LenSpecSMU:
Regular Meeting with Investors
MICEX, 31/01/2007
Introduction and Overview
1. Market Fundamentals
Prices
Market Size and Dynamics
Market Share
Market Position
Growth Potential
2. Business Overview
Key Milestones in 2006
Growth in Figures
Business Strategy
3. Financial Overview
Key Milestones in 2006
Financial Ratios
Financial Policy
Financial Strategy
Key Indicators
Forecast
Covenants and Assumptions
Market Fundamentals
Prices, Market Size and Dynamics: In Figures
2006
LenSpecSMU pricing vs. St. Petersburg average prices,
USD / m2 (excluding elite residences)
3 000
305
Areas in different stages of development, mn m2
12.0
Inc. LenSpecSMU, mn m2
2 500
1.2
By construction technology
2 000
USD
Number of buildings under construction, pieces
1 500
1 000
500
Brick-monolith
68%
Brick
13%
Panel
10%
Other
9%
By price (per sq. meter)
LenSpecSMU
Average in SPb
ноя.06
сен.06
июл.06
май.06
мар.06
ноя.05
янв.06
сен.05
июл.05
май.05
янв.05
мар.05
ноя.04
сен.04
июл.04
май.04
мар.04
ноя.03
янв.04
сен.03
июл.03
май.03
янв.03
мар.03
0
Brick-monolith, USD
2 185
Brick, USD
2 005
Panel, USD
1 941
St. Petersburg residential real estate market – second by it’s size in Russia
4
Market Share, Competitors
 St. Petersburg construction market is highly fragmented
Newly-built residential areas accepted by State
Committee, m2 mn
Other
2.37
2.27
2.03
1.76
64.3%
79.5%
PetersburgstroySkanska
 Only 25 out of 100-115 construction companies registered
locally have consistently appeared on the State
construction committee report over the last 3 years.
Severny
gorod
IVI-93
72.0%
 LenSpecSMU has held and increased its market share
during the last 3 years.
DSK Blok
74.6%
Pragma
Stroimontazh
LEK
LenSpecSMU
15.8%
9.6%
11.5%
10.1%
`03
`04
`05
`06
114
115
100
109
Number of constructors
LenSpecSMU consequently holds leading positions in residential construction
segment
5
Market Share: Different Ratios
Share in acted by State Committee areas (2006)
10,1%
Share in supply (2006)
11,2%
89,9%
88,8%
Saint Petersburg
LenSpecSMU
Big share on a big market
6
Market Position
LenSpecSMU: Market share in newly-built residential
areas, accepted by State Committee, ‘000’ m2
2 375.7
2 273.4
2 031.9
1 758.0
9.6%
11.5%
`03
`04
Market specialization:

Legal structure:

10.1%
`03
`04
908.5
`05
According to GOSSTROY LenSpecSMU takes 2 place in “Elites of Russia
construction complex” and 2-nd place in TOP 130 Russian construction
companies (see the report of session of Federal agency of construction
and
housing
and
communal
services
of
27.07.2006
http://www.gosstroy.gov.ru/docum_63.htm);

In TOP 500 Russia largest companies “Finans-500” LenSpecSMU takes
439 place (see “Finance” magazine of 18.09.2006);

In TOP 350 most rapid growth Russian companies LenSpecSMU takes 49
place (see “The Firm’s Secret” magazine of 25.09.2006);

In TOP 200 largest investment deals in Russia in year 2006 LenSpecSMU
takes 160 place (see “The Firm’s Secret” magazine of 20.11.2006).

Brick-monolith housing.
Real estate segment:
1 231.7
901.5

Technology:
`06
LenSpecSMU: Total area under construction, ‘000’ m2
860.3
Vertical-integrated industrial holding company.
Activity caliber:
15.8%
`05
Development and investment in construction. Quarter building.
968.6

Mass business class housing construction;

Commerce construction;

Civil construction.
New development ways:
`06

Industrial construction;

New projects in Moscow and St. Petersburg;

