Source January–June 2024 Half-Year Report, published on 18 July 2024:
“In the first half of 2024, the market environment remained unchanged, with very low demand among consumers and investors. Despite this challenging situation, we maintained a robust order backlog in the second quarter, and both our revenue and operative operating profit were higher than last year.
The interest rate is still relatively high, and there are plenty of new owner-occupied and rental units available on the market, so demand for new units remains weak among consumers and real estate investors. However, interest rates have begun to decline cautiously, population growth in the largest cities is relatively strong and construction costs have dropped substantially — this will lead to an upswing in demand over the next quarters, although a stronger increase will be seen only a year or two from now. At the moment, the market offers good opportunities for real estate investors, as the projects that are currently being started up will be completed when the market is favourable.
In the second quarter, our business operations developed in line with our expectations. Our revenue increased by around 30 per cent year-on-year. Our operative operating profit also outperformed the comparison year on the back of strong volume growth and increased operational controllability, even though the project portfolio was focused on lower-margin cooperative contracting. However, the operating profit remained modest.
At the end of the review period, our order backlog was EUR 1,067 million, up around 8 per cent year-on-year. In the second quarter, we transferred several projects into our order backlog, among them the Research Hub in the Sähkötalo building in Tampere, the Suutarila multipurpose building in Helsinki, and the Ohkola hospital building at Laakso Joint Hospital. The latter order is part of an approximately EUR 800 million agreement for the Laakso Joint Hospital project, of which about EUR 500 million has been entered into our order backlog to date. The remaining phases will be entered into our order backlog in stages during the years ahead. In addition, previously won contracts and projects under preliminary contracts will be recognised in our order backlog, with a value of around EUR 934 million.
It is important that our balance sheet is healthy and our financing is in good shape so that we are prepared for the expected recovery of the market. The total number of unsold completed residential units is low at 96, and the company has not committed a significant amount of its own capital into unsold housing. Our operational business and thus the controllability of our projects are also at a good level, which is reflected in, among other things, occupational safety, customer satisfaction and achievement of budgeted margins. We were recognised for our occupational safety efforts during the current review period as well — in May, the underground works carried out by SRV Infra in the Laakso Joint Hospital project were awarded the title of best site of 2023 in the Uusimaa Occupational Safety Competition.
Lifecycle wisdom, i.e. construction that is sustainable from an environmental, human and financial perspective, is at the heart of SRV’s strategy. The headquarters of cybersecurity company WithSecure — completed in July in the Wood City quarter, which we developed in Jätkäsaari, Helsinki — is an excellent example of SRV’s strong expertise in developing, designing and constructing lifecycle-wise buildings and strongly supporting the development of cities towards their carbon-neutrality targets. WithSecure’s headquarters has a large carbon handprint and is one of the first projects in Finland to comply with the new EU taxonomy. With the completion of this building, we also wrapped up the construction of the Wood City quarter with flying colours. This flagship of Finnish wood construction has attracted international interest.
The market is still in a wait-and-see mode. However, a change for the better is already on the horizon, although it is difficult to predict accurately when it will occur. Thanks to our healthy balance sheet, favourable risk position and strong project development portfolio, SRV is poised to pursue growth as soon as the market offers opportunities to restructure the project portfolio towards developer-contracted and development projects in line with our strategy. Until then, our robust order backlog in cooperative contracting will carry us over this difficult period. In addition, we believe that it will be possible to start up selected developer-contracted or development projects during the second half of the year, especially when investors estimate that the time is right to launch investments."
Saku Sipola
President and CEO
SRV Group Plc