SRV Yhtiöt Oyj - Interim report (Q1 and Q3)

Revenue and order backlog at a healthy level: SRV’s Interim Report 1 January – 31 March 2013

Espoo, Finland, 2013-05-07 07:30 CEST (GLOBE NEWSWIRE) -- SRV GROUP PLC    
INTERIM REPORT     7 May 2013, 8.30 a.m. EET 

Reporting period 1 January-31 March 2013 in brief:

  -- SRV's revenue was EUR 158.4 million (EUR 140.7 million in Q1/2012), change
     +12.6%
  -- Operating profit was EUR 1.2 million (EUR 1.8 million), change -31.5%
  -- Result before taxes was EUR 0.7 million (EUR 0.3 million)
  -- The order backlog at the close of the review period was EUR 726.7 million
     (EUR 760.7 million), change -4.5 %
  -- Equity ratio was 34.3 per cent (31.9%) 
  -- Earnings per share were EUR -0.03 (EUR -0.01)     


SRV's outlook for 2013 remains unchanged. The Group's full-year revenue is
estimated to reach at least the same level as in the previous year (EUR 641.6
million) and the result before taxes is forecast to exceed that of the previous
year (EUR 2.8 million), even if planned sales of office properties do not occur
this year. 

This interim report has been prepared in accordance with IAS 34. The disclosed
information is unaudited. 


CEO Jukka Hienonen comments on SRV's result:

The construction market has followed a downward trend in the early part of the
year. The outlook was unpromising at the turn of the year, and the spring has
not brought any significant signs of improvement. The number of granted
building permits suggests that construction volume this year will be around
three per cent down on last year. 

Activity in January-February was buoyed by a change in the asset transfer tax
on home sales and business volume in the two months was at a record high. From
the beginning of March, business as expected took a downturn, but the
deteriorating economic climate and tax decisions that reduce buying power have
also undermined consumers' enthusiasm to make purchases. It remains to be seen
whether the situation will return to normal during the early summer. 

In construction, the first quarter is usually modest in terms of financial
performance, as every effort is made to complete projects and recognise then as
income before the turn of the year. We fell short of last year's result,
however, which is explained by write-downs of EUR 3.4 million made in the
quarter on receivables from construction projects completed in previous years. 

SRV's order backlog at the turn of the year was a record EUR 825 million. This
will also act as a buffer in the current uncertain economic situation. Progress
with the construction of projects has resulted in a net reduction of around EUR
100 million in our order backlog, and intake of new orders has been typically
weak in the first quarter of the year. There are signs however, of a pick-up in
orders during May and June. 

Our stock of new completed housing units is smaller than usual. Our housing
stock under construction has also been well sold in advance. Many funds
specialising in housing investment have entered the market. SRV has made
agreements with these funds for the sale of both whole housing corporations and
separate housing units. Although on the housing front business has slowed, we
do not consider that there is cause for concern with respect to the situation
of our unsold housing stock. 

The Finnish government has adopted a number of policies aimed at easing the
shortage of rental housing and changing regulations in order to reduce the
price of apartments, particularly in the Helsinki Metropolitan Area.
Nevertheless, increasing the asset transfer tax and also extending it to
housing corporation loans as well as raising value-added tax by one percentage
point are having the effect of increasing house prices. We estimate that after
these changes, the proportion of indirect and direct taxes in the price of a
new home will rise this year to 45 per cent. 

In domestic business, most of our projects have advanced according to plan, but
setbacks in a number of projects have spoiled our result. On the other hand,
losses in our international business have been continually falling for two
years now. 

SRV has long made great efforts to improve the profitability of international
business. We have increasingly focused our strategy on building and developing
shopping centres, particularly in St. Petersburg and Moscow. The Pearl Plaza
shopping centre, which opens its doors in August 2013, is an excellent example
of this. Leasing and construction of the shopping centre have proceeded
according to plan. 

We believe that we will be able to replicate the experience we have acquired
also in the Septem City project, which is next on the planning table. We aim to
launch the construction of Septem City immediately after the opening of Pearl
Plaza. We believe that we will achieve a positive result for the full year in
our international business. We also expect this year's result for SRV as a
whole to exceed last year's level. 

Overall review

SRV's order backlog remained strong at EUR 726.7 million (EUR 760.7 million on
31 March 2012), and its margin improved. 

Due to growth in revenue from both domestic and international operations, the
Group's revenue grew by 12.6 per cent to EUR 158.4 million (EUR 140.7 million
Q1/2012). The Group's operating profit was EUR 1.2 million (EUR 1.8 million).
Profitability has been impacted by the project development nature of operations
and the composition of the order backlog, which mainly contains low-margin
contracting. The profitability of international operations improved, while the
operating profit of domestic operations decreased. The Group's profit before
taxes was EUR 0.7 million (EUR 0.3 million). The result for the period was
favourably affected by a fall in financial expenses and an increase in
financial income. 

The Group's equity ratio was 34.3 per cent (31.9%). The EUR 45 million hybrid
bond that SRV issued on 28 December 2012 contributed to this growth in the
equity ratio.    Revenue from Domestic Operations was EUR 135.0 million (EUR
120.7 million Q1/2012) and the operating profit was EUR 3.4 million (EUR 5.4
million Q1/2012). Operating profit was impacted by EUR 3.4 million of profit
margin decrease recognised for one ongoing and three completed projects. The
domestic order backlog rose to EUR 686.9 million (EUR 658.3 million). In order
to improve profitability, the company will now be focusing on increasing
developer contracting and negotiated contracts. Fixed-price contracting now
accounts for a smaller percentage of the order backlog, and the order backlog's
mean margin has increased. 

