Source January–March 2024 Interim Report, published on 25 April 2024:
“In the early months of 2024, the economy has remained in a recession and no significant changes have occurred in the general market situation. However, even in this challenging business environment, we have been able to systematically forge ahead with strong growth in business construction, especially in cooperative contracting. Due to the prevailing high interest levels, demand for the new properties in both the consumer and real estate investor markets is currently at a low level, which has a substantial impact on our opportunities to start new projects. The controllability of our production is robust and our realised project margins are in line with plans in both housing and business construction. We believe that strong development will begin immediately once the market provides opportunities to restructure our project portfolio in accordance with our strategy.
In spite of the economic climate in the construction industry, our business developed in a favourable direction in the first quarter, as expected. Our stronger order backlog is starting to show in our revenue, which saw year-on-year growth of around 20 per cent. Our operative operating profit also outperformed the comparison period thanks to the higher volume in business construction.
At the end of the review period, our order backlog was EUR 1,020.4 million, up 17 per cent year-on-year. The order backlog will lead to increased revenue when projects get up to full speed. In the first quarter, we transferred several projects into our order backlog, among them the Käkikellokortteli residential block in Nihti, Kalasatama for the City of Helsinki’s housing production service as well as underground facilities and the second stage of infrastructure work for Laakso Joint Hospital. This order is part of an approximately EUR 800 million agreement for the Laakso Joint Hospital project, of which about half has been entered into our order backlog to date. The remaining phases will be entered into our order backlog in stages during 2024–2030. In addition, previously won contracts and projects under preliminary contracts will be recognised in our order backlog, with a value of around EUR 933 million.
In the current market situation, it is extremely important that our balance sheet is strong and our financing is in good shape. 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. With respect to financing, in April, after the review period, we agreed with our main financier banks to exercise the one-year extension option of our current EUR 40 million committed revolving credit facility, which is tied to sustainability targets. In accordance with the exercised extension option, the revolving credit facility is valid until April 2026.
In February, we concluded the change negotiations we had initiated in January with a view to adjusting our costs to the ongoing challenging market situation. These negotiations resulted in slightly smaller personnel cuts and layoffs than anticipated, a total of 19 person-years. We managed to transfer roles and personnel from housing construction to business premises projects, and thereby retained solid expertise within the company.
We do not expect any changes in the market situation — a significant improvement is not foreseen until towards the end of the year at the earliest. Nevertheless, we expect that our revenue and earnings will improve in 2024 thanks to our strong order backlog in cooperative contracting. In addition, we believe that it will be possible to start up selected development or developer-contracted projects in the latter part of the year — the contributing factors are lower construction costs, forecast reductions in interest rates and gradual rent inflation, which support the investment decisions of our customers."
Saku Sipola
President and CEO
SRV Group Plc