SRV´s interim report January-June 2016: order backlog rises to EUR 2 billion – full-year result outlook unchanged
SRV GROUP PLC HALF YEAR FINANCIAL REPORT 21.7.2016, AT 8.30 AM
SRV´s interim report January-June 2016: order backlog rises to EUR 2 billion – full-year result outlook unchanged
January-June 2016 in brief
- Revenue grew to EUR 362.4 (337.4) million. Growth in revenue was driven particularly by large business construction projects in Finland.
- Operating profit increased to EUR 4.1 (3.4) million, primarily due to improved margins in SRV's business construction in Finland. Operating profit in Russia weakened.
- The result before taxes was EUR -7.0 (2.6) million. The result was burdened by a EUR -6.6 million fair value revaluation of interest rate derivatives.
- Earnings per share were EUR -0.15 (0.01).
- The order backlog at period-end had risen to EUR 2,021.6 (1,258.8) million. The largest new projects announced in early 2016 included a new central hospital in Central Finland, the Ring Road I tunnel project and a contractor agreement for the expansion of the Tapiola city centre.
- Equity ratio was 36.9 (36.3) per cent. Gearing was 103.1 (111.4) per cent.
April-June 2016 in brief
- Revenue grew to EUR 218.5 (164.5) million.
- Operating profit increased to EUR 4.1 (0.8) million.
- The result before taxes was EUR -1.5 (-0.7) million. The result was burdened by a EUR -2.3 million fair value revaluation of interest rate derivatives.
- Earnings per share were EUR -0.04 (-0.04).
Outlook
- The outlook for earnings in 2016 remains unchanged. Full-year revenue for 2016 is expected to grow and operating profit to improve compared with 2015 (revenue EUR 719 million and operating profit EUR 24.4 million).
- Due to the completion schedules of SRV's developer-contracted housing projects, a significant proportion of the company's operating profit will be made in the second half of the year.
- Financing expenses will rise compared with 2015 as a result of growth in interest-bearing debt.
This interim report has been prepared in accordance with IAS 34, and the disclosed information is unaudited.
CEO comment
“SRV's order backlog rose to over EUR 2 billion. Growth in the order backlog was driven particularly by business construction projects in Finland. Of these projects, I'll single out the construction of a new central hospital in Central Finland. This is the largest contract in SRV’s history to which the company is not committing any of its own equity. The total value of several hospital projects that are currently in progress exceeds EUR 500 million.
Our strategic objective is to improve profitability. In the growing market, we have focused on the implementation of development projects and prudently engaged in competitive contracting. In addition, on the housing side of our business, we have also stepped up our number of developer-contracted projects. Thanks to these steps, we have been able to increase our margins. The Russia’s prolonged recession has had an impact on our operations. Therefore we are monitoring carefully Russia’s economic situation.
I'm optimistic about the trend in our operations and believe that our order backlog will remain robust. Furthermore, most of our developer-contracted housing projects will be completed during the latter half of the year.” Juha Pekka Ojala, CEO
Overall review
| Group key figures (IFRS, EUR million) | 1-6/ 2016 | 1-6/ 2015 | change | change, % | 4-6/ 2016 | 1-6/ 2015 | 1-12/ 2015 |
| Revenue | 362.4 | 337.4 | 24.9 | 7.4 | 218.5 | 164.5 | 719.1 |
| Operating profit | 4.1 | 3.4 | 0.7 | 22.1 | 4.1 | 0.8 | 24.4 |
| Financial income and expenses, total | -11.1 | -0.7 | -10.4 | -5.6 | -1.5 | -6.8 | |
| Profit before taxes | -7.0 | 2.6 | -9.7 | -1.5 | -0.7 | 17.6 | |
| Order backlog | 2,021.6 | 1,258.8 | 762.8 | 60.6 | 1,583.4 | ||
| New agreements | 775.1 | 716.7 | 58.4 | 8.1 | 648.6 | 227.6 | 1,393.5 |
| Operating profit, % | 1.1 | 1.0 | 1.9 | 0.5 | 3.4 | ||
| Net profit, % | -1.6 | 0.6 | -0.5 | -0.5 | 1.9 |
January-June 1 Jan. - 30 Jun. 2016
In the January-June period of 2016, the Group's order backlog rose to EUR 2,021.6 (1,258.8) million (up 60.6%). The order backlog hit a new high in early 2016 thanks to new agreements, which totalled EUR 775.1 (716.7) million. The largest new projects announced in early 2016 included a new central hospital in Central Finland, the Ring Road I tunnel project, a contractor agreement for the expansion of the Tapiola city centre as well as the construction of a new campus building for Aalto University and retail premises in the Metro Centre, both in Otaniemi, Espoo. The order backlog saw growth particularly in operations in Finland, largely in the second quarter.
