Order backlog boosted by large-scale project start-ups: SRV’s interim report 1 January–31 March 2015

SRV GROUP PLC    INTERIM REPORT     7 MAY 2015, AT 8.30 AM

Order backlog boosted by large-scale project start-ups: SRV’s interim report 1 January–31 March 2015

Reporting period 1 January–31 March 2015 in brief:
• SRV's revenue was EUR 172.9 million (EUR 138.5 million Q1/2014), change +24.9%
• Operating profit was EUR 2.5 million (EUR 4.4 million), change -42.8%
• Result before taxes was EUR 3.3 million (EUR 2.2 million), change +54.0%
• Earnings per share were EUR 0.05 (EUR 0.01)
• The order backlog at period-end was EUR 1,179.8 million (EUR 880.2 million), change +34.0%
• Equity ratio was 39.8 per cent (39.0%)

Thanks to the REDI shopping centre start-up, the Group's full-year revenue for 2015 is expected to increase on 2014 (EUR 684.4 million 1–12/2014) and the result before taxes is forecast to be in the range of EUR 10–20 million (EUR 18.5 million 1–12/2014).
 
This interim report has been prepared in accordance with IAS 34, and the disclosed information is unaudited.

President & CEO Juha Pekka Ojala:

A year of large start-ups was immediately evident in the first quarter when two significant construction projects were launched – the REDI project at Kalasatama in Helsinki and the Niittykumpu Metro Centre project in Espoo. Both are area centres located next to metro stations and featuring housing and commercial services. These large-scale projects raised SRV’s order backlog to a new record level, nearly EUR 1.2 billion. The launch of the REDI project was also reflected in revenue growth, as work done before the official start-up decision was recognised as revenue.

In the annual cycle, the first quarter is generally modest in terms of financial performance. The fact that no developer-contracted housing units were completed is evident in the figures for the first quarter of the year. This is reflected in a decline in the level of operating profit. Completed projects – and therefore those recognised as revenue – have been contracts that have structurally a lower margin than developer-contracted production.

In Finland, in addition to our spearhead projects, we have a number of business premises and housing projects that we are implementing for our long-term customers. We have undertaken business premises projects at our own risk only very selectively, and they are focused mainly on the logistics sector, to which we have provided multi-purpose premises ranging from production plants to offices.

We have also been able to increase developer-contracted housing production, the fruits of which will be evident in future quarters. The housing market has recovered from the downturn of a couple of years ago, but we still have to evaluate carefully the locations and the target groups of housing production. SRV’s housing production is concentrated close to good transport links, such as metro stations.

In Russia, our shopping centre projects in St Petersburg and Moscow are proceeding mostly according to plan. The Russian market is overshadowed by uncertainty factors resulting from the political situation. Based on projects at different stages of completion, however, we have a good grasp of the market in Russia and we are proceeding there according to plan. For example, customer numbers at the Pearl Plaza shopping centre, which has been open for one and a half years, have grown as the centre has established its position in the St Petersburg shopping centre market. The excellence of Pearl Plaza is evident also in the fact that in April it was granted Russia’s best shopping centre award in its size category.

We embark on this year in good spirits, because many projects that have been a long time in preparation have started up at full steam. Due to the resources committed to the large-scale projects launched, we have laid the groundwork for steady development in the next few years. Based on our developer and investor roles, however, we have loaded projects with significant earnings expectations, which will be realised in the coming years. Now our task is to focus on high-quality and profitable implementation of projects together with our partners and personnel.

Overall review 1 January–31 March 2015

The Group's order backlog increased to EUR 1,179.8 million (EUR 880.2 million 3/2014) thanks to new contractor agreements, the largest of which were for the REDI shopping centre and car park as well as the Niittykumpu Metro Centre. 88 per cent of the order backlog has been sold, a total of EUR 1037 million. The unsold portion decreased to EUR 142 million (EUR 182 million 3/2014). The value of the Group's new contracts rose to EUR 489.1 million (EUR 184.7 million 3/2014).

