LSRG.L Regulatory News (LSRG)

30 Apr 2008 08:03

Open Joint-Stock Company LSR Group30 April 2008 NOT FOR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES, AUSTRALIA, CANADA OR JAPAN For immediate release April 30 2008 PRESS-RELEASE St Petersburg LSR GROUP REPORTS 2007 RESULTS REVENUES INCREASE BY 81%, EBITDA BY 132% Today, April 30, 2008, the Board of Directors of OJSC "LSR Group" (LSE: LSRG,MICEX, RTS: LSRG) approved consolidated financial statements for the year ended31 December 2007 prepared in accordance with IFRS for 2007. The independentaudit of the financial statements was carried out by KPMG. In 2007 LSR Group again recorded strong growth of financial results: • Revenue increased by 81% up to US$1 403 million • EBITDA increased by 132% up to US$309 million, and EBITDA margin increased by 5% from 17% to 22%. • Operating profit before the changes in fair value of investment property grew by 170% up to US$248 million • Changes in fair value of investment property was US$315 million • Net profit increased by 787% up to US$359 million • The market value of real estate property portfolio in accordance with DTZ valuation rose by 31.12.2007 to US$5.7 billion, which is 16% up on the figure for 30.06.2007 (approximately US$4.9 billion). Comments of the Chief Executive Officer of OJSC "LSR Group" Igor Levit: "We are pleased with the results for 2007 and our dynamic growth is acontinuation of the positive performance that the company has demonstrated eversince it began. The financial results for last year again convincingly prove thestrength of our strategy and the effectiveness of the integrated business modelof the company, producing synergies from the combination of development,construction and the production of building materials. On this basis, andtogether with the new projects that we have in hand, we see significantopportunities for further growth of the Company in the interests of all itsshareholders". About the company OJSC LSR Group is a diversified construction company founded in 1993 andoperating in a number of complementary market segments. Its core business areasare building materials, construction and real estate development. The Groupincludes enterprises for extraction and processing of aggregates, productionand transportation of building materials, and housing construction - from massmarket large-panel housing to elite property built after designs made by leadingdomestic and foreign architects. LSR Group has operations and offices in a number of cities in the LeningradOblast, in St. Petersburg, Moscow, Yekaterinburg, Lithuania, Latvia, Estonia,Ukraine and Germany. LSR Group employs over 15,000 people. In 2005 and 2006 the revenues of LSR Group(according to IFRS statements) were US$463 million and US$777 millionrespectively. The revenue in 2007 is US$1 403 million. In November 2007, OJSC LSR Group conducted an IPO. LSR Group has a rating of B1;outlook stable from the rating agency "Moody's Investors Service". In December2007, LSR Group was bestowed a National Award in the field of business as 'TheCompany of the Year' in the 'Construction' category. The market capitalization of LSR Group at London Stock Exchange as of 29 April2008 was approx US$ 7.6 billion For additional information: Investor relations Corporate communications and PR Kliment Falaleev Julia Sokolova Tel: +7 812 571 7850 Tel: +7 812 314 1044 Fax: +7 812 312 8565 Fax: +7 812 333 0652 Email: falaleev@lsrgroup.ru Email: sokolova@lsrgroup.ru Press service of LSR Group +7 (812) 314-1044 Email: press@lsrgroup.ru www.lsrgroup.ru Key financials KEY FINANCIALS (US$ m) 2006 2007 Change,%Revenue 777 1 403 81%Cost of sales -507 -934 84%Gross profit 269 469 74%Gross margin, % 35% 33%Distribution expenses -63 -69 10%Administrative expenses -112 -150 34%Changes in the fair value of investment property 5 315 6472%Other expenses -2 -1 -31%Operating profit before the effect of the 92 248 169%revaluation of the investment propertyOperating profit before the effect of the 12% 18%revaluation of the investment property, %Operating profit* 97 563 481%Net financial expenses -32 -74 129%Profit before tax 65 489 656%Income tax -24 -130 435%Net profit 40 359 787%EBITDA** 133 309 132%EBITDA % 17% 22%Net debt 489 629 29%Net debt / EBITDA 3,7 2,0 Operating profit equals to Results from operating activities as shown in theincome statement. EBITDA equals to operating profit plus amortization of intangible assets anddepreciation of property, plant and equipment minus changes in fair value ofinvestment property. EBITDA, EBITDA before special items and EBITDA margin arenot defined in the International Financial Reporting Standards and shouldtherefore be regarded only as supplementary information. We consider EBITDA tobe a suitable indicator of operating performance since it is not affected bydepreciation, amortization and non-cash items. EBITDA margin is calculated bydividing underlying EBITDA by sales. Full 2007 Audited Financial Statements at www.lsrgroup.ru/2007 Revenue Revenue grew by US$626.0 million or by 80.6% from US$776.6 million in 2006. toUS$1 402.6 million in 2007. The growth was driven both by increase in salesvolumes and strong pricing growth supported by growing demand and thefavourable macroeconomic situation. Cost of Goods Sold The cost of goods sold grew by US$426.3 million or 84.0% from US$507.5 millionin 2006 to US$933.8 million in 2007. The increase in the cost of sales in all segments was caused by the followingmain factors: - first of all, an increase in the direct expenses as a result of the increase in the volumes of sales; - a significant increase in the depreciation charge as a result of the commissioning of new tangible fixed assets during the period; - growth of direct costs connected with the rise of market prices for raw materials; - growth of wages and salaries Gross profit Gross profit grew by US$199.6 million or 74.2% from US$269.1 million in 2006 toUS$468.7 million in 2007. During the year the Group reassessed the classification of its administrativeexpenses in the income statement. Accordingly, expenses of certain divisions,which have been treated as administrative in prior years are now included intocost of goods sold. According to the management view this classification betterreflects the