2013-10-31 07:30:01 CET

2013-10-31 07:30:04 CET


REGULATED INFORMATION

English Finnish
SRV Yhtiöt Oyj - Interim report (Q1 and Q3)

Positive profitability trend continues – SRV revises its revenue outlook: SRV’s interim report 1 January – 30 September 2013


Espoo, Finland, 2013-10-31 07:30 CET (GLOBE NEWSWIRE) -- SRV GROUP PLC    
INTERIM REPORT     31 OCTOBER 2013, at 8:30 AM 

Reporting period 1 January - 30 September 2013 in brief:
• SRV's revenue was EUR 507.8 million (EUR 466.2 million  1-9/2012), change
+8.9% 
• Operating profit was EUR 21.8 million (EUR 4.5 million), change +386%
• Profit before taxes was EUR 19.2 million (EUR 0.6 million)
• The order backlog at the close of the review period was EUR 911.5 million
(EUR 747.1     million), change +22.0% 
• Equity ratio was 39.3 per cent (28.5%)
• Earnings per share were EUR 0.38 (EUR -0.01)

SRV revises its outlook for 2013 in terms of revenue and reiterates the outlook
in terms of profit before taxes. SRV estimates that both Domestic Operations'
and International Operations' revenue will exceed last year's level and that
the growth of the final quarter's revenue will slow down due to uncertainties
related to the level of domestic housing sales. In addition, SRV expects that
the sales of the Etmia II office property in Moscow and the Derby Business Park
in Espoo are unlikely to materialise in 2013. The Group's full-year revenue is
expected to amount to around EUR 700 million (EUR 641.6 million 1-12/2012), and
profit before taxes is estimated to be at least around EUR 20 million (EUR 2.8
million 1-12/2012). 

Earlier guidance: The Group's full-year revenue is expected to exceed EUR 700
million, and profit before taxes is estimated to be at least around EUR 20
million. 

Third quarter 1 July - 30 September 2013 in brief:
• Revenue amounted to EUR 170.0 million (EUR 155.8 million in 7-9/ 2012)
• Operating profit was EUR 6.9 million (EUR -0.4 million)
• Profit before taxes was EUR 5.2 million (EUR -2.1 million)
• Earnings per share were EUR 0.06 (EUR -0.04)

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

CEO Jukka Hienonen comments on SRV's result:

SRV's improved profitability trend has been encouraging, and this is a result
of our chosen strategic focus. The biggest change in profitability took place
in the second quarter, but in July-September SRV has continued to perform
significantly better than in the previous year. The sector outlook is becoming
more difficult as we approach the winter, however, and we must all be prepared
for this. 

SRV has shifted its business focus from the domestic market to Russia, where
the company has concentrated on shopping centre construction. Our International
Operations' share of revenue has grown from just over 10 per cent last year to
nearly 20 per cent. Russian business has been boosted by the Pearl Plaza
shopping centre, which opened successfully in August, and by construction work
on the site of the Okhta Mall shopping centre, which started on the same day.
In addition to construction, our roles as a developer of, manager in and
investor in shopping centre projects have created a foundation for long-term
profitable business in Russia. 

In Domestic Operations, we have managed a slight improvement in profitability,
and revenue remained good due to a strong order backlog. The commercial
premises market currently consists mainly of public contracts in which the
constructors are mostly selected through competitive tenders. We have
participated in these competitive tenders selectively, aiming to win the type
of projects in which our added value for the client would also allow a health
profit margin for SRV. 

The domestic housing market is declining and also imbalanced. Large residential
units are moving more slowly, while smaller properties are still selling well.
Sales to housing funds have also increased demand for small apartments, and
there is even a shortage of such properties on the market. Consumer sales are
influenced by people's general confidence in their own financial situation,
which this year has been adversely affected by a deteriorating employment trend
and implemented tax decisions. SRV is building 450 rental homes on land that it
owns. Our total housing sales grew significantly from last year. There were
fewer start-ups, on the other hand, due to the market situation. 

