Year-on-year growth in revenue, operating profit improved slightly Interim report 1-3/2017 SRV Group PLC 27th April 2017 Juha Pekka Ojala, CEO Ilkka Pitkänen, CFO
SRV Group 1-3/2017
Growth in revenue, improved operating profit MEUR 1-3/ 2017 Revenue Operating profit 1-3/ 2016 Change MEUR change, % 1-12/ 2016 223.7 143.8 79.9 55.5 884.1 7.3 0.0 7.3 27.7 Operating profit % 3.3 0.0 3.1 Return on equity % 8.8-6.8 5.0 Return on investment % 6.5 0.5 6.1 Equity ratio % 36.4 36.7 38.3 Order backlog 1,722.0 1.572.1 149.9 9.5 1,758.5 Personnel Average 1,099 1,039 1,089 Gearing ratio 103.4 87.5 83.4 3
The beginning of the Year 2017 Strengths and challenges Strengths Large projects and housing construction projects increased revenue Improved operating profit due to revenue growth in operations in Finland. More developercontracted housing was recognised as income than during the comparison period. Higher profits from Russian associated companies also had a positive effect on operating profit especially due to the rouble exchange rate The order backlog continued to stay at the level of EUR 1.7 billion The order backlog of the first quarter was especially impacted by the construction of the first of REDI s residential tower, Majakka Challenges Profitability improved, but not yet at on adequate level Competition has become significantly tougher in both the plot and contracting markets The operating profit was weakened by a rise in the costs of certain projects under construction The International Operations is susceptible to fluctuations in the rouble exchange rate, which may impact SRV`s operating profit 4
Revenue growth was seen in business and housing construction Meur 350 REVENUE Meur 18 p OPERATING PROFIT 300 16 250 200 150 329 14 12 10 8 17,0 16,2 100 50 0 209 227 219 224 194 173 193 165 138 143 155 144 Q1/14 Q2/14 Q3/14 Q4/14 Q1/15 Q2/15 Q3/15 Q4/15 Q1/16 Q2/16 Q3/16 Q4/16 Q1/17 6 4 2 0 9,6 4,4 4,9 6,0 7,3 7,3 2,5 0,8 4,1 4,1 0,0 Q1/14 Q2/14 Q3/14 Q4/14 Q1/15 Q2/15 Q3/15 Q4/15 Q1/16 Q2/16 Q3/16 Q4/16 Q1/17 Major business premises projects started in 2016 have entered the construction phase and are now generating revenue. The recognition of income from 76 (26) developer-contracted housing units also contributed to revenue growth. Meur 25 20 15 10 5 0-5 -10 PROFIT BEFORE TAXES 19,4 14,9 7,2 2,2 3,4 5,7 3,3-0,7 7,3 0,1 3,9-1,5-5,5 Q1/14 Q2/14 Q3/14 Q4/14 Q1/15 Q2/15 Q3/15 Q4/15 Q1/16 Q2/16 Q3/16 Q4/16 Q1/17
The order backlog remains at the level of EUR 1.7 billion A large proportion of the order backlog consisted of housing construction, as construction of the first of REDI s residential towers, Majakka, got underway in the beginning of the year. 6
Operations in Finland 1-3/2017
Urbanisation will continue rapidly The slight pick-up in the Finnish economy is continuing. GDP is expected to grow by 1-2 per cent in 2017. The Confederation of Finnish Construction Industries forecasts that construction will grow 2-3 per cent in 2017. Urbanisation and population shift will continue to be the main drivers of construction The Confederation of Finnish Construction Industries forecasts startups for about 35,000 housing units this year Public service construction start-ups are expected to remain at the same level this year The growth rate in renovation is forecast to remain at last year s level of 2 per cent 8
Revenue and operating profit growing Revenue 219.3 (131.5) MEUR growth +66.8 % Operating profit 5.0 (2.2) MEUR growth +123.2 % Revenue was affected by business construction and housing construction in particular more developer-contracted housing was recognised as income than during the comparison period alltogether 76 (26) developer-contracted housing units recognised as income major business premises projects started in 2016 have entered the construction phase and are now generating revenue Operating profit more developer-contracted housing was recognised as income and also the revenue grew more than during the comparison period was weakened by a rise in costs in certain ongoing construction projects 9
