INTERIM REPORT January-March 2017
Continued strong growth and increased profitability
- Income amounted to SEK 1,138 million (701), an increase of 62 percent
- Operating profit amounted to SEK 47 million (negative 6) and the operating margin was 4.1 percent (negative 0.9)
- Profit for the period amounted to SEK 33 million (negative 5)
- The equity/assets ratio was 42.4 percent (42.7)
- Cash flow from operating activities amounted to SEK 140 million (negative 59)
- Order bookings amounted to SEK 2,069 million (1,245)
- Order backlog amounted to SEK 7,995 million (5,666)
- Serneke and Pareto have signed an agreement to sell the project company Campus Eskilstuna to Hemsö at an underlying property value of approximately SEK 800 million.
Strong first quarter with several positive messages
Serneke began 2017 with continued profitable growth and several positive indications confirming the Group’s long-term strategic focus.
During the period, income increased by 62 percent to SEK 1,138 million (701) and operating profit was SEK 47 million (negative 6). The Group continues to grow with improved profitability, as confirmed by a successively higher operating margin, which amounted to 4.1 percent for the first quarter. Order intake during the period was SEK 2,069 million (1,245), an increase of 66 percent. With strong financial position, good cash and bank balances and an equity/assets ratio of 42 percent at the end of the quarter, we have good prospects to continue developing our offering and gaining additional market share.
We are not seeing any downturn in the market, and all business areas are still experiencing good demand. The total order book for external customers currently amounts to just under SEK 8 billion, which means that we are seeing a stable and positive foundation for good development in contracting activities. Contracting has long been focused on competing with market leaders for larger, more complex projects. With more commitment and hard work, we have now positioned ourselves as a clear challenger. Continued strong order intake and improved profitability confirm that we are competitive and have an offering that is appreciated in the market.
In our property division, the business areas Project Development and Property Management are characterized by a will to develop and create value – even when necessary to question, and develop new strategies, in order to fulfill the potential. While other projects are more straightforward in their design, they all share in contributing to and utilizing the overall experience throughout the Group. Our ability to continue to grow organically is a highlight. By attracting new competent employees and motivating existing employees to continue contributing to our growth journey, we create the conditions for combining continued controlled growth with improved profitability. Our success is based on our nearly 900 employees, all of whom are driven by developing and participating in building the next-generation of construction companies.
To actively select market
Serneke chose early on to target a market position where customers base their choice of construction supplier on competence and organization in addition to price. Business Area Construction – the backbone of the Group – now shows rising profitability for the fourth quarter in a row, reinforcing our view that we have the right strategy. Early on, we chose which market and which competitors Serneke should focus on. The design of the organization with its employees, processes and routines is based on our conviction to offer an alternative to market leaders. Our strong order intake shows that our offering is attractive. More importantly, perhaps, is that we can now start being more selective and fine-tune the character of our order book. Long-term and mutually-beneficial collaboration with professional clients is a priority, providing stability and predictability in our continued growth. Business Area Civil Engineering will follow the same development as Construction. However, as Civil Engineering was established later, it is still in an early phase of its developmental curve. After a comprehensive program of measures primarily to create stable and transparent processes, this business area’s order intake and improved profit also show, despite a typically weak quarter, that it is heading in the right direction.
Property management is also development
Reinvesting profits from the contracting business into properties is, and has long been, a strategic prerequisite for achieving the Group’s long-term goal of an operating margin of 8 percent. With the combined knowledge of the entire Group, we become more refined in our selection and we have the strength of being able to rely on our own production capacity. Business Area Project Development focuses on development for the purposes of selling property projects – sometimes early on and completely, as in the case most recently with Mälardalen University in the first quarter 2017. Other examples of this are Gamlestadens resecentrum (Travel Center) and Regionens Hus. Other times, we sell the projects in stages or develop them with partners, as in the case of Karlastaden where we have an urban development joint venture with NREP. Regardless of the timing of the sale, Project Development aims to divest all or part of the projects before they go into production. The strength lies in driving development from land to completed development rights and finding partnerships with long-term partners that strengthen and complement our offering. We would rather spend a little more time exploring new things and finding a new angle for a project than incurring high costs where everything is completed. Development is also central to Business Area Property Management. We do not aim to acquire highly developed, often expensive, properties with low development potential. The acquisition of Säve flygplats, with the ensuing complementary acquisitions, successfully demonstrates what we intend to accomplish. Active management of existing tenants, combined with the development of vacant areas for new tenants, has increased income and thereby increased the value of our asset. In parallel with the development of existing premises, we will also work actively and long-term to free up potential in large areas that are still untapped.
Employees and business culture make the difference
Serneke Group is characterized by a strong corporate culture in which values such as commitment, innovation and courage are held with respect and honesty. Recruiting and retaining employees who share our values is central to our ability to continue to develop. During the first quarter, we have had continued good opportunities to attract new employees, which means that we now see organic growth as a priority over acquisitions. As a means of spurring and creating participation, we have continually offered our employees an opportunity to participate via an employee share ownership initiative. This is an option that fully reflects our corporate culture and contributes to creating team spirit and cohesion. We, therefore, hope that the Annual General Meeting will also this year will resolve to allow all employees to participate in the form of a convertible debenture loan.
So far, 2017 is off to a promising start and we have an intense and exciting year ahead of us. Säve and Karlastaden, which are our largest development projects, have an interesting time ahead with several business opportunities that we hope to get in place during the year. Construction and Civil Engineering are experiencing a very strong market without signs of slowdown. The challenge for the Group is still to remain on course and continue to further develop the strengths that have taken us to where we are today.
Ola Serneke, President and CEO
Presentation of the Interim Report January–March 2017
On May 4, 2017 at 11:00 a.m. (CET), Serneke Group will comment on this Interim Report in a conference call with an online presentation for investors, analysts and the media. The presentation will be in Swedish and can be followed live via webcast at www.serneke.group. Presentation materials for the presentation will be available on the website one hour before the webcast begins.
To participate, please dial:
From Sweden: 08-5664 2694
From the UK: +44 20 3008 9808
This information is such that Serneke Group AB (publ) is obliged to publish pursuant to the EU Market Abuse Regulation. The information was submitted for publication on May 3, 2017, at 17:45 a.m.
For further information:
Michael Berglin, Deputy CEO
tel: +46 (0)738 101 817
Camilla Heyman, CFO
tel: +46 (0)706 276 979
Anders Antonsson, Investor relations
tel: +46 (0)709 994 970