2016-04-21 12:27:36 CEST
2016-04-21 12:27:36 CEST
REGLERAD INFORMATION
SATO Oyj - Interim report (Q1 and Q3)
SATO continues high investment activity
SATO Corporation, Interim Report, 21st April 2016 at 1:27 pm
SATO Corporation's interim report, 1 January - 31 March 2016
The investments generate work for hundreds
Summary for the period 1 January - 31 March 2016 (1 January - 31 March 2015)
* Profit before taxes stood at EUR 63.3 (58.3) million.
* The change in the fair value of rental homes included in the result was EUR
39.8 (36.6) million.
* Shareholders' equity stood at EUR 1,011.9 (908.1) million, or EUR 19.90
(17.86) per share.
* Return on equity was 20.1 (20.4) percent.
* Rental income amounted to EUR 61.1 (62.1) million.
* Investments in rental homes stood at EUR 37.2 (29.3) million.
* A total of 32 (154) rental homes were acquired or completed.
* The occupancy rate was 94.8 (96.4 percent).
* A total of approximately 1,250 rental homes under construction.
Operating environment
Economic growth in Finland shows early signs of picking up, but it is expected
to continue to be slow for a long time. Unemployment has remained high.
Inflation and reference rates are still at historically low levels.
Consumer confidence has strengthened somewhat during the early part of the year
albeit still below average.
The demand for rental homes has remained good, but competition for customers has
intensified. Rents have developed at a moderate rate. Several new housing sites
are under construction, particularly in the Helsinki Metropolitan Area, for
example in Kalasatama and Jätkäsaari, Helsinki; in Tapiola and Niittymaa, Espoo
and in Kivistö, Vantaa. As a result of the large number of new houses being
completed, the rental housing market is in balance, and rents have developed
moderately.
The uncertain economic situation in Russia is expected to continue.
Saku Sipola, President and CEO:
- We will actively continue to execute our strong investment programme. The
impact of housing investments on the Finnish economy is significant, not only
resulting an increase in the rental housing offering, but also generating tax
income and employment. During this year's first quarter our investments in
nonsubsidized rental housing totalled ca. EUR 37 million. This is estimated to
equal ca. 600* man-years of work and nearly EUR 12** million tax income.
- Urbanisation will continue to be a strong trend over the next few decades, and
more rental homes will be needed in SATO's operating areas. In the last few
years, new areas have been opened for construction and a large number of rental
homes have been completed. This has led to a momentary demand-offering balance
of rental homes in several locations. As a result of this strengthened
competition SATO's rental occupancy rate decreased, but we have started several
actions to improve the situation.
- With the transactions concluded after the review period in April, a total of
2,270 rental homes will be transferred to SATO after two vendor parties with
family-holding backgrounds chose SATO as the buyer of their portfolios. These
acquisitions completed in good co-operation with the sellers have speeded up our
growth in the major growth centres.
*The accounting practice is based on the accounting practice observed by the VTT
Technical Research Centre of Finland and the Confederation of Finnish
Construction Industries RT: in construction this produces 16 man-years of work.
** VTT, RT: investing EUR 1 million in multistory building construction
generates EUR 320,000 of tax income.
Net sales and profit
The Group's net sales in January-March totalled EUR 78.4 (96.3) million. The
change of year-on-year net sales was -18.5 percent. The decrease in net sales is
mainly due to the decision to discontinue the production of owner-occupied homes
and to concentrate on the rental housing business. Of the net sales, rental
income accounted for EUR 61.1 (62.1) million.
Operating profit increased by 8.0 (12.3) percent to EUR 72.9 (67.5) million.
Operating profit without the change in the fair value of rental homes was EUR
33.1 (30.9) million. The change of fair value was positively affected by the
strengthening Rouble as well as the expiry of restrictions on certain sites.
Profit before taxes increased by 8.6 (13.0) percent to EUR 63.3 (58.3) million.
