SRV`s interim report January-September 2016: Revenue and operating profit grow – full-year result outlook unchanged
SRV GROUP PLC INTERIM REPORT 3.11.2016, AT 8.30 AM
SRV`s interim report January-September 2016: Revenue and operating profit grow – full-year result outlook unchanged
January–September 2016 in brief:
- Revenue increased to EUR 555.5 (492.5 Q1–Q3/2015) million. Growth in revenue was driven particularly by large business construction projects in Finland.
- Operating profit rose to EUR 11.4 (7.5) million, primarily due to improved margins in business construction in Finland. Operating profit weakened in Russia.
- The result before taxes was EUR -3.1 (2.7) million. The result was burdened by a EUR -7.8 (-2.8) million fair value revaluation of a ten-year interest rate hedge.
- Earnings per share were EUR -0.11 (-0.02).
- At period-end, the order backlog stood at EUR 1,888.1 (1,517.5) million. Major projects agreed on during the spring, such as new central hospital in Central Finland and the Ring Road I tunnel project, have entered the construction phase.
- The equity ratio stood at 37.8 (41.6) per cent and gearing at 99.7 (91.5) per cent.
July–September 2016 in brief:
- Revenue increased to EUR 193.1 (155.1 Q3/2015) million. Growth in revenue was driven particularly by large business construction projects in Finland.
- Operating profit rose to EUR 7.3 (4.1) million as a result of better margins and increased revenue from operations in Finland.
- The result before taxes was EUR 3.9 (0.1) million. The result was burdened by a EUR -1.2 (-2.8) million fair value revaluation of interest rate derivatives.
- Earnings per share were EUR 0.04 (-0.03).
Events after the end of the review period:
- In October, Finland's Slot Machine Association (RAY) chose to locate Finland's second casino in Tampere's new multi-purpose arena, which is being developed by SRV.
- In October, the Okhta Mall shopping centre received a very distinguished award in the European Property Awards 2016 competition.
- SRV signed a letter of intent to sell a property in Kerava. The agreement covers a commercial centre and 140 apartments, and is valued at around EUR 51 million.
Outlook
- The earnings forecast for 2016 remains unchanged. Full-year revenue for 2016 is expected to increase and operating profit to improve on 2015 (revenue EUR 719 million and operating profit EUR 24.4 million). The company's earnings forecast has been drawn up on the basis of the current rouble exchange rate and may be impacted by any major fluctuations in the exchange rate.
- 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 last quarter.
- Financing expenses will increase on 2015 as the 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's review
“SRV's revenue and operating profit further increased during the third quarter. We have received numerous orders for major projects this year, such as a new central hospital in Central Finland, and forging ahead to complete these large-scale projects is already having a favourable effect on our revenue. Although we haven not received any major new orders in recent months, our order backlog remains at a record high and we're expecting more interesting new entries in our order book at the end of the year.
The lengthy recession in Russia is naturally being reflected in our operations, for example, in temporary rent discounts granted to shopping centre tenants. In view of the circumstances, our shopping centres in St Petersburg are performing excellently. In the last few months, Pearl Plaza has broken its previous records for both visitor numbers and earnings. Business also got off to a good start at the Okhta Mall. The shopping centre opened in August and in October they received a very distinguished award in the European Property Awards 2016 competition. The Russian shopping centre market has become increasing rouble-based, and we therefore changed our operating currency to the rouble in September. However, this will leave us more susceptible to currency exchange rate fluctuations.
One of our strategic objectives is to improve profitability, and we are still a long way off achieving this. On a positive note, there has been a clear increase in the number of developer-contracted housing projects, particularly in the capital city region, and we will complete about 500 developer-contracted units this year, the majority of which will be visible in our Q4 result. Thanks to new orders and our personnel's strong commitment, we're expecting plenty of good things for the rest of 2016,” says CEO Juha Pekka Ojala.
Overall review
| Group key figures (IFRS, EUR million) | 1–9/2016 | 1–9/2015 | change | change, % | 7–9/2016 | 7–9/2015 | 1-12/2015 |
| Revenue | 555.5 | 492.5 | 63.0 | 12.8 | 193.1 | 155.1 | 719.1 |
| Operating profit | 11.4 | 7.5 | 4.0 | 53.4 | 7.3 | 4.1 | 24.4 |
| Financial income and expenses, total *) | -14.5 | -4.7 | -9.8 | -3.4 | -4.0 | -6.8 | |
| Profit before taxes | -3.1 | 2.7 | -5.8 | -213.1 | 3.9 | 0.1 | 17.6 |
| Order backlog | 1,888.1 | 1,517.5 | 370.7 | 24.4 | 1,583.4 | ||
| New agreements | 829.9 | 1,106.6 | -276.7 | -25.0 | 54.9 | 389.9 | 1,393.5 |
| Operating profit, % | 2.1 | 1.5 | 3.8 | 2.6 | 3.4 | ||
| Net profit | -2.5 | 1.7 | -4.1 | -250.8 | 3.3 | -0.3 | 14.0 |
| Net profit, % | -0.4 | 0.3 | 1.7 | -0.2 | 1.9 | ||
| *) - of which accounted for by derivatives | -7.8 | -2.8 | -5.0 | -1.2 | -2.8 | -3.3 | |
January–September 2016
In the January–September period of 2016, the Group's order backlog rose to EUR 1,888.1 (1,517.5) million (up 24.4%). 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 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 in operations in Finland in particular, largely in the second quarter. No significant new orders were announced in July–September.
