SRV GROUP PLC HALF-YEAR FINANCIAL REPORT 21 JULY 2022 08:30 EEST
SRV’s half-year financial report January–June 2022: Stronger balance sheet due to a successful financing arrangement, operative operating profit improves
January–June 2022 in brief:
April–June 2022 in brief:
Updated outlook for 2022:
Events after the end of the review period:
“I’m very pleased that we successfully completed our extensive financing arrangement as planned during the second quarter. The overall arrangement fulfilled our objectives and restored our equity ratio to the level it had stood at before Russia invaded Ukraine. Furthermore, thanks to the arrangement, SRV is a virtually net debt-free company. The overall arrangement consisted of the partial repurchase of previously issued notes and the amendment of the terms of the remaining notes to convert them to hybrid bonds, the conversion of old hybrid bonds to shares, the extension of our revolving credit facility and project financing facility, and a rights issue. All aspects of the arrangement were successful.
Our balance sheet is stronger thanks to the overall arrangement, enabling us to execute our strategy in full. SRV’s future will be based on good and revitalised construction operations in Finland. Our order backlog is on a healthy and relatively low-risk footing, and we will continue to focus on cooperative contracting. Later this year, we will reassess our long-term financial objectives and will consider restructuring our segments after our exit from Russia. We have pursued our aim of exiting Russia by negotiating on the sale of our assets in the country, but these negotiations have not led to results so far.
Our performance in operational activities was in line with plans, and our operating result for the review period improved. At the same time, we can observe that the revenue recognised for the quarter was more profitable than had been forecast for the rest of the year. Earnings performance in a challenging market has been supported by cost discipline and proactive procurements. With these measures, we have kept the impacts of inflation under control and ensured the availability of materials to enable our sites to operate with almost no interruptions. In addition, we have hardly any unsold completed residential units, which is a good thing in the current market situation.
Our order backlog is smaller than in the comparison period and the inflow of new orders remains modest. Startups of projects that we have won but which have not been entered into the order backlog yet have been delayed due to, for example, city plan schedules, but we still see that these projects will generate a flow of orders and profitable business in the future. At the end of the review period, the value of such projects amounted to around EUR 1.3 billion. During the review period, our order backlog was increased by about EUR 70 million by WithSecure’s headquarters and the Eastern Uusimaa Main Police Station and Prison, from which we expect to recognise a further EUR 61 million in the order backlog later this year. We did not achieve the growth we sought in developer-contracted housing construction, as we pushed back the startup of some of the planned projects due to cost inflation in the spring.
During the review period, we continued to proactively mobilise our lifecycle-wise strategy at the project level. The lifecycle wisdom of the projects we build is based on emission-free construction sites, environmentally friendly material choices, energy and resource efficiency, use of renewable energy, taking the environment into consideration through materials recycling, and SRV’s recently launched biodiversity targets. WithSecure’s new headquarters represent an excellent example of project development in line with our lifecycle-wise strategy – it also minimises the carbon footprint over the ownership period. In addition, the second office building in Wood City is one of the first projects in Finland aligned with the new EU taxonomy. In line with our strategy, our aim is to keep offering sustainable space solutions to companies in different sectors, producing steady cash flow to investors.
In general, we expect that market conditions will remain cloudy, primarily due to uncertainties surrounding demand, inflationary pressure on energy prices and the housing construction boom seen in Finland in recent years, which is expected to settle down closer to the long-term average in the near future. On the other hand, trends in the prices of many basic materials – which saw steep price hikes immediately when the war broke out – have levelled off, and predictability has improved as operators have found new supply channels.
I would like to thank our shareholders and financiers for the successful result of the financing arrangement as well as our customers, other partners and our committed personnel for the half-year period now ended. Enjoy the rest of the summer!”
Saku Sipola, President & CEO
|Group key figures||1-6/||1-6/||change,||4-6/||4-6/||1-12/||Previous|
|(IFRS, EUR million)||2022||2021||change||%||2022||2021||2021||12 mo.|
|Other operations and eliminations||14.2||-3.2||17.4||-0.2||-1.5||-4.4||13.0|
|Operative operating profit 1)||14.7||10.5||4.3||40.7||9.8||5.7||5.3||9.6|
|Other operations and eliminations||-2.4||-2.1||-0.2||-1.2||-0.8||-4.3||-4.5|
|Operative operating profit, %||3.7||2.6||4.6||2.6||0.6||1.0|
|Other operations and eliminations||12.2||-2.1||14.3||-1.2||-0.8||-4.3||10.1|
|Operating profit, %||-18.8||2.8||4.8||2.9||-0.2||-9.5|
|Financial income and expenses, total||0.8||-7.8||8.6||43.6||-3.7||-18.6||-10.1|
|Profit before taxes||-74.8||3.6||-78.4||-2,166.0||53.7||2.6||-20.3||-98.8|
|Net profit for the period||-82.1||3.6||-85.7||51.3||2.1||-19.9||-105.6|
|Net profit for the period, %||-20.4||0.9||24.2||0.9||-2.1||-11.4|
|Order backlog (unrecognised) 2)||745.9||1,047.5||-301.5||-28.8||872.3|
1) The reconciliation calculation for operative operating profit can be found underneath the “Key figures” table.
