26 Sep 2011 07:00
THE INFORMATION CONTAINED IN THIS ANNOUNCEMENT IS RESTRICTED AND
NOT FOR PUBLICATION, DISTRIBUTION OR RELEASE, DIRECTLY OR
INDIRECTLY IN THE UNITED STATES OF AMERICA
PIK GROUP ("The Group" or "PIK")
FINANCIAL RESULTS FOR THE 6 MONTHS
ENDED JUNE 30 2011
(LONDON, September 26 2011) - PIK (LSE: PIK), a leading Russian residential developer, today announces its consolidated IFRS financial results for 6 months ended June 30 2011.
Financial Summary
·; | Total revenues were up by 50.7% to RUB 22.8billion (1H10: RUB 15.2billion)
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·; | Gross profit increased to RUB 3.7billion (1H10: negative gross profit of RUB44million), while gross profit margin amounted to 16.4% (1H10: negative)
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·; | Earnings before interest, taxes, depreciation and amortization (EBITDA) reached RUB5.0billion (1H10: negative EBITDA of RUB3.2billion)
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·; | Adjusted earnings before interest, taxes, depreciation and amortization (adjusted EBITDA) from development activities were at RUB 1.8 billion (1H10: RUB (1,7) billion))
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·; | Net income came out of the negative territory and reached RUB3.2billion (1H10: net loss of RUB5.2billion)
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·; | Total assets as of June 30 2011 increased to RUB 129 billion (1H10: RUB 122 billion)
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·; | Net debt as of June 30 2011 amounted to RUB 42.5 billion (1H10: RUB 38.9 billion)
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Pavel Poselenov, CEO of PIK Group comments:
"We are pleased with the outcome at the half year stage, which demonstrates positive results for the first time since 2008. This serves as a positive indicator ahead of the seasonally important second half of the year."
Enquiries:
Investors PIK Group Viktor Szalkay
| Tel: +7 495 505 97 33 ext. 1358 / 1315 |
Media Natalia Ivanova
| Tel: +7 495 505 97 33 ext. 1010 /1014 |
Citigate Dewe Rogerson Tom Baldock Priscilla Garcia
| Tel: +44 20 7638 9571 |
REVIEW OF OPERATING AND FINANCIAL RESULTS FOR THE 6 MONTHS ENDED 30 JUNE 2011
Operating overview
The Russian residential real estate market - especially its mass market segment - showed continuing grow in 1H2011. Accordingly, PIK enjoyed healthy sales with prices and buying patterns returning to normality.
In 1H11 PIK's new sales to customers surged by 44% to 229,000 sq meters upon continuing market growth and the diversification of our product offering. During the period 19 new buildings were introduced for sale of which 14 were in the Moscow Metropolitan Area ("MMA").
In '000 sqm | 2008 | 2009 | 2010 | 1H10 | 1H11 | Change y-to-y, % |
Total housing completions(1) | 813 | 884 | 739 | 245 | 354 | 44.5% |
New sales contracts to customers(1) | 520 | 123 | 392 | 159 | 229 | 44% |
Transfers to customers(2) | 378 | 492 | 434 | 152 | 260 | 71% |
Source: (1) Management accounts
(2) as per revenue recognition policy adopted under IFRS
PIK's construction activity during the period grew substantially, with total housing completions up by 44.5% to 354,000 sq meters. Transfers to customers under PIK's own development projects reached 260,000 sq meters (1H10: 152,000 sq meters).
At the same time, effective selling prices for PIK's apartments, which are presold at the construction stage, enjoyed positive trends. Overall, consumer confidence is back and individuals are buying real estate from the early stage of construction. Selling prices in Moscow were up by 10% (not including our English Town business-class project, where the price growth was over 20%), while in Moscow region and other Russian regions they increased by 8.2% and 4.4% respectively.
Average property prices(1)(2) (in '000 RUB per square meter) | FY2010 | 1H2011 | Change, % |
Moscow | 113.8 | 140.0 | 23.0% |
Moscow(excl. business-class) (3) | 103.7 | 114.1 | 10.0% |
Moscow region | 64.1 | 69.4 | 8.2% |
Other regions | 36.4 | 38.0 | 4.4% |
Note: (1) PIK is preselling properties at different stages of construction. Selling prices vary depending on geographic location, size, floor location, stage of construction. Accordingly, average prices per square meters represent blended average price calculations of the above.
