Demand stimulation activities

One of the strongest motivating factors of demand for services of the complex is the system of discounts and encouragements for regular customers. It is also important to carry out various promotion actions and drawings.

Swot-matrix of the Project

When estimating prospects of success of the Project, one can point out its strengths and weaknesses, opportunities and threats which are summarized in a SWOT-matrix (Table №3):

Table 3. SWOT-matrix of the Project.

Strenghths: 100% loading of the residential and trade complex by the Initiator of the Project. The complex is designed to the broad spectrum of potential customers. Flexible pricing policy.	Weaknesses: Building of each block of the complex will take more than 2 years.
Opportunities: Achievement of competent positions in the market of residential and retail and office premises located near The Moscow Ring Road Broadening of services spectrum. Enlargement of a client base.	Threats: Probability of entry of new competitors Possibility of price increase for energy sources

In the process of marketing strategy making the main attention will be paid to the fields "Strengths" and "Opportunities" as they afford the development of the Company. If we compare achievement of competitive positions in the residential and retail and office real estate market with strengths of the designed complex, we will see the necessity of expanding the range of services and conducting a flexible pricing policy.

5. Investment commitments

Basic components of the investment plan

Here only the first part of the Project connected with building of the retail and office center is estimated. The investment plan of the Project consists of the following directions and volumes of capital investments:

1. Organizational and design works (on the first stage of the Project) – 15 100 000 (Fifteen millions one hundred thousand) Euro.

65 % of commitments have already been made by the Initiator of the Project.

Thus, the deficient amount necessary to finish organizational and design works on the first stage of Project is 5 540 000 (Five millions five hundred and forty thousand) Euros.

Further stages of the Project will be financed at the expense of the attracted funds. Due to the fact that the contract draft with the prime contractor is euro-based, the further figures are also understood in this currency.

2. The beginning of building and construction works of the first stage – 20 000 000 (Twenty millions) Euro.

3. 34 000 000 (Thirty four million) Euro following – in the form of equal monthly payments during 8 months.

Volume of investments.

The total volume of investments during the first stage amounts to 54 000 000 (Fifty four million) Euros. The necessary resources will be demanded in accordance with the planned time-schedule and will be disbursed according to its designated purpose.

In the investment block of the Appendix № 1 to the business plan («the Matrix of the initial values») one can find the activity list. It is itemized on a monthly basis. The requested sums of investments are indicated.

5. Economics of the Project

   Attention of potential investors! In the present section of the business plan you may find the results of the scientific-methodical calculations made by experts by request of the Initiator of the Project. This information is provided as an additional illustration of hopeful prospects of the Project. The calculations were made in the beginning of 2010, that`s why certain figures demand specification. However it doesn't influence the general conclusions of the section.

   Description of the financial-economic model. Allowances and assumptions.

For the cost-effectiveness analysis of the construction of a multipurpose retail and office complex the financial-economic model was worked out. The model allows defining the basic financial-economic indicators of the Project and the period of recoupment for various initial values depending on the set of factors which influence the performance measures of the complex.

The basis of the Model is the matrix of the initial values containing about 300 various parameters, such as the total area of the retail and office complex, floor-by-floor structure of the spaces, potential loading, rental and selling prices of the spaces, heating and electrical supply expenses, watching charges, advertizing costs, interest payments to the Bank, rental payments for the territory.

The major reporting forecasting tables of the Project, which are necessary for financial -economic estimation, are based on this matrix:

• Statement of profit and loss,

• Statement of cash flow,

• The balance,

All of these tables are presented in the Appendixes 2-4.

The financial-economic model allows both to the Company (Initiator and Organizer of the Project), and to potential investors (banks, investment companies, funds, or potential private investors) not only to evaluate attractiveness of the Project by means of estimating indicators, but also to receive various scenarios of business development when changing a rather big spectrum of input parameters, to perform actual monitoring, and also to accept managerial decisions (or to participate in acceptance) during the term of validity of the Project.