Cash earnings from operations (free cash flow after taxes excluding change in
fair value) in January-March amounted to EUR 21.0 (21.6) million.
Financial position and financing
The consolidated balance sheet totalled EUR 3,287.1 (2,842.7) million at the end
of March. Equity was EUR 1,011.9 (908.1) million. Equity per share was EUR
19.90 (17.86).
The Group's equity ratio was 30.8 (31.9) percent at the end of March. The
underlying reason for the temporarily weakened equity ratio was the bond issue
in March. The minimum target is an equity ratio of 30 percent.
The Group's annualized return on equity was 20.1 (20.4) percent. The return on
investment was 10.4 (10.8) percent.
Interest-bearing liabilities at the end of March totalled EUR 1,946.1 (1,611.2)
million, of which loans subject to market terms accounted for EUR 1,635.9
(1,239.2) million. The average interest rate was 2.5 (2.5) percent. Net
financing costs totalled EUR -9.6 (-9.2) million.
EUR 300 million of new long-term financing was raised. The solvency ratio (debt-
to-assets) was 55.1 (56.1) percent at the end of the reporting period. In March,
SATO issued a EUR 300 million unsecured bond offered to European investors. The
bond has a maturity of five years, and it has a fixed coupon rate of 2.375
percent. The bond received a credit rating of Baa3 from Moody's, and it is
listed on the Irish stock exchange.
The calculated impact of changes in the market value of interest hedging on
equity was EUR -6.6 (-0.5) million.
Housing assets and fair value
The development of the value of rental homes is a key factor for SATO. Its
housing assets are focused on areas and sizes of apartments for which the demand
will increase in the long term. The allocation of building repairs is based on
life-cycle plans and repair-need specifications.
On 31 March 2016, SATO owned a total of 23,365 (24,241) homes. A total of 32
rental homes were acquired or completed. The total number of divested rental
homes and shared ownership homes redeemed by the owner occupants was 218.
The fair value of rental homes was EUR 2,823.4 (2,585.3) million at the end of
March. The change in fair value, including the rental homes acquired and
divested during the reporting period, was EUR 70.5 (57.3) million.
Of the value of homes, the Helsinki region accounted for some 80 percent,
Tampere, Turku, Oulu and Jyväskylä made up 16 percent, and St. Petersburg
covered 4 percent at the end of March.
Investments and divestments
Investment activities prepare the ground for growth. Since 2000, SATO has
invested a total of EUR 2.0 billion in nonsubsidized housing. SATO acquires and
builds entire rental buildings and single rental homes.
Investments in rental homes stood at EUR 37.2 (29.3) million. Of the investments
made in Q1, 62 percent were made in the Helsinki Metropolitan Area. Of the
investments 86 percent was targeted in newbuild homes.
On 31 March 2016, binding purchase agreements in Finland totalled EUR 124.6
(68.3) million.
In all, 66 (119) rental homes with a total value of EUR 7.3 (8.8) million were
divested in Finland during the review period.
Rental activities
Effective rental activities provide homeseekers with quick access to a home and
the Group with a steadily increasing cash flow. Rental services are mainly
offered by SATO's rental offices. In addition, SATO's electronic channels make
finding a home easy for customers.
Following the divestments in 2015, rental income decreased by 1.7 percent to EUR
61.1 (62.1) million. The economic occupancy rate of homes in Finland was 94.8
(96.4) percent on average, and the tenant turnover rate was 40.6 (39.3) percent.
The large number of rental homes completed at the same time and thus intensified
competition contributed to the increase in turnover and the decrease in
occupancy rate last year. At the moment, the rental market in particular
locations is in balance.
The average monthly rent of SATO rental homes was EUR 15.97 (15.34) per m(2),
while the average monthly rent of shared ownership homes was EUR 8.84 (8.76) per
m(2). The average rent is increased by investments in small apartments in growth
centres. In turn, the rent increases were more moderate than in previous years.
