Rolf Group International Financial Reporting ... - Irish Stock Exchange

Rolf offers a wide range of brands and models covering the middle and upper tiers of the Russian market
for imported cars produced by European, American and Asian manufacturers. Currently, Rolf retails
seven car brands, European, American and Japanese, and arrangements have been made to launch sales
of a further two brands in 2008. Rolf believes that the broad range of cars it sells attracts a wide number
of consumers, reduces dependency on any one particular brand and provides for flexibility to adapt to
changing consumer tastes.
Strong distribution business with leading geographic coverage
Rolf has agreed exclusive distribution rights with Mitsubishi Motors for all imported cars in Russia until
2009. Rolf expects it will be able to extend this distribution agreement to 2012. However, the terms of the
extension have not so far been agreed with Mitsubishi Motors (see ‘‘– Risk Factors – Rolf may lose its
exclusive distribution contract with Mitsubishi Motors Corporation’’). In 2006, Mitsubishi Motors
reclassified Russia as a stand-alone car market independent of Europe and established direct business and
communication lines between Moscow and Tokyo. Mitsubishi was in 2006 the seventh most popular
foreign car brand within Russia measured by number of cars sold, according to BMI. Over
68,000 Mitsubishi cars were sold to 89 dealers in 63 cities across Russia in 2006 exclusively through
Rolf’s distribution business, representing a 6.9 per cent. share of the market in Russia for foreign cars,
according to BMI.
Rolf’s distribution business has expanded rapidly in Russia’s major cities, and as the official distributor
for Mitsubishi Rolf has ensured through carefully run tender processes that only high quality and reliable
partners are chosen to operate retail dealerships carrying the brand.
Higher margin recurring revenue stream from established repairs and servicing business
Rolf provides high quality car servicing and repairs in its dealerships. It is an official service agent of each
of the brands sold in its own dealerships and is able to ensure that high quality standards are consistently
met. Car maintenance with an authorised service agent adds value to the vehicle in the secondary market.
Official service status also means that the business is able to handle warranty and insurance work.
Rolf believes that this business will benefit from the general increase in car usage in Russia and from the
shortage of service capacity in Moscow and St. Petersburg. Rolf believes that its repairs and servicing
businesses give it a competitive advantage because the services themselves generate higher percentage
margins than pure car retail, and because competing retailers do not always offer these services, which
generate profits even if the demand in Russia for new imported cars decreases.
Strong management team
Rolf’s management team has a detailed knowledge of the Russian car market. Rolf’s senior personnel
combine extensive experience in Russia with experience in international companies with high business
standards. For example, a non-Russian President and CEO was appointed in 2004 (see ‘‘Management
and Directors’’).
Modern employment practices
Rolf uses modern employment practices, such as active promotion of corporate values and corporate
culture as well as training staff at Rolf’s training facilities. In addition to high-quality training, Rolf
provides its staff with social benefits and good salaries. Over 80 per cent. of Rolf’s managers were
appointed internally and staff retention rates are high at over 80 per cent. This has helped to ensure a
consistent supply of employees with the requisite skills for company growth.
Strong brand recognition associated with high quality service
Most of Rolf’s dealerships are branded ‘‘Rolf’’ in addition to the manufacturer’s branding. As a result,
Rolf has developed strong brand recognition in its own right as a retailer as well as a reputation for
delivering high quality customer service. According to marketing research organised by Trout & Partners
(a leading international brand analyst) and implemented by Ramir Monitoring (a Russian research
agency), Rolf is the leader among car retailer chains in Moscow in terms of public spontaneous awareness
(75 per cent.) and aided awareness (94 per cent.). Rolf believes that brand recognition is a competitive
advantage and has led to an increase in the use of its services and increasing customer loyalty.
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