ANNUAL REPORT 2012 2012 results highlights
Financial highlights
‣‣ Revenue increased by 18%, up to RUB 61,122 m. ‣‣ EBITDA increased by 32%, up to RUB 13,392 m. ‣‣ EBITDA margin increased from 20% to 22%. ‣‣ Total comprehensive income increased by 102%, up to RUB 4,914 m. ‣‣ Net debt/EBITDA ratio decreased from 3.33 to 2.65.
Operational highlights Revenue ‣‣ New contract sales - 447 th m² (+31%). Value of the contracts - RUB 37 bn (+46%). ‣‣ Construction volume increased by 25%, up to 725 th m². ‣‣ Capacity utilisation in Bricks, Aerated concrete, Crushed granite > 90%. ‣‣ First year of cement plant operation: 19% market share at 66% capacity utilisation. ‣‣ New brick plant launched in the Leningrad region in December 2012. 61,122 RUB m
Revenue RUB m EPS RUB
2012 61,122 2012 48.06 2011 51,910 2011 23.93 2010 49,950 2010 17.76 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 0 10.00 20.00 30.00 40.00 50.00 60.00 70.00 80.00 90,00 100,00
EBITDA and EBITDA margin RUB m and % Net debt/EBITDA
0% 5% 10% 15% 20% 25% 2012 13,392 22% 2012 2.65 2011 10,135 20% 2011 3.3 2010 8,687 17% 2010 3.5 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 0 0.5 1 1.5 2 2.5 3 3.5 4 4,5 5
2 Annual report / 2012 3 Key financials Revenue by region (2012)*
7%
13%
2010 2011 2012
Revenue, RUB m 49,950 51,910 61,122
EBITDA, RUB m 8,687 10,135 13,392 (2012)* EBITDA by region EBITDA, % 17% 20% 22%
80% 5% EBIT, RUB m 6,307 7,703 10,668 4% EBIT, % 13% 15% 17%
Profit before income tax, RUB m 2,496 3,734 6,420
Profit for the year, RUB m 1,742 2,432 4,914 LSR. North-West LSR. Moscow Total comprehensive income, RUB m 1,693 2,439 4,914 LSR. Urals 2010 2011 2012
91% Equity, RUB m 53,144 53,947 56,701
Total debt, RUB m 31,703 38,922 39,475
Net debt, RUB m 30,376 33,728 35,508
Net debt/EBITDA 3.5 3.3 2.65
2010 2011 2012
Revenue by segment (2012)* Earnings per share, RUB 17.76 23.93 48.06
Dividend per share, RUB 15 20 20
Share price at year-end, RUB* 1,025 462 561 31% 32% Shares outstanding, units 103,030,215 103,030,215 103,030,215
Market capitalisation at year-end**, RUB m 105,616 47,610 57,790
*Ordinary share price on MICEX *Based on ordinary share price on MICEX EBITDA by segment (2012)*
20% 37% 35%
LSR. Building materials LSR. Real estate LSR. Construction
45%
* Before inter-group eliminations, unallocated amounts and other operations 4 Annual report / 2012 5 Contents
20 years of success 10 Statement of Chairman of the Board of Directors and Chief Executive Officer 17 Key events 20 Strategy 27 Geographical development 30 Corporate structure 38 Market 42 ‣‣Macroeconomic overview ‣‣St. Petersburg and the Leningrad region ‣‣Moscow and the Moscow region ‣‣Yekaterinburg Review of operating and financial results 58 ‣‣Key financials ‣‣Real estate development ‣‣Construction ‣‣Building materials Real estate portfolio 84 Corporate governance 98 Share capital 116 Risks 118 Social responsibility 126 ‣‣Our people ‣‣Environment ‣‣Charity Glossary 138 Contacts 140
6 Annual report / 2012 7 « It is almost impossible to compare ProfessioLSR Group in the 90s with today’s company. Over the last decade we turned from a large and successful company into a very large and very successful company. We expanded nalismthe range of our products and developed new business lines. We explored new geographical markets and started investing abroad. We decided to go public and conducted IPO and SPO. I wish our company to retain its distinctive characteristics including entrepreneurial talent, business reputation, reliability and professionalism, commitment to perfection. »
Dmitri Gontcharov Chairman of the Board of Directors
8 Annual report / 2012 9 20 years of success
LSR Group is one of the leading Russia’s real estate and building materials companies. The vertically integrated business model comprising real estate development, construction and production of building materials is our key competitive advantage in the domestic market. The state-of-the-art interaction between the company’s business units allows us to provide complex services, control costs and efficiently react to all changes in our key markets.
‣‣20 years of success ‣‣ most technology intensive and energy-efficient cement plant in Russia ‣‣15.5 th employees ‣‣ Russia’s largest brick plant ‣‣ Focus on three key markets – St. Petersburg and the Leningrad region, ‣‣ N1 producer of bricks and aerated concrete in North-West Russia Moscow and the Moscow region, Yekaterinburg and the Urals Region ‣‣ N1 producer of aerated concrete in Ukraine ‣‣14 business units ‣‣ N1 producer of crushed granite, sand and ready-mix concrete in ‣‣40 advanced and effective production facilities North-West Russia
‣‣ 8,659 th m² – our current real estate portfolio ‣‣ N1 producer of reinforced concrete in North-West Russia ‣‣ approximately 500 residential and commercial real estate projects ‣‣ largest tower cranes fleet in North-West Russia, modern cranes and completed high-quality lifting services
‣‣3.5 m m² of housing completed, 56 th families living in the apartments built ‣‣ In November 2007, LSR Group carried out IPO. Our ordinary shares by LSR are traded at MICEX and GDRs – at London Stock Exchange. In April 2010, we carried out SPO. ‣‣ advanced prefab factories in St. Petersburg, Moscow and Yekaterinburg ‣‣ cutting-edge Russian and European technologies at our enterprises
10 Annual report / 2012 11 « We are satisfied with the achieved results and prepared for successful operations in the growing markets in 2013. » FurtherDmitri Gontcharov Chairman of the Board of Directors growth
12 Annual report / 2012 13 All-time records« The year of 2012 was successful for the company. Our results not only exceeded the pre-crisis level but also set several all-time records. »
Aleksandr Vakhmistrov CEO, Chairman of the Executive Committee
14 Annual report / 2012 15 Statement of Chairman of the Board of Directors and Chief Executive Officer
Aleksandr Vakhmistrov CEO, Chairman of the Executive Committee
Dmitri Gontcharov Chairman of the Board of Directors
Dear shareholders, colleagues and partners!
The year of 2012 was successful for the company. Our results not only exceeded the pre-crisis level but also set several all-time records.
During the reported period in all our regions of operations we completed 817 th m² of housing. Our real estate development business units in all regions reported record sales of 447 th m², up 31% year-on-year. The year saw stable growth of our building materials sales, primarily crushed granite, sand and aerated concrete. In general we are satisfied with our 2012 results and ready for further growth in 2013. The company’s development is based upon the available resources required for further expansion as well as upon the dedicated team of professionals.
16 Annual report / 2012 17 Market Real Estate Portfolio
In 2012, Russian construction market continued to grow. According to Rosstat, the volume As of 31 December 2012, our real estate portfolio amounted to 8.7 m m², its market value Leadingof construction works increased by 2.4% against 2011. Housing completions amounted estimated at RUB 120 bn, according to Cushman & Wakefield. to 65.7 m m² (or 838 th units), up 5.5% year-on-year and above the pre-crisis level. The fundamental demand for housing along with the improved macro environment spurred pre- Almost 80% of our portfolio in terms of net sellable area and 73% in terms of market value sales of housing at early construction stages. Mortgage lending remains one of the driving is located in St. Petersburg. As part of our expansion strategy in the Moscow region and forces behind mass market housing demand. According to Russia’s Central Bank, in 2012 Yekaterinburg we gradually increase the shares of these regions in the portfolio. In particular, 691 m mortgage loans worth RUB 1,029 bn were approved in Russia. As compared to 2011, the the share of Yekaterinburg grew up to 8% in terms of NSA and up to 4% in terms of market number of loans increased by 32%, their value – by 44%. value. The share of the Moscow region amounted to 13% by NSA and 22% by market value. In 2012, we significantly increased the area of our New Domodedovo project (Moscow region) up Building materials industry was developing actively in 2012. According to Rosstat, cement to 605 th m². production increased by 10%, up to 62 m tonnes in Russia. Production of ceramic bricks was up positionby 10%, to 6.8 bn units, production of reinforced concrete also grew by 10%, to reach 25 m m3. In 2012, we continued to implement the programme aimed to improve the efficiency of our land assets in St. Petersburg. The programme implies relocation of the existing manufacturing Financial Performance facilities from the land plots suitable for residential development to industrial zones. We also started relocation of one of our factories in Yekaterinburg. The programme will allow us to build Growing demand in the company’s key markets had positive impact on our annual results. In additional 900 th m² in St. Petersburg and Yekaterinburg in the near future. It is an undisputed 2012, our revenue increased by 18%, up to RUB 61.1 bn. EBITDA reached RUB 13.4 bn, up 32%. competitive advantage of our company as the deficit of land plots suitable for development EBITDA margin increased from 20% to 22%. Our comprehensive income grew two times, to within the city boundaries is increasing. RUB 4.9 bn. 2013 plans and prospects The financial results of our real estate development business in 2012 reflect completions and transfers in accordance with our construction schedule. In 2012, in all regions of operations, In 2012, we demonstrated impressive results and laid the basis for sustainable growth we transferred to our customers 248 th m² and completed 332 th m². During the year we of our business in the coming years. Our efforts aimed to optimize value and structure of started pre-sales in several long-anticipated projects, which allowed us to increase supply the land bank will allow us to increase the supply of mass market housing in all regions of of real estate and benefit from favourable market conditions while increasing our housing operations significantly. In the first months of 2013 we started pre-sales of approximately pre-sales. As a result, in 2012 we entered into new contracts with our customers for the 190 th m². Till the end of 2013 we intend to launch several new projects to the market. The sale of 447 m², up 31%. The total value of the contracts amounted to RUB 37 bn (+46%). In ongoing investments into upgrade of our production capacities will allow us to strengthen our particular, in St. Petersburg we signed new contracts for the sale of 272 th m², which is an all- leadership in the market for building materials and confirm our status as one of the leading time record for the company. Our new contract sales in Moscow (92 th m²) and Yekaterinburg construction companies in Russia. (82 th m²) also set all-time records for the company’s real estate development business in these regions. In 2013, we intend to increase supply of real estate in all regions of operations.
The increased volume of construction works driven by the demand in the real estate market ensured growth of building materials consumption which had a positive impact on the financial performance of our building materials division. At the end of the year we completed one of our key investment projects – construction of a new brick plant in the Kirovsky district of the Leningrad region. The new facility has an annual capacity of up to 160 m bricks and will become the largest producer of bricks in Russia. We have also increased the scope of our building materials business in the Moscow region - in June we put into operation a brick plant with a total capacity of approximately 63 m bricks in Pavlovsky Posad (Moscow region).
The year of 2012 saw sustainable growth of our construction business. We have completed a large-scale modernisation of our pre-fabricated factory in St. Petersburg, which began in 2006. As a result the capacity of the factory will increase up to 500 th m².
18 Annual report / 2012 19 Key events 2012
August
July We opened an integrated sales center of LSR. Real Estate – June We increased the total area of North-West business unit in New Domodedovo project twice, St. Petersburg. May We put into operation our brick up to 605 th m². plant with an annual capacity of April We completed 33 low-rise EURO- approximately 63 m bricks in the houses in our Novoye Nakhabino Moscow region. March Our business unit LSR. real estate development project Construction – North-West in the Moscow region. February We entered into a contract to became the winner of Builder of build a residential project with the Year - 2011 contest as the January We completed construction of six a total area of around 87 th m² best building materials producer multi-storey residential buildings in the Northwest district of and the best company working Our residential project Smolny with a total area of 140 th m² for Moscow. under public procurement Park, which is currently under military personnel in Balashikha contracts. construction in St. Petersburg, (Moscow region). was awarded a Bronze Diploma of the 19th International Festival “Architecture-2011”.
LSR Group was ranked N. 4 real estate developer in the Moscow region by total area of housing under construction. The We started construction of a new rating was based on the survey residential project with a total conducted by Real Estate Digest area of approximately magazine and the web-portal 120 th m² on the land plot www.1dom.ru. previously occupied by our reinforced concrete factory in St. Petersburg.
20 Annual report / 2012 21 Key events December 2013 November We launched our new brick plant with an annual production October We completed construction of capacity of up to 160 m bricks in Yuzhny, a large scale residential the Leningrad region. The plant March September According to “Capitalisation-200” project with a total area of will become the largest producer rating by the agency Expert RA, 264 th m² in St. Petersburg. of bricks in Russia. February We started construction of a new According to RBC magazine LSR Group for the third time was residential project New Okhta rating, LSR Group was one ranked N1 construction company We started pre-sales in three with a total area of 806 th m² in of the five largest real estate in Russia by market value. new projects with a total area St. Petersburg. development companies in of 450 th m² in St. Petersburg - Russia by sales revenue and real According to TOP 250 rating House on Dvoryanskaya, Viva and We started pre-sales in our estate portfolio in 2011. by Expert Northwest Research Kalina-park. new low-rise residential Centre, LSR Group was the neighbourhood Michurinsky Our business units became largest construction company with a total area of 232 th m² in winners of Leaders of in Northwestern Russia by 2011 Yekaterinburg. Construction Quality-2012 sales. We started supply of high contest. In total we received 9 strength cement to construction diplomas in various nominations We started construction of a new companies in Northwest Russia. including the grand prix. residential complex Yuzhnaya Akvatoriya with a total area of We completed million m² of mass Our residential project New 346 th m² in St. Petersburg. market housing - 72 projects. Domodedovo in the Moscow region became the winner of We started construction and All-Russian Competition of pre-sales in our new residential Integrated Development Projects complex Kvartet, with a total set up by the Ministry of Regional area of 107 th m² in Development in the category St. Petersburg. “Improvement of environmental performance and energy We launched a new crushed efficiency of land development”. granite plant in Borovinka (the Leningrad region) with an annual Our project Karolina in capacity of 500 th m3. St. Petersburg was awarded as “The best completed real estate development project in domestic real estate market” in the category “Residential real estate” in FIABCI competition.
22 Annual report / 2012 23 « Our key short-term growth drivers will be real estate development and construction in the mass market segment, as well as production of cement and crushed granite. We also expect significant efficiency gains in our brick Activeproduction business. » Vladimir Loginov developDeputy CEO Business development
24 Annual report / 2012 ment 25 Strategy
Real estate development and construction
‣‣ Expand our presence in the mass market housing segment in Northwest Russia, the Moscow region and Urals.
‣‣ Maintain optimal size of our land bank, use land plots previously occupied by our production facilities effectively.
‣‣ Benefit from the vertical integration with our prefab factories in all three regions of operations.
‣‣ Increase the scope and expand the geography of project management and engineering services.
Building materials
‣‣ Maintain our leading positions in the markets for sand, crushed granite, cement, bricks, aerated concrete, reinforced concrete, ready-mix concrete in Northwest Russia.
‣‣Strengthen our positions in the markets for bricks and ready-mix concrete in the Moscow region.
‣‣ Increase efficiency and reduce production costs due to advanced technologies, state-of-the-art equipment and cutting-edge process control systems.
26 Annual report / 2012 27 « Initially our key businesses were concentrated in St. Petersburg and the Leningrad region. However over the last decade we made a leap from regional to national presence and started operating in other regions of Russia. »
Elena Tumanova COO National presence28 Annual report / 2012 29 Geographical St. Petersburg and the Leningrad region
Population: development ‣‣ St. Petersburg – 5 m people (4%), ‣‣ Leningrad region – 1.8 m people (1%).
Share in Russia’s GDP: ‣‣ St. Petersburg – 5%, The main principle of our geographical development strategy is to focus ‣‣ Leningrad region – 1%. our managerial and financial resources on winning and maintaining leading positions in several key markets.