economic substance of these expenses. It was consideredimpracticable to adjust comparatives consistenly, as management believes thatthe impact of non-adjusting of the comparatives is not significant to thefinancial statements. Distribution and administrative expenses In 2007, distribution expenses increased by US$6.0 million or by 9.6% fromUS$62.6 million in 2006 to US$68.6 million The main factor of the increase inthe distribution expenses was the increase in the goods delivery expenses drivenby the increase in the volumes of sales and also a series of other items. Administrative expenses grew by US$38.2 million or by 34.0% from US$112.2million in 2006 to US$150.4 million in 2007. This increase is connected, firstall, with the considerable increase in the wages and salaries. Thus, in thisitem, expenses in 2007 were US$76.6 million, increasing in comparison with 2006by US$30.1 million or 64.7%. A significant increase in the wages and salaries iscaused by both the total increase in the wages and the increase in the number ofadministrative personnel, caused, amongst other things, by the increase in thenumber of accounting and other personnel, connected with the need for compliancewith the requirements imposed on a public company and also the considerablegrowth of the scope of the company's activities. Changes in fair value of investment property In the profit and loss account for 2007 revenue reflects the gain fromrevaluation of investment property of US$314.5 million, which represented 55.9%of the operating profit of the company. The investment property, on which therevaluation was carried out, includes three operating office centres and fourprojects for office centres, which are in the development stage. EBITDA and Operating Profit EBITDA grew by US$176 million from US$133.4 million in 2006 to US$309.1 millionin 2007. The EBITDA margin rose from 17% to 22%. Operating profit before the revaluation of investment property grew by US$156.1million to US$248.2 million in 2007. The operating margin rose from 12% in 2006to 18% in 2007. The operating profit including the changes in fair value ofinvestment property grew by US$465.9 million or by 480.7% from US$96.9 millionin 2006 to US$562.8 million in 2007. The most profitable segments, which ensuredthe greatest increase in the operating profit, were real estate development,production of building materials and aggregates. Net Financing Costs The net financing costs increased by US$ 41.7 million or by 129.4% from US$32.2million in 2006 to US$73.9 million in 2007. The increase in net financial costs was connected with an increase in the debtlevel, caused by the need to finance the large-scale investment programme of thecompany. Income Tax Expenses Income tax expenses grew by US$105.4 million or by 435.4% from US$24.2 millionin 2006 to US$129.5 million in 2007, most of which was represented by anincrease in the deferred taxes in this period. The increase in deferred taxesis connected, in the first place, with the income from the revaluation ofinvestment property in 2007. The effective tax rate was 26.8% in 2007 against37.4% in 2006. The reason is in the decrease in 2007 of the amount ofnon-deductable costs of profit tax. In both 2006 and 2007 periods the officialrate of profit tax did not change and remained at 24%. Net Profit The dynamics of the figures examined above led to an increase in the net profitto US$318.8 million or by 787.2% from US$40.5 million in 2006 to US$359.3million in 2007. Cash Flow Cash flows from operations before changes in working capital and provisions wasUS$308.3 million and exceeded the comparable figure for 2006 by 122%. In 2007, we invested significant funds in an increase in the volumes of realestate development activity, increasing the value of projects under developmentin the balance sheet from US$457 million at the end of 2006 to US$1088 millionat the end of 2007. The significant part of this amount was land acquisitioncosts. Since the implementation of developement projects takes several years,cash flow from operating activity in 2007 was negative because of thesignificant investments into existing development projects and land acquisitionand stood at (335) million with the figure in 2006 being US$20.5 million The level of working capital increased due to a considerable increase in theinventories in real estate development. The increase in other items of reservesin the segment of building materials as a whole corresponded to the growth ratein the volumes of activity of the company. Payments of interest expenses in 2007 were US$70.4 million and grew bycomparison with 2006 by US$31.5 million or 81.1%. The increase in these paymentsis connected with the increase in the credit portfolio of the Group for theimplementation of the investment program of the company. Profit tax expenses in 2007 were US$57.4 million and increased in comparisonwith the previous year by US$29.0 million or 102.1%, which was caused by anincrease in the levels and profitability of the activity of the company. Cash flow utilized by investing activities was US$244 million, which is higherthan in the past year by US$26.8 million or 12.1%. Cash flow from financial activities was US$864.2 million, of which proceeds fromthe public placement of shares amounted to US$568.7 million. Most of theremaining increase is attributable to an increase in the credit portfolio of thecompany. As a whole net cash flow for the year was US$280.5 million, increasing byUS$250.5 million in comparison with the previous year. Debt The gross debt of the company grew by US$432,6 million or 79% from 549.8 millionas of December 31, 2006 to US$983.9 million as of December 31, 2007. Theincrease in the volume of the borrowings drawn is connected with of theimplementation of the large-scale investment program. As of the end of the year cash and cash equivalents stood at US$355 million andmostly represented part of the IPO proceeds, which the company did not invest bythe end of 2007 Net debt as of December 31, 2007 was US$629.1 million against US$488.8 millionas of December 31, 2006 Due to the considerable increase in EBITDA (from US$133.4 million in 2006 toUS$309.1 million in 2007) the figure for net debt/EBITDA at the end of 2007 hadimproved and was 2 against 3.7 at the end