2012-11-07 07:30:00 CET
2012-11-07 07:30:05 CET
REGULATED INFORMATION
SRV Yhtiöt Oyj - Interim report (Q1 and Q3)
Revenue grew, modest profitability: SRV’s Interim Report 1 January – 30 September 2012
Espoo, Finland, 2012-11-07 07:30 CET (GLOBE NEWSWIRE) --
SRV GROUP PLC INTERIM REPORT 7 November 2012,
8.30 a.m. EET
Reporting period 1 January-30 September 2012 in brief:-- SRV's revenue was EUR 466.2 million (405.5 in January-September 2011),
change +15.0%
-- Operating profit was EUR 4.5 million (0.9), change +397.7%
-- Profit before taxes was EUR 0.6 million -1.6)
-- The order backlog at the close of the review period was EUR 747.1 million
(862.3), change -13.4 %
-- Equity ratio was 28.5 per cent (30.9%)
-- Earnings per share were EUR -0.01 (EUR -0.07)
SRV's outlook for 2012 remains unchanged. The Group's result before taxes is
expected to show a profit. 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).
Third quarter 1 July - 30 September 2012 in brief:
-- Revenue amounted to EUR 155.8 million (136.3 in 7-9/ 2011)
-- Operating loss was EUR -0.4 million (0.2)
-- Result before taxes was EUR -2.1 million (-1.5)
-- 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:
The 15 per cent growth in revenue in the early part of the year was the result
of success in building our order backlog during the last couple of years, but
the third quarter result was a clear disappointment for us. Positive trend was
cut short by lowered profit margin estimations from a few fixed price
contracting contracts. Our sector's outlook for the end of this year and for
the next year encourages caution.
In the early part of the year Group's profitability clearly improved compared
with the previous year, even though the profit margin was not close to our
target level. Revenue from domestic operations grew by 7 per cent, but despite
the growth the profitability is still not at satisfactory level while
operations are still focused on low-margin contracting.
Competition for fixed-price contracts has intensified in the tighter economic
conditions, which has reduced their margin level. In accordance with our
strategy, we have focused more clearly on projects where we are best able
deliver to customers added value based on our expertise. The change of emphasis
among contract types is evident in our current order backlog, and the number of
new fixed-price contracts has fallen significantly compared with the previous
year.
Revenue in our Russia-oriented international business operations increased by
around 150 per cent, but the level of losses remained unchanged. This situation
is due to the project-development emphasis of these operations, and
repatriation of earnings takes place on the sale of completed projects.
Our Pearl Plaza shopping centre project in the vicinity of St. Petersburg has
proceeded encouragingly. The occupancy rate of premises is already over 70 per
cent, just less than a year before the shopping centre opens. We are also
starting our Septem City project located east of St. Petersburg city centre.
The recovery of Russia's property market from the recession caused by the
financial crisis is promoting the launch of our projects. To safeguard the
financing capacity of our Russian projects, we have two financial partnership
arrangements.
Housing construction and sales remain at good level in Finland. Early in the
year, revenue grew by more than a third. Low interest rates and consumers'
confidence in their own finances have kept the sales of apartments stable,
despite the intermittent prevalence of unwelcome economic news.
Our target is to improve profitability by increasing the number of own
development projects and decreasing the share of contracts based on competitive
tendering. I believe that we can utilize the potential from SRV's innovative
project development also in the weakening economic environment.
Overall review
The trend in SRV's revenue remained favourable in the review period. Due to
growth in revenue from both domestic and international operations, the Group's
revenue grew by 15.0 per cent to EUR 466.2 million (405.5 1-9/2011). Our order
backlog remained robust at EUR 747.1 million (862.3 on 30 September 2011).
The Group recorded an operating profit of EUR 4.5 million (0.9in 1-9/2011).
Group's profitability has been affected by the order backlog consisting mainly
of low-margin contracting and project development nature of operations. A good
performance in domestic business had a positive impact on operating profit.
Operating profit was burdened by a weakening of approximately EUR 3 million in
the estimated margins of three fixed-price contracts, observed in Operations in
Finland in the third quarter, as well as the EUR 1.1 million non-recurring
depreciation recorded in January in International Operations, as a result of a
fire that destroyed a warehouse building. The Group's profit before taxes was
EUR 0.6 million (-1.6 1-9/2011). 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 411.1 million (383.4 1-9/2011) and
operating profit was EUR 13.1 million (10.1). The domestic order backlog stood
at EUR 676.2 million (745.8 on 30 September 2011). Operational focus has been
moved to increase developer contracting and negotiation contracting production.
Number of signed new fixed price contracts has fallen to approximately half
compared to reference period.
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 fell to EUR 312.1 million (371.5 on 30 September 2011).
