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LenSpecSMU : Regular Meeting with Investors MICEX, 31/01/2007

LenSpecSMU : Regular Meeting with Investors MICEX, 31/01/2007. Introduction and Overview. 1. Market Fundamentals Prices Market Size and Dynamics Market Share Market Position Growth Potential. 2. Business Overview Key Milestones in 2006 Growth in Figures Business Strategy.

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LenSpecSMU : Regular Meeting with Investors MICEX, 31/01/2007

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  1. LenSpecSMU: Regular Meeting with Investors MICEX, 31/01/2007

  2. Introduction and Overview • 1. Market Fundamentals • Prices • Market Size and Dynamics • Market Share • Market Position • Growth Potential • 2. Business Overview • Key Milestones in 2006 • Growth in Figures • Business Strategy • 3. Financial Overview • Key Milestones in 2006 • Financial Ratios • Financial Policy • Financial Strategy • Key Indicators • Forecast • Covenants and Assumptions

  3. Market Fundamentals

  4. Prices, Market Size and Dynamics: In Figures LenSpecSMU pricing vs. St. Petersburg average prices, USD / m2(excluding elite residences) St. Petersburg residential real estate market – second by it’s size in Russia

  5. Market Share, Competitors Newly-built residential areas accepted by State Committee, m2 mn • St. Petersburg construction market is highly fragmented • Only 25 out of 100-115 construction companies registered locally have consistently appeared on the State construction committee report over the last 3 years. • LenSpecSMU has held and increased its market share during the last 3 years. Other 2.37 Petersburgstroy-Skanska 2.27 79.5% Severnygorod 64.3% 2.03 IVI-93 72.0% 1.76 DSK Blok 74.6% Pragma Stroimontazh LEK LenSpecSMU 15.8% 10.1% 11.5% 9.6% `03 `04 `05 `06 114 115 100 109 Number of constructors LenSpecSMU consequently holds leading positions in residential construction segment

  6. Market Share: Different Ratios Share in supply (2006) Share in acted by State Committee areas (2006) Saint Petersburg LenSpecSMU Big share on a big market

  7. Market Position LenSpecSMU: Market share in newly-built residential areas, accepted by State Committee, ‘000’ m2 2 375.7 2273.4 2031.9 Market specialization: • Development and investment in construction. Quarter building. Legal structure: • Vertical-integrated industrial holding company. Activity caliber: • According to GOSSTROY LenSpecSMU takes 2 place in “Elites of Russia construction complex” and 2-nd place in TOP 130 Russian construction companies (see the report of session of Federal agency of construction and housing and communal services of 27.07.2006 - http://www.gosstroy.gov.ru/docum_63.htm); • In TOP 500 Russia largest companies “Finans-500” LenSpecSMU takes 439 place (see “Finance” magazine of 18.09.2006); • In TOP 350 most rapid growth Russian companies LenSpecSMU takes 49 place (see “The Firm’s Secret” magazine of 25.09.2006); • In TOP 200 largest investment deals in Russia in year 2006 LenSpecSMU takes 160 place (see “The Firm’s Secret” magazine of 20.11.2006). Technology: • Brick-monolith housing. Real estate segment: • Mass business class housing construction; • Commerce construction; • Civil construction. New development ways: • Industrial construction; • New projects in Moscow and St. Petersburg; • Own real estate in management. 1758.0 15.8% 11.5% 9.6% 10.1% `03 `04 `05 `06 LenSpecSMU: Total area under construction, ‘000’ m2 1 231.7 968.6 908.5 901.5 860.3 `03 `04 `05 `06 `07F

  8. Assortment of LenSpecSMU production 2006 2005 Residential areas Commercial areas Balcony Parking places Non-sold areas Commercial areas – one of the priorities of LenSpecSMU

  9. Demand Indicators on Primary Market of Real Estate 2004 2005 2006 Selling areas Unsold areas to the moment of acting the objects by the State Committee Only about 6% of total selling areas stay unsold to the moment of acting the objects by the State Committee

  10. Business Overview

  11. Growth in Figures (Historical & Forecast) Projects completed, area in ‘000’ m2 Number of SP agreements, items 4 588 359.9 3 165 3 161 239.9 2 898 222.5 2 541 168.1 1 755 142.5 123.0 `01 `02 `03 `04 `05 `06 `01 `02 `03 `04 `05 `06 LenSpecSMU – continuous growth of the business

