Financing and Financial Position
In February, the company agreed on the replacement of its EUR 100 million revolving credit facility with the bank syndicate; the facility was replaced with two separate revolving credit facilities, one of EUR 60 million and one of EUR 40 million. At the end of June, the company made an agreement with the bank syndicate the undrawn portion, amounting to EUR 9 million, of the EUR 60 million credit facility will be terminated. The remaining amount of the facility is EUR 51 million. According to the repayment plan updated in April, EUR 11 million of the EUR 60 million credit facility will be repaid in December 2021 and EUR 40 million in January 2022. The credit facility of EUR 40 million will be used to finance future construction projects. It falls due in January 2022 or within another repayment period agreed for separate construction projects. At the end of June, EUR 35.8 million of the EUR 40 million facility remained undrawn. On 31 December 2019, the company had a total of EUR 18.5 million issued commercial papers outstanding, all of which were repaid during the first quarter. At the end of the period, the Group’s financing reserves totalled EUR 105.2 million (77.6 06/2019), consisting of unused project loans worth EUR 7.0 million and cash and cash equivalents worth EUR 98.2 million.
As part of its recovery programme, the company implemented many measures in April-June to improve its balance sheet position, finance ability and liquidity. In April-June, the company agreed on the abovementioned changes to the payment schedule with the syndicate banks and agreed to halve the minimum operating margin levels contained in its revolving credit facility agreements, as a precautionary measure against potentially weakened profit margins resulting from the coronavirus pandemic.
In May, the company organised a directed share issue for the holders of the two outstanding hybrid bonds. In the issue, about EUR 75 million of the EUR 92 million principal of the hybrid bonds and the interest accrued on them were converted into shares. As a result of the implementation of the share issue, the total outstanding principal of the 2016 hybrid bonds is approximately EUR 11.8 million and the outstanding principal of the 2019 hybrid bonds is approximately EUR 3.6 million. The share issue increased the total number of SRV shares by 71,468,395 to 131,967,970. The new shares were entered in the Trade Register on 19 May 2020.
At the end of May, SRV carried out written procedures to extend the one-year tenor of its EUR 100 million (of which EUR 62.1 million is outstanding) senior unsecured callable fixed-rate notes due 23 March 2021 and the one-and-a-half-year tenor of its EUR 75 million senior unsecured callable fixed-rate notes due 27 March 2022 as well as to amend certain terms and conditions of these notes.
In June, the company organised a rights issue in which SRV received gross income of approximately EUR 50 million. Due to the share issue, SRV’s number of shares rose by 131,049,371 from 131,967,970 to a total of 263,017,341 shares. The new shares were entered in the Trade Register on 18 June 2020. The capital loan of EUR 9 million drawn on 30 March was used for payment in accordance with its terms and conditions, and was converted into equity.
These arrangements and positive development of the results and cash flow, substantially improved the company’s balance sheet position, liquidity and financial position. At the end of June, the company’s equity ratio (excluding the impact of IFRS 16) was 30.6 per cent (26.4 1-12/2019) and gearing (excluding the impact of IFRS 16) was 83.5 per cent. The company’s cash and cash equivalents amounted to EUR 98.2 million (27.7 1-12/2019) and total liquidity to EUR 105.2 (77.6) million.
The financial covenants of SRV’s financing agreements are equity ratio, net gearing, minimum operating margin, minimum cash, the interest coverage ratio and certain other restrictions. The interest coverage ratio is the ratio of the Group’s operating margin (EBITDA) to its net financial expenses. The interest cover ratio is tested only if and when new loan financing is withdrawn; the covenant does not prevent the refinancing of existing sources of financing.
The covenant levels of these financing agreements are determined on the basis of the accounting principles in force when the loan agreements were signed. Therefore, IFRS 16 has had no effect on the covenants for existing loan agreements. 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, and these are explained in the Notes to this interim report. The covenants for all loan agreements were met on 30 June 2020.
Net interest-bearing debt totalled EUR 307.4 (480.2) million at the end of the review period. Net interest-bearing debt saw a year-on-year decrease of EUR 172.8 million. Excluding the impact of IFRS 16, net interest-bearing debt totalled EUR 177.0 million, representing a fall of EUR 129.6 million on the comparison period. Housing corporation loans account for EUR 60.0 (89.4) million of the interest-bearing debt. Cash flow from operating activities was EUR 15.0 (-72.5) million and cash flow from investing activities was EUR 34.3 (16.7) million. The positive cash flow from operations was primarily attributable to the release of capital from contract sites sold to investors and the completion of two developer contracting projects. The cash flow from investments was positively affected by the sale of holdings in REDI and Tampere Deck and Arena. During the review period, the cash flow impact of share issues, after expenses, was EUR 47.1 million, including the capital loan of EUR 9 million converted into shares.
Net financial expenses since the beginning of the year totalled EUR -14.2 (-11.3) million. Net financial expenses included EUR 2.3 (2.1) million in dividend and interest income, exchange rate differences amounting to EUR -4.2 (3.3) million arising from the conversion of subsidiary and associated company loans, which did not have an impact on cash flow, interest paid on derivatives and fair value changes amounting to EUR -1.5 (-3.9) million and interest expenses of EUR -6.6 (-7.0) million, of which EUR 0.3 (0.4) million was capitalised in accordance with IAS 23 as from the beginning of the year. In addition, financial expenses included EUR -2.8 (-3.4) million in interest under IFRS 16 and EUR -1.7 (-2.8) million in other financial expenses, including expenses related to financing arrangements.
SRV’s investment commitments totalled EUR 30.0 (52.7) million at the end of June, and mainly consisted of investments in Fennovoima’s Hanhikivi-1 nuclear project and the Tampere Deck and Arena project.
SRV is exposed to changes in the exchange rate of the rouble through its Russian subsidiaries. The weakening rouble led to translation differences of EUR -9.4 (9.3) million, which impacted both shareholders’ equity and the comprehensive result for the period. In addition to currency exchange rate losses of EUR -4.2 (3.3) million in financial income and expenses, the Group also entered similarly derived currency exchange rate losses of EUR -3.6 (5.6) 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. Currency exchange rate losses were reduced by EUR 5.9 (-2.8) million in net hedging returns. The total impact on shareholders’ equity was EUR -11.4 million.
Half-Year Report 1-6/2020, 21 July 2020