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Financing and Financial Position

Financing and Financial Position

The company carried out the comprehensive restructuring of financing as planned during the review period due to the impairments of assets in Russia and the holding in Fennovoima as a result of Russia’s war against Ukraine and the related economic sanctions. These impairments had a substantial impact on SRV’s shareholders’ equity and equity ratio, and restructuring sought to counteract the effects of these impairments by substantially strengthening equity and reducing net interest-bearing debt.

The restructuring of financing during the review period consisted of the following measures:

  • A rights issue of about EUR 34.8 million for the shareholders of the company. The issue was fully subscribed.
  • The company’s EUR 100 million unsecured fixed-rate notes (with an outstanding principal of EUR 21.1 million after the reconciliation of the notes purchased in the tender offer on 30 June 2022) and EUR 75 million unsecured fixed-rate notes (with an outstanding principal of EUR 36.0 million after the reconciliation of the notes purchased in the tender offer on 30 June 2022) were converted into hybrid and convertible bonds in written procedures. Conversion into convertible bonds was executed by amending the terms and conditions of the notes with the inclusion of a special right to convert the notes into shares pursuant to the Companies Act if the company does not redeem them before 30 June 2026. The notes were measured at fair value, which was 60 per cent of their nominal value when the terms and conditions were amended. EUR 34.3 million of the hybrid and convertible bonds with a nominal value of EUR 57.1 million were recognised in the balance sheet as equity instruments and the difference between their nominal value and carrying amount, EUR 22.8 million, was recognised as other financial income. During the written procedure on the amendment of the terms and conditions, the company made a voluntary tender offer to the noteholders at a price of 60 per cent of the nominal value. In the tender offer, notes with a total nominal value of EUR 42.7 million were purchased for EUR 25.6 million.
  • The terms and conditions of the EUR 45.0 million hybrid bonds the company issued on 22 March 2016 (with an outstanding principal of EUR 11.8 million) and the EUR 58.4 million hybrid bonds the company issued on 23 May 2019 (with an outstanding principal of EUR 3.6 million) were amended in a written procedure such that 55 per cent of the principal of the notes was written down and the remainder was converted to shares in a directed share issue with a subscription price of EUR 0.10 per share. 3 per cent of the outstanding principal of the hybrid bonds issued on 22 March 2016 and 100 per cent of the outstanding principal of the hybrid bonds issued on 23 May 2019 were used to subscribe for shares in the directed issue. The unconverted nominal value of the hybrid bonds was written down entirely.
  • With the syndicate banks, the company agreed on the extension of its revolving credit facility and project financing facility by 12 months and certain other amendments to the agreement on the revolving credit facility and project financing facility.

Net interest-bearing debt totalled EUR 90.1 million (170.0 12/2021) at the end of the review period. Net interest-bearing debt saw a year-on-year decrease of EUR 79.9 million. Excluding the impact of IFRS 16, net interest-bearing debt totalled EUR -4.6 million (81.0 12/2021), representing a decrease of EUR 85.5 million on the comparison period. Housing corporation loans accounted for EUR 14.7 million (18.1 12/2021) of the interest-bearing debt. The amount of net interest-bearing debt was significantly impacted by the rights issue in June and the partial repurchase of notes and their conversion into hybrid bonds.

At the end of the review period, the company’s equity ratio (excluding the impact of IFRS 16) was 43.9 per cent (32.8 12/2021) and gearing (excluding the impact of IFRS 16) was -3.1 per cent (47.5 12/2021). The equity ratio calculated as per the covenants of financing agreements was 45.9 per cent, as the covenant calculation took into account the recognition of income from developer-contracted projects on the basis of percentage of completion. The aforementioned financing arrangements carried out in June had a significant impact on the equity ratio and gearing.

At the end of the review period, EUR 10 million of the company’s EUR 30 million revolving credit facility was withdrawn and EUR 20 million was unused. EUR 35.8 million of the company’s EUR 40 million committed project financing facility was unused at the end of the review period. In addition, the company’s EUR 63 million non-committed project financing facility was entirely unused at the end of the review period. As part of the aforementioned restructuring of financing, the due date of the revolving credit facility and project financing facility was extended to April 2024.

At the end of the period, the Group’s financing reserves totalled EUR 66.7 million (100.1 12/2021), consisting of unused project loans (EUR 0.9 million), an undrawn revolving credit facility (EUR 20 million) and cash and cash equivalents (EUR 45.7 million). Financing reserves were affected by EUR -17.2 million (3.9 6/2021) in cash flow from operating activities and investments, EUR -6.6 (-42.0) million in cash flow from financing activities, and a decrease in undrawn project loans.

The financial covenants of SRV’s financing agreements are equity ratio, gearing, minimum operating margin, minimum cash, and certain other restrictions. The covenant levels of these financing agreements are determined on the basis of the accounting principles in force when the loan agreements were signed. Recognition of income on the basis of percentage of completion in developer contracting projects and the inclusion of capital loans into equity are taken into consideration in the calculation of the equity ratio covenant. The loan agreements also contain some other deviations from traditional covenant calculation methods. The main covenants of the financing agreements are presented in note 11 to the interim report.

SRV’s investment commitments totalled EUR 19.7 million (19.7 12/2021) at the end of June, and consisted of investments in Fennovoima and the Tampere Central Deck and Arena project.

SRV is exposed to changes in the exchange rate of the rouble through its Russian subsidiaries, associated companies and joint ventures. The strengthening rouble led to translation differences of EUR -6.0 million (2.5 1–6/2021), which impacted both shareholders’ equity and the comprehensive result for the period. In addition to currency exchange rate gains with no cash flow impact amounting to EUR 5.5 (1.4) million in financial income and expenses, the Group also entered similarly derived currency exchange rate gains of EUR 10.7 (1.1) million with no cash flow impact under the profit accounted for by associated companies, which are due primarily to the conversion of currency-denominated loans to roubles and the stronger rouble exchange rate. The total impact on equity before the recognition of impairment was EUR 10.2 million. As a result of write-downs of Russian holdings, the currency risk position has decreased considerably. The remaining position is presented in note 12 to the interim report.

Due to its holdings in Russia, the company has accumulated translation differences totalling EUR -24.1 million directly in equity through the comprehensive income statement. The negative translation difference accrued upon disposal of the holdings will later be recognised as an expense in the income statement with an impact on operating profit, but without an effect on the total amount of equity or operative operating profit.

Interim report 1-6/2022, 21 July 2022