Growth in the proportion of housing construction in revenue Meur 350 REVENUE 319 Meur 25 OPERATING PROFIT 300 20 250 200 150 100 50 0 124 131 55 48 69 82 213 152 219 197 200 176 181 55 52 157 147 93 57 137 131 40 77 43 52 32 25 167 145 144 164 99 114 95 106 120 141 107 Q1/14 Q2/14 Q3/14 Q4/14 Q1/15 Q2/15 Q3/15 Q4/15 Q1/16 Q2/16 Q3/16 Q4/16 Q1/17 15 10 5 0 21,8 6,6 7,0 6,2 18,3 10,2 3,3 4,9 2,4 2,2 7,6 6,6 5,0 Q1/14 Q2/14 Q3/14 Q4/14 Q1/15 Q2/15 Q3/15 Q4/15 Q1/16 Q2/16 Q3/16 Q4/16 Q1/17 Meur Business premises Housing 2 500 2 000 1 500 1 000 500 721 244 477 920 287 633 ORDER BACKLOG 1432 1506 1512 1063 1159 408 554 539 778 262 352 723 272 273 801 807 1024 952 973 506 450 1973 1851 1726 1691 546 557 563 634 1427 1294 1164 1058 Hospital projects, such as the hospital Nova in Central Finland and infrastructure projects are reflected in revenue. Revenue from housing construction in Finland doubled to EUR 54.8 (24.6) million in the January March period. 0 Q1/14 Q2/14 Q3/14 Q4/14 Q1/15 Q2/15 Q3/15 Q4/15 Q1/16 Q2/16 Q3/16 Q4/16 Q1/17 10 Business premises Housing
Developer-contracted housing units recognised as income improved result in the beginning of the year High amount of housing startups in 2015 will be reflected in result and revenue in 2017 In January-March, 76 (26) developercontractedi housing units were recogniced as income When construction of REDI s Majakka begun, number of housing startups rose by 282 units 11
Most of the housing units under construction located in Helsinki Metropolitan Area Most of the housing units centralized particularly in growth centres 63% are situated in Helsinki Metropolitan Area. Developer contracting 1 076 units Investor sold (owndevelopment) 1 068 units Negotiated contracts 164 units Construction contracts 586 units Total of 2,899 (1,830) housing units currently under construction. Out of them, 1,706 (910) are developercontracted housing units. At the end of March, a total of 1,068 (227) units were under construction for investors. 12
International operations 1-3/2017
Russia's economy is growing slightly GDP growth in 2017 +1.5 % in 2018 +1.5 % An estimate by the Finnish Bank The Russian rouble has strengthened and the price of oil rose Growth will be mainly based on private domestic demand, as household consumption especially is expected to finally recover slightly from a deep decline. Changes in the oil price could slow or accelerate Russian growth compared to the forecast level. In addition, growth may pick up if, deviating from plans, public expenditure is increased before the 2018 presidential election. 14
The rouble exchange rate strengthened the operating profit Revenue 4.4 (12.4) MEUR change -64.1 % Operating profit 3.2 (-1.1) MEUR Revenue decreased expectedly as the majority of the revenue has been generated by the construction of the Okhta Mall and 4Daily shopping centres in Russia the 4Daily shopping centre opened its doors in Moscow in 22 nd of April 2017 and The Okhta Mall opened its doors in last Autumn Operating profit improved by strengthening rouble exchange rate SRV s share in its associated companies profit was EUR 4.4 (-1.0) million the operating currency was changed to the rouble during 2016. This accounting change will make SRV more susceptible to fluctuations in the rouble exchange rate. 15
Revenue decreasing as planned due to the end of construction phases 20 REVENUE Meur 3,0 OPERATING PROFIT 18 16 14 12 10 8 6 4 2 14 12 13 18 16 18 18 14 12 18 12 9 4 2,0 1,0 0,0-1,0-2,0-0,6-0,4 0,2 1,8 0,7 0,1-0,3-0,6-1,1-1,5 1,2-2,8 3,2 0 Q1/14 Q2/14 Q3/14 Q4/14 Q1/15 Q2/15 Q3/15 Q4/15 Q1/16 Q2/16 Q3/16 Q4/16 Q1/17-3,0 Q1/14 Q2/14 Q3/14 Q4/14 Q1/15 Q2/15 Q3/15 Q4/15 Q1/16 Q2/16 Q3/16 Q4/16 Q1/17 80 60 40 20 00 80 60 40 20 0 ORDER BACKLOG 159 166 127 137 117 99 86 77 60 49 37 32 31 Q1/14 Q2/14 Q3/14 Q4/14 Q1/15 Q2/15 Q3/15 Q4/15 Q1/16 Q2/16 Q3/16 Q4/16 Q1/17 Shopping centres sales and footfalls have grown the operating result for the associated company that owns Pearl Plaza improved. Shopping centre revenue in Russia is not visible directly in SRV s figures, but via associated companies in the consolidated result. 16
