Etalon Reports 6M2014 IFRS and 9M2014 Operating Results

13 October 2014

 

Etalon Group Limited (“Etalon Group” or the “Company”), one of Russia’s largest and longest-established development and construction companies, announces its consolidated IFRS financial statements for the six months ended 30 June 2014 and its unaudited operating results for the nine months ended 30 September 2014 based on management accounts.

9M 2014 and 3Q 2014 Operating Highlights:

  • New contracts sales during 9M 2014 increased by 28% y-o-y to RUB 26.7 bln
  • Cash collections for 9M 2014 came to RUB 23.8 billion, up 35% y-o-y
  • In 9M 2014 the Company signed 6,293 new contracts with customers
  • New contract sales in 3Q 2014 were 106 thousand sqm and RUB 9.5 billion
  • Average price per sqm was RUB 89 thousand in 3Q 2014, increasing from RUB 83 thousand and RUB 85 thousand in 1Q 2014 and 2Q 2014, respectively
  • The average down payment in 3Q 2014 was 77%, marking growth over both 74% in 2Q 2014 and 76% in 1Q 2014
  • The share of mortgage contracts increased to 28% for 3Q 2014
  • Deliveries on track, with 76 ths sqm of 580 ths sqm of NSA planned for FY 2014 already delivered in the first six months of the year

9M 2014 and 3Q 2014 Operating Results 

  9M 2014 9M 2013 Change, % 3Q 2014 3Q 2013 Change, %
Number of contracts  6,293 4,754 32% 1,960 1,752 12%
New sales, sqm310,014 246,278 26% 106,039 92,755 14% 
New sales, mn RUB26,652 20,821 28% 9,480 8,152 16% 
Cash collections23,847 17,709 35% 9,012 6,769 33% 
Average price, RUB/sqm 85,971 84,543 2% 89,402 87,887 2% 
Share of mortgages22% 21% 1 p.p. 28% 21% 7 p.p. 

3Q monthly new sales dynamics

RUB mlnJulyAugustSeptember
20143,0112,8343,635
20133,1112,5482,493
Change, %(3%)11%46%

6M 2014 Financial Highlights:

  • Etalon Group’s IFRS revenue recognition practice and its construction schedule significantly affected year-on-year comparisons for 1H 2014 due to a high base effect in 1H 2013 resulting from a large volume of NSA (64 ths sqm) transferred to customers (and recognized as revenue) in early 2013 but actually delivered in late December 2012, combined with the majority of Etalon’s 2014 deliveries and transfers being due in 4Q 2014
  • Consolidated revenue for the first half of 2014 was RUB 14,539 million, compared to RUB 16,635 million in 1H 2013 (excluding 64 ths sqm of transfers pushed over from 2012, 1H 2013 revenue was RUB 11,417 million)
  • Profit margins for 1H 2014 were affected by the higher share of lower-margin construction services revenue, combined with the practice of more evenly balanced recognition of SG&A expenses across reporting periods
  • Earnings before interest, taxes, depreciation and amortization (EBITDA) for 1H 2014 were RUB 1,683 million, compared to RUB 4,198 million in 1H 2013, due to the factors set out above
  • Net income for the period was RUB 927 million
  • Etalon Group’s net cash as of 30 June 2014 was RUB 349 million
  • Free cash flow supported by strong cash collections performance turned positive in 1H 2014 and amounted to RUB 590 million

Commenting on the 6M 2014 financial results and 9M 2014 operating results, Etalon Group President Viacheslav Zarenkov said: “We have every reason to be very pleased with our performance to date and to be optimistic about 2014, based on the strong operating numbers we delivered for the first nine months combined with the significant volume of deliveries expected later this year. 

“It is important to note that the year-on-year decrease in our six month financial results is not a reflection of the market environment, or of a structural shift in demand. On the contrary, demand for our product remains robust. The year-on-year decrease is related to our accounting policy and timing of revenue recognition, and specifically to the fact that a high volume of 2012 deliveries were formally recorded as revenue in early 2013, while the majority of our 2014 delivery volumes are due in 4Q 2014, at which point the presold portion will be recorded as revenue. As such, a year-on-year comparison of our 1H results is not representative of actual performance.