Net rental income from homes stood at EUR 37.9 (40.0) million, and the net
rental income rate was 5.8 (6.3) percent on an annual level.
Property development
Property development allows for new investments in rental homes in Finland. The
rental capacity and value of rental homes owned by SATO are developed through
renovation activities.
The book value of owned plot reserves totalled EUR 57.0 (68.5) million at the
end of March. The value of new plots acquired by the end of March totalled EUR
2.4 (1.5) million.
Permitted building volume for 950 homes is being developed for the plots of the
company's own stock of buildings. This will facilitate utilisation of the
existing infrastructure and a denser urban structure and so secure the stability
of local services.
In Finland, a total of 32 (154) rental homes and zero (65) homes for sale were
completed. On 31 March 2016, a total of 1,172 (773) rental homes and 76 (132)
owner-occupied homes were under construction.
A total of EUR 8.2 (11.4) million was spent on repairing homes and improving the
quality of homes.
A total of 48 (34) new homes were sold in January-March. At the end of the
review period, a total of 29 (44) completed homes and 23 (132) homes under
construction remained unsold. The total purchase value of these unsold homes
amounted to EUR 25.8 (84.7) million. SATO has made the strategic decision to
discontinue the production of owner-occupied homes and to concentrate on the
housing business.
Business operations in St. Petersburg
The housing market in St. Petersburg corresponds to that of the whole of Finland
in terms of volume. SATO is following its growth strategy by investing in rental
homes in St. Petersburg. Homes are acquired in central locations in the city.
At the end of March, housing assets in St. Petersburg totalled EUR 111.5 (121.9)
million. The total amount of binding purchase agreements was EUR 1.1 (8.2)
million.
On 31 March 2016, SATO owned 460 (313) completed and 74 (217) homes under
construction in St. Petersburg.
The economic occupancy rate of rental homes was 77.0 (93.0) percent on average.
The decrease in occupancy rate was caused by the general economic situation in
Russia, the number of rental homes completed and the temporary traffic
arrangements in some parts of St. Petersburg.
Personnel
At the end of March, the Group employed 162 (173) people, of whom 152 (154) had
a permanent contract of employment. The average number of personnel was 165
(171) in January-March.
Annual General Meeting on 3 March 2016
The Board of Directors of SATO Corporation was confirmed to consist of seven
members. The Annual General Meeting selected Erik Selin as the Chairman of the
Board. Andrea Attisani, Jukka Hienonen, Esa Lager, Tarja Pääkkönen and Timo
Stenius continue as Board members. Marcus Hansson was elected as a new member.
KPMG Oy Ab, authorised public accountants, continue as the Group's auditor, with
Lasse Holopainen, APA, acting as the primary accountant.
The Board was authorised to decide on one or more directed, paid share issue so
that the total number of new shares does not exceed 3,000,000, corresponding to
approximately 5.9 percent of the company's outstanding shares on the date of
notice of the AGM, 9 February 2016. The board may use the authorization to
finance property acquisitions that relate to the company's business or to
finance and implement corporate transactions.
In addition, the Board was authorised to decide on a share issue where a maximum
of 5,200,000 new shares are issued and the shareholders have priority to
subscribe the issued shares pro-rata to their existing shareholding. The
proposed maximum issue corresponds to approximately 10.2 percent of the
company's total amount of shares on 9 February 2016. Both share issue
authorisations remain valid until 28 February 2017.
In line with the proposal of the Board of Directors, the AGM resolved to
distribute EUR 0.50 per share in dividends for 2015, totalling EUR 25.4 million.
Organisation of the Board of Directors
At its organisation meeting on 3 March 2016, the company's Board of Directors
elected from among its members Jukka Hienonen as the Deputy Chairman of the
Board of Directors.
