0%1000800 10.0%600400 5.0%200

0 0.0%

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, thousands2009

2010

2011F

2012F

2013F

2014F

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

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3. Key Market Players

Fleet Management market in Russia is highly con-solidated. 3 market leaders (M2M-Telematics, Rus-

sian Navigation Technologies and E.N.D.S) control

almost 70% of the market. Analysts and official

representatives of these companies provide differ-

ent 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: M2M-

Telematica 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 itis very important to understand thedifference in business models:1. System Integrators develop Software and pro-

duce 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, sys-

tem implementation and the following regular

technical support. These companies are usually

considered as market leaders.

2. Service providers generally specialize in Web-

based applications and offer Fleet Management

solutions to Small/Medium-scale companies.

Their business model considerably differs the

main source of revenue is a monthly subscrip-

tion fee (from 300 to 1500 RUB per month).

Sy

stemI

ntegration

Contenders Market leadersAutotracker (RNT)M2M-Telematica

E.N.D.S. AntorITOB TopPlanNOVA-IT

ScoutAutograph

Caesar SatelliteFleet MasterStarcomEshelonKupol AL Satellite MGolden Eye

AL Chaser AL Truck D+And etc.

Niche players Visioners

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

31.2%Geiser1.1%

Hiton2.3%

Scout3.1%

Navigator M2M-Telematica3.6% 41.0%

Autotracker17.5%

Sales structure of GPS Terminals by company, 2010M2M-Telematica

6.0%

others48.8%

Autotracker8.9%

Navigator15.7%

Scout9.1%

Auto ConnexAutolocator Navsi C-Nord 3.6%

2.0% 2.6% 3.3%

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4. Price monitoringAll 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 Chi-

na/Russia/Taiwan and etc. under their own brand.

This inevitably leads to poor quality of hardwareequipment. Its also important to mention, that

theres still no quality standards, no quality control-

ling authorities in the telematics industry in Russia.

Russian market is too young.Low retail price is one of the most important rea-

sons why a number of internationally known com-

panies 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 av-

erage retail price of GLONAS/GPS Tracking

System exceeds 20,000 RUB but has a tendency

to de-crease.Installation cost differs from 0 to 13,000 RUB.

Cost of GLONASS Module800 $

580 $600 $

400 $400 $ 325 $

175 $200 $ 75$

35$- $

2006 2007 20082009 20102011Source: Macro Group

Sales of GPS /GSM Tracking

systems by price level

22% 30%

48%

8k-12k RUB 12-20k RUB >20k RUB($230-340) ($340-560) (>$560)

Source: GLONASS/GNSS Forum www.agff.ru)Sales of GLONASS/GPS /GSMTracking systems by price level

12.5%25.0%

62.5%

8k-12k RUB 12-20k RUB >20k RUB($230-340) ($340-560) (>$560)

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

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ConclusionFleet 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 Govern-

ment will keep strong demand for Fleet Manage-

ment Systems mostly among corporations and pro-

government enterprises. Growth rate in SMB sector

will be steady and in 2012 may exceed this parame-

ter 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:SoftwareIntegration with most ERP systems (1C, Oracle, SAP)

Various levels of reporting that can be easilyconfigured by customer

Remote technical parameters control

Web-based or Locally installed application to let

con-sumer choose the most comfortable option

Data export

HardwareGLONASS/GPS module

GSM data transfer protocol

FMS/CAN-BUS

Emergency call

Accelerometer

Black box

Remote configuration

ReportingFuel consumption

Working hoursTechnical breakdown

16

Idling

Parking

Geo-zones

Speed violation

Driving style

Pricing2 business models (with/without monthly

subscription fee) will help to meet consumer's

requirements in all market sectors:1. Small/Medium-scale businessEquipment price, RUB

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