SRV logo
No search results.

First-half profit improvement from Russian shopping centre projects – SRV adjusts its outlook: SRV’s interim report 1 January – 30 June 2013


Reporting period 1 January–30 June 2013 in brief:

• SRV’s revenue was EUR 337.8 million (EUR 310.4 million in 1-6/2012), change +8.8%
• Operating profit was EUR 14.9 million (EUR 4.9 million), change +206.7%
• Result before taxes was EUR 14.0 million (EUR 2.8 million), +407.8%
• The order backlog at the close of the review period was EUR 959.2 million (EUR 746.3 million), change +28.5%
• Equity ratio was 35.2 per cent (29.7%)
• Earnings per share were EUR 0.32 (EUR 0.03)

SRV has revised its outlook for 2013. The Group’s full-year revenue is expected to exceed EUR 700 million and the result before taxes is forecast to be at least around EUR 20 million.

Earlier profit guidance: The Group’s full-year revenue is estimated to reach at least the same level as in the previous year (EUR 641.6 million) and the result before taxes is forecast to exceed that of the previous year (EUR 2.8 million), even if planned sales of office properties do not occur this year.

Second quarter 1 April – 30 June 2013 in brief:
• Revenue amounted to EUR 179.4 million (EUR 169.7 million in 4-6/2012)
• Operating profit was EUR 13.7 million (EUR 3.1 million)
• Result before taxes was EUR 13.3 million (EUR 2.5 million)
• Earnings per share were EUR 0.35 (EUR 0.04)

The interim report has been prepared in accordance with IAS 34. The disclosed information is unaudited.

CEO Jukka Heinonen comments on SRV’s result:

In the second quarter, SRV’s financial performance took a clear turn for the better. A key factor in this was the success of our projects in Russia.

Our decision to focus in Russia on developing, building and commercialising shopping centres has proved to be an excellent choice. Due to the success of leasing activity, we have high expectations for the Pearl Plaza shopping centre, which will open in a few weeks. We have now launched in St. Petersburg the new Okhta Mall shopping centre project, which is bigger still. Over a quarter of its premises have already been leased.

Our International Operations already account for more than a fifth of SRV’s revenue. Operational growth has been possible due to SRV’s own expertise as well as cooperation with excellent investment partners. We are implementing the project in collaboration with a Finnish investment group, which enables the financing of large projects. Our shopping centre projects in Russia are also supported by the availability of local financing on competitive terms as well as good demand for business premises, which in turn reflects confidence in the development of consumer spending.

Due to the project development nature of Russian business, project profitability is mainly realised at the time of sale of projects. When development sites mature for sale, the overall financial result of our projects will also be good.

In Finland, the construction market has been sluggish for some time now. Political decisions have punished a house buyer. The March increase in asset transfer tax is already now perceived to be a mistake, and its harmful impact is evident in the level of consumers’ house-buying activity. Planning processes are still very long and difficult to predict in terms of their timetable. The construction-related appeals procedure, moreover, can harm projects significantly and raise costs, which are ultimately payable by house buyers.

The profitability of our Domestic Operations has not improved as we wished in the early part of the year. Our order backlog has consisted of too much low-margin contracting, and orders have been made mainly in a highly competitive climate. The fact that, in housing construction, we have increased the level of SRV-developed housing production and significantly reduced our participation in competitive contracts will have a positive influence on the development of our profitability.

Of our housing production, more than 60 per cent consists of SRV’s developer contracting or production sold to investors as negotiated contracts. In the early part of the year, we have entered into significant new contracts with institutional investors with respect to our future rental housing projects. I believe that our focus on improving the profitability of our order backlog will be positively evident in the future.

Our order backlog is nearly one billion euros, which is again a new record in the company’s history. Despite the unforgiving nature of the industry, we have also managed to grow our domestic order backlog by more than EUR 100 million in the first half of the year. Both Helsinki Metropolitan Area projects and our regional units in other growth centres have contributed to this achievement.

The observed financial performance has encouraged us to adjust our profit guidance for the full year. We expect revenue to exceed EUR 700 million and pre-tax profit to be at least about EUR 20 million, which is clearly better than last year’s figure.