(2) Calculated for property under construction on contracts with retail customers
(3) I.e. English Town project, which was launched in 4Q2010
Source: Management accounts
Mortgage market dynamics were extremely strong as PIK continued to established partnership mortgage programs (i.e. special programs tailored to PIK's product) with most of the leading banks. Currently, PIK has ten existing mortgage partners, including Sberbank, VTB24, Gazprombank, as well as Bank Vozrogdenie, Rosbank, Nordea, Investtorgbank and Bank Baltica. PIK has also recently entered into a mortgage partnership agreement with Nomos Bank, its second largest creditor.
The increased number of partner banks and mortgage programs resulted in substantial growth of sales funded by mortgages. Share of sales funded by mortgages reached 25.3% in 2Q11 and in August 2011 exceeded 30%.
Share of mortgage funded retail sales (000' sqm) | 1Q10 | 2Q10 | 3Q10 | 4Q10 | 1Q11 | 2Q11 | |
Share of sales funded by mortgages (1) | 3.1% | 6.4% | 9.3% | 7.5% | 12.4% | 25.3% |
Note: (1) based upon retail sales, calculated upon flats only
Source: Management accounts
Portfolio of properties overview
The Group has a substantial landbank, acquired before the financial crisis. As of June 30 2011, the total net sellable area amounted to 10.1 million square meters. The Group's core MMA market accounted for 46% of the total landbank by space and 87% by value.
Last year's market recovery was accompanied by higher prices and an accelerated development pipeline. This together with ruble appreciation has led to a revision in the assumptions used by PIK Group's independent land value appraiser, CBRE, when valuing the portfolio. As a result, the market value of the portfolio rose by 12.5% to US$2.7bn (December 31 2010: US$2.4bn). Market value per sq. m showed an 18.5% increase to US$269 (December 31 2010: US$227).
The current market environment offers opportunities to enter into new MMA based projects through co-investment processes (e.g. no cash up-front payment for land acquisition). PIK carefully considers small- and middle-sized projects in the MMA with higher profitability, faster cash conversion cycle and minimal working capital requirements. The Group has signed memorandums of understanding on a number of such projects.
Portfolio of properties by region | Number of properties (1) | Net selling area, PIK share ('000 sqm) | Unsold area ('000 sqm) | Value ($MM) |
Moscow | 27 | 1,729 | 1,019 | 1,398 |
Moscow region | 25 | 5,338 | 3,668 | 979 |
Other regions | 48 | 5,911 | 5,422 | 347 |
Total | 100 | 12,883 | 10,109 | 2,724 |
Source: CB Richard Ellis valuation report
(1) I.e. number of projects
Top-10 key projects by value | December 31 2010 | June 30 2011 | ||||
Project Name | Location | Type | Unsold area ('000 sqm) | Value ($MM) | Unsold area ('000 sqm) | Value ($MM) |
Mantulinskaya St., 7 | Moscow | High-end residential | 254 | 339 | 122 | 360 |
Mytischi, Yaroslavsky | Moscow region | Mass market residential | 677 | 231 | 660 | 264 |
Khimki, Sovkhoznaya str. | Moscow Region | Mass market residential | 288 | 115 | 340 | 193 |
Kuntsevo | Moscow | High-end residential | 150 | 147 | 151 | 177 |
Khimki, Novokurkino | Moscow region | Mass market residential | 286 | 150 | 277 | 167 |
Kommunarka, plot #27 | Moscow region | Mass market residential | 1,079 | 127 | 1,079 | 161 |
Mytnaya, 13 (English Town) | Moscow | High-end residential | 34 | 160 | 26 | 130 |
Michurinsky pr-t., district 5-6 | Moscow | High-end residential | 65 | 101 | 64 | 129 |
Perovskaya str., 66 | Moscow | Mass market residential | 127 | 90 | 139 | 114 |
Varshavskoe highway, own. 141 | Moscow | Mass market residential | 115 | 78 | 130 | 105 |
Subtotal | 3,041 | 1,543 | 2,988 | 1,800 | ||
As of total, % | 28.7% | 64.2% | 29.6% | 65.8% | ||
Source: CB Richard Ellis valuation report
Financial overview
Total revenues were up by over 50% to RUB22.8billion (1H10: RUB15.2billion) driven by increased sales of apartments from RUB10.2billion to RUB17.9billion. Revenue from apartments sales accounted for 79% of total sales (1H10: 68%), while revenue from construction services contributed 9% of total sales (1H10: 21%). The balance of revenues came from other businesses, such as facilities management and the sale of construction materials.
