srv – building for life! · strengths and challenges 5 strengths • order backlog still at good...
TRANSCRIPT
Financial update
Capital Markets Day, SRV Group Plc23 May 2018Ilkka Pitkänen, CFO
Agenda 1) Financials
2) Debt portfolio
3) SRV going forward
Appendices
2
FINANCIALS
Otsikko
4
MEUR 1─3/2018
1─3/2017
ChangeMEUR
1─12/2017
Revenue 215,7 223,7 -8.0 1 114.4
Operative operating profit*)-5.1 2.7 -7.8 27.0
Operative operating profit %*)-2.4 1.2 2.4
Operating profit -8.8 7.3 -16.1 15.3
Operating profit % -4.1 3.3 1.4
Return on equity % -15.7 8.8 2.0
Return on investment % -5.2 6.5 3.1
Equity ratio %32.5 36.4 35.5
Order backlog 1 653.0 1 722.0 -69.0 1 547.9
Personnel Average 1 109 1099
Gearing ratio 134.3 103.4 105.0*) Direct operating profit is determined by deducting the calculated currency exchange differences included in financial items in Russian operations and their potential hedging impacts from operating profit. Net exchange rate differences during the review period amounted to EUR –3.7 (4.6) million of which hedging expenses to EUR -0,5 (-0.9) million.
Strengths and challenges
5
STRENGTHS
• Order backlog still at good level – new orders in early part of the year nearly EUR 300 million
• EUR 75 million bond was renewed on better terms –provides good foundation above all for future projects
• Demand for housing remains strong, unsold apartments at record low
• Operational activities at Russian shopping centre good, investigation into possible sale of Pearl Plaza shopping centre proceeding according to plan
CHALLENGES
• Revenue and operative operating profit fell as expected• Operative operating profit weakened by higher material
and labour costs due to market situation as well as longer delivery times as well higher-than-expected costs of certain projects that are under construction are also evident in operative operating profit. The most significant of these projects is the REDI shopping centre which will be completed this year
• Impact of rouble on the result totalled EUR -3.7 (4.6) million – exchange rate risk will decrease significantly after planned conversions of loans during 2019
• The equity ratio and gearing weakened
Revenue and operative operating profit decreased
0,14,1
6,7
15,4
2,7 1,8
8,4
14,0
-5,1
-10
-5
0
5
10
15
20OPERATIVE OPERATING PROFIT
173 165 155
227
144
219 193
329
224284 268
339
216
0
50
100
150
200
250
300
350
400REVENUE
21,724,9 27,6 26,3 29,0 26,7 28,4 27,0
19,2
0
5
10
15
20
25
30
35
OPERATIVE OPERATING PROFIT, LAST 12 M
719 740 686 719 690 744 782884 964 1 029 1 104 1 114 1 106
0
200
400
600
800
1 000
1 200
REVENUE, LAST 12 M
255 272362 439 393 450
952
11641058
950851 920
1065
202303
349336
253273
554
563634
621663
606
569
32
20
10053
180137
77
32 31
2422 21
19
489
595
811 828 826 860
1 583
1 758 1 722
1 5951 536 1 548
1 653
0
400
800
1 200
1 600
2 000
2 400
12/2009 12/2010 12/2011 12/2012 12/2013 12/2014 12/2015 12/2016 3/2017 6/2017 9/2017 12/2017 3/2018
MeurMeur
New projects in the early part of the year nearlyat EUR 300 million
7
• New agreements in the early part of the year totalled around EUR 300 million
• Largest new order was Siltasairaala Hospital, total EUR 240 million
• Tampere Central Deck and Arena project confirmed in January 2018 – increases order backlog in 2018 by a total of EUR 87 million
• REDI’s second residential tower Loisto expected to enter order backlog in summer 2018
International Operations
Operations in Finland; Housing construction
Operations in Finland; Business premises construction
8
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Pearl Plaza 1(50% ownership)
Okhta Mall(45% ownership)
4Daily(20% ownership)
REDI shopping mall (40 % ownership)
Construction and leasing Leasing stabilization (appr. 2-4 years) Exit
Debt maturity structure of main associated companies
Project Project completion Debt maturity Capital employed
Pearl Plaza 1 (Saint Petersburg) 2013 2020 MEUR 30
Okhta Mall (Saint Petersburg) 2016 2024 MEUR 98
Daily (Moscow) 2016 2020 MEUR 10
REDI shopping mall & parking premises(Helsinki)
2018 2019 MEUR 115
Estimated implementation of on-going shopping centre projects
• SRV is investigating the possible sale of the Pearl Plaza shopping centre and has discussed the matter with the other owner of the shopping centre
• SRV intends to sell its holdings once stable rental income has been achieved. Stable rental income is usually reached 3–4 years after opening.