Our financial position has strengthened over the year. The equity ratio is 40
per cent and our finances will remain robust even if market conditions
deteriorate further. With respect to the REDI shopping centre and residential
units being planned for the Kalasatama Centre, we are currently engaged in
investment and financing negotiations, which it has now been possible to resume
after an appeals process that lasted one and a half years. We expect that we
will be in a position to start large-scale construction at Kalasatama next
year. 

We approach the coming winter prepared for a slow-down in the domestic
construction market. Our long-term business projects in Finland and Russia will
provide the continuity by which we will maintain stability during fluctuations
in economic conditions. 

SRV'S INTERIM REPORT 1 JANUARY - 30 SEPTEMBER 2013



   Group key figures       1-9/    1-9/   change  change   7-9/    7-9/    1-12/
   (IFRS, EUR million)     2013    2012    ,MEUR   , %     2013    2012    2012 
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Revenue                    507.8   466.2    41.6     8.9   170.0   155.8   641.6
Operating profit            21.8     4.5    17.3   385.8     6.9    -0.4     6.9
Financial income and        -2.6    -3.9     1.3            -1.7    -1.8    -4.1
 expenses, total                                         
Profit before taxes         19.2     0.6    18.6  2960.7     5.2    -2.1     2.8
Order backlog              911.5   747.1   164.4    22.0                   827.8
New agreements             532.4   346.5   185.9    53.6   107.9   138.5   594.5
Operating profit, %          4.3     1.0                     4.0    -0.2     1.1
Net profit, %                3.3    -0.1                     2.0    -1.0     0.1
Equity ratio, %             39.3    28.5                                    34.7
Net interest-bearing       227.1   311.3   -84.2   -27.1                   267.9
 debt                                                                           
Gearing, %                 102.8   187.7                                   126.2
Return on investment, %      6.4     1.8                                     2.2
 1)                                                                             
Return on equity, % 1)      10.4    -0.4                                     0.5
Earnings per share, EUR     0.38   -0.01    0.39            0.06   -0.04    0.02
Equity per share, EUR       4.95    4.58    0.37     8.1                    4.62
Share price at end of       4.41    3.44    0.97    28.2                    3.26
 period, EUR                                                                    
Weighted average number     35.5    35.5                                    35.5
 of shares outstanding,                                                         
 millions                                                                       



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



Overall review

The Group's order backlog rose to EUR 911.5 million (EUR 747.1 million 9/2012).
The value of new agreements grew to EUR 532.4 million (EUR 346.5 million
1-9/2012). 

Thanks to growth in revenue from International Operations, the Group's revenue
grew by 8.9 per cent to EUR 507.8 million (EUR 466.2 million 1-9/2012). The
Group's operating profit rose to EUR 21.8 million (EUR 4.5 million) following
operating profit improvements in International Operations in the second quarter
and in Domestic Operations in the third quarter. The operating profit margin
was 4.3 per cent (1.0%). Several factors contribute to the quarterly variation
in the operating profit and operating profit margin: SRV's own projects are
recognised as income upon delivery, the part of the order backlog that is
continuously recognised as income mainly consists of low-margin contracting, a
share equivalent to the ownership of SRV's associated companies is eliminated
from the profit margins of construction carried out for these companies, and
the project development nature of operations. The Group's profit before taxes
was EUR 19.2 million (EUR 0.6 million). Financial expenses decreased, which had
a positive effect on the result for the period. 

The Group's equity ratio was 39.3 per cent (28.5%). Profitability improvement
and the EUR 45 million hybrid bond that SRV issued on 28 December 2012
contributed to the growth in equity ratio. 

Revenue from Domestic Operations was EUR 418.9 million (EUR 411.1 million
1-9/2012) and operating profit was EUR 13.4 million (EUR 13.1 million). Revenue
and operating profit growth could be attributed to the increase in revenue from
developer contracting during the third quarter. In addition, the profitability
of commercial contracting has developed positively during the review period.
The level of operating profit was also affected by the fact that the order
backlog recognised as income mainly consisted of low-margin contracting, and a
EUR 5.2 million profit margin decrease was recognised for one ongoing and four
completed projects, primarily in the first quarter. The domestic order backlog
rose to EUR 727.8 million (EUR 676.2 million). In order to improve
profitability, the company will now be focusing on increasing developer
contracting and negotiated contracts. 

