2016-07-28 11:15:34 CEST
2016-07-28 11:15:34 CEST
REGULATED INFORMATION
SATO Oyj - Half Year financial report
SATO Corporation's interim report, 1 January - 30 June 2016
SATO Corporation, Half year finacial report, 28 July 2016 at 12:15 pm
SATO Corporation's interim report, 1 January - 30 June 2016
SATO had record-high investments
Summary for the period 1 January - 30 June 2016 (1 January - 30 June 2015)
* Profit before taxes stood at EUR 108.9 (93.0) million.
* The profit improvement was based on the change in the fair value of rental
homes, EUR 63.0 (44.7) million.
* Shareholders' equity was EUR 1,156 (945) million, or EUR 20.41 (18.59) per
share.
* Return on equity was 16.1 (16.1) percent.
* Equity ratio was 33.0 (32.5) percent.
* Rental income amounted to EUR 126.5 (125.0) million.
* Investments in rental homes stood at EUR 444.8 (96.1) million.
* A total of 2,412 (485) rental homes were acquired or completed.
* A total of 1,520 new rental homes under construction.
* The occupancy rate in Finland was 94.9 (96.5) percent.
Summary for the period 1 April - 30 June 2016 (1 April - 30 June 2015)
* Profit before taxes amounted to EUR 45.6 (34.7) million.
* The change in the fair value of rental homes included in the result was EUR
23.2 (8.1) million.
* Rental income amounted to EUR 65.4 (62.9) million.
* Investments in rental homes stood at EUR 407.6 (66.8) million.
* Two major acquisitions were completed totalling 2,270 rental homes: 1,255
(SVK Yhtymä Oy) and 1,015 (Suomen Laatuasunnot Oy).
* The occupancy rate in Finland was 95.1 (96.6) percent.
Operating environment
During the spring, there were some signs of economic growth in Finland, mainly
due to the construction industry. Housing sales picked up during the spring, and
consumer confidence grew stronger. The consumer confidence indicator was 14.9 in
June (12.5 in May and 9.8 in April). The growth of the Finnish economy continues
to rely on consumption, as exports continue to decrease.
During the spring and summer, the global economic, political and security-
related crises have clearly increased uncertainty. The result of the Brexit
referendum on 23 June 2016 and the starting process of Britain leaving the EU
may decelerate economic growth or decrease stability in the EU. The weak
situation of the Italian banks is also casting a shadow on economic development
in the eurozone. The effects on the Finnish economy may be considerable, as the
signs of growth are weak to begin with. The uncertainty is expected to keep the
market interest rates at their current level - that is, close to zero - for a
long time.
The demand for rental homes has improved during the spring. The demand has
increased, but the supply of rental homes in growth centres has also increased
significantly. The increased supply has stabilised the relationship between
supply and demand in many areas, which has increased tenant turnover with regard
to the entire rental housing base.
The demand for owner-occupied housing picked up during the spring.
The Bank of Finland estimates that the Russian economy is about to stop
decreasing after a decline of around two years, even though growth still cannot
be expected any time soon in retail, for example. The strong decrease in retail
sales and private consumption is explained by the reduced purchasing power and
the spending of cash assets on loan repayments by households. A sustainable
foundation for growth cannot be laid until investment activities are resumed in
Russia.
Saku Sipola, President and CEO:
"The investments made by SATO reached a record high level during the review
period. The company invested around EUR 450 million in increasing its rental
housing base. Most of the investments were related to two significant
transactions, through which we purchased around 2,300 rental homes. The
integration of the properties and our cooperation with the occupants have
progressed smoothly, which has been a fine demonstration of competence of our
employees and network of partners.
"In May-June, we strengthened our capital structure through rights issue to our
existing shareholders. The successful rights issue shows our shareholders'
strong commitment to the growth and development of the company and to
maintaining a good capital structure.
