SRV GROUP PLC INTERIM REPORT 27 APRIL 2023 AT 08:30 EEST
SRV’s interim report January-March 2023: The order backlog strengthened, a decline in housing construction reduced revenues and profits – guidance remains unchanged
January–March 2023 in brief:
- Revenue amounted to EUR 138.3 (190.7) million.
- Operative operating profit amounted to EUR -2.0 (4.9) million and operating profit was EUR -2.0 (-85.7) million.
- The result before taxes was EUR -4.4 (-128.5) million.
- Cash flow from operating and investment activities totalled EUR -16.8 (-25.8) million.
- Equity ratio rose to 35.0 (6.4 3/2022) per cent and gearing declined to 82.2 (748.4 3/2022) per cent. Excluding the impact of IFRS 16, the equity ratio was 49.2 (9.7) per cent and gearing was 4.1 (343.2) per cent.
- At period-end, the order backlog stood at EUR 871.0 (858.0) million. In January-March, new agreements valued at EUR 149.9 (130.1) million were signed. The sold share of the order backlog was 91.0 (91.9) per cent.
- Earnings per share were EUR -0.2 (-14.3). The share issues and 40:1 reverse share split in 2022 have been taken into account in the calculation of the comparison figure.
During 2023, 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. Higher interest rates and inflation have a negative impact on demand for housing and business premises among consumers and investors, and thus pose uncertainty with respect to the estimated start-ups of new projects.
Revenue in 2023 will mainly be generated by cooperative contracting and development projects sold to investors. At the beginning of the year, the order backlog will focus strongly on cooperative contracting, which involves fewer risks but lower margins, due to which the largest share of earnings in 2023 is expected to be generated in the latter part of the year. In 2023, the share of revenue accounted for by developer-contracted housing production will remain small.
- Full-year consolidated revenue for 2023 is expected to decrease compared with 2022 (revenue in 2022: EUR 770.1 million).
- Operative operating profit is expected to be positive, but lower than in 2022 (operative operating profit in 2022: EUR 18.9 million).
Significant events after the period
- On 26 April 2023, SRV Group Plc announced that it had agreed on a committed, unsecured revolving credit facility (RCF) amounting to EUR 40 million with its key lenders. The RCF matures in two years with an optional one-year extension.
“As 2023 began, the market environment had weakened sharply due to high inflation, rising interest rates and economic uncertainty. The greatest decline has been seen in the demand for housing construction in all customer segments. Demand for business premises among investors is also cautious, which is further weakened by challenges posed by the price and availability of financing. Market development is aptly illustrated by the fact that the fourth quarter of 2022 accounted for only EUR 1.3 billion of the total transactions of EUR 7.3 billion that were made in Finland last year. The volume in the first quarter of this year was only EUR 0.4 billion.
Our revenue for the first quarter fell significantly short of the comparison period due to lower volumes in housing construction. The recognition of income from our order backlog is now strongly focused on cooperative contracting, which is low in risk and generates positive cash flow, but has a relatively modest profit margin. As a result of these factors, especially the low revenue, operative operating profit remained negative. We expect that the largest share of our earnings in 2023 will be accrued towards the end of the year, when new projects that have been entered into the order backlog and expected new projects will increase revenue and generate profit. Due to the structure of the order backlog and the fact that the volume is expected to be lower than last year, we forecast that operative operating profit will fall short of the previous year, but will nevertheless be positive.
Our order backlog swung to growth in the last quarter of 2022 and continued to see slight further growth in the first months of the year. We entered the Sammontalo Building in Lappeenranta, the Okmetic factory building in Vantaa and the Horisontti office skyscraper in Kalasatama, Helsinki into our order backlog. The start-up of our Horisontti development project – one of the few property transactions carried out in Finland during the first quarter – shows that there is demand for our unique tower construction concept even in the prevailing market situation. In April, after the end of the review period, we signed the first order for the Laakso Joint Hospital, underground excavation work – valued at approximately EUR 90 million – into our order backlog after a two-year development phase. We expect that the next orders, such as the interior decoration of underground facilities, such as the construction of a parking facility, and the first implementation phase of the hospital's main construction will be recognised in the order backlog later this year and at the beginning of 2024. The volume of housing construction will remain low in 2023, but our strong order backlog in business construction will carry us relatively well over challenging times and will enable us to develop our operations.
In the weakening market, it is imperative for our balance sheet to be healthy and our financing to be in good shape. In April, SRV agreed with its main financier banks in good cooperation on a new financing agreement that bolsters our liquidity and secures our financing for the next two years. In the current market environment, it is our clear advantage that very few of our residential units that have been completed and are under construction remain unsold – this means that we do not have significant capital and liquidity committed to unsold units.