of 2006. Capital Expenditure In 2007 we have continued investing into the expansion of our business and themodernisation of production facilities In 2007 we capitalised US$255 million of investment in fixed assets, whichexceeded the level for 2006 by 134%. Capital investments were directed to the expansion of capacity and themodernisation of operating equipment. The capitalised investments in the mostcapital-intensive long-term investment projects - the building of a cement worksand brick plant - were US$43 million and US$8 million respectively. Please follow link below for key financial statements: http://www.rns-pdf.londonstockexchange.com/rns/4117t_-2008-4-30.pdf FINANCIAL RESULTS BY BUSINESS SEGMENTS AND PRODUCTS Revenue, US$ EBITDA, US m EBITDA margin, Operating Operating profit m % profit before margin before the the revaluation of revaluation of investment investment property, % property, US$ mDevelopment2006 120 10 8% 9 8%2007 398 97 24% 96 24%Change, % 230% 873% 16% 915% 16%Construction2006 180 24 14% 19 10%2007 250 40 16% 30 12%Change, % 39% 64% 2% 62% 2%Commercial real estate2006 0,6 0,1 13% 0,0 1%2007 3,7 0,5 13% 0,5 13%Change, % 466% 466% 0% 6669% 12%Building materials2006 342 43 12% 30 9%2007 645 130 20% 108 17%Change, % 89% 205% 8% 263% 8%Aggregates2006 163 51 31% 35 22%2007 216 78 36% 62 29%Change, % 33% 54% 5% 76% 7%Construction services2006 41 15 35% 10 24%2007 59 19 33% 12 20%Change, % 42% 32% -2% 17% -4% Building Materials Revenue in the building materials segment grew by US$302.8 million or 88.6% fromUS$341.9 million in 2006 to US$644.7 million in 2007. EBITDA increased by US$87.3 million or 205.4% from US$42.5 million in 2006 toUS$129.8 million in 2007. EBITDA margin increased by 8% from 12.4% in 2006 to20.1% in 2007 Operating profit grew by US$78.6 million or 263.8%, increasing by US$29.8million in 2006 to US$108.4 million in 2007. Operating profit margin increasedby 8.1% from 8.7% in 2006 to 16.8% in 2007. All product business units improvedthe financial performance in 2007. The cost of the production of reinforcedconcrete and ready-mix concrete was adversely affected by the rising prices forcement; however, the business units of LSR Group were able to raise the pricesfor their end product, thus offsetting cost inflation effect. Reinforced Concrete Sales of reinforced concrete increased by US$94.5 million or 76.9% from US$122.9million in 2006 to US$217.4 million in 2007. The increase of sales was drivenby both price increases and the increase in sales volumes. We substantiallyincreased sales prices both in Saint Petersburg and in Moscow, to a considerabledegree following an increase in the prices for cement. The increase in revenuesis also explained by an increase of the portion of more expensive items in thestructure of sales in comparison with 2006, and also by an increase in the costof raw materials (such as cement) used in production. Sales volume increasedbecause of an increase of demand and the acquisition in Saint Petersburg in July2007 of the reinforced concrete producer "Parkon" Furthermore, the significantincrease in the volume of sales was assisted by the acquisition and installationof new highly productive equipment for the reinforced concrete plant of LSRGroup in Moscow, as also the modernisation of the equipment of four plants inSaint Petersburg. In 2007 alone 578 thousand m3 of reinforced concrete weresold, which is 14% higher than in 2006. EBITDA increased by US$40.8 million or 287.3% from US$14.2 million in 2006 toUS$55 million in 2007. EBITDA margin increased from 12% to 25%. Operating profit was raised by US$38.3 million from US$9.9 million in 2006 toUS$48.2 million in 2007. Operating profit margin increased by 14.1% from 8.1%in 2006 to 22.2% in 2007. Ready-mix Concrete Revenue increased to US$83.0 million or by 71.4%, from US$116.2 million in 2006to US$199.2 million in 2007. The basic factors of the increase in revenue were the considerable increase inthe prices and also an increase in the volumes by 31%, corresponding to 383thousand m3, of which the growth of sales in Saint Petersburg accounted for 81thousand m3, and sales in Moscow for 302 thousand m3. The volume of salesincreased from 1 217 thousand m3 in 2006 to 1 600 thousand m3 in 2007. Thegrowth of sales volume was possible thanks to an increase of the productioncapacities in Saint Petersburg and launching new concrete plants in Moscow. EBITDA increased by US$12.3 million or 178.3% from US$6.9 million in 2006 toUS$19.2 million in 2007. EBITDA margin increased by 4% from 6% in 2006 to 10%in 2007. Operating profit was raised by US$7.5 million or 156.3% from US$4.8 million in2006 to US$12.3 million in 2007. Operating profit margin was increased by 2.1%from 4.1% in 2006 to 6.2% in 2007 Bricks Revenue increased to US$31.2 million or by 49.6%, from US$62.9 million in 2006to US$94.1 million in 2007. The increase in revenue was driven by the considerable increase both in theprices and the level of sales volume by 6% to 289 million units, connected withan increase in the demand in the construction market of the North-West region ofRussia, and also with an increase in the production capacities in connectionwith the modernisation of the production plants and the launch of previouslymothballed bricks production. The brick business unit is actively implementing a project for the constructionof a new brick plant in Leningrad region, with the capacity of 220 million unitsper year. The plant commissioning is scheduled for 2010. The planned volume ofinvestments in the new enterprise is around US$300 million. EBITDA increased by US$17.2 million or 135.4% from US$12.7 million in 2006 toUS$29.9 million in 2007. EBITDA margin increased by 12% from 20.2% in 2006 to31.7% in 2007. Operating profit increased by US$16.5 million or by 158.7% from US$10.4 millionin 2006 to US$26.9 million in 2007. The main reason for the increase in the operating profit was the increase in theselling prices. Operating profit margin increased by 12.1% from 16.5% in 2006 to28.6% in 2007. Aerated Concrete Revenue from the sale of aerated concrete grew by US$22.9 million or by 58.7%from US$39.0 million in 2006 to US$61.9 million in 2007. The increase of revenuewas driven by the significant increase in prices and sales