CEO’s review

CEO’s review

Half-Year Report 1-6/2020, 21 July 2020

During the second quarter, we successfully completed our recovery programme. We carried out all the measures we promised within the planned timeframe. Both of the share issues included in our recovery programme were organised with good results in the second quarter. In the directed issue for hybrid holders, about EUR 75 million of the EUR 92 million principal of the hybrid bonds, including interest, was converted into shares. The rights issue in June generated EUR 50 million in new capital. I am very pleased with the trust shown in us and the disciplined implementation of our recovery programme.

Between the share issues, we also completed written procedures whereby we amended the payment schedules and certain terms of our bonds. These measures lengthen the repayment profile of our loan structure.

During the review period, the earnings trend in construction remained good, and our ongoing projects proceeded in line with plans. However, our operative operating profit is burdened by an approximately EUR 3 million provision for damages recognised by our Russian subsidiary, more than EUR 1 million in non-recurring expenses from the recovery programme, expenses related to preventing Covid-19, and particularly the sales losses caused by the slowdown in housing sales in April and the decline in visitor numbers at shopping centres.

As planned, we have quickly turned our project portfolio to include lower-risk and less equity-intensive projects. In January-June, we recognised over EUR 400 million in new projects in our order backlog – the most significant of these are the basic renovation of operating theatres at HUS Jorvi Hospital, the Siuntio education and wellness campus, and the Jousenkaari school. We continue to pursue projects with solid customers that pay for construction work in accordance with its progress, and therefore do not tie up any of SRV’s capital. In addition, supported by our stronger financial situation and the recovery of housing sales, we will seek to start up selected developer-contracted housing projects during the rest of the year.

The exceptional arrangements implemented to prepare for Covid-19 during the spring ushered in some additional costs, but we have avoided the most serious consequences and all our sites have remained in operation in spite of the unusual circumstances. The coronavirus pandemic slowed down housing sales in the period from late March to early May in particular, which had an impact on the pace of sales. To date, the overall impacts of the coronavirus pandemic have been moderate, but its effects on the construction market and the potential continuation or re-escalation of the pandemic blur the outlook for the future.

In Russia, the coronavirus pandemic led to the closure of majority of shops in our shopping centres in late March. A large share of the stores at our shopping centres in St Petersburg remain closed. The opening of shopping centres and consumer confidence in the safety of shopping and the development of their own finances have a major bearing on the operational earnings trends of the shopping centres and may also be reflected in the timing of future sales of properties.

Thanks to the successful implementation of the recovery programme, our balance sheet and financial position have strengthened, and our order backlog has remained strong while becoming less risky. These together with our customers’ trust create a solid foundation for developing SRV further. I thank our personnel for their strong commitment and excellent efforts on our turnaround.

We will continue to focus on our operative earnings performance and the development of our business operations – due to our stronger financial position, we are well poised to do so.

Saku Sipola
President and CEO
SRV Group Plc