2017-02-02 08:01:58 CET
2017-02-02 08:01:58 CET
SÄÄNNELTY TIETO
SATO Oyj - Financial Statement Release
Bulletin of the annual financial statement 2016: SATO made record-high investments in housing
SATO Corporation, Financial Statement Release, 2nd Feb 2017 at 9:00 am
SATO Corporation, Bulletin of the annual financial statement 2016
Highlights January-December 2016 (January-December 2015)
* Housing investments stood at EUR 572.6 (250.5) million.
* A total of 3,381 (1,184) apartments were acquired or completed. A total of
1,232 (1,278) new apartments were under construction. After divestments, the
number of apartments increased by 1,793 apartments.
* Customer driven strategy focus resulted in the occupancy rate that improved
during every quarter, rising from 94.8 percent in the first quarter to 96.3
percent in the last quarter. The full-year occupancy rate in Finland was
95.6 (96.4) %.
* Invested capital stood at EUR 3,196 (2,669) million.
* When evaluating business profitability, one of the key indicators is return
on investment, which was 9.1 (7.6) %.
* Profit before taxes stood at EUR 219.4 (159.4) million. The improvement in
profit is largely attributable to the positive change in the value of
apartments, amounting to EUR 124.3 (62.4) million. The change in value is
based on placing focus on smaller apartments in growing urban centres.
* The equity ratio strengthened supported by an increase in value and a
capital investment made by our shareholders and the equity ratio was 35.2
(33.3) %.
* Net sales stood at EUR 318.0 (323.4) million, of which rental income
comprised EUR 262.7 (249.4) million.
* Earnings per share was EUR 3.22 (2.49).
Highlights October-December 2016 (October-December 2015)
* Profit before taxes stood at EUR 46.5 (57.0) million.
* Profit and losses from changes of fair value were EUR 22.7 (36.1) million.
* Gross rental income was EUR 67.9 (61.6) million.
* Gross investments were EUR 63.8 (55.5) million.
* The rental occupancy rate in Finland was 96.3 (96.0) %.
* Annualised return on invested capital (ROI) was 7.4 (9.8) %.
Events after the review period
In it's meeting held on February 1(st), 2017, SATO Corporation's Board of
Directors has updated the financial targets to the group. The updated financial
targets are:
* equity ratio over 35 percent (previous target over 30 percent)
* solvency ratio below 70 percent
* interest cover ratio over 1,8x
* unencumbered assets ratio 60 percent or more (previous approximately 50
percent by the end of 2020)
Saku Sipola, President and CEO:
"Year 2016 has been a successful and positively revolutionary one for SATO.
Customer driven strategy focus at the centre of our sustainable success
accelerated us towards better customer service, which can be seen in most
results. By making record-high investments, we are helping to build an
urbanising Finland and increase the number and quality of rental apartments.
Our entire personnel were engaged in the preparation of SATO's new strategy. We
looked for inspiration and understanding in major societal trends and examined
other factors affecting our operating environment. Urbanisation is a key factor
in Finland's international success. We believe that in the Finland of the
future, thriving cities will be home to people enjoying a high level of
wellbeing. According to our strategy, we are targeting our investments at the
most rapidly growing urban areas.
The current record-high construction of apartments strengthens the urban and,
therefore, internationally successful Finland. This positive development is
based on sufficient zoning in major cities and successful decisions on future
rail transport solutions.
In Finland, we are making good progress but we still have some catching up to
do, even at the current pace of construction, if we intend to fulfil the
estimated lack of 20,000 apartments in the Helsinki Metropolitan Area and 3,000
apartments in Tampere (VTT). In addition, at least 25,000 apartments should be
built in Finland every year to respond to the population development (VTT). All
regulations and activities that disturb this positive development in
construction and in increase in housing capacity should be avoided.
It has been a true pleasure to see how our personnel have been eager to develop
our customer-driven service. Our performance improved in many areas from the
year before. As a result, the Net Promoter Score (NPS) among our tenants
improved, and our occupancy rate increased during every quarter.
We renewed our range of apartments through record-high investments and
divestments. Our apartment stock increased by roughly 1,800 apartments. Through
the active development of our apartment portfolio, we have divested apartments
in towns with a smaller population and focused on smaller apartments in growing
cities to support urbanisation. This speeds up the value development of our
housing assets, which in turn enables our future investments.