Group key figures
(IFRS, EUR million)
1-6/ 2013 1-6/ 2012 change, MEUR change, % 4-6/ 2013 4-6/ 2012 1-12/ 2012
Revenue 337.8 310.4 27.4 8.8 179.4 169.7 641.6
Operating profit 14.9 4.9 10.0 206.7 13.7 3.1 6.9
Financial income and expenses, total -0.9 -2.1 1.2   -0.4 -0.6 -4.1
Profit before taxes 14.0 2.8 11.2 407.8 13.3 2.5 2.8
Order backlog 959.2 746.3 212.9 28.5     827.8
New agreements 424.5 208.1 216.5 104.0 384.5 142.5 594.5
Operating profit, % 4.4 1.6     7.6 1.8 1.1
Net profit, % 4.0 0.4     7.4 0.9 0.1
Equity ratio, % 35.2 29.7         34.7
Net interest-bearing debt 245.0 288.0 -43.0 -14.9     267.9
Gearing, % 112.5 172.3         126.2
Return on investment, % 1) 6.6 2.7         2.2
Return on equity, % 1) 12.4 1.3         0.5
Earnings per share, EUR 0.32 0.03 0.29   0.35 0.04 0.02
Equity per share, EUR 4.86 4.61 0.25 5.5     4.62
Share price at end of period, EUR 3.28 3.30 -0.02 -0.6     3.26
Weighted average number of shares outstanding, millions 35.5 35.5   0.0     35.5

1) In calculating the key ratio, only the profit for the period has been annualised.

Overall review

The Group’s order backlog rose to EUR 959.2 million (EUR 746.3 million in June 2012), an all-time record for the company. The value of new agreements rose to EUR 424.5 million (EUR 208.1 million in 1-6/2012).

Thanks to growth in revenue from International Operations, the Group’s revenue grew by 8.8 per cent to EUR 337.8 million (EUR 310.4 million). The Group’s operating profit improved to EUR 14.9 million (EUR 4.9 million) due to growth in the second-quarter operating profit from International Operations. The operating profit margin was 4.4 per cent (1.6%). Several factors impact on the quarterly variation in the operating profit and operating profit margin: SRV’s own projects are recognised as income upon delivery, the part of the order backlog that is continuously recognised as income mainly consists of low-margin contracting, a share equivalent to the ownership of SRV’s associated companies is eliminated from the profit margins of construction carried out for these companies, and the project development nature of operations. The Group’s result before taxes was EUR 14.0 million (EUR 2.8 million). The result for the period was improved by a fall in financial expenses.

The Group’s equity ratio was 35.2 per cent (29.7%). The EUR 45 million hybrid bond (equity bond) that SRV issued on 28 December 2012 contributed to the growth in the equity ratio.

Revenue from Domestic Operations amounted to EUR 264.0 million (EUR 271.4 million) and operating profit to EUR 6.1 million (EUR 11.3 million). Revenue for the review period was impacted by the decrease in revenue from developer contracting during the second quarter. Several factors impacted on operating profit: the order backlog recognised as income mainly consisted of low-margin contracting, the volume of housing developer contracting was lower in the second quarter, and a EUR 3.9 million profit margin decrease was recognised for one ongoing and three completed projects, primarily in the first quarter. The domestic order backlog grew to EUR 771.6 million (EUR 661.7 million). In order to improve profitability, the operational focus has been shifted to stepping up development projects and negotiated contracts.

On the whole, favourable trends were seen in housing sales in Finland and SRV sold a total of 401 units (368) to consumers and investors. As sales to consumers slackened in the second quarter due to the transfer tax hike and growing uncertainty about the outlook for the economy, the focus has been shifted to rental housing development projects. During the review period, in addition to the sale of 202 rental housing units (116) to investors under negotiated contracts, SRV made preliminary agreements with two housing funds to build 366 housing units; the latter units will be built on plots owned by SRV and are not included in the domestic order backlog.

SRV had 1,525 rental and owner-occupied units under construction (2,060 on 30 June 2012), of which 550 were developer-contracted. 77 per cent of housing units under construction have been sold, and 64 per cent of production consists of rental and right-of-occupancy units. Based on advance marketing, the decision has been made to initiate the construction of 25 additional housing units. The volume of housing contracting has been decreased and 63 per cent of production (40%) consisted of rental housing development projects or developed-contracted production sold to investors.

Revenue from International Operations grew to EUR 73.9 million (EUR 39.0 million). Most of the revenue was generated by the construction of the Pearl Plaza shopping centre, 50%-owned by SRV, and the sale in June of a 55 per cent stake in the Okhta Mall shopping centre project in St. Petersburg to Russia Invest, an investment company owned by SRV, Ilmarinen, Sponda, Etera and Onvest. Operating profit was EUR 11.5 million (EUR -4.5 million). Growth in the level of activity, the sale of the company’s holding in the shopping centre project, and the implementation of cost-savings measures contributed to the improvement in operating profit. Operating profit was also increased by an EUR 8.3 million change in the fair value of the holding in the Okhta Mall shopping centre when SRV lost its controlling interest in a transaction carried out in June and its remaining holding was measured at fair value.

