2017-04-27 07:00:36 CEST
2017-04-27 07:00:36 CEST
BIRTINGARSKYLDAR UPPLÝSNINGAR
SATO Oyj - Interim report (Q1 and Q3)
Interim report 1 January-31 March 2017: Customer First strategy reflected in customer loyalty
SATO Corporation, Interim report, 27th April 2017 at 8:00 a.m.
Summary for the period 1 January-31 March 2017 (1 January-31 March 2016)
* Profit before taxes stood at EUR 58.6 (63.3) million.
* Earnings per share were EUR 0.83 (0.99).
* The change in the fair value of rental apartments included in the result was
EUR 32.3 (39.8) million.
* Equity was EUR 1,304.2 (1,011.9) million, or EUR 23.03 (19.90) per share.
* Return on equity was 14.7 (20.1) per cent.
* Return on investment was 8.8 (10.4) per cent.
* Net sales stood at EUR 68.1 (61.1) million.
* Investments in rental apartments stood at EUR 26.4 (37.2) million.
* A total of 315 (32) rental apartments were acquired or completed.
* The occupancy rate in Finland was 96.1 (94.8) per cent.
* A total of 1,392 rental apartments are under construction.
Operating environment
The Finnish economy has turned towards growth. In the near future, growth is
expected to be clearly above one per cent. This growth is mainly based on
private consumption and building investments. Inflation has shown signs of
acceleration, but, in particular, short-term interest rates remain at an
unusually low level. Long-term interest rates are expected to rise. The
confidence of consumers in the economy has strengthened further, and they are
optimistic about the development of the unemployment situation.
Demand for rental apartments has remained high. Housing construction is active
in SATOs main operating areas. In the Helsinki metropolitan area many developing
residential areas are being built such as Kalasatama, Kruunuvuorenranta and
Jätkäsaari in Helsinki, Niittykumpu in Espoo, and Tikkurila and Martinlaakso in
Vantaa. Among others, the Härmälänranta area in Tampere and Kakola area in Turku
are being developed. The high number of new apartments completed has balanced
the rental apartment market in many places and rents have increased moderately.
There is more activity in the real estate investment market than ever before
(KTI). The number of apartments purchased by investors has remained high, and
consumers have also picked up the pace during the first quarter. This was
reflected, for example, in the number of housing loans withdrawn in January
2017. The last time as many loans were withdrawn was in January 2012.
The Russian economy is expected to grow moderately.
CEO Saku Sipola:
* Our strong focus on customer service was seen as a decrease in resident
turnover during the review period. We have been able to improve our customer
loyalty.
* SATO's revised strategy centres around the customer, and we are implementing
our Customer First development programme that aims at improved customer
service. SATO's customer service employees will ensure that a consistent
service chain works within predefined time and the customer is well informed
throughout the process. In addition, we will focus more closely on building
management services that have previously been acquired from external service
providers, and we will include the regular tasks of building managers in the
job descriptions of SATO's service managers and directors. Through this
change, SATO has recruited more than 30 customer service employees.
* We want to listen to our customers more closely, and develop and improve on
the basis of feedback and research data. We opened SATO Pulssi, a mobile
customer panel, with which our residents can have an impact on housing
solutions and the development of related services.
* Strong urban development will continue in the future. Urbanisation is
essential for the international success of Finland, as innovation,
businesses and jobs are mainly created in urban environments. This sets a
continuous demand for rental apartments and we continue investing in the
Helsinki metropolitan area, Tampere and Turku.
* Rental activities have developed positively, and our occupancy rate improved
clearly from the year before. The occupancy rate decreased slightly from the
final quarter of 2016, as 463 new and renovated apartments became available
for renting during the first quarter.
Net sales and profit
At the beginning of the year, the company changed its reporting practices so
that net sales consist only of rental income. For further information on the
changes, please see the note 1 in the interim report.
In January-March, consolidated net sales stood at EUR 68.1 (61.1) million,
showing a change of 11.5 per cent from the reference period. Net sales have
increased as a result of the larger number of apartments and positive
development of occupancy rate.
Operating profit was EUR 70.3 (72.9) million. The operating profit without the
change in the fair value was EUR 38.0 (33.1) million. At the beginning of the
year, the change in value was EUR 32.3 (39.8) million, mainly because of the
increase in apartment prices in SATO's operating areas, the discontinuation of
specific restrictions and the increase in the value of the Russian rouble.
Profit before taxes was EUR 58.6 (63.3) million. Cash flow from operations (free
cash flow after taxes excluding the change in fair value) in January-March
amounted to EUR 19.2 (21.0) million.
