Published:

2014-11-05 07:30:00 CET

Registered:

2014-11-05 07:30:01 CET

REGULATED INFORMATION

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SRV Yhtiöt Oyj - Interim report (Q1 and Q3)

SRV’s order backlog remains strong: SRV’s interim report 1 January–30 September 2014

Espoo, Finland, 2014-11-05 07:30 CET (GLOBE NEWSWIRE) -- SRV GROUP PLC
INTERIM REPORT 5 NOVEMBER 2014, at 8:30 AM

SRV's order backlog remains strong: SRV's interim report 1 January-30 September
2014

Reporting period 1 January-30 September 2014 in brief:
• SRV's revenue was EUR 490.6 million (EUR 507.8 million 9/2013), change -3.4%
• Operating profit was EUR 15.3 million (EUR 21.8 million), change -29.7%
• Profit before taxes was EUR 11.3 million (EUR 19.2 million), change -41.1%
• Earnings per share were EUR 0.19 (EUR 0.38)
• The order backlog at the close of the review period was EUR 944.1 million
(EUR 911.5 million), change +3.6%
• Equity ratio was 38.9% (39.3%)

SRV revises its outlook for full-year profitability and reiterates its outlook
for full-year revenue. The Group's full-year revenue is expected to be on a par
with the previous year (EUR 679.4 million 1-12/2013) and profit before taxes to
amount to EUR 14-20 million (EUR 22.8 million 1-12/2013).

Previous outlook: The Group's full-year revenue is expected to be on a par with
the previous year (EUR 679.4 million 1-12/2013) and profit before taxes to
amount to EUR 10-20 million (EUR 22.8 million 1-12/2013).

Third quarter 1 July-30 September 2014 in brief:
• Revenue was EUR 209.0 million (EUR 170.0 million 7-9/2013)
• Operating profit was EUR 6.0 million (EUR 6.9 million)
• Profit before taxes was EUR 5.7 million (EUR 5.2 million)• Earnings per share were EUR 0.14 (EUR 0.06)

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

CEO Jukka Hienonen:

SRV's profit development continued to be positive also during the third quarter
of this year. We have focused consistently on higher-margin projects and have
rigorously improved our cost-efficiency. Due to the positive development of our
operational profitability, we have also clarified our outlook on the full-year
result.

The entire Group's profitability has remained stable, even though the Group's
reported operating profit fell short of the corresponding period of last year.
The previous year's figures included a significant capital gain on the sale of
a holding in a St. Petersburg shopping centre project as well as a change in
the fair value of SRV's holding. Our investment in customer relationships has
yielded results; our order backlog grew to EUR 944 million, and 87% of it, i.e.
EUR 817 million, has been sold. This provides a good foundation for the
development of our future revenue and profitability.

In Finland, business profitability is clearly at a better level than last year.
Of SRV's revenue, Finland accounts for over 90%, so its weighting in the Group
result is significant. The operating result of our International Operations is
affected by the timing of the recognition of long projects.

Our interim result must be considered against an environment where the market
situation in our industry has been weak. The business premises market has long
been subdued due the large number of vacant premises. In the housing market,
consumer demand has been low, even though a pick-up in demand has been
perceptible this autumn.

Last year and at the beginning of this year we reduced our housing production
directed at consumers. In contrast, we have sold and built for institutional
investors and housing funds rental housing projects that we developed
ourselves. The gradual pick-up of the consumer market has encouraged us to make
start-up decisions on new consumer projects in the Helsinki Metropolitan Area
and the Tampere Region since last spring. Sales of the new projects have begun
on a positive note. There is continuing demand for small apartments. On the
other hand, we have built larger family apartments within the framework of
minimum square metre regulations, most of which as regulated HITAS production.

The long-prepared Kalasatama REDI project, which halted due to a planning
appeal, is advancing towards the launch of full-scale construction. We have
assembled a group of investors for the capitalisation and implementation of the
REDI shopping centre and parking facility, which has accelerated leasing and
bank financing negotiations. Already 20% of REDI has been leased and our goal
is to finalise bank loan negotiations during this year. With the start-up of
the REDI project in mind, we lightened our balance sheet by selling in Espoo
the Derby Business Park, where our head office is also located. The Derby sale,
combined with the positive development of our profitability, our strong
financing capacity and our nearly 39% self-sufficiency, facilitates our goal of
retaining a significant 45% ownership of REDI.