The Group's revenue rose to EUR 362.4 (337.4) million (up 7.4%), especially thanks to the growth in revenue from business construction in operations in Finland. The number of developer-contracted housing units recognised as income rose slightly in comparison to 2015, but the revenue from housing production for investors fell short of the first half of 2015.
Furthermore, the figures for the comparison year include excavation and other infrastructure work that was completed at the REDI site prior to the official start-up decision and which was recognised in revenue in accordance with the level of completion in January-March 2015.
The Group's operating profit increased to EUR 4.1 (3.4) million, primarily due to improved margins in business construction in Finland (up 20.6%), especially on the heels of growth in the share of operations accounted for by development projects. The lower earnings contribution of Russian associated companies had a negative impact on earnings. The earnings of Russian associated companies declined due to temporary rent discounts granted to tenants, greater depreciation of fixed assets and changes in the exchange rate of the rouble. SRV's fixed costs also saw a year-on-year increase in January-June 2016, but their relative share of revenue declined.
The Group's result before taxes was EUR -7.0 (2.6) million. The result was weakened by a EUR -6.6 million fair value revaluation of a 10-year interest rate hedge and higher interest expenses.
The Group's earnings per share were EUR -0.15 (0.01). Earnings per share were weakened not only by the lower result, but also by the cost of repaying the hybrid bond.
Operating profit and its relative level were also reduced by the elimination of a share equivalent to SRV's ownership from the profit margins of three shopping centre projects that are under construction (Okhta Mall, 4Daily and REDI), which will be recognised as income only when the investment is sold.
Quarterly variation in SRV's operating profit and operating profit margin is affected by several factors. SRV’s own projects are recognised as income upon delivery; the part of the order backlog that is continuously recognised as income based on the level of completion mainly consists of low-margin contracting; and the nature of the company's operations (project development).
The Group's equity ratio was 36.9 (42.5 12/2015) per cent. Gearing was 103.1 (83.3 12/2015) per cent. The changes in equity ratio and gearing were due to an increase in interest-bearing debt. Net debt amounted to EUR 291.2 (251.0) million and liquid assets to EUR 54.1 (30.3) million.
April-June, 1 Apr. - 30 Jun. 2016
The Group’s revenue grew to EUR 218.5 (164.5) million in April-June 2016. Revenue growth was driven particularly by ongoing large-scale business construction projects. The Group’s operating profit rose to EUR 4.1 (0.8) million thanks to higher revenue in operations in Finland and improved margins. Operating profit in Russia declined. The Group’s profit before taxes amounted to EUR -1.5 (-0.7) million. The result was weakened by a EUR -2.3 million fair value revaluation of a 10-year interest rate hedge and higher interest expenses.
| Group key figures (IFRS, EUR million) | 1-6/ 2016 | 1-6/ 2015 | change | change, % | 1-12/ 2015 |
| Equity ratio, % | 36.9 | 36.3 | 42.5 | ||
| Net interest-bearing debt | 291.2 | 251.0 | 40.2 | 16.0 | 230.8 |
| Gearing, % | 103.1 | 111.4 | 83.3 | ||
| Return on investment, % | 1.9 | 2.8 | 5.9 | ||
| Return on equity, % | -4.3 | 1.8 | 5.6 | ||
| Earnings per share, EUR *) | -0.15 | 0.01 | 0.25 | ||
| Equity per share, EUR *) | 3.71 | 4.51 | -0.80 | -17.7 | 3.90 |
| Share price at end of period, EUR | 4.00 | 3.71 | 0.29 | 7.8 | 3.10 |
| Weighted average number of shares outstanding, millions *) | 59.3 | 39.8 | 42.6 |
*) Comparative data is share issue adjusted.
Espoo, 20 July 2016
Board of Directors
All forwarding-looking statements in this report are based on management’s current expectations and beliefs about future events, and actual results may differ significantly from the expectations and beliefs such statements contain.
More information
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.
A separate press conference will not be held in connection with the publication of the result. The interim report and attached material will be available after publication on 21 July 2016 at approximately 8.30 a.m. on the company’s website www.srv.fi/en/investors.
For further information, please contact:
Juha Pekka Ojala, President & CEO, tel. +358 201 455 213, jp.ojala@srv.fi
llkka Pitkänen, CFO, tel. +358 40 667 0906, ilkka.pitkanen@srv.fi
Tiina Niemi, Communications Manager, Financial Communications and IR, tel. +358 40 5027549, tiina.niemi@srv.fi
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