Second-quarter consolidated revenue amounted to EUR 179.4 million (EUR 169.7 million) and operating profit to EUR 13.7 million (EUR 3.1 million). The growth in the revenue and profitability of International Operations contributed to the rise in revenue and operating profit.

Of SRV’s major international projects, construction of the Pearl Plaza shopping centre in St. Petersburg is scheduled for completion in August 2013 and all of its premises have either been leased or a lease is in the final stages of negotiation. Leasing of the Okhta Mall project in St. Petersburg has likewise progressed well. When its 55 per cent stake in this project was sold, SRV signed project management contractor agreements valued at over EUR 160 million on the development, design, leasing, marketing and construction of the shopping centre. Construction is expected to begin in late 2013 once the final building permit has been secured. Projects in Finland include the construction of the Derby Business Park in the Perkkaa district of Espoo. The second phase of this project was completed in June 2013 and 90 per cent of the premises have been leased.

SRV’s own project development operations are paving the way for substantially increasing operating volumes in Finland. These projects require long-term development work and are carried out over the course of several years. Many of SRV’s projects are so-called landmark projects – innovative new solutions for the needs of sustainable regional construction. Such projects include, for example, the Keilaniemi Towers housing project, the Kalasatama Centre in Helsinki, and a project to develop the area adjacent to the Niittykumpu metro station in Espoo. In St. Petersburg and Moscow, SRV will from now on focus on the development of shopping centre projects. SRV will harness the investment potential of both the Russia Invest investment firm and the VTB and Ashmore property funds in order to support the financing of these projects.

Financial targets

On 12 February 2013, SRV’s Board of Directors confirmed the Group’s strategy for 2013–2017. The Group’s strategic targets are defined as follows:
• During the strategic period, SRV will focus on improving profitability rather than on growth
• International Operations will account for more than 20 per cent of Group revenue
• The operating profit margin will reach 6 per cent
• The return on equity will be at least 15 per cent
• The equity ratio will remain above 30 per cent
• A dividend payment equalling 30 per cent of the annual result, taking into account the capital needs of business operations    

For the set targets to be achieved, a significant increase in the number of developer-contracted projects is required.

Outlook for 2013

SRV has revised its outlook for 2013.

The volume and the completion schedules of developer-contracted housing production, trends in the order backlog margin, the number of new construction contracts, the realisation of planned project sales, the recognition of SRV’s own projects as income upon delivery, the fact that the order backlog that is continuously recognised as income mainly consists of low-margin contracting, and the project development nature of operations all have an effect on the quarterly variation and development of revenue and earnings in 2013. Based on current completion schedules, SRV estimates that a total of 504 developer-contracted housing units will be completed in 2013. SRV aims to sell the Etmia II office property in Moscow and the Derby Business Park in Espoo in 2013. The general uncertainty seen in the financial markets has also been unfavourably reflected in real estate markets.

The Group’s full-year revenue is expected to exceed EUR 700 million and the result before taxes is forecast to be at least around EUR 20 million.

Press conference  

The interim report will be presented to the media and analysts at the press conference which will take place on 1 August 2013 at 10.30 a.m. at conference room Espa at Hotel Scandic Simonkenttä, Simonkatu 9, Helsinki. The press conference will be held in Finnish. CEO Jukka Hienonen and Executive Vice President, CFO Hannu Linnoinen will be present, among others.

The presentation material of the press conference will be published in Finnish and English on the company website after the conference.

Disclosure procedure

SRV Group Plc follows the disclosure procedure enabled by Standard 5.2b published by the Finnish Financial Supervision Authority. This is a summary of SRV’s Interim report and the complete report is attached as a pdf-file to this release and is also available on our website at

Espoo, 1 August 2013

Board of Directors

All forward-looking statements in this review are based on the management’s current expectations and beliefs about future events, and actual results may differ materially from the expectations and beliefs such statements contain.

For further information, please contact

Jukka Hienonen, President and CEO, +358 (201) 455 213
Hannu Linnoinen, Executive Vice President, CFO, +358 (201) 455 990, +358 (50) 523 5850
Taneli Hassinen, Vice President, Communications, +358 (201) 455 208, +358 (40) 504 3321

Share page