"In addition to strong investment activity, we continued to actively develop our
customer relationships. To improve customer service, we are strengthening
existing operating models and developing new ones. As a result of this work,
the number of our new rental agreements has increased during the spring and
summer, as has our customers' willingness to recommend SATO."
REVIEW PERIOD 1 JANUARY - 30 JUNE 2016 (1 JANUARY - 30 JUNE 2015)
Net sales and profit
The Group's net sales in January-June decreased by 9.8 percent from the
reference period to EUR 158.3 (175.5) million. Net sales decreased due to SATO's
strategic decision to give up its production of owner-occupied homes and focus
on business operations related to rental homes. Of the net sales, rental income
accounted for EUR 126.5 (125.0) million.
Operating profit increased by 17.9 percent to EUR 131.8 (111.9) million.
Operating profit without the change in the fair value of rental homes was EUR
68.8 (67.2) million. The change of fair value was positively affected by the
strengthening rouble as well as the expiry of restrictions of certain sites.
Profit before taxes increased by 17.1 percent to EUR 108.9 (93.0) million. The
improvement was based on the positive change in the value of rental homes. Cash
earnings from operations (free cash flow after taxes excluding change in fair
value) in January-June amounted to EUR 34.4 (32.7) million.
Financial position and financing
The Group's consolidated balance sheet totalled EUR 3,498.3 (2,909.5) million at
the end of June. Equity was EUR 1,155.8 (945.1) million. Equity per share was
EUR 20.41 (18.59). In June, equity was strengthened by EUR 112.9 million by two
share issues.
The Group's equity ratio was 33.0 (32.5) percent at the end of June. The minimum
target is an equity ratio of 30 percent.
The Group's annualized return on equity was 16.1 (16.1) percent. The return on
investment was 9.1 (8.8) percent.
Interest-bearing liabilities at the end of June totalled EUR 1,998.4 (1,654.0)
million, of which loans subject to market terms accounted for EUR 1,518.0
(1,282.7) million. The average interest rate was 2.5 (2.4) percent. Net
financing costs totalled EUR 22.9 (18.8) million.
EUR 300 million of new long-term financing was raised. The solvency ratio (debt-
to-assets) was 56 (56) percent at the end of the reporting period. In March,
SATO issued a EUR 300 million unsecured bond with a credit rating of Baa3 from
Moody's, offered to European investors. The bond has a maturity of five years,
and it has a fixed coupon rate of 2.375 percent.
The calculated impact of changes in the market value of interest hedging on
equity was EUR -12.1 (7.8) million and on profit before taxes EUR 0.0 (0.4)
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 sizes of apartments and areas 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 30 June 2016, SATO owned a total of 25,437 (24,356) homes. A total of 2,412
rental homes were acquired or completed. The total number of divested rental
homes and shared ownership homes redeemed by the owner occupants was 276.
The fair value of rental homes was EUR 3,248.6 (2,652.9) million at the end of
June. The change in the fair value, including the rental homes acquired and
divested during the reporting period, was EUR 495.7 (124.9) million.
Of the value of homes, the Helsinki region accounted for some 80 percent,
Tampere, Turku, Oulu and Jyväskylä made up 18 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 2.4 billion in housing. SATO acquires and builds entire
rental buildings and single rental homes.
Investments in rental homes stood at EUR 444.8 (96.1) million. Of the
investments made during the review period, 62 percent were made in the Helsinki
Metropolitan Area. Of the investments 15 percent was targeted in newbuild homes.
At the end of June, binding purchase agreements in Finland totalled EUR 163.4
(245.7) million.
In all, 128 (302) rental homes with a total value of EUR 12.2 (15.9) million
were divested in Finland during the review period.
Rental activities
Effective rental activities provide home seekers with quick access to a home and
the Group with solid returns on investments. Rental services are mainly offered
by SATO's rental offices. In addition, SATO's electronic channels make finding a
home easy for customers.