This year, we will continue to focus on operating in line with our strategy – for instance, we aim to provide an excellent customer experience. Our efforts to enhance the customer experience were evident in the EPSI Rating survey, published in March, which assesses customer satisfaction in new housing construction – we achieved the greatest improvement in our rating. In the survey, we also received the highest index scores for the design quality of housing projects.
We are actively continuing to engage in negotiations in order to exit the last of our businesses in Russia. As the Investments segment had shrunk to minor significance both financially and strategically, we clarified our reporting structure and going forward will report on the Group as a single segment.
We expect that our revenue and operative operating profit will continue to face challenges in 2023 due to the prevailing market situation. That said, our project portfolio and the controllability of our projects are at a good level – and in our view, once the market recovers, we will be prepared to increase the share of our portfolio accounted for by higher-margin development and developer-contracting projects. Looking further into the future, we can also see that our operations are on a solid foundation, thanks to which we will be well-poised to build profitable growth.”
|Group key figures||1-3/||1-3/||change,||1-12/|
|(IFRS, milj. eur)||2023||2022||change||%||2022|
|Operative operating profit1)||-2.0||4.9||-6.9||-140.3||18.9|
|Operative operating profit, %||-1.4||2.6||-4.0||2.5|
|Operating profit, %||-1.4||-44,9||43.5||-9.9|
|Profit before taxes||-4.4||-128.5||124.0||-79.1|
|Net profit for the period||-3.1||-133.3||130.2||-85.7|
|Net profit for the period, %||-2.3||-69.9||67.6||-11.1|
|Earnings per share||-0.2||-14.3||14.1||-6.6|
|Order backlog (unrecognised)||871.0||858.0||13.0||1.5||838.8|
|Equity ratio, %||35.0||6.4||28.6||36.3|
|Equity ratio, %, excl. IFRS 161)||49.2||9.7||39.5||48.2|
|Net gearing ratio, %||82.2||748.4||-666.2||-89.0||55.1|
|Net gearing ratio, %, excl. IFRS 161)||4.1||343.2||-339.1||-98.8||-7.5|
- The figure has been adjusted to remove the impacts of IFRS 16.
- The key figure for 1-3/2022 has been adjusted, taking the 2022 share issues and reverse share split into account.
The SRV Group’s Corporate Executive Team is the chief operating decision-maker of the Group as defined in IFRS 8 Operating Segments. The Corporate Executive Team reviews business as a single operating segment. The new segment structure was adopted as from 1 January 2023.
The Group’s revenue declined by EUR 52.4 million to EUR 138.3 million (190.7 1-3/2022). Revenue from business construction grew by EUR 15.2 million and revenue from housing construction was down EUR 52.5 million. The comparison figure for revenue includes the effect of the dissolution of construction profit margin eliminations amounting to EUR 14.5 million.
The Group’s operative operating profit decreased and amounted to EUR -2.0 (4.9) million. The reason behind the weakening of the operative operating profit was the decrease in the recognised margin in the construction of both housing and business premises. The margin declined in housing construction due to the lower volume. In business construction, the decline in the margin was impacted by the fact that a greater share of revenue was recognised from lower-margin contracting.
The Group’s operating profit was EUR -2.0 (-85.7) million. The comparison figure for operating profit was impacted by, for instance, substantial write-downs of assets in Russia and the Fennovoima holding, the dissolution of profit margin eliminations and changes in the exchange rate of the rouble, which had a total impact of EUR -90.6 million.
At period-end, the Group’s order backlog stood at EUR 871.0 (858.0) million. New agreements valued at EUR 149.9 (130.1) million were signed in January–March. The most significant new projects were the Okmetic factory building in Vantaa, the Horisontti office skyscraper in Kalasatama, Helsinki, and the multipurpose Sammontalo Building in Lappeenranta.
SRV’s equity ratio was 35.0 (6.4) and gearing was 82.2 (784.4) per cent. Excluding the impact of IFRS 16, the equity ratio was 49.2 (9.7) per cent and gearing was 4.1 (343.2) per cent.
Espoo, 27 April 2023
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.
Briefing, webcast and presentation materials
A briefing for analysts, investors and media representatives will be held on 27 April 2023, starting at 11:00 EEST as a webcast. The webcast can be followed live at www.srv.fi/en/investors. The recording will be available on the website after the presentation. The materials will also be made available on the website.
SRV in brief
SRV – Building for life