The Group's revenue increased to EUR 172.9 million (EUR 138.5 million Q1/2014). The start-up of the REDI shopping centre and parking facility project contributed to this rise in revenue, as quarrying and other infrastructure work completed prior to the official decision to start the project was recognised as revenue in accordance with the level of completion. Revenue from housing production targeted at Finnish consumers declined as the number of sold units (74) fell to under half the number during the previous year (160 Q1/2014). No developer-contracted residential units were completed during the review period (100 units in Q1/2014).

The Group's operating profit totalled EUR 2.5 million (EUR 4.4 million), generating an operating margin of 1.5 per cent (3.2%). This decline in operating profit is mainly due to a fall in revenue from developer-contracted residential units and low profit margins in business contracting. The improved earnings of associated companies and joint ventures also had a favourable impact on operating profit.

Several factors contribute to the quarterly variation in SRV's operating profit and operating profit margin: SRV’s own projects are recognised as income upon delivery; the part of the order backlog that is continuously recognised as income mainly consists of low-margin contracting; a share equivalent to the ownership of SRV’s associated companies is eliminated from the profit margins of construction carried out for these companies; and the nature of the company's operations (project development).

The Group's net financial expenses totalled EUR 0.8 million (EUR -2.3 million). Net financial expenses were improved by a fall in general interest rates, exchange rate differences resulting from the strengthening rouble, and the recognition of EUR 1.4 million in credit loss provisions.

The Group's profit before taxes was EUR 3.3 million (EUR 2.2 million). Net profit for the review period was EUR 2.8 million (EUR 1.4 million). Income taxes totalled EUR 0.6 million (EUR 0.7 million). Earnings per share were EUR 0.05 (EUR 0.01).

The Group's equity ratio was 39.8 per cent (39.0% 31 March 2014). Compared to 31 December 2014, the equity ratio weakened slightly as a result of capital tied up in construction.

Outlook for 2015

In addition to general economic trends, SRV's revenue and result will be affected by several factors in 2015, such as: SRV's own projects are recognised as income upon delivery; the part of the order backlog that is continuously recognised as income mainly consists of low-margin contracting; trends in the order backlog's profit margins; the sales volume of developer-contracted housing and the completion schedules of the properties; and the start-up of new contracts and development projects. Construction of the SRV-developed REDI project in the Kalasatama district of Helsinki was launched at the beginning of April. Based on current completion schedules, SRV estimates that a total of 247 developer-contracted residential units will be completed during 2015.

Thanks to the REDI shopping centre start-up, the Group's full-year revenue for 2015 is expected to increase on 2014 (EUR 684.4 million 1–12/2014) and the result before taxes is forecast to be in the range of EUR 10–20 million (EUR 18.5 million 1–12/2014).

Press conference

The interim report will be presented to the media and analysts at a press conference which will take place on 7 May 2015 at 10.30 a.m. at conference room Espa at Hotel Scandic Simonkenttä, address Simonkatu 9, Helsinki. The press conference will be held in Finnish. CEO Juha Pekka Ojala and CFO Ilkka Pitkänen will be present, among others.
A live webcast of the press conference will be available on the company’s website www.srv.fi/en/investors. The webcast will be in Finnish. The presentation material of the press conference will be published in English and Finnish on www.srv.fi/en/investors after the conference.

Disclosure procedure

SRV Group Plc follows the disclosure procedure enabled by Standard 5.2b published by the Finnish Financial Supervision Authority. This is a summary of SRV’s interim report and the complete report is attached as a pdf-file to this release and is also available on the company website at www.srv.fi/en/investors.

Espoo, 6 May 2015

Board of Directors

All forward-looking statements in this review are based on management’s current expectations and beliefs about future events, and actual results may differ materially from the expectations and beliefs such statements contain.

SRV Group Plc

Taneli Hassinen
SVP, Communications
Tel. +358 40 504 3321
taneli.hassinen@srv.fi

For further information, please contact
Juha Pekka Ojala, President & CEO, +358 (201) 455 213
Ilkka Pitkänen, CFO, +358 (201) 455 200, +358 (40) 6670906

 www.srv.fi