Investment financing was strengthened by SATO's shareholders who invested EUR
113 million in the company and by finding new sources of financing. Significant
steps in our changed financing structure included the second issuance of a bond
of EUR 300 million in March and the loan arrangements of EUR 200 million,
without using properties as securities, completed in autumn with Aktia and the
European Investment Bank (EIB).
I wish to thank SATO's shareholders who made a significant investment in our
company and urbanisation in Finland in 2017, and all members of our Board of
Directors, our partners, personnel and our other stakeholders for their
productive cooperation. Above all, I wish to thank our customers who fill SATO
homes with life."
Key figures, the Group
Key financial indicators Q4 2016 Q4 2015 2016 2015
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Net sales, MEUR 87.2 78.6 318.0 323.4
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of which rental income 67.9 61.6 262.7 249.4
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Operating profit, MEUR 59.3 65.9 267.2 196.5
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Profit and losses from changes of fair
value, MEUR 22.7 36.1 124.3 62.4
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Net financing expences, MEUR -12.7 -9.0 -47.8 -37.0
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Profit before taxes, MEUR 46.5 57.0 219.4 159.4
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Earnings per share, EUR 0.66 0.90 3.22 2.49
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Equity per share, EUR **** 22.12 19.53
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Number of shares, million * 56.6 50.8 54.3 50.8
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Equity ratio, % 35.2 % 33.3 %
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Gross investments, MEUR 63.8 55.5 572.6 250.5
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as percentage of net sales 73.2 % 70.5 % 180.1 % 77.4 %
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Divestments, MEUR 35.5 43.4 67.7 95.9
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Apartments divested 605 665 1267 1743
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Economic occupancy rate, % 96.3 % 96.0 % 95.6 % 96.4 %
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Tenant turnover, % 35.8 % 42.6 % 40.5 % 41.1 %
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Plots acquired, MEUR 1.4 5.7 13.5 13.2
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Apartments completed 338 291 759 861
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of which rental apartments 281 237 702 708
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of which apartments to be sold 57 54 57 153
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Apartments sold 6 33 93 130
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Net rental income, MEUR 40.7 33.5 166.2 151.8
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Net rental income, % 5.1 % 5.1 % 5.6 % 6.0 %
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Return on invested capital, % (ROI) 7.4 % 9.8 % 9.1 % 7.6 %
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Return on equity, % (ROE) 12.0 % 18.8 % 15.6 % 13.5 %
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Balance sheet total, MEUR 3,562.2 2,979.6
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Shareholders' equity, MEUR 1,252.6 993.2
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Liabilities, MEUR 2,309.6 1,986.5
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Interest bearing liabilities, MEUR 1,943.0 1,676.2
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Investment property, MEUR 3,383.2 2,752.9
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Personnel, average*** 171 171 170 172
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Personnel at the end of period 175 170
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Key figures according to EPRA
recommendations
and operational cash earnings
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EPRA Earnings, MEUR 16.3 14.7 69.5 64.5
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EPRA Earnings per share, EUR 0.29 0.29 1.28 1.27
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EPRA Net Asset Value, MEUR***** 1,517.46 1,227.85
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EPRA Net Asset Value per share, EUR***** 26.80 24.15
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Cash earnings, MEUR 27.7 23.3 86.2 78.1
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Cash earnings per share, EUR 0.49 0.46 1.59 1.54
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The 160,000 shares held by the Group have
been deducted from the number of shares.
*** Including summer trainees
**** Equity excluding non-controlling
interests
***** Includes items valued at their
carrying amount
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Operating environment
The Finnish economy has turned to moderate growth. In the near future, growth is
expected to be close to one percent. This growth is mainly based on private
consumption and building investments. The outlook for exports seems brighter
than in previous years, even though it remains weak due to the slow recovery of
global economy. The Finnish competitiveness pact is expected to improve
competitiveness with prices, but its impact on economic development will take
effect after some delay. The public economy is estimated to remain clearly in
the deficit.
Private consumption is expected to grow more slowly than in the year before
because there has been no significant increase in income levels and the rate of
inflation is estimated to increase. The employment rate continues to improve,
but due to the mismatch in vacancies and the available workforce, the rate of
unemployment is decreasing slowly.
Interest rates have started to go up in the USA where economic growth has
strengthened. In the Eurozone and Finland, interest rates are expected to remain
low as a result of the financial policy of the European Central Bank and slow
general growth. Low interest rates have a positive impact on SATO's results by
reducing financing costs.
