SRV GROUP PLC FINANCIAL STATEMENT RELEASE 6 FEBRUARY 2020 8:30 EET
SRV’s financial statement release January–December 2019: SRV to strengthen its balance sheet substantially, major impairments led to a significant operating loss, strong cash flow during the last quarter
January-December 2019 in brief:
October–December 2019 in brief:
Events after the period
Recovery programme measures Q4:
Outlook for 2020
During 2020, SRV’s revenue and result will be affected by several factors in addition to general economic trends, such as: the timing and amount of income recognition for SRV’s own projects, which are recognised as income upon delivery; the part of the order backlog that is continuously recognised as income mainly consists of contracting; trends in the order backlog’s profit margins; the start-up of new contracts and development projects; and the rouble exchange rate.
The largest ongoing projects are Tampere Central Deck and Arena, the extension of Helsinki Airport, and several hospital projects.
In connection with the financial statements, we published a comprehensive solution thanks to which SRV will be even better able to meet its customers’ needs and wishes as well as the challenges of urbanisation. This solution is expected to significantly strengthen the company’s financial position, give SRV a fresh start and lay a strong foundation for the development of the company.
2019 was a great disappointment to us in terms of both earnings and profitability. In the fourth quarter, we had to recognise several impairments, the most significant of which was the EUR 71.5 million impairment of the REDI shopping centre due to its forthcoming sale. Construction remained largely healthy and the failures in operational performance were limited to a few individual projects.
Towards the end of the year, we kicked off a recovery programme that focuses on renewing the organisation and operating culture, bolstering financial position and performance level, and improving profitability. As part of this programme, we announced that we intend to reduce our holdings in various cooperation projects. The recovery programme is proceeding at a rapid clip and most of the measures have been implemented. The new comprehensive solution that we have now announced will give the company more financial muscle to reorient its operations.
In the last quarter, we overhauled our organisation and clarified responsibilities. The new Corporate Executive Team came into effect at the beginning of this year.
Construction continued to be strong and more housing units were completed and recognised as income than in the comparison period. Demand also remained good in the Greater Helsinki Area, Tampere and Turku. Residents moved into Finland’s first residential skyscraper, Majakka, in November-December. In the fourth quarter, 532 housing units were recognised as income, 275 of them in Majakka alone, and we recorded new projects valued at EUR 121.0 million in our order backlog.
As I mentioned above, today we have announced a wide-ranging comprehensive solution that includes many measures: new financing solutions, sales of assets and new capital. This new solution and our existing strengths will build up an evolving, high-performance company that is an appealing partner and investment.
I would like to thank all our customers, partners and personnel for the year now ended. We head into this year from a new, strengthened position.
Saku Sipola, President & CEO
|Group key figures (IFRS, EUR million)||1−12/ 2019||1−12/ 2018||change||change, %||10−12/ 2019||10−12/ 2018|
|Operative operating profit1)||-96.8||-10.0||-86.8||-87.2||1.5|
|Operative operating profit, %||-9.1||-1.0||-21.6||0.5|
|Operating profit, %||-8.8||-2.1||-21.5||0.0|
|Operating profit, excl. IFRS 162) *)||-94.3||-19.8||-74.6||-84.6||0.1|
|Operating profit, %, excl. IFRS 162)||-8.9||-2.1||-21.0||0.0|
|Financial income and expenses, total**)||-29.3||-17.5||-11.8||-10.4||-6.3|
|Profit before taxes||-122.4||-37.3||-85.1||-97.2||-6.2|
|Net profit for the period||-103.6||-31.2||-72.4||-83.4||-4.0|
|Net profit for the period, %||-9.8||-3.3||-20.6||-1.3|
|Order backlog (unrecognised)3)||1,344.2||1,816.0||-471.8||-26.0|
|*) net effect of currency exchange fluctuations||3.8||-9.8||13.5||0.4||-1.4|
|**) derivatives included in financial income and expenses||-3.7||-2.2||-1.6||1.6||-1.6|
Construction January-December 2019
Revenue from Construction rose to EUR 1,057.7 million (955.4 1–12/2018) in the January–December period. Revenue was up in both business construction and housing construction. Revenue from housing construction was up 30.7 per cent because more housing units were recognised as income than in the comparison period. Revenue from business construction was up 2.0 per cent.
Construction’s operating profit rose to EUR 7.0 (-13.4) million. Operating profit was positively impacted by the completion of the REDI shopping centre contract, but was reduced particularly by the weakening of the margins of two projects by a total of EUR 11.0 million. The result also includes EUR 6.0 million in expense entries due to water damage at REDI Majakka and a EUR 1.9 million loss on the sale of a plot in Estonia.
Operating profit was also burdened by impairments of the following plots:
Construction’s order backlog stood at EUR 1,344.2 (1,816.0) million. Although the order backlog has declined, it remains at a good level, and 81 per cent of the order backlog has been sold. New agreements valued at EUR 487.6 (1,133.0) million were recognised in January–December. The most significant agreements were for REDI Loisto in the first quarter, the Finnish-Russian School in the second quarter, Wallesmanni and Opaali in Tampere and the Raisio production facility in the third quarter, and Siltasaari 10 and the Kirkkonummi wellbeing centre in the fourth quarter.
Construction’s capital employed totalled EUR 372.9 (212.8) million. IFRS 16 had an accounting effect of EUR 133.3 million on this growth in capital employed.
Investments January-December 2019
Investments’ revenue totalled EUR 5.9 million in the January–December period (4.6 1–12/2018). It mainly consists of revenue from shopping centre management. The startup of shopping centre management at REDI increased revenue. In accordance with SRV’s operating model, revenue from associated companies’ projects and joint ventures is reported under the Construction segment; one example is the Tampere Central Deck and Arena project.