The Board of Directors elected Erik Selin as the Chairman of the Nomination and
Remuneration Committee and Andrea Attisani, Jukka Hienonen and Tarja Pääkkönen
as its members.
The Board of Directors elected Marcus Hansson as the Chairman of the Audit
Committee and Esa Lager and Timo Stenius as its members.
Legal proceedings
The legal proceedings regarding implementation of the construction project with
the title Asunto Oy Helsingin Tila ended when the Supreme Court did not grant
leave to appeal in the matter. The required cost provision was made in 2015, and
ending of the court case will not have any impact on profit in 2016.
Events after the reporting period
On 1 April 2016, SATO Corporation acquired the shares of SVK Yhtymä Oy. The
transaction transfers 1,255 rental homes, mainly constructed in the 2000s, to
SATO's ownership. In addition, SATO purchased a total of 1,015 rental homes from
Suomen Laatuasunnot Oy in April. The thus acquired homes are located in the
Helsinki, Tampere and Turku regions.
Future risks and uncertainties
The economy continues to grow slowly, which is reflected in the housing and
financing markets.
The change in the market value of homes affects the value of SATO's housing
assets. The positive development of the value of housing assets and the rental
capacity of homes are secured by focusing on small apartments located in growth
centres.
Risks in housing investment activities in St. Petersburg are associated with the
development of the market value of homes, fluctuations in exchange rates and
other changes in the operating environment. St. Petersburg is limited to a
maximum of 10 percent of the Group's housing assets. The current value of
housing assets in St. Petersburg accounts for approximately four percent of the
Group's total housing assets.
Changes in interest rates affect SATO's result and balance sheet through changes
in interest expenses and the market value of interest hedging. 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 adequacy of financing is monitored using
a rolling liquidity estimate.
A more detailed description of risks and risk management is available in the
Group's 2015 annual report and on the company's website at www.sato.fi.
Outlook
In the operating environment, SATO's business operations are mainly affected by
consumer confidence, development of purchasing power, the rent and price
development of homes, and the interest rate.
Finnish economic growth and the general climate of confidence are expected to
pick up slightly, but growth will be slow. Interest rates are expected to remain
low, which will have a positive impact on SATO's financing costs.
Increasing urbanisation and immigration provide good long-term prospects for
continued investments in Finland, unless conditions for rental housing business
are not weakened by legislative changes.
New quality requirements have been added for several years now to the rules
governing the production of new homes. This has increased the production costs
of homes at the same time as purchasing power has weakened. This means that the
matching of demand and supply has become more difficult.
SATO's net rental income is expected to remain at the 2015 level. However, rent
increases are expected to be more modest than in the previous years.
About 80 percent of SATO's housing assets are located in the Helsinki region,
where positive development of prices is expected.
The uncertain economic situation in Russia is expected to continue. For the time
being, SATO will refrain from making new investment decisions.
SATO Corporation's shareholders on 12 April 2016
Largest shareholders and their holdings
Fastighets Ab Balder 54.3%
APG Asset Management NV 22.8%
Elo Mutual Pension Insurance Company 12.9%
The State Pension Fund 5.0%
The Finnish Construction Trade Union 1.1%
Others (72 shareholders) 3.9%
On 12 April 2016, SATO had 51,001,842 shares and 77 shareholders registered in
the book-entry system. The share turnover rate was 1.1 percent for the period 1
January - 12 April 2016.
