Title: S
1LenSpecSMU Regular Meeting with
Investors MICEX, 31/01/2007
2Introduction 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
3Market Fundamentals
4Prices, 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 its size in Russia
5Market 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
Petersburgstroy-Skanska
2.37
2.27
Severny gorod
79.5
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
05
04
03
06
114
115
100
109
Number of constructors
LenSpecSMU consequently holds leading positions
in residential construction segment
6Market Share Different Ratios
Share in supply (2006)
Share in acted by State Committee areas (2006)
Saint Petersburg
LenSpecSMU
Big share on a big market
7Market Position
LenSpecSMU Market share in newly-built
residential areas, accepted by State Committee,
000 m2
- 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.h
tm) - 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 Firms
Secret magazine of 25.09.2006) - In TOP 200 largest investment deals in Russia in
year 2006 LenSpecSMU takes 160 place (see The
Firms 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.
2 375.7
2 273.4
2 031.9
1 758.0
15.8
11.5
9.6
10.1
05
04
03
06
LenSpecSMU Total area under construction, 000
m2
1 231.7
968.6
908.5
901.5
860.3
03
06
05
04
07F
8Assortment of LenSpecSMU production
2006
2005
Residential areas
Commercial areas
Balcony
Parking places
Non-sold areas
Commercial areas one of the priorities of
LenSpecSMU
9Demand 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
10Business Overview
11Growth in Figures (Historical Forecast)
Projects completed, area in 000 m2
Number of SP agreements, items
4 588
359.9
3 161
3 165
239.9
2 898
222.5
2 541
168.1
1 755
142.5
123.0
06
05
04
03
02
01
06
05
04
03
02
01
LenSpecSMU continuous growth of the business
12Corporate Strategy Organic Growth
Environment
Targets
Overall Strategy
- Total turnover CAGR of 20-40 p.a.
- Revenues from the general contracting segment to
reach USD 400 mn 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
Russias regional markets - By 2009 it is planed to increase the amount of
construction in Russians 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
Companys 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
13Corporate Strategy Profitability Stability
Strategic Goals
- 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.
Profitability
- 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.
Stability
Targeted profitability of the Group 20 per
annum
14Corporate Strategy Resources
Core competence acquisition of development
projects and supervision of all steps of project
realization
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
15Industrial Construction
- 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
Groups 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
16Financial Overview
Present Situation
Future Situation
Financial Strategy
17Present Situation 1Key Milestones in 2006
- 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 Poors has assigned rating B outlook
Stable to LenSpecSMU.
LenSpecSMU continues its financial strategy
execution
18Present Situation 2Debt Restructuring
- 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.
In 2006 the debt structure became more comfortable
19Present 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
20Present 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
21Present Situation 5Key Indicators
3 years of IFRS accounting is possibility to
study development on historical basis
22Present Situation 6Cash Flow
Cash flow is probably the best indicator of the
construction companys activity
23Present 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
24Financial 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 m2 p.a. by 2008)
Market share in other regions up to 5 (Up to
200 000 m2 p.a. by 2008)
25Financial 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.
26Financial Strategy 3Financial Policy.
Information Disclosure and Transparency
- 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 (Investors
calendar - list of essential dates for bond
holders).
Increasing level of transparency - important
intangible investment
27Financial Strategy 5Equity Strategy
Growth of Equity by the means of retained earnings
Strategic / Financial Investor (Direct Equity)
Private placement
Initial and secondary public offerings
28Financial 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 Syndicat
ed 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
29Financial Strategy 7Key Indicators