Alfa-Bank - Alfa Group

Selected projects in 2006Kronverk CinemaOne of the largest cinema chains in RussiaKronverk Cinema is one of the largest movie theater chains in theNorth-West of Russia and rates among the top 5 largest across thecountry. The highly professional team created the company from thestart-up stage and within 3 years the Kronverk Cinema holds around 35% ofthe film exhibition market in St. Petersburg. As the first company to introducethe concept of a world-standard movie theatre chain in the region, KronverkCinema has also radically restructured the film exhibition business there.The film exhibition market has developed rapidly and is very attractive forstrategic investment. Russia demonstrates the fastest growth in box officereceipts and attendance as compared to other countries worldwide. A1 hasretained the Kronverk Cinema team and is now investing to create a Russiawidenetwork, an industry leader, on its strong initial base. The scale of thebusiness and the ambitious plans for proactive growth will ensure advantageousfinancing and preference from film distributors, equipment suppliersand commercial property owners.In 2007, the company plans to enter the Moscow market, with intention toopen three cinemas. In addition, several new multiplex cinemas in otherRussian cities are being launched. In the near future, the company willincrease its presence in St. Petersburg opening a new IMAX cinema, whichis currently under construction. A1 is also exploring Ukrainian andKazakhstan markets, holding talks with local developers.RosvodokanalInterregional water operatorsuccessfully developed a project in the public housing sectoras the reform of the sector has created a new and promisingmarket with many opportunities for long-term invest-A1hasment. A1 is involved through acquisition of control in Rosvodokanal, anenterprise with a well established name, significant civil engineeringexperience and management potential.Rosvodokanal has been a 60-year leader in municipal water industry. It wasreorganized in 2006 into an interregional holding company that includesthe service company "RVK Consulting" (which renders engineering and consultingservices) and city water companies with a network of engineeringcenters. Rosvodokanal introduced on the market what analysts believe to bean extremely promising public-private partnership model. TheRosvodokanal concept allows municipalities, being the owners of the enterprisesto move quickly to free-market operation.Rosvodokanal project results are some of the best in the industry. InOrenburg, administration production costs were reduced by 30%, waterlosses were reduced by 20%, and the overall state of the networks and qualityof services were considerably improved. The city water channel achieveda record high payments collection (up to 98%).Rosvodokanal manages water supply assets in Barnaul, Kaluga, Krasnodar,Tyumen, Tver and other Russian cities serving about 4 million people.Along with the expansion into the Russian regions, Rosvodokanal considersprojects in large cities in Ukraine. Rosvodokanal is an attractive partner forwell-known international financial institutions that offer long-term lendingto the company. Within the next few years, A1 plans to make Rosvodokanala multinational operating company – an industry leader in Russia and theCIS, and to prepare it for IPO.Trade House SmirnovManufacturer and distributor of the world-known vodka brandSmirnovDiageo DistributionExclusive supplier of world-wide premium alcohol brandsin RussiaDiageo, the largest global manufacturer and distributorof alcoholic beverages, set-up a joint venture to promote, sellA1and distribute premium alcoholic beverages in Russia. Thejoint venture has an exclusive right to distribute Diageo’s world brands inRussia including: Johnnie Walker, J&B, Baileys, Captain Morgan, Cuervo,Tanquaray, and Crown Royal. A1 transferred the Smirnov brand andrelated operating businesses to the joint venture company.Russia has become a leader in the growth in sales of Diageo brands which exceedthe growth rates in many developing markets. Diageo now has 25% of the premiumalcohol market in Russia; its share in the sale of whiskey and liquor isaround 50%, and of gin more than 30%. The single brand portfolio of the legendarybrands Smirnoff and Smirnov makes it possible to optimize the strategyfor their promotion in Russia and global markets.Low-Cost Airline CompanyIn 2006, A1 initiated a project on creating a budget domestic airline companyin Russia. The company’s mission is to make air transport affordableto a large portion of Russian population. Such popular airlines asRyanair, easyJet, Southwest Airlines, and JetBlue Airways have successfullyrealized the model of budget airlines worldwide. Today, this model is themost competitive and effective in civil aviation.The new airline company plans to begin flights in 2008. Indigo Partners, aU.S. direct investment fund, specializing in investments into budget airlinesworldwide, is A1's partner in this project. David Bonderman, the Founder ofTexas Pacific Group and Chairman of the Board of Directors of Ryanair, is theprincipal investor in the Fund.VladpivoBeer producer in Prymorsky RegionIn 2005, A1, jointly with Detroit