Revenue from the sale of apartments was up due to increased transfers to customers amounting to 260,000 sq meters (1H10: 152,000 sq meters). Average selling prices, calculated as revenue from apartment sales divided by transfers to customers, was slightly up by 2.7% to RUB69,000 per sq meter. Overall, increased revenues were driven mostly by volume growth rather price growth (as sales starts in most of the projects has been moved more closely to the initial stages of construction).
Gross profit totaled RUB3.7billion (1H10: gross loss of RUB44million). The gross profit margin accordingly for 1H11 was 16.3% (1H10: gross profit was negative).
Growth in G&A and S&G expenses, up by 10.6% to RUB2.2billion (1H10: RUB2.0billion), was kept below the rate of sales revenue growth. The Group is continuing with a programme to keep costs down as a proportion of income.
In 1H11, PIK managed to cancel all penalties and fines relating to late loan repayment and penalties relating to late completions under investment contracts. This cancellation was recorded as a reversal of bank penalties of RUB1.3bn and a reversal of penalties for late completion of RUB0.6bn in the income statement. Additionally, a forex gain of RUB0.9billion was also booked given ruble appreciation during the period.
As result of the above, EBITDA reached RUB5.0billion (1H10: negative EBITDA of RUB3.2billion) and Adjusted EBITDA was RUB 1.8 billion (1H10: RUB (1.7) billion).
For the first time since 2008 net income turned into positive territory and amounted to RUB3.2billion (1H10: RUB5.2billion).
Total assets grew to RUB129billion (December 31 2010: 122billion). Total equity turned positive to RUB1.2billion (December 31 2010: negative equity of RUB2billion).
Inventories were up by RUB9.2billion to RUB76.9billion as work in progress advanced on existing projects under construction. On the back of significant growth of new sales to customers, accompanied by restored customer confidence, advances from customers were up by RUB9.5billion to RUB39.4billion (December 31 2010: 29.9billion).
Since December 31 2011, total debt increased by RUB1.0billion to RUB45.0billion as PIK continued to draw down on an open credit facility from Sberbank and repay some of the small credit facilities which came due during 1H11. Net debt amounted to RUB42.5billion (December 31 2010: RUB39.6billion).
The Group's loan agreements contain a number of covenants and restrictions, which include, but are not limited to, financial ratios, maximum amount of debt, and cross-default provisions. Covenant breaches generally permit lenders to demand accelerated repayment of the principal and interest. As at 30 June 2011 the Group breached the following financial covenants in various loan agreements with the carrying value of RUB 4.9billion (2010: RUB 27.3billion): the debt to EBITDA ratio and amounts payable under lawsuits against the Group.
In June 2011 the Group obtained a letter from its major creditor Sberbank, which confirmed that the bank does not intend to demand early repayment of loans totalling RUB 26.0billion as a consequence of the breach of covenants. These loans have been classified as non-current loans as at 30 June 2011. In addition to that, in September 2011, the Group received a waiver from one of its creditors, Rosbank. Given that the date of this waiver is subsequent to the reporting period, the loan was classified as a current liability as at 30 June 2011.
In September 2011, the Group attracted a new long-term loan amounting to RUB1.2billion. The loan matures in 2013-2015. With the proceeds the Group fully repaid an outstanding loan to Absolutbank, classified as a current liability as at 30 June 2011 in the amount of RUR 1.2billion.
Outlook
PIK believes that it is well-positioned to take advantage from the continuing market growth in Moscow Metropolitan Area and capture potential upside recovery in Russia's regions.
Note: The calculation of following measures used in this announcement is set below. Our calculations of the below measures may be different from the calculation used by other companies and therefore comparability may be limited. The below measures are not measures of financial performance under IFRS.
1). EBITDA represents net profit/loss for the period before income tax expenses, interest income, interest expense including penalties payable, depreciation and amortization.
