OREANDA-NEWS  On 05 December was announced, that Igor Levit, CEO of LSR Group told about the anti-crisis steps the Group proposes to take to maintain stability during the world financial crisis.

According to Igor Levit, the diversified business model of the company combining real estate development and building materials production provides the company with an important competitive edge, particularly, making its business sustainable during the crisis. “It’s always easier to stand on two feet instead of one,” Levit added.

Real Estate Development and Construction

1. Residential real estate: projects in progress

The company will continue the implementation of housing projects already under construction i.e. a total of approx. 1 million sq.m of net sellable area.

“They are already generating cash flows, and most of them are nearing completion so they will not require any substantial additional investments,” Igor Levit said.

2. Residential real estate: new projects 

Since in accordance with its original plans LSR Group is to launch new major projects at the end of 2009 or even later, between 2010 and 2012, the Group has enough time for adjustments.

“We will go on with pre-design and design work so we’ll have everything ready for construction but will only start investing in construction when there is solvent demand of adequate size,” I. Levit said.

However the CEO of LSR Group holds that residential property prices will rise in the future. 

“Many builders have already started freezing new projects, which means that in future the supply will dramatically decrease and will not be able to meet the potentially high demand. As a result the prices will grow,” he said. 

3. Commercial Property

The company will not launch any new commercial property projects before the financial markets situation improves. This year LSR Group is not starting, despite its earlier plans, the construction of nearly 200,000 sq.m of net area, mostly in the Electric City business centre in St. Petersburg.

  “Commercial property requires significant financial investments before revenues are generated unlike housing projects where funds can be attracted still at the construction stage,” I. Levit said.

LSR’s CEO also noted that the company is considering partial conversion of commercial property projects not yet launched into housing construction projects. 

Production of Building Materials and Aggregates. Investment Projects

1. Increased production of building materials and brick plant construction

Given the forecasted decrease in the solvent demand, LSR Group will not invest in the expansion of its building materials plants next year. It also means that the Group will suspend the construction of a new brick plant because it finds its current brick production capacities adequate to meet the existing market demand. But LSR Group will continue the design work as well as the development of necessary technical specifications to be able to promptly resume construction work once a positive trend is observed.

“We’ve decided to save on investment programmes developed to increase the production of building materials because investments would be useless if the demand decreases. But we’ll proceed with their implementation again as soon as we feel the situation is changing for the better,” Igor Levit said.

2. Increased volume of orders for infrastructure and industrial construction

Taking into account that LSR’s sales of aggregates (sand and crushed granite) i.e. the materials used in infrastructure and industrial construction, are at the previous level, the company will increase the share of “infrastructure” and “industrial” orders for products such as concrete and reinforced concrete that up until recently were used mostly for housing construction because of high demand. 

3. Cement plant construction project

LSR Group will continue the cement plant project.

“We have already invested around EUR 100 million of our own funds in this project and additionally attracted another EUR 107 million this year only. Moreover, cement is used in almost every construction project, and not only for housing needs, and LSR Group is still the largest consumer of this material and should create the most advantageous and effective conditions for itself,” I. Levit said. 

To strengthen its positions and increase the existing share in the building materials market LSR Group is planning to apply a more flexible pricing policy (which can be achieved based on economies of scale as well as price-reduction agreements signed with suppliers). In addition, the company has made its loan policy requirements stricter for the customers to prevent big bad debt from happening.

Reduced corporate expenditures

1. LSR Group has started the optimization of its workforce and is planning to make around 10 percent of its employees redundant. Its production facilities will introduce single-shift operation to avoid extra costs incurred in overtime payments. 

2. The company is already cutting its management and administrative costs.

Liquidity

The company is facing no liquidity problems, LSR’s CEO said.

“We have certain cash reserves in our bank accounts. We have not borrowed almost any funds from foreign banks, and we have not placed Eurobonds nor pledged our shares to get loan capital,” Igor Levit said.

In spite of the crisis, the (2008) results will be nice in every respect including financial performance and square meters built,” Levit said.

As of 31 October 2008, the cash balance in LSR Group’s accounts was USD  126 million excluding the irrevocable cash deposit of USD 138m linked with the long-term loan facility provided by RBS/HSBC.   

Over the past nine months the revenues of LSR Group already reached USD  1.5 billion, its IFRS-based EBITDA grew by 86 percent compared to the same period last year, and was USD  377 million. LSR Group is to repay USD  17 million of debt before the end of this year, USD  115 million in the first quarter of 2009 and USD  44 million in the second quarter of next year.