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Title: S


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 its 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
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
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
  • 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
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
3 161
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
12
Corporate 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
13
Corporate 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
14
Corporate 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
15
Industrial 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
16
Financial Overview
Present Situation
Future Situation
Financial Strategy
17
Present 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
18
Present 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
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 companys 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
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 m2 p.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
Financial 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
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 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
29
Financial Strategy 7Key Indicators
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