Etalon Group Reports 2Q 2012 Operating Results

15 July 2012

 

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

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2Q 2012 Highlights:

  • New contracts sales during 2Q 2012 were 69 thousand sqm and RUR 5.2 billion, a year-on-year (y-o-y) increase of 11% and 37%, respectively
  • Average downpayment was 65% (significantly above the average of 50% envisaged by the Company’s business model)
  • Share of Moscow Metropolitan Area (MMA) contracts in 2Q 2012 new sales was 15%
  • Share of mortgage contracts was 10% for 2Q 2012
  • 1.2 million sqm post-IPO acquisition programme was completed with three new project acquisitions during Q2 2012 in Moscow and St. Petersburg; new projects represent a total of c. 750 ths sqm of NSA
  • Eight-step programme for 2012 under way: plan to launch sales on eight projects with total NSA of 1.5 million sqm and due to be delivered in the next 2-3 years
  • New contract sales expected to increase by 25% up to 337 thousand sqm in 2012, deliveries are expected to reach 386 thousand sqm of NSA, nearly double the amount in 2010

2Q Operating Results

 2Q 20122Q 2011Change, %1H 20121H 2011Change, %
New sales, sqm69,15562,54411%146,881122,18220%
New sales, mn RUR5,1943,78137%10,7607,93936%

Q2 Deliveries

 1H 20121H 2011Change, %1H 2012 plan2012 plan
Delivered, NSA sqm90,547124,395(27%)90,547386,775
Transferred to customers, sqm107,895113,683(5%)--

Quarterly Summary

 2Q 20113Q 20114Q 20111Q 20122Q 2012
New sales, sqm62,54463,73784,09377,72669,155
New sales, mn RUR3,7814,3366,0315,5665,195
Average price, RUR/sqm60,45368,03071,71871,61175,120

Commenting on the 2Q 2012 results, Etalon Group President Viacheslav Zarenkov said:

“We increased new sales by 11% year-on-year in the second quarter, reaching 69 thousand sqm. With quality sales on existing projects and a number of new projects due to launch towards the end of 2012, we remain well on track to increase new sales for the full year by 25% to 337 thousand sqm.

“It is important to view our 2Q 2012 operating performance and our 2012 guidance on new sales in context. First, quarterly statistics are often less than representative for our industry given the length of our projects and the uneven distribution of launches and deliveries throughout the year, as well as the traditional slow down in sales activity during the extended May holiday and summer periods. Our 2Q 2012 numbers are an example of that: new contracts increased at a modest rate, while we saw phenomenal growth in average prices. In addition, new projects nearing launch have historically caused customers to €˜wait and see’ the new offerings before committing to instalment plans. At this stage we are on track to launch eight new projects this year, and these upcoming projects enjoy better locations and many offer smaller units (making them more affordable). We remain confident that we are on track to achieve our guidance on new sales for 2012.

“We continue to be positive on the market. Moscow and St. Petersburg have witnessed a significant overall drop in deliveries over the last three years, and demand – especially in the comfort class segment where we operate – is rapidly returning to pre-crisis levels. We are well positioned to meet this demand: with our 2012 eight step programme we are launching projects with a total NSA of 1.5 million sqm that will drive revenues, cash collections and deliveries in the next 2-3 years, while in 2012 we should nearly double our deliveries from 2010 by reaching 386 thousands sqm.

The second quarter has been successful from an operational perspective with the acquisition of mega-project Galactica (680 ths sqm of NSA just four kilometres away from the Winter Palace). We obtained the planning permit for Tsar’s Capital, and now plan to fast-track the construction permit and launch sales for this project. We completed our post-IPO acquisition plan of 1.2 million sqm of NSA, and also expanded further our nation-wide sales network.”

“Our financial position remains very strong with USD 505 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 in the next several months, and we are fully land bank sufficient through 2017.”

* per unaudited management accounts as of 1 May 2012

Conference call and webcast

<br/>On Monday, 16 July 2012 at 14:00 London time (17:00 Moscow; 09:00 New York), Etalon will host a live conference call and audio webcast to discuss its Q2 2012 operating results.

Etalon Group President Viacheslav Zarenkov, CFO Anton Evdokimov and Head of Investments Dmitri Boulkhoukov will briefly present the Q2 2012 operating results and answer questions from webcast and conference call participants. The webcast and conference call details are provided below:

Webcast-Link: http://www.media-server.com/m/p/5u2xgdg3

<br/>Dial ins for participants:

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Toll numbers:

+44 (0) 20 3003 2666 – London<br/>8 499 272 4337 – Moscow <br/>1 646 843 4608 – New York

Toll free numbers:

8 10 8002 1774011 – Russia (from Moscow only) Toll Free <br/>1 866 966 5335 – USA Toll Free

Conference Call Password: Etalon

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Recent Etalon Group highlights:

  • 11 June 2012: Etalon Update on Construction Permit, Sales Network
  • 6 June 2012: Etalon Group Receives Planning Permit for Tsar’s Capital
  • 29 May 2012: Etalon in Largest St. Petersburg Acquisition to Date
  • 21 May 2012: Etalon Announces New Acquisitions & 8-Step Program
  • 16 April 2012: Etalon Reports 1Q 2012 Operating Results
  • 29 March 2012: Etalon Reports 64% Increase in IFRS Net Profit
  • 06 March 2012: Etalon Real Estate Portfolio Market Value Up 20%

These and other recent announcements are available on the Etalon Group website: www.etalongroup.com/investors/news/

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Etalon Group IR Team

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

Sam VanDerlip<br/>T: +7 495 363 2845<br/>vanderlip@mcomgroup.com

Tom Blackwell<br/>T: +7 495 363 2841<br/>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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16 July 2012