  12. Corporate Strategy: Organic Growth Environment Overall Strategy Targets • Total turnover: CAGR* of 20-40% p.a. • Revenues from the general contracting segment to reach USD 400mn by 2009. • Volume of completed construction projects: 300k-400k m2 p.a. • Volume of pre-funding: not less than annual revenues. • Pre-funding should be raised evenly over the life of the project. • Our market has historically been development and construction of residential and commercial real estate • Segments of operations: • 80% of the total projects portfolio is concentrated in the residential areas for middle and upper-middle class; • Remaining 20% are projects for a lower middle class segment; • It is planed to increase the amount of commercial real estate construction up to 40% by 2009. • Geography of business: • Prior to 2005 - St. Petersburg and North Western Region of Russia; • Since 2005 - Moscow (2 projects in progress) and Russia’sregional markets; • By 2009 it is planed to increase the amount of construction in Russian’s regions up to 40% of the total amount; • Expansion into European residential and commercial real estate markets is currently under consideration. Expansion of business geography Increase in highly profitable projects Increase in development projects in the market of land plots To continue work on the development of the combined construction and technology system for buildings (CCTS) to complete it in 2008 To expand the range of own production goods To expand additional services provided for the customers after their purchase of real estate Image– building of a brand name has been one of the priorities from the first days of the Company’s existence Pricing and payment schemes– offering a high quality product at prices that are on par or slightly lower than those of competitors Quality– construction quality that is better than competitors’ Clear positioning of the company product * - Compound Annual Growth Rate Ambitious, reasonable strategic goals, firm basis

  13. Corporate Strategy: Profitability & Stability Strategic Goals: Profitability • Annual profitability of the entire Group of at least 20%. • For development projects: IRR of at least 30%. • For general contracting projects: margin calculated on a cost-plus basis to reach at least 15%. Stability • Cash flows – please refer to the financial block of this presentation • Sales of the residential units in the projects under construction –cumulative cash flows from on-going sales of units in the started projects should generate enough cash to complete all in-progress projects. Therefore, every project should generate enough cash to finance itself after reaching 20%-25% of completion • Physical and monetary volume of projects in progress, in a preparatory stage and under preliminary analysis: • a number of the in-progress projects should ensure that a targeted market share and an annual total volume of the completed projects is achieved • a number of projects in a preparatory stage should be large enough to replace the in-progress projects reaching completion and to add new projects making sure that the growth targets are met • Our experience shows that the number of projects under preliminary analysis should be at list three times bigger than the number of projects in a preparatory stage. • Legislation issues – at any time the level of actual and potential claims should not exceed 0.3% of total annual turnover. • HR issues – a targeted overall level of personnel turnover is set at 2% annually, including the middle management turnover of not more than 1%. Compensation schemes and career planning should secure the changes on top-management level according the shareholders’ decision only. Targeted profitability of the Group: 20%+ per annum

  14. Core competence: acquisition of development projects and supervision of all steps of project realization Corporate Strategy: Resources Intangible Resources Core Tangible Resources Reputation • One of the strongest brands in St.Petersburg (spontaneous brand recognition in St. Petersburg about 42%). • The image of stability and reliability promotes clients’ trust. • Business transparency. • Long-term relationships with over 200 suppliers and partners. • Good relationships with a financial community. • Long-term working relationships with local and federal government authorities and officials. • Well-deserved respect by the professional community. • Social responsibility. • Personal reputation of owners and top management. Technological intangibles • Portfolio of patents. • Well-documented technological processes for all stages of a building construction. • In-house architectural and engineering capabilities and the library of the standardized building designs. • Strong market research unit. • Established marketing and customer service divisions. • Core activities are fully licensed. • Ample financial resources. • Own construction equipment (more than 30K m2 of the wall and column forms, more than 40K m2 of the plane forms; construction machinery fleet of more than 100 units; transportation fleet of more than 250 units; etc.). • A wide range of other construction site equipment. • Own Headquarter building, equipped with all necessary IT systems (10 000 m2). Necessary combination of resources in place

  15. IndustrialConstruction • In 2005 LenSpecSMU entered a new business segment – construction of industrial facilities. • Rapid economic growth of the North West region and substantial demand for construction of industrial facilities led to creation of a new Group’s entity that specializes on industrial construction – CJSC EtalonPromstroy. LenSpecSMU experience in industrial construction • Up to date LenSpecSMU successfully completed 4 industrial construction projects. Other 3 projects are in progress. Project pipe line for industrial construction rapidly increasing. Industrial construction – new operational segment expanding rapidly