Own real estate in management.
`07F
7
Assortment of LenSpecSMU production
2006
2005
11,2%
4,3%
3,7%
14,9%
7,0%
51,9%
1,9%
26,4%
75,6%
3,0%
Residential areas
Commercial areas
Balcony
Parking places
Non-sold areas
Commercial areas – one of the priorities of LenSpecSMU
8
Demand Indicators on Primary Market of Real Estate
2004
5,9%
2005
6,3%
6,6%
94,1%
2006
93,4%
93,7%
Selling areas
Unsold areas to the moment of acting the objects by the State Committee
Only about 6% of total selling areas stay unsold to the moment of acting the objects
by the State Committee
9
Business Overview
Growth in Figures (Historical & Forecast)
Projects completed, area in ‘000’ m2
Number of SP agreements, items
4 588
359.9
239.9
222.5
123.0
`01
142.5
`02
168.1
`03
2 898
3 165
3 161
2 541
1 755
`04
`05
`06
`01
`02
`03
`04
`05
`06
LenSpecSMU – continuous growth of the business
11
Corporate Strategy: Organic Growth
Environment
 Our market has historically been
development and construction of
residential and commercial real estate
Overall Strategy
 Total turnover: CAGR* of 20-40% p.a.
Expansion of business geography
Increase in highly profitable projects
 Revenues from the general contracting
segment to reach USD 400 mn by 2009.
Increase in development projects in the market
of land plots
 Volume of completed construction
projects: 300k-400k m2 p.a.
To continue work on the development of the
combined construction and technology system
for buildings (CCTS) to complete it in 2008
 Volume of pre-funding: not less than
annual revenues.
To expand the range of own production goods
 Pre-funding should be raised evenly
over the life of the project.
 Segments of operations:
 80% of the total projects portfolio is
concentrated in the residential areas
for middle and upper-middle class;
 Remaining 20% are projects for a
lower middle class segment;
 It is planed to increase the amount of
commercial real estate construction
up to 40% by 2009.
 Geography of business:
 Prior to 2005 - St. Petersburg and
North Western Region of Russia;
 Since 2005 - Moscow (2 projects in
progress) and Russia’s regional
markets;
 By 2009 it is planed to increase the
amount of construction in Russian’s
regions up to 40% of the total amount;
 Expansion into European residential
and commercial real estate markets is
currently under consideration.
Targets
To expand additional services provided for the
customers after their purchase of real estate
Image – building of a brand name has been one
of the priorities from the first days of the
Company’s existence
Pricing and payment schemes – offering a high
quality product at prices that are on par or
slightly lower than those of competitors
Quality – construction quality that is better than
competitors’
Clear positioning of the company product
* - Compound Annual Growth Rate
Ambitious, reasonable strategic goals, firm basis
12
Corporate Strategy: Profitability & Stability
Strategic Goals:
Profitability
 Annual profitability of the entire Group of at least 20%.
 For development projects: IRR of at least 30%.
 For general contracting projects: margin calculated on a cost-plus basis to reach at least 15%.
Stability
 Cash flows – please refer to the financial block of this presentation
 Sales of the residential units in the projects under construction –cumulative cash flows from on-going sales of units
in the started projects should generate enough cash to complete all in-progress projects. Therefore, every project
should generate enough cash to finance itself after reaching 20%-25% of completion
 Physical and monetary volume of projects in progress, in a preparatory stage and under preliminary analysis:
 a number of the in-progress projects should ensure that a targeted market share and an annual total volume
of the completed projects is achieved
 a number of projects in a preparatory stage should be large enough to replace the in-progress projects
reaching completion and to add new projects making sure that the growth targets are met
 Our experience shows that the number of projects under preliminary analysis should be at list three times
bigger than the number of projects in a preparatory stage.
 Legislation issues – at any time the level of actual and potential claims should not exceed 0.3% of total annual
turnover.
 HR issues – a targeted overall level of personnel turnover is set at 2% annually, including the middle management
turnover of not more than 1%. Compensation schemes and career planning should secure the changes on topmanagement level according the shareholders’ decision only.
Targeted profitability of the Group: 20%+ per annum
13
Corporate Strategy: Resources
Core competence: acquisition of development projects and
supervision of all steps of project realization
Intangible Resources
Reputation
 One of the strongest brands in St.Petersburg (spontaneous brand recognition in St.
