The Board of Directors of ETALON GROUP PLC (“Etalon Group” or the “Company”), one of Russia’s largest and longest-established development and construction companies, held a meeting on 24 January 2020 in Limassol, Cyprus. At the meeting, the Board of Directors reviewed several issues, including approval of Etalon Group’s updated strategy, adjustments to its dividend policy and the launch of a buyback programme for the Company’s depositary receipts.
Following a review of the Strategy Committee’s finalised document, the Board of Directors unanimously endorsed Etalon Group’s development strategy to 2024 (hereinafter referred to as the “Strategy”). The adopted Strategy proposes a major digital and technological transformation for the Company while maintaining a focus on growing its residential real estate development business, as well as the development of complementary businesses.
Improved efficiency: Etalon Group’s Strategy aims to turn the Company into a leader in terms of operational efficiency in the Russian development market, reducing administrative expenses relative to the overall size of the business. This will be achieved by comprehensive implementation of digital cost control solutions, improving the effectiveness of sales and by rapidly responding to changes in external conditions. Efficiency gains will also be achieved through a substantial simplification of the asset ownership structure.
Digital and technological transformation of the production process: Etalon Group intends to develop alternatives to its brick-monolithic construction techniques, including modern prefabricated construction methods, modular construction and construction from CLT (cross-laminated timber) panels, which can significantly reduce costs and/or construction time, while improving the quality of the final product. At the same time, Etalon Group will continue with the brick-monolithic technology that it has used for housing construction up to this point. The Company will seek to achieve an optimal balance between a property’s selling price and construction costs. In addition, Etalon Group plans to expand on its experience with BIM (building information modelling) technology by using it as the basis for creating a standard design system that will make the design process more efficient, while also speeding up the process of receiving permits and obtaining urban planning documentation.
Strengthening its presence in key markets: Etalon Group intends to make up for its shortage of supply in St Petersburg during 2020–2021 and then to stabilise its residential portfolio both in the Moscow Metropolitan Area and in St Petersburg by replenishing its land bank annually in an amount equal to the volume of real estate sold during the year. This will enable the Company to consolidate its position among the top three Russian developers in terms of construction and sales volumes.
Ecosystem development and customer retention: Etalon Group plans to actively develop additional services for the ever-growing number of people who live in properties that the Company has built over a period of more than 30 years. This will enable it to achieve the highest NPS (net promoter score) score among Russian developers and, as a result, increase its share of repeat purchases, while also generating additional profit from complementary businesses.
Further geographic expansion: Subject to the achievement of stable operational and financial growth on the strategic horizon, Etalon Group will consider the possibility of entering other Russian regions in cities with stable demand, high incomes and high real estate prices. The Company continues to view partnerships with strong local players as its priority means of geographic expansion. However, with the sharp decrease in local players resulting from the inability to develop new projects under industry regulations that came into force on 1 July 2019, Etalon Group may consider the possibility of entering markets organically in order to consolidate the market and obtain the competitive advantages of a dominant player.
Successful implementation of the Strategy will enable Etalon Group to become, by 2024, one of the leaders in terms of efficiency and consumer confidence in the Russian market, with a high degree of integration of advanced construction technologies and digitisation, and it will also enable the creation of an ecosystem of additional services that maximise return on invested capital.
Etalon Group intends to hold a Strategy Day for investors and analysts in the first half of 2020, where all of the Company’s strategic initiatives and targets will be presented in more detail.
In light of adoption of the updated Strategy and a more precise understanding of the Company’s future cash flows, the Board of Directors assessed the current dividend policy and decided to maintain the basis for dividend payments in the form of IFRS net profit, and to keep the same range for dividend payments of 40%–70% of net profit. At the same time, taking into account the volatility of net profit in recent reporting periods, as well as the impact of accounting related to the acquisition of Leader-Invest, which will be reflected in future reporting periods, the Board of Directors decided to supplement the dividend policy with the proposition that annual dividend payments for Company shareholders are expected to be at least RUB 12 per share/GDR. At the same time, the Board of Directors has the right to refrain from recommending dividend payments for a given reporting period if the Company’s EBITDA/interest expense ratio falls below 1.5x. Subject to these changes, the Board of Directors also decided to make annual dividend payments based on the Company’s full year IFRS financial statements. The updated dividend policy will apply to Etalon Group’s results for 2019.
Taking into account the expected results from implementation of the adopted Strategy in comparison with the current market capitalisation of the Company, the Board of Directors decided to launch a buyback programme by the end of 1Q 2020, for up to 10% of the Company’s issued capital.
Sergey Egorov, Chairman of the Etalon Group Board of Directors, said:
“The Board of Directors’ approval of the Strategy to 2024 marks an important stage in Etalon Group’s development. Following the integration of Leader-Invest, which was successfully completed in 2019, Etalon Group was one of the best prepared to enter a period of fundamental transformation in the Russian residential real estate market, with a solid foundation in place for a smooth transition to the new rules. When developing the Strategy, this groundwork enabled us to take a broader look at the challenges that the industry is facing in a global context. Property development is now on the verge of revolutionary changes, starting with the introduction of standard design systems through to the creation of new, more efficient construction technologies that have not been used before, the creation of ecosystems of additional services around the core business, as well as growing attention to the quality of the living environment that is being created. Recognising the importance of these issues, we have developed a strategy that will enable Etalon Group to bolster its leadership positions in the Russian market.
“The adoption of such an ambitious strategy has allowed us, together with all members of the Board of Directors, to rethink the current dividend policy and to establish a minimum dividend payment guidance for the Company’s shareholders, and also to approve a decision to launch a GDR buyback programme. Thus, in approving the Strategy, we have not only created conditions for long-term growth in return on invested capital for the Company’s shareholders, but we have also created conditions for the even distribution of cash flows from the efficient implementation of projects on the strategic horizon.”
This and other recent announcements are available on the Etalon Group website: https://www.etalongroup.com/investor-relations/investor-news/
Etalon Group IR Team
T: +44 20 8123 1328
T: +44 207 002 7859
About Etalon Group
Founded in 1987, Etalon Group is one of Russia’s largest development and construction companies. The Company focuses on middle class residential real estate in the Moscow and St Petersburg metropolitan areas. With a more than 30-year history, Etalon Group has one of the longest and most successful track records in the Russian real estate industry. Since its foundation, Etalon Group has commissioned 7 million sqm of real estate.
The Company is vertically integrated, which helps it to control costs, quality and timing, as well as maintain best-in-class profitability. Etalon Group employs over 5,000 people, and its nationwide sales and marketing network covers 58 Russian cities.
In 2019, Etalon Group acquired and consolidated 100% in Leader-Invest, one of Moscow’s largest residential developers by size of land bank and number of projects currently available for sale.
Etalon Group’s total assets, including the aforementioned consolidation and 100% ownership of ZIL-Yug project, comprise 53 projects under development, completed residential and commercial properties, as well as a construction and maintenance division, with total unsold NSA of 4.0 million sqm. Knight Frank valued the Company’s total assets at RUB 206,071 million as of 31 December 2018.
For the year ended 31 December 2019, Etalon Group’s new contract sales totalled 630 ths sqm, or RUB 77,627 million. Deliveries in 2019 amounted to 622 ths sqm.
The Company recorded revenue of RUB 72.3 billion and EBITDA of RUB 5.7 billion for the year ended 31 December 2018.
Etalon Group’s GDRs have been traded on the Main Market of the London Stock Exchange since 20 April 2011.