SRV Yhtiöt Oyj - Interim report (Q1 and Q3)

SRV improves profitability and retains a strong order backlog — SRV's Interim Report 1 January – 30 June 2012

Espoo, Finland, 2012-08-08 07:30 CEST (GLOBE NEWSWIRE) -- SRV GROUP PLC        
                          INTERIM REPORT 8 August 2012, 8.30 a.m. EET 

Reporting period 1 January-30 January 2012 in brief:

  -- SRV's revenue was EUR 310.4 million (EUR 269.2 million in January-June
     2011), change +15.3 %
  -- Operating profit was EUR 4.9 million (EUR 0.7 million), change 604.6 %
     positive
  -- Profit before taxes was EUR 2.8 million (EUR 0.0 million)
  -- The order backlog at the close of the review period was EUR 746.3 million
     (EUR 673.5 million), change +10.8 %

  -- Equity ratio was 29.7 per cent (31.7 %)
  -- Earnings per share were EUR 0.03 (EUR -0.01)

SRV's outlook for 2012 remains unchanged. The Group's full-year revenue is
estimated to be at least on a par with the previous year (EUR 672.2 million
1-12/2011). The Group's profit before taxes is estimated to exceed the level of
the previous year (EUR 10.8 million). 

Second quarter 1 April - 30 June 2012 in brief:

  -- Revenue amounted to EUR 169.7 million (EUR 136.6 million in 4-6/ 2011)
  -- Operating profit was EUR 3.1 million (EUR -0.3 million)
  -- Profit before taxes was EUR 2.5 million (EUR -1.7 million)
  -- Earnings per share were EUR 0.04 (EUR -0.06)
The interim report has been prepared in accordance with IAS 34. The disclosed
information is unaudited. 



CEO Jukka Hienonen comments on SRV's result:

Our revenue and order book grew in January-June by double-digit percentage
figures. Our operating profit clearly improved from last year, despite a
write-down of just over one million euros, but it still remains well below our
target level. We expect our profit level to continue to improve in the latter
part of the year and revenue to be at least at last year's record level. 

Global and European economic problems are continually showing new signs of
chronic deterioration. The cyclical fluctuation of our industry has lost its
predictability. It appears that we will have to learn to operate in a new
environment in which we cannot expect a boost to our business from economic
growth. We in SRV have therefore begun to examine our projects more critically
than before against different scenarios and to ensure sufficient room for
manoeuvre as economic and market situations fluctuate. 

The housing market continues to be favourable, enhanced by low interest rates.
A third of our over 2,000 apartment production is on a developer-contracting
basis and the remainder are rental or right-of-occupancy apartments for sector
operators. The improvement of our result in the early part of the year was
based particularly on increased housing production, where sales have remained
buoyant. We are one of the biggest housing builders in the Helsinki
Metropolitan Area. 

On the business premises side, we are proceeding cautiously. We have no
substantial developer-contracting business premises projects under way in
addition to the future head office property. We will take controlled risks,
however, particularly in logistics properties, where committed capital is low
and our feel for the market is more concrete. In contracts, competition has
become unhealthy in places. Due to our flexible structure, however, we can
voluntarily refrain from participating in unprofitable contracts. In international business our focus is on Russia, where we are proceeding
according to plan in the Pearl Plaza shopping centre project both in terms of
construction and commercialisation. The shopping centre jointly owned with a
Chinese partner, will be completed next year and more than half of the area has
already been rented. 

This decade, our operations will be marked by substantial area projects, such
as the Kalasatama Centre and the Keilaniemi towers. In these, the construction
and commercialisation schedules have been planned to be flexible so that we can
phase the projects according to the market situation. As we improve our cost
efficiency, we will simultaneously shift our production focus to
developer-contracting projects in order to improve the profitability of
projects. 



Overall review

The trends in SRV's revenue and order backlog remained favourable in the review
period. The order backlog grew by 10.8 per cent and came to EUR 746.3 million
(EUR 673.5 million on 30 June 2011). Due to growth in revenue from both
domestic and international operations, the Group's revenue grew by 15.3 per
cent to EUR 310.4 million (EUR 269.2 million 1-6/2011). 

The Group's operating profit was EUR 4.9 million (EUR 0.7 million in 1-6 2011).
Positive development in domestic business had a positive impact on operating
profit. Operating profit was taxed by EUR 1.1 million non-recurring
depreciation recorded in January in International Business as a result of a
fire that destroyed a warehouse building.  The Group's profit before taxes was
EUR 2.8 million (EUR 0.0 million 1-6/2011). Financial expenses grew from the
reference period. Financial items in the reference period were affected by
gains from interest rate swaps, exchange rate gains and affiliate-derived
financial income. 

Revenue from Operations in Finland was EUR 271.4 million (EUR 255.1 million
1-6/2011) and operating profit was EUR 11.3 million (EUR 7.7 million). Domestic
order backlog grew to EUR 661.7 million (EUR 564.8 million on 30 June 2011). 

Although revenue from domestic commercial construction fell, profitability
improved.  Profitability in this sector was impacted by the order backlog
consisting mostly of low-margin projects. To improve profitability, SRV aims to
move its focus to own project development. The order backlog for commercial
construction grew to EUR 325.4 million (EUR 233.3 million on 30 June 2011). 