Petersburg about 42%).
 The image of stability and reliability promotes clients’ trust.
 Business transparency.
 Long-term relationships with over 200 suppliers and partners.
 Good relationships with a financial community.
 Long-term working relationships with local and federal government authorities and officials.
 Well-deserved respect by the professional community.
 Social responsibility.
 Personal reputation of owners and top management.
Technological intangibles
Core Tangible Resources
 Ample financial resources.
 Own construction equipment (more than 30K
m2 of the wall and column forms, more than
40K m2 of the plane forms; construction
machinery fleet of more than 100 units;
transportation fleet of more than 250 units;
etc.).
 A wide range of other construction site
equipment.
 Own Headquarter building, equipped with all
necessary IT systems (10 000 m2).
 Portfolio of patents.
 Well-documented technological processes for all stages of a building construction.
 In-house architectural and engineering capabilities and the library of the standardized building
designs.
 Strong market research unit.
 Established marketing and customer service divisions.
 Core activities are fully licensed.
Necessary combination of resources in place
14
Industrial Construction
 In 2005 LenSpecSMU entered a new business segment – construction of industrial facilities.
 Rapid economic growth of the North West region and substantial demand for construction of industrial facilities
led to creation of a new Group’s entity that specializes on industrial construction – CJSC EtalonPromstroy.
LenSpecSMU experience in industrial construction
Customer
Project
Project status
OJSC Transneft
Construction of a pumping station
Complete
FGUP Admiralteiskie verfi
Reconstruction of a building berth
Complete
VINCI Construction Grands Projects Construction of a multi-functional trade centre (foundation)
Complete
FGUP ROSTEK
Construction of the administrative building for a Customs terminal Pulkovo
In progress
RAO UES
Construction of a South-Western Power Station
In progress
TOYOTA
Construction of fascine fields
Complete
NISSAN
Construction of fascine fields
In progress
 Up to date LenSpecSMU successfully completed 4 industrial construction projects. Other 3 projects are in
progress. Project pipe line for industrial construction rapidly increasing.
Industrial construction – new operational segment expanding rapidly
15
Financial Overview
Present Situation
Future Situation
Financial Strategy
Present Situation 1
Key Milestones in 2006
 Debt restructuring: LenSpecSMU increased the share of public debt and
its maturity, and decreased the interest rate;
 On 5th May 2006 LenSpecSMU executed its liabilities under put-option of
bonds series 01;
 On 26th July 2006 bonds series 02 were issued (1.5 bln rubles for 3.5
years);
 Consolidated financial statements under IFRS (IAS) for the last 3 years
were completed;
 Standard & Poor’s has assigned rating ‘B’ outlook ‘Stable’ to
LenSpecSMU.
LenSpecSMU continues its financial strategy execution
17
Present Situation 2
Debt Restructuring
 In 2006 LenSpecSMU paid the principal of the debt for the sum of 46
mln USD and about 323 mln rubles ahead of the schedule;
 New borrowings totalled 12 mln USD and 1500 mln rubles in 2006;
 As a result, the structure of the debt has much changed to public debt,
longer maturity and lower interest rate.
In 2006 the debt structure became more comfortable
18
Present Situation 3
Access to the Capital Markets
 LenSpecSMU is a private closed joint-stock company. Therefore at the stage LenSpecSMU does not perform fund rising by
the means of public equity market. However corporate strategy of the company assumes IPO in Russia or abroad during
nearest 5 years.
 LenSpecSMU became the first construction company of St. Petersburg to tap public debt capital markets, issuing RR 1.0
bln of bonds on Moscow Interbank Currency Exchange. Second bond issue (RR 1.5 bln) rapidly followed in 2006. By the
beginning of 2007 LenSpecSMU plans to issue USD 100 mln credit-linked notes.
Placement
Volume
Maturity
Redemption
Put-option dates
Call-option
Coupon payment
Coupon rate
Bonds (01 series)
Bonds (02 series)
28.04.2005
RR 1.0 bln
5 years
10% - 25.10.2007
15% - 23.10.2008
20% - 23.04.2009
25% - 22.10.2009
30% - 22.04.2010
05.05.2006
05.05.2008
>1 year
182 days
26.07.2006
RR 1.5 bln
3.5 years
1 – 15.5%
2 – 15.5%
3 – 12.0%
4 – 11.75%
5 – 11.25%
6 – 11.0%
7-10 – TBD*
100% - 20.01.2010
28.07.2008
None
182 days
1 – 11.69%
2 – 11.44%
3 – 11.19%
4 – 10.94%
5-7 TBD*
* - To Be Determined
Rapid progression on Capital Markets
19
Present Situation 4
Schedule of Debt Service and Repayment
Current debt position of LenSpecSMU
Repayment of principle
Interest rate
RR mln
USD mln
RR mln
USD mln
2007
67.7
4.0
250.7
1.0
2008
101.5
2.5
230.1
0.6
2009
304.5
2.5
193.5
0.4
2010
1 703.0
2.5
84.9
0.2
2011