4% 5% Currently we operate in 3 key regional markets: GDP POPULATION 1% 1% OF RUSSIA ‣‣St. Petersburg and the Leningrad region; ‣‣ Moscow and the Moscow region; St. Petersburg ‣‣Yekaterinburg and the Urals region. Leningrad region
St. Petersburg Unit Capacity and the Leningrad region
Reinforced concrete th m3 538
Ready-mix concrete th m3 1,440
Bricks m units 235
Aerated concrete th m3 375
Cement m tonnes 1.86
Crushed granite th m3 6,688
Sand th m3 22,270
Tower cranes units 168
Pre-fabricated construction th m² 500
St. Petersburg and the Leningrad region are our home market where the main part of our business is concentrated today.
In St. Petersburg and the Leningrad region we are engaged in real estate development and construction in all segments from mass market to elite real estate. We produce aggregates (sand, crushed granite) and building materials (bricks, cement, reinforced concrete, ready-mix concrete, aerated concrete), provide tower crane rental and pile foundation services. The head office of our project management and engineering services business unit is also located in St. Petersburg.
Our business units are the leaders in all our key markets in St. Petersburg and the Leningrad region.
30 Annual report / 2012 31 Moscow and the Moscow region Yekaterinburg and the Sverdlovsk region
Population: Population: ‣‣ Moscow – 12 m people (8%), ‣‣ Yekaterinburg – 1,4 m people (1%), ‣‣ Moscow region – 7 m people (5%). ‣‣ Sverdlovsk Region (including Yekaterinburg) – 4,3 m people (3%).
Share in Russia’s GDP: Share in Russia’s GDP: ‣‣ Moscow – 23%, ‣‣ Sverdlovsk Region – 3%. ‣‣ Moscow region – 5%.
23% 8% 1% POPULATION GDP POPULATION GDP 5% OF RUSSIA 5% OF RUSSIA 3% 3%
Moscow Yekaterinburg Moscow region Sverdlovsk Region
Moscow Unit Capacity Yekaterinburg Unit Capacity and the Moscow region and the Sverdlovsk region
Ready-mix concrete th m3 800 Pre-fabricated construction th m² 200
Bricks m units 63
Tower cranes units 53 Yekaterinburg is the industrial, trade and cultural centre of the Urals region. It is the fourth Pre-fabricated construction th m² 200 largest city of Russia and one of the largest real estate markets in the country. That is why we continue to develop our business in Yekaterinburg. In 2012, we increased our land bank in the city up to 0.7 m m². Apart from real estate development business we are engaged in pre- The local market for real estate and building materials is the largest in Russia. That is why fabricated construction in Yekaterinburg. it is considered a priority direction for the company’s geographic expansion. We set up our business in Moscow in 2001. Today we take part in the projects with a total area exceeding 2 m m² in Moscow and the Moscow region either as an investor or developer or contractor, including contracting under government orders. We also run a pre-fabricated factory in the region, produce ready-mix concrete and bricks, as well as provide tower cranes rental services.
32 Annual report / 2012 33 Ukraine
In Ukraine we focus on developing leadership in the market for aerated concrete. Currently we operate two production facilities in Kiev region - Berezan and Obukhov plants. We are one of the largest producers of aerated concrete in Ukraine.
Ukraine Unit Capacity
Aerated concrete th m3 731
Europe
We set up our business in Munich, Germany in 2003. Our business unit is engaged in real estate development projects in Germany and supervises our contracts with foreign manufacturers of construction machinery and equipment.
34 Annual report / 2012 35 « As of today we have created unified corporate structure with similar business units in all regions of operation. Such integration ensures business stability and the company’s resistance to external factors. » Integra-Aleksandr Vakhmistrov CEO, Chairman of the Executive Committee tion
36 Annual report / 2012 37 Corporate LSR. Construction – North-West LSR. Real estate – North-West
structure LSR. Reinforced concrete – North-West
The corporate structure of LSR Group is geographically organised. Three business divisions – LSR. North-West, LSR. Moscow and LSR. Urals correspond to the key markets where the company’s managerial and financial resources are concentrated. LSR. North-West
The business divisions comprise a number of business units based on the products they produce such as LSR. LSR. Cement – North-West Construction, LSR. Real Estate and LSR. Reinforced Concrete.
In 2012, we continued to streamline our organisational structure at the level of business units. In the course of the LSR. Tower cranes – North-West year we consolidated our real estate development companies in St. Petersburg, Moscow and Yekaterinburg into three business units - LSR. Real Estate – North-West, LSR. Real Estate – Moscow and LSR. Real Estate – Urals – and introduced unified project management standards.
LSR Group holding company performs corporate functions and comprises the departments of HR, IT, Finance, Legal, LSR. Управление проектами – North-West Investor relations, Corporate communications, Procurement and Logistics. We also have centralised accounting, IT and legal functions at the level of the holding company. LSR. Bricks – North-West
LSR. Aggregates and ready-mix concrete – North-West
Business structure
LSR. Ready-mix concrete – Moscow
LSR. Moscow LSR. Construction – Urals
LSR. Real estate – Moscow
LSR. Urals
LSR. Construction – Moscow
LSR. Bricks – Moscow
LSR. Real estate – Urals
38 Annual report / 2012 39 « Despite tough competitive environment we managed to maintain leadership in all our key markets. »
Vladimir Loginov MarketDeputy CEO, Business development leader-
40 Annual report / 2012 ship 41 Market
Macroeconomic overview Basic macroeconomic indicators for the period 2008-2012
The year 2012 saw solid growth of Russian economy driven by the increased domestic demand, salaries and wages, 2008 2009 2010 2011 2012 consumer lending and further decrease of unemployment. GDP, annual growth rate 5.2% (7.9)% 4.5% 4.3% 3.4%
In 2012, Russia reported 3.4% GDP growth surpassing its major competitors including Brazil and Poland. Second Real disposable income, annual growth rate 2.4% 3.0% 5.9% 0.4% 4.2% half of the year saw a slowdown in growth due to severe weather conditions. The GDP growth was primarily driven CPI, dec/dec 13.3% 8.8% 8.8% 6.1% 6.6% by the stellar result in the financial services sector (+15%). Industrial production increased by 2.6%, as compared to 2011, mainly due to the strengthening manufacturing component (+4.1%). Fixed investments, annual growth rate 9.9% (16.2)% 6.0% 8.3% 6.7% Average URALS oil price, USD/barrel 94.4 61.1 78.2 109.3 110.5 In 2012, capital investments increased by 6.7% year-on-year, primarily due to a number of large investment projects including construction of our brick plant in the Leningrad region. Net private capital inflow/outflow, USD bn (133.7) (56.1) (34.4) (80.5) (54.1) RUB/USD exchange rate, as of the end of period 29.38 30.24 30.48 32.2 30.4 Construction industry was growing actively in 2012. The number of housing completions amounted to 65.7 m units, up 5.5% year-on-year and above the pre-crisis level. According to Rosstat, the volume of construction works increased by 2.4%.
In 2012, the unemployment rate of 5.5% was the lowest since 1999. The year of 2012 saw further growth of mortgage lending in Russia. According to the Central Bank, 692 th mortgage loans worth RUB 1,032 bn were approved in 2012. As compared to 2011, According to Rosstat, real disposable incomes increased by 4.2% in 2012 driven by the growth in salaries and the number of loans increased by 32%, their value – by 44%. In particular, 690 th mortgage wages. In particular, real wage growth was 7.8%, up 5% against 2011. loans denominated in RUB worth RUB 1,017 bn and 2 th currency-denominated loans worth RUB 15 bn were approved. The average interest rate in RUB was 12.3%, in foreign currency – 9.8%.
2012 +3.4%
2011 +4.3%
2010 Russian GDP +4.5% 2012 2009 +3.4% +7.9% 2008 +5.2%
Russian GDP Annual
2011 2011 +4.2% 2010 +0.4% 2009 +5.9% Real disposable income 2008 +3.0% Annual growth rate +2.4%
42 Annual report / 2012 43 New apartments supply in St. Petersburg th m² St. Petersburg and the Leningrad region
1 qr. 2009 139 2 qr. 2009 200 Real estate market 3 qr. 2009 219 4 qr. 2009 276 Each year more than 2 m m² of housing are completed in St. Petersburg. 1 qr. 2010 153 In 2012, 41.8 th apartments with a total area of 2,577 th m² were 2 qr. 2010 492 commissioned in the city. In the Leningrad region the number of 3 qr. 2010 455 completions was steadily growing during the last four years. In 2012, 4 qr. 2010 421 14.8 th apartments with a total area of 1,149 th m² were commissioned. 1 qr. 2011 237 2 qr. 2011 757 3 qr. 2011 466 4 qr. 2011 520 Housing completions in St. Petersburg m m² 1 qr. 2012 551 2 qr. 2012 383 3 qr. 2012 649 2002 1.2 4 qr. 2012 690 2003 1.8 0 100 200 300 400 500 600 700 800 2004 2.0 2005 2.3 Source: SPb realty 2006 2.4 2007 2.6 In 2012, housing sales in the local market for new housing amounted to 2.5 m m², up 22% 2008 3.2 against 2011. 2009 2.6 2010 2.7 2011 2.7 2012 2.6 Sales of new housing in St. Petersburg th m² 0 0.5 1.0 1.5 2.0 2.5 3.0 3.5
Source: Rosstat 1 qr. 2009 325 2 qr. 2009 304 In 2012, housing supply amounted to 2.3 m m² in St. Petersburg metropolitan area, up 3 qr. 2009 382 15% year-on-year. It is worth mentioning that housing supply in the surrounding territories 4 qr. 2009 448 increased by 60%. Our project Avrora-2 in Nevsky district of the city became the largest project 1 qr. 2010 431 launched to the market in 2012. The project will include 2.5 th apartments with a total area of 2 qr. 2010 486 approximately 120 th m². The corresponding building permit was obtained in September 2012. 3 qr. 2010 600 4 qr. 2010 547 1 qr. 2011 408 2 qr. 2011 446 3 qr. 2011 580 4 qr. 2011 620 1 qr. 2012 620 2 qr. 2012 595 3 qr. 2012 602 4 qr. 2012 688 0 100 200 300 400 500 600 700 800
Source: SPb realty
Mortgage lending remains one of the key drivers behind the growing demand for new housing. Last year 21,872 mortgage loans worth RUB 52 bn were approved in the city. As compared to 2011, the number of loans increased by 40%, their value – by 47%. The average loan size increased by 5% against 2011, to RUB 2.4 m.
44 Annual report / 2012 45 Mortgage lending in St. Petersburg
Number of loans 2011 units
2012 15,622 14.9 2010 35.1
6,857 51.8
21,872 Housing prices in St. Petersburg RUB th/m² Value of loans RUB bn
dec. 2000 9.2 16.9 1 qr. 2010 966 1,824 dec. 2001 12.6 25.5 2 qr. 2010 1,433 3,544 dec. 2002 15.1 39.1 3 qr. 2010 1,872 4,129 dec. 2003 20.0 57.2 4 qr. 2010 2,354 5,448 may 2004 26.0 68.4 1 qr. 2011 2,271 5,393 aug. 2005 26.6 67.4 2 qr. 2011 3,780 8,577 aug. 2006 54.4 132.4 3 qr. 2011 3,975 9,081 aug. 2007 57.5 169.2 4 qr. 2011 5,596 12,091 aug. 2008 83.7 244.4 1 qr. 2012 4,100 9,452 dec. 2009 70.2 185.5 2 qr. 2012 5,612 13,114 dec. 2010 69.8 200.4 3 qr. 2012 5,546 12,890 dec. 2011 76.3 211.1 4 qr. 2012 6,614 16,298 dec. 2012 84.7 230.0 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 11,000 12,000 13,000 14,000 15,000 16,000 17,000 0 50 100 150 200 250 Source: Agency for housing mortgage lending (AHML) Source: SPb realty
Value of loans, RUB m Elite Number of loans, units Mass market
As of the end of 2012, the average price per m² in the mass market segment increased by 1 1 % a g a i n s t 2 0 1 1 , u p t o R U B 8 4 . 7 t h , w h i c h e x c e e d s t h e p r e - c r i s i s p e a k o f A u g u s t 2 0 0 8 (RUB 83.7 th). In the elite segment the average price reached RUB 230 th per m² as of the end of December 2012, up 9% year-on-year.
46 Annual report / 2012 47 2012 2011 2011 2012 4,100,000 79% tons Building materials market 730,000 +11% m3 Reinforced concrete +10% Cement In 2012, reinforced concrete market in St. Petersburg and the Leningrad region grew by 10% In 2012, the market for cement in St. Petersburg and the Leningrad region grew by 11%, which is higher than year-on-year, to reach 730 th m3. Russia’s average growth rate for the industry. The demand amounted to 4.1 m tonnes. 13% Around 40 large factories as well as a variety of small producers specialised in one or two Launch of our new plant eliminated cement deficit in the region, reduced the volume of import and delivered a products (such as rings or road slabs) supply reinforced concrete items to the market. Almost serious blow to our competitors. all of them are locally-based as importing from other regions would be unprofitable. For many years LSR Group is the market leader in St. Petersburg and the Leningrad region. LSR Group is one of the largest cement consumers in Northwest Russia. In 2012, roughly half of the cement produced by our cement business unit was consumed internally. In 2012, the bulk of our reinforced concrete products – 79% - were supplied to infrastructure projects. Housing construction accounted for 13% of our total sales. Bricks
The market for bricks in St. Petersburg and the Leningrad region was estimated at 320 m units in 2012, up 9% against 2011. Import accounted for approximately 16% of the total volume. LSR Group is the leader in the market. 2011 2011 Ready-mix concrete At the end of 2012 we put into operation our new brick plant with an annual capacity of up to 160 m bricks in In 2012, ready-mix concrete market in St. Petersburg and the Leningrad region increased by Kirovsky district of the Leningrad region. Launch of the plant will allow us to strengthen our positions in the local 3 +9% 15% and reached 5.6 m m . market for bricks and make an active contribution into development of the region’s economy. We expect the plant +15% 2012 to start operation at full capacity in 2013. Tough competition is typical in the local market, with around 100 batching facilities operating 320,000,000 in the city and the surrounding territories. Nevertheless, LSR Group has been holding leading units Companies engaged in housing construction are the key customers of ceramic bricks. In 2012, high-rise housing 2012 5,600,000 positions in the ready-mix concrete market for many years. In 2012, we launched a new construction accounted for 55% of our total brick sales. The share of low-rise housing segment was 24%. m3 batching plant in Vasileostrovsky district of St. Petersburg with a designed capacity of up to 80 m3 per hour. We intend to supply ready-mix concrete from the new plant for construction 55% of the Western High-Speed Diameter and Marine Facade reclamation project along with other Crushed granite 24% construction projects in the district. The market for crushed granite amounted to 10.9 m m3 in St. Petersburg and the Leningrad region in 2012, up 10% 17% In 2012, residential construction segment accounted for 65% of our ready-mix concrete sales. year-on-year. The share of infrastructure and industrial projects stood at 18% and 17%, correspondingly. During the reported period we supplied our ready-mix concrete for construction of the Western LSR Group is the leader in the market. In 2012, we took another step towards strengthening our positions due to 3 High-Speed Diameter and the exhibition centre ExpoForum. 25% the launch of a new plant Borovinka with an annual capacity of 500 th m in Vyborgsky district of the Leningrad region. The local deposit contains high-grade stone which can be used in all segments of the construction market 65% 18% 39% – residential, commercial and infrastructure. Due to the convenient location of the facility we can ship our crushed granite both by railways and by roads.
Aerated concrete 21% Most of our crushed granite is consumed by producers of building materials. This segment accounts for 39% of our sales. Residential and infrastructure projects account for 25% and 21% of our crushed granite sales, 2012 In 2012, the market for aerated concrete in St. Petersburg and the Leningrad region grew by 19% correspondingly. year-on-year and exceeded 1 m m3. The demand for aerated concrete was primarily driven by 10,900,000 m3 the increased housing construction volume. Many projects were at design and early construction stages during the crisis period when developers preferred lightweight, cheap and energy-saving Sand 32% materials including aerated concrete. Apart from that aerated concrete is very popular in the 32% segment of low-rise and individual houses construction, which accounted for 52% of our sales in In 2012, the market for construction sand in St. Petersburg and the Leningrad region 3 2012. 2011 reached 16.8 m m , up 8% year-on-year. The market growth was driven by the +10% demand from construction companies and producers of building materials. Currently there are five producers of aerated concrete in the market. All aerated concrete is locally produced. In spite of the tough competitive environment our company managed to maintain its Our company has been the leader in the local sand market for many years. We are the market leadership. only supplier of high quality sea sand in the region. There are several other players in 2012 the pit sand market but their shares do not exceed 15%. 16,800,000 m3 Last year we primarily supplied sand to industrial and infrastructure projects which +8% accounted for 32% of our total sales each. In particular we supplied our sand for construction of the Western High-Speed Diameter and the exhibition centre 2011 ExpoForum. 2012 2011 1,000,000 +19% m3 48 Annual report / 2012 49 Moscow and the Moscow region
Real estate market
Moscow and the Moscow region represent the largest real estate market in Russia. In 2012, 9.5 m m² of housing were completed there.