In St. Petersburg, Russia we are continuing the construction of the Okhta Mall
shopping centre, which has advanced without delays. With the weakening of the
rouble, the project's cost estimate has fallen by around EUR 20 million. Tenant
acquisition at the project has progressed well and project financing has been
secured. In St. Petersburg, customer numbers at the Pearl Plaza shopping
centre, which we partly own, were nearly 600,000 in August and new records have
repeatedly been set.

Our large shopping centre projects in Finland and Russia are proceeding, even
though the financial crisis and global political events have placed obstacles
in our path. We have made the necessary adjustments and have ensured the
advance of the projects. Projects cannot start and stop on the basis of
individual economic or political fluctuations; they must be taken forward with
a long-term view.

Group key figures 1-9/ 1-9/ change change 7-9/ 7-9/ 1-12/
(IFRS, EUR million) 2014 2013 , MEUR , % 2014 2013 2013
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Revenue 490.6 507.8 -17.2 -3.4 209.0 170.0 679.4
Operating profit 15.3 21.8 -6.5 -29.7 6.0 6.9 26.4
Financial income and -4.0 -2.6 -1.4 -0.2 -1.7 -3.6
expenses, total
Result before taxes 11.3 19.2 -7.9 -41.1 5.7 5.2 22.8
Order backlog 944.1 911.5 32.6 3.6 825.8
New agreements 592.3 532.4 59.9 11.2 90.3 107.9 600.7
Operating profit, % 3.1 4.3 2.9 4.0 3.9
Net profit, % 2.1 3.3 2.9 2.0 2.7
Equity ratio, % 38.9 39.3 36.4
Net interest-bearing debt 255.1 227.1 28.1 12.4 215.8
Gearing, % 111.6 102.8 97.1
Return on investment, % 4.4 6.4 5.4
Return on equity, % 6.0 10.4 8.4
Earnings per share, EUR 0.19 0.38 -0.19 -50.0 0.14 0.06 0.39
Equity per share, EUR 5.14 4.95 0.19 3.8 4.99
Share price at end of 3.67 4.41 -0.74 -16.8 4.05
period, EUR
Weighted average number 35.5 35.5 0.1 35.5
of shares outstanding,
millions

Overall review

The Group's order backlog rose to EUR 944.1 million (EUR 911.5 million 9/2013)
thanks to growth in new contractor agreements. The share of the order backlog
that has been sold is 87 per cent, which amounts to EUR 817 million in total.
The unsold share of the order backlog declined to EUR 127 million (EUR 207
million 9/2013). The value of the Group's new orders increased to EUR 592.3
million (EUR 532.4 million 1-9/2013).

The Group's revenue declined to EUR 490.6 million (EUR 507.8 million 1-9/2013).
Revenue from domestic business construction grew when the sale of the
developer-contracted Derby Business Park property was completed in the third
quarter. Revenue from housing targeted at Finnish consumers decreased as the
number of completed residential units (186) fell to under half of the previous
year's level (388 1-9/2013). Revenue for International Operations in the
comparison period, 1-9/2013, was increased by the sale of the 55 per cent stake
in the Okhta Mall shopping centre project in June 2013 and the construction
volume of the final phase of the Pearl Plaza shopping centre.

Consolidated operating profit was EUR 15.3 million (EUR 21.8 million) and the
operating profit margin was 3.1 per cent (4.3%). The operating profit of
Domestic Operations improved substantially. Consolidated operating profit
decreased, as operating profit for the comparison period included capital gains
from the sale of the 55 per cent holding in the Okhta Mall shopping centre
project in St Petersburg in June 2013. In addition, operating profit for the
comparison period was increased by 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.

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 net financial expenses rose to EUR 4.0 million (EUR 2.6 million).
Interest expenses for the review period increased due to the fixed-interest
bond issued in December 2013. Financial income for the comparison period was
increased by interest income from SRV's associated company Etmia II, which
during Q2/2013 refinanced its construction funding obtained from SRV with a
long-term project loan of about EUR 33 million. Financial income for the review
period was increased by the recognition in Q3 of EUR 1.1 million in previously
written-down interest income from the Promenade project in Moscow.

The Group's profit before taxes was EUR 11.3 million (EUR 19.2 million).
Earnings in the 1-9/2013 comparison period were improved by capital gains from
the sale of the 55 per cent stake in the Okhta Mall shopping centre project in
St Petersburg, the EUR 8.3 million fair value change of SRV's holding and
financial income from the associated company Etmia II. Net profit for the
review period was EUR 10.1 million (EUR 16.8 million). Income taxes totalled
EUR 1.2 million (EUR 2.4 million). Earnings per share was EUR 0.19 (EUR 0.38).

