OREANDA-NEWS. PIK (LSE: PIK), one of Russia’s leading residential developers, on September 28 announced its interim financial results for the first six months of 2007, based upon consolidated management accounts.

According to PIK's press-service the data are as follows:

Financial highlights:

Revenues increased by 126% to US$744m (1H06: US$329m);
Gross profit rose by 125% to US$133m (1H06: US$59m);
EBITDA equaled to US$113.8m, (1H06: US$170m, FY06: US$486m), while recurring EBITDA was up by 91% reached US$92.8 m (1H06: US$48.5 m);
Cash collection from customers up 58% to US$611m (1H06:US$386m);
Impressive increase of land bank by 2 m sq. meters since the beginning of 2007 till September 28, 2007 (Jan 1 2007 8.8m unsold sq. meters valued by CB Richard Ellis, an independent appraisal, at US$8.8bn);
Successful listing on June 1 2007 on the London Stock Exchange plc, raising net proceeds for the Group of US$ 895m (total offer size of US$1.93 billion);
Completed and approved residential units up by 44% to 316,000 sq meters (1H06: 219,000 sq meters) of which PIK’s own development projects amounted to 263,000 sq. meters (1H06: 154,000 sq meters).

Rapid progress made with stated strategic objectives:
- Regional expansion through significant land acquisitions;
- Strategic acquisition of Storm Properties to drive penetration of commercial marketplace;
- Reduction in cost of debt.

Kirill Pisarev, CEO of PIK, comments: "We are very pleased to announce today our first set of Half Year Results as a listed company, which show that compared to the same period last year our revenues have more than doubled. Meanwhile, we see strong performance in cash collections from our customers, which have risen by 58% as compared to the corresponding period of 2006. These results demonstrate that we are maintaining our position as the clear leader in Russian real estate development and will continue to implement our growth strategy through expanding our land bank and our presence in the Russian regions."

PIK has adopted conservative IFRS accounting principles. These stipulate revenue recognition when buildings have been sold, completed and accepted. Historically, there is high degree of seasonality in the business, with the majority of acceptances generally in the second half of the year. This seasonal pattern is reflected in the reported results for the period under review.

Balance Sheet

Total assets increased by US$1.07bn to US$3.56bn as of 30 June 2007. This was mainly driven by significantly increased shareholders’ equity as a result of the US$895m proceeds from the Group’s initial public offering (‘IPO’) dated 1 June 2007.

Compared to December 31, 2006, net debt decreased by US$402m down to US$467m due to increased cash and equivalents position by US$581m, while total debt was up by US$178m and totalled US$1,091m. It should be noted that before the IPO of PIK, total debt was over US$1.1bn and that the impact of the debt repayment programme initiated by the Group following the IPO will mainly be recorded in the subsequent period to this reporting date.

Net working capital increased by US$543m to US$1,073m, mainly due to advances for various land acquisitions, totalling US$252m and increased construction volumes.

PP&E increased by US$81m to US$379m, mainly due to the acquisition of two local prefabricated facilities in Kaluga with underlying net book value of US$46.7m.

Income Statement

PIK recognized revenues for the first six months of 2007 of US$744m, up by 126% as compared to the corresponding period of 2006. 62% of total sales revenue is represented by sale of apartments, while the rest comprises construction services and miscellaneous sales. The significant increase in revenue recognition is mainly explained by increased sales volumes in Moscow and higher average selling prices.

EBITDA for the reporting period was US$113.8m, consisting of the following components:

US$92.8m from development activities (1H06: US$48.5m);
US$(1.0)m net other loss (1H06: US$56.2m income);
US$13.9m income from sales of development rights (1H06: US$56.6m);
US$1.6m foreign exchange gain (1H06: US$8.7m);
US$(1.9)m IPO related miscellaneous expenses (1H06: nil);
US$8.5m income from sales of investments (1H06: nil);
Recurring EBITDA (i.e. adjusted EBITDA by net other income (losses); income from sales of development rights and investments; foreign exchange differences and IPO miscellaneous expenses), stood at US$92.8m versus US$48.5m in 1H06.

Cash Flow Statement

Cash collections for the period were up by 60% and amounted to US$611m (1H06: US$386m) due to strong collections of US$325m from Moscow, US$224m from Moscow region and US$62 from other Russian regions. As compared to the corresponding period of 2006, collections were up by approximately 44-47% in Moscow and Moscow region, while in other Russian regions they increased six-fold. A significant increase in regional cash collection is the result of the Group’s regional diversification, undertaken in 2006.

Dividend Policy

As declared in the IPO Offering Circular, we currently intend to pay dividends of approximately 10-15% of our IFRS net profit commencing in 2008 based upon the financial results of 2007.

Key Corporate Highlights

PIK completed and approved 316,000 sq meters of housing (1H06: 219,000 sq meters) of which PIK’s own development projects amounted to 263,000 sq. meters (1H06: 154,000 sq meters), including the following completions:

New Peredelkino Moscow project (42,000 sq meters);
Okskaya-Volzskaya Moscow project (117,000 sq. meters);
Two projects in Yaroslavl (29,000 sq meters in total);
Two projects in Omsk (19,000 sq meters);

Strategic Direction

Building on our long-established track-record in the industry, PIK is expanding further into the commercial market sector, targeting the best opportunities in this segment of the market. As a result, in late August 2007, PIK acquired a 50%+1 share interest in Storm Properties, a dynamically growing Russian commercial developer with an excellent team of dedicated professionals.

Currently PIK intends to sell both our residential and commercial premises; however in the long-term it may retain the commercial premises and lease them to third parties in order to generate stable, annually recurring income streams.

PIK sees continued opportunities in Moscow and Russia’s regions. Currently, except for Moscow and the large number of cities in the Moscow region, where PIK's core activities lie, it operates in 11 regional cities (Yaroslavl, Perm, Omsk, Volgograd, Novorossiysk, Kaliningrad, Kaluga, Rostov-on-Don, Taganrog, Krasnodar and Nizhny Novgorod) and plan to further diversify into the regions.

Outlook

PIK believes that the following guidance shall apply for 2007:

1.4 m sq. meters of total completions for the year (2006: 1.2 m sq. meters);
Dividend payout ratio of 10-15% of IFRS net income for the year commencing in 2008 based upon the financial results of 2007.

Over the long-term PIK expects to focus on the following strategic objectives:

Residential mass focus with selective exposure to the commercial sector including the office and retail segment;
Continuing expansion into Russia’s growing regions;
Rolling-out the integrated business model into Russia’s regions;

Given the existing market conditions and the strong performance for the first six months of the year 2007, the Group is currently comfortable with market expectations for the full year.