According to Rosstat, 2.6 m m² of housing were completed in Moscow, up 8.7%. After the expansion of the city’s borders the number of projects located within the city limits increased at least twice. The number of housing construction projects located on the new territories is estimated at almost 300, while the number of projects located within the former borders stands at approximately 250. The changes in the town-planning policies are expected to spur new projects in the capital in the near future.
During the reported period 6.9 m m² of housing were completed in the Moscow region, down 10% year- on-year. The decrease was due to the changes of the region’s borders as mentioned above.
Housing completions in Moscow and Moscow region th m² Housing prices in Moscow and the Moscow region RUB th/m²
2003 4,115 4,443 2003 17 35 2004 4,579 5,720 2004 21 47 2005 4,649 5,297 2005 26 58 2006 4,780 6,484 2006 35 89 2007 4,825 7,805 2007 52 114 2008 3,264 7,881 2008 62 127 2009 2,704 8,452 2009 61 131 2010 1,768 7,939 2010 60 144 2011 1,808 8,244 2011 65 158 2012 2,573 6,885 2012 71 161 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 160 170 Source: metrinfo.ru, company Moscow Source: Rosstat Moscow Moscow region Moscow region
In 2012, average housing prices in Moscow remained almost unchanged as compared to 2011. Further development of mortgage lending was a key driver behind the growing demand for As of December 2012, the average price per m² stood at RUB 161 th. The prices stagnation housing. In spite of the increased average interest rate the share of new contract sales with was due to the changes of the city’s borders. Growth of prices within the former city limits mortgages continued to grow. In Moscow the average interest rate increased from 11.7% to was wiped-out by cheaper projects on the attached territories. The average price per m² in the 12.1% for mortgage loans denominated in RUB and from 9.6% to 10.2% for mortgage loans Moscow region was RUB 71 th as of the end of the year. denominated in foreign currency. In the Moscow region the average interest rate for mortgage loans denominated in RUB increased from 12% to 12.4%, for currency-denominated loans – from 9.5% to 9.9%.
Last year, 32,135 mortgage loans in RUB worth RUB 108.9 bn and 548 currency-denominated mortgage loans worth RUB 8.7 bn were approved in Moscow. In the Moscow region 29,357 loans in RUB worth RUB 73.1 bn and 282 loans in foreign currency worth RUB 2.2 bn were approved in 2012.
50 Annual report / 2012 51 Mortgage lending in Moscow Mortgage lending in the Moscow Region
Number of loans 117.6 units Number of loans units 75.3 24.9 2010 13,510 2012 20,447 2012 10,333 2010 46.8 22,968
90.3 32,683 2011 52 Value of loans RUB bn 29,639 Value of loans RUB bn 2011
1 qr. 2010 1,846 6,600 1 qr. 2010 1,271 2,945 2 qr. 2010 2,906 11,281 2 qr. 2010 2,270 5,368 3 qr. 2010 3,480 11,620 3 qr. 2010 2,757 6,979 4 qr. 2010 5,278 17,319 4 qr. 2010 4,035 9,646 1 qr. 2011 3,695 13,323 1 qr. 2011 2,937 7,280 2 qr. 2011 4,973 20,747 2 qr. 2011 4,781 12,230 3 qr. 2011 6,125 25,975 3 qr. 2011 5,732 14,509 4 qr. 2011 8,175 30,261 4 qr. 2011 6,997 17,967 1 qr. 2012 6,569 22,591 1 qr. 2012 5,641 14,020 2 qr. 2012 7,895 28,986 2 qr. 2012 6,917 17,845 3 qr. 2012 8,066 29,045 3 qr. 2012 7,660 19,891 4 qr. 2012 10,153 36,982 4 qr. 2012 9,421 23,499 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000 22,000 24,000 26,000 28,000 30,000 32,000 34,000 36,000 38,000 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000 22,000 24,000 Source: Agency for housing mortgage lending (AHML) Source: Agency for housing mortgage lending (AHML)
Value of loans, RUB m Value of loans, RUB m Number of loans, units Number of loans, units
Building materials market
Ready-mix concrete Bricks
In 2012, the market for ready-mix concrete in Moscow and the Moscow region was estimated facing brick The market for bricks in Moscow and the Moscow region is estimated at 1.5 bn bricks, including at 12.7 m m3. The market is fragmented, with around 100 producers operating in the region, 405 000 000 approximately 405 m facing bricks. As compared to 2011, the market volume remained units 2011 and it is dominated by several large companies that have their own chains of batching plants. unchanged. The market share of the leading player is approximately 20%. The market for facing bricks is highly competitive. Many players are active in the market Our company is among 4 largest producers in the region. All of the ready-mix concrete we 2012 but their shares do not exceed 10%. Approximately 65% of facing bricks are manufactured 2012 produce in Moscow and the Moscow region is supplied for housing construction. more than 250 km away from Moscow. The key consumers of facing bricks are constriction 1,500,000,000 12,700,000 units companies engaged in housing construction. m3 In June 2012 we put into operation our brick plant in Pavlovsky Posad (Moscow region) with an annual capacity of approximately 63 m bricks. The plant is expected to become the largest ~ producer of high quality facing brick in the Moscow region. The product range includes bricks 2011 of 10 colours and 5 textures under the trademark RAUF. Raw material for the new plant will be supplied from our clay deposit located in Ozherelye, Kashirsky district of the Moscow region. Its 100% confirmed clay reserves amount to 2.5 m tonnes.
52 Annual report / 2012 53 Yekaterinburg
Real estate market
Yekaterinburg is one of the largest markets for residential construction in Russia. Each year more than 1 m m² of housing are completed in the city. In 2012, housing completions in Yekaterinburg amounted to 1,051 th m².
Housing completions in Yekaterinburg th m² Housing prices in Yekaterinburg RUB th/m²
2005 519.1 643.7 jan. 2008 56 2006 648.1 735.3 mar. 2008 57 2007 708.7 899.5 apr. 2008 53 2008 702.5 955.1 oct. 2008 55 2009 569.3 817.3 dec. 2009 49 2010 907.6 1,026 dec. 2010 52 2011 788.7 1,050 dec. 2011 57 2012 899.2 1,051 dec. 2012 60 0 100 200 300 400 500 600 700 800 900 1,000 1,100 0 10 20 30 40 50 60
Completions total, th m² Source: Committee for Construction Source: company Including multi-family houses
As the market has fully recovered from the crisis a gradual shift from compensation of the completed properties towards growth of new construction volume can be observed.
As of December 2012 more than 1.7 m m² of housing were under construction in Yekaterinburg. Many new projects were launched to the market in the second half of the year.
As of December 2012 the average price per m² in the market for new housing was RUB 60,135 (+4%), which is an all-time record. According to our own estimations, sales of new housing amounted to 720 th m² in 2012, unchanged as compared to 2011.
54 Annual report / 2012 55 « The major part of our debt is represented by the project financing of the company’s key investment projects in the Leningrad region – our cement plant in Slantsy and the brick factory in Nikolskoe. The debt structure is balanced between bank loans and bond issues. In 2012, we managed to decrease Net debt/ EBITDA ratio to 2.65. » BalanceDmitry Kutuzov CFO
56 Annual report / 2012 57 Review of operating results
Key financials Consolidated Income Statement
RUB m 2010 2011 2012 Change RUB m 2010 2011 2012 Change 2012-2011 2012-2011
Revenue 49,950 51,910 61,122 18% Revenue 49,950 51,910 61,122 18%
EBITDA 8,687 10,135 13,392 32% Cost of sales (36,875) (37,247) (42,225) 13%
EBITDA, % 17% 20% 22% - Gross profit 13,074 14,662 18,896 29% Normalised operating profit 6,307 7,703 10,668 38% Distribution expenses (2,375) (2,916) (4,568) 57% Normalised operating profit, % 13% 15% 17% - Administrative expenses (4,045) (4,708) (4,803) 2%
Change in fair value of investment property (36) 152 (10) - Profit for the year 1,742 2,432 4,914 102% Other income and expenses (348) 665 111 (83%) Normalised profit for the year 1,778 2,280 5,956 161% Operating profit 6,270 7,855 9,626 23%
Gross cash flow 9,035 9,469 12,592 33% Finance income 686 208 612 195%
Operating cash flow (2,375) 7,738 5,167 (33%) Finance costs (4,461) (4,329) (3,817) (12%)
Profit before income tax 2,496 3,734 6,421 72%
Amortisation and depreciation 2,381 2,432 2,724 12% Income tax expense (754) (1,302) (1,507) 16%
Capitalised capital expenditure 4,544 5,057 6,745 33% Profit for the year 1,742 2,432 4,914 102%
Foreign currency translation differences for foreign operations (49) 7 0 (96%)
Total comprehensive income for the year 1,693 2,439 4,914 102% Debt
RUB m 31.12.10 31.12.11 31.12.12 Change Basic and diluted earnings per ordinary share (RUB) 18 24 48 101% 2012-2011
Total debt 31,703 38,922 39,475 1%
Net debt 30,376 33,728 35,508 5% EBITDA 8,687 10,135 13,392 32%
Net debt/ EBITDA 3.5 3.3 2.65 - EBITDA, % 17% 20% 22% -
58 Annual report / 2012 59 Cash Flows and Liquidity
Revenue RUB m Consolidated Cash Flow Statement 2012 61,122 2011 51,910 RUB m 2010 2011 2012 2010 49,950 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 Net Income / (loss) 1,742 2,432 4,914 Depreciation & amortisation 2,381 2,432 2,724
EBITDA and EBITDA margin RUB m and % Net finance costs 3,775 4,121 3,205
0% 5% 10% 15% 20% 25% Other, net 1,138 485 1,749 2012 13,392 22% Operating profit before changes in working capital and provisions 9,035 9,469 12,592 2011 10,135 20% 2010 8,687 17% Change in Inventories 2,679 (3,127) (9,364) 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 Change in Trade and Other Receivables 580 (6,204) (2,099)
Change in Trade and Other Payables (9,710) 12,606 9,038
Our sales revenue in 2012 was RUB 61,122 m. Increase/ decrease in provisions 5 (233) 24 Cash flow from operations before income taxes and interest paid 2,589 12,511 10,192 The gross profit grew by 29% and amounted to RUB 18,896 m. Income Taxes Paid (1,558) (1,167) (1,310)
In 2012, the distribution costs grew by 57%, up to RUB 4,568 m, primarily due to the Interest Paid (3,406) (3,606) (3,715) increased cost of third party transportation services as a result of our sales volume Cash flow from (utilised by) operating activities (2,375) 7,738 5,167 growth. Capital Expenditures (4,915) (4,907) (6,886) The administrative costs increased by 2%, to RUB 4,803 m. Acquisitions (115) (2,847) (10)
EBITDA grew by 32%, to RUB 13,392 m. EBITDA margin increased from 20% to 22%. Disposals 258 626 947 Normalised operating profit increased by 38%, to RUB 10,668 m, and normalised Other 267 (689) 742 operating profit margin was 17%. Cash flow from (utilised by) investing activities (4,505) (7,817) (5,207)
Net financing costs decreased by 22%, to RUB 3,205 m. Debt issued (repaid) (6,395) 5,650 921
Proceeds from equity issuance 11,892 - - In 2012, income tax expense amounted to RUB 1,507 m. The effective tax rate was 23% and the statutory income tax rate was 20%. Dividends paid - (1,629) (2,070) Other (7) (49) - In the reported period we received total comprehensive income of RUB 4,914 m. Cash flow from (utilised by) financing activities 5,491 3,971 (1,149)
Net change in cash (1,390) 3,893 (1,189)
Cash at beginning of period 2,896 1,327 5,195
Exchange rate fluctuations (179) (25) (39)
Cash at end of period 1,327 5,195 3,967
In 2012, we generated gross cash flow of RUB 12,592 m.
Cash flow from operations before income taxes and interest paid was equal to RUB 10,192 m.
Interest payments amounted to RUB 3,715 m.
The income tax expense paid increased by 12%, to RUB 1,310 m.
The cash outflow for investment activities decreased by 33%, to RUB 5,207 m.
The cash outflow from financing activities was RUB 1,149 m.
As of 31 December 2012, the cash balance was RUB 3,967 m.
60 Annual report / 2012 61 Financing and debt
As of 31 December 2012, the company’s total debt increased by 1%, up to RUB 39,475 m, Debt structure mainly due to our investments projects, including the new brick plant. The net debt / EBITDA ratio decreased to 2.65.
The key partner banks of the company that granted us funds in 2012 were VTB, Bank and other loans Vnesheconombank, Rosselkhozbank and Sberbank. Bond issues
36%
Debt structure
RUB m 31.12.2010 31.12.2011 31.12.2012
Bank and other loans 24,700 28,691 25,106 As of 31 December 2012, the major part of Bond issues 6,501 9,958 14,197 64% our debt (64%) was represented by bank and other loans. The rouble bond issues accounted Finance lease liability 502 273 172 for 36% and the finance lease liability for less Bank overdraft - - - than 1% of our debt.
Total debt 31,703 38,922 39,475
Less cash and cash equivalents 1,327 5,195 3,967
Net debt 30,376 33,728 35,508 Credit ratings
In 2012, the global rating agency Fitch Ratings confirmed “B” corporate rating, outlook stable. LSR Group was also assigned “B2” corporate rating, outlook - stable, by Moody’s Investor Service. The rating was not revised in 2012.
Net debt RUB m
2012 35,508 2011 33,728 2010 30,376 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 Net debt/EBITDA
2012 2.65 2011 3.3 2010 3.5 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5
62 Annual report / 2012 63 Real estate development and construction
In 2012, in all regions of our operations we entered into new contracts for the sale of 447 th Real Estate Development division includes three m² (+31%). The total value of the contracts for the sale of apartments and other premises key business units: was RUB 37 bn, up 46% against 2011. In 2012, we completed 332 th m² and transferred to our customers 248 th m² of net sellable area. Our construction business units in all regions of ‣‣ LSR. Real Estate - North West (elite and mass operations we transferred 725 th m² of pre-fabricated housing (+25%). market real estate in St. Petersburg), ‣‣ LSR. Real Estate - Moscow, ‣‣ LSR. Real Estate - Urals. Real estate development
Completed (th m²) 2011 2012 Change Elite Real Estate in St. Petersburg 0 92 - Elite Real Estate in St. Petersburg Mass market Real Estate in St. Petersburg 113 130 15% In 2012, in the elite real estate segment in St. Petersburg, we entered into new Real Estate Moscow 2 45 - contracts for the sale of 64 th m² of net sellable area, up 42% against 2011. The total Real Estate Urals 21 65 209% value of the contracts for the sale of apartments and other premises increased by New contract sales (th m²) 2011 2012 Change 60%, up to RUB 10.2 bn. Elite Real Estate in St. Petersburg 45 64 42% Mass market Real Estate in St. Petersburg 186 208 12% Real Estate Moscow 37 92 147% Real Estate Urals 72 82 14% +42% Transferred to customers (th m²) 2011 2012 Change Elite Real Estate in St. Petersburg 34 57 66% Mass market Real Estate in St. Petersburg 157 106 (33%) Real Estate Moscow 5 25 416%
Real Estate Urals 35 59 70% Net sellable area Total value of the contracts Revenue (RUB m) 2011 2012 Change 64,000 th m² 10.2 bn RUB Elite Real Estate in St. Petersburg 4,116 11,200 172% Mass market Real Estate in St. Petersburg 11,014 7,748 (30%) Real Estate Moscow 918 1,764 92% Real Estate Urals 1,731 3,226 86% EBITDA (RUB m) 2011 2012 Change Elite Real Estate in St. Petersburg 1,379 3,936 185% Mass market Real Estate in St. Petersburg 3,020 1,440 (52%) +60% Real Estate Moscow 329 24 (93%) Real Estate Urals 134 465 246% EBITDA, % 2011 2012 Change Elite Real Estate in St. Petersburg 34% 35% -
Mass market Real Estate in St. Petersburg 27% 19% - At the end of October 2012, we started pre-sales in a new elite residential project Real Estate Moscow 36% 1% - in the historical centre of St. Petersburg - 39, Radishcheva Street. By the end of the Real Estate Urals 8% 14% - year we pre-sold 3 th m² in the project, which accounts for more than 15% of its total Operating profit (RUB m) 2011 2012 Change net sellable area. Elite Real Estate in St. Petersburg 1,509 4,041 168% In 2012, we transferred to our customers 57 th m² and completed 92 th m² of net Mass market Real Estate in St. Petersburg 3,017 1,423 (53%) sellable area in such projects as Paradny Quarter, Smolny Park, Hermitage View Real Estate Moscow 312 8 (97%) House and Venice. Real Estate Urals 133 463 248% Operating profit, % 2011 2012 Change The sales revenue increased by 172% to RUB 11,200 m and EBITDA increased by Elite Real Estate in St. Petersburg 37% 36% - 185% to RUB 3,936 m. EBITDA margin was 35%. Mass market Real Estate in St. Petersburg 27% 18% - Real Estate Moscow 34% 0% - Real Estate Urals 8% 14% -
64 Annual report / 2012 65 Venice
V e n i c e i s a n e w r e s i d e n c e f o r c o t e r i e b u i l t i n o n e o f t h e m o s t e l i t e d i s t r i c t o f St. Petersburg – on Krestovky Island, on the bank of Srednyaya Nevka River, opposite to Elagin Island. The island is a peaceful and green area, quite and secluded though located in the very central part of the city. Best restaurants and sports clubs, a yacht club and a governor tennis club are situated in close proximity.