The operative operating profit totalled EUR -96.3 (-7.8) million. The shares of associated companies’ results included in SRV’s result include not only the projects’ EBITDA, but also depreciation, financial expenses and taxes. The occupancy rates and rental income of the shopping centres owned by associated companies improved, but earnings were burdened by the fact that the management and financing expenses of recently opened shopping centres were higher than income. In the fourth quarter, the company concluded that it does not have the financial prerequisites to develop all its assets. Due to the planned sale of the REDI shopping centre, the asset was designated as an asset held for sale and measured at impairment. Measurement at impairment weakened operative operating profit substantially.
In addition, the company noted that the financial figures of some of its projects had weakened, particularly due to the poor situation in Russia.
The following impairments were allocated to assets in the Investments segment:
Investments’ operating profit was EUR -92.5 (-17.5) million. The net effect of currency exchange fluctuations was EUR 3.8 (-9.8) million, which arose from valuation of the euro-denominated loans of associated companies in roubles. Exchange rate differences with no impact on cash flow vary in each interim report in line with fluctuations in the exchange rate of the rouble.
Capital employed totalled EUR 245.7 (337.8) million. Capital employed was reduced by the EUR 89.2 million in impairments listed above and EUR 10.8 million in impairments and extraordinary expense items of financial receivables recognised in financial expenses. Capital employed was impacted by additional capital invested in the Tampere Central Deck and Arena project and the Okhta Mall car park during the financial year. The strengthening of the rouble exchange rate also affected capital employed. Total capital employed decreased by about EUR 92.1 million. The majority of SRV’s capital employed consists of investments in associated companies.
The return on investment was -32.6 (–5.2) per cent. When calculating the return on investment, the income from interest on loans granted to associated companies and changes in the value of loans are also taken into consideration.
SRV is a co-investor in four shopping centre projects through its associated companies. SRV is also responsible for leasing, marketing and managing premises in completed shopping centres. SRV intends to sell its holdings once stable rental income has been achieved or the market situation allows. Stable rental income is usually reached 3–4 years after opening. For instance, the rental income of Pearl Plaza in St Petersburg, which was opened in 2013, is now stable.
|Group key figures (IFRS, EUR million)||1−12/ 2019||1−12/ 2018||change||change, %|
|Equity ratio, %1)||21.2||28.5|
|Equity ratio, %, excl. IFRS 16 2)||26.4||28.5|
|Net interest-bearing debt1)||422.0||282.8||139.2||49.2|
|Net interest-bearing debt, excl. IFRS 162)||271.9||282.8||-10.9||-3.9|
|Net gearing ratio, %1)||240.3||121.1|
|Net gearing ratio, %, excl. IFRS 162)||151.2||121.1|
|Return on investment, % 3)||-15.2||-2.9|
|Return on investment, %, excl. IFRS 162)3)||-17.5||-2.9|
|Capital employed1) 3)||625.3||611.0||14.4||2.4|
|Capital employed, excl. IFRS 162) 3)||479.4||611.0||-131.6||-21.5|
|Return on equity, %||-50.6||-12.1|
|Earnings per share, EUR||-1.85||-0.56||-1.29||230.7|
|Equity per share (without hybrid bond), EUR||1.59||3.21||-1.62||-50.5|
|Share price at end of period, EUR||1.36||1.70||-0.34||-20.0|
|Weighted average number of shares outstanding, millions||59.6||59.6|
The company will update its strategy in 2020 and will publish its longer-term financial objectives by the end of the year.
Proposal for the distribution of profits
The parent company’s distributable funds on 31 December 2019 are EUR 149,250,195.52, of which net profit for the financial year is EUR -21,418,550.34. The Board of Directors proposes to the General Meeting that no dividend be paid for the 2019 financial year.
Annual General Meeting
SRV Group Plc’s Annual General Meeting is planned to be held on Thursday, 26 March 2020 at 4.00 pm. The Annual General Meeting will deal with the matters specified in Article 11 of the Articles of Association and any other Board proposals. The Board of Directors will convene the meeting separately in due course.
Espoo, 6 February 2020
Board of Directors
All forward-looking statements in this review are based on management’s current expectations and beliefs about future events, and actual results may differ materially from the expectations and beliefs such statements contain.
Financial results briefing
A conference for analysts, fund managers, investors and representatives of the media will be held on 6 February 2020 at 8.45 EET at the Living Lab, address Kaasutehtaankatu 1, 00540 Helsinki. The event will be held in Finnish.
A live webcast of the conference will begin at 8.45 EET, available through the company’s website www.srv.fi/en/investors. The presentation will be available on the company’s website.
For further information, please contact:
Saku Sipola, President & CEO, tel. +358 (0)40 551 5953, firstname.lastname@example.org
Ilkka Pitkänen, CFO, tel. +358 (0)40 667 0906, email@example.com
Maija Karhusaari, SVP, Communications and Marketing, tel. +358 (0)45 218 3772, firstname.lastname@example.org
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SRV in brief
SRV is developer and innovator in the construction industry. We want to offer the best customer experience as a constructor of urban city centres, while also being the most attractive employer in the industry. Our genuine cooperation and enthusiasm for our work comes across in every encounter. Sustainability is reflected in all our activities.
Established in 1987, we are a publicly listed company since 2007 in Helsinki Nasdaq stock exchange that operates in growth centres in Finland and Russia. Our revenue in 2019 was EUR 1,061 million. Over 1,000 people work for us and we employ a network of almost 4,000 subcontractors in our projects.
SRV – Building for life