Source January–September 2023 Interim Report, published on 26 October 2023:
Market conditions continued to be challenging in the third quarter of 2023, and we do not expect a significant change for the better in the short term. Demand for housing construction has almost come to a halt, and demand for real estate investments has weakened considerably as a result of the rapid rise in interest rates. Public construction remains strong, and there have been favourable developments in demand for industrial investments in terms of both volume and operating models. Our own development is strong in relation to the market, thanks to our net debt-free status, the low number of unsold apartments, and an order backlog that has strengthened since the end of last year, particularly in business construction. Our operational controllability has developed favourably over the past two years, which is reflected in our improved occupational safety, adherence to schedules, improved financial performance and, I’m delighted to say, also customer satisfaction.
In spite of the challenging market situation, our revenue continued to experience slight quarter-on-quarter growth, driven by business construction. However, due to poor demand for housing construction, revenue fell short of the comparison period.
As expected, our operative operating profit for the quarter was relatively good in view of the circumstances: EUR 4.6 million. The Group’s profit before taxes was EUR 3.0 million before items relating to the divestment of SRV Russia Oy. Translation differences, which mainly stemmed from old exchange rate losses, were recognised in the income statement in conjunction with this transaction, and resulted in a loss, although without affecting the key figures in the balance sheet. We expect that the greatest proportion of our full-year earnings will be accrued during the second half of the year, as the favourable order intake during early 2023, along with other expected projects, will increase revenue and generate profit.
Our order backlog remained strong in the third quarter of 2023, and was 39% better than in the comparison period. The order backlog will lead to increased revenue starting from the last quarter of this year when projects get up to full speed. The annex to the National Museum of Finland in Helsinki and the Rajamäki Campus in Nurmijärvi were entered into our order backlog in July–September. After the development phase, we also entered a large Kerto timber mill into our order backlog. This mill is being built for Metsä Wood in Äänekoski and will be implemented as a cooperative project management contract. An increasing proportion of industrial projects are being carried out as cooperative contracts, which have proven to be effective in numerous challenging public-sector projects. The growth in our order backlog, coupled with its weighting towards cooperative business premises contracts, will take us through this challenging market situation.
The divestment of our Russian holdings proceeded during the review period, and in August we sold the share capital of our subsidiary SRV Russia Oy to the Cypriot real estate investment company Geomare Investments Limited. This transaction included SRV’s Russian subsidiaries and associated companies (complete with their personnel) and the rest of SRV’s plot holdings in Russia, which are owned by these companies, as well as a minority interest in the 4Daily shopping centre located close to Moscow. After this transaction, our only remaining asset in Russia is a 50 per cent holding in the Pearl Plaza shopping centre in St Petersburg. We will actively continue negotiations aimed at selling the last of our Russian holdings.
In October, SRV and the City of Helsinki jointly announced that we had begun the process of terminating the preliminary agreement for the Jätkäsaari Bunkkeri real estate transaction due to a lack of investor demand arising from the market situation. Both parties consider it important for the City to begin exploring a new solution for its planned sports facilities without delay. The divestment of this project is also part of our risk management, as we must ensure that our capital is used efficiently in a challenging market.
I see our favourable development continuing for the rest of the year, although we do not expect any particular traction from the market. Looking further ahead, I believe the trends for urbanisation and regional concentration will continue in Finland, and demand will gradually recover. If the market situation improves slightly, our strengthened position may open up opportunities for profitable growth over the coming years. We are well-placed to react quickly, thanks to both our financial position and the ready-to-start project portfolio produced by project development.”
Saku Sipola
President and CEO
SRV Group Plc