Start of construction and sales 2010 The Venice residence is designed and constructed in Venetian palazzo style with symmetrical facades, archways in the appearance, cornice with sculptural décor and Completion 2012 cozy courtyard which are common for Italian architecture.
Land plot Total area Number of apartments Net sellable area
0.83 ha 22 th m² 79 15.7 th m²
66 Annual report / 2012 67 Avrora Our residential project Avrora with a net sellable area of approximately 260 th m² is being constructed in Nevsky district of St. Petersburg, within a 10-minute walk from the subway station Prospekt Bolshevikov. The project comprises two phases – Avrora and Avrora-2. In 2012 we started to comission and transfer to our customers apartments in the first phase of the project. The whole property is scheduled for completion in 2014.
The project is being carried out using pre-fabricated housing technology. All elements of the buildings are produced at our prefab factory located in St. Petersburg. The project features energy-efficient seamless facade technology. The facade insulation system reduces heat Start of construction and sales 2011 consumption by 30% as compared to traditional pre-fabricated panel buildings, improves sound insulation and indoor climate. Completion 2014
Land plot Total area Number of apartments Net sellable area
15 ha 415 th m² 5 264 260 th m²
68 Annual report / 2012 69 New Domodedovo T h e r e s i d e n t i a l n e i g h b o u r h o o d N e w D o m o d e d o v o w i l l b e c o m e h o m e t o a p p r o x i m a t e l y 20 th people. The neighbourhood is being constructed on a land plot of 85 ha in the town of Domodedovo (Moscow region). This one of the largest residential projects carried out in the southern part of the Moscow region.
The project comprises 9-17-storey buildings of the Euro’Pa series constructed using the energy- efficient seamless facade technology.
T h e p r o j e c t a l s o i m p l i e s c o n s t r u c t i o n o f t h e s u p p o r t i n g s o c i a l i n f r a s t r u c t u r e i n c l u d i n g Start of construction and sales 2011 4 schools, 6 kindergartens, sports-grounds, recreation areas, multi-level parking and commercial premises. Completion 2017
Land plot Total area Number of apartments Net sellable area
85 ha 823 th m² 11,890 605 th m²
70 Annual report / 2012 71 Berezovaya Roshcha Our project Berezovaya Roshcha is being constructed in the fast-growing Akademichesky district of Yekaterinburg. The project is located in the green area surrounded by birchwood. The district development plan implies construction of a large public park that would become a recreation area and a meeting point for citizens.
The project, to be built in two phases, consists of six 18-25-storey residential buildings, a kindergarten for 150 children, parking and commercial premises on the Start of construction and sales 2012 ground floor. The construction is carried out using the energy-efficient seamless faсade technology. Another distinctive feature of the project is the usage of gas Completion 2014 boilers on the roofs instead of the central heating. This ensures higher energy- efficiency due to lack of heat pipelines and the accurate control over the temperature of water supplied to the heating system.
Land plot Total area Number of apartments Net sellable area
4.68 ha 107 th m² 1,355 66 th m²
72 Annual report / 2012 73 Mass market Real Estate in St. Petersburg Construction
In 2012, we entered into new contracts for the sale of 208 th m², up 12% on Transferred to customers, th m²* 2011 2012 Change our sales in 2011. The total value of the contracts signed during 2012 was St. Petersburg 371 426 15% RUB 16.4 bn (+25%). Moscow 111 177 60% Yekaterinburg 96 122 27% In November 2012, we started pre-sales in our new residential project Revenue (RUB m) 2011 2012 Change Yuzhnaya Akvatoriya located in Krasnoselsky district of St. Petersburg. In Net sellable area St. Petersburg** 10,363 15,375 48% less than two months we pre-sold 37 th m² in this project, which accounts +12% 208,000 th m² for nearly 58% of the total net sellable area available for sale. incl. revenue from inter-group sales 1,969 6,325 221% Moscow 3,725 3,567 (4%) I n 2 0 1 2 , w e t r a n s f e r r e d t o o u r c u s t o m e r s 1 0 6 t h m ² a n d c o m p l e t e d incl. revenue from inter-group sales 823 128 (84%) 130 th m² of net sellable area in such projects as Dolgoozerny, Yuzhny, Yekaterinburg 1,993 2,901 46% Antey, Avrora and Vostok. incl. revenue from inter-group sales 898 2,109 135% The sales revenue in 2012 decreased by 30% to RUB 7,748 m and EBITDA EBITDA (RUB m) 2011 2012 Change decreased by 52% to RUB 1,440 m. EBITDA margin was 19%. The +25% St. Petersburg** 1,642 1,909 16% decreased revenue and EBITDA is explained by the reduction of transfers in Total value Moscow 433 475 10% accordance with our construction schedule. According to IFRS, the financial of the contracts Yekaterinburg 7 277 - results of our development business reflect transfers to the customers, and 16.4 bn RUB EBITDA, % 2011 2012 Change thus backward-looking. St. Petersburg 16% 12% - Moscow 12% 13% - Yekaterinburg 0% 10% - Operating profit (RUB m) 2011 2012 Change +147% St. Petersburg** 963 1,327 38% Real Estate in Moscow Moscow 391 440 13% Yekaterinburg (178) 112 - In 2012, we entered into new contracts with our customers for the sale of Operating profit, % 2011 2012 Change Net sellable area 92 th m² of net sellable area, up 147% on our sales in 2011. The total value St. Petersburg 9% 9% - of the signed contracts was RUB 5.5 bn (+137%). In 2012 we transferred to 92,000 th m² Moscow 10% 12% - our customers 25 th m² and completed 45 th m² of net sellable area in the Yekaterinburg - 4% - residential complex New Nakhabino.
*Sales figures in Yekaterinburg and Moscow include both transfer of completed panel housing to the customers and sales of reinforced concrete for panel construction The sales revenue increased by 92% and amounted to RUB 1,764 m. EBITDA **Includes results of LSR. Construction – North-West, LSR. Project management, LSR. Tower cranes and LSR. Pile foundation. was RUB 24 m. EBITDA margin was 1%.
Total value of the contracts Construction 5.5 bn RUB In St. Petersburg the revenue of our prefab factory increased by 43%, up to RUB 11,314 m. +137% EBITDA increased by 7%, up to RUB 1,236 m. In Yekaterinburg our revenue increased by 46%, up to RUB 2,901 m. EBITDA amounted to RUB 277 m (+4,050%). In the Moscow region our Net sellable area revenue was RUB 3,567 m (-4%) and EBITDA was RUB 475 m (+10%). 82,000 th m² +14% Project Management
Real Estate in Yekaterinburg Our sales revenue in 2012 increased by 257%, up to RUB 2,394 m. EBITDA increased by 228%, up to RUB 97 m. EBITDA margin was 4%. In 2012, in Yekaterinburg, we entered into new contracts for the sale of +37% 82 th m² of net sellable area, up 14% against 2011. The total value of the Tower cranes contracts signed in 2012 increased by 37%, up to RUB 5 bn. In 2012, we transferred to customers 59 th m² and completed 65 th m² of net sellable The sales revenue in 2012 was RUB 1,365 m (+20%) and EBITDA was RUB 481 m. EBITDA area. margin increased up to 35%. Total value of the contracts The sales revenue increased by 86% and amounted to RUB 3,226 m. EBITDA increased by 246% and reached RUB 465 m. EBITDA margin was 5 bn RUB 14%.
74 Annual report / 2012 75 Modernisation of our prefab Our pre-fabricated housing factory located in St. Petersburg is the largest and the most advanced pre-fabricated production facility in North- West Russia integrating the whole construction process including design, factory in St. Petersburg production and construction.
In 2013, we have completed a full-scale modernisation programme of the factory. The programme was implemented in two phases from 2006 to 2013 without interruption of the production process. The upgrade implied installation of new state-of-the-art production lines by the world-famous Modernisation programme of prefab factory completed producers including Weckenmann, Vollert, Eaglefin, «SAL-Product OY», EVG, Schnell which can be easily adjusted for reinforced concrete items of any Total investment RUB 2.8 bn size and shape. We have built our own thermal-oil boiler and introduced an automated design system AllPlan Precast by Nemetschek.
As a result we have increased our annual production capacities up to 500 th m², reduced production costs including energy costs, improved quality of the manufactured reinforced concrete items and ensured better Annual production capacity: up to 500 th m² working conditions for our employees. The new equipment also allows us to use a wide range of individual design instruments and fully switch to seamless facade technology.
76 Annual report / 2012 77 Building materials Sales 2011 2012 Change Revenue (RUB m) 2011 2012 Change Crushed granite Crushed granite 2,695 3,876 44% 3 Crushed granite, th m 5,432 6,431 18% 3 Sand 2,448 2,687 10% In 2012, our crushed granite sales totaled 6.4 m m (+18%). Sand, th m3 10,859 10,878 - Ready-mix concrete In 2012, we supplied our crushed granite to producers of building materials and for construction St. Petersburg 3,097 2,993 (3%) 3 of large infrastructure projects including Western High Speed Diameter. Ready-mix concrete, th m 1,363 1,435 5% Moscow 1,378 1,819 32%
Cement, th tones 108 1,208 - Cement 2,279 2,589 14% In 2012, our sales revenue increased by 44% and amounted to RUB 3,876 m. EBITDA increased Reinforced concrete 5,186 4,929 (5%) by 85% to RUB 1,258 m. EBITDA margin grew up to 32%. Reinforced concrete, th m3 455 485 7% Bricks We hold licenses to exploit large reserves of high quality stone to produce crushed granite. As St. Petersburg 1,398 1,374 (2%) Bricks, m units 185 183 (1%) of 31 December 2012, the proven reserves were: Moscow 110 190 72% Aerated concrete, th m3 904 1,077 19% Aerated concrete 1,768 2,413 36% Deposit Remaining reserves m m3* EBITDA (RUB m) 2011 2012 Change EBITDA, % 2011 2012 Change Total: 569 Crushed granite 679 1,258 85% Crushed granite 25% 32% - Rovnoe 138 Sand 1,430 1,429 0% Sand 58% 53% - Kuznechnoe-1 159 Ready-mix concrete Ready-mix concrete Kuznechnoe 36 St. Petersburg 489 138 (72%) St. Petersburg 16% 5% - Zabolotnoe 19 Moscow (21) 82 - Moscow - 4% - Petrovskoe 25 Cement 12 653 5,378% Cement 1% 25% - Krasnovskoe 117 Reinforced concrete 705 261 (63%) Reinforced concrete 14% 5% - Gavrilovo 13 Bricks Bricks Prudy-Mokhovoe-Yaskinskoe 58 * Calculated as licensed reserves less quantity of crushed granite extracted St. Petersburg 122 372 204% St. Petersburg 9% 27% - Kropotkinskoe 5 by 31 December 2012 Moscow (34) (57) - Moscow - - - Aerated concrete 346 681 97% Aerated concrete 20% 28% -
Operating profit (RUB m) 2011 2012 Change Operating profit, % 2011 2012 Change Crushed granite 385 935 143% Crushed granite 14% 24% - Sand 1,190 1,244 5% Sand 49% 46% - Sand Ready-mix concrete Ready-mix concrete Sand sales in 2012 were 10.9 m m3, unchanged as compared to 2011. In 2012, we primarily St. Petersburg 299 (23) - St. Petersburg 10% - - supplied our sand to large infrastructure projects including Western High Speed Diameter and Moscow (103) 11 - Moscow - 1% - the International Convention and Exhibition Centre Expoforum. Cement (30) 314 - Cement - 12% - Reinforced concrete 515 (30) - Reinforced concrete 10% - - Our sales revenue amounted to RUB 2,687 m, up 10% as compared to 2011. EBITDA amounted to RUB 1,429 m. EBITDA margin was 53%. Bricks Bricks St. Petersburg 67 310 363% St. Petersburg 5% 23% - As of 31 December 2012, we held licenses for three sea sand fields in the Gulf of Finland as well Moscow (100) (172) - Moscow - - - as nine quarries in the Leningrad region. Aerated concrete 179 504 181% Aerated concrete 10% 21% -
Number of quarries/ Remaining reserves deposits m m3* Our Building materials division comprises the following business units: Marine-dredged sand 3 50.8 St. Petersburg: Land-based sand 9 215.9 ‣‣ LSR. Aggregates and ready-mix concrete – North-West, * Calculated as licensed reserves less quantity of sand extracted by 31 December 2012 ‣‣ LSR. Bricks and aerated concrete – North-West, ‣‣ LSR. Reinforced concrete – North-West, ‣‣ LSR. Cement – North-West.
Moscow: ‣‣ LSR. Ready-mix concrete – Moscow, ‣‣ LSR. Bricks – Moscow.
78 Annual report / 2012 79 New brick plant In December 2012, we put into operation our new brick plant in the Kirovsky district of the Leningrad region. The new plant will become the largest producer of bricks in Russia as soon as it starts operating at full capacity.
The state-of-the-art manufacturing equipment is supplied by the world’s leading companies including Händle, Hans Lingl and TECTON GmbH Keramikanlagen. The production range will include not only regular porous bricks but also production types unique for the Russian market: several types of clinker bricks of various forms, colours and textures, shaped bricks, unique Construction period 2007-2013 ceramic elements and types of facing bricks.