The Group's revenue rose by 12.8 per cent to EUR 555.5 (492.5) million, largely thanks to increased revenue from business construction in Finland. The major projects agreed on during the spring have entered the construction phase and are now generating revenue. Figures for the comparison period include excavation and other infrastructure work that was completed at the REDI site prior to the official start-up decision and was recognised as revenue (EUR 40 million) in January–March 2015 in accordance with the level of completion.
The Group's operating profit rose to EUR 11.4 (7.5) million, primarily due to improved profitability and higher revenue in SRV's operations in Finland. However, the rise in construction costs associated with the REDI shopping centre and parking facility weakened SRV's operating profit. Operating profit in Russia also weakened, even though a change in the rouble exchange rate improved the earnings of Russian associated companies by EUR 0.5 million.
Operating profit and its relative level are also lowered by the elimination of a share equivalent to SRV's ownership from the profit margins of three shopping centre projects under construction (Okhta Mall, 4Daily and REDI), which will be recognised as income only when the investment is sold.
The Group's profit before taxes was EUR -3.1 (2.7) million. The result was weakened by higher interest expenses and a EUR -7.8 million fair value revaluation of a ten-year interest rate hedge.
The Group's earnings per share were EUR -0.11 (EUR -0.02). Earnings per share were weakened not only by the lower result, but also by the cost of repaying the hybrid bond.
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 stood at 37.8 per cent (42.5% 12/2015). Gearing was 99.7 per cent (83.3% 12/2015). The changes in equity ratio and gearing were due to an increase in interest-bearing debt. Net debt totalled EUR 285.0 (248.3) million and liquid assets EUR 37.9 (28.1) million.
July–September 2016
In the July-September period of 2016, the Group’s revenue rose by 24.5 per cent to EUR 193.1 (155.1) million. Growth in revenue was driven particularly by large business construction projects. The Group’s operating profit increased to EUR 7.3 (4.1) million thanks to improved margins and higher revenue in operations in Finland. Operating profit in International operations improved slightly, to EUR 1.2 (-0.3) million. The Group's profit before taxes was EUR 3.9 (0.1) million. The result was weakened by higher interest expenses and a EUR -1.2 million fair value revaluation of a 10-year interest rate hedge.
| Group key figures (IFRS, EUR million) | 1–9/2016 | 1–9/2015 | change | change, % | 1-12/ 2015 |
| Equity ratio, % | 37.8 | 41.6 | 42.5 | ||
| Net interest-bearing debt | 285.0 | 248.3 | 36.7 | 14.8 | 230.8 |
| Gearing, % | 99.7 | 91.5 | 83.3 | ||
| Return on investment, % | 3.3 | 3.2 | 5.9 | ||
| Return on equity, % | -1.3 | 0.9 | 5.6 | ||
| Earnings per share, EUR *) | -0.11 | -0.02 | -0.08 | 0.25 | |
| Equity per share, EUR *) | 3.81 | 3.80 | 0.01 | 0.3 | 3.90 |
| Share price at end of period, EUR | 4.40 | 2.53 | 1.87 | 73.9 | 3.10 |
| Weighted average number of shares outstanding, millions *) | 59.3 | 37.0 | 42.6 |
*) The comparison data has been adjusted to reflect the share issue.
Espoo, 2 November 2016
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.
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.
The interim report will be presented to the media and analysts at a joint press conference, which will take place on Thursday, 3 November at 11.00 a.m. at the Living Lab test environment, Suvilahti, address Kaasutehtaankatu 1, 00540 Helsinki.
President & CEO Juha Pekka Ojala and CFO Ilkka Pitkänen will be present at the event.
A live webcast of the press conference will be available on the company’s website www.srv.fi/en/investors.
For further information, please contact
Juha Pekka Ojala, CEO, +358 (0)40 733 4173, jp.ojala@srv.fi
Ilkka Pitkänen, CFO, +358 (0)40 667 0906, ilkka.pitkanen@srv.fi
Päivi Kauhanen, SVP, Communications, tel. +358 (0)50 598 9560, paivi.kauhanen@srv.fi
www.srv.fi
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