Etalon Reports 6M2012 IFRS and 3Q2012 Operating Results

08 October 2012

 

St. Petersburg – Etalon Group Limited (“Etalon Group” or the “Company”), one of Russia’s largest and oldest residential real estate developers, announces its consolidated IFRS financial statements for the six months ended 30 June 2012 and its unaudited operating results for the three months ended 30 September 2012 based on management accounts.

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6M 2012 Financial Highlights:

  • Revenue for the first half of 2012 increased 29% year-on-year (y-o-y) to RUB 12,157 million from RUB 9,412 million in 6M 2011;
  • Earnings before interest, taxes, depreciation and amortization (EBITDA) was RUB 3,218 million in 6M 2012. EBITDA performance for the period requires a detailed revenues cut-off analysisagainst 4Q 2011 to calculate adjusted y-o-y growth. Full year 2011 EBITDA was significantly above the Company's and analysts' expectations (16% above consensus), with relatively stable margins, but at the expense of 1H 2012 performance;
  • The industrial construction segment’s share in revenue increased to 20%, which had a natural dilution impact on consolidated EBITDA margin, driven by the traditionally modest margins of the fee-development business model; consolidated 6M 2012 EBITDA margin was 26%, vs. 38% in the first half of 2011;
  • Profit for the period was RUB 2,369 million;
  • Etalon Group had a net cash and cash equivalents position of RUB 5,417 million at 30 June 2012, backed by strong cash collections.

3Q 2012 Operating Highlights:

  • New contracts sales during 3Q 2012 were 75 thousand sqm and RUR 5.6 billion, year-on-year (y-o-y) increases of 18% and 28%, respectively;
  • Average prices increased 9% y-o-y to RUB 74 thousand per sqm in 3Q 2012. This was primarily driven by the units mix, where the share of 3 and 4 room units in 3Q 2011 was 31% vs. 21% in 3Q 2012;
  • The share of mortgage contracts increased to 13% for 3Q 2012;
  • Average down payment was 73% (significantly above the average of 50% envisaged by the Company’s business model);
  • Share of Moscow Metropolitan Area (MMA) contracts in 3Q 2012 new sales was 18%;
  • Sales launched at Marshala Tukhachevskogo project in St. Petersburg, representing 24 thousand sqm NSA of comfort class units due for delivery in 2013;
  • Completed Jubilee Estate, one of Etalon Group’s biggest and most profitable projects, and the largest completed integrated development project in St. Petersburg. Construction was launched in 2007, and the 602 thousand sqm NSA project consisting of 13 buildings and 7,671 flats capable of housing over 20,000 residents was finished in 3Q 2012.

3Q Operating Results

 3Q 20123Q 2011Change, %9M 20129M 2011Change, %
New sales, sqm75,10263,73718%221,983185,91919%
New sales, mn RUR5,5634,33628%16,32412,27533%
Average price, RUR/sqm74,07368,0309%73,53766,02311%

Sales by Region

 3Q 20123Q 20119M 20129M 2011
 sqmshare, %sqmshare, %
New sales MMA13,27118%34,61516%
New sales SPMA61,83182%187,36884%

Mortgage Contract Developments

 3Q 20122Q 20121Q 2012
Share of mortgages13%10%10%

Quarterly Summary

 3Q 20122Q 20121Q 20124Q 20113Q 2011
New sales, sqm75,10269,15577,72684,09363,737
New sales, mn RUR5,5635,1955,5666,0314,336
Average price, RUR/sqm74,07375,12071,61171,71868,030

Commenting on the 6M 2012 financial results and 3Q 2012 operating results, Etalon Group CFO Anton Evdokimov said:

“It is important to view our 6M 2012 financial results in context. First, interim results are often less representative for our industry given the length of our projects and the uneven distribution of launches and deliveries throughout the year. Given Etalon Group’s conservative “post-delivery” revenue recognition policy, our financial statements reflect historical performance that is c. 12-18 months old.

“Second, our selling, general and administrative expenses are mostly recognized as incurred, with no link to deliveries or new contract sales volumes. This is different from our revenue recognition based on deliveries and transfers to customers.

“Third, although we achieved 29% revenue growth for the first half of the year, the share of the low-margin industrial construction business unit increased to 20%, which had a natural dilution impact in the EBITDA margin. This may require a detailed segmentation analysis.

“Forth, Etalon’s EBITDA for 2011 was significantly above the Company's and analysts' expectations (16% above consensus), with relatively stable margins, at the expense of 1H 2012 performance. In 4Q 2011 a number of units were transferred to customers earlier than originally expected, which had a significant effect on the revenue distribution between 2011 and 2012.

“These issues are inherent in our business and the industry – and are generally known by real estate investors.

“Looking ahead, our delivery pattern in 2012 is significantly skewed towards the fourth quarter, which may result in a certain cut-off impact on annual revenue and EBITDA, and may necessitate an adjusted EBITDA analysis.”

Etalon Group Head of Investments and Member of the Board Dmitri Boulkhoukov said:

“In 3Q 2012 new contract sales increased by 18% in sqm and by 28% in roubles, reaching 75 thousand sqm and RUR 5.6 billion, respectively. This is in line with our guidance for a 25% y-o-y increase in new contract sales, and should be analysed together with the fact that the share of 3-4 rooms units in 3Q 2011 and 3Q 2012 were 31% and 21%, respectively.