The Group's equity ratio was 38.9 per cent (39.3% on 30 September 2013).

The revenue of Domestic Operations was EUR 451.9 million (EUR 418.9 million
1-9/2013). Operating profit improved to EUR 19.8 million (EUR 13.4 million),
with an operating profit margin of 4.4 per cent (3.2%). The increase in
profitability was driven by improved construction margin management, more
efficient purchasing and higher development project volumes. The level of
operating profit was also affected by the fact that the commercial development
order backlog recognised as income mainly consisted of low-margin contracting.
The domestic order backlog rose to EUR 777.8 million (EUR 727.8 million). In
order to improve profitability, the company has shifted the focus of operations
to increasing developer contracting, development projects and negotiated
contracts.

SRV sold a total of 550 housing units (584 1-9/2013) to consumers and
investors. SRV had 1,612 housing units under construction (1,398 on 30
September 2013), of which 196 were developer-contracted. 92 per cent of housing
units under construction have been sold, and 88 per cent of production consists
of rental and right-of-occupancy units. 60 per cent (61%) of housing units are
production developed by SRV.

Revenue from International Operations was EUR 39.2 million (EUR 89.0 million).
Operating profit was EUR -0.7 million (EUR 11.7 million). Revenue and operating
profit declined in part due to the sale of the Okhta Mall shopping centre
project in St Petersburg and the fair value change of SRV's holding during the
comparison period. The international order backlog amounted to EUR 166.2
million (EUR 183.7 million).

Consolidated third-quarter revenue amounted to EUR 209.0 million (EUR 170.0
million) and operating profit to EUR 6.0 million (EUR 6.9 million).

Of SRV's major shopping centre projects, the Pearl Plaza shopping centre in St
Petersburg was opened in August 2013, and the number of visitors has
outperformed the target level. 97 per cent of the shopping centre's premises
have been leased. At the Okhta Mall shopping centre, which is under
construction in St Petersburg, lease agreements or preliminary BTS (business
term sheet) lease agreements have been signed for about 33 per cent of the
retail space. For the Promenade shopping centre in Moscow, an investor solution
was accomplished and construction work has started. In September, SRV signed a
EUR 240 million letter of intent with a group of investors to jointly invest in
the capitalisation and implementation of the large-scale REDI shopping centre
and parking facility in Finland.

SRV's own project development operations are paving the way for substantially
increasing its development project volume. 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.

Financial targets

On 13 February 2014, SRV's Board of Directors confirmed the Group's strategic
goals for 2014- 2018. The following strategic targets were set:

• During the strategic period, SRV will focus on improving profitability rather
than on growth
• The average annual revenue of International Operations will rise to more than
EUR 150 million
• 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, the number of developer-contracted projects
must be stepped up substantially.

Earlier outlook for 2014

14 February 2014

The Group's full-year revenue is expected to be on a par with the previous year
(EUR 679.4 million 1-12/2013) and profit before taxes to amount to EUR 10-20
million (EUR 22.8 million 1-12/2013).

SRV revises its outlook for 2014

SRV revises its outlook for full-year profitability and reiterates its outlook
for full-year revenue. The development of revenue and result in 2014 are
affected by several factors, such as: 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, the development
of the order backlog's profit margins, the sales volume of developer-contracted
housing and the completion schedules of the properties, and the start-up of new
contracts and own projects. The construction of the REDI shopping centre that
SRV is developing in Kalasatama is expected to start in late 2014. Based on
current completion schedules, SRV estimates that a total of 249
developer-contracted housing units will be completed during 2014.

The Group's full-year revenue is expected to be on a par with the previous year
(EUR 679.4 million 1-12/2013) and profit before taxes to amount to EUR 14-20
million (EUR 22.8 million 1-12/2013).

Press conference

The interim report will be presented to the media and analysts at a press
conference which will take place on 5 November 2014 at 10.30 a.m. at conference
room Espa at Hotel Scandic Simonkenttä, address 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.

A live webcast of the press conference will be available on the company's
website www.srv.fi/en/investors. The webcast will be in Finnish. The
presentation material of the press conference will be published in English and
Finnish on 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 the company website at
www.srv.fi/en/investors.

Espoo, 4 November 2014

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

www.srv.fi

Attachments:

2014 Q3 interim report SRV.pdf