Revenue for domestic housing construction grew and profitability improved.
SRV's total housing sales volume was healthy, with sales consisting of a total
of 538 housing units (551 in 1-9/2011), 337 (382) of which were
developer-contracted housing units and 201 (169) units sold to investors under
negotiated contracts. SRV has become a major rental and owner-occupied housing
constructor in its operating areas. SRV's ongoing housing construction amounted
to 2,126 housing units (2,504 on 30 September 2011), 81 per cent of housing
units under construction have been sold, and 72 per cent of production consists
of rental and right-of-occupancy units. SRV has 605 developer-contracted
housing units under construction. Based on advance marketing, the decision has
been made to initiate the construction of 113 additional housing units. The
order backlog for housing construction came to EUR 364.2 million (374.2).
Revenue from International Operations grew to EUR 55.1 million (21.4).
Construction of the Pearl Plaza shopping centre, 50%-owned 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.
The Group's third-quarter revenue was EUR 155.8 million (136.3) and operating
loss was EUR -0.4 million (0.2). Volume growth in both Finnish and
international operations contributed to revenue growth. The decline in
operating profit could be attributed especially to the decrease of
approximately EUR 3 million in the estimated margins of three fixed-price
contracts in Finnish operations.
SRV's own project development operations are paving the way for increasing
operating volumes in Finland. These projects require long-term development work
and are being carried out over the course of several years. Many of SRV's
projects are so-called landmark projects - innovative new solutions for the
needs of sustainable regional construction. Such projects include, for example,
the Keilaniemi Towers housing project, the development project for the vicinity
of the Niittykumpu metro station in Espoo, and the Kalasatama development
project in Helsinki.
Group key figures 1-9/ 1-9/ change change 7-9/ 7-9/ 1-12/
(IFRS, EUR million) 2012 2011 , MEUR ,% 2012 2011 2011
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Revenue 466.2 405.5 60.7 15.0 155.8 136.3 672.2
Operating profit 4.5 0.9 3.6 397.7 -0.4 0.2 14.1
Financial income and -3.9 -2.5 -1.4 -1.8 -1.7 -3.3
expenses, total
Profit before taxes 0.6 -1.6 2.2 -2.1 -1.5 10.8
Order backlog 747.1 862.3 -115.2 -13.4 810.8
New agreements 346.5 615.4 -268.9 -43.7 138.5 304.6 811.6
Operating profit, % 1.0 0.2 -0.2 0.2 2.1
Net profit, % -0.1 -0.7 -1.0 -1.4 0.8
Equity ratio, % 28.5 30.9 31.0
Net interest bearing 311.3 269.5 271.8
debt
Gearing, % 187.7 167.3 160.2
Return on investment, % 1.8 1.4 4.5
1)
Return on equity, % 1) -0.4 -2.4 3.3
Earnings per share, EUR -0.01 -0.07 -0.04 -0.06 0.17
Equity per share, EUR 4.58 4.44 4.68
Weighted average number 35.5 34.9 1.8 35.0
of shares outstanding,
million shares
1. In calculating 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 objective 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 close of the review period, SRV signed an agreement on the
construction of the Helsinki Airport station on the Ring Rail Line.
Construction work began in October. With a total value of approximately EUR 70
million, the new Airport station is the most significant project on the Ring
Rail Line.
Outlook for 2012 (adjusted on 10 September 2012)
SRV lowered the profit margin estimates of three fixed-price projects by
approximately EUR 3 million and consequently adjusted its full-year guidance on
10 September 2012.
The Group's result before taxes is expected to show a profit. The Group's
full-year revenue is estimated to be at least on a par with the previous year's
level (EUR 672.2 million 1-12/2011).
SRV's full-year profit can be significantly affected by the timing of sale of
Etmia II office property in Moscow and the Derby Business Park in Espoo.
Furthermore, the general uncertainty seen in the financial markets has also had
a negative effect on real estate markets. Nonetheless, even if the property
sales are not completed during this year, the full-year result before taxes in
2012 is estimated to be positive. SRV does not change estimates given in the Q2
Interim Report regarding development in the housing and business premises
markets.
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. SRV's
full-year performance can be significantly affected by the timing of sale of
Etmia II office property in Moscow and the Derby Business Park in Espoo.
Furthermore, the general uncertainty seen in the financial markets also
reflects negatively on real estate markets. Nonetheless, even if the property
sales are not completed during this year, the full-year result before taxes in
2012 is estimated to be positive.
The Group's result before taxes is expected to show a profit. The Group's
full-year revenue is expected to be at least on a par with the previous year's
level (EUR 672.2 million 1-12/2011).
Media conference
The interim report will be presented to the media and analysts at the press
conference which will take place 07 November 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 6 November 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
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