volume, which grewby 6% to 555 thousand cubic metres. EBITDA increased by US$10.9 million or170.3% from US$6.4 million in 2006 to US$17.3 million in 2007. EBITDA marginincreased by 12% from 16% in 2006 to 28% in 2007. Operating profit grew by US$10.3 million or 381.5% from US$2.7 million in 2006to US$13.0 million in 2007. Operational profit margin grew by 14.0% from 7.0% in2006 to 21.0% in 2007. The increase of operating profit and profitability wasdriven by a considerable increase in margin which is explained by the priceincrease against the background of an insignificant increase in the costs andalso the increase of production volumes. In 2007, the aerated concrete business unit started to build in the city ofBerezan in the Ukraine (70 km from Kiev - the capital of the Ukraine) itslargest plant for the production of aerated concrete. The projected capacity ofthe plant is 400 thousand cubic metres. The planned total investment is 30million dollars. Cement Today the business unit "Cement" of the LSR Group is responsible for centralisedpurchasing of cement both for the needs of the group and for the purposes ofsale to external clients and is also conducting an investment project for theconstruction of its own cement plant in Leningrad region with a capacity of thefirst production line of 1.85 million tonnes of cement per year, which it isplanned to launch in 2010. The planned total investment of the company in theproject until 2010 is approximately US$600 million. Subsequently there are plansfor an increase in the capacity to 3.7 million tonnes due to the building of thesecond line. In 2007 LSR Group invested US$43 million into the cement project. Aggregates Profit in the aggregates grew by US$53.6 million or by 33.0% from US$162.6million in 2006 to US$216.2 million in 2007. EBITDA increased by US$27.5 million or 54.1% from US$50.8 million in 2006 toUS$78.3 million in 2007. EBITDA margin increased by 5% from 31.2% in 2006 to35.8% in 2007. Operating profit in the aggregates segment grew by US$26.9 million or by 76.4%from US$35.2 million in 2006 to US$62.1 million in 2007. The recorded increasewas driven by an increase in the operating profitability on both products - sandand crushed granite. The operating profit margin of the business segment "Aggregates" increased by 7.1% from 21.6% in 2006 to 28.7% in 2007. Sand Sales of sand increased to US$21.8 million or by 23.0% from US$94.6 million in2006 to US$116.4 million in 2007. The increase in revenue was driven by anincrease in prices and volumes of sales. The sales volume grew in 2007 by 15% to13.5 million cubic metres. In 2007 there was a considerable increase in the sales of quarry sand due tomodernisation and increase in the park of extraction equipment, and also by thebeginning of the development of two new quarries. In this context the price for both sea and quarry sand in 2007 grewsubstantially. EBITDA increased by US$16.7 million or 52.4% from US$31.9 million in 2006 toUS$48.6 million in 2007. EBITDA margin increased by 7.9% from 33.8% in 2006 to41.7% in 2007. Operating profit increased by US$17.8 million or 86.0% from US$20.7 million in2006 to US$38.5 million in 2007. The increase of profit occurred due to anincrease in the prices for sand, and also an increase in the volumes of sale andreduction in the production costs. The commencement of exploitation of one newsea sand deposit and the achieved modernisation of barges specialising in thetransportation of sea sand made it possible to increase the cargo volumes and,correspondingly, to decrease production and transport costs due to the decreaseof the number of voyages. The increase in the volumes of the extraction ofquarry sand due to the beginning of the development of two new quarries and theacquisition of new equipment for extraction and processing of sand alsocontributed to the cost reduction. The operating profit margin grew by 10.3% from 21.9% in 2006 to 32.2% in 2007 asa result of the increase in prices and increase in the operational efficiency ofthe business. Crushed Granite Revenue from the sale of crushed granite increased by US$31.7 million or 45.8%from US$69.1 million in 2006 to US$100.8 million in 2007. This increase inrevenue occurred because of the increase in both the prices and the volume ofsales. The volume of the sales of crushed granite grew in 2007 by 19% to 4.3million cubic metres. Demand for crushed granite in Saint Petersburg, which isthe basic geographical market for sales for the LSR Group, is increasing becauseof the growth of residential, commercial and infrastructural construction in theregion. EBITDA increased by US$11.7 million or 65.4% from US$17.9 million in 2006 toUS$29.7 million in 2007. EBITDA margin increased by 3.5% from 26.0% in 2006 to29.5% in 2007. Operating profit grew by US$10 million or by 73.5% from US$13.6 million in 2006to US$23.6 million in 2007. The growth of profit reflects an increase in thestructure of sales of the portion of high-margin items in combination with anincrease in the volumes of production, carried out due to the commissioning ofnew plant for the production of crushed granite. In 2007 the partialmodernisation of the equipment was also carried out, which led to an increase inthe efficiency of the business. The operating profit margin grew by 3.7% from 19.7% in 2006 to 23.4% in 2007both because of the expected increase in the selling prices in comparison withthe costs and because of the occurrence in the structure of sales of smallcrushed granite produced on the new equipment, the price for which is higher,whereas costs for its production are comparable with the costs of other forms ofoutput produced by the business unit. The increase in the operating margin,obtained since the beginning of the production of small crushed granite, waspartially offset by with an increase in the depreciation charges for the newequipment. Construction Services Revenue in the segment of construction services increased to US$17.3 million orby 41.8% from US$41.4 million in 2006 to US$58.7 million in 2007. EBITDA increased by US$4.6 million or 32% from US$14.5 million in 2006 toUS$19.2 million in 2007. Operating profit grew by US$1.7 million or 16.8%, standing at US$11.8 million in2007 against US$10.1 million in 2006. Tower Cranes Services