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SRV Yhtiöt Oyj: SRV's interim report January-September 2020: SRV's favourable development continues


SRV's interim report January-September 2020: SRV's favourable development continues

January-September 2020 in brief:

  • The coronavirus pandemic slightly weakened revenue and earnings for January-September. The slowdown in housing sales in the second quarter and the restrictions imposed by the Russian authorities on shopping centre operations are particularly evident in the result for the review period.
  • Revenue grew by 3.9 per cent to EUR 683.0 million (657.2 1-9/2019). Revenue increased in both housing and business construction. Revenue growth in both housing and business construction was driven by an increase in contracting volume. Fewer developer-contracted housing units were recognised as income than in the comparison period, a total of 280 (301). Growth in business construction revenue largely stemmed from increased volume in alliance contracts.
  • Operative operating profit amounted to EUR 12.6 (-9.6) million. Operative operating profit was improved particularly by construction sites' favourable earnings trends. On the other hand, the decrease in rental income from shopping centres due to the coronavirus pandemic had a negative impact on operative operating profit. Operative operating profit for the comparison period is burdened by the weakening of the margins of two projects - by a total of EUR 9.8 million - and non-recurring expense entries totalling EUR 8.2 million.
  • Operating profit was EUR 9.5 (-6.2) million. Operating profit was influenced by the change in the exchange rate of the rouble, which had a net impact of EUR -3.1 (3.4) million. The exchange rate impact, which largely had no effect on cash flow, was caused by the valuation of the euro-denominated loans of associated companies in roubles, hedging expenses and changes in the market value of hedges.
  • The result before taxes was EUR -13.4 (-25.1) million. This includes currency exchange rate losses with no cash flow impact of EUR -17.4 million (exchange rate gains of 10.7).
  • Cash flow from business and investment activities totalled EUR 33.6 (-86.9) million. Cash flow was improved mainly by the realisation of holdings in both REDI and the Tampere Deck and Arena as well as the release of capital due to the sale of contract sites to investors. 
  • Earnings per share were EUR -0.11 (-0.35). The comparison figure has been adjusted for share issues.
  • At period-end, the order backlog stood at EUR 1,280.3 (1,592.6) million. New agreements valued at EUR 566.3 (344.7) million were signed in January-September, a year-on-year increase of 64 per cent. The sold share of the order backlog was 86.9 (82.3) per cent.
  • During the first half of the year, the company carried out a significant number of measures to improve its balance sheet and liquidity as part of its recovery programme. These measures improved both the equity ratio and gearing. Rouble exchange rate movements in turn weakened the equity ratio and gearing. The equity ratio was 23.8 (27.2) per cent and gearing was 177.4 (199.1) per cent. Excluding the impact of IFRS 16, equity ratio was 29.6 (33.3) per cent and gearing was 98.4 (131.4). Equity ratio in accordance with the loan covenant calculation was 31.4.

n. The company publishes alternative key figures that have been adjusted to remove the impact of IFRS 16 Leases on the balance sheet and result. The company also discloses its operative operating profit, which is determined by deducting the calculated rouble exchange differences included in financial items and their potential hedging impacts from operating profit.

July-September 2020 in brief: 

  • Revenue in July-September amounted to EUR 209.9 (227.1) million. Revenue was down due to the decrease in revenue from both business and housing construction.
  • Operative operating profit amounted to EUR 7.1 (-7.0) million. The positive earnings trend at construction sites and the year-on-year increase in the number of housing units completed and recognised as income contributed to the growth of operative operating profit. This was positively affected by the dissolution of a EUR 3.1 million provision for expenses that was recognised for the Russian subsidiary in the second quarter, as the court of second instance overturned the earlier ruling on compensation. Due to exchange rate differences, the provision recognised in the second quarter and the dissolution of the provision in the third quarter have a net effect of EUR -0.4 million on the result for January-September. Operative operating profit was also impacted by the decline in rental income from shopping centres due to the coronavirus pandemic. Operative operating profit for the comparison period is burdened by the significantly weaker margins of two projects and impairments.
  • Operating profit was EUR 1.7 (-6.3) million.
  • The year-on-year growth in new contracts recognised in the order backlog was 25 per cent, amounting to EUR 154.4 (123.3) million.


Events after the period

On 19 October 2020, SRV and the Premises Services unit of the City of Espoo signed an agreement to implement the Matinkylä upper secondary school in Espoo. This new building project will be carried out as a cooperative project management contract valued at about EUR 41 million, of which SRV's contract accounts for around EUR 33 million. The project will be started immediately with a half-year development phase, after which it will be recognised in SRV's order backlog.