Land plot 7.2 ha The plant is located close to Chkalovskoe clay deposit with confirmed clay reserves enough for more than 100 years of production. Total investments RUB 8.3 bn
Designed capacity:
Brick line Clinker brick line
120 m bricks 25-40 m bricks*
*Depending on the type of brick produced 80 Annual report / 2012 81 Bricks Ready-mix concrete Our bricks sales amounted to 183 m units. In 2012, ready-mix concrete sales were 1.4 m m3 (+5%). It included 928 th m3 sold in St. Petersburg and 507 th m3 sold in Moscow. T h e i n s i g n i fi c a n t s a l e s d e c l i n e w a s d u e t o t h e t e m p o r a r y r e d u c t i o n o f o u r c a p a c i t i e s i n St. Petersburg as we shut down our obsolete production facilities and were in the process of In 2012, in St. Petersburg we primarily supplied our ready-mix concrete to residential and infrastructure projects building our new brick plant in Kirovsky district of the Leningrad region. The plant was put into including Western High Speed Diameter and the International Convention and Exhibition Centre Expoforum. In operation in December 2012. Moscow we mainly supplied our ready-mix concrete for residential construction. At the end of June 2012 we put into operation our brick plant in Pavlovsky Posad (the Moscow Our sales revenue in St. Petersburg decreased by 3% to RUB 2,993 m, EBITDA amounted to RUB 138 m. EBITDA region). In 2012, our brick sales in the Moscow region amounted to 20 m units. margin was 5%. In Moscow our sales revenue was RUB 1,819 m, up 32%, against 2011. EBITDA amounted to RUB 82 m. EBITDA margin was 4%. Our sales revenue in St. Petersburg decreased by 2% in 2012, down to RUB 1,374 m. EBITDA was RUB 372 m (+204%). EBITDA margin was 27%. Our sales revenue in Moscow was RUB 190 m Currently we own five ready-mix concrete facilities in St. Petersburg and four facilities in Moscow, their aggregate (+72%). Operating loss was RUB 172 m. annual capacity standing at 2.2 m m3. As of the date of this report, the total annual capacity of our brick plants was almost 300 m units. St. Petersburg Moscow and the Leningrad region Number of plants 5 4 St. Petersburg Moscow and the Leningrad region and the Moscow region Annual production capacity, th m3 1,440 800 Number of plants 3 1 Annual production capacity, m units 235 63 Cement
In 2012 we sold 1.2 m tonnes of cement. We mainly supplied our cement to building materials producers, including ready-mix concrete factories. Aerated concrete In 2012 our sales revenue amounted to RUB 2,589 m, EBITDA was RUB 653 m. EBITDA margin was 25%. Aerated concrete sales amounted to 1.1 m m3 in 2012. St. Petersburg accounted for 395 th m3, and 681 th m3 were sold in Ukraine. Our sales volume grew by 19% year-on-year. Currently we own one cement plant in the Leningrad region, with production capacity of 1.86 m tons of cement per year. Our sales revenue increased by 36% in 2012, to RUB 2,413 m. EBITDA increased by 97% and amounted to RUB 681 m, EBITDA margin was 28%.
St. Petersburg As of the date of this report, the aggregate annual capacity of our aerated concrete plants was and the Leningrad region around 1.1 m m3. Number of plants 1 Annual production capacity, m tonnes 1.86 St. Petersburg Ukraine and the Leningrad region Reinforced concrete Number of plants 1 2 Annual production capacity, th m3 375 731 In 2012, we sold 485 th m3 of reinforced concrete items, up 7% on our sales in 2011. It included 391 th m3 in St. Petersburg, 19 th m3 in Moscow and 75 th m3 in Yekaterinburg.
Our sales revenue in St. Petersburg amounted to RUB 4,929 m, EBITDA was RUB 261 m. EBITDA margin was 5%.
As of the date of this report we owned five reinforced concrete facilities in Saint-Petersburg, their total capacity amounting to 584 th m3 per year.
St. Petersburg and the Leningrad region Number of plants 4 Annual production capacity, th m3 538
82 Annual report / 2012 83 Real estate portfolio Breakdown of Real Estate Portfolio by segment Our real estate portfolio is well-balanced across the various property segments thus making it possible to offer property targeting distinct consumer groups. In terms of net sellable area, major part of the portfolio (incl. land plots held for future development) accounts for mass market residential real estate which is always characterised by higher volume of demand.
As of 31 December 2012, the net sellable area of the projects in our portfolio is The portfolio also includes residential elite (or high-end) and business class development projects, gated communities and office developments. These segments account for a smaller equal to 8,659 th m²* (+3% against 2011). The real estate portfolio of LSR Group part of the portfolio in terms of sellable area however they account for a more substantial part of market value due to higher prices per square meter compared to mass market properties. includes properties/projects in the residential elite class, business class and mass market property, gated communities and commercial property segments. Segment of property Net sellable / % of Market Value, % of leasable area, total RUB m total th m² Mass market 3,978 46% 51,921 43% Real estate development projects of LSR Group are located in St. Petersburg, Elite** 160 2% 24,057 20% Business class 341 4% 16,594 14% the Leningrad Region, Moscow, the Moscow Region and Yekaterinburg. Offices 32 0.4% 6,116 5% Operating offices* 18 0.2% 3,675 3% Held for future development 4,129 48% 17,558 15% Total 8,659 100% 119,921 100%
* Including operating offices with a total net lettable area of 13 th m², utilised by LSR Group subsidiaries. ** Including Gated communities Valuation of Real Estate Portfolio
The market value of our holdings in our real estate portfolio accounted for RUB 119,921 m as of 31 December 2012. The valuation of our real estate portfolio was undertaken by Cushman & Wakefield as an independent external appraiser. Real estate portfolio by segment
Mass market Elite Business class Offices 48% Operating offices Net sellable / Held for future development leasable area
46%
15%
0.4% 4% 2% 3% 0.2% 5%
Market Value 43%
14%
20%
84 Annual report / 2012 85 Breakdown of property portfolio by region Breakdown of property portfolio by stage of development Most of our properties – approximately 80% of the portfolio by area and At 31 December 2012 our real estate portfolio includes 1,267 th m² of net sellable area at the 73% by value – are located in our home market in St. Petersburg. In 2012, construction stage and 2,922 th m² at design stage. the share of projects in Yekaterinburg in our property portfolio grew almost twice: from 4.7% to 8.1% in net sellable area. We also have 36 th m² of the completed properties and 18 th m² of net lettable area of the operating offices*. 4,416 th m² of net sellable area are at the stage of concept development.
Stage of development Net sellable / % of Market Value, % of Region Net sellable / % of Market Value, % of leasable area, total RUB m total leasable area, total RUB m total th m² th m² Concept Development 4,416 51% 32,126 27% St. Petersburg 6,847 79% 87,811 73% Design 2,922 34% 38,425 32% Moscow 1,110 13% 26,835 22% Construction 1,267 15% 38,053 32% Yekaterinburg 702 8% 5,276 4% Completed 36 0.4% 7,641 6% Total 8,659 100% 119,921 100% Operating offices* 18 0.2% 3,675 3% Total 8,659 100% 119,921 100%
* Including operating offices with a total net lettable area of 13 th m², utilised by LSR Group subsidiaries.
Property portfolio by stage of development Property portfolio by region
0.4% 0.2% 15% 8%
Concept development St. Petersburg 13% Design Moscow Construction Yekaterinburg Completed Net sellable / Operating offices Net sellable / leasable area leasable area
51% 34% 3% 4% 6% 79% 27% 22%
32% Market Value Market Value
74% 32%
86 Annual report / 2012 87 Radishcheva, 39 20.8 Residential house Real estate portfolio th m²
Elite real estate in Saint Petersburg
Smolny park 97.8 Mixed-use th m²
Venice 15.7 Residential house th m²
Nevsky, 1 7.1 Mixed-use th m²
Morskoy 10.7 Residential house th m²
Dom na Dvoryanskoy (Kuybysheva, 13) 6.4 Residential house th m²
65.4 5.9 Paradny quarter Kovensky th m² Mixed-use Residential house th m² 88 Annual report / 2012 89 90 117.4 th m² th Annual report /2012 report Annual Business residential class in Saint Petersburg Residential complex Europe city 23.1 th m² th Smolenskaya Residential complex
Московский проспект Residential complex Morskie bashni
Смоленская улица
62.1
th m² th Заозерная улица Заозерная Mass marketMass residential in Saint Petersburg Residential complex Antey Residential complex Murinsky quarter Murinsky 28.6 th m² th 309.5 th m² th Oktyabrskaya Embankment Oktyabrskaya 3,121.4 th m² th Residential complex Yuzhnaya Aquatoriya 806.4 Residential complex th m² th Residential complex Tsvetnoy gorod Tsvetnoy 558.9 th m² th 91 Vostok 22.9 Mass market residential in Saint Petersburg Residential complex th m²
Ruch’i 211.4 Residential complex th m²
Kalina-park (Marshala Blukhera) 347.3 Residential complex th m²
Vitebsky, 15 106.9 Residential complex th m² Avrora 260 Residential complex th m²
306.8 Sofiya th m² Residential complex
Shuvalosvky kar’er 422.1 Residential complex th m²
102.9 VIVA (Moskovskoe highway) Residential complex th m²
92 Annual report / 2012 93 Commercial real estate in Saint Petersburg Business class residential in Moscow and the Moscow region
Paradny quarter Grunvald 7.3 27.6 A class offices real estate Residential complex
th m² th m² Ленинградское шоссе
49.4 Leningradskoe highway , 58 th m² Residential complex
5.5 Nevsky, 68 A class offices real estate th m²
81.3 Donskoy Olymp th m² Residential complex
Mass market residential in Moscow and the Moscow region
New Nakhabino 181.4 Residential complex th m² 7.5 Kamenoostrovskaya kollektsiya th m² A class offices real estate
Commercial real estate in Moscow
New Domodedovo 605.2 Residential complex th m²
279.2 iBitsa 12.1 Novy Balchug th m² Residential complex A class offices real estate th m²
94 Annual report / 2012 95 Tatischev 33.6 Real estate in Yekaterinburg Residential complex th m²
231.5 Michurinsky th m² Residential complex
Kalinovsky 53.3 Residential complex th m² KOSK 12.5 Residential house th m²
Berezovaya Roshcha (Vonsovskogo) 65.6 Residential complex ул. Новгородцевой th m²
Егорщинский проспект
ул. Рассветная ул. Сыромолотова ул.
ул. 40-летия Комсомола 182 40 let Komsomola Residential complex th m²
Zeleny Mys 26.9 Residential complex th m²
25.2 Progress (Technicheskaya-Sortirovochnaya) Residential complex th m²
ул. Филатовская
ул. Латвийская ул. Мезенская ул. 174.8 Latviyckaya th m² Residential complex 96 Annual report / 2012 97 Corporate governance
In our practices of corporate governance we adhere to the provisions of the legislation of the Russian Federation related to corporate governance as well as to the international standards applicable to public companies listed on the London Stock Exchange
Corporate governance structure
The corporate governance system of LSR Group includes several management bodies, the key ones being:
‣‣ General Meeting of Shareholders; ‣‣ Board of Directors; ‣‣ Executive Committee; ‣‣ Chief Executive Officer.
98 Annual report / 2012 99 General Meeting of Shareholders
The General Meeting of Shareholders is the supreme authority of LSR Group.
The General Meeting of Shareholders is convened by the Board of Directors at least once a year.
In 2012, the company held one General Meeting of Shareholders.
Board of Directors
The Board of Directors is responsible for general management of the company, defines the company’s development strategy and exercises control of its financial and business operations.
The Board of Directors acts in compliance with the company’s Charter and Regulations on the Board of Directors, and is authorised to approve decisions related to all aspects of the company’s business, save for the matters referred to the competence of the General Meeting of Shareholders by law. Chief Executive Officer The members of the Board of Directors are elected by the General Meeting of Shareholders for a term up to the next annual General Meeting. When members of the Board are elected by the extraordinary In accordance with the Charter of LSR Group, the Chief Executive Officer General Meeting of Shareholders their authority remains valid until the next annual General Meeting of exercises the powers of sole executive body. The Chief Executive Officer Shareholders. Any shareholder of LSR Group holding at least 2% of the company’s voting shares may carries out day-to-day management of the company except for the matters nominate a candidate for the Board of Directors. referred to the competence of the General Meeting of Shareholders, Board of Directors and the Executive Committee. Decisions of the Board of Directors are adopted by a simple majority unless otherwise provided by law, the company’s Charter and Regulations on the Board of Directors. Each member of the Board of Directors has Aleksandr Vakhmistrov is the Chief Executive Officer of LSR Group. In 2012, one vote. he held no shares of the company.
The Chairman of the Board of Directors convenes meetings of the Board of Directors in accordance with a previously agreed timetable. Composition of the Board of Directors Extraordinary meetings of the Board of Directors may be convened by the Chairman of the Board of Directors at his initiative, as well as upon the request of any member of the Board of Directors, the The following members of the Board were elected by the annual Executive Committee, Chief Executive Officer, the Internal Audit Commission or the auditors of LSR Group, Meeting of Shareholders of 05 April 2012. and also any shareholder with at least 10% of the company’s voting shares.
In 2012, the company’s Board of Directors held 12 meetings. Position Inde- Audit Committee Human Strategy in the Board pend- Resources and and Investment of directors ent Compensations Committee Committee Executive Committee Member Member Chairman Member Kirill Androsov of the Board Yes of Committee of Committee of Committee The Executive Committee makes decisions on the most important issues related to the company’s current business activities, implements the company’s financial and business policy and advises on the company’s strategy. Member Ilgiz Valitov of the Board Yes
The Executive Committee acts in compliance with the company’s Charter and Regulations on the Executive Committee, Chairman and is authorised to approve operating decisions related to business activities of LSR Group save for the matters Dmitri Gontcharov of the Board No referred to the competence of the General Meeting of Shareholders and the Board of Directors by law. The Board of Member Member Member Member Directors determines the number of members, election procedures and early termination of powers of the Executive Igor Levit of the Board No of Committee of Committee of Committee Committee’s members. Member Member Mikhail Romanov of the Board No of Committee Decisions of the Executive Committee are adopted by a simple majority. Each member of the Executive Committee has one vote. Member Sergey Skaterschikov of the Board No
The Chairman of the Executive Committee appoints meetings of the Executive Committee as and when required, but Member Chairman Member at least once a month. Meetings of the Executive Committee may be convened at the initiative of the Chairman of the Mark Temkin of the Board Yes of Committee of Committee Executive Committee or one of the members of the Executive Committee, as well as upon request of the Board of Member Chairman Directors, the Internal Audit Commission and the auditor. Elena Tumanova of the Board No of Committee
Activities of the Executive Committee are headed by the Chief Executive Officer, who is the Chairman of the Executive Committee by virtue of his position. This report provides information on the composition of the company’s In 2012, the company’s Executive Committee held 30 meetings. management bodies, as of 31 December 2012.
100 Annual report / 2012 101 Biographies of members of the Board of Directors Elena Tumanova
Member of the Board of Directors since February 2008
Dmitri Gontcharov Elena Tumanova has been working in LSR Group since it foundation in 1993.
Chairman of the Board of Directors From 1993 to 2000 - held a number of senior positions with financial departments of the group’s companies. From 2000 to 2011 - Chief Financial Officer of LSR Group. Currently - Executive Director of LSR Group as well as Member of the Board of Directors a member of the Executive Committee of LSR Group. Since 2009 up to date - auditor of OOO Professionalaudit. since June 2007 Graduated from the Leningrad Shipbuilding Institute in 1981, from St. Petersburg State University of Economics and Finance in 1995, and from International Banking Institute and Stockholm University Business School in 2007. She has a degree of Master of Economics and additional qualification - Master of Business Administration. Chairman of the Board of Directors of LSR Group since Honoured Builder of Russia. In 2005 - awarded with a medal «In Commemoration of the 300th Anniversary of Saint November 2012. Petersburg».
Since 2003 up to date - Managing Director of LSR Certified by the Russian Ministry of Finance as an auditor, and is also a member of the Russian Chamber of Auditors. Europe GmbH, Munich. Born in 1958. From 1996 to 1997 - worked at the Audit and Tax Consulting Department of BBMS Treuhand GmbH. From 1997 to 2003 - Commercial Director of In 2012, her share in the company remained unchanged and was 0.13%. Sales Department, CIS and Eastern Europe Region, Information and Communication Networks Division of Siemens AG. From 2009 to 2010 – member of the Executive Committee of Aeroc International AS, Estonia.
Graduated from Ludwig-Maximilians-Universität (Munich) with a degree in Economics in 1996. Mikhail Romanov
Born in 1970. Member of the Board of Directors since August 2006 In 2012, he held no shares of the company.
Mikhail Romanov has been working in LSR Group and its subsidiaries since it foundation in 1993.
From 1993 to 2002 - CEO of OJSC Stroydetal (a subsidiary of LSR Group). From 2002 to 2005 – Vice President of LSR Group. From 2005 – Head of New Projects of LSR Group. From 2008 to 2011 – CEO of OOO Cement (a subsidiary of LSR Group). 1996 1997 2003 2009 2010 2012
Since 2006 up to date – Head of New Projects of LSR Group, and Born in 1957. also member of supervisory committees of CJSC Efimovsky Timber Industry Enterprise and OOO MM-Efimovsky. In 2012, his share in the company remained unchanged and was 4.72%. Graduated from Leningrad Arctic School, and Admiral Makarov Leningrad Higher Maritime Engineering School in 1977.