Pearl Plaza still nearly fully leased for long
9
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2014 84% 85% 85% 89% 91% 92% 92% 92% 95% 95% 96% 95%
2015 95% 95% 97% 97% 96% 96% 97% 97% 97% 97% 98% 98%
2016 94% 94% 96% 94% 94% 95% 95% 94% 95% 94% 94% 98%
2017 98% 95% 97% 98% 99% 99% 99% 98% 98% 98% 98% 99%
2018 99% 99% 99%
80%
85%
90%
95%
100%
105%
Occupancy rate 2014-2018,month, % Pearl Plaza has been
nearly fully lease since theend of 2015
A number of the original lease agreements will expire this year – the rental level of new agreements will be over 5 per cent higher than now
Pearl Plaza's has just wonthe award for the bestshopping mall in Russia in the mid-range shoppingmall series
DEBT PORTFOLIO
11
Debt portfolio
Non-current – EUR million 3/2018
Loans from financial institutions 4.8
Bonds 173.9
Housing corporation loans 73.1
Total non-current liabilities 251.8
Current and non-current interest bearing liabilities
Current – EUR million 3/2018
Loans from financial institutions 16.4
Bonds 27.5
Commercial papers 86.5
Housing corporation loans 0.0
Total current liabilities 130.4
Debt Maturity profile overview 3/2018 EUR million 1)
1) Based on the contractual value as of 31.3.2018
SRV´s debt portfolio – overview
Bonds54 %
Commercial paper21 %
Housing loans18 %
Bank loans7 %
Total interest bearing debt:
EUR 382 million
Net interest-bearing debt
355 MEUR
• Current weighted average loan maturity 5.8 years• SRV also has an outstanding EUR 45 m hybrid bond with first
call in 03/2020 (included in equity in the balance sheet)
0
20
40
60
80
100
120
2018 2019 2020 2021 2022 later
Commercial papers
Housing loans
Bank loans
Bonds
12
SRV going forward
SRV is currently working on numerous projects in which we are also in the role of an owner, which ties up our capital
Our large shopping centre projects in Finland and Russia as well as the land plots ties up the most capital
We have also committed capital into building a huge number of developer-contracted housing units in growth centres
Segment reporting is considered to be changed from the beginning of 2019
SRV would report on construction and property development segments separately compared to the existing geographic segmentation
Would provide investors with a better picture of how different types of business produce results and where the capital is committed
14
Not just a construction company, but also a real estate investor and developer
EUR million(Q4/2017)
EUR million(Q1/2018)
Return on investment, %(Q4/2017)
Return on investment, %(Q1/2018)
Invested capital 604.5 650.0 3.4 -5.2
Invested capital, construction 276.6 327.1 8.1 -2.2
Invested capital, property development
327.9 322.9 -4.8 -6.1
*The old target means the following: SRV’s strategy and all of its operations were guided by the 2017–2020 strategic financial objectives that were approved in February 2017. Therefore the old target implied the company will seek to outpace industry growth using large-scale projects. The new financial objectives were approved in February 2018.**Proposed dividend
Strategic financial objectives 2018-2022
Return on equity (%)
Faster than industry growth (old target)
1 116.1*
8 per cent 2.6
At least 15 per cent 2.0
At least 12 per cent 3.4
Above 35 per cent 35.5
Revenue (EUR million)
Operative operating profit margin (%)
Return on investment (%)
Equity ratio (%)
Status 12/2017
Status
Dividend of 30–50 per cent of the annual result 0.06** Dividend (EUR)
Target
Measures to improve profitability and de-leveraging Improving profitability is one of the key goals of SRV’s strategy, but
recently the development trend has been in the wrong direction
A programme of measures to improve profitability and cost-efficiency was launched throughout the Group
The programme includes clear short-term and longer-term measures to improve profitability, for example through cost savings and improved efficiency
In practice, this means e.g. the following: more precise selection of projects to be implemented, improved planning and, for example, savings targets in procurement
Strong focus on de-leveraging
Selling plots to plot funds
Exits (present investments)
Refinancing (during 2019)
New projects with less capital
Joint ventures
16
Better project mix
17
Shopping centre projects Operational efficiency
• Limited participation in low margin construction tenders
• Increased focus on developer-contracting projects
• Participation in special, complex and less competition projects with better profitability
• Increased profit from associated companies (when the shopping centre projects are completed)
• Capital gains and release of eliminated construction margin when a shopping centre is sold
• Utilization of shopping centre management functions
• Must Win Battle: Improve profitability and project efficiency
• Tight capital and cost controlling
• Relative fixed cost increase lower than revenue growth
SRV’s goal is to improve its long-term profitability
Targeted operative operating profit margin (8%)*
Initiatives
How to reach the long-term profitability targets
* The strategic profitability target will not be achieved until the end of 2022. Of this objective, 6 percentage points will arise from construction margin and 2 percentage points from shopping centre rental income as part of associated company holdings.