Favourable trends were seen in housing sales in Finland and SRV sold a total of
223 units (133 Q1/2012). SRV currently has 1,633 rental and owner-occupied
units under construction (2,188 on 31 March 2012). The volume of competitive
contracting has been decreased and over half of SRV's output was developer
contracting or rental housing units that were sold to investors. 83 per cent of
residential units under construction have been sold, and 68 per cent of
production consists of rental and right-of-occupancy units. SRV has 517
developer-contracted residential units under construction.  Based on advance
marketing, the decision has been made to initiate the construction of 117
additional residential units. 

Revenue from the International Operations segment rose to EUR 23.5 million (EUR
20.1 million). Construction of the Pearl Plaza shopping centre, 50%-owned by
SRV, generated most of the revenue. Profitability noticeably improved, even
though the result remained in the red due the project development nature of
this business. Operating profit was EUR -0.8 million (EUR -2.6 million). In the
future, SRV will be focusing on shopping centre development projects in St
Petersburg and Moscow. To support financing for these projects, the company
will be harnessing the investment potential of the investment firm Russia
Invest and the investment fund VTBC Ashmore. 

SRV's major international projects include the construction of the Pearl Plaza
shopping centre in St Petersburg, which is already in full swing. The shopping
centre is scheduled for completion in August 2013 and over 90 per cent of its
premises have either been leased or a lease is in the final stages of
negotiation. Projects in Finland include the construction of the Derby Business
Park in the Perkkaa district of Espoo. The second phase of this project is
scheduled for completion in August 2013 and 90 per cent of the premises have
been leased. 

SRV's own project development operations are paving the way for increased
operating volumes in Finland. These projects require long-term development work
and are being carried out over the course of several years. Many of SRV's
projects are so-called landmark projects - innovative new solutions for the
needs of sustainable regional construction. Such projects include, for example,
the Keilaniemi Towers residential project, the Kalasatama Centre in Helsinki,
and a project to develop the area adjacent to the Niittykumpu metro station in
Espoo. 



         Group key figures             1-3/     1-3/   change,   change    1-12/
           (EUR million)               2013     2012     MEUR      ,%       2012
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Revenue                               158.4    140.7       17.7    12.6    641.6
Operating profit                        1.2      1.8       -0.6   -31.5      6.9
Financial income and expenses,         -0.5     -1.5        1.0             -4.1
 total                                                                          
Profit before taxes                     0.7      0.3        0.4   152.5      2.8
Order backlog                         726.7    760.7      -34.0    -4.5    827.8
New agreements                         40.0     65.5      -25.5   -38.9    594.5
Operating profit, %                     0.8      1.2                         1.1
Net profit, %                           0.1     -0.3                         0.1
Equity ratio, %                        34.3     31.9                        34.7
Net interest-bearing debt             277.7    259.5      18.21     7.0    267.9
Gearing, %                            135.6    156.9                       126.2
Return on investment, % 1)              1.7      2.1                         2.2
Return on equity, % 1)                  0.3     -1.0                         0.5
Earnings per share, EUR               -0.03    -0.01      -0.02             0.02
Equity per share, EUR                  4.50     4.56      -0.07    -1.5     4.62
Share price at end of period, EUR      3.36     4.23      -0.87   -20.6     3.26
Weighted average number of shares      35.5     35.5                0.0     35.5
 outstanding, millions                                                          

1) In calculating the key ratio, only the profit for the period has been
annualised. 


Financial targets

On 12 February 2013, SRV's Board of Directors confirmed the Group's strategy
for 2013-2017. The Group's strategic targets are defined as follows: 

  -- During the strategic period, SRV will focus on improving profitability
     rather than on growth.
  -- International Operations will account for more than 20 per cent of Group
     revenue.
  -- The operating profit margin will reach 6 per cent.
  -- The return on equity will be at least 15 per cent.
  -- The equity ratio will remain above 30 per cent. 
  -- A dividend payment equalling 30 per cent of the annual result, taking into
     account the capital needs of business operations.


For the set targets to be achieved, a significant increase in the number of
developer-contracted projects is required. 

Outlook for 2013

SRV reiterates its outlook for 2013.

The volume and the completion schedules of developer-contracted housing
production, trends in the order backlog margin, the number of new construction
contracts, and the realisation of planned project sales will all have an effect
on revenue and profitability in 2013. Developer-contracted housing production
is recognised upon delivery. Based on current completion schedules, SRV
estimates that a total of 505 developer-contracted residential units will be
completed during 2013. SRV's full-year performance can be significantly
affected by the timing of the sales of the Etmia II office property in Moscow
and the Derby Business Park in Espoo. The general uncertainty seen in the
financial markets has also been unfavourably reflected in real estate markets. 

The Group's full-year revenue is estimated to reach at least the same level as
in the previous year (EUR 641.6 million). Even if planned sales of office
premises do not occur in 2013, the Group's pre-tax profit is expected to exceed
the previous year's level (EUR 2.8 million). 

Press conference

The interim report will be presented to the media and analysts at the press
conference which will take place on 7 May 2013 at 10.30 a.m. at conference room
Espa at Hotel Scandic Simonkenttä, Simonkatu 9, Helsinki. The press conference
will be held in Finnish. CEO Jukka Hienonen and Executive Vice President, CFO
Hannu Linnoinen will be present, among others. 

The presentation material of the press conference will be published in Finnish
and English on the company website www.srv.fi 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 our website at www.srv.fi. 


Espoo, 6 May 2013


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. 

For further information, please contact

Jukka Hienonen, President and CEO, +358 (201) 455 213
Hannu Linnoinen, Executive Vice President, CFO, +358 (201) 455 990, +358 (50)
523 5850 
Taneli Hassinen, Vice President, Communications, +358 (201) 455 208, +358 (40)
504 3321

Attachments:

2013 Q1 interim report SRV.pdf