102 Annual report / 2012 103 Olga Sheikina Kirill Androsov
Member of the Board of Directors Independent Director since June 2010 Member of the Board of Directors since June 2010
Olga Sheikina has been working in LSR Group and its subsidiaries since its foundation in 1993. From 1999 to 2004 - First Deputy CEO, CFO of OJSC Lenenergo, from 2004 to 2005 – Head of Department for governmental regulation of tariffs and At present she is Head of LSR Group Moscow Office, infrastructure reforms of the Russian Ministry of Economic Development and Head of Administration of the Board of Directors of Trade, from 2004 to 2008 – member of the Board of Directors of OJSC Rosneft OJSC LSR Group and Head of Administrative Department Oil company, from 2005 to 2008 – Deputy Minister of Economic Development of OOO LSR, and also CEO of OJSC MTO Arkhproekt (a and Trade of Russia, from 2006 to 2008 – member of the Board of Directors subsidiary of LSR Group). of OJSC RAO UES of Russia, from 2007 to 2008 – member of the Supervisory Committee of OJSC Bank VTB, from 2007 to 2011– Chairman of the Board Graduated from St. Petersburg State Mining Institute in 1983, and from St. Petersburg of Directors of OJSC GAO All-Russian Exhibition Centre, from 2008 to 2010 – State University of Economics and Finance, Management Programme, in 2000. Deputy Chief of the Government Staff of the Russian Federation.
Born in 1960. Currently Kirill Androsov is Chairman of the Board of Directors of OJCS Aeroflot, Managing Partner of Altera Capital, member of the Board of Directors of OOO A3, member of the Board In 2012, her share in the company remained unchanged and was 0.13%. of Directors of OJSC Channel One, member of the Board of Directors of Altera Investment Fund, Chairman of the Board of Directors of OJSC RZD.
Graduated from State Marine Technical University of St. Petersburg, Born in 1972. and Business School of the Chicago University (EMBA). In 2012, he held no shares of the company. Igor Levit
Member of the Board of Directors since August 2006 Ilgiz Valitov
Independent Director Igor Levit has been working in LSR Group and its subsidiaries since 1994. Member of the Board of Directors since June 2009 Prior to 2002 - held different leading positions at company’s business units.
From 2002 – Vice President, and from 2004 – First Vice From 2002 to 2007 - General Manager of a Branch and Vice-President of OJSC President of LSR Group. From August 2006 to July 2010 – VTB Bank. From 2003 to 2006 – a member of the Board of Directors of OJSC CEO of LSR Group. Kamaz. At State Corporation Bank for
From 2005 to 2010 – member of the Board of Aeroc International AS. From 2008 to 2011 – Development and Foreign Economic Affairs (Vnesheconombank) he was Director member of the Board of Directors of OJSC Betfor. From 2010 to 2011 – member of the Executive of Department of Regional Development from 2007 to 2010, and Director Committee of LSR Group. From 2010 to 2012 – Chairman of the Board of Directors of LSR Group. of Natural Resources Department– from 2010 to 2011. From 2009 to 2011 – From April 2011 to May 2012 – Chairman of the Board of Directors of CJSC Stroitelny Trest No.28. member of the Board of Directors of OOO VEB-Invest.
Graduated from St. Petersburg State Technical University in 1994. PhD in Technical Sciences. Currently - Director of Natural Resources and Construction Directorate Born in 1964. Awarded the classification of Honored Builder of Russia, medal of the Order of Merit for the of State Corporation Bank for Development and Foreign Economic Fatherland, 2nd degree, Badge of Honour ‘The Builder of St. Petersburg.’ Affairs (Vnesheconombank). Member of the Board of Directors of In 2012, he held no shares of the company. OJSC Kaluga Region Development Corporation, OJSC 31 Novinsky Born in 1971. Boulevard, OJSC Razgulyay Group, OOO Titan Agro, member of Supervisory Committee of Moscow Open Joint Stock company Slava In 2012, he held no shares of the company. (Moscow 2nd Watch Factory).
Graduated from Kazan Finance and Economics Institute.
104 Annual report / 2012 105 Committees of the Board of Directors Audit Committee Sergey Skaterschikov Committees of the Board of Directors are consultative and advisory The Audit Committee is responsible for preparing recommendations Member of the Board of Directors bodies intended for handling particularly important areas of the to the Board of Directors on exercising control over the financial and since June 2007 company’s business. Their activity is governed by the Regulations business operations of the company. on the Committees of the Board of Directors of the company. The committees meet separately from the Board of Directors. The Audit Committee provides assessment of nominees to be From 2006 to 2006 - Vice President, Strategy and Development of OJSC appointed as independent auditors of LSR Group, analyses auditor’s MTS. From 2003 to 2008 - member of the Advisory Board within the Audit Committee members are elected by the Board of Directors. opinions, checks the effectiveness of internal control procedures, Committee of the Board of OJSC RAO UES of Russia. From 2006 to 2009 According to the listing rules, only an independent director may and draws up proposals for their improvement. - member of the Board of Directors of OJSC Kirovsky Zavod. In 2010-2011 chair the audit committee, as well as the human resources and - lecturer at Moscow State University. From May 2011 to September 2011 - compensations committee. The Chief Executive Officer and The Audit Committee supervises the preparation of financial member of the Executive Committee of OJSC LSR Group. members of the Executive Committee may not be members of statements, the completeness and accuracy of tax, accounting and the audit committee, or the human resources and compensations managerial reporting. From 2004 to 2011 – member of the Board of Directors of OJSC OMZ. committee. Currently - member of the Business Board of Independence Holding In 2012, the Audit Committee of the Board of Directors held six Limited, OJSC Volga, member of the Board of Directors of Redline Capital Decisions are taken by a majority of votes of committee members meetings. Management SA (Luxembourg) and member of the Board of Directors of attending the meeting. Each committee member has one vote. East West United Bank SA (Luxembourg). Audit Committee: Information on the responsibilities and composition of Board of ‣‣ Mark Temkin – Chairman of the Committee; Graduated from Moscow State University in 1994 and from Fuqua School of Directors committees, as of 31 December 2012, is presented below. ‣‣ Kirill Androsov; Business, Duke University, USA with a Global Executive MBA in 2003. ‣‣ Igor Levit.
Born in 1972. Human Resources and Compensations Committee In 2012, he held no shares of the company. The Human Resources and Compensations Committee provides recommendations to the Board of Directors relating to the material terms and conditions of employment contracts with members of the Board of Directors, Executive Committee, CEO and Mark Temkin senior management, and also to the compensation of members of the Executive Committee, CEO and senior management, and develops the criteria for remuneration Independent Director of the members of the Board of Directors.
Member of the Board of Directors The responsibilities of the Human Resources and Compensations Committee also since June 2012 include development of the HR policy and regulation of the remuneration and incentive schemes of company employees.
Mark Temkin began his career in investment banking in 1995 In 2012, the Human Resources and Compensations Committee of the Board of at Asia-Trust Commercial Bank. Held several positions at Iskol- Directors held four meetings. Bank Commercial Bank (later Expobank Commercial Bank), before moving to Rinaco-Plus JSC. Human Resources and Compensations Committee: ‣‣ Kirill Androsov – Chairman of the Committee; After Rinaco-Plus JSC was merged with NIKoil in 1998, he started ‣‣ Mark Temkin; to work for the Brokerage Department of the merged company in ‣‣ Igor Levit. the Russian Sales division. In 2002, he was appointed head of the Russian Sales division. From 2005 to 2008 - Head of Equity Sales Strategy and Investment Committee and Trading at URALSIB Investment Bank. Since 2008 up to date - head of URALSIB Investment Bank and CEO of URALSIB Capital. The Strategy and Investment Committee assists the Board of Directors in its Chief Executive Officer Currently he supervises all divisions of URALSIB Investment Bank responsibilities relating to the corporate strategy including the control of the strategy as well as URALSIB’s London and New-York offices. development and implementation, analysis and approval of acquisitions and business The Chief Executive Officer and Chair- sale transactions, approval and follow-up of major investment projects, and investment man of the Executive Committee of Graduated from the Economics School of Moscow State University. budget allocation. LSR Group is Aleksandr Vakhmistrov.
Born in 1974. In 2012, the Strategy and Investment Committee of the Board of Directors held four meetings.
Strategy and Investment Committee: ‣‣ Elena Tumanova – Chairman of the Committee; ‣‣ Kirill Androsov; During the reporting year Vladislav Inozemtsev was the member of the Board of ‣‣ Igor Levit; Directors, but he was not the member of the Board of Directors by the end of the ‣‣ Mikhail Romanov. reporting year.
106 Annual report / 2012 107 Aleksandr Vakhmistrov The members of the Executive Committee, are as follows: Lev Vinnik Member of the Executive Committee CEO and the Chairman of the Executive Board of LSR Group Lev Vinnik has 15 years of experience in the construction industry, including 4 years working for LSR Group. He started to work at our real estate development business unit in St. Petersburg in From 1975 to 1994 - worked for various construction 2002 as new project manager, then Head of Development Team and then Expert in New Projects. industry companies holding positions from that of a From 2003 to 2007 - First Deputy Director and then Director of St. Petersburg state institution specialist to CEO. He was the Head of Construction Investment Management. In 2007 he started to work for Russia’s Ministry of Defense. Currently Department No.339 of LPSMO Glavzapstroy, Production he is Deputy Chief Executive Officer of OOO LSR-Stroy, Head of the LSR. Project Management Director of Lentek Soviet-Finnish joint venture business unit. engineering firm, CEO of FILCO Soviet-Finnish joint venture construction company. In 1994 was invited Graduated from Leningrad Institute of Aircraft Instrument-making in 1991. Completed to the Construction Committee and was appointed a Management course at St. Petersburg International Management Institute in 1999. to the position of a General Director of a statutory In 2006-2007, he studied Industrial and Civil Construction at St. Petersburg State Architecture and board «The Board of Investments» of St. Petersburg Civil Engineering University. Administration Construction Department. From 1996 to 2000 - General Director of a statutory board «The Work Born in 1967. Center for Bank Credits». From 2000 to 2003 - Chairman In 2012, he held no shares of the company. of the Construction Committee of the St. Petersburg Administration, and Vice Governor of St. Petersburg. From 2003 to 2009 - member of the Government of Vasily Kostritsa Member of the Executive Committee St. Petersburg, Vice Governor of St. Petersburg responsible for construction and reconstruction of real estate, road Vasily Kostritsa has 16 years of experience in the construction industry, including 13 years working building, architecture and urban planning, and land policy for LSR Group. From 1992, he worked for the Administration of Northwest Shipping Company of St. Petersburg for construction purposes. From 2009 as Engineer-Dispatcher, Chief Dispatcher, Deputy Chief of Loading and Commercial Operations to June 2010 - Vice Governor of St. Petersburg and Head Department. In 1997 - appointed Director of OOO StroyGranit-SPb. In 1999 - appointed Chief of St. Petersburg Governor Administration. At present he Executive Officer of OOO Baltnerud. In 1997, he was elected to the Board of Directors of OJSC is also CEO of OOO LSR and OOO LSR-Stroy. Granit-Kuznechnoye. In 2002 - appointed Chief Executive Officer, and in 2005 he became General Manager of OJSC Granit-Kuznechnoye. From 2007 to 2008 - member of the Board of Directors Graduated from Leningrad Railway Engineers Institute of OJSC Rudas. Since 2011 - Head of the LSR. Aggregates and Ready-mix Concrete – North-West with a major in Industrial Construction and Civil business unit (CEO of CJSC LSR. Aggregates and Ready-mix Concrete, OJSC Granit-Kuznechnoye, Engineering in 1981 and from St. Petersburg University OJSC Rudas, OOO Obyedinenie 45). of the RF Ministry of the Interior with a major in Law in 2000. He was awarded a Certificate of Merit of the RF Ministry of Regional Development. He was also awarded Badge of Honor for Merits to Priozyorsk District. Doctor of Economics, professor of St. Petersburg State University of Architecture and Construction, and St. Petersburg State Polytechnic University. First Vice President, member of Graduated from Leningrad Institute of Water Transport majoring in Economics and Water Transport the Board of the National Construction Union (NOSTROY). Management in 1986. PhD in Economics. Honorary Builder of Russia.
Honored Builder of Russia. Merited Builder of the Russian Federation. Awarded with the Order Born in 1964. of Merit for the Fatherland, 4th degree, Order of Friendship, Order of Honour. Two official In 2012, his share in the company remained unchanged and was 0.21%. commendations of the RF President, and Science and Technology Awards of the RF Government.
Born in 1954. Dmitry Kutuzov Member of the Executive Committee In 2012, he held no shares of the company. Dmitry Kutuzov has 8 years of experience in the construction industry and with LSR Group. In 2004, he started to work in LSR Group as Head of Planning and Economics Department. In January 2008, he was appointed Deputy Chief Financial Officer, Head of Treasury Department. Since May 2011, he has been Chief Financial Officer of LSR Group.
He was awarded Certificate of Merit of the Vice Governor of St. Petersburg for high professional performance, impeccable record and dedicated work in the construction industry.
Graduated from St. Petersburg State University of Economics and Finance with a degree in Economics in 1999. In 2005, he completed a Corporate Finance programme at St. Petersburg International Management Institute. 1975 1981 1994 1996 2000 2003 2009 2010 2012 Born in 1976. In 2012, he held no shares of the company.
108 Annual report / 2012 109 Vladimir Loginov Member of the Executive Committee Dmitry Khodkevich Member of the Executive Committee
Vladimir Loginov has 10 years of experience in the construction industry and with He has been working in the construction industry for more than 19 years, including 13 years LSR Group. In 1996, he started to work at the Leningrad Regional Registration working for LSR Group. In 1999, he was employed as Deputy Chief Executive Officer for Chamber of the Leningrad Region Government and was promoted from the position Production by SKV SPb OJSC, in 2000 - appointed Deputy Chief Executive Officer (Construction), of a specialist of 1st category of Sosnovoborsky Territorial Division to Deputy Chief in 2006 - appointed Director of Construction of SKV SPb OJSC. of Legal Department of the Registration Chamber. In January 2003 - appointed Head of Legal Department in LSR Group. Since February 2005 - Director of Legal Affairs of Since February 2011 - CEO of OOO GDSK. In September 2011 - appointed Head of LSR. Real LSR Group. In January 2013 - appointed Deputy CEO, Business Development. Estate – North-West business unit (CEO of OOO GDSK, OJSC SKV SPb and OOO Osobnyak). Since 2011 - Chief Executive Officer of OJSC Stroykorporatsiya. In 2003 – awarded with a medal «In Commemoration of the 300th Anniversary of Saint Petersburg». In 2011 – awarded with a Certificate of Merit of the Vice Governor Awarded with a Certificate of Merit of the Vice Governor of St. Petersburg, a Certificate of of St. Petersburg. Merit of the Chairman of the RF State Committee for Construction and Housing Complex for long-standing productive work and major personal contribution to the industry development.
Graduated from Law School of St. Petersburg State University Born in 1974. Graduated from Leningrad Higher Military Engineering and Construction School named after in 1999. From 2007 to 2009 - studied at St. Petersburg State In 2012, he held no shares of the company. Army General A. Komarovsky with a degree in Construction and Operation of Buildings and University under School of Tax Attorneys program. Structures in 1992.
Born in 1970. Elena Tumanova Member of the Executive Committee In 2012, he held no shares of the company.
