CEO’s review

CEO’s review

Interim Report 1-9/2021, 28 October 2021

The third quarter of the year was challenging as we anticipated. The rise in prices of materials and the postponement of the startup of some projects due to material availability problems as well as the weak financial development of the Tampere Arena project had a significant negative impact on third quarter earnings. As a result, we revised our outlook for 2021. The completion of Tampere Arena still involves risks related to schedule and final costs during the rest of the year, although our site staff has been able to solve many challenges during the autumn.

Most importantly, we continued to make good progress towards our strategic goals, especially with respect to strengthening our balance sheet and reducing indebtedness. This development is expected to remain strong also in the fourth quarter, when e.g. Loisto will be recognised, with practically all of its residential units sold. The number of lifecycle-wise projects is growing, and concept development is advancing rapidly.

The profitability of the project portfolio has continued to develop positively, with the exception of designated projects, and our efficiency programmes are producing results, which creates strong belief in the future. Also in tower construction, controllability has improved significantly with the lessons learned from the completed Majakka and Loisto, as well as Lumo One, which is under construction. For the next tower projects, for which we aim for one transaction by the end of the year, the developed design and engineering solutions will significantly improve cost-efficiency. Our work on project development has started yielding good new project prospects. For instance, we will seek to start up significantly more developer-contracted housing projects next year.

Despite the good development in many areas, next year’s performance is still somewhat overshadowed by certain projects based on old contracts. We expect that the effectiveness of development programmes and next year’s developer-contracted projects will fully accelerate earnings development especially from 2023 onwards.

We entered new projects valued at about EUR 428 million into the order backlog in January–September, including both housing projects and the construction and renovation of business premises. Our major successes during the review period include the EUR 82 million agreement with DWS on the construction of residential units in accordance with our lifecycle-wise strategy. However, our order backlog is smaller than in the comparison period.

We are investing in project development and sales both in housing projects and business premises construction, and these new project startups will enable us to reach our strategic goals in the coming years.  The most significant project we announced this year – which will contribute to our order backlog only in the future – is the Laakso Joint Hospital. After the review period, we signed an implementation phase agreement to construct the Matinkylä upper secondary school in Espoo and made an agreement to build a multipurpose shipbuilding hall at Rauma Shipyard.

Our housing sales have remained brisk and we have only eight completed unsold units. In the future, we’ll step up the number of good developer-contracted projects alongside projects sold to investors in a controlled manner – this will ensure that our housing construction is diverse and well-balanced and will serve to bolster our order backlog.

Favourable trends in sales at Russian shopping centres have continued this year, with sales even exceeding 2019 levels (which is a more relevant comparison year than the pandemic year of 2020). However, the worrying development of the pandemic creates uncertainty to the outlook of the shopping centres. In September, we signed a letter of intent on the divestment of the Pearl Plaza shopping centre and aim to complete the sale this year. In September, we inaugurated the store building we constructed for Decathlon in Mytishchi. The parking garage we built next to Okhta Mall in St Petersburg will be opened in October.

As part of our corporate responsibility governance, we have long developed operating methods to combat the grey economy and ensure the manageability, transparency and legality of the operating chain. Preventing labour exploitation has been identified as an important theme. Going forward, we require all third-country nationals working on the company’s construction sites to have a Finnish-issued residence permit that entitles them to work.

After several changes, our Corporate Executive Team and our whole organisation have found an active touch in developing our operations and building a stronger future. This is a good place to continue forward.

Saku Sipola
President and CEO
SRV Group Plc