Revenue from tower cranes services grew by US$14.6 million or 63.2% from US$23.1million in 2006. to US$37.7 million in 2007. The increase in the prices and the increase in the volumes of the services werethe factors for the increase in revenue from the lease of tower cranes. Theincrease in the volumes of the services provided was possible, in the firstplace, because of the expansion of the technology park due to the additionalacquisition of 45 units of tower cranes. EBITDA increased by US$7.2 million or 77.4% from US$9.3 million in 2006 toUS$16.5 million in 2007. EBITDA margin increased by 3.5% from 40.3% in 2006 to43.8% in 2007. The operating profit in 2007 grew by 71%, or by US$4.9 million. The profitincreased due to the expansion of the park of tower cranes and the increase inthe average price for the tower cranes services. Operating profit margin rose by 2.3 % to 31.2% in 2007 from 28.9% in 2006. Transportation Services Revenue from transportation services grew by US$2.7 million or 14.8% fromUS$18.3 million in 2006 to US$21.0 million in 2007. EBITDA was reduced by US$2.5 million or 48.1% from US$5.2 million in 2006 toUS$2.7 million in 2007. The profitability of EBITDA was lowered by 15.9% from28.9% in 2006 to 13% in 2007. Operating profit was reduced to US$3.18 million from US$3.2 million in 2006 toUS$0.02 million in 2007. The reduction of operating profit was connected withthe costs of relocation of one the company facilities in order to release landfor future development and ongoing business optimization program. Real Estate Development Revenue from sales in 2007 in the segment of real estate development grew byUS$277.6 million or by 230.4% from US$120.5 million in 2006 to US$398.1 millionin 2007. The growth of revenue in 2007 was driven by the completion of severaldevelopment projects and transfers of apartments to customers. EBITDA increased by US$86.6 million or 874.7% from US$9.9 million in 2006 toUS$96.5 million in 2007. EBITDA margin increased by 16%. Operating profit before changes of fair value of investment property grew byUS$86.1 million or by 915.9% from US$9.4 million in 2006 to US$95.5 million in2007. The increase of operating profit is explained by the increase in sales forboth elite class and mass-class property. Operating profitability, withouttaking into account the results of revaluation, grew by 16.2% to 24.0%. Theincrease in the profitability was to a considerable degree connected with thereflection in the accounts for 2007 of the increase in the prices for property,which occurred in the past years (in accordance with IFRS accounting policy,revenue and costs of a development project are reflected in the income statementafter the completion of project and the transfers of the flats to customers).Operating profit including the effect of revaluation of investment property grewby US$349.3 million from US$14.1 million in 2006 to US$363.4 million in 2007.The growth of the fair value of investment property, reflected in the profit andloss account, was US$268 million Elite Real Estate Revenue from elite real estate increased by 105.2% from US$64.9 million in 2006to US$133.2 million in the results 2007, i.e., the increase was US$68.3 million The increase in revenue in 2007 is connected both with the increase in the areascompleted and transferred to customers and with the increase in the prices forreal estate in the previous years. In 2007 40.5 thousand square metres of netsellable area and 494 parking slots were transferred to clients. The increase inthe net sellable area and parking slots released to clients in this segment was24% and 78% respectively in comparison with 2006. EBITDA increased by US$39.1 million or 320% from US$12.2 million in 2006 toUS$51.3 million in 2007. EBITDA margin increased by 20% with 19% in 2006 to 39%in 2007. Operating profit before changes in fair value of investment property increasedby US$38.7 million or 315% from US$11.9 million in 2006 to US$50.6 million in2007. Operating profit margin before changes in fair value of investmentproperty grew by 19.7% from 18.3% in 2006 to 38.0% in 2007. Operating profit after the effect of the revaluation of investment property,which is in the process of development, increased from US$16.6 million in 2006to US$318.3 million in the results 2007, i.e., the increase was US$301.7 millionor 1817.5%. The increase in the value of investment property, reflected in theincome statement, was US$268 million Mass Market Residential Real Estate Revenue from the sale of mass market residential real estate increased by 220%from US$55.7 million in 2006 to US$178.1 million in the results for 2007. The increase in revenue from the sale of mass market residential real estate incomparison with 2006 was US$122.4 million It was driven by the increase in thenumber of projects completed during the period and by the transfer of finishedapartments to customers. In total in 2007 132 thousand square metres of net sellable area weretransferred to customers. In comparison with 2006 the increase in the netsellable area area transferred to clients in this segment was especiallyimpressive and amounted to 124%. EBITDA increased by US$29.1 million from US$1.4 million in 2006 to US$30.5million in 2007. EBITDA margin increased by 15% from 2% in 2006 to 17% in 2007 Operating profit increased by US$29.1 million or 2201.5%. The increase wasdriven by an increase in the prices and by significant demand in the period whenthe sale of the units realised in 2007 took place. The increase in the operatingprofit is an indicator of the growth rate in the prices for property above thegrowth rate in the construction costs. Operating profit margin grew from 2.4% in2006 to 17.1% in 2007. Real Estate in Moscow Revenue from real estate in Moscow was US$48.2 million in 2007. In Moscow in 2007 the LSR Group introduced the business class residentialcomplex "House on the Davydovskaya". This is the first completed real estatedevelopment project of LSR Group in Moscow. In 2007 in Moscow 15 thousandsquare metres of net sellable area and 108 parking slots were transferred toclients. EBITDA in 2007 grew from a loss of US$3 million to a profit at the level ofUS$12.4 million EBITDA margin was 26% Operating profit grew from a loss of US$3.1 million in 2006. to a