Strategy

Leverage leading diversified business of national scale for future growth

The Group is the leading diversified Russian transport infrastructure construction group, which had a market share of 8.6 percent share of the Russian infrastructure market by revenue in 2011 (including recent acquisitions) for works conducted in-house, according to EMBS Group estimates. In addition to the Group’s leading position in the overall infrastructure construction market, Mostotrest is the leader in the Russian transport infrastructure construction market with a 25 percent market share in bridge construction in 2009 by revenue for works conducted in-house, according to PMR estimates, and together with ETS and TSM, has significant operations in most other segments of the transport infrastructure construction market, including roads, railroads, ports and airports. Mostotrest, together with its subsidiaries, operates in the Central, North-Western, Southern, Urals, Siberian, and Far-East Federal Districts where the major investments in transport infrastructure are expected to occur in the next several years. Mostotrest’s strategic objective is to leverage its existing business platform to continue to develop its operations, evolving in line with the needs of customers, which have in recent years increasingly sought an integrated construction service to cover large, more complex and technologically more sophisticated projects. In particular, it plans to continue to use its leading position in bridge engineering and construction to win tenders in other sub-segments of the transport infrastructure market as bridge construction remains at the core of many projects in other sub-segments.

To do so, Mostotrest intends to draw on its national scale and proven track record of executing large complex projects, and to closely monitor market developments and expand into sub-segments and regions where it anticipates a significant transport infrastructure construction spending in the future. Mostotrest evaluates potential investments and new projects according to key criteria, including market size, sustainability of market growth and margins, the availability of resources at reasonable prices such that it can construct and execute the project efficiently, and expected return on investment (for example, costs of equipment, relocation of personnel, and roll-out of production facilities). Mostotrest believes that this platform will allow it to continue to compete successfully for new large and complex projects.

Selective expansion into segments complementary to Mostotrest’s existing operations

Although there are no immediate plans to expand Mostotrest’s core business beyond the transport infrastructure construction segments in which it currently operates, Mostotrest expects that the Russian market may gradually evolve into a model similar to the developed Western markets, where construction companies tend to operate in areas beyond the pure construction business, such as concessions, design and ancillary services (such as waste collection, road maintenance and management). Mostotrest plans to continue to evolve with the Russian market, developing further its technical and engineering expertise and if such trends emerge, will assess, on a selective basis, available opportunities and expand into such opportunities to the extent that they are complementary to its core construction business. Any expansion into a complementary segment should also meet the following criteria: the potential market for such opportunity should be substantial, the market growth and margins for such opportunity should be sustainable, and such opportunity should allow Mostotrest to diversify its revenue sources and should provide recurring and predictable cash flows.

In addition to developing organically or working together with the market leaders in these areas, Mostotrest may in the future evaluate potential acquisition targets where it is more efficient to do so. Mostotrest intends to remain disciplined in its acquisition strategy. Any potential acquisition will be evaluated based on its economic efficiency compared to organic development, its strategic implications for the Group’s existing operations and businesses, and an ability to assume operational control while meeting sufficient return on investment requirements.