Pearl Plaza and Okhta Mall have recorded new sales and footfall records SRV has won awards for its marketing of Russian shopping centres on several occasions In Pearl Plaza the operating result improved, and the terms of lease agreements have improved 4Daily, Moscow Grand Opening Ceremony in 22 nd of April occupancy rate 60 % 17
SRV today and in the future 18
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The best profitability. To be achieved through the more prudent selection of new projects, that is, by limiting participation in lower-margin tenders and increasing the percentage of developercontracted projects. Currently on-going several major projects where SRV plays a role as an owner as well as a constructor. During 2016, SRV launched numerous internal projects that focused on areas such as boosting the efficiency of procurements, improving planning, shortening construction stages, and improving the management of additional and alteration work. 20
Kalasatama Health and wellbeing centre, Helsinki New Children s Hospital, Helsinki Healthcare and hospital projects have an impact on SRV`s revenue Central Finland Hospital Nova, Jyväskylä Tays Central Hospital, Tampere Women s hospital, Helsinki, 2016 HUSLAB, 2015 Jorvi, Espoo, 2015 21
Helsinki City Theatre renovation Teollisuuskatu 23 peruskorjaus Renovation of Lappeenranta University Court and police building, Joensuu Renovation and refurbishment project 22
Infrastructure construction Ring Road I, Keilaniemi, Espoo REDI, Parking facility Kaitaa metro station excavation, Espoo 23
Over 800 housing units under construction next to west metroline KIVENLAHTI METROCENTER The next phase of the west metro line is proceeding and the new metro stations (along Matinkylä-Kivenlahti) are at the tender phase. ESPOONLAHTI KIVENLAHTI METROCENTER NIITTYKUMPU NIITTYKUMPU KAITAA ESPOONLAHTI TAPIOLA AINOA AALTO UNIVERSITY CAMUS BUILDING AINOA AALTO UNIVERSITY CAMPUS KEILANIEMI KOIVUSAARI KEILANIEMI KALASATAMA 6 residential towers (Majakka 282 apartments) KALASATAMA 24
Majakka apartments almost sold out In Majakka, only eight apartments have not been reserved Sales of the Majakka apartments began in February for those who made reservations in mid-april 112 apartments had been sold Preparations are under way for the start of sales at the next residential tower Majakka construction work began in early 2017, and the work is on schedule apartments will be ready to move in spring 2019 25
Half of business premises at REDI shopping centre have been leased 26
The new centre of Kerava Karuselli shopping centre 1 apartment block above shopping centre 1 common parking facility 4 apartment building on adjacent block The former Aleksintori area superbly combines housing and commercial services, and is an excellent location in the heart of Kerava. KALASATAMA 2016 CONSTRUCTION BEGUN 2018 SHOPPING CENTRE IS READY 2023 APARTMENTS WILL BE READY This is precisely the kind of modern residential and services complex that downtown Kerava hasbeen longing for.
Pearl Plaza St. Petersburg A new record: 826,000 customers in March 2017 Occupancy level: 99.78 % 8.4 million customers visited the shopping centre in 2016 Oulu In January March, Pearl Plaza s sales increased by 20 per cent (in terms of roubles) and 59 per cent (in terms of euros) compared with the corresponding period of the previous year. KALASATAMA 2013 OPENED 2017 8.4 million visitors Pearl Plaza TURKU JyväskyläJoensuu TAMPERE HELSINKI SRV s ownership: 50 per cent Opened in 2013
Okhta Mall St. Petersburg A new record: 400,000 monthly visitors in 2017 Within easy reach of: 1.5 million residents of St Petersburg Occupancy rate: 74.5 % Okhta Mall A modern shopping centre with a total of 250 stores - lot of space for dining and leisure. The largest tenant is Lenta, a Russian grocery chain KALASATAMA 2016 OPENED 2017 Occupancy rate: 74,5 TURKU Oulu JyväskyläJoensuu TAMPERE HELSINKI SRV s ownership: 45 per cent. SRV also owns 27 per cent of the other owner, Russia Invest Opened in August 2016