Rental income increased by 1.2 percent to EUR 126.5 (125.0) million. The
economic occupancy rate of homes in Finland was 94.9 (96.5) percent on average,
and the tenant turnover rate was 40.8 (40.0) percent. The large number of rental
homes completed on the market over the past 12 months and the intensifying
competition contributed to the increase in tenant turnover and the decrease in
the occupancy rate. The rental market is currently in balance in many locations.
The average monthly rent of SATO rental homes was EUR 16.18 (15.36) per square
metre, while the average monthly rent of shared ownership homes was EUR 8.84
(8.66) per square metre. The average rent increase is based on investments in
small apartments in growth centres and low-cost housing divestments made outside
the focus area. The rent increases were more moderate than in previous years.
Net rental income from homes stood at EUR 80.9 (78.6) million, and the net
rental income rate was 5.8 (6.2) 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 64.0 (58.6) million at the
end of June. The value of new plots acquired by the end of June totalled EUR
9.6 (6.6) million.
Permitted building right 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 support the
development potential of local services. The first SATO StudioHome is a prime
example of supplementary construction. The concept was designed in response to
the growing need for inexpensive homes in the Helsinki region. The construction
of the first SATO StudioHome building will begin in August beside the SATO-owned
block of rental flats in the Martinlaakso district of Vantaa in Finland. The
functionality and comfort of the surroundings of the existing building will
improve simoultaneously. The SATO StudioHome building will be completed in late
2017 and will have 68 apartments with balconies, with a room height of almost
four metres, creating an atmosphere of spaciousness and light.
In SATO's Finnish operations, a total of 98 (359) rental homes and 0 (99) homes
for sale were completed. On 30 June 2016, a total of 1,446 (878) rental homes
and 76 (98) owner-occupied homes were under construction.
A total of EUR 19.4 (23.9) million was spent on repairing homes and improving
the quality of homes.
A total of 76 (76) new homes were sold in January-June. At the end of the review
period, a total of 13 (44) completed homes and 19 (90) homes under construction
remained unsold. The total purchase value of these unsold homes amounted to EUR
13.7 (66.2) million. SATO has made the strategic decision to discontinue the
production of owner-occupied homes and to concentrate on the rental 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 has been 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 June, housing assets in St. Petersburg totalled EUR 118,7 (131,0)
million. The total amount of binding purchase agreements was EUR 0.0 (4.7)
million.
At the end of June, SATO owned 460 (313) completed and 74 (217) homes under
construction in St. Petersburg. The average monthly rent of the apartments for
rent was EUR 12.92 (15.82) per square metre. The change in the average rent is
mainly due to changes in the exchange rate for the rouble and homes completed in
cheaper areas.
The economic occupancy rate of rental homes was 79.8 (91.8) 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 ongoing bridge and subway
construction work causing commuting difficulties in some parts of St.
Petersburg.
Personnel
At the end of June, the Group employed 166 (171) people, of whom 154 had a
permanent contract of employment. The average number of personnel was 165 (170)
in January-June.
REVIEW PERIOD 1 APRIL - 30 JUNE 2016 (1 APRIL - 30 JUNE 2015)
Net sales and profit
The year-on-year change in the Group's net sales was 0.8 percent in 1 April -
30 June, and the net sales totalled EUR 79.9 million (EUR 79.2 million in April-
June 2015). Of the net sales, rental income accounted for EUR 65.4 (62.9)
million.
The operating profit was EUR 58.9 (44.4) million.
Profit before taxes was EUR 45.6 (34.7) million. The change in the fair value of
rental homes included in the result was EUR 23.2 (8.1) million.
Financing
SATO signed new EUR 400 million committed Unsecured Credit Facilities on 14th
June 2016. The Facilities comprise two separate tranches: a EUR 200,000,000
five-year Revolving Credit Facility and a EUR 200,000,000 three-year Revolving
Credit Facility, both with two one-year extension options.
The Facilities will be used for refinancing of existing bilateral facilities and
general corporate purposes.