The success of urbanisation is essential for the competitiveness and growth of
Finland. Recently, residential construction has been active and this good pace
of construction should continue in growth centres in order to reach a good
balance between supply and demand. In 2016, investments were made actively in
apartments, with roughly 40 percent of all major property transactions being
housing portfolio deals. For example, real estate funds accounted for one third
of all new residential buildings. As the supply of apartments has increased,
competition over customers has intensified. SATO's competitive edge is boosted
by improving customer service and introducing new services and housing concepts
to enrich our broad range of apartments.
In the light of estimates, the market in year 2016 was better than the previous
two years in terms of apartment sales. This growth has mostly been affected by
the accelerated sales of new apartments. The positive development of apartment
prices in SATO's operating areas has increased the fair value of the largest
portfolio, evaluated according to the sales comparison method.
Strategy
In the autumn, the Board of Directors adopted the Group's updated strategy,
strategic objectives and dividend policy.
Globalisation, digitalisation and sustainable development are accelerating the
rate of urbanisation and influencing people's values and actions. Therefore,
housing will also need to change. According to our vision, thriving cities will
be home to people enjoying a high level of wellbeing. Our task is to
revolutionise housing - provide our customers with more than just walls.
We will build a functional partnership network in order to offer diverse housing
for different needs and services that produce benefits for our customers. We
will allocate our growth investments to the Helsinki Metropolitan Area, Tampere
and Turku, i.e. to areas that show the highest demand for apartments and steady
increase in value in the long term.
The role of financing is emphasised in the creation of the capacities for
growth, and we have included a strengthening investment grade rating (currently
Moody's Baa3) in our strategic objectives. Our return on equity target for the
strategic period will remain unchanged at 12 percent. In addition, our strategic
objective is a constantly improving Net Promoter Score (NPS) among our tenants.
According to the new dividend policy, annual dividends paid will, depending on
the market situation, investment level, the development of equity ratio and the
solvency ratio, be a maximum of 40 percent of the cash earnings.
Net sales, profit and financial position
SATO is engaged in investment activities where profit comes from rental income,
sales profits and changes in the fair value of apartments. At the end of the
year, capital invested in business operations stood at EUR 3,195.6 (2,669.5)
million. When evaluating business profitability, the key indicator is return on
investment, which was 9.1 (7.6) percent.
During the reporting year, the Group's net sales decreased by 1.7 percent year-
on-year and totalled EUR 318.0 (323.4) million. The change in net sales is
caused by the previously announced discontinuation of owner-occupied house
production. Of the net sales, rental income accounted for EUR 262.7 (249.4)
million. The increased number of apartments and focus on small apartments in
growing cities improved rental income by 5.4 (2.5) percent.
Operating profit, including the change in fair value of EUR 124.3 (62.4)
million, increased by 36.0 percent to EUR 267.2 (196.5) million. The change in
value is based on the shift of focus to growing cities and to smaller apartments
in accordance with our strategy. The operating profit without the change in the
fair value was EUR 143.0 (134.0) million, mainly due to an increase in the
apartment stock.
Profit before taxes increased by 37.6 percent to EUR 219.4 (159.4) million. The
improvement was mainly based on the positive change in the value of apartments
and the increase in the value of the Russian rouble. Earnings per share was EUR
3.22 (2.49). Cash flow from operations (free cash flow after taxes excluding
change in fair value) amounted to EUR 86.2 (78.1) million. The improvement in
cash flow was affected by low interest rates, and good cost management. In
2016, net financing costs totalled EUR 47.8 (37.0) million, comprising 15
percent of the Group's net sales.
The change in the fair value of apartments included in the profit was EUR 124.3
(62.4) million. This change was affected positively by the development of
apartment prices and, the expiry of restrictions applicable to certain
properties, the revision of yield demands for specific properties on the basis
of guidance issued by an external valuation agency, and the increase in the
value of the Russian rouble. Agency changed yields according to the changed
market situation, which increased the value of apartments.
Further information about the determination of fair value is in note 13 to the
financial statements.
On 31 December 2016, the consolidated balance sheet total stood at EUR 3,562.2
(2,979.7) million. Equity was EUR 1,252.6 (993.2) million. Equity per share was
EUR 22.12 (19.53).
The Group's equity ratio was 35.2 (33.3) percent, which exceeds the new target
level of 35 percent.