Financial position and financing
The consolidated balance sheet totalled EUR 3,562.5 (3,287.1) million at the end
of March. Equity was EUR 1,304.2 (1,011.9) million. Equity per share was EUR
23.03 (19.90).
The Group's equity ratio was 36.6 (30.8) per cent at the end of March. The
increase in the equity ratio was due to value growth and good profitability in
2016. SATO's Annual General meeting decided not to pay dividend from profit
2016 in order to further improve investment capacity. The minimum target is an
equity ratio of 35 per cent.
The Group's annualized return on equity was 14.7 (20.1) per cent. Return on
investment was 8.8 (10.4) per cent.
Interest-bearing liabilities at the end of March totalled EUR 1,905.7 (1,946.1)
million, of which loans subject to market terms accounted for EUR 1,437.1
(1,635.9) million. The average interest rate was 2.5 (2.5) per cent. Net
financing costs totalled EUR -11.7 (-9.6) million.
EUR 52.0 million of new long-term financing was raised. The solvency ratio
(debt-to-assets) was 53.4 (55.1) per cent at the end of March. Solvency ratio
improved due to value growth and good profitability in 2016.
The calculated impact of changes in the market value of interest hedging on
equity was EUR 4.7 (-6.6) million.
Housing assets and fair value
The development of the value of rental apartments is a key factor for SATO. Its
housing assets are located in areas and apartment sizes, demand for which will
increase in the long term. The allocation of building repairs is based on
lifecycle plans and repair need specifications.
On 31 March 2017, SATO owned a total of 25,499 (23,365) apartments. A total of
315 rental apartments were acquired or completed. The total number of divested
rental apartments and shared ownership apartments redeemed by the owner
occupants was 117.
The fair value of rental apartments was EUR 3,414.2 (2,823.4) million at the end
of March. The change in the value of investment assets, including the rental
apartments acquired and divested during the review period, was EUR 31.0 (70.5)
million.
Of the value of homes, the Helsinki metropolitan area accounted for some 79 per
cent, Tampere and Turku made up 13 per cent, and St. Petersburg covered 4 per
cent at the end of March.
Investments and divestments
Investment activities prepare the ground for growth. Since 2000, SATO has
invested more than EUR 2.0 billion in non-subsidised rental apartments. SATO
acquires and builds entire rental buildings and single rental apartments.
Investments in rental apartments stood at EUR 26.4 (37.2) million. Investments
in the Helsinki metropolitan area represented 78 per cent and investments in new
apartments represented 74 per cent of all investments in the review period.
On 31 March 2017, binding purchase agreements in Finland totalled EUR 107.5
(124.6) million.
During the review period, 117 (66) rental apartments were divested in Finland.
Their total value was EUR 28.4 (7.3) million.
Rental activities
Effective rental activities provide home-seekers 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.
Because of apartments acquired in 2016 and an improved occupancy rate, rental
income increased by 11.5 per cent to EUR 68.1 (61.1) million. The economic
occupancy rate of apartments in Finland was 96.1 (94.8) per cent on average, and
the rental apartment turnover rate was 37.0 (40.6) per cent. During the past 12
months, the decrease in the turnover rate and the increase in the occupancy rate
have been improved by activities carried out in accordance with the Customer
First strategy programme, closer communications with customers, improved quality
and more effective rental activities.
The average monthly rent of SATO's rental apartments at the end of the period
was EUR 16.54 (16.06) per m(2). The average rent is increased by investments in
small apartments in growth centres. Rent increases remained moderate.
Net rental income from apartments stood at EUR 42.4 (37.9) million, and the net
rental income rate was 5.2 (5.7) per cent.
Property development
Property development allows for new investments in rental apartments in Finland.
The rental capacity and value of rental apartments owned by SATO are developed
through renovation activities.
The book value of owned plot reserves totalled EUR 62.6 (57.0) million at the
end of March. The value of new plots acquired by the end of March totalled EUR
0.0 (2.4) million.
The permitted building volume for about 2,050 apartments is being developed for
the plots of the company's own stock. As a result, SATO can make use of the
existing infrastructure, and it allows for a denser urban structure and,
thereby, serves to ensure the availability of services.
In Finland, a total of 298 (32) rental apartments and 57 (0) apartments for sale
were completed. On 31 March 2017, a total of 1,392 (1,172) rental apartments and
0 (76) owner occupied apartments were under construction.
A total of EUR 8.8 (8.2) million was spent on repairing apartments and improving
their quality.
A total of 18 (48) new apartments were sold in January-March. At the end of the
review period, a total of 9 (29) completed apartments and 0 (23) apartments
under construction remained unsold. The total purchase value of these unsold
apartments amounted to EUR 6.0 (25.8) million. SATO has made a strategic
decision to give up its production of owner-occupied apartments and focus on
business operations related to rental apartments.