  16. Financial Overview Present Situation Future Situation Financial Strategy

  17. Debt restructuring: LenSpecSMU increased the share of public debt and its maturity, and decreased the interest rate; On 5th May 2006 LenSpecSMU executed its liabilities under put-option of bonds series 01; On 26th July 2006 bonds series 02 were issued (1.5 bln rubles for 3.5 years); Consolidated financial statements under IFRS (IAS) for the last 3 years were completed; Standard & Poor’s has assigned rating ‘B’ outlook ‘Stable’ to LenSpecSMU. Present Situation 1Key Milestones in 2006 LenSpecSMU continues its financial strategy execution

  18. In 2006 LenSpecSMU paid the principal of the debt for the sum of 46 mln USD and about 323 mln rubles ahead of the schedule; New borrowings totalled 12 mln USD and 1500 mln rubles in 2006; As a result, the structure of the debt has much changed to public debt, longer maturity and lower interest rate. Present Situation 2Debt Restructuring In 2006 the debt structure became more comfortable

  19. Present Situation 3Access to the Capital Markets • LenSpecSMU is a private closed joint-stock company. Therefore at the stage LenSpecSMU does not perform fund rising by the means of public equity market. However corporate strategy of the company assumes IPO in Russia or abroad during nearest 5 years. • LenSpecSMU became the first construction company of St. Petersburg to tap public debt capital markets, issuing RR 1.0 bln of bonds on Moscow Interbank Currency Exchange. Second bond issue (RR 1.5 bln) rapidly followed in 2006. By the beginning of 2007 LenSpecSMU plans to issue USD 100 mln credit-linked notes. * - To Be Determined Rapid progression on Capital Markets

  20. Present Situation 4Schedule of Debt Service and Repayment Current debt position of LenSpecSMU • LenSpecSMU has a number of opportunities to make its debt position lighter Current debt position of LenSpecSMU reflects vast additional borrowing capacity

  21. Present Situation 5Key Indicators 3 years of IFRS accounting is possibility to study development on historical basis

  22. Present Situation 6Cash Flow Cash flow is probably the best indicator of the construction company’s activity

  23. Present Situation 7Cash Flow Structure Residential, commercial real estate and parking places Hotel on Vasilevski Island (Project “At the Rostral columns”) Industrial construction The main cash flow is still generated by sales of residential and commercial real estate, but other activities are also increasing

  24. Operational profitability not less than 25 % p.a. Growth of Enterprise Value of 20-50% p.a. Growth of Equity Value Sustainable growth ≥1.5 Financial Strategy 1Group Strategic Goals Group strategic goals Diversification: Construction of commercial real estate (up to 300 000 m2 p.a. by 2008) Construction of industrial real estate (up to 100 000 m2 p.a. by 2008) Market share in St. Petersburg region up to 20% (not less than 300 000 m2p.a. by 2008) Market share in other regions up to 5 % (Up to 200 000 m2 p.a. by 2008)

  25. Financial Strategy 2Financial Policy Financial strategy of LenSpecSMU is based on transparency for investors and lenders. IR efforts include mandatory and voluntary information disclosure in significant volumes, investors presentations, one-on-one meetings, obtaining credit ratings from one of the leading international rating agencies.

  26. Mandatory disclosure of information performed by only one entity, CJSC CUN (issuer of two bond loans). The entity performs disclosure in accordance with Federal Commission For Securities Markets (FCSM) regulations. However, additional voluntary disclosure of information performed by the group on the regular basis since year 2004.In order to maintain and to increase level of corporate transparency LenSpecSMU created financial website www.finance.lenspecsmu.ru (both in Russian and in English). Using financial website the company publishes on a regular basis the following information: material facts; quarterly reports; annual reports; lists pf affiliated parties; statutory documents and licenses; securities issue documents. Other types of voluntary disclosed information includes: structure of Group LenSpecSMU; information about top management of the Group; operational results ; RAS and IFRS accounts; credit history; additional information for investors (“Investor’s calendar” - listof essential dates for bond holders). Financial Strategy 3Financial Policy.Information Disclosure and Transparency Increasing level of transparency - important intangible investment

  27. Financial Strategy 5Equity Strategy Growth of Equity by the means of retained earnings Strategic / Financial Investor (Direct Equity) Private placement Initial and secondary public offerings

  28. Financial Strategy 6Debt Strategy Currency Debt denominated in depreciating currencies: USD, EUR Interest Rates Fixed of step down interest rates Lenders Increasing diversity of lenders in various segments of debt capital markets Public transactions are the priority: CLN Syndicated loans Eurobonds If required, significant loans from major Russian banks are possible to arrange using pledge of property Maturity of debt Long-term loans and credits are preferable

  29. Financial Strategy 7Key Indicators

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