180
200
400
600
MEU
R
Balance sheet
3
4
New products?
New services?
5 New areas?
0
200
400
600
800
1000
1200
MEU
R
Revenue
Revenue
2 + 2 + 5 years
1
2 Business construction
Housing construction
0
100
200
300
400
500
600
700
800
900
1000
1100
1200
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Asunnot,PU,varmat Asunnot,NU+muut,varmat Asunnot,PU,arvio Asunnot,NU+muut,arvio
Toimitilat,NU+muut,varmat Toimitilat,PU,varmat Toimitilat,NU+muut,arvio Toimitilat,PU,arvio
Exit from the shopping centres
SRV in the future
Fewer developer-contracted housing units will be completed in 2018 than in the comparison period. It is estimated that a total of 526 housing units will be completed in 2018 (782 in 2017). Although housing will be completed on a steadier schedule in 2018 than in the previous year, a significant part of the operating profit will still be made in the second half of the year.
In addition, earnings in 2018 will be impacted by the lower-than-expected margins of certain ongoing projects.
Full-year consolidated revenue for 2018 is expected to decline compared with 2017 (revenue EUR 1,116.1 million). Operative operating profit is expected to be lower than in 2017 (operative operating profit EUR 28.7 million.)
After 2018, an atypical year, the company anticipates that it will achieve its strategic earnings level by the end of 2022.
19
Outlook for 2018
20
NEXT…
Kaupungit kehittyvät yksin vai #yhteistyössä – hankekehitysjohtaja Tero Tenhunen, Tampereen kaupunki
21
Thank You!
Appendices
23
SRV ownership structure
Major shareholders (10 largest total) % of shares
Kolpi Investments Oy 19.0 %
Kokkila Timo Tapani 12.6 %
Kokkila Tuomas 10.7 %
Kokkila Lauri 10.7 %
Tiiviste-Group Oy 10.6 %
Nordea Life Assurance Finland Ltd. 2.0 %
The State Pension Fund 1.9 %
OP-Finland Value Fund 1.6 %
Ilmarinen Mutual Pension Insurance Company 1.6 %
SRV Yhtiöt Oyj 1.5 %
10 largest total 72.4 %
• SRV listed on the Helsinki stock exchange since 2007
• Some 7 100 shareholders
• Approximately 1/3 of SRV’s employees are shareholders
Distribution by shareholder type (% of shares)
Status as of 21 May 2018
51 %
36 %
5 %5 %2 %
1 %
Households
Corporations
Financial and insurance institutions
Public sector institutions
Nominee registered and non-Finnish holders
Non-profit institutions
24
Focus of operations to increase profitability
25
When analyzing SRVplease recall capital intensive property development
Key Financials
3,94% 3,88% 3,88%
1,89%
-3,64%
-5,00%
-4,00%
-3,00%
-2,00%
-1,00%
0,00%
1,00%
2,00%
3,00%
4,00%
5,00%
-10 000
-5 000
0
5 000
10 000
15 000
20 000
25 000
30 000
35 000
40 000
2014 2015 2016 2017 3/2018
EBITDA (EUR million) & EBITDA MARGING (%)
EBITDA EBITDA MARGIN %
9283 83
105
134
0
20
40
60
80
100
120
140
160
2014 2015 2016 2017 3/2018
GEARING RATIO (%)
7,6 8,3 7,2
14,1
- 45,3
5,9 6,2 6,0
11,5
- 36,0
- 50,0
- 40,0
- 30,0
- 20,0
- 10,0
0,0
10,0
20,0
2014 2015 2016 2017 3/2018
NET DEBT/ EBITDA
NET DEBT/ EBITDA NET DEBT/ EBITDA exlucding housing loans
43 43
3835
33
0
5
10
15
20
25
30
35
40
45
50
2014 2015 2016 2017 3/2018
EQUITY RATIO (%)
26
• Strong experience and know-how at project management
• Customer and service-oriented work culture
• Entrepreneurial attitude• Light organisational structure• Broad partner network
Efficient, qualified and flexible organisation
Highly competitiveoperating model
Strong brand andexcellent references
Experienced key management team
Good financial track recordand strong order backlog
Megatrends support the business
SRVApproach
Customer network
Partner network
Customerneeds
Mega-trends
Use of property
Highly competitiveoperating model
Strong brand andexcellent references
Good financial track recordand strong order backlog
Megatrends support the business
SRV Key investment highlights
• Megatrends, such as Urbanisation, supports SRV’s business
• SRV has completed significant and complicated projects, both for the public and private sector
• SRV has not had a single loss-making year during its 30-year history