4Daily Moscow 15,000 visitors in the Grand Opening Ceremony in April 2017 KALASATAMA Occupancy rate: 62 % The only shopping Centre that will be opened in Moscow in 2017 2016 HANDED OVER TO THE CLIENT 2017 OPENING IN APRIL TURKU Oulu JyväskyläJoensuu TAMPERE HELSINKI The shopping centre s anchor tenant is the Russian company Miratorg, whose new concept store is targeted at the middle-class in particular. Other major tenants include Ohana Fitness and the clothing stores Nataly, Tsenopad and Zamania. SRV s ownership: 18.9 per cent
4Daily, Moscow Officially opened its doors in 22th of April the opening ceremony attracted 15 000 visitors Located in Mira Street in Mytischi region four levels, 115 stores, 500 parking lots The shopping centre s anchor tenant is the Russian company Miratorg. Other major tenants include Ohana Fitness the only gym in the neighborhood area Occupancy rate is 60 per cent is expected to be 90 per cent at the end of the year 2017 31
Outlook for 2017 remains the same Full-year consolidated revenue for 2017 is expected to increase and operating profit to improve on 2016 (revenue EUR 884 million and operating profit EUR 27.7 million). However, our strategic target for profitability will only be reached towards the end of the strategic period, in 2019 2020. Although developer-contracted housing will be completed on a steadier schedule than in 2016, a significant part of operating profit will still be made in the second half of the year. Based on current schedules, SRV estimates that a total of 816 developer-contracted housing units will be completed during 2017. The operating currency of all of SRV s subsidiaries and associated companies in Russia was changed to the rouble during 2016. This accounting change will make SRV more susceptible to fluctuations in the rouble exchange rate, which may impact full-year operating profit. 32
Thank you! 33
Appendices
Largest commercial premises projects under construction (estimated figures) 1/2 Project. location Value of SRV contract. MEUR Project type Level of Completion, % Completion date (estimated) REDI, shopping centre and parking facility, 390 Retail, parking 57 Q3/2018 Helsinki TeHyKe, Kalasatama, Helsinki * Public services 60 Q4/2017 Niittykumpu Metro Centre, Espoo * Retail 84 Q2/2017 Keravan Aleksintori * Retail 3 Q4/ 2018 TOIMITILAURAKAT Central hospital of Central Finland, Jyväskylä 290 Public 5 Q3/2018 TAYS Etupiha, Tampere 170 Public 26 Q3/2018 Tapiola city centre (Ainoa), Espoo 110 Retail 87 Q2/2017 Tapiola city centre (Phase 2), Espoo 100+ Retail 1 Q1/2020 Aalto University, Espoo 76 Public 25 Q2/2018 The 35 value of individual contracts has not been published.
Largest commercial premises projects under construction (estimated figures) 2/2 Project. location Value of SRV contract. MEUR Project type Level of Completion, % Completion date (estimated) Keilaniemi tunnel and excavation 49 Public 35 Q4/2018 HK Scan poultry processing plant 38 Industry 67 Q2/2017 Rauma Helsinki City Theatre renovation 38 Public 87 Q2/2017 Kaitaa metro station excavation 32 Public 56 Q2/2018 University of Lappeenranta renovation 31 Public 28 Q4/2018 Court and police building, Joensuu 30 Public 83 Q3/2017 Renovation of an administrative building for * Public 56 Q3/2017 the University of Helsinki HDC Teliasonera, Helsinki * Industry 32 Q1/2018 New Children s Hospital, Helsinki * Public 65 Q4/2017- Q2/2018 *The value of individual contracts has not been published. 36
The largest developer-contracted housing projects under construction in Finland (estimated figures) Project, location Value of SRV contract, MEUR Completion Sold / For sale REDI Majakka, Helsinki 106 Q2/2019 96/186 Niittyhuippu, Espoo 57 Q4/2017 163/37 Försti, Helsinki 23 Q4/2017 56/44 Satamarannan Masto, Oulu 21 Q2/2017 33/19 Mantteli, Helsinki 16 Q2/2017 55/0 Niittyheinä, Espoo 16 Q2/2017 15/44 * The value of individual contracts has not been published. 37