“The fourth quarter traditionally provides the greatest contribution to annual new contracts sales volumes. We originally envisaged having sales for Tsars Capital launched in time for the active months of September and October, which would have contributed to the annual numbers. We may also see the launch of sales for Etalon City slipping to 2013, however, we believe our forecast for a 25% increase in new sales remains achievable.

“We saw robust performance on cash collections, with the share of mortgages increased from 10% to 13% and the average down payment increased to a phenomenal 73%.

“We are especially proud to announce the completion of our Jubilee Estate project in the third quarter of this year. Jubilee Estate, with its 602 thousand sqm of NSA, is a landmark project for St. Petersburg and the third largest that Etalon has ever undertaken. Completion of this project, which was launched in 2007, serves as further confirmation of our strategy aimed at building large-scale integrated residential developments targeting the comfort-class segment.

“Our financial position remains very strong with USD 519 million of expansion capital and USD 170 million of net cash on the balance sheet*, and we plan to put this to work to build shareholder value. We are already working on a number of acquisitions in Moscow and St. Petersburg that we hope to complete before the end of the year.”

* per unaudited management accounts as of 1 September 2012

Conference call and webcast

<br/>Etalon Group will host a conference call and webcast to discuss its IFRS financial results for the six months ended 30 June 2012 and its operating results for the three months ended 30 September 2012 today at 14:00 London time (17:00 Moscow; 09:00 New York).

Etalon Group CFO Anton Evdokimov and Head of Investments Dmitri Boulkhoukov will present the 6M 2012 IFRS financial results and 3Q 2012 operating results, followed by a question and answer session for conference call participants.

The dial-in and online viewing details are below:

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Webcast-Link:

http://www.media-server.com/m/p/48z9f489

Toll numbers:

+44 (0) 20 3003 2666 – London<br/>+7 499 272 4337 – Moscow <br/>+1 646 843 4608 – New York

Toll free numbers:

8 10 8002 1774011 – Russia (from Moscow only)<br/>0808 109 0700 – UK<br/>1 866 966 5335 – USA

Conference Call Password: Etalon

Etalon Group IR Team

T: +44 (0) 20 8123 1328 <br/>E: info@etalongroup.com

<br/>M: Communications

Sam VanDerlip <br/>T: +44 (0) 20 7920 2356<br/>E:vanderlip@mcomgroup.com

Tom Blackwell<br/>T: +7 495 363 2841<br/>E:Blackwell@mcomgroup.com 

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About Etalon Group

History and Overview

Founded in 1987 by Viacheslav Zarenkov, Etalon Group has become one of Russia's largest residential real estate developers. With a 25-year history, the Company has one of the longest and most successful track records in the Russian real estate industry.

Today Etalon Group is a leading player in Russia’s “Golden Triangle” – St Petersburg, Moscow and the greater Moscow area, with a dominant position in the “comfort class” segment. The Company’s strong foothold in these markets is reinforced further by its unique nationwide sales network covering 9 of the 10 wealthiest regions of Russia, and spanning 30 cities in total. The sales network generates up to 30% of Etalon Group’s revenue, and has been an important source of stable demand especially throughout the last crisis.

Etalon Group is one of the only truly vertically integrated businesses in the Russian real estate sector. The Company does everything from acquiring land to sales and cash collections from its customers, which enables it to maximise margins throughout the value chain, and reduces exposure to cost inflation from external service providers. Etalon Group is a company of scale, with a total of 40 business units that employ over 4,000 people, two strong management companies, five general contractors, 16 subcontractors, a crane company, a brick factory and a nationwide sales network.

Etalon Group’s strong financial position is driven by its effective pre-sales business model. The Company aims to pre-sell 70-90% of all residential space before a building is delivered. It also targets an average down payment of 50%. This allows Etalon Group to finance the construction process using primarily money from customers, as opposed to using the loans or funding from shareholders.

In addition to homebuilding, Etalon Group’s long history and superior quality offering has helped it to become a trusted industrial construction partner for clients like General Motors, Toyota, Ford Motors, Bosch, Siemens, Nissan, Suzuki and Gazprom in northwest Russia.

Since 20 April 2011, Etalon Group Limited has had its GDRs traded on the Main Market of the London Stock Exchange.

Operational and Financial Highlights

As of 31 December 2011, Etalon Group’s portfolio comprised 31 projects, with a total of 3.25 million sqm of unsold net sellable area ("NSA") in the St. Petersburg and Moscow Metropolitan Areas. Jones Lang LaSalle valued this portfolio at USD 1,714 million, a 20% increase in the market value from YE 2010.

For the year ended 31 December 2011, Etalon Group’s new contract sales totalled 270,012 sqm, or RUR 18,306 million. Deliveries in 2011 totalled 328 thousand sqm.

The Company recorded revenues of RUB 22.7 billion (USD 774 million) and EBITDA of RUB 8.2 billion (USD 279 million), with an EBITDA margin of 36% for the year ended 31 December 2011, making it one of the most profitable players in the sector.

Etalon Group’s net cash position at 31 December 2011 was USD 167 million, leaving it well positioned to fund continued dynamic growth.

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9 October 2012