CEO's review

New projects and financing solutions in the first part of the year have strengthened our key stakeholders' confidence in the company. As announced earlier, during the last months of the year, we will kick off new developer-contracted residential projects with RS financing agreed upon with several banks. We successfully recruited new personnel, laying the foundation for future development. In September, we were highly visible in the recruitment market, hiring many people for on-site managerial tasks and expert positions. We have maintained our position as an innovative and responsible employer.

Housing sales were strong during the entire quarter. Very few completed housing units remained unsold - only 45 in Finland and none in Russia. Sales of units at Loisto in Kalasatama have picked up in line with our expectations, with about one year remaining until completion, and since both the Kalasatama area and the feedback from residents are developing favourably.

Our part-owned shopping centres in Russia reopened in July-August after the end of the first wave of the coronavirus pandemic. The shopping centres experienced a strong recovery - in August-September, both visitor and sales figures rebounded to almost the same level as a year ago. Shopping centre floor area per inhabitant is significantly lower in Russia than in Western countries and e-commerce is still quite undeveloped and thus we expect to see a rapid recovery of shopping centres after the current wave of the pandemic is over.

The earnings trend in construction remained favourable during the review period and our ongoing projects progressed largely in line with plans. A previously recognised provision for damages payable by our subsidiary in Russia was entered back into operative operating profit when the dispute was settled in our favour in the court of second instance. Positive development continued, with both operative operating profit and cash flow in the black.

As planned, we have altered our project portfolio to reduce its risks and require smaller capital commitments. The inflow of orders was greater than in the previous period, but the order backlog decreased. However, the number of projects in which an agreement is close to being signed is strong and thus we are well-poised to achieve a good order intake in the last months of the year.  In addition, I am pleased to note that the developer-contracted housing projects that will be launched in the latter part of the year - after a break of about a year and a half.  These projects will be recognised as revenue in 2022.

The exceptional arrangements implemented to prepare for the coronavirus pandemic have continued to usher in some additional costs, but we have avoided the most serious consequences and all our sites have remained in operation in spite of the unusual circumstances. To date, the impacts of the pandemic have been moderate on the whole, but its effects on the construction market are unclear and cloud the outlook for the future.

We will continue to develop our operative earnings performance and business operations. We manage development with a strongly centralised project management model. In addition, we have started strategy work based on the further development of the company's strengths.

Thanks to numerous successes and disciplined work, confidence in SRV has improved significantly. I would like to thank our customers and financiers for their good cooperation and our personnel for their and strong commitment and excellent work on our turnaround.

Saku Sipola, President & CEO


Overall review

Group key 1−9/  1−9/ change change, 7-9/20 7-9/20 1−12/ previous
figures(IFRS, EUR 2020 2019 % 2019 12
million) months
20 19
Revenue 683.0 657.2 25.9 3.9 209.9 227.1 1,060.9 1,086.8
Operative 12.6 -9.6 22.2 7.1 -7.0   -96.8 -74.6
Operative 1.8 -1.5 3.4 -3.1 -9.1 -6.9
operating profit,
Operating 9.5 -6.2 15.7 1.7 -6.3 -93.0 -77.3
Operating profit, 1.4 -0.9 0.8 -2.8 -8.8 -7.1
Operating profit, 6.8 -9.7 16.5 0.9 -7.6 -94.3 -77.8
excl. IFRS
16[2) *)]
Operating profit, 1.0 -1.5 0.4 -3.3 -8.9 -7.2
%, excl.
IFRS 16[2)]
Financial income -22.9 -18.9 -4.0 -8.8 -7.6 -29.3 -33.3
and expenses,
Profit before -13.4 -25.1 11.7 -7.0 -14.0 -122.4 -110.6
Net profit for the -14.5 -20.2 5.7 -6.9 -11.6 -103.6 -97.9
Net profit for the -2.1 -3.1 -3.3 -5.1 -9.8 -9.0
period, %
Order backlog 1,280.3 1,592.6 -312.3 -19.6 1,344.2
New agreements 566.3 344.7 221.6 64.3 154.4 123.3 487.6 709.3

[*)] net effect of -3.1 3.4 -6.5 -5.4 0.6 3.8 -2.8
[ **)] derivatives -1.7 -5.4 3.7 -0.2 -1.4 -3.7 0.1
included in
financial income
and expenses

1. Operative operating profit is determined by deducting the calculated rouble exchange differences included in financial items and their potential hedging impacts from operating profit. Net exchange rate differences during the review period amounted to EUR -3.1 (3.4) million, of which the effect of currency hedging was EUR 5.7 (-3.4) million.
2. The figure has been adjusted to remove the impacts of IFRS 16.
3. The Group's order backlog consists of the Construction business.
Group key figures(IFRS, EUR 1−9/ 1−9/ 2019 change change, % 1−12/ 2019
million) ...

Författare SRV Yhtiöt Oyj

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