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LSR Group

April 24, 2007

The LSR Group expands Moscow network

The major Russian producer of concrete mixes OAO Obyedineniye 45, a member of the LSR Group, had concurrently put into production three new plants: two in Moscow and one in St. Petersburg. This means that soon Moscow builders will be able to receive concrete no later than in 45 minutes as will their colleagues in St. Petersburg.

The company bought a Moscow enterprise OOO BSK-Beton with an Italian concrete plant in the Ochakovo industrial zone and also put into exploitation a mobile plant in Irkutskaya Street. The total capacity of both producers is 60 cubic meters per hour. The company is planning to replace the present equipment with a new one with production capacity 200 cubic meters per hour. The current company's production network in Moscow includes 4 plants with total production capacity exceeding 3 thousand cubic meters per work shift. New capacities were put into operation within the frames of an investment program, according to which Euro 20.5 million will be allotted to development in the Moscow market in 2007; by 2009, OAO Obyedineniye 45 is planning to have 20% of the concrete mix market in the capital city, delivering 1 million cubic meters per year.

«Business strategy of the company is not only to produce maximal amounts of concrete and grout, but also to deliver it to the consumer as soon as possible,» — Andrey Bibikov, CEO of OAO Obyedineniye 45, said. «This is our major task, and amounts of our production supplies depend upon it. Our major goal in Moscow is creating a network of production enterprises located along the city perimeter, but with centralized management system. This will allow to carry out supplies to any city location and provide all major construction projects, delivering concrete from several plants simultaneously. This scheme has allowed our enterprise to become the major producer in St. Petersburg within 4 years, with total delivery amount exceeding 1 million cubic meters per year (to compare, the next close competitor produces 300 thousand cubic meters) and the 30% share of the market. We are planning to apply our know-how in the capital city. Presently, the four Moscow sites of the company are located in the Northern, Eastern, South-eastern and Western Administrative Districts. We will be expanding our production network following this same geographical principle. When this network operates in the design mode, it will allow us to provide concrete and grout to any place in the capital within 45 minutes, despite traffic jams and the intensive traffic.

According to Andrey Bibikov, this company's expansion in the Moscow market will not significantly affect the major producers of concrete. «On the basis of our development in St. Petersburg, we can claim that the production expansion is taking place at the account of the market growth and partially though wiping out minor producers from major construction sites,» — he commented. The expert data show that the amount of the ready-mixed concrete in Moscow and its province exceeds 11 million cubic meters per year with the approximately 50/50 proportion between the city and province. The experts estimate market growth at about 7% per year, which is approximately 800 thousand cubic meters. This index is expected to grow at the account of monolith technologies development. The monolith and panel construction are currently leading in Moscow; the amount of brick buildings under construction is lower, while the monolith quota exceeds 60% of the total construction amount. Monolith construction will grow due to combination of various factors. First of all, the limited options for block development within the city borders due to the lack of sufficient grounds and caused by that development of the «dot» construction, where the monolith technologies are more profitable than panel ones.

For reference: The concrete market of Moscow. There are two groups of producers in the capital: the corporate segment and the «free market» segment; they are permanently and severely competing. The corporations operate on the basis of «non-market» connections between their enterprises and supply the construction sites of their corporations. They are loaded through centralized order. The «free market» quota makes about 50% of the total amount. The level of major producers' loading is approximately 60%. Companies like OOO Invest SIENA (ZAO Stroitelnoye Upravlentiye ? 155), OOO Beton-22 (Krost Concern), ZAO Glavmosstroy-Beton (OOO Glavmosstroy), OAO Kombinat Mosinzhbeton (OAO Mosinzhstroy) (partly it supplies to the «free market»), ZAO Firma Beton (OAO Mospromstroy) and many other departmental enterprises executing centralized order. The best known «free market» producers are: OAO Spetstroybeton — ZhBI ? 17, OAO Eurobeton (OAO Eurocement Group), OOO Stroyholding-2000 and others. Altogether, up to 120 enterprises operate in Moscow producing ready-mixed concrete. OAO Obyedineniye 45 will direct a part of its capacities to meet the needs of the LSR Group's construction holding, a member of which it is, but the major bulk of supplies will go to the «free market.»

OAO Obyedineniye 45 ( joined the LSR Group in 2002. Presently, the company is the major producer of concrete and grout mixes in Russia. It has four concrete-grout enterprises in Moscow and 7 enterprises in St. Petersburg. The total amount of supplies in 2006 exceeded 1.2 million cubic meters of production. Total revenue has grown up 2 times in 2006 as compared to 2005 and made approximately RR 3.5 billion. The next year plans include 1.5 times increase of its yearly proceeds up to RR 5.4 billion. The market quota in St. Petersburg makes 30%. Company sees the strategy of the further development in regional expansion and intends to create diversified business-structure in the major Russian cities and near-by foreign markets. The first experience was its emergence into the metropolitan market in 2006.




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