Etalon Reports 6M2013 IFRS and 3Q2013 Operating Results

16 October 2013

 

Etalon Group Limited (“Etalon Group” or the “Company”), one of Russia’s largest and longest-established residential real estate developers, announces its consolidated interim IFRS financial statements for the six months ended 30 June 2013 and its unaudited operating results for the three months ended 30 September 2013 based on management accounts.

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6M 2013 Financial Highlights:

  • Consolidated revenue for the first half of 2013 increased 37% year-on-year (y-o-y) to RUB 16,635 million from 12,157 million in 6M 2012;
  • Earnings before interest, taxes, depreciation and amortisation (EBITDA) increased 30% y-o-y to RUB 4,198 million in 6M 2013 from RUB 3,218 million in 6M 2012;
  • Profit for the period grew 31% y-o-y to RUB 3,098 million, compared to RUB 2,369 million in 6M 2012;
  • Etalon Group’s net debt as of 30 June 2013 was a low RUB 1,076 million.

3Q 2013 and 9M 2013 Operating Highlights:

  • New contract sales during 3Q 2013 were 93 thousand sqm and RUB 8.2 billion, representing y-o-y increases of 24% and 47%, respectively;
  • The number of new contracts increased 26% y-o-y to 1,752 in 3Q 2013;
  • Average prices increased 19% y-o-y to RUB 88 thousand per sqm in 3Q 2013, driven by an improved product mix, including the growing share of Tsar’s Capital;
  • Cash collections for 9M 2013 came to RUB 17.7 billion, up 21% y-o-y from RUB 14.6 billion in 9M 2012;
  • Average down payment was 70% (significantly above the average of 50% envisaged by the Company’s business model);
  • The share of mortgage contracts was 21% for 3Q 2013, up from 13% in 3Q 2012;
  • The share of Moscow Metropolitan Area (MMA) contracts in 3Q 2013 new sales reached 24%, compared to 13% in 3Q 2012;
  • Etalon Group has launched sales at three new projects so far in 2013, including the Company’s flagship Moscow development Etalon City, helping to significantly increase the diversity of the project mix compared to 3Q 2012.

3Q Operating Results

 3Q 20133Q 2012Change, %9M 20139M 2012Change, %
New sales, sqm92,75575,10224%246,278221,98311%
New salesm mn RUR8,1525,56347%20,82116,32428%
Number of contracts1,7521,39026%4,7543,96320%
Average Price, RUR/sqm87,88774,07319%84,54373,53715%

Mortgage Contract Developments

 3Q 20132Q 20131Q 20134Q 20123Q 2012
Share of mortgages21%23%18%18%13%

 

Commenting on the 6M 2013 financial results and 3Q 2013 operating results, Etalon Group President Viacheslav Zarenkov said:

“I am very pleased to announce a strong set of financial results for the first half of 2013, as well as continued robust operating performance in the third quarter. We increased transfers to customers in the first half of the year by 45% y-o-y, which drove revenue from residential real estate up 47% to RUB 12,249 million in 6M 2013.

“We have maintained tight control over costs, which increased at a slower pace than revenue. General and administrative expenses as a percent of revenue decreased from 9.8% in 6M 2012 to 8.3% for 6M 2013. Selleing expenses also fell from 3.2% of revenue in 6M 2012 to 2.8% in the first half of this year.

“On the operations side, we have launched sales on three new projects this year, representing a total NSA of over 850 ths sqm that we expect to drive sales for several years to come. This is in line with our construction programme, and has helped us in 3Q 2013 to increase the number of contracts by 26%, new sales in sqm by 24% and new sales in rouble terms by 47% compared to 3Q 2012.

“With sales for Galant, Tsar’s Capital and Etalon City all underway, we have significantly diversified our portfolio and improved our product mix, helping us to reach higher average price per sqm of RUB 87,887 in the third quarter of 2013. We have seen strong demand for these new projects, and have ramped up sales quickly – Galant accounted for 5% of sales in 3Q 2013 after being launched at the end of the second quarter.

“Looking ahead, the fourth quarter traditionally provides the greatest contribution to annual new contracts sales, and we are already 28% ahead of where we were in 9M 2012 with RUB 20.8 billion of new contract sales so far this year, compared to RUB 16.3 billion for 9M 2012. Cash collections have also seen strong year-on-year growth, up 21% to RUB 17.7 billion for the period.

“Our financial position remains very strong with net debt of just RUB 1,076 million.

“Finally, I want to underscore our commitment to best practice in corporate governance and information disclosure. We have already taken steps to ensure that our investors have a better understanding of how Etalon Group is performing through more regular visual updates and greater disclosure on operating and financial performance, as you can see in the Company presentation today.”

Updated accounting policy

Etalon Group has adopted new accounting policies for revenue recognition relating to real estate development participation agreements (as defined by the Russian Federation Federal Law #214-FZ).

Etalon Group expects real estate development participation agreements to become the most widespread legal form for transactions on Russia’s primary residential real estate market in the coming years. The Company has introduced this new accounting policy to keep pace with this important development, and in line with industry practice, in order to make revenue recognition more predictable going forward.

The exact text of the new policy is as follows: “Sales may be contracted under share participation agreements, which cannot be unilaterally terminated . In such instances, the significant risks and rewards of ownership are considered to have been transferred to individual buyers when the construction is completed and the building has been approved by the State commission for acceptance of finished buildings.”

This means that revenue for the full value of the premises already contracted through real estate development participation agreements is recognised on the date when the State Commission for Acceptance of Finished Buildings issues an Act of Acceptance for the building (or buildings).

This new policy does not affect the Company’s IFRS statement of comprehensive income for the six months ended 30 June 2013, however, it may have some impact on the full year ending 31 December 2013, as well as on future periods.

Conference call and webcast

Etalon Group will host a conference call for investors and analysts on 17 October 2013 at 14:00 London time (17:00 Moscow; 09:00 New York). During the call, Etalon Group President Viacheslav Zarenkov, CFO Anton Evdokimov and Head of Corporate Investments and Investor Relations Kirill Bagachenko will present the 1H 2013 IFRS financial results, followed by a question and answer session for participants.

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Webcast-Link:

http://www.media-server.com/m/p/ttfy5zw4

Toll numbers:

+44 20 3037 9374 - London<br/>+7 499 272 4337 - Moscow <br/>+1 646 843 4608 - New York<br/>Toll free numbers:

8 10 8002 4902044 - 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

EM

Sam VanDerlip<br/>T: +44 7554 993 032<br/>T: +7 916 306 6112<br/>E: vanderlip@em-comms.com

Tom Blackwell<br/>T: +7 495 363 2841<br/>E: blackwell@em-comms.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 construction 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 2012, Etalon Group's portfolio comprised 35 projects, with a total of 3.58 million sqm of unsold net sellable area ("NSA") in the St. Petersburg and Moscow Metropolitan Areas. Jones Lang LaSalle valued this portfolio at USD 2,369 million, a 38% increase in the market value from YE 2011.

For the year ended 31 December 2012, Etalon Group's new contract sales totalled 316,466 sqm, or RUR 23,739 million. Deliveries in 2012 totalled 363 thousand sqm.

The Company recorded revenues of RUB 26.9 billion and EBITDA of RUB 6.9 billion, with an EBITDA margin of 26% for the year ended 31 December 2012, making it one of the most profitable players in the sector.

Etalon Group's net cash position at 31 December 2012 was RUB 890 million, leaving it well positioned to fund continued dynamic growth.

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17 October 2013