profit at thelevel of US$12.3 million in 2007. The absence of profit from the sale of flatswith the incurring of overhead costs was the reason for the loss in the accountsfor 2006. Operating profitability grew from a negative figure in 2006 to 25.6%in 2007. Gated Communities Revenue in 2007 was US$3.4 million against US$0.1 million in 2006. This was thefirst revenue from the transfer to customers of the completed country cottagessince the launch of this business. In the area of development of gatedcommunities in the suburbs of Saint Petersburg in 2007 LSR Group transferred tocustomers 3 thousand square meters of net sellable area. EBITDA in 2007 was US$0.05 million EBITDA margin was 1%. Operating profit was US$0.02 million in 2007. Operating profit margin grew froma negative value in 2006 to 0.5% in 2007. Construction Revenue grew in 2007 by US$69.6 million or 38.7% in comparison with the previousyear from US$180.0 million to US$249.6 million The increase in revenue was driven purely by the increase in the prices, sincein 2007 two prefabricated panel factories of the company transferred to clients311 thousand square meteres of panel houses, which is 10% lower than the figurefor 2006. The reduction of the volumes of production was caused by themodernisation of one of the factories, which led to the temporary capacitylimitations. Thus, the sales volume of the first factory DSK "Blok" in 2007 was reduced incomparison with 2006 by 31% and was 148.3 thousand square metres against 216.1thousand square metres in 2006, while the sales volume of the second factory "Gatchinsky DSK" reported an increase in 24.6%, from 131 thousand square metresin 2006 to 163 thousand square metres in 2007. EBITDA increased by US$15.6 million or 64.2% from US$24.3 million in 2006 toUS$39.9 million in 2007. The EBITDA margin increased by 2% from 14% in 2006 to16% in 2007. Operating profit in the construction segment grew by US$11.6 million or 61.4% incomparison with the past year, after increasing from US$18.9 million in 2006 toUS$30 million in 2007.The operating profit margin rose from 10.5% to 12.2%. Commercial Real Estate Revenue from the leasing of commercial real estate grew from US$0.6 million in2006 to US$3.7 million in 2007. LSR Group leased 10 thousand square metres ofthe net lettable area: the business centres "Apollo" (5 thousand square metresof net lettable area and underground parking of 21 slots), "Litera" on Galernayastreet (2.1 thousand square metres of net lettable area) and "Helios" on Maratastreet (2.6 thousand square metres of net lettable area and 16 parking slots).The level of occupancy of business centres at the end of 2007 was 99%. Operating profit without taking into account the results of revaluation wasUS$0.3 million. with a margin of 13%. Gain on revaluation of investment propertyreflected in the income statement was US$47 million. GEOGRAPHICAL DEVELOPMENT The basic principle of our strategy for geographical development is theconcentration of our administrative and financial resources on the achievementof leading positions in several key promising major markets, in which we havethe opportunity within the foreseeable future of taking leading positions. Wedevelop our business in the new markets both by acquisition of active regionalplayers and by implementing greenfield projects.. The plans of our geographical development in 2007 were concentrated on four keyregions: Saint Petersburg (and Leningrad region), Moscow (and Moscow region),the Urals region and the Ukraine. In 2007 in the context of the strategy of geographical development the LSR Groupentered the Ukraine building materials market, taking a position in the city ofBerezan (70 km from Kieve) for the construction of the largest plant for theproduction of aerated concrete. The projected capacity of the plant is 400thousand m3. Planned investment is approximately US$30million. LSR Group also entered the market in Ekaterinburg, where for of 50 million Eurosit acquired two land plots suitable for residential real estate development witha total area of 50 ha. Experts expect that in the acquired land allotments it ispossible to develop up to 600 thousand m2 of mass market real estate. REAL ESTATE PORTFOLIO AND LAND BANK As of December 31, 2007, the property portfolio of LSR Group included 42development projects in the residential elite class, business class and massmarket property, gated communities and commercial property segments. The netsellable area of the projects included in the portfolio was 8,236 sq.m. Real estate development projects of LSR Group are located in St. Petersburg,Moscow, the Leningrad Region and Yekaterinburg. The market value of LSR's holdings in the current property portfolio wasUSUS$5,672 million, as of December 31, 2007, and the total portfolio valuewithout deducting third party holdings was USUS$5,847 million. The valuation of the property portfolio as of December 31, 2007 was conducted byDTZ as independent external valuer. The valuation was performed in conformitywith the standards of the Royal Institution of Chartered Surveyors and theInternational Valuation Standards. Real estate portfolio by segments As of 31 December 2007 the real estate portfolio of LSR Group consisted of 42development projects across business class, mass market, elite class, gatedcommunities and commercial segments in St. Petersburg, Moscow and Yekaterinburgand is well balanced in different property segments. In terms of net sellable area, approximately 84% of the portfolio accounts formass market real estate (incl. land plots held for future development) alwayscharacterized by large construction volumes and sustained high demand. Class of property Net sellable/leasable % of Total Market Value % of Total area, excl. car parking, th sq m. US$ m Mass market 4035 49,0% 1280 22,6%Business class 510 6,2% 368 6,5%Elite class 322 3,9% 1435 25,3%Offices 336 4,1% 1497 26,4% (under development)Gated communities 142 1,7% 144 2,5%Held as investment 22 0,3% 156 2,7%(operating offices) Held for future 2869 34,8% 792 14,0%developmentTOTAL 8236 100% 5672 100% Note: The category "Held as investment" includes 6 business centres, 3 of whichare used by the LSR Group for its own needs. Real estate portfolio by stages of development In terms of net sellable area, around 75% of our property portfolio is at thestage of initial concept design and design and permitting, and 84% of thispercentage accounts for the Tsvetnoy Gorod/Ruch'i project. In terms of theportfolio market value, most of the projects are to be implemented within thenext 5 to 7 years, approx. 