Through its two share issues completed in June, SATO Corporation strengthened
its shareholders' equity by a total of EUR 112.9 million.
In 2016, the return on equity exceeded the target of 12 percent and was 15.6
(13.5) percent.
Financing
The Group and the parent company have enjoyed a good financial position
throughout the financial period. At the end of the year, the Group had EUR 18.3
(60.7) million in cash and cash equivalents.
Interest-bearing liabilities at the end of the financial period totalled EUR
1,943.0 (1,676.2) million, of which loans subject to market terms accounted for
EUR 1,446.2 (1,356.5) million. The loan itemisation is in Note 27 to the
Financial Statements.
EUR 381.6 million of new long-term financing was withdrawn during the review
period. The solvency ratio was 54.3 (55.3) percent at the end of the reporting
period. The target is a solvency ratio of less than 70 percent.
SATO's objective is to shift towards an unsecured financing structure, and also
to ensure as broad and flexible a financing base as possible and to improve the
availability of financing to support the growth of the company. During the
reporting year, SATO increased the proportion of financing without real
securities to 38.8 percent of all loans. The proportion of unencumbered assets
was 53.1 per cent at the end of the year. In March, we issued a five-year bond
of EUR 300 million with a fixed annual rate of 2.375 percent. In June, SATO
signed an agreement on syndicated credit facilities of EUR 400 million to
refinance the Group's existing credit facilities. In November, SATO and the
European Investment Bank (EIB) signed an agreement on a long-term loan of EUR
150 million. The objective of EIB and SATO is to construct new buildings of
nearly zero energy and to carry out repairs that improve the energy efficiency
of the Group's current apartments over the next few years. In December, SATO and
Aktia Bank plc signed an agreement on a long-term loan without real securities
of EUR 50 million.
To stabilise its financing costs and to improve the availability of financing,
SATO set a stronger Investment Grade credit rating (currently Moody's Baa3) as
its new strategic goal. At the end of the reporting year, the average loan
interest rate was 2.5 (2.5) percent. In accordance with the Group's financing
policy, the aim is to ensure that at least 60 percent of all loans are fixed-
rate loans. On the balance sheet date, the proportion was 82.2 (73.2) percent.
In 2016, net financing costs totalled EUR 47.8 (37.0) million. The average
maturity of loans with market terms was 4.9 (5.1) years.
During the financial period, the calculated impact of changes in the market
value of interest hedges on equity was EUR -3.4 (2.9) million.
Group structure
SATO Corporation is the parent company of SATO Group. At the end of the
reporting year, the parent company had a total of 21 (19) subsidiaries engaged
in business operations.
Housing assets and fair value
On 31 December 2016, SATO owned a total of 25,344 (23,551) apartments. The
number of apartments increased by 1,793 during the year. A total of 2,679 (476)
apartments were purchased and 702 (708) new apartments were completed, totalling
3,381 (1,184) apartments. The total number of divested apartments and shared
ownership apartments redeemed by the owner occupants was 1,588.
At the end of the reporting year, the fair value of apartments was EUR 3,383.2
(2,752.9) million and the change in fair value, including the rental apartments
acquired and divested during the year, was EUR 630.3 (224.9) million. In
addition to investments and divestments, the change in value was affected by the
development of market prices and rental income, changes in the exchange rate of
the Russian rouble, changes in yield values on the basis of guidance issued by
an external valuation agency, as well as the expiry of restrictions applicable
to certain sites.
Of the value of apartments, the commuting area of the Helsinki Metropolitan Area
accounted for roughly 79 percent, Tampere and Turku made up roughly 13 percent,
and Oulu and Jyväskylä roughly 4 percent. Apartments in St. Petersburg represent
roughly 4 percent of the total value.
Development of housing assets
We develop our housing assets through investments and divestments and through
repair activities.
Investment activities create preconditions for growth and modernise the
apartment stock. Investments are allocated to the Helsinki metropolitan area,
Tampere and Turku.
During the reporting year, investments in apartments totalled EUR 572.6 (250.5)
million, i.e. nearly double compared to net sales. New apartments accounted for
EUR 153.5 (136.7) million, roughly 26.8 percent of all investments. At the end
of the financial year, binding purchase agreements in Finland totalled EUR
121.2 (148.8) million.