On the whole, housing sales trend in Finland was positive, with SRV selling a
total of 584 units (538 1-9/2012) to consumers and investors. As sales to
consumers slackened in the second quarter due to growing economic uncertainty
and the transfer tax hike, the focus has been shifted to rental housing
development projects. In addition to the sale of 316 rental housing units (201)
to investors under negotiated contracts, SRV made preliminary agreements with
two housing funds to build 252 housing units on plots owned by SRV. The units
to be built under the preliminary agreements are not included in the domestic
order backlog. 

SRV had 1,398 rental and owner-occupied units under construction (2,126 on 30
September 2012), of which 550 were developer-contracted. 81 per cent of housing
units under construction have been sold, and 71 per cent of production consists
of rental and right-of-occupancy units. Based on advance marketing, the
decision has been made to initiate the construction of 22 additional housing
units. The volume of housing contracting has been reduced, and 61 per cent of
production (43%) consisted of rental housing development projects or
developed-contracted production sold to investors. 

Revenue from International Operations rose to EUR 89.0 million (EUR 55.1
million). Most of the revenue was generated by the construction of the Pearl
Plaza shopping centre, 50%-owned by SRV, and the sale in June of a 55 per cent
stake in the Okhta Mall shopping centre project in St. Petersburg to investment
company Russia Invest. Operating profit was EUR 11.7 million (EUR -5.6
million). Growth in the level of activity, the sale of the company's holding in
the shopping centre project, and the implementation of cost-savings measures
contributed to the improvement in operating profit. Other contributing factors
included the EUR 8.3 million change in the fair value of the holding in the
Okhta Mall shopping centre following the surrender of SRV's controlling
interest in a transaction carried out in June and the subsequent measurement of
its remaining holding at fair value based on the sale of the majority holding. 

The Group's third-quarter revenue was EUR 170.0 million (EUR 155.8 million) and
operating profit was EUR 6.9 million (EUR -0.4 million). The rise in revenue
and operating profit could be attributed to the growth in the revenue and
profitability of International Operations. 

Of SRV's major international projects, the Pearl Plaza shopping centre in St.
Petersburg was completed in August 2013 and all of its premises have either
been leased or a lease is in the final stages of negotiation. Leasing of the
Okhta Mall shopping centre project in St. Petersburg has likewise progressed
well, and its construction work has begun. Projects in Finland include the
construction of the Derby Business Park in the Perkkaa district of Espoo. The
second phase of this project was completed in June 2013, and over 90 per cent
of the premises have been leased. 

SRV's own project development operations are paving the way for substantially
increasing 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. In St. Petersburg and Moscow, SRV will from
now on focus on the development of shopping centre projects. SRV will harness
the investment potential of both the Russia Invest investment firm and the VTB
and Ashmore property funds in order to support the financing of these projects. 

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 revises its outlook for 2013 in terms of revenue and reiterates the outlook
in terms of profit before taxes. SRV estimates that both Domestic Operations'
and International Operations' revenue will exceed last year's level and that
the growth of the final quarter's revenue will slow down due to uncertainties
related to the level of domestic housing sales. In addition, SRV expects that
the sales of the Etmia II office property in Moscow and the Derby Business Park
in Espoo are unlikely to materialise in 2013. 

The quarterly change and development of revenue and result in 2013 are affected
by the recognition upon delivery of SRV's own projects, the continuously
recognised order backlog comprising mostly low-margin contracting, the
development of the order backlog's profit margins, the sales volume of
self-developed housing production and the completion times of the properties,
the number of new contracts, the project development nature of the operations,
and the realisation of planned property sales, among other things. Based on
current completion schedules, SRV estimates that a total of 539
developer-contracted housing units will be completed during 2013. The general
uncertainty seen in the financial markets has also been unfavourably reflected
in real estate markets. 

The Group's full-year revenue is expected to amount to around EUR 700 million
(EUR 641.6 million 1-12/2012), and profit before taxes is estimated to be at
least around EUR 20 million (EUR 2.8 million 1-12/2012). 

Press conference

The interim report will be presented to the media and analysts at the press
conference which will take place on 31 October 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/en/investors 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/en/investors. 


Espoo, 31 October 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