47% of the portfolio market value is made up ofprojects that were already at the construction stage at the time of valuation,and around 15% are at the design stage. By stages of development Stage of development Net sellable/leasable area, % of Total Market Value % of Total excl. car parking, th sq m. US$ mInitial concept design 6177 75,0% 1923 33,9%Design and permitting 1488 18,1% 2643 46,6%Under construction 499 6,1% 829 14,6%Completed and partially 49 0,6% 121 2,1%sold Operating offices 22 0,3% 156 2,7%TOTAL 8236 100% 5672 100% Real estate portfolio broken down by regions Most of the properties - over 90% of our portfolio both by area and value - arelocated in our home market in St. Petersburg. In addition, as of 31 December 2007 we had three properties at different stagesof implementation in Moscow and an area of land in Yekaterinburg. By regions Region Net sellable/leasable % of Total Market Value % of Total area, excl. car parking, th sq m. US$ mSaint-Petersburg 7497 91,0% 5172 91,2%Leningrad Region 177 2,1% 178 3,1%Moscow 62 0,7% 232 4,1%Yekaterinburg 500 6,1% 89 1,6%TOTAL 8236 100% 5672 100% CORPORATE GOVERNANCE For the purposes of the introduction of the best practices of corporategovernance and transparency, a new composition of the Board of Directors of OJSC"LSR Group" was adopted which included two independent directors for the firsttime in the history of the company. The new Board of Directors has establishedtwo committees - the Audit Committee and the Recruitment and RemunerationCommittee. Both committees were chaired by Sergei Skatershchikov, an independentdirector, who has extensive experience of working on the boards of directors ofa number of major companies. OUTLOOK 2008 We expect that in 2008 the positive trend of growth in the construction marketin Russia will be maintained and are confident that LSR Group will record stronggrowth in 2008. The increase in production capacity and the modernisation of equipment which wecarried out during the previous year will allow us to achieve high rates ofgrowth in production and sales of building materials and to improve thefinancial performance. In 2008, we also plan to complete a number of major development projects, whichwill make it possible to increase the revenues and profitability of this area ofour business. We expect an increase in the profitability of the developementbusiness thanks to the reflection in the accounts for 2008 of the increase inthe prices of property which occurred in 2006 and 2007. In 2008, we will continue actively to implement our strategy of geographicalexpansion into key market areas - Moscow, the Urals and the Ukraine, marketswhich will be our source of profitable growth in the future. We will continue to implement our investment program, including the constructionof a cement and brick plant in Leningrad region, an increase in the capacity andmodernisation of our prefabricated panel production facilities and a number ofother projects which will allow us to consolidate our market positions in thefuture. EVENTS AFTER THE REPORTING DATE Investment projects In 2007 LSR Group passed from the preparatory stage to the practicalimplementation of the 2nd major investment project for the construction ofcement and brick production in the territory of Leningrad region. The companyconcluded a contract for the amount of 126 million Euros for the development oftechnology and the delivery of a complete set of equipment for cement productionwith the well-known Danish group "FLSmidth & Co. A/S", and also conducted atender and at the start of 2008 concluded a supply agreement for the equipmentand for the new plant for the production of brick. The contract for the amountof 71 million Euros was concluded with the world's leading producer of equipmentfor the production of ceramic construction materials, the internationalindustrial group "CERIC". At the start of 2008 tenders were also carried out and contracts were concludedfor the total amount of approximately 258 million Euros for the complete complexof construction works for the implementation of both production facilities. Thebuilding of the new brick production plant is being carried out by ZAO "Kompakt"and that of the cement production by OOO "Northwest Cement",a 100% subsidiary ofChinese state company Hefei Cement Research and Design Institute. The commissioning of both production facilities is planned for 2010. Corporate Governance The extraordinary meeting of shareholders of OJSC "LSR Group" approved the newcomposition of the Board of Directors in the number of 7 members (3 of whom wereindependent directors) and also a change in the articles of association of OJSC"LSR Group", according to which, for the purposes of strengthening the role ofthe Board of directors, all transactions carried out by the subsidiary companiesof LSR Group for the acquisition or sale of shares or holdings of othercompanies and also large transactions require the additional approval of theBoard of Directors. The board of directors of LSR Group re-elected the chairman, approved thecreation of the Committee for Strategy and Investments and also elected themembers of the Audit Committee and the Recruitment and Remuneration Committee.All three committees are chaired by independent directors, with extensiveexperience in the boards of directors of a number of major Russian and foreigncompanies. The elected chairman of the Audit Committee is Seppo Yukha Remes, thechairman of the Recruitment and Remuneration Committee is Sergei Skatershchikovand the chairman of the Committee for Strategy and Investments is Lauri Ratia. Geographical Development. Mergers and Acquisitions. Introduction of NewProduction Facilities In order to improve its portfolio of development projects in the Urals region,LSR Group has acquired 100% of the shares of OOO "Promrezerv", an Ekaterinburgcompany which owns the long-term lease rights of a land section of 9.8 ha inEkaterinburg. The value of the transaction is