Investments, purchased PivoIndustriaPrimoria, a brewerer in Vladivostok on the verge of bankruptcy. Theinvestment idea of the project was to create an industry leader in thefast growing market in the Far East of Russia. The project develops successfullydue to A1’s experience in corporate restructuring combined withthe experience of Detroit Investments in creating a brewery businesses.During 2005-2006, A1 and its partners created a new company Vladpivo,based on PivoIndustria Primorya, modernized and increased productioncapacities, paid overdue debts, carried out a corporate restructuring,launched production and achieved substantial increases in sales volumes.Today, Vladpivo is one of the largest brewers in the Far East, with anassortment of modern, quality products and advanced production technologies.SolnechnyLarge modern logistic complex in Moscow RegionIn the mid of 2006, A1 jointly with its partners – owners of the UnifiedInternational Network of Customs Warehouses (UINCW) – invested inthe development of large logistic center Solnechny in MoscowRegion. Solnechny is reconstructed from the low-grade terminal "C-" to"A-" class.Solnechny is located in the most attractive area from the viewpoint of logistics– 5 kilometers from the Moscow Ring Road in the south-west area of thecity. It has its own railway line with efficient cargo-handling facilities, andconvenient road scheme for accepting trailers. The reconstructed terminalarea is well equipped; the clients receive a package of high-quality customsclearance and information services. Solnechny is particularly appealing tocompanies, whose operations are connected with Moscow consumers. Theymay efficiently receive large goods inflows in assortment, arrange speedytransport from western borders of Russia and Baltic ports directly to the doorsof consumers, and use Solnechny as a hub in regional and national transport.By the end of 2006, half of warehouses in Solnechny were reconstructedand rented. They were all leased out to format clients at rates much higherthan the average in the industry.DynastyCottage community in Krasnodar Region, the Black Sea coastIn 2006, A1 participated in a large residential real estate project in thesouth of Russia. Together with Seagate Group, A1 was a co-investor inconstruction of Dynasty cottage community in Gelendzhik, one of themost popular and dynamically growing cities in the Black Sea coast of Russia.The partners invest in the construction of one of the first large villa complexesin this district with its own infrastructure. According to market participants,this is a very promising project: the complex is located in a comfortablelocation with nice climate, close to the beach, with the largest seafronton the Black sea coast, aqua-park and other resort facilities. Thanks tothese advantages and the construction of a new airport in Gelendzhik,experts forecast high demand from buyers from various Russian regions.Since early 2007, Dynasty is under active construction, and A1 and Seagatedevelop the marketing policy for the sale of villas, which will be launchedin mid-2007. Construction is scheduled for completion in mid-2007.Alfa-CarbonThe company provides services in registering and implementingquotas for greenhouse gas emissions under the Kyoto protocolAlfa-Carbon was created by A1 and RusCarbon, and specializes inservices in registering and sale of quotas for emissions of greenhousegases within the framework of the Kyoto Protocol. Alfa-Carbon supports Russian enterprises with the identification of new projectssuch as the renovation, upgrading and new construction with the purposeof reducing emissions of greenhouse gases, registration of this reductionwith the Russian and international authorities as emission quotas, and saleof these quotas on the global carbon markets.The company currently has several projects at the stage of registration andin 2007 it plans to complete the sale of the first projects.MordovnefteproductA major regional operator in the oil products marketA1implements the investment project in Mordovnefteproductcompany (MNP) (Saransk, Mordovia Republic), in whichfrom the beginning of 2006, it controls around 73% ofshares. Mordovnefteproduct (MNP) owns 40% of all petrol stations in theregion, the main network of petroleum storage depots, controls 70% ofretail sales and 25% of wholesale sales of oil products in the region.Mordovnefteproduct has a great growth potential, as the leading Russianvertically integrated oil companies are not represented there.A1 has restructured MNP by optimizing operations and marketing.Additionally, the purchase price of oil products was reduced, and retailsales and wholesale sales were substantially increased, due to the activeparticipation of MNP in the Republic’s programs on fuel supplies to industrialand agricultural enterprises.A1’s aim is to continue fast and effective changes in the company: to increasesubstantially fuel purchases, wholesale and retail sales (by 130% in 2007).A1 UkraineA1’s strategic priority is to expand to emerging markets. Thegrowing Ukrainian economy will surely be an attractive destinationfor investment, financial and managementresources in the years to come.54 / ALFA GROUP / ANNUAL REPORT 2006ALFA GROUP / ANNUAL REPORT 2006 / 55