• Strong order backlog of over EUR 1.5 billion providing healthy future prospects
• SRV’s end to end operating model, and ability to be a temporary owner provides a competitive advantage
• SRV has a highly efficient organisation with broad based know-how and excellent references
• The management team has extensive experience from the construction sector and real estate development
Consolidated income statement
27
EUR million 1-3/2018 1-3/2017 1-12/2017 Last 12M
Revenue 215.7 223.7 1 114.4 1 106.4
Other operating income 0.2 0.7 2.4 2.0
Change in inventories of finished good and work in progress 23.2 20.5 1.9 4.5
Use of materials and services -218.7 -216.5 -985.6 -987.8
Employee benefit expenses -19.1 -19.0 -77.7 -77.8
Share of profits of associated and joint venture companies -4.3 4.5 -13.4 -22.2
Other operating expenses -4.9 -5.7 -21.0 -20.1
EBITDA -7.9 8.2 21.0 5.0
Depreciation and impairments -0.9 -0.9 -5.7 -5.8
Operating profit (EBIT) -8.8 7.3 15.3 -0.7
Financial income 1.1 2.9 5.3 3.6
Financial expenses -4.6 -2.9 -16.0 -17.7
Financial income and expenses total -3.4 0.0 -10.7 -14.1
Profit before taxes -12.2 7.3 4.6 -14.8
Income taxes 1.5 -0.7 1.2 3.4
Net profit for the financial year -10.7 6.5 5.8 -11.5
Balance sheet
EUR million 31.3.2018 % 31.3.2017 % 31.12.2017 %
Non-current assets 303.4 32.7 % 320.2 34.3 % 300.2 33.8 %
Inventories 433.1 46.7 % 447.0 47.9 % 418.8 47.1 %
Other current assets 164.5 17.7 % 124.5 13.3 % 146.1 16.4 %
Cash and cash equivalents 26.8 2.9 % 41.2 4.4 % 23.5 2.6 %
Total assets 927.7 100.0 % 932.9 100.0 % 888.5 100.0 %
Equity 264.6 28.5 % 300.8 32.2 % 283.4 31.9 %
Non-current interest bearing liabilities 251.8 27.1 % 275.2 29.5 % 170.8 19.2 %
Other non-current liabilities 21.6 2.3 % 28.4 3.0 % 31.6 3.6 %
Current interest bearing liabilities 130.4 14.1 % 77.0 8.3 % 150.3 16.9 %
- Housing loans (current and non-current) included above 73.2 74.3 56.1
Other current liabilities 259.3 28.0 % 251.5 27.0 % 252.4 28.4 %
- thereof advance payments related to construction contracts 104.4 95.3 81.3
Total equity and liabilities 927.7 100.0 % 932.9 100.0 % 888.5 100.0 %
Net debt as of Mar 31.2017: EUR 355.4m (03/31/17: EUR 311.0m)Net debt as of Mar 31.2017, excluding housing loans : EUR 282.3m (03/31/17: EUR 236.8m)
28
Indebtedness in detail
EUR million 31.03.2018 31.03.2017 31.12.2017
Non-current interest bearing liabilities
Loans from financial institutions 4.8 26.9 15.3
Bonds 173.9 174.3 99.5
Housing corporation loans 73.1 74.0 56.0
Subtotal 251.8 275.2 170.8
Current interest bearing liabilities
Loans from financial institutions 16.4 14.7 6.7
Bonds 27.5 0.0 75.0
Commercial papers 86.5 62.0 68.5
Housing corporation loans 0.0 0.3 0.1
Subtotal 130.4 77.0 150.3
Total interest bearing liabilities 382.2 352.2 321.1
Cash and cash equivalents 26.8 41.2 23.5
Net debt 355.4 311.0 297.6
Total interest bearing liabilities (excl. housing loans) 309.1 277.9 265.0
Net debt (excl. housing loans) 282.3 236.8 241.5
29
Consolidated cash flow statement
30
EUR million 1-3/2018 1-3/2017 1-12/2017
Cash receipts from customers 193.5 221.0 1 082.9
Cash receipts from other operating income 0.2 0.7 2.4
Cash generated from operations -231.4 -261.2 -1 098.6
Net cash before interests and taxes -37.6 -39.5 -13.2
Interests received and other financial income 0.0 0.3 0.4
Interests paid and other expenses from financial costs -11.1 -13.7 -22.1
Income taxes paid 0.1 1.0 2.4
Cash flows from operating activities -48.6 -52.0 -32.5
Cash flow from investing activities -2.7 -0.9 -8.5
Cash flow from financing activities 54.7 39.2 10.1
Net change in cash and cash equivalents 3.3 -13.8 -30.9
Effect of exchange rate changes in cash and cash equivalents 0.0 0.4 -0.2
Cash and cash equivalents at the beginning of financial year 23.5 54.6 54.6
Cash and cash equivalents at the end of period 26.8 41.2 23.5
The largest ongoing business construction projects(estimated figures) 1/3
31
Project. location Value of SRV contract.