approximately 7.1 million Euro.In the acquired section the building is planned of mass market residential realestate with a total area of 147 thousand square metres. LSR Group has acquired 100% of the shares of OOO "Kaskad", the owner of twodeposits of quarry sand "New Toksovo" and "Kingiseppsky GOK", the total volumeof reserves of which amount, according to the licence, to more than 14.5 millioncu. m of sand. The value of the transaction is 308 million rub. (approximatelyUS$12.5 million). For the purposes of entry into the market for construction and buildingmaterials in the Urals region, LSR Group has acquired 87% of the shares of theEkaterinburg company "Betfor", the leader in the production of prefabricatedpanels and building materials. The amount of the transaction was 57 millionEuros. For control of this company, and also land assets previously acquired inthe region a decision has been taken for the creation of the new business unit "LSR- Urals". The plant "Betfor" was acquired by LSR Group from the Ural holdingcompany "NOVA-GROUP" in the context of the agreement concluded with "NOVA-GROUP"for the acquisition of a number assets in Ekaterinburg in the segments ofbuilding materials and real estate. At present LSR Group is at the final stageof comprehensive due diligence of a number of other assets of "NOVA-GROUP" withregard to their possible acquisition. For the purposes of strengthening its positions in the market for buildingmaterials of the Ukraine, LSR Group has proceeded to the acquisition of 97% ofthe shares of OJSC "Obukhiv Porous Concrete Plant", the leader in the market ofaerated concrete of the Ukraine and the main supplier in the Kiev region. Theamount of the transaction is 30 million Euros. It is planned to complete theprocess of the acquisition in the summer of 2008. LSR Group commenced the installation of a new crushing and sorting plant for theproduction of crushed granite in Leningrad region, for the new Vyborg area. Theprojected capacity of the plant is 660 thousand cubic metres of crushed graniteper year. The investments in the project, including the delivery of equipment,infrastructural works and the acquisition of technology amount to approximately$12 million dollars. The end of the installation works is planned for the end ofApril, and the start of the production for May - June 2008. Debt market LSR Group completely repayed its first rouble bond, whose placement occurred inMarch 2005. The volume of the loan is 1 billion RUR Legal disclaimer: NOT FOR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES,AUSTRALIA, CANADA OR JAPAN Some of the information in these materials may contain projections or otherforward-looking statements regarding future events or the future financialperformance of the Company. You can identify forward looking statements by termssuch as "expect", "believe", "anticipate", "estimate", "intend", "will","could," "may" or "might" the negative of such terms or other similarexpressions. The Company wishes to caution you that these statements are onlypredictions and that actual events or results may differ materially. TheCompany does not intend to update these statements to reflect events andcircumstances occurring after the date hereof or to reflect the occurrence ofunanticipated events. Many factors could cause the actual results to differmaterially from those contained in projections or forward-looking statements ofthe Company, including, among others, general economic conditions, thecompetitive environment, risks associated with operating in Russia, rapidtechnological and market change in the industries the Company operates in, aswell as many other risks specifically related to the Company and its operations. Neither these materials nor any copy of it may be taken or transmitted into theUnited States, Australia, Canada or Japan. These materials do not constitute orform part of any offer or invitation to sell, or any solicitation of any offerto purchase nor shall it (or any part of it) or the fact of its distribution,form the basis of, or be relied on in connection with, any contract therefore.The offer and the distribution of these materials and other information inconnection with the listing and offer in certain jurisdictions may be restrictedby law and persons into whose possession any document or other informationreferred to herein comes should inform themselves about and observe any suchrestriction. Any failure to comply with these restrictions may constitute aviolation of the securities laws of any such jurisdiction. These materials are not an offer for sale of any securities in the UnitedStates. Securities may not be offered or sold in the United States absentregistration or an exemption from registration under the U.S. Securities Act of1933. The Company has not registered and does not intend to register anyportion of any offering in the United States or to conduct a public offering ofany securities in the United States. This communication is directed only at (i) persons who are outside the UnitedKingdom or (ii) persons who have professional experience in matters relating toinvestments falling within Article 19(1) of the Financial Services and MarketsAct 2000 (Financial Promotion) Order 2005 (the "Order") and (iii) high net worthentities, and other persons to whom it may lawfully be communicated, fallingwithin Article 49(2) of the Order (all such persons together being referred toas "relevant persons"). Any investment activity to which this communicationrelates will only be available to and will only be engaged with, relevantpersons. Any person who is not a relevant person should not act or rely on thisdocument or any of its contents. This communication is distributed in any member state of the European EconomicArea which applies Directive 2000/71/EC (this Directive together with anyimplementing measures in any member state, the "Prospectus Directive") only tothose persons who are investment professionals for the purposes of theProspectus Directive in such member state, and such other persons as thisdocument may be addressed on legal grounds, and no person that is not a relevantperson may act or rely on this document or any of its contents. This information is provided by RNS The company news service from the London Stock Exchange