Housing assets, fair value, and investments
The number of homes increased by 2,072 in April-June. The change in the fair
value was EUR 23.2 (8.1) million.
Investments in rental homes totalled EUR 407.6 (66.8) million. A total of 62
(183) homes were divested in Finland at a total value of EUR 5.7 (7.3) million.
The most significant investments were the acquisition of all of the shares in
SVK Yhtymä Oy, as result of which 1,255 rental homes were transferred to SATO,
and a total of 1,015 rental homes acquired from Suomen Laatuasunnot Oy. The
homes acquired are located in the Helsinki, Tampere and Turku regions.
Rental activities
Rental income increased by 3.9 percent to EUR 65.4 (62.9) million. The economic
occupancy rate of homes in Finland was 95.1 (96.6) percent on average, and the
rental home turnover rate was 40.6 (40.4) percent.
Net rental income from homes was EUR 43.0 (38.6) million, and the net rental
income rate in rental homes was 6.2 (6.2) percent on an annual level.
Property development
The value of new plots acquired in April-June totalled EUR 5.7 (5.1) million.
In Finland, a total of 66 (205) rental homes and 0 (34) owner-occupied homes
were completed.
A total of EUR 14.3 (12.2) million was spent on repairing homes and improving
the quality of homes.
A total of 20 (42) owner-occupied homes were sold in April-June.
Business operations in St. Petersburg
In April-June, the value of housing assets in St. Petersburg increased by EUR
5.8 (5.8) million. A total of 74 (217) rental homes were under construction. No
new acquisitions were made.
The economic occupancy rate of rental homes was 82.6 (91.6) percent on average.
Share issues
In a rights issue carried out from 17 May 2016 to 10 June 2016, SATO's
shareholders subscribed for a total of 5,052,462 shares. A total of 5,043,889
shares were subscribed for pursuant to primary subscription rights, and a total
of 8,573 shares were subscribed for pursuant to secondary subscription rights.
The unsubscribed shares were not offered for subscription. The subscription
price was EUR 19.53 per share on offer, and SATO raised proceeds of
approximately EUR 98.7 million through the rights issue. The subscription price
was recorded in the invested unrestricted equity fund.
SATO completed the acquisition of all of the shares in SVK Yhtymä Oy. The
transaction was completed by a directed share issue approved by SATO's Board of
Directors. Shareholders of SVK Yhtymä subscribed for a total of 728,763 shares
in SATO. As a result of the transaction, 1,255 modern rental apartments were
transferred to SATO.
The share issues mentioned above were carried out based on the authorisation
granted to the Board of Directors by the Annual General Meeting on 3 March 2016.
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.
St. Petersburg is the only business area for SATO in Russia. 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's share 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.
The Finnish economy and the general climate of confidence picked up slightly
during the first half of the year, but the global economic, political and
security-related crises and the result of the Brexit referendum have clearly
increased uncertainty globally and particularly in Europe. 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 increase from 2015 due to new
investments.
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 to continue.
The uncertain economic situation in Russia is expected to continue. For the time
being, SATO will refrain from making new investment decisions in Russia.
SATO Corporation's shareholders on 22 July 2016
Largest shareholders and their holdings
Fastighets Ab Balder 53.6 %
APG Asset Management NV 22.6 %
Elo Mutual Pension Insurance Company 12.7 %
The State Pension Fund 4.9 %
The Finnish Construction Trade Union 1.1 %
Others (78 shareholders) 5.1 %
100 %
On 22 July 2016, SATO had 56,783,067 shares and 83 shareholders registered in
the book-entry system. The share turnover rate was 1.1 percent for the period 1
January - 22 July 2016.