Elena Tumanova has been working in LSR Group since it foundation in 1993. From 1993 to 2000 - held a number of senior positions with financial departments of the group’s companies. From 2000 to 2011 - Chief Financial Officer of LSR Group. Currently - Executive Director of LSR Group as well as Vladimir Chernyaev Member of the Executive Committee a member of the Executive Committee of LSR Group. Since 2009 up to date - auditor of OOO Professionalaudit. He has 34 years of experience in the construction industry, including 9 years working for LSR Group. From 1986, he worked at Tsentrakademstroy Leningrad Factory of Graduated from the Leningrad Shipbuilding Institute in 1981, from St. Building Products of the USSR Academy of Science, and was promoted from Foreman Petersburg State University of Economics and Finance in 1995, and from to Commercial Director. International Banking Institute and Stockholm University Business School in 2007. She has a degree of Master of Economics and additional qualification In 1994, he started to work at DSK Blok CJSC as Commercial Director, then he was - Master of Business Administration. Honoured Builder of Russia. In 2005 - appointed Chief Executive Officer. Up to 2008, he was a member of the Board of awarded with a medal «In Commemoration of the 300th Anniversary of Saint Directors of DSK Blok CJSC. In 2004 - appointed Director of Construction of LSR Petersburg». Group. In 2008 - transferred to the position of Head of LSR. Construction Division of LSR Group. Since 2010 - Head of the LSR. Construction – North-West business Certified by the Russian Ministry of Finance as an auditor, and is also a member unit of LSR Group, CEO of DSK Blok. From 2004 to 2008 - member of the Board of of the Russian Chamber of Auditors. Directors of OJSC Gatchinsky DSK, and from 2005 to 2008 - member of the Board of Directors of CJSC Stroitelny Trest No.28. Born in 1958. In 2012, her share in the company remained unchanged and was 0.13%. In 2004, he was awarded a Certificate of Merit of the Vice Governor of St. Petersburg for his major contribution to the shaping of an open investment policy and formation of a positive image of the building industry in St. Petersburg. In 2005, he was Kliment Falaleyev Member of the Executive Committee awarded the Medal «In Commemoration of the 300th Anniversary of St. Petersburg.»
He has 10 years of experience in the construction industry and LSR Group. From 2003 Graduated from St. Petersburg State Architectural and Construction University, to 2004, he worked as Senior Economist at Planning and Economics Department of LSR majoring in Lifting and Transport, Construction, and Road Machines and Equipment. Group. From 2005 to 2007, he was Deputy Financial Director of LSR Group. From 2008 He is Honorary Builder of Russia and Honored Builder of Russia. to 2011, he worked as Director for Investor Relations of LSR Group. In May 2011, he was appointed Managing Director of LSR Group. Born in 1957. In 2012, his share in the company remained unchanged and was 0.16%. Graduated from St. Petersburg State Institute of Fine Mechanics and Optics with a degree in Management in 2001. In 2012 - completed a training course under EMBA program at Chicago Booth School of Business.
Born in 1978. During the reporting year the following persons were members of executive bodies of On 15.02.2012 his share in the company changed from 0% to 0.0015%. the Company who are not members of the Executive Committee of OJSC LSR Group by the end of the reporting year: Georgy Bogachchev, Ivan Romanov.
110 Annual report / 2012 111 Internal Audit Commission
In accordance with the RF legislation and the Charter of LSR Group, the supervision of financial and business operations of LSR Group is exercised by the Internal Audit Commission composed of three persons elected by the General Meeting of Shareholders for the period of one year. Members of the Internal Audit Commission may not be members of the Board of Directors or hold other positions in the company’s management bodies.
Financial and business results of the company are reviewed annually on a mandatory basis, and additionally at the initiative of the Internal Audit Commission, by decision of the General Meeting of Shareholders, Board of Directors, or upon request of shareholders with at least 10% of voting shares in OJSC LSR Group. The competence of the Internal Audit Commission on matters not provided for in the Charter shall be determined by the Regulations on the Internal Audit Commission. Remuneration of members of company’s management bodies The Internal Audit Commission is established in accordance with RF legislation under which all joint stock companies registered within Russia should have this In 2012, remuneration paid to the members of company’s management bodies, including the Board body for the purpose of exercising supervision of the financial and business of Directors and the Executive Committee, was RUB 106,267,000. In accordance with the internal operations of the company. requirements of the company, managers of LSR Group who are members of the Board of Directors are not paid any remuneration for their work for the Board but are only compensated for the costs incurred during the performance of their duties. Internal Audit Service Disclosure policy In order to enhance the efficiency of control over the company’s financial and business operations, the Internal Audit Service was established in 2007. The Internal Audit In our information policy we are guided by the international practices of information disclosure and Service should assess compliance of the company’s financial and business operations, the requirements of the international and Russian legislation, United Kingdom Financial Services its structural divisions, subsidiaries and associated companies to the interests of the Authority (FSA) and the Russian regulator, Federal Financial Markets Service (FSFR), and also the company. The Internal Audit Service also evaluates the company’s risks and develops risk Disclosure Policy Provisions. mitigation measures. Information covering the activities of LSR Group is contained in documents and reports made on a regular basis. In particular, in accordance with the provisions of the RF legislation, the company publishes on its website annual and quarterly reports on a regular basis.
Under the listing requirements of MICEX-RTS, a report on compliance with the corporate conduct regulations is submitted by LSR Group on a quarterly basis.
Information regarding the activities of LSR Group is also disclosed by means of press releases, notices of material facts and notification of information that may have a material effect on the price of the company’s securities, as well as lists of the related parties.
Independent auditor
In accordance with the RF legislation, the General Meeting of Shareholders approves an independent auditor to audit the company’s financial statements on an annual basis. In 2012, CJSC Audit-Servis was approved to audit RAS-based financial statements of LSR Group. CJSC KPMG was approved to audit the company’s IFRS-based statements.
112 Annual report / 2012 113 « Honesty and transparency in our investor relations is the company’s ideology rather than obligation imposed by stock market authorities. We highly appreciate support from our shareholders, their belief in the company’s successful future. » HonestyYuri Ilyin Director of Investor Relations and 114 Annual report / 2012 openness115 Shareholding Structure Share capital As of 31 December 2012, 33% of the share capital of LSR Group was in free float. The key shareholder of LSR Group – Streetlink Ltd. – was holding 62% of the shares, the company’s management - 5% of the share capital.
5%
Management Free float As of 31 December 2012, the share capital of OJSC LSR Group was Streetlink Ltd. RUB 25,757,553.75 and consisted of 103,030,215 ordinary shares, each with 33% a nominal value of RUB 0.25. Ordinary shares of LSR Group are traded on MICEX-RTS* under the ticker symbol LSRG.
LSR Group’s global depositary receipts are traded under the ticker symbol LSRG 62% on the Main Market of London Stock Exchange (LSE). Each depositary receipt represents 1/5 of an ordinary share (a ratio of 5 GDRs : 1 Ordinary Share).
The GDR programme is implemented and supported under Regulation S and Dividend Policy Rule 144A. Deutsche Bank Trust Company Americas acts as depositary and the Prior to 2011, LSR Group did not pay out dividends. The company’s profit was reinvested into functions of custodian bank are performed by Deutsche Bank Ltd. Moscow. business development.
On 7 April 2011, the Annual General Meeting of Shareholders approved dividend of RUB 15 per ordinary share for 2010. The total amount of cash dividends paid was RUB 1,545,453,225.
*Open Joint Stock Company RTS Stock Exchange (OJSC RTS) and Closed Joint Stock Company Moscow Interbank Foreign Exchange (CJSC MICEX) formally closed their merger on December 19, 2011. In 2012, after analyzing the company’s capital structure, the Board of Directors recommended that the Shareholders Meeting should consider returning surplus capital to our shareholders in the form of dividends to be paid based on the results of the 2011 fiscal year.
On 5 April 2012, the Annual General Meeting of Shareholders approved dividend of RUB 20 per ordinary share for 2011. The total amount of cash dividends paid was RUB 2,060,604,300.
Payment 2012 of dividends
2011
Prior to 2010 2,060,604,300 RUB 1,545,453,225 RUB
Reinvestment into business development
116 Annual report / 2012 117 Trading volume GDRs on London Stock Exchange in 2012 1,093.56 Public offerings оf shares of OJSC LSR Group ‣‣ Maximum price (USD) – 5.95 USD m ‣‣ Minimum price (USD) – 3.28 In November 2007, LSR Group carried out an initial public offering. The offering volume was ‣‣ End-year price (USD) – 4.12 10,643,618 ordinary shares in the form of ordinary shares and global depositary receipts. ‣‣ Trading volume (USD m) – 1,093.56 max 5.95 Source: Bloomberg min 3.28 The offering price was USD 72.50 per share and USD 14.50 per global depositary receipt. As a end-year 4.12 result, LSR Group raised USD 588 m (adjusted for the IPO costs). The IPO of LSR Group became USD 0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 one of the largest public offerings implemented by a construction sector company in Russia.
On 30 April 2010, LSR Group carried out a secondary public offering. A total of 9,366,383 ordinary shares in the form of global depositary receipts were placed under international offer. The net proceeds after deducting all the offering expenses were USD 385 m. As a result of the Trading volume secondary public offering, the total number of shares increased up to 103,030,215 shares. Ordinary shares on MICEX-RTS 3,029.35 ‣‣ Maximum price (RUB) – 772.4 RUB m ‣‣ Minimum price (RUB) – 461.8 ‣‣ End-year price (RUB) – 562.6 ‣‣ Trading volume (RUB m) – 3,029.35 max 772.4 Source: www.micex.ru min 461.8 end-year 562.6 RUB 0 100 200 300 400 500 600 700 800
Information on ordinary shares and GDRs Type: ordinary shares (each with a nominal value of RUB 0.25) Global depositary receipts (GDRs) (5 GDRs - 1 ordinary share) Listing: GDRs on London Stock Exchange. Ordinary shares on MICEX-RTS 588 Trading lot: 1 ordinary share or 1 GDR tradable USD m IPO Free float: 33% November 10,643,618 Number of shares: 103,030,215 2007 shares
Share and GDR codes Regulation S GDR CUSIP: 50218G206 ISIN: US50218G2066 Common code: 032415202 Rule 144A GDR CUSIP: 50218G107 ISIN: US50218G1076 Common code: 032415334 The volume II SIN for ordinary shares RU000A0JPFP0 of placement Net proceeds
Tickers London Stock Exchange – LSRG MICEX-RTS – LSRG SPO PORTAL symbol for GDRs – LSRGL April 9,366,383 shares Bloomberg – LSRG LI 2010 385 USD m Depository’s contacts Deutsche Bank Trust Company Americas London +44 207 547 6500 New York +1 212 250 9100 Moscow +7 495 797 52 09 Correspondence address: Deutsche Bank Trust Company Americas Depositary Receipts 60 Wall Street New York NY 10005-2836 Total number of shares Address in Russia: 82 Building 2, Sadovnicheskaya Street, 115035 Moscow Depositary Receipts
Russian registrar’s contacts ZAO Yediny Registrator 6 Belovodsky Pereulok, 194044, St. Petersburg, Russia 103,030,215 shares
118 Annual report / 2012 119 Risks
Country and region risks
The country and region specific risks include risks of macroeconomic instability in Russia due to Our growth in the past was largely due to the possibility of attracting highly skilled fluctuations of the global economy and a decline in the prices for raw materials, risks related to and experienced personnel to the company. The labour market in Russia is changing, unsatisfactory infrastructure condition, political and social instability, and also possible natural and it is impossible to guarantee that in the future it will be as easy for us to find the and man-caused disasters. human resources required.
All of the above may have an adverse effect on the ability of LSR Group to efficiently carry out business, and also on the value of shares and global depositary receipts. Financial risks Risks of interest rate change
Industry-specific risks An increase in the interest rate of bank loans or other borrowings may result in higher debt servicing costs, and also limit the availability of external financing to the The markets of real estate, building materials and services, similarly to any other commodity company. market, are exposed to fluctuations in business activity. The above markets are likely to suffer from adverse changes in the market situation, which may result in lower revenues from the sales of products and services. Credit risks
The company is exposed to the risks typical of the real estate development and construction The default on accounts receivable is one of the financial risks the company may be exposed to. businesses in Russia. This business is labour-intensive, requires significant investments, Management of the financial risks is carried out by the business units of LSR Group based on depends on the obtaining of different licenses, permits and approvals from relevant authorities. the unified corporate principles and in accordance with the Policies on management of credit Problems with obtaining all the necessary licenses, permits and approvals may result in an risks within LSR Group. Business units have the approved procedures to monitor and collect increase in the project timeline including the impossibility of completing such projects, and the accounts receivable: the contractors are rated in accordance with their financial position increased costs. Apart from that, delayed completions may adversely affect our reputation, and the history of interaction with LSR Group, the delivery terms are adjusted in 17 accordance which may result in financial loss. with the rating, we carry out analyses of new contractors and suspend delivery in the case of contract terms violation and refusal of the contractor to settle the indebtedness. If necessary Changes in the permitting process and the process of obtaining rights to land plots, as well as our legal department starts legal action to collect debts. The company establishes an allowance changes in the town-planning legislation, may result in the increased timeline of projects and reserves to write off bad debts if needed. additional costs. In its turn, the increased timeline of projects may result in the cancellation of leasehold agreements. Currency risks
The success of real estate development businesses depends, to a great extent, on the ability to A significant growth in the exchange rate of the US dollar or Euro may result in higher payments locate and acquire land suitable for construction on attractive terms. on loans and leasing liabilities, and also have an effect on the key parameters of investment plans providing for the procurement of imported equipment. The company minimises as much Higher operating costs, growing value of insurance coverage, potentially stricter requirements as possible any disproportion between the currency units in which its basic revenues and of the tax and environmental legislations may have an adverse effect on the business expenditures are denominated, and between the company’s assets and liabilities. The company profitability of LSR Group. Growing prices for raw materials, services and energy used by the receives most of its revenues in roubles, and its costs are also denominated mainly in roubles. company’s subsidiaries in their business, an increase in land prices and rental fees, fees for utilities, and also in wages may reduce the profitability of the company’s business. An increase Liquidity risks in the prices of the company’s products and/or services due to the above factors may result in lower sales volumes which would entail reduced revenues from such operations due to a The liquidity risk means that a company may be unable to meet its financial obligations within decline in effective demand (in the event that the growth of prices for products and/or services the established time, which may result in fines, penalties and damage to business reputation. outstrips demand). LSR Group manages the liquidity risk by planning cash flows from operational, investment and financial activities to ensure as much as possible – both under normal and extraordinary Most of our operations are located in St. Petersburg, the Leningrad Region, Moscow, the circumstances – sufficient liquidity to meet its obligations using if necessary short-term Moscow Region and Yekaterinburg; this results in the risk of geographical concentration. credit facilities and making efforts to refinance debt. A detailed description of financial risk management is presented in Note 28 to IFRS financial statements. Acquisitions of existing businesses have always been one of the priorities of company’s development. However, they may result in the risk of circumstances arising from the acquisition of new legal entities. In addition, problems may emerge with the integration of newly acquired businesses into the group.
120 Annual report / 2012 121 Legal risks Other legal risks
The legal risks are determined, among other things, by the flaws of the Russian legal system ИChanges in the securities market legislation, including the adoption of the legislation and Russian legislation, which results in an atmosphere of uncertainty regarding investment on suspending illegal use of insider information and market manipulation, as well as its and commercial activities. The legal risks of LSR Group, including those due to changes in the shortcomings such as the uncertainty and lack of enforcement actions may have negative currency exchange regulation, tax legislation, and licensing may have a considerable effect on consequences for the activities of LSR Group. LSR Group. Changes in, or adoption of new corporate regulations and procedures established by laws and other enactments, may entail unfavorable consequences for OJSC LSR Group in the form of Risks of tax legislation change additional expenses incurred to abide by the above procedures. Uncertainty in the regulatory control and insufficiencies of the case law or law enforcement practice may cause LSR Group Change in the tax system of the Russian Federation may result in significant being brought to liability, and have a negative effect on its business. Formal violations of the uncertainty and risks that will complicate the decision making procedure in `tax corporate legislation committed upon establishment of, or during the activities of organizations planning and business in Russia and may have a substantial negative effect on the may result in their compulsory liquidation, including after such organizations are acquired by business of LSR Group. Changes in legislations and the case law on taxation are LSR Group. Such compulsory liquidation of LSR Group’s subsidiaries may have a substantial not properly elaborated and allow for different approaches and interpretations. The negative effect on its business. vague legislation exposes LSR Group to the risk of substantial fines and penalties in spite of its keenness to comply with the legislation, and may result in increased tax The requirements of the environmental legislation of the Russian Federation may impose burden for the company. The tax collection system is relatively inefficient, and the various additional obligations on the company’s subsidiaries’ compliance with which may affect RF Government is forced to increase the tax burden to collect more revenues. The operational results. In addition, claims may be lodged against the company’s subsidiaries on aforesaid factors increase the risk of imposing unexpected and arbitrary taxes as environmental issues. well as cancelling tax allowances. All these weaknesses may affect the company’s abilities to exercise its rights under contracts, License risks as well as its ability to defend itself against third party claims. Moreover, the company is unable to guarantee that regulatory and judicial authorities as well as third parties will not challenge Changes in the licensing requirements may have a substantial effect on the business the compliance by the company and its subsidiaries with the provisions of laws, decrees and results of the subsidiaries and associated companies of LSR Group. The impossibility regulatory instructions. to extend the validity of licenses, or their withdrawal, may result in the suspension of the respective company’s activities. If regulators identify breaches of license conditions made by the company’s subsidiaries, it may result in the suspension, change, and cancellation of, or refusal to extend licenses and permits issued to the subsidiaries, or in the demand to give up certain types of activity. Each of the above factors may have an adverse effect on the company’s business, financial standing and operational results.