Key figures, Group
KEY FINANCIAL 1-3/ 1-3/ 1-12/ 1-12/ 1-12/ 1-12/ 1-12/ 2011**
INDICATORS 2016 2015 2015 2014 2013** 2012**
Net sales, MEUR 78 96 323 312 312 287 232
Profit before
taxes, MEUR 63 58 159 152 141 121 174
Earnings per
share, EUR 0.99 0.90 2.49 2.37 2.34 1.78 2.63
Balance sheet
total, MEUR 3,287 2,843 2,980 2,802 2,596 2,360 2,167
Shareholders'
equity, MEUR **** 1,012 908 993 892 823 693 635
Intrest bearing
liabilities, MEUR 1,946 1,611 1,676 1,585 1,501 1,375 1,255
Equity per share,
EUR **** 19.90 17.86 19.53 17.55 16.16 13.72 12.59
Number of shares,
million * 50.8 50.8 50.8 50.8 50.8 50.8 50.8
Return on invested
capital, % (ROI) 10.4 % 10.8 % 7.6 % 7.7 % 7.7 % 7.7 % 10.9 %
Return on equity,
% (ROE) 20.1 % 20.4 % 13.5 % 14.0 % 15.5 % 13.5 % 22.8 %
Equity ratio, % 30.8 % 31.9 % 33.3 % 31.8 % 31.7 % 29.4 % 29.5 %
Personnel,
average*** 165 171 172 165 156 152 137
Personnel at the
end of period 162 173 170 169 156 150 141
KEY FIGURES ACCORDING TO EPRA
RECOMMENDATIONS AND OPERATIONAL
CASH EARNINGS
EPRA Earnings,
MEUR 16.7 14.5 64.5 65.1 62.7 44.4 43.2
EPRA Earnings per
share, EUR 0.33 0.29 1.27 1.28 1.23 0.87 0.85
EPRA Net Asset
Value, MEUR***** 1,256.6 1,138.3 1,227.8 1,120.3 1,006.9 900.5 825.1
EPRA Net Asset
Value per share,
EUR***** 24.7 22.4 24.2 22.0 19.8 17.7 16.2
Cash earnings,
MEUR 21.0 21.6 78.1 72.9 66.1 61.6 51.9
Cash earnings per
share, EUR 0.41 0.42 1.54 1.43 1.30 1.21 1.02
QUARTER KEY Q1 Q4 Q3 Q2 Q1
FINANCIAL 2016 2015 2015 2015 2015
INDICATORS
Net sales, MEUR 78.4 78.6 69.3 79.2 96.3
Operating profit, 72.9 65.9 18.7 44.4 67.5
MEUR
Profit and losses 39.8 36.1 -18.3 8.1 36.6
from changes of
fair value
Net financing -9.6 -9.0 -9.2 -9.6 -9.2
expenses, MEUR
Profit before 63.3 57.0 9.4 34.7 58.3
taxes, MEUR
Earnings per 0.99 0.90 0.15 0.55 0.90
share, EUR
Gross investments, 37.2 55.5 98.9 66.8 29.3
MEUR
as percentage of 47.4 % 70.5 % 142.6 % 84.4 % 30.4 %
net sales
KEY FIGURES ACCORDING TO EPRA
RECOMMENDATIONS AND OPERATIONAL
CASH EARNINGS
EPRA Earnings, 16.7 14.7 18.0 17.3 14.5
MEUR
EPRA Earnings per 0.33 0.29 0.35 0.34 0.29
share, EUR
Cash earnings, 21.0 23.3 22.2 11.1 21.6
MEUR
Cash earnings per 0.41 0.46 0.44 0.22 0.42
share, EUR
*) The 160,000 shares held by the Group have been deducted from the number
of shares.
**) Adoption of IAS 40 Investment properties -standard fair value model has
been taken into account retrospectively in key figures. Retrospectively
adjusted figures are unaudited.
***) Including
summer
trainees
****) Equity excluding non-controlling interest
*****) Includes items valued at their carrying amount
Additional information:
Saku Sipola, President and CEO, phone +358 201 34 4001 or +358 40 551 5953
Esa Neuvonen, CFO, phone +358 201 34 4005 or +358 40 5001 003
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. All told, SATO holds roughly 23,600 rental homes 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 2015 were €323.4 million, operating profit €196.5
million and profit before taxes €159.4 million. SATO's investment properties
have a value of roughly €2.8 billion.
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