Key figures, Group
KEY FINANCIAL 1-6/ 1-6/ 1-12/ 1-12/ 1-12/ 1-12/ 1-12/
INDICATORS 2016 2015 2015 2014 2013** 2012** 2011**
Net sales, MEUR 158 175 323 312 312 287 232
Profit before taxes, 109 93 159 152 141 121 174
MEUR
Earnings per share, 1.66 1.45 2.49 2.37 2.34 1.78 2.63
EUR
Balance sheet total, 3,498 2,910 2,980 2,802 2,596 2,360 2,167
MEUR
Shareholders' equity, 1,156 945 993 892 823 693 635
MEUR ****
Interest bearing 1,998 1,654 1,676 1,585 1,501 1,375 1,255
liabilities, MEUR
Equity per share, EUR 20.41 18.59 19.53 17.55 16.16 13.72 12.59
****
Average number of 52.0 50.8 50.8 50.8 50.8 50.8 50.8
shares, million *
Number of shares, 56.6 50.8 50.8 50.8 50.8 50.8 50.8
million *
Return on invested 9.1 % 8.8 % 7.6 % 7.7 % 7.7 % 7.7 % 10.9 %
capital, % (ROI)
Return on equity, % 16.1 % 16.1 % 13.5 % 14.0 % 15.5 % 13.5 % 22.8 %
(ROE)
Equity ratio, % 33.0 % 32.5 % 33.3 % 31.8 % 31.7 % 29.4 % 29.5 %
Personnel, average*** 165 171 172 165 156 152 137
Personnel at the end 166 170 170 169 156 150 141
of period
KEY FIGURES ACCORDING TO EPRA
RECOMMENDATIONS AND OPERATIONAL CASH
EARNINGS
EPRA Earnings, MEUR 33.1 31.8 64.5 65.1 62.7 44.4 43.2
EPRA Earnings per 0.64 0.63 1.27 1.28 1.23 0.87 0.85
share, EUR
EPRA Net Asset Value, 1,419.6 1,171.6 1,227.8 1,120.3 1,006.9 900.5 825.1
MEUR*****
EPRA Net Asset Value 25.1 23.0 24.2 22.0 19.8 17.7 16.2
per share, EUR*****
Cash earnings, MEUR 34.4 32.7 78.1 72.9 66.1 61.6 51.9
Cash earnings per 0.66 0.64 1.54 1.43 1.30 1.21 1.02
share, EUR
QUARTER KEY FINANCIAL Q2 Q1 Q4 Q3 Q2 Q1 2015
INDICATORS 2016 2016 2015 2015 2015
Net sales, MEUR 79.9 78.4 78.6 69.3 79.2 96.3
Operating profit, 58.9 72.9 65.9 18.7 44.4 67.5
MEUR
Profit and losses
from changes of fair 23.2 39.8 36.1 -18.3 8.1 36.6
value
Net financing -13.3 -9.6 -9.0 -9.2 -9.6 -9.2
expenses, MEUR
Profit before taxes, 45.6 63.3 57.0 9.4 34.7 58.3
MEUR
Earnings per share, 0.68 0.99 0.90 0.15 0.55 0.90
EUR
Average number of 53.3 50.8 50.8 50.8 50.8 50.8
shares, million *
Gross investments, 407.6 37.2 55.5 98.9 66.8 29.3
MEUR
as percentage of 510.4 % 47.4 % 70.5 % 142.6 % 84.4 % 30.4 %
net sales
KEY FIGURES ACCORDING TO EPRA
RECOMMENDATIONS AND OPERATIONAL CASH
EARNINGS
EPRA Earnings, MEUR 16.4 16.7 14.7 18.0 17.3 14.5
EPRA Earnings per 0.31 0.33 0.29 0.35 0.34 0.29
share, EUR
Cash earnings, MEUR 13.5 21.0 23.3 22.2 11.1 21.6
Cash earnings per 0.25 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
APPENDICES
Interim report 1 January - 30 June 2016
Interim report information 1 January - 30 June 2016
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. At the end of Q2/2016, SATO holds roughly 25,400 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 3.2 billion (Q2/2016).
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