1H11 | 1H10 | ||
MM RUB | MM RUB | ||
Net (Loss)/profit for the period | 3,186 | -5,171 | |
Depreciation and amortisation | 339 | 383 | |
Interest expense including penalties payable | 789 | 3,283 | |
Interest income | -115 | -211 | |
Income tax expense/(credit) | 830 | -1,514 | |
EBITDA | 5,029 | -3,230 |
2) Adjusted EBITDA from development activities represents EBITDA before impairment losses and reversal of impairment, impairment losses on financial assets, foreign exchange losses (gains), share of loss of equity accounted investees, net gain/loss on disposal of PP&E, gain/loss on disposal of subsidiaries and development rights, effect of termination of long-term land lease agreements, provision for doubtful accounts and accrued penalties and fees.
1H11 | 1H10 | |||
MM RUB | MM RUB | |||
Net (Loss)/profit for the year | 3,186 | -5,171 | ||
Depreciation and amortisation | 339 | 383 | ||
Income tax expenses/(credit) | 830 | -1,514 | ||
Interest expenses, including penalties payable | 789 | 3,283 | ||
Interest income | -115 | -211 | ||
Impairment (reversals) /losses | -1 710 | 613 | ||
Impairment losses/(reversals) on financial assets | -15 | 528 | ||
Forex loss / (gain) | -894 | 472 | ||
Share of loss of equity accounted investees | 0 | 33 | ||
(Gain)/loss on disposal of PP&E | 4 | -6 | ||
Gain on disposal of subsidiaries and development rights | 0 | -331 | ||
Effect of termination long-term land lease agreements | 0 | -857 | ||
Provision for doubtful accounts | 0 | 0 | ||
Accrued penalties and fines\(reversals) | -584 | 1 039 | ||
Adjusted EBITDA from development activities | 1,830 | -1,739 |
3. Total assets calculated as sum of non-current and current assets.
June 30 2011 | December 31 2010 | ||
MM RUB | MM RUB | ||
Total non-current assets | 34,139 | 32,632 | |
Total current assets | 95,358 | 89,529 | |
Total assets | 129,497 | 122,161 |
4. Total debt calculated as sum of non-current loans and borrowings, current loans and borrowings.
June 30 2011 | December 31 2010 | ||
MM RUB | MM RUB | ||
Non-current loans and borrowings | 28,937 | 4,916 | |
Current loans and borrowings | 16,095 | 39,062 | |
Total debt | 45,032 | 43,978 |
5. Net debt calculated as total debt less cash and cash equivalents.
June 30 2011 | December 31 2010 | ||
MM RUB | MM RUB | ||
Total debt | 45,032 | 43,978 | |
Cash and cash equivalents | -2,503 | -4,350 | |
Net debt | 42,529 | 39,628 |
This press-release does not constitute or form a part of, and should not be construed as, an offer or invitation to subscribe for or purchase any securities of PIK and neither this press-release nor anything contained herein shall form the basis of, or be relied on in connection with, any offer or commitment whatsoever.
Matters discussed in this press-release may constitute forward-looking statements. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements, which are other than statements of historical facts. The words "believe", "expect", "anticipate", "intend", "estimate", "forecast", "project", "will", "may", "should" and similar expressions identify forward-looking statements but are not the exclusive means of identifying such statements. Forward-looking statements appear in a number of places in this press-release and may include statements regarding: strategies, outlook and growth prospects; future plans, expectations, projections and potential for future growth; plans or intentions relating to acquisitions; future revenues and performance; liquidity, capital resources and capital expenditures; economic outlook and industry trends; the impact of regulatory initiatives; competitive strengths and weaknesses; and the strengths of competitors. The forward-looking statements in this press-release are based upon various assumptions, many of which are based, in turn, upon further assumptions, including, without limitation, management's examination of historical operating trends, data contained in PIK's records and other data available from third parties. Although PIK believes that these assumptions were reasonable when made, these assumptions are inherently subject to significant known and unknown risks, uncertainties, contingencies and other important factors which are difficult or impossible to predict and are beyond its control. Such risks, uncertainties, contingencies and other important factors could cause the actual results of PIK or the industry to differ materially from those results expressed or implied in this press-release by such forward-looking statements. No representation is made that any of these forward-looking statements or forecasts will come to pass or that any forecast result will be achieved and you are cautioned not to place any undue influence on any forward-looking statement. No one undertakes to publicly update or revise any such forward-looking statement.