The REDI shopping centre opened in September, pushed earnings into the red. Order backlog EUR 1.7 billion

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1 The REDI shopping centre opened in September, pushed earnings into the red. Order backