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  • SRV to sell its stake in REDI shopping centre and reduce its ownership in Tampere Central Deck and Arena project, as well as commence measures to strengthen its equity and agree on amendments

SRV to sell its stake in REDI shopping centre and reduce its ownership in Tampere Central Deck and Arena project, as well as commence measures to strengthen its equity and agree on amendments

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SRV Group Plc to sell its stake in REDI shopping centre and reduce its ownership in Tampere Central Deck and Arena project, as well as commence measures to strengthen its equity and agree on amendments to its revolving credit facility

SRV GROUP PLC       INSIDE INFORMATION      6 FEBRUARY 2020 AT 8.15 EET

SRV Group Plc to sell its stake in REDI shopping centre and reduce its ownership in Tampere Central Deck and Arena project, as well as commence measures to strengthen its equity and agree on amendments to its revolving credit facility

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN OR TO THE UNITED STATES, AUSTRALIA, CANADA OR JAPAN OR ANY OTHER JURISDICTION IN WHICH THE DISTRIBUTION OR RELEASE WOULD BE UNLAWFUL.

SRV Group Plc ("SRV") announced on 31 October 2019 the launch of a recovery programme with the short-term goal of ensuring that its operating profit and cash flow for 2020 are positive and returning its operative operating profit for 2021 to the level of 2017. As announced, the recovery programme is focusing on organisation and organisational culture reformation, lightening the balance sheet, strengthening cash flow, and cost savings.

SRV has today, on 6 February 2020, resolved on new actions under the recovery programme. SRV will sells its stake in REDI, reduce its ownership in the Tampere Central Deck and Arena project and commence measures to strengthen its equity. Simultaneously SRV has agreed with its principal lenders on the conversion of its existing EUR 100 million revolving credit facility into two separate revolving credit facilities of EUR 60 million and EUR 40 million.

If the aforementioned actions are carried out as planned, SRV's balance sheet, liquidity and financial position will improve significantly by the end of the second quarter of 2020. In addition, SRV will be reviewing its strategy during 2020.

"SRV's board of directors is pleased with the results of this long and demanding process. The strong commitment by our main shareholders, together with the key commitments of new major shareholders, will bring perseverance and stability into the operations of the company," says the Chairman of the board of directors of SRV, Ilpo Kokkila, continuing: "We can now look ahead towards the future and turn a new page in the story of SRV. On behalf of the board of directors, I wish to thank each and every one that has been a part of this reformation."

The sale of the stake in the REDI shopping centre

The SRV group holds a 40 per cent stake in Kiinteistö Oy Kauppakeskus REDI and in Kiinteistö Oy REDI Parkki (together, "REDI"). The board of directors of SRV has today resolved on selling SRV's holdings in REDI to SRV's co-investors Ilmarinen Mutual Pension Insurance Company, Pohjola Insurance Ltd, OP Life Assurance Company Ltd and the LocalTapiola Group (the "Co-investors").

The final purchase price is determined later upon the new owners selling the shopping centre within seven years. The purchase price paid now is approximately EUR 8.5 million, in addition to which SRV will receive a payment of a total of approximately EUR 12.6 million for certain receivables that it has from REDI. There is an earn-out of up to EUR 50 million, of which SRV will book EUR 13.5 million at this stage.

SRV has received a purchase commitment from the Co-investors. The disposal is intended to be carried out during February 2020.

SRV will book its holdings in REDI as disposable assets and, taking the potential earn-out into consideration, SRV will book a EUR 71.4 million write down in connection with the sale of REDI in its consolidated financial statements for the year 2019.

Reduction of ownership in the Tampere Central Deck and Arena project

SRV group holds one third of the companies forming the Tampere Central Deck and Arena project.

In addition to the disposal of SRV's stake in REDI, the board of directors of SRV has today resolved on two disposals, in the first of which the Co-investors will purchase five sixths of the Ranta-Tampella apartments project, which relates to the Tampere Central Deck and Arena project. The SRV group will receive EUR 4.0 million from the disposal.

In the second disposal, the Co-investors will purchase three fourths of the shares and partnership interests owned by SRV in the Tampere Central Deck and Arena project for a purchase price of approximately EUR 19.3 million.

After the disposals, the SRV group will hold a stake of approximately 8.33 per cent in the Tampere Central Deck and Arena project. The disposals will not affect the development of the Tampere Central Deck and Arena project or the position of SRV group as the project's contractor. As a consequence of the disposals, SRV will be released from the future investment commitments of EUR 15 million relating to the disposed stake.

SRV has received a purchase commitment from the Co-investors. The disposal is intended to be carried out during February 2020. The disposals of the Tampere Central Deck and Arena project and the Ranta-Tampella apartments project do not have an effect on SRV's profit.

Strengthening of equity

The board of directors of SRV has today resolved to pursue two share issues, the aggregate size of which would be up to approximately EUR 141 million.

In the first share issue, new shares would be offered in a directed share issue to the holders of SRV's hybrid notes in order to convert the hybrid notes into shares. In the directed share issue, the subscription price would be paid by setting off the hybrid notes. The size of the pursued share issue would correspond to the total nominal amount of the hybrid notes and accrued interest, and would be approximately EUR 91 million. Ilmarinen Mutual Pension Insurance Company, Pohjola Insurance Ltd and OP Life Assurance Company Ltd as well as Pontos Ltd (a company controlled by the chairman of the board of directors of SRV, Ilpo Kokkila) have committed to SRV to subscribe for new shares in SRV with the hybrid notes in the directed share issue for an aggregate amount of approximately EUR 51 million in principal amount of the hybrid notes, and together with the accrued interest, for an aggregate amount of approximately EUR 57 million. The aforementioned commitments have been issued with the subscription price of EUR 1.05 per share.

The second share issue would be a rights issue of up to EUR 50 million. SRV has received commitments for an aggregate amount of EUR 40 million from Ilmarinen Mutual Pension Insurance Company, Pohjola Insurance Ltd, OP Life Assurance Company Ltd, Varma Mutual Pension Insurance Company, Tiiviste-Group Oy and Pontos Ltd to subscribe for new shares in SRV in the rights issue. The subscription price would be paid in cash.

The board of directors of SRV will propose to the annual general meeting of shareholders convening on 26 March 2020 that sufficient share issue authorisations are granted in order to resolve on the aforementioned share issues. SRV has received commitments from shareholders, whose shares represent more than two thirds of the issued and outstanding shares in SRV, to vote in favour of the proposals of the board of directors of SRV in the general meeting of shareholders. If the annual general meeting of shareholders grants the requisite share issue authorisations, both share issues are intended to be carried out by the end of the second quarter of 2020. Danske Bank A/S, Finland Branch, will act as the lead manager in the directed share issue and the rights issue.

Pursuant to an agreement between SRV and the principal lenders of SRV, SRV may pay interest on such hybrid notes where interest deferral is not permitted, if such payment is financed with a capital loan or new hybrid notes repayable no earlier than on 31 December 2022, with proceeds of the rights issue exceeding EUR 42.5 million or with proceeds received from potential share issues carried out after the rights issue. Otherwise SRV may pay interest on the hybrid notes, or repay principal, if such payment is financed with a capital loan or new hybrid notes repayable no earlier than on 31 December 2022 or with proceeds received from potential share issues carried out after the rights issue.

Due to the terms and conditions of the hybrid notes, SRV may only make dividend payments, if interest is paid on the hybrid notes simultaneously.

SRV will publish further information for the holders of the hybrid notes in a separate release.

Amendments to SRV's revolving credit facility

SRV and its principal lenders have signed a term sheet containing the main terms and conditions for the conversion of its existing EUR 100 million revolving credit facility into two separate revolving credit facilities of EUR 60 million and EUR 40 million. SRV expects that the facility agreement regarding the revolving credit facility will be signed during February 2020.

SRV has drawn down EUR 60 million under its existing revolving credit facility. The drawn down portion of the revolving credit facility will be converted into a new revolving credit facility of equal value such that EUR 20 million will mature for repayment in January 2021 and the remaining EUR 40 million will mature for repayment in January 2022.

The currently undrawn portion of EUR 40 million under the existing revolving credit facility will be converted into a revolving credit facility available for use by SRV Construction Ltd and its subsidiaries to finance projects to be separately agreed. The revolving credit facility may be used, among other things, for construction-phase financing and guarantees. The maturity date for this facility is 31 January 2022 or any other maturity date agreed on separate finance projects.

The effects of the contemplated actions on the financial position of SRV

If the aforementioned actions are carried out as planned, SRV's balance sheet position, liquidity and financial position will improve significantly by the end of the second quarter of 2020. SRV's equity ratio will then improve from the year-end 2019 level to a level of approximately 35 to 38 per cent and its net gearing (without the effect of IFRS 16) will improve from the year-end 2019 level to approximately 75 to 85 per cent. The cash-flow effect of the contemplated actions, if materialised, will be positive by approximately EUR 95 million and the purpose of the actions is to ensure the long-term development of SRV's operations.

Updating SRV's strategy

During 2020, SRV will be reviewing its strategy and defining its financial objectives for the upcoming years.

SRV's CEO Saku Sipola comments on the contemplated actions: "This comprehensive solution marks a new beginning for SRV. It enables us to respond to our customers' needs and to the challenges brought by urbanisation with an even stronger grip. This comprehensive solution includes several actions: new financing solutions, sales of assets and new capital. The solution published today along with SRV's existing strengths will create a progressive company with earnings power, which in turn will make us an interesting partner and investment opportunity. The company's know-how in construction is solid and our focus on growth centres lays a strong foundation for the upcoming strategy work."

Lisätietoja:

Saku Sipola, President & CEO, tel. +358 (0)40 551 5953, saku.sipola@srv.fi

Ilkka Pitkänen, CFO, tel. +358 (0)40 667 0906, ilkka.pitkanen@srv.fi

Distribution:
Nasdaq Helsinki
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www.srv.fi

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SRV in brief

SRV is a bold developer and innovator in the construction industry. We want to offer the best customer experience as a constructor of urban city centres, while also being the most attractive employer in the industry. Our genuine cooperation and enthusiasm for our work comes across in every encounter. Sustainability is reflected in all our activities.

Established in 1987, we are a publicly listed company since 2007 in Helsinki Nasdaq stock exchange that operates in selected growth centres in Finland and Russia. Our revenue in 2018 was EUR 960 million. Over 1,000 people work for us and we employ a network of almost 4,000 subcontractors in our projects.

SRV - Building for life

IMPORTANT NOTICE

This release is not an offer for sale of securities in the United States. Securities may not be sold in the United States absent registration with the United States Securities and Exchange Commission or an exemption from registration under the U.S. Securities Act of 1933, as amended. SRV does not intend to register any part of the share issues in the United States or to conduct a public offering of securities in the United States.

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This release does not constitute a prospectus as defined in the Prospectus Regulation and as such, does not constitute or form part of and should not be construed as, an offer to sell, or the solicitation or invitation of any offer to buy, acquire or subscribe for, any securities or an inducement to enter into investment activity.

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