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. Apartments are acquired in
central locations in the city.
At the end of March, housing assets in St. Petersburg totalled EUR 137.3 (111.5)
million. The total amount of binding purchase agreements was EUR 0.0 (1.1)
million.
At the end of March, SATO owned 534 (460) completed apartments and 0 (74)
apartments under construction in St. Petersburg.
The economic occupancy rate of rental apartments was 87.8 (77.0) per cent on
average. The increase in the occupancy rate from the previous year was mainly
attributable to the positive development of the occupancy rate in the newest
buildings.
For the time being, SATO will refrain from making new investment decisions in
Russia.
Personnel
At the end of March, the Group employed 186 (162) people, of whom 171 (152) had
a permanent contract of employment. The average number of personnel was 181
(165) in January-March.
Annual General Meeting on 8 March 2017
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. Marcus Hansson, Jukka Hienonen, Esa Lager, Tarja Pääkkönen and Timo
Stenius will continue as Board members. Hans Spikker was elected as a new
member.
KPMG Oy Ab, authorised public accountants, will continue as the company's
auditor.
The Annual General Meeting decided that SATO Corporation will pay no dividend
for 2016.
Organisation of the Board of Directors
At its organisation meeting on 8 March 2017, the company's Board of Directors
elected Jukka Hienonen as the Deputy Chairman of the Board of Directors from
among its members.
The Board of Directors elected Erik Selin as the Chairman of the Nomination and
Remuneration Committee, and 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, Hans Spikker and Timo Stenius as its members.
Events after the review period
There are no significant events following the review period.
Future risks and uncertainties
The most significant risks in the renting of apartments are related to economic
cycles and fluctuations in demand. The positive development of the value of
SATO's housing assets and its rental capacity of apartments are secured by
focusing on growth centres.
Changes in energy efficiency and environmental requirements may increase the
repair costs of SATO's investment apartments.
Risks in housing investments in St. Petersburg are associated with the operating
environment and currency risks. About four per cent 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 accordance with the Group's financing policy, the aim is to ensure that at
least 60 per cent of all loans are fixed-rate loans. The Group has set an equity
ratio target of at least 35 per cent.
A more detailed description of risks and risk management is available in the
Group's annual report for 2016 and on the company's website at www.sato.fi.
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 with its slow growth, and general
confidence is estimated to be higher than on average. Interest rate level is
expected to remain low in 2017, which will have a positive impact on SATO's
financing costs. Long-term interest rates are expected to rise.
According to the Bank of Finland, steady growth in the global economy and the
light financing conditions will support the positive development of the eurozone
in the near future, even though these expectations are shadowed by the
uncertainties related to Brexit, other political events that may slow down
economic growth, and concerns related to the state of the banking sector in
certain countries in the eurozone and to the outlook on public economy.
Increases in urbanisation 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. Some 80 per cent 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.
According to estimates of Pellervo Economic Research (PTT), prices and rents
will continue to increase, demand for owner occupied apartments will grow
higher, and the accelerating of housing sales will alleviate the pressure in the
rental market.
SATO's net rental income rate is expected to remain at the 2016 level.
It will take several years to fulfil the estimated lack of 20,000 apartments in
the Helsinki Metropolitan Area and 3,000 apartments in Tampere. There is
constant demand for new housing investments. According to the Technical Research
Centre of Finland (VTT), Finland will require 25,000-30,000 new apartments every
year in its growth centres by 2040.
The Russian economy is expected to develop slowly.
