Interim report 1-3/2022, 28 April 2022
“We started the year in optimistic spirits – the implementation of our strategy was progressing well in all areas, our project backlog had recovered, our average profitability had improved and we had won several major new projects. In addition, our balance sheet was well on its way to health, we had reached our gearing target and in practice we did not have any unsold completed residential units. The war that Russia started against Ukraine changed everything dramatically – and we were forced to reassess the valuations of our holdings in Russia.
As a consequence of the war, we have decided to exit from our holdings in Russia on an accelerated schedule. SRV has conducted negotiations regarding the sale of its assets in Russia. Negotiations are still ongoing. Due to war and the followed market situation, we have written down the balance sheet values of practically all of our shopping centres and other holdings in Russia and our investments in Fennovoima, in a total amount of EUR 141.2 million. After the write-downs, the total value of SRV’s holdings in Russia amounts to EUR 2.6 million and there are no more unrecognised profit margin eliminations.
At the same time, we have initiated a financing arrangement seeking to increase our equity by around EUR 100 million as well as reduce our interest bearing net debt by the same amount. We have strong support for the financing arrangement from our major shareholders, bond and hybrid loan investors as well as the banks giving us confidence that the arrangement will be completed. Once the finance arrangement has been completed, we have virtually no net debt (IFRS 16-adjusted) and have very limited risk in Russia. The company has good, healthy construction operations in Finland.
Once the financing arrangement is completed, our company’s balance sheet is expected to recover to its healthy level prior to the write-downs of Russian assets, which will enable the full-scale implementation of our strategy. SRV’s future will be built on good and revitalised construction operations in Finland. Our order backlog is on a healthy and relatively low-risk footing, which we have achieved with our focus on cooperative contracting. During the past year, we have announced many new projects that are expected to increase our order backlog and which are all based on our core strengths, that is, client-focused project development, cooperative contracting and lifecycle wisdom. In our business operations, we will focus on growth centres in Finland and seek to increase the share of our revenue accounted for by housing construction. We are one of the largest construction companies in Finland and have a strong track record in demanding and professionally attractive projects, such as the extension of the Terminal 2 at Helsinki Airport and Supercell’s headquarters at Wood City, Helsinki.
The market situation is currently uncertain and visibility is weak. The impacts of the war on investment demand, housing sales and interest rates remain unclear. At the same time, there is a great deal of uncertainty surrounding the availability of labour and materials, and the prices of materials. Under these circumstances, our first-quarter operative operating profit was satisfactory. We are now focusing on the development of our construction business in Finland and the successful completion of our financing arrangement. Our full-year financial guidance remains unchanged: consolidated revenue for 2022 is expected to amount to EUR 800–950 million and operative operating profit is expected to improve compared with 2021.
We will assess our long-term financial objectives at a later date this year, and will consider restructuring our segment reporting after our exit from Russia.
Putting together an extensive financing package in the middle of a crisis that has diverted resources from the development of operations has required a great deal of effort. The financing arrangement that we have launched has called for hard work from many different parties and has in many respects also meant disappointing the expectations of investors and financiers. I would like to thank all the parties for their contributions, and SRV’s personnel, customers and partners for their solid work during these tough times. We will be in good shape on a new foundation and are highly committed to meeting the expectations of all stakeholders.”
President and CEO
SRV Group Plc