Revenue for domestic housing construction grew and profitability improved.
Sales volumes in developer-contracted housing production rose considerably in
the second quarter (154 units in 4-6/2012) from the first quarter (98 units in
1-3/2012). SRV has increased both its rental and owner-occupied housing
production, making the company a major housing constructor in its operating
areas. SRV's ongoing housing construction amounted to 2,060 housing units
(2,243 on 30 June 2011). 82 per cent of housing units under construction have
been sold, and 71 per cent of production consists of rental and
right-of-occupancy units. SRV has 596 developer-contracted housing units under
construction. Based on advance marketing, the decision has been made to
initiate the construction of 203 additional housing units. The order backlog
for housing construction came to EUR 336.4 million (EUR 331.5 million). 

Revenue from International Operations grew to EUR 39.0 million (EUR 13.7
million). Construction of the Pearl Plaza shopping centre, owned 50% by SRV,
generated most of the revenue. Due to the project development nature of this
business, its result remained in the red. SRV aims to tap into the market
potential in Russia through developer-contracted property development projects
financed with the support of the Russia Invest investment company and the
investment potential of the VTB and Ashmore property funds. 

Group's second-quarter revenue amounted to EUR 169.7 million (EUR 136.6
million) and operating profit EUR 3.1 million (EUR -0.3 million). The growth of
revenue and operating profit was affected especially by completion of domestic
housing production projects. 

SRV's own project development operations pave the way to increasing operating
volume in Finland. These projects require long-term development work and are
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 housing project, the development project for the vicinity of
the Niittykumpu metro station in Espoo, and the Kalasatama development project
in Helsinki, whose implementation agreement was signed in August 2011. 



   Group key figures      1-6/    1-6/   change,  change   4-6/    4-6/    1-12/
     (EUR million)        2012    2011    MEUR      ,%     2012    2011    2011 
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Revenue                   310.4   269.2     41.3    15.3   169.7   136.6   672.2
Operating profit            4.9     0.7      4.2   604.6     3.1    -0.3    14.1
Financial income and       -2.1    -0.7     -1.4            -0.6    -1.4    -3.3
 expenses, total                                                                
Profit before taxes         2.8     0.0      2.8             2.5    -1.7    10.8
Order backlog             746.3   673.5     72.8    10.8                   810.8
New agreements            208.1   310.9   -102.8   -33.1   142.5    90.6   811.6
Operating profit, %         1.6     0.3                      1.8    -0.2     2.1
Net profit, %               0.4    -0.4                      0.9    -1.6     0.8
Equity ratio, %            29.7    31.7                                     31.0
Net interest bearing      288.0   263.5                                    271.8
 debt                                                                           
Gearing, %                172.3   162.2                                    160.2
Return on investment, %     2.7     1.4                                      4.5
 1)                                                                             
Return on equity, % 1)      1.3    -1.3                                      3.3
Earnings per share, EUR    0.03   -0.01                     0.04   -0.06    0.17
Equity per share, EUR      4.61    4.51                                     4.68
Weighted average number    35.5    34.5              2.8                    35.0
 of shares outstanding                                                          

1) In calculationg the key ratio only the profit for the period has been
annualised 



Financial targets

On 15 February 2012, SRV's Board of Directors confirmed the Group's strategy
for 2012-2016. The Group's strategic targets are defined as follows: 

  -- SRV's revenue grows faster than the construction industry in general,
     reaching the level of one billion
  -- International Operations account for more than 20 per cent of Group revenue
  -- Operating profit margin will reach 6 per cent
  -- Return on equity is at least 15 per cent
  -- Equity ratio will stay above 30 per cent
  -- The target is to pay dividends 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 needed. 



Events after the end of the reporting period

After the review period, an appeal seeking a change to a Helsinki City Council
decision on the Kalasatama Centre city plan was filed with the Helsinki
Administrative Court. SRV and the City of Helsinki will review if the appeal
has an impact on the current timetable of the Kalasatama Centre project. 

The project extends over a lengthy period of time and it is estimated that the
possible delay will not have an impact on SRV's full-year guidance or the
overall timetable of the project. On 30 June 2012, around EUR 20 million was
committed to the Centre's preliminary construction works. 



Outlook for 2012

SRV reiterates the outlook for 2012.

The volume and the completion schedules of developer-contracted housing
production, trends in the margin of the order backlog, the number of new
construction contracts, and the materialisation of planned project sales all
have an effect on the trends and allocation of revenue and profitability in
2012. Developer-contracted housing production is recognised upon delivery.
Based on the available completion schedules, SRV estimates that a total of 451
developer-contracted residential units will be completed in 2012. 

The Group's full-year revenue is estimated to be at least on a par with the
previous year level (EUR 672.2 million 1-12/2011). The Group's profit before
taxes is estimated to exceed the level of the previous year (EUR 10.8 million). 



Media conference

The interim report will be presented to the media and analysts at the press
conference which will take place 08 August 2012 at 10.30 a.m. in 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. 



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 7 August 2012





Board of Directors



All forward-looking statements in this review are based on the 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 and Brand, +358 (201) 455 208,
+358 (40) 504 3321

Attachments:

2012_Q2_interim_report_SRV.pdf