SRV´s interim report January-March 2017: Year-on-year revenue grew, operating profit improved slightly

SRV GROUP PLC     INTERIM REPORT     27.4.2017, AT 8.30

SRV´s interim report January-March 2017: Year-on-year revenue grew, operating profit improved slightly

January–March 2017 in brief:

• Revenue increased to EUR 223.7 (143.8 1–3/2016) million. Revenue growth was seen in Operations in Finland and business and housing construction in particular.
   
• Operating profit rose to EUR 7.3 (0.0) million. Revenue growth in Operations in Finland had a favourable impact on operating profit. More developer-contracted housing was also recognised as income than during the comparison period. Higher profits from Russian associated companies likewise had a positive effect on operating profit. Operating profit from International Operations totalled EUR 3.2 (-1.1) million. The rouble exchange rate improved operating profit by EUR 5.4 million.
   
• The result before taxes was EUR 7.3 (-5.5) million. The result for the comparison period was weakened by a EUR -4.3 million fair value revaluation of a ten-year interest rate hedge.
   
• Earnings per share were EUR 0.09 (-0.11).
   
• At period-end, the order backlog stood at EUR 1,722.0 (1,572.1) million. A large proportion of the order backlog for January–March consisted of housing construction, as construction of the first of REDI’s residential towers, Majakka, got underway.
   
• SRV’s equity ratio was 36.4 (36.7) and gearing was 103.4 (87.5) per cent.

Outlook for 2017

• Full-year consolidated revenue for 2017 is expected to increase and operating profit to improve on 2016 (revenue EUR 884 million and operating profit EUR 27.7 million). However, our strategic target for profitability will only be reached towards the end of the strategic period, in 2019−2020.

• Although developer-contracted housing will be completed on a steadier schedule than in 2016, a significant part of operating profit will still be made in the second half of the year. Based on current schedules, SRV estimates that a total of 816 developer-contracted housing units will be completed during 2017.
   
• The operating currency of all of SRV’s subsidiaries and associated companies in Russia was changed to the rouble during 2016. This accounting change will make SRV more susceptible to fluctuations in the rouble exchange rate, which may impact full-year operating profit.

CEO's review

“Early 2017 has been successful in many ways. Trends in operating profit are heading in the right direction, and our order backlog also remained at an excellent level. Urbanisation and population shift continue to maintain a brisk pace in construction, even though growth has slowed slightly compared to the most vigorous months of last year. At the same time, competition has become significantly tougher in both the plot and contracting markets. For SRV, profitability is – and will remain – the primary criterion when competing for new orders. Although no significant new orders were received during early 2017, we have several large-scale projects under preparation. If these projects are realised, the revenue will be recognised both this and next year.

Our revenue grew significantly last year thanks to numerous ongoing projects. Our project portfolio currently consists of an increasingly significant number of housing projects, including some of the tallest buildings in Helsinki, Espoo and Oulu. Our major projects in urban growth centres and, for instance, several hospital projects can also be seen in the cityscape. Housing projects currently account for about 24 per cent of our revenue, and we decided to launch the construction of almost 300 new homes in early 2017. Although we are also implementing excellent housing projects in other regions, 63 per cent of our housing projects are in the Helsinki metropolitan area. Thanks to the almost 3,000 housing units that we currently have under construction, we are keeping a tight hold on our position as one of the largest housing construction companies in the Helsinki metropolitan area. In its own way, early 2017 was an historic period for housing sales, as sales of apartments in the first of REDI’s residential towers, Majakka, got up to speed. The launch of advance marketing about a year ago caused quite a stampede, and this interest was by no means short-lived. There is obviously genuine demand for REDI’s style of living, as out of Majakka’s 282 apartments less than 10 apartments are still available, and sales are currently being made at an excellent clip.

