Saku Sipola

CEO’s review

Source January–December 2023 Interim Report, published on 1 February 2024: 

“2023 was more difficult than we had originally expected at the beginning of the year, as market conditions remained challenging. Demand among consumers and real estate investors declined considerably on the back of inflation and the subsequent rise in interest rates. This had an exceptionally large and rapid impact on the housing construction market in particular. As a result, several planned projects were halted and many contract startups were postponed, leading to a significantly lower volume than expected for the year as a whole. At the same time our business construction grew strongly, driven by cooperative contracting.  

Our revenue ended up being considerably lower than in the previous year. Low volumes, coupled with the structure of our order backlog, meant that our operative operating profit also fell significantly short of the previous year, although it was still positive. Even though our financial result was modest, there is a bright side – project controllability continued to improve, which was reflected in the large number of projects that achieved their budgeted margins, which in turn partly compensated for the decreased volume and order backlog structure. This gives us confidence in future developments. Our revenue rose as anticipated during the fourth quarter, supported by our stronger order backlog, and operative operating profit was higher than in the comparison period.  

The improvement in operational controllability was reflected not only in the number of projects that achieved their budgeted margins, but also in better schedule management, a significant improvement in customer satisfaction (NPS B2B 61) and excellent progress in occupational safety. Our lost time injury frequency (LTIF) for 2023 was 8.7 compared to 12.1 in 2022. An improvement of more than two points in one year is a firm indication of tighter leadership and a stronger safety culture. It was also pleasing to receive recognition for this: two of our construction sites – the Wintteri multipurpose building in Uusikaupunki and a Wood City office in Helsinki – received awards in the Confederation of Finnish Construction Industries’ 2023 national occupational safety competition ‘Safety starts with me’. Our work to reduce emissions has also progressed exemplary. We have reduced the emissions of our own operations in accordance with our climate roadmap, and in 2023 our emissions decreased by approximately 50%.

Our order backlog continued to grow throughout the year, and stood at EUR 1,048.6 million in the fourth quarter – 25 per cent higher than in the comparison period. An order for the implementation phase of the northern part of the main building Laakso Joint Hospital was transferred to our order backlog during the review period. This order is part of an approximately EUR 800 million agreement for the Laakso Joint Hospital project, of which about EUR 300 million has been entered into the order backlog to date. The remaining phases will be entered into our order backlog in stages during 2024–2030. At the end of December, the value of preliminary agreements and other confirmed contracts that had not yet been entered into the order backlog was about EUR 715 million.    
During these challenging economic times for the construction industry, it is very important to maintain a strong balance sheet and ensure our financing is in order. The completion of As Oy Helsingin Kokardi in the Pasila district of Helsinki increased the total number of completed yet unsold residential units to 99 during the review period. However, this is still a low amount, so the company’s capital is not significantly tied up in unsold residential units. We are actively continuing negotiations to exit our last Russian holding, which we already wrote down in 2022, which is a 50 percent share of the Pearl Plaza shopping center in St. Petersburg.

In November 2023, we organised a Capital Markets Day at which we published SRV’s revised strategy and updated long-term objectives for 2024–2027: operative operating profit of at least 50 million EUR and a revenue of at least 900 million euro. In line with our strategy, our goal is to be sustainably profitable and build a lifecycle-wise environment by listening to our customers and other stakeholders. Our way of working is encapsulated in our customer promise ‘By listening, we build wisely’. We will steer our profitability by tapping into market opportunities and engaging in prudent risk management. SRV will achieve its long-term financial targets by continuously optimising its business structure. We will strengthen our leading position in cooperative alliance projects and project management contracting, and will also increase the relative share accounted for by housing construction to 30–40 per cent of revenue. We are also increasing the relative share of the portfolio accounted for by business premises based on in-house project development, residential development projects and residential developer contracting projects to 30–40 per cent of revenue.  

In January 2024, after the review period, we announced that we would launch change negotiations with a view to adjusting costs to the ongoing difficult market situation. We are aiming to negotiate cost savings of about EUR 4 million for 2024. We have a strong order backlog for cooperative contracting in the business premises segment, and this will carry us through a difficult year.  However, it is also necessary to adjust our cost structure to meet the challenges of the market situation. Although, in our view, no improvement in the market situation is expected for at least the first half of 2024, we anticipate that our revenue and results will improve in 2024. We predict that recovery will begin gradually, as the glut of unsold housing in the market will be cleared before new construction is launched, for instance, and banks and investors are cautious about investments and financing. Continued urbanisation will, however, create demand over the longer term.”

Saku Sipola 
President and CEO 
SRV Group Plc 

Contact information

SRV head officePostal address:
P.O. BOX 555
FIN-02601 Espoo,

Visiting address:
Derby Business Park,
Tarvonsalmenkatu 15,
FIN-02600 Espoo

020 145 5200

Business ID - 1707186-8
© SRV Yhtiöt Oyj 2024