CEO’s review

CEO’s review

Interim Report 1-3/2020, 29 April 2020

SRV’s positive turnaround was realised in early 2020 in all aspects of our recovery programme: we announced an extensive financing solution to improve our balance sheet structure, improved our operative earnings performance, while our ongoing projects progressed as planned, and received plenty of new orders. Although the coronavirus pandemic did not have a significant impact on revenue or earnings during the review period, it increases uncertainty in business operations.

The coronavirus pandemic has had only minor impacts on progress at our construction sites, but the housing trade has slowed. We are managing this developing situation daily with regard to both health and supply chain functionality, and are actively seeking solutions to any potential disturbances. Ensuring safe and healthy working conditions plays a key role in safeguarding both progress in our work and our personnel’s and partners’ health and safety. It is difficult to predict the longer-term effects of the coronavirus pandemic. The most significant variable is the duration of the pandemic, combined with society’s ability to open up as quickly as possible and in a controlled manner after the crisis.

Many of the actions we have taken in line with the first part of the recovery programme that we announced in October 2019 and the favourable changes in the subcontracting market situation have strengthened the earnings performance of our construction sites, which is evident in the good operative operating result for the first quarter.

I am extremely pleased that the progress of our recovery programme has strengthened our customers’ confidence in us, and that we have agreed on and launched several new construction sites this year. In March, we announced a EUR 197 million contract with Kojamo for the construction of rental housing in Helsinki and Espoo. We entered almost EUR 200 million in new projects into our order backlog, the most significant of which were the renovation of the Finnish National Theatre, commercial premises for the Radiation and Nuclear Safety Authority (STUK), and a logistics centre for Sagax. These agreements are good examples of 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.

Our measures to develop our balance sheet structure as part of the recovery programme are ongoing in many areas. The Annual General Meeting authorised the Board of Directors to decide on two share issues in support of the recovery programme. In a directed share issue, SRV will offer hybrid bondholders the opportunity to convert their hybrids into shares. The directed share issue’s subscription price will be paid by offsetting existing hybrid bonds and their accrued interest. We have received binding advance commitments worth EUR 57 million from hybrid bondholders. In addition, we will implement a maximum EUR 50 million rights issue for all existing and new shareholders. In this issue too, we already have binding advance commitments to subscribe for EUR 40 million worth of new SRV shares. We intend to implement both share issues by the end of the second quarter.

In addition, after the end of the review period, we agreed on changes to the payment schedule of the revolving credit facility agreed in February. We are making headway in the process of proposing changes to the payment schedule and certain terms and conditions to bond holders. These measures are intended to improve the repayment profile of our loan structure.

In spite of the coronavirus, our construction sites have managed to continue operating well thanks to the effective action taken by our personnel and partners. Progress in our recovery programme, a strengthened order backlog, our customers’ confidence and our personnel’s commitment have all given SRV a fresh new start and have created a firm foundation for developing the company. We will be reviewing our strategy and setting financial targets during 2020. We will build homes, schools, hospitals and business premises to meet the current and future needs of Finnish society.

Saku Sipola
President and CEO
SRV Group Plc