MEUREUR
Project type Level of Completion, % Completiondate (estimated)
REDI, shopping centre and parking facility,
Helsinki
390 Retail, parking 90 Q3/2018
Aleksintori/Karuselli, Kerava * Retail 57 Q4/2018
Tampere Central Deck and Arena, southern
deck and infrastructure**
** Public 13 Q3/2021
Tampere Central Deck and Arena,
multipurpose arena**
** Retail 2 Q3/2021
Tampere Central Deck and Arena, arena
hotel**
** Retail 0 Q3/2021
*The value of individual contracts has not been published.**The total value of the Tampere Central Deck and Arena project is EUR 550 million.
The largest ongoing business construction projects(estimated figures) 2/3
32
Project. location Value of SRV contract.
MEUREUR
Project type Level of Completion, % Completiondate (estimated)
Central Finland Hospital Nova, Jyväskylä 290 Public 28 Q3/2020
HUS Siltasairaala 243 Public 1 Q4/2022
TAYS Etupiha, Tampere 170 Public 60 Q2/2019
Tapiola city centre (Phase 2), Espoo 100 + Retail 16 Q1/2020
Aalto University, Espoo 76 Public 75 Q2/2018
Ring Road I, Keilaniemi, Espoo 49 Public 74 Q2/2019
The largest ongoing business construction projects(estimated figures) 3/3
33
Project. location Value of SRV contract.
MEUREUR
Project type Level of Completion, % Completiondate (estimated)
Kaitaa metro station excavation, Espoo 32 Public 99 Q2/2018
Renovation of Lappeenranta University 31 Public 91 Q4/2018
HDC TeliaSonera, Helsinki * Industry 83 Q2/2018
New Children’s Hospital, Helsinki * Public 91 Q2/2018
Autokeskus Konala, Helsinki * Retail 37 Q2/2019
Jätkäsaari comprehensive school, Helsinki * Public 16 Q3/2019
Hotel Marriot, Tampere * Retail 1 Q2/2019
*The value of individual contracts has not been published.
The largest developer-contracted housing projects under construction in Finland (estimated figures) 1/2
34
Project, location Value of SRV contract,
MEUR
Completion Sold For sale
REDI Majakka, Helsinki 106 Q2/2019 272 10
Piruetti, Espoo 31 Q1/2019 58 55
Kulmaniitty, Espoo 22 Q1/2019 22 45
Aleksinkaarre, Kerava 22 Q4/2019 18 62
The largest developer-contracted housing projects under construction in Finland (estimated figures) 2/2
35
Project, location Value of SRV contract,
MEUR
Completion Sold For sale
Maalisuora, Vantaa 17 Q4/2018 63 33
Starlet, Vantaa 14 Q4/2018 7 48
Smokki, Helsinki 13 Q2/2019 8 24
Holvi, Jyväskylä 12 Q2/2019 16 27
36
Housing project, location SRV, contract value, MEUR
Completionlevel, %*
Completion date(estimated)*
Wood City, Helsinki, ATT* * 69 Q4/2018
Vantaan Neilikkatie, Ilmarinen * 87 Q2/2018
Keravan Orno,
Ilmarinen* 89 Q2/2018
Vantaan Hernetie,
OP* 83 Q2/2018
Espoon Puistokatu D, TA * 78 Q3/2018
Helsingin Välimerenkatu 10, Ilmarinen * 67 Q3/2018
The largest ongoing housing projects in Finland, housing contracting (estimated figures)
*The value of individual contracts has not been published.