Considering the difference between currencies at definition of profitable and expense parts of the Project, the Model allows to carry out all necessary multi-currency calculations. So, initial values of the supposed operational costs are based on ruble tariffs and rental incomes – on Euro as the office premises market is mostly Euro-based.

As the experience shows, many potential investors consider projects in the context of euro equivalent, that`s why all the reporting forms of the business plan were calculated in this currency.

The Project Model takes as a premise that inflation influences incomes and expenses equally. Due to this fact, all the calculations are made in fixed prices. However, if it is necessary, the model can be transformed into "inflationary-dependent" one (initial values are made with everything-changes-on-the-right principle), so that one can see the influence of change in prices on a certain group of values.

The revenue structure includes:

• earnings from space letting;

• earnings from space selling;

• other earnings.

In the model earnings from space letting may vary depending on percent of loading of the complex. "Fast" and "smooth" exit scenarios, i.e. by sale of the constructed spaces (or their parts) are also calculated.

The spending pattern includes:

• Operational expenses of the complex and adjoining territories;

• Management expenses;

• Miscellaneous expenses (including interests on the potential bank credit).

Operational expenses of the retail and office complex are based on the existing tariffs of municipal and other services in the town of Balashikha of the Moscow Region, and on the calculations made for similar projects. Base rates have been accepted as follows:

• Heating – 0.30 Euros for 1 sq. m;

• Water supply is calculated from the daily expense of water 0,0054 cubic m/sq. m. and the payment rate of 0,20 Euros for 1 cubic m;

• Sewerage – from the water consumption of 0,0054 cubic m/sq. m and the payment rate of 0,19 Euros for 1 cubic m;

• Electrical supply is calculated from the electric power consumption of 0,0561 kW /sq. m and the payment rate of 0,4 Euros/kW.H;

• Communication services are calculated from planned amount of staff working in the complex (at the rate of four person per one phone and a rent payment 5 Euro/months for phone);

• Garbage disposal - from the size of a garbage container of 0,8 cubic meter and the payment rate of 5 Euros /cubic meter;

• All-in one cleaning of the premise proceeding from the monthly payment rate of 0,25 Euros / sq. m and the total area of the building;

• Cleaning of adjoining territories is calculated proceeding from the total area of the territory and the payment rate of 0,5 Euros /sq. m;

• Windows and faces cleaning - proceeding from the total area of the front face and from the payment rate of 3 Euros /sq. m;

• Cost of security services is calculated proceeding from prices for services of security guards;

• Labor compensation fund –from the planned staff schedule;

The basis for drafting the budget forecast of management expenses is as follows:

Lease of land is calculated proceeding from the quarterly rent payment amounting to 5 531 Euros for two sites for the period of construction, and corrected on scale-up factor of 4 since the beginning of the complex start-up (since 28th month of realization of the Project);

Labor compensation fund (management allowances, expenses for accounting Department, Department of technical support, Department of rent and drivers) is calculated proceeding from the planned staff schedule;

Advertizing expenses proceeding from 5 thousand euro a month;

Audit and consulting services, transport expenses – at presupposed rates;

Bank commissions – at level of 0,05 % from prospective payments;

Interest payments for the credit – proceeding from the annual rate of 1%.

The given basic standards for the Project allow to predict quantity indicators of profitable and account parts of the Project and to see their influence on an overall picture of the business realization.

For determination of influence of tax treatments and credit payments on the Project, investment, tax and financial blocks were formed in the Model.

A planning interval of the financial-economic model makes one month that allows to distribute the budget of the Project in time more particularly and to respond to possible changes promptly, with further "checking" of various scenarios.

The Project financing scheme supposes that Investor establishes total credit limit for the Company, within the framework of which the intended use of financial resources proceeds. All free cash flow goes first of all on credit repayments, and after that – on return to shareholders of their investments which amount to 15 % from the Project (as a rule, it is quite enough for attracting investments in accordance with the international standards).

An entire duration of the Project review (or its «life term») under the given Business plan is 96 months (8 years) from the moment of the first investments. This term is sufficient for estimation of the Project and calculation of various variants development scenarios.