2) The Group’s order backlog consists of the Construction business.
|Group key figures||1-6/||1-6/||change,||1-12/|
|(IFRS, EUR million)||2022||2021||change,||%||2021|
|Equity ratio, %||33.3||26.1||27.4|
|Equity ratio, %, excl. IFRS 161)||43.9||32.5||32.8|
|Net interest-bearing debt||90.1||279.8||-189.7||-67.8||170.0|
|Net interest-bearing debt, excl. IFRS 161)||-4.6||152.5||-157.1||-103.0||81.0|
|Net gearing ratio, %||64.2||151.9||103.0|
|Net gearing ratio, %, excl. IFRS 161)||-3.1||80.3||47.5|
|Return on investment, %||-17.4||10.9||-1.4|
|Other operations and eliminations||54.4||-37.0||91.4||-241.8||40.0|
|Capital employed, excl. IFRS 161)||187.3||402.4||-215.1||-53.4||319.4|
|Return on equity, %||-107.5||4.0||-11.5|
|Earnings per share, EUR2)||-8.66||0.28||-8.9||-3,192.7||-2.1|
|Share price at end of period||0.13||0.66||-0.53||-80.3||0.53|
|Weighted number of shares at end of period, millions 2)||381.5||375.9||375.9|
1) The figure has been adjusted to remove the impacts of IFRS 16.
2) The key figure has been adjusted for the share issue and the reverse share split in July.
Earnings trends for the segments
Construction January–June 2022
Construction’s revenue declined to EUR 382.0 million (406.3 1-6/2021). Revenue fell due to the smaller volume of business premises contracting. This was because large projects completed at the end of last year were removed from the order backlog. Revenue from housing construction increased, mainly due to the growth in the volume of contracting carried out as development projects.
Construction’s operating profit rose to EUR 16.2 (13.9) million. Operating profit from housing construction increased thanks to growth in contracting carried out as development projects. On the other hand, decreased volume in business premises contracting had a negative impact on operating profit.
Construction’s order backlog stood at EUR 745.9 (1,047.5) million and 91.1 (90.0) per cent of the order backlog has been sold. New agreements valued at EUR 202.4 (261.3) million were entered into the Group’s order backlog in January–June.
Construction’s capital employed totalled EUR 207.4 million (195.8 12/2021).
Construction April–June 2022
Revenue from construction totalled EUR 206.8 (218.5) million. Operating profit was EUR 9.9 (7.0) million. New agreements valued at EUR 72.3 (176.0) million were entered into the order backlog.
Investments January–June 2022
Investments’ revenue was EUR 5.9 (2.0) million.
Investments’ operative operating profit amounted to EUR 0.9 (-1.2) million, affected by capital gains from the sale of a commercial centre in Porvoo.
Investments’ operating profit was EUR -104.0 (-0.3) million. Operating profit was impacted by substantial write-downs of assets in Russia and the Fennovoima holding, which had a total impact of EUR -115.5 million. After the write-downs, the total value of SRV’s holdings in Russia amounts to EUR 4.2 million. In addition, operating profit was affected by the net impact of the change in the exchange rate of the rouble, which was recognised prior to the asset write-downs and amounted to EUR 10.7 (1.1) million. The exchange rate impact, which largely had no effect on cash flow, was caused by the valuation of the euro-denominated loans of associated companies in roubles, currency hedging expenses and changes in the market value of currency hedges.
Capital employed totalled EUR 14.3 million (167.3 12/2021). Capital employed decreased due to write-downs of Russia-related investments. The amount of capital employed remaining in Russia was EUR 4.2 million. The remainder of capital employed mainly comprises investments in the Tampere Central Deck and Arena project.
The return on investment was -216.7 (4.5) per cent. Return on investment was impacted primarily by write-downs of assets in Russia.
Outlook for 2022
During 2022, 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 margin of the order backlog and its development; the start-up of new contracts and development projects; the war that Russia started against Ukraine, including its related direct and indirect effects, such as material costs and the availability of materials and labour; and changes in demand. The impacts of the coronavirus pandemic have been moderate on the whole, but its effects on the construction market remain unclear and cause uncertainty regarding the outlook for the future. Revenue in 2022 will mainly be generated by cooperative contracting and development projects sold to investors. In 2022, the share of revenue accounted for by developer-contracted housing production will remain relatively small.
Espoo, 21 July 2022
Board of Directors
All forward-looking statements in this review are based on management’s current expectations and beliefs about future events. The company’s actual results and financial position may differ materially from the expectations and beliefs such statements contain due to a number of factors that have been presented in this interim report, and in particular the ongoing coronavirus pandemic.
Financial results briefing
A briefing for analysts, fund managers, investors and media representatives will be held on 21 July 2022, starting at 11:00 EEST as a webcast. The event will be held in Finnish.The webcast can be followed live at 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
Jarkko Rantala, CFO, tel. +358 (0)40 674 1949, email@example.com
Miia Eloranta, Senior Vice President, Communications and Marketing, tel. +358 (0)50 441 4221, firstname.lastname@example.org
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SRV in brief
SRV is a Finnish developer and innovator in the construction industry. We are building a more sustainable and responsible urban environment that fosters economic value and takes into consideration the wellbeing of both the environment and people. We call this approach lifecycle wisdom. Our genuine engagement and enthusiasm for our work comes across in every encounter – and listening is one of our most important ways of working. We believe that the only way to change the world is through discussion.
Our company, established in 1987, is listed on the Helsinki Stock Exchange. We operate in growth centres in both Finland and Russia. In 2021, our revenue totalled EUR 932.6 million. In addition to about 1,000 SRV employees, we have a network of around 3,600 partners.
SRV – Building for life