During the reporting year, a total of 3,307 (1,037) apartments were acquired in
Finland, of which 628 (561) in new buildings. A total of 1,232 (1,204)
apartments were under construction in Finland at the end of the year.
The most significant investments were the acquisition of all shares in SVK
Yhtymä Oy through a directed issue, as result of which 1,255 apartments were
transferred to SATO, and the acquisition of 1,015 apartments from Suomen
Laatuasunnot Oy. In December, SATO acquired Patrizia Immobilien KAG Greater
Helsinki Oy which has a total of 113 apartments in Helsinki, Espoo and Vantaa.
In total, 1,267 (1,743) apartments with a total value of EUR 67.7 (95.9) million
were divested in Finland. The most significant divestment was the sale of 294
apartments to KAS Group in December. The divested apartments are mainly located
outside SATO's primary operating area.
In Finland, EUR 45.2 (57.3) million was spent on improving the quality of
apartments, including the repair and major renovations of properties.
Property development
Property development offers the basis of and continuity for investments. Our
plot reserves create a competitive edge by allowing the development of
apartments best matching the future demand.
At the end of the reporting year, the book value of owned plot reserves totalled
EUR 62.0 (57.5) million. The value of new plots acquired during the year stood
at EUR 13.5 (13.2) million. In addition, we signed preliminary agreements on
permitted building rights of 45,000 gross floor square metres to be developed
for the construction of more than 700 apartments. The book value of the plot
reserves divested during the year or used for producing apartments was EUR 22.4
(23.6) million.
We had ongoing zoning projects in Oulunkylä, Haaga, Patola and Puistola in
Helsinki, and in Soukka, Finnoo and Karakallio in Espoo. Of the zoning projects
in progress, approximately 120,000 gross floor square metres of permitted
building rights are planned for complementary construction on the company's own
plots, for approximately 2,000 apartments. Local plans were completed for
complementary construction on the company's own plots, totalling approximately
50,500 gross floor square metres of permitted building rights. Complementary
construction serves to produce various benefits for people already living in the
area, future residents, service providers and society. The permanence of
services improves, municipalities do not need to invest in public utility
services, and furthermore the image of the area is enhanced.
When we decide to build new buildings, we assess which apartments are suitable
for rental activities and which will be sold off as owner-occupied homes. During
the financial year, a total of 628 (561) rental apartments and 57 (153)
apartments for sale were completed for the Group in Finland. At the end of the
year, 27 (52) completed and 0 (55) owner-occupied apartments under construction
remained unsold at a total purchase value of EUR 16.1 (48.7) million.
Rental activities
Effective rental activities provide home seekers with quick access to an
apartment. Rental services are mainly offered by SATO's rental offices. SATO's
electronic channels makes finding a home easy for customers.
SATO's economic occupancy rate in Finland was 95.6 (96.4) percent on average.
The occupancy rate improved during every quarter, rising from 94.8 percent in
the first quarter to 96.3 percent in the fourth quarter. The average tenant
turnover rate was 40.5 (41.1) percent, of which residents changing from one SATO
apartment to another accounted for 7.9 (8.5) percent. The tenant turnover was
increased and the occupancy rate decreased by the increased supply of apartments
in SATO's operating areas. To increase customer loyalty, we will renew our
service which our customers can use to change apartment.
The average rent of SATO's apartments in Finland was EUR 16.47 (16.39) per m(2)
per month at the end of the year.
Net rental income from apartments was at the same level as 2015 at EUR 166.2
(151.8) million, corresponding with our current guidance. Net rental income rate
was 5.6 (6.0) percent. Our apartment stock which has been modernised through
investments, the moderate development of maintenance fees and the development of
rental activities and customer service, contributed to the increase of our net
rental income.
Business operations in St. Petersburg
The housing market of St. Petersburg is of the same size as the Finnish housing
market. The expansion of investment activities to St. Petersburg from 2007 has
increased the opportunities for SATO's growth. Russia is limited to a maximum of
10 percent of the Group's housing assets.
At the end of the reporting period, the fair value of housing assets in St.
Petersburg totalled EUR 128.6 (106.1) million, i.e. 3.8 percent of all housing
assets held by SATO. The change in value amounted to EUR 19.8 (-5.4) million
caused by the change in the currency exchange rate. The total value of binding
purchase agreements was EUR 0.0 (2.4) million at the end of the year. There were
a total of 534 (460) completed apartments and none (74) under construction in
St. Petersburg at the end of the year. For the time being, SATO will refrain
from making new investment decisions in Russia.