-
0.5
-
0.01
2 176.7
12.0
759.2
2.2
TOTAL
 LenSpecSMU has a number of opportunities to make its debt position lighter
Current debt position of LenSpecSMU reflects vast additional borrowing capacity
20
Present Situation 5
Key Indicators
2003
2004
2005
5 227 166
6 685 075
9 769 734
Loans and borrowings (interest-bearing debt)
213 618
267 668
1 568 491
Equity
134 906
327 091
625 958
1 964 887
6 145 168
5 629 222
48 429
201 702
547 008
3 942
5 572
37 778
19 916
104 844
303 078
4.1%
4.0%
16.1%
10.9%
4.4%
27.9%
4.4
1.3
2.9
12.3
36.2
14.5
EBITDA margin (EBITDA / Revenue)
2.5%
3.3%
9.7%
Net profit margin (Net Profit / Revenue)
1.0%
1.7%
5.4%
Balance (‘000’ RR)
Total assets
P&L (‘000’ RR)
Revenue
EBITDA
Interest payable
Net profit
Ratios
Loans and borrowings / Total assets
Loans and borrowings / Revenue
Loans and borrowings / EBITDA
EBITDA / Interest payable
3 years of IFRS accounting is possibility to study development on historical basis
21
Present Situation 6
Cash Flow
9 799 486
10 000 000
9 000 000
8 000 000
mln rubles
7 000 000
6 000 000
5 000 000
4 872 764
5 155 221
2004
2005
3 305 020
4 000 000
3 000 000
2 000 000
1 000 000
-
2003
2006
Cash flow is probably the best indicator of the construction company’s activity
22
Present Situation 7
Cash Flow Structure
12,4%
0,5%
87,2%
Residential, commercial real estate and parking places
Hotel on Vasilevski Island (Project “At the Rostral columns”)
Industrial construction
The main cash flow is still generated by sales of residential and commercial real
estate, but other activities are also increasing
23
Financial Strategy 1
Group Strategic Goals
Group strategic goals
Market share in St. Petersburg region up to 20%
(not less than 300 000 m2 p.a. by 2008)
Market share in other regions up to 5 %
(Up to 200 000 m2 p.a. by 2008)
Diversification:
Construction of commercial real estate (up to 300 000
m2 p.a. by 2008)
Construction of industrial real estate (up to 100 000 m2
p.a. by 2008)
Operational profitability not less than 25 % p.a.
Growth of Enterprise Value of 20-50% p.a.
Growth of Equity Value
Sustainable growth ≥1.5
24
Financial Strategy 2
Financial Policy
Financial strategy of LenSpecSMU is based on
transparency for investors and lenders.
IR efforts include mandatory and voluntary
information disclosure in significant volumes,
investors presentations, one-on-one meetings,
obtaining credit ratings from one of the leading
international rating agencies.
25
Financial Strategy 3
Financial Policy. Information Disclosure and Transparency
 Mandatory disclosure of information performed by only one entity, CJSC CUN (issuer of two bond loans). The
entity performs disclosure in accordance with Federal Commission For Securities Markets (FCSM) regulations.
 However, additional voluntary disclosure of information performed by the group on the regular basis since year
2004. In order to maintain and to increase level of corporate transparency LenSpecSMU created financial
website www.finance.lenspecsmu.ru (both in Russian and in English).
 Using financial website the company publishes on a regular basis the following information:
 material facts;
 quarterly reports;
 annual reports;
 lists pf affiliated parties;
 statutory documents and licenses;
 securities issue documents.
 Other types of voluntary disclosed information includes:
 structure of Group LenSpecSMU;
 information about top management of the Group;
 operational results ;
 RAS and IFRS accounts;
 credit history;
 additional information for investors (“Investor’s calendar” - list of essential dates for bond holders).
Increasing level of transparency - important intangible investment
26
Financial Strategy 5
Equity Strategy
Growth of Equity by the means of retained earnings
Strategic / Financial Investor (Direct Equity)
Private placement
Initial and secondary public offerings
27
Financial Strategy 6
Debt Strategy
Currency
Debt denominated in depreciating currencies: USD, EUR
Interest Rates
Fixed of step down interest rates
Lenders
Increasing diversity of lenders in various segments of debt capital markets
Public transactions are the priority:
CLN
Syndicated loans
Eurobonds
If required, significant loans from major Russian banks are possible to arrange using pledge of property
Maturity of debt
Long-term loans and credits are preferable
28
Financial Strategy 7
Key Indicators
Ratio
Criteria
2005
Current ratio = Current assets / Current liabilities
≥ 2.0
1.8
Working capital / Total assets, %
≥ 40
39.4
Interest-bearing debt / EBITDA
≤ 4.0
2.9
EBITDA / Interest payable
≥ 2.5
14.5
Interest bearing debt / Tangible Net Worth
≤ 3.0
1.9
Profitability = Operating profit before interest and tax / Sales, %
≥ 25
8.8
RONA = Operating profit before interest and tax / Net assets, %
≥ 20
9.8
ROE = Net profit after tax / Opening equity
≥ 0.8
1.0
Sustainable Growth = Retained earnings / Opening equity
≥ 1.5
1.3
29