The largest ongoing housing projects in Finland, housing contracting (estimated figures) 1/2 Housing project, location SRV, contract value, MEUR Completion level, %* Completion date (estimated)* Wood City, ATT * 24 Q1/2018 Vantaan Celica, LähiTapiola * 84 Q2/2017 Vantaan Verso, ELO * 89 Q1/2017 Espoon Niittytori, SATO * 92 Q2/2017 Suurpellon Puistokatu * 46 Q1/2018 Vantaan Neilikkatie, Ilmarinen * 19 Q2/2018 *The value of individual contracts has not been published. 38
The largest ongoing housing projects in Finland, housing contracting (estimated figures) 2/2 Housing project, location SRV, contract value, MEUR Completion level, %* Completion date (estimated)* Keravan Orno, Ilmarinen * 25 Q2/2018 Vantaan Hernetie, OP * 23 Q2/2018 Helsingin Välimerenkatu 10, Ilmarinen * 18 Q3/2018 Keravan Aleksinkulma ja puisto, Etera * 3 Q1/2019 Suurpellon Puistokatu D, TA Yhtiöt * 12 Q3/2018 HOAS Kumpula * 3 Q3/2018 * Urakan kokonaisarvoa ei ole julkistettu. 39
Consolidated income statement EUR million 1-3/2017 1-3/2016 1-12/2016 Revenue 223,7 143,8 884,1 Other operating income 0,7 0,2 2,1 Change in inventories of finished good and work in progress 20,5 25,6 37,8 Use of materials and services -216,5-145,8-797,8 Employee benefit expenses -19,0-17,7-73,0 Share of profits of associated and joint venture companies 4,5-1,3 7,4 Other operating expenses -5,7-4,0-26,3 EBITDA 8,2 0,8 34,3 Depreciation and impairments -0,9-0,8-6,6 Operating profit (EBIT) 7,3 0,0 27,7 Financial income 2,9 0,7 7,0 Financial expenses -2,9-6,3-18,4 Financial income and expenses. total 0,0-5,6-11,3 Profit before taxes 7,3-5,5 16,4 Income taxes -0,7 0,8-2,0 Net profit for the financial year 6,5-4,7 14,4 40
Balance sheet EUR million 31.3.2017 % 31.12.2016 % Non-current assets 320,2 34,3 % 306,1 34,7 % Inventories 447,0 47,9 % 400,3 45,4 % Other current assets 124,5 13,3 % 121,6 13,8 % Cash and cash equivalents 41,2 4,4 % 54,6 6,2 % Total assets 932,9 100,0 % 882,5 100,0 % Equity 300,8 32,2 % 295,3 33,5 % Non-current interest bearing liabilities 275,2 29,5 % 227,2 25,7 % Other non-current liabilities 28,4 3,0 % 26,0 2,9 % Current interest bearing liabilities 77,0 8,3 % 73,7 8,4 % - Housing loans (current and non-current) included above 74,3 42,1 Other current liabilities 251,5 27,0 % 260,3 29,5 % - thereof advance payments related to construction contracts 95,3 101,8 Total equity and liabilities 932,9 100,0 % 882,5 100,0 % Net debt as of Mar 31.2017: EUR 311,0m (12/31/16: EUR 346.3m) Net debt as of Mar 31.2017: excluding housing loans: EUR 236.8m (12/31/16: EUR 204.2m) 41
Indebtedness in detail EUR million 31.3.2017 31.3.2016 31.12.2016 Non-current interest bearing liabilities Loans from financial institutions 26,9 15,8 11,0 Bonds 174,3 174,2 174,3 Housing corporation loans 74,0 57,4 41,9 Subtotal 275,2 247,4 227,2 Current interest bearing liabilities Loans from financial institutions 14,7 29,8 22,5 Commercial papers 62,0 92,5 51,0 Housing corporation loans 0,3 0,3 0,2 Subtotal 77,0 122,5 73,7 Total interest bearing liabilities 352,2 370,0 300,9 Cash and cash equivalents 41,2 122,8 54,6 Net debt 311,0 247,2 246,3 Total interest bearing liabilities (excl. housing loans) 277,9 312,3 258,8 Net debt (excl. housing loans) 236,8 189,5 204,2 42
Consolidated cash flow statement EUR million 1-3/2017 1-3/2016 1-12/2016 Cash receipts from customers 221,0 134,3 881,6 Cash receipts from other operating income 0,7 0,2 2,1 Cash generated from operations -261,2-165,8-838,9 Net cash before interests and taxes -39,5-31,3 44,8 Interests received and other financial income 0,3 0,1 0,2 Interests paid and other expenses from financial costs -13,7-0,6-9,9 Income taxes paid 1,0-0,8-4,0 Cash flows from operating activities -52,0-32,8 31,1 Cash flow from investing activities -0,9 2,7-39,4 Cash flow from financing activities 39,2 117,8 27,7 Net change in cash and cash equivalents -13,8 87,8 19,5 Effect of exchange rate changes in cash and cash equivalents 0,4 0,0 0,1 Cash and cash equivalents at the beginning of financial year 54,6 35,0 35,0 Cash and cash equivalents at the end of period 41,2 122,8 54,6 43