During the reporting year, the average occupancy rate of our apartments in St.
Petersburg was 82.2 (82.7) percent. The occupancy rate of our existing
apartments improved as the year progressed, while it remained below the previous
year's level due to the completion of 74 apartments in the middle of the year.
The estimated inflation rate in Russia was 5.8 (12.9) percent. SATO's rouble-
denominated rents changed by -0.7 (3.3) percent. As a result of the increased
value of the rouble, euro-denominated rents increased, being EUR 15.33 (12.54)
per m(2) per month at the end of the year.
Customer accounts
The requirement level of customers has increased and their expectations have
differentiated in terms of the quality of the apartment and service. We want to
develop our operations and our range of products and services to continuously
improve the customer experience. We measure the development of the customer
experience using the net promoting score NPS, and our objective is to
continuously increase this value. The NPS measured by the method used in 2016
improved by two percentage points.
At the end of the year, we launched three strategic development programmes to
strengthen our customer satisfaction and permanence. To implement these
programmes, we will strengthen our customer resources by recruiting 30 new SATO
employees in spring 2017.
Development activities
Development activities were focused on strategy development, the development of
digital services and IT systems and the planning of new concepts. A total of EUR
0.9 (1.2) million were spent on development, comprising 0.3 percent of net
sales.
SATO's new mission is to revolutionise housing - to offer more than just walls.
We will start this change through three strategic programmes. The objective of
the "Customer first" programme is to build a new service culture. Through the
"OmaSATO" development programme, we will create new digital services, with a
service aimed to make it easier to find a new apartment will be opened in the
spring of 2017. The objective of the third programme is to launch new housing
options in the market.
Corporate responsibility
Sustainable development is a megatrend which affects people's values and
behaviour. For companies, sustainable operating methods have grown in
significance, and SATO has continuously revised and changed the guidelines and
principles to be followed in its operations. SATO's Code of Conduct, Corporate
Governance Statement and Sustainability policy are available at sato.fi.
During the reporting year, SATO participated for the second time in the Global
Real Estate Sustainability Benchmark (GRESB) assessment and was again rated in
the best category, the Green Star. In its benchmarking group among unlisted
housing investors, SATO was the best out of five Nordic investors and the sixth
out of 24 European investors. Globally, SATO was ranked ninth of the 65
participating housing investors.
In 2016, SATO prepared its new Code of Conduct together with its personnel.
Through the new Code of Conduct, SATO revised its guidelines, for example, on
reasonable hospitality and decided to adopt the) Whistleblowing channel for its
stakeholders and personnel. The new Code of Conduct entered into force on 1
January 2017.
Environmental impact
Curbing energy consumption is a key issue in the prevention of adverse
environmental impacts caused by housing. In October, SATO signed the energy
efficiency agreement in the real estate industry for 2017-2025. SATO has also
been party to preceding energy saving agreements of rental apartment
associations, starting from the very first agreement signed in 2002. In
addition, SATO is a committed climate partner of the City of Helsinki.
In the new energy efficiency agreement, SATO is committed to reducing the total
energy volume of building heat and electricity by 10.5 percent from the level of
2014 by the end of 2025. These tighter objectives encourage us to continue as a
pioneer of sustainability.
During the reporting period, the specific heat consumption decreased by 3.3
percent and that of electricity decreased by 1.0 percent from the 2015 level.
The specific water consumption decreased by 1.4 percent.
The objective of the financing agreement signed by EIB and SATO in November is
to construct new buildings of nearly zero energy and to carry out repairs that
improve the energy efficiency of the Group's current apartments over the next
few years.
During the reporting year, the specific emissions from SATO's apartments were
34.7 (33.5) carbon dioxide equivalent kilograms per square metre. The goal is to
achieve a 20 percent reduction in greenhouse gas emissions by 2020 when compared
to the 2013 level.
The Group's environmental programme is available at
sato.fi/environmentalprogramme.
Risk management
Risk management at SATO is based on good governance guidelines as well as on the
systematic risk assessment included in the strategy and annual planning process.
When required, risk management measures will be initiated for preventing the
materialisation of risks or for enhancing the monitoring of a certain area.
Internal audits are targeted in line with the risk assessments made in the
strategy and annual planning process.