Risks management structure
The Board of Directors provides general guidance for carrying out the risk management policy. The Audit Committee of the Board of Directors supervises the way in which management assesses the adequacy of its risk management policy to decision-making practices, as well as the risk management adequacy to the risks the company is exposed to. The internal audit service directly reviews the status of risk management and control at the level of business units and structural divisions of the management company, and reports to the Audit Committee.
122 Annual report / 2012 123 Сlose « We value our 15,500 team of professionals, create attentionconditions for their efficient work and good rest. We also offer our people vast opportunities for learning and career development. »
Polina Golubeva HR Director
124 Annual report / 2012 125 Our people
Social security
The main principle of our HR policy is that our people are the strategic resource The social security of our personnel is the foundation of our social policy, which fully complies with the existing labour regulations. Great attention is paid to the employees’ welfare, including of the company. To a great extent the company’s future achievements depend catering, provision of work clothing, emergency medical aid, in-house medical stations and health care arrangements with local medical institutions, annual employee vaccination, on favourable working environment, decent salaries, training and enhancing transfers to outlying work locations. Our employees are also provided with health resort treatment benefits. In 2012, we spent a total of RUB 85 m on our social programmes. The professional skills of our employees. monetary subsidies amounted to RUB 11 m.
In 2012, 382 children were born in the families of our employees, including 119 second children and 22 third children, which shows that the employees feel confident about their future. That is why we create opportunities for our people to unlock their potential and fulfill ambitions and thus implement the company’s business goals more Capacity building and training
efficiently. The expanding scale of our business and introduction of the advanced management techniques require efficient and high quality human resources. That is why we pay particular attention to personnel development programmes and creation of a succession pool.
In 2012, our centralized Personnel Evaluation and Development Centre was engaged in a General information on the employees number of programmes aimed at development of the company’s management pool. In particular we introduced a programme «Tools of efficient work» designed for promising employees who LSR Group is one of Russia’s largest employers. As of the end of 2012, we employed may soon become managers. We also set up training programmes in such areas as marketing, approximately 15,500 people, most of them working in our business units in the Northwestern corporate finance, project management as well as general management. Federal District. Over 20% of the company’s personnel are employed in other regions including the Moscow region, Urals and Ukraine. Blue-collar workers account for 76% of our personnel. During 2012, in our Assessment Centre we evaluated approximately 100 managers at different levels. Based on this assessment we introduced a training program to improve competencies of our managers with an assistance of professional coaches and advisors. 12 promising managers Motivation programmes were trained under ‘Competent Manager’ corporate programme which takes seven months.
Our subsidiaries use contemporary motivation techniques aimed to One of the most important strategic goals of LSR Group is the increasing of our labour improve personnel efficiency and encourage personal involvement in productivity. In order to promote innovative business ideas we introduced ‘Development’ award. the company’s goals. An incentive programme for top managers is being successfully implemented. In 2012, the programme was expanded to Certain subsidiaries of LSR Group have their own training centres. About 1,000 employees include more employees. Another programme aimed at the second and were trained in these centers with the help of external companies. The total number of our third tier managers is being developed. employees who attended various training courses in 2012 amounted to 2500.
We guarantee our employees stable income and timely payment of In LSR Group training programmes are treated as an important tool to increase labour competitive salaries. In 2012, the company’s payroll was around RUB 6 bn. productivity and efficiency of the company as a whole. In 2012, the costs of personnel training The average monthly salary was RUB 33,539. amounted to RUB 14 m.
We also use non-financial motivation techniques, including the corporate awards of LSR Group. In 2012, 334 employees of LSR Group were given corporate awards.
The achievements of our employees have been acknowledged with various government and industry awards. In 2012, 180 employees of LSR Group received awards for their achievements in construction, building materials industry and contribution to the development of the construction sector.
126 Annual report / 2012 127 « The company’s Environenvironmental policy is aimed to solve the following issues – prevent ment-environmental pollution, rehabilitate damaged ecosystems and introduce environment-friendly friendlytechnologies at our production facilities. »
Sergey Begoulev Managing Director Cement – North-West
128 Annual report / 2012 129 Environmental protection Cement Plant of LSR Group
During construction of our cement plant in the town of Slantsy, Leningrad Region, we used the Being one of the largest corporations in North-Western most advanced and environmentally friendly technologies. We are taking the same approach even after the plant is put into operation. In 2012, we built 5.4 km of railroad in order to provide Russia, LSR Group is fully aware of its environmental independent access of our new cement plant to the railway network. During the construction of the railway we built two bridges above the rivers Rui and Plussa using the technologies that responsibilities that include rational use of natural does not require work in the river bed. Also the railway tracks were installed using seamless technology on a special basement to reduce noise and vibration caused by trains. As a result resources and preservation of the environment. We the environmental impact of the new railway line was kept minimal.
carry out activities aimed to prevent pollution and Our cement plant is one of the most environment-friendly cement facilities in the world due to the following features: rehabilitate damaged ecosystems. ‣‣ Possibility to use waste accumulated near Slantsy as a result of shale extraction, which occupies more than 400 ha of land taken out of use, as a raw material. Thus environmental situation in the area will be improved and the land will become available for more rational use; ‣‣ Possibility to use alternative fuel – the plant can operate thorough waste materials combustion (used tires, oil, plastic packaging, etc.), which will allow cleaning of adjacent areas from municipal waste; ‣‣ Possibility to utilize extra heat of the clinker kiln to generate more than 40% of electricity required by the production lines; ‣‣ Use of up-to-date technologies to prevent environmental pollution, including bulk materials storage facilities and the newest aspiration systems; ‣‣ Automatic monitoring of emission points into the atmosphere through the emissions Environmental policy of LSR Group analyzer, as well as implementation of the emission limits in accordance with the European environmental standards. Our environmental policy is based upon strict compliance with the environmental legislation of the Russian Federation. Our enterprises undergo environmental audit on a regular basis to review their compliance with the existing environmental regulations. All our subsidiaries obtain permits and licenses necessary for their operations. Brick Plant of LSR Group
In 2012, we launched our new brick plant in Nikolskoye, Leningrad Region. That was a part of the large-scale project aimed to increase the efficiency of our brick manufacturing business in St. Petersburg. The project also implies shutdown of several obsolete production facilities Environmental protection programmes within the city limits and use the land plots for the development of mass market real estate. Relocation of our production capacities outside the city boundaries will have a positive impact During 2012, our subsidiaries were carrying out the pre-scheduled environmental activities. Development on the environment in St. Petersburg. Besides the plant itself features the advanced energy- of new technologies, introduction of environment-friendly solutions, reduction of fuel consumption and saving and low-waste solutions: pollutant emissions are an integral part of our environmental policy. ‣‣ level of process waste less than 2%; In 2012, 236 employees of our pre-fabricated factory in Yekaterinburg were undergoing training course ‣‣ usage of oil vacuum pumps instead of traditionally used water vacuum pumps to ensure on industrial safety and environmental protection. Also employees of our business units engaged in rational use of water resources; production of aggregates in St. Petersburg were undergoing a training course on environmental safety in ‣‣ usage of local treatment facilities for waste water; the field of waste treatment. ‣‣ high-efficiency dust and gas treatment facilities to minimize emissions of harmful components; During 2012, our LSR. Aggregates and Ready-mix Concrete business unit was upgrading its waste ‣‣ state-of-the-art energy-saving process to reduce consumption of electricity and gas. treatment facilities. In particular, new wastewater treatment equipment was installed at our plant Borovinka. These measures were aimed to reduce concentration of pollutants in the effluents and prevent soil pollution and air pollutant emissions.
130 Annual report / 2012 131 Result- « The company’s charity orientedpolicy is based upon the following principles – targeted and result- oriented assistance aid and efficient use of the available resources. »
Yuri Ilyin Director of Investor Relations
132 Annual report / 2012 133 Charity
In 2012, we continued to carry out our corporate charity programmes, which we believe to be a crucial factor in creating positive business reputation. These activities are no less important for us as, for example, increasing our market capitalization, upgrading our production capacities or constructing new housing projects. Our employees are also involved in charity activities.
We treat our charity activities as an investment into human capital assets, Corporate volunteer services are the next step in the development of the improvement of social environment and living standards in our key markets: dialogue between business and society. In August 2012, our employees in St. Petersburg and the Leningrad region, Moscow and the Moscow region, together with the regional social movement “Saint-Petersburg’s parents” Yekaterinburg and the Urals region. and the charity fund “Parents’ Bridge Foundation” initiated a programme to assist orphan children. The mission of this programme is to bring The charity policy of LSR Group is based on the following principles: kindness and joy into the lives of children who lack care and attention of parents. As part of the programme our employees help children ‣‣ targeted assistance; from particular orphan houses. They organize various events, including ‣‣ consistency; festivities and games, accompany children during their first day at school. ‣‣ result-oriented aid. Our employees believe that volunteering helps them to go beyond their usual life experiences, to see the world though someone else’s eyes, to make something good for the abandoned children and for themselves. Social and charitable activities carried out on the basis of the abovementioned principles demonstrate our willingness to undertake long-term obligations and guarantee their fulfillment. We do not simply provide financial assistance to individuals or institutions, but introduce a whole system to make this aid most efficient.
The priorities of our charity policy are as follows:
‣‣ child care; ‣‣ regional development in our key geographic markets; ‣‣ veterans support; ‣‣ restoration and preservation of Russia’s cultural heritage.
We use versatile approaches to charity programmes providing both financial and non-financial support. In particular, we are involved in the following charity activities:
‣‣ providing financial aid and building materials; ‣‣ providing consultancy services to nonprofit organisations; ‣‣ providing premises at our office buildings to non-profit organisations for general meetings, conferences and panel discussions; ‣‣ providing certain production assets (for example, each year we provide Nevsky-39 barge for Alye Parusa graduation holiday); ‣‣ free excursions to our corporate brick museum for schoolchildren, parents with their children and retirees.
134 Annual report / 2012 135 Child care programmes
One of the most significant and effective charity projects of LSR Group is the cooperation with “Parents’ Bridge Foundation” whose specialists help parentless children find new families. Regional development support This cooperation started in 2004 and is based on a programme aimed to help families willing to adopt orphans. In 2012, another 10 children found new families willing to foster parentless Our subsidiaries not only contribute to regional development as the major employers and children with the help of LSR Group. In total, as a result of this programme known as “Angels taxpayers but they are also actively involved in addressing local community priorities through with Broken Wings”, 97 children have already found new parents. Funds are allocated for funding social and charity programmes and participating in important social projects. the targeted financial support of the adopted and fostered children and individual work of psychologists and social educators providing efficient follow-up advice for the families with In 2011-2012, we were carrying out a large-scale programme which implied purchase of fostered children and preventing secondary rejections. In 2012, with a support from LSR Group, equipment and renovation of children’s pre-school institutions, secondary schools, and health “Parents’ Bridge Foundation” started a training programme aimed at citizens willing to foster care institutions in the Podporozhsky and Lodeynopolsky districts of the Leningrad region. orphans. There already has been the first graduation from the «School for foster parents». In 2012, in various regions of our operations we provided financial aid, invested in repairs and In 2012, LSR Group jointly with the Northwest Orphans’ Fund ‘Deti Zhdut’ (Children are reconstruction of 9 kindergartens, 16 schools, 4 orphan asylums, 3 sport schools, 5 cultural Waiting) continued another long-term project aimed to assist families willing to adopt orphans institutions and 6 health care institution. – the creation of Internet portal “детиждут.рф.” Precise, detailed and constantly updated information on children institutionalised in orphanages of Northwest Russia is posted to the portal. The programme has already helped 682 children find new parents. Veterans support
During the year, we allocated funds for treatment and rehabilitation of 12 children suffering 2012 was the fourth year in a row when LSR Group in partnership with the Government from serious diseases. of St. Petersburg supported the “Duty” charity programme aimed at veterans of the World War II. The company’s funds were used to finance health resort treatment, purchase of In 2012, LSR Group was involved in repairs of the neurology department of the St. Petersburg pharmaceuticals, rehabilitation equipment, essential goods as well as holiday gifts for the city hospital №2. The department specializes in rare neuromuscular diseases. In order to veterans of the World War II. We also provided support to veterans’ organisations. improve rehabilitation conditions we also purchased hospital beds with mechanical adjustable system and bedside tables. 682 children have found parents Restoration and preservation of the country’s cultural heritage
In 2012, we financed archeological expedition to Staraya Ladoga (first capital of Russia) of the Institute of material culture history. We provided support to the Korela Fortress Natural History In 2012, in cooperation with Anatoly Granov Foundation supporting development of Museum (Priozersk, Leningrad region). We also supplied building materials and provided contemporary medical technologies, we allocated funds for the Russian research financial support to church restoration and construction projects including: Optina Pustyn’ center of radiology and surgical technologies, including scholarships and awards for Monastery, St. Fyodor’s Cathedral in Pushkin, Holy Trinity Cathedral at the Alexander Nevsky young scientists, postgraduate students and physicians. Lavra, Cathedral of St. Blessed Xenia of St. Petersburg, Valaam Monastery.
In order to promote healthy lifestyle and sports we invested in construction and renovation of stadiums, supported local sports organisations (football, judo, ice hockey) and sponsored participation of local teams in European taekwondo championship.
We traditionally support educational establishments, primarily vocational schools and higher education institutions training specialists for the construction industry, which ensures robust talent pool. In 2012, we provided support to St. Petersburg State Architecture and Construction University, Ural Federal University named after the first President of Russia B.N.Yeltsin (UrFU). For example for UrFU we purchased unique multimedia equipment to create 3D designs of buildings.
136 Annual report / 2012 137 Glossary
EBITDA equals to normalised operating profit plus amortisation of intangible assets and Net sellable area includes the area of apartments, offices and other areas depreciation of property, plant and equipment less change in fair value of investment property. designated for sale, including the area of balconies which is adjusted using the appropriate ratio. EBITDA margin is calculated by dividing EBITDA by revenue. Net sellable area, gross buildable area and other parameters of real estate development projects (especially those of them which are at the initial stages of development) can change Total debt is calculated as the sum of non-current loans and borrowings, current loans during their design and construction. and borrowings and bank overdraft.
Net debt is calculated as total debt minus cash and cash equivalents. Total debt/ EBITDA The list of the development projects presented in this report and Net debt/ EBITDA ratios are calculated on annualised basis. includes only the projects with unsold (or partly unsold) premises as of 31 December of the reporting year. Normalised operating profit, normalised net profit, EBITDA and EBITDA margin are not defined in the International Financial Reporting Standards and should therefore be regarded only as Certain large-scale development projects are made up of several phases. This report only supplementary information. contains information on those phases of development projects which include unsold areas at 31 December of the reporting year. The financial items in this report are rounded to whole numbers in RUB m while percentage changes in the financial items are calculated using data in RUB th. Market share is determined as a company’s sales in a particular market in the reporting year divided by a market volume in the reporting year. Market volume is determined as total sales of a particular product by all the market players in the reporting year. The estimation of the market volume presented in this report can differ from the estimations made by other parties.
138 Annual report / 2012 139 LSR Group Corporate Headquarters 36, Kazanskaya Street, St. Petersburg, 190031 Russia Tel: +7 (812) 458-81-43 Fax: +7 (812) 312-13-81 e-mail: [email protected] www.lsrgroup.ru