SATO Corporation's shareholders on 10 April 2017
Largest shareholders and their holdings
· Balder Finska Otas AB (owner: Fastighets Ab Balder, 100%) 53.6%
· Stichting Depositary APG Strategic Real Estate Pool
(owner: Stichting Pensioenfonds ABP, >95%; 22.6%
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 (91 shareholders) 5.1%
On 10 April 2017, SATO had 56,783,067 shares and 96 shareholders registered in
the book-entry system. The share turnover rate was 0.0 per cent for the period
1 January-10 April 2017.
Key figures, Group
Key financial 1-3 1-3 1-12 1-12 1-12 1-12 1-12
indicators /2017 /2016 /2016 /2015 /2014 /2013** /2012**
-------------------------------------------------------------------------------
Net sales, MEUR 68 61 263 249 243 229 213
Net rental income,
MEUR 42 38 166 152 146 132 122
Net rental income,
% 5.2 % 5.7 % 5.6 % 6.0 % 6.3 % 6.2 % 6.3 %
Profit before
taxes, MEUR 59 63 219 159 152 141 121
Balance sheet
total, MEUR 3,563 3,287 3,562 2,980 2,802 2,596 2,360
Shareholders'
equity, MEUR 1,304 1,012 1,253 993 892 823 693
Intrest bearing
liabilities, MEUR 1,906 1,946 1,943 1,676 1,585 1,501 1,375
Return on invested
capital, % (ROI) 8.8 % 10.4 % 9.1 % 7.6 % 7,7 % 7.7 % 7.7 %
Return on equity, %
(ROE) 14.7 % 20.1 % 15.6 % 13.5 % 14.0 % 15.5 % 13.5 %
Equity ratio, % 36.6 % 30.8 % 35.2 % 33.3 % 31.8 % 31.7 % 29.4 %
Personnel,
average*** 181 165 170 172 165 156 152
Personnel at the
end of period 186 162 175 170 169 156 150
Key indicators per
share
Earnings per share,
EUR 0.83 0.99 3.22 2.49 2.37 2.34 1.78
Equity per share,
EUR **** 23.03 19.90 22.12 19.53 17.55 16.16 13.72
Number of shares,
million * 56.6 50.8 56.6 50.8 50.8 50.8 50.8
Key figures
according to EPRA
recommendations and
operational cash
earnings
EPRA Earnings, MEUR 19.2 16.7 69.5 64.5 65.1 62.7 44.4
EPRA Earnings per
share, EUR 0.34 0.33 1.28 1.27 1.28 1.23 0.87
EPRA Net Asset
Value, MEUR***** 1,570.8 1,256.6 1,517.5 1,227.8 1,120.3 1,006.9 900.5
EPRA Net Asset
Value per share,
EUR***** 27.7 24.7 26.8 24.2 22.0 19.8 17.7
Cash earnings, MEUR 19.2 21.0 86.2 78.1 72.9 66.1 61.6
Cash earnings per
share, EUR 0.34 0.41 1.59 1.54 1.43 1.30 1.21
Quarter key
financial
indicators Q1 2017 Q4 2016 Q3 2016 Q2 2016 Q1 2016
-------------------------------------------------------------------------------
Net sales, MEUR 68.1 67.9 68.3 65.4 61.1
Net rental income,
MEUR 42.4 40.8 44.6 43.0 37.9
Net rental income,
% 5.2 % 5.1 % 5.7 % 6.0 % 5.7 %
Operating profit,
MEUR 70.3 59.3 76.1 58.9 72.9
Profit and losses
from changes of
fair value 32.3 22.7 38.5 23.2 39.8
Net financing
expenses, MEUR -11.7 -12.7 -12.1 -13.3 -9.6
Profit before
taxes, MEUR 58.6 46.5 64.0 45.6 63.3
Earnings per share,
EUR 0.8 0.7 0.9 0.7 1.0
Average number of
shares, million * 56.6 56.6 56.6 53.3 50.8
Gross investments,
MEUR 26.4 63.8 64.0 407.6 37.2
as percentage of
net sales 38.8 % 73.2 % 88.3 % 510.4 % 47.4 %
Key figures
according to EPRA
recommendations and
operational cash
earnings
EPRA Earnings, MEUR 19.2 16.3 20.1 16.4 16.7
EPRA Earnings per
share, EUR 0.34 0.29 0.36 0.31 0.33
Cash earnings, MEUR 19.2 27.7 24.0 13.5 21.0
Cash earnings per
share, EUR 0.34 0.49 0.42 0.25 0.41
* 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 interests
***** Includes items valued
at their carrying amount
Additional information:
Saku Sipola, President and CEO, tel. +358 201 34 4001
Markku Honkasalo, CFO, tel. +358 201 34 4226
www.sato.fi
APPENDICES
Interim report 1 January-31 March 2017
Interim report information 1 January-31 March 2017
SATO is one of Finland's leading lessors of rental apartments. SATO aims to
offer full options for rental housing and an excellent customer experience. At
the end of 2016, SATO owned a total of 25,300 rental apartments in Finland's
largest growth centres and in St. Petersburg.
We contribute to sustainable development and initiative through our operations,
and engage in open interaction with our stakeholders in order to produce added
value. We operate over the long term and profitably. We increase the value of
housing assets through investments and divestments and through our repair
activities.
SATO Group's net sales in 2016 stood at EUR 263.0 million* in accordance with
the new reporting practices, its operating profit stood at EUR 267.2 million and
its profit before taxes was EUR 219.4 million. The value of SATO's investment
assets is EUR 3.4 billion.
*Net sales have been changed in accordance with the new reporting practices.
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