SATO's reporting practice was amended from 1 January 2014 so that the change in
the value of apartments will be shown in the income statement. Consequently, the
development of apartment price levels - as well as currency fluctuations
regarding the assets in St. Petersburg - may cause fluctuations in profit.
The most significant risks in the sales and rental of apartments are related to
economic cycles and fluctuations in demand.
The positive development of the value of housing assets and the rental capacity
of apartments are secured by focusing on growth centres. The quality of the
Group's housing assets is developed by engaging in systematic repair activities.
Changes in the energy efficiency and environmental requirements may increase the
repair costs of SATO's investment apartments.
In Russia, SATO only operates in St. Petersburg. The St. Petersburg operations
carry both a risk related to the operating environment and a currency risk. The
known currency-denominated instalments related to the procurement of sites are
hedged in compliance with the Group's financial policy. The proportion of St.
Petersburg from the Group's entire housing investments is limited to 10 percent.
About four percent of SATO's housing assets are located in St. Petersburg. For
the time being, SATO will refrain from making new investment decisions in
Russia.
In order to secure the continuity of services purchased from partners,
procurement activities are distributed between several service producers.
In accordance with the Group's financing policy, the aim is to ensure that at
least 60 percent of all loans are fixed-rate loans. The Group has set an equity
ratio target of at least 35 percent.
The Group's asset, interruption and liability risks are covered by appropriate
insurance policies.
Further information about risk management is available at
sato.fi/riskmanagement.
Pending legal actions
SATO has no official procedures, legal actions or arbitration proceedings
pending that would have significant impact on the company's financial standing
or profitability, and SATO is not aware of any threat of such proceedings.
Shares
On 31 December 2016, the share capital of SATO Corporation was EUR 4,442,192.00
and there were 56,783,067 shares. The company has one series of shares. The
shares are included in the book-entry securities system maintained by Euroclear
Finland Oy.
SATO Corporation holds 160,000 treasury shares. That is equivalent to 0.3
percent of all shares.
On 31 December 2016, the Board members, CEO and Deputy to the CEO of SATO
Corporation owned a total of 179,000 shares in the company.
Personnel
At the end of 2016, the Group had 175 (170) employees. There were 160 (160)
permanent employees and 15 (10) employees with a fixed-term contract of
employment. During the year, the Group had an average of 170 (172) employees.
To improve the employment of young people, SATO took part in the Vastuullinen
kesäduuni (Responsible summer job) campaign and offered summer jobs to 25 young
people.
Shareholders' Nomination Committee
The Shareholders' Nomination Committee consists of representatives of SATO's
four largest shareholders registered in the book-entry system on October 1, and
who accept the task. Its members are Erik Selin (Balder), Hans Spikker (APG),
Hanna Hiidenpalo (Elo) and Matti Harjuniemi (Finnish Construction Trade Union).
Members of the Nomination Committee in charge of preparations for the 2016
Annual General Meeting were Erik Selin (Balder), Andrea Attisani (APG), Hanna
Hiidenpalo (Elo) and Reima Rytsölä (Varma).
Board of Directors, CEO and auditors
Up to the Annual General Meeting held on 3 March 2016, the Board of Directors of
SATO comprised Esa Lager as chairman, Jukka Hienonen as deputy chairman, and
Andrea Attisani, Esa Lager, Tarja Pääkkönen, Timo Stenius and Ilkka Tomperi as
ordinary members.
The AGM held on 3 March 2016 confirmed that the Board of Directors consists of
seven members.
The AGM selected Erik Selin as the chairman of the Board. Andrea Attisani, Jukka
Hienonen, Esa Lager, Tarja Pääkkönen and Timo Stenius were selected to continue
as members of the Board of Directors. Markus Hansson was elected as a new
member. Andrea Attisani stepped down from the Board of Directors of SATO
Corporation in July.
The Board of Directors convened 13 times during 2016. The Board of Directors is
supported by two committees consisting of members of the Board: the Nomination
and Remuneration Committee and the Audit Committee.
Saku Sipola, M.Sc. (Tech.), has acted as the CEO and Tuula Entelä, LL.M, M.Sc.
(Econ.), as the deputy CEO.
KPMG Oy Ab, authorised public accountants, have been the company's auditors,
with Lasse Holopainen, APA, acting as the auditor in charge.
