Revenues as a share of the Russian Federal program expenditures

We forecast results of Mostotrest on an annual basis till 2017. We forecast Company’s revenues by segments (bridges and highways, railways, airports, hydrotechnical facilities) as shares of Russian infrastructure construction market. We take the Federal Target Program (FTP) "Development of transport system of Russia (2010-2015)" as a basis for our market value forecast and also consider other significant infrastructure projects that are not included in the FTP.
We focus mainly on implementation of the FTP and other projects due to the significant difference between programs’ figures and real expenditures in some segments. We assume that the percentage of implementation of the FTP will remain at the same level that was in 2010 and 2011 (30-45% depending on segments).

According to our estimates, Russian infrastructure construction market will grow at a CAGR of 12.6% in 2012-2017E. Before calculating Company’s market shares in different segments we subtracted VAT amounts from the FTP and other programs’ expenditures to get an appropriate assessment. We assume that Mostotrest’s market share in construction of bridges and highways will grow from 29.7% in 2012 to 33.06% in 2017. We believe that this segment will be an important driver of Group’s revenue until 2017 because of “3 highs”:

§ high share of bridges and highways segment in Company’s total revenue;

§ high government and private expenditures in roads construction;

§ high Company’s expertise in construction of bridges and roads.

In construction of railway infrastructure facilities we assume a little decrease in Mostotrest’s market share after Winter Olympic games in 2014, after that Company’s market share will grow to 3.41%. We consider Mostotrest’s market share in construction of airfields and airports to remain on the current level and its market share in construction of hydrotechnical facilities to increase by 130bp in 2012-2017 (from 15.73% in 2012 to 17% in 2017). We believe that the segment of construction of other infrastructure facilities (which includes tunnel construction) will grow rapidly with 22% CAGR considering persistent management position to develop the segment of tunnel construction. The high growth of this segment can be explained by high profitability of the tunnel construction and current active development of this expertise. We forecast other revenue as a share of Company’s total revenue and we assume this share to decline gradually to 5.5% in 2017 because Company plans to focus on core segments. Since 2015 Company will start to get additional income from concession contracts.