“While we saw a minor slowdown in our new sales in July and August, demand in September was excellent, thanks in part to the launch of sales at Samotsvety, a very attractive and long-awaited project in downtown St. Petersburg. In the next two and a half months of 2014, we are due to launch sales at two new projects in Moscow and St. Petersburg, which should support continued growth in new contract sales.

“In terms of market dynamics, demand for our comfort-class apartments is holding up, partly thanks to our strong regional sales network, which generated around 37% of new contract sales in 3Q 2014.

“I would also note that we paid out our first dividend in July of this year, and remain committed to adhering to our dividend policy going forward, keeping the promises we made to our investors.”

Etalon Group CEO Anton Evdokimov said: “The nature of our business, with a large volume of deliveries coming in a short period, means that interim financial results are best viewed in the context of our full year expectations. In the first half of 2014 we recognised significantly less than ½ of the revenue we expect for the full year due to the Company’s construction schedule, while bearing roughly ½ of the expected SG&A expenses.

“Nonetheless, Etalon Group remains in a very solid financial position, with net cash of RUB 349 million as of 30 June 2014.

“I am very pleased with the operating results we have reported today. With all projects on track going into the fourth quarter, I am optimistic that we will deliver a strong set of full year financials that represent the full volume of deliveries and new projects that we have planned for this year.”

Conference call and webcast

Etalon Group will host a conference call for investors and analysts on 14 October 2014 at 14:00 London time (17:00 Moscow; 09:00 New York).  On the call, Etalon Group President Viacheslav Zarenkov, CEO Anton Evdokimov, CFO Boris Svetlichny and Head of Corporate Investments and Investor Relations Kirill Bagachenko will present the 1H 2014 IFRS financial results and the 9M 2014 operating results, followed by a question and answer session for participants.

Webcast

http://www.media-server.com/m/p/raxbh2s3

Toll numbers:

+44 20 3037 9374 – London<br/> +7 499 272 4337 – Moscow<br/> +1 646 843 4608 – New York

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

This and other recent announcements are available on the Etalon Group website: www.etalongroup.com/investors/news/<br/>

Etalon Group IR Team 

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

EM

Sam VanDerlip <br/>T: +44 7554 993 032<br/>T: +7 499 918 3134<br/>E: vanderlip@em-comms.com

About Etalon Group 

Founded in 1987 by Viacheslav Zarenkov, Etalon Group has become one of Russia's largest development and construction corporations.  The Company focuses on middle class residential real estate in the Moscow and St. Petersburg metropolitan areas, where it operates through Etalon Invest and LenSpetsSMU subsidiaries. With a 27-year history, Etalon Group has one of the longest and most successful track records in the Russian real estate industry.

Since its inception, Etalon Group has commissioned 3.9 million sqm. The Company is currently implementing its post-IPO construction programme, which is on track to achieve fourfold growth in construction volumes between 2010 and 2016 (from 209 ths sqm to 800 ths sqm).  Etalon Group’s CAGR for deliveries in 2010-2013 was 31%.

Etalon Group’s strong reputation among consumers supports its pre-sales business model, which helps the Company to minimise external financing needs for ongoing projects while maintaining a secure liquidity position: net cash as of 30 June 2014 was USD 10 million.

The Company is vertically integrated, which helps it to control costs, quality and timing, as well as to demonstrate best-in-class profitability. Etalon Group employs over 4,500 people, and its nationwide sales and marketing network covers 36 Russian cities.

As of 31 December 2013, Etalon Group’s portfolio comprised 28 projects, with a total of 3.44 million sqm of unsold net sellable area. Jones Lang LaSalle valued this portfolio at USD 2,727 million, a 15% increase in the market value from YE 2012.

For the year ended 31 December 2013, Etalon Group's new contract sales totalled 356 ths sqm, or RUB 30,227 million. Deliveries in 2013 totalled 468 ths sqm. The Company recorded revenue of RUB 39.9 billion and EBITDA of RUB 9.4 billion, with an EBITDA margin of 24% for the year ended 31 December 2013.

Etalon Group Limited’s GDRs have been traded on the Main Market of the London Stock Exchange since 20 April 2011.

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14 October 2014