As announced in previous reviews, we believe that SRV’s revenue will continue to grow throughout the year and that in the last months of 2017 we will definitely be close to breaking the billion euro mark for the first time in our history. In spite of strong growth, our primary strategic goal is still to improve profitability, and hard work to this effect will continue throughout the strategy period until the year 2020. We have already been able to improve profitability in several areas, but there is still a great deal of work to do. I believe that our ongoing measures aimed at improving profitability will bear fruit.

The most pleasing news from Russia is the trend in visitor and sales figures in our shopping centres. The number of tenants in the Okhta Mall is growing steadily, as are visitor numbers, but the most satisfying development has occurred at Pearl Plaza, which opened back in 2013. In the first quarter alone, visitor numbers at Pearl Plaza have increased by 18 per cent on the comparison period, while sales figures have risen even more – up by no less than 59 per cent in terms of euros. This positive trend not only shows that Russian consumption is still focused on the domestic market, but also that Pearl Plaza has been able to do the right things in terms of both operation and marketing. These successes create an excellent foundation for shopping centre operations in our other locations in Russia and, in the future, also at REDI.

Juha Pekka Ojala, President and CEO

Overall review

January–March 2017:

The consolidated order backlog stood at EUR 1,722.0 (1,572.1) million. Housing construction in particular contributed to this growth with the start-up of Majakka, the first of REDI’s residential towers.

The Group’s revenue rose by 55.5 per cent to EUR 223.7 (143.8) million. Particularly good growth was seen in business and housing construction in Operations in Finland. Major business premises projects agreed on in 2016 have entered the construction phase and are now generating revenue. The recognition of income from 76 (26) developer-contracted housing units also contributed to revenue growth.

The Group’s operating profit rose to EUR 7.3 (0.0) million. More developer-contracted housing was recognised as income than during the comparison period, and this improved operating profit. Likewise, revenue was higher than in the comparison period and SRV’s Russian associated companies generated higher profits. Operating profit was weakened by a rise in costs in certain ongoing construction projects. Operating profit from International Operations totalled EUR 3.2 (-1.1) million. The operating profit of International Operations received a particular boost from the strengthening rouble exchange rate (EUR 5.4 million).

The Group’s profit before taxes totalled EUR 7.3 (-5.5) million. Net financial expenses were reduced by the fair value revaluation of a ten-year interest rate hedge, from EUR -4.3 million in 1-3/2016 to EUR 0.7 million in the first quarter of 2017.

The Group's earnings per share were EUR 0.09 (EUR -0.11). The earnings per share for the comparison period were impacted by the non-recurring cost of repaying the hybrid bond.

Variation in SRV's operating profit and operating profit margin is affected by several factors. SRV’s developer-contracted projects are recognised as income upon delivery; projects recognised as income based on the level of completion mainly consist of lower-margin contracting; and the nature of the company's operations (project development).

The Group’s equity ratio stood at 36.4 (36.7) per cent and gearing at 103.4 (87.5) per cent.

Invitation to a press conference: SRV Group Plc’s Q1 2017 result

The interim report will be presented to the media and analysts at the press conference which will take place on Thursday 27 April at 12.00 pm at the Living Lab –test environment, address Kaasutehtaankatu 1, rakennus 6, 3rd floor, 00540 Helsinki. The press conference will be held in Finnish. CEO Juha Pekka Ojala and CFO Ilkka Pitkänen will be present.

A live webcast of the press conference will be available on the company’s website www.srv.fi. The webcast will be in Finnish. The presentation material will be published both in Finnish and in English at the company's website after the press conference.

Espoo, 26 April 2017

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.

For further information, please contact:

Juha Pekka Ojala, President & CEO, tel. +358 201 455 213, jp.ojala@srv.fi
Ilkka Pitkänen, CFO, +358 40 667 0906, ilkka.pitkanen@srv.fi
Päivi Kauhanen, SVP, Communications, tel. +358 50 598 9560, paivi.kauhanen@srv.fi

www.srv.fi
 

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