Members of the corporate management group
On 31 December 2016, members of the management group were CEO Saku Sipola, Antti
Aarnio (vice president, investments, starting from 17 February 2016), Monica Aro
(director of customer relationships and communication until 28 November 2016,
vice president of development, starting from 28 November 2016), Antti Asteljoki
(vice president, apartments, starting from 16 May 2016), Miia Eloranta (director
of customer relationships and communication, starting from 28 November 2016),
Tuula Entelä (vice president, business development, until 28 November 2016,
member of the Group's management team, until 31 December 2016), and Markku
Honkasalo (CFO, starting from 1 December 2016).
Other members of the management group were Pasi Suutari, who acted as vice
president in charge of regional activities, new buildings and renovations until
16 February 2016, and Esa Neuvonen, who acted as CFO until 6 November 2016.
Outlook
In the operating environment, SATO's business activities are mainly affected by
consumer confidence, the development of purchasing power, the rent and price
development for apartments, general competition and interest rates.
The Finnish economy is expected to continue slow growth, and general confidence
is estimated to be higher than on average. Interest rates are expected to remain
low in 2017, which will have a positive impact on SATO's financing costs.
Increases in urbanisation and immigration provide good long-term conditions for
continued investments in Finland. Net immigration is expected to be the highest
form of population increase in SATO's operating areas. The volume of housing
construction should remain at a level which, in the long term, balances the
ratio between supply and demand. This requires sufficient plot reserves and the
dissolution of regulation on construction, as well as an operating environment
which offers encouragement to own rental apartments.
SATO's net rental income is expected to remain at the 2016 level. Rent increases
are expected to be moderate.
Some 80 percent of SATO's housing assets are located in the Helsinki
Metropolitan Area, where price development is expected to be more positive than
in the rest of Finland.
The Russian economy is expected to develop slowly.
Proposal of the Board of Directors regarding disposal of profit
On 31 December 2016, the parent company's distributable assets amounted to EUR
239,829,144.49 of which the net profit for the financial period was EUR
52,631,635.21. The number of company's outstanding shares entitling to dividends
for 2016 is 56,623,067.
According to our dividend policy, annual dividends paid will account for at most
40 percent of our operational cash flow, depending on the market situation,
investment level, the development of our equity ratio and our solvency ratio.
The Board of Directors proposes to the AGM that no dividents will be paid for
the reporting year 2016 (0.50 per share in 2015), and that EUR 52,631,635.21 be
transferred to retained earnings.
No material changes have taken place in the company's financial position after
the end of the financial period.
Main shareholders
· Balder Finska Otas AB (owner: Fastighets Ab Balder, 100%) 53.6%
· Stichting Depositary APG Strategic Real Estate Pool 22.6%
(owner: Stichting Pensioenfonds ABP, >95 %;
manager: APG Asset Management NV),
· Elo Mutual Pension Insurance Company 12.7%
· The State Pension Fund 4.9%
· The Finnish Construction Trade Union 1.1%
· Others (84 shareholders) 5.1%
On 30 December 2016 the Group had 89 shareholders entered in the book-entry
register. The turnover of SATO Corporation's shares was 1.2 percent during the
reporting year.
Further information: www.sato.fi.
The Annual General Meeting 2017
The Annual General Meeting is intended to be held on Wednesday, 8 March 2017.
Financial communications 2017
Interim reports for 2017 will be published as follows:
27 April 2017 Interim report 1 January - 31 March 2017
16 August 2017 Interim report 1 January - 30 June 2017
31 October 2017 Interim report 1 January - 30 September 2017
Additional information
Saku Sipola, President & CEO, tel. +358 201 34 4001
Markku Honkasalo, CFO, tel. +358 201 34 4226
www.sato.fi
SATO Corporation
Saku Sipola
President and CEO
APPENDICES
Financial Statements 2016
Financial Statements 2016 presentation
DISTRIBUTION
NASDAQ OMX, essential media, www.sato.fi
SATO is one of Finland's leading rental housing providers. SATO's aim is to
offer comprehensive alternatives in rental housing and an excellent customer
experience. SATO holds roughly 25,300 apartments in Finland's largest growth
centres and in St Petersburg.
In our operations, we promote sustainable development and initiative-taking, and
work in open interaction with our stakeholders to create added value. We operate
profitably and with a long-term view. We increase the value of our housing
property through investments, divestments and repair work.
SATO Group's net sales in 2016 were €318.0 million, operating profit €267.2
million and profit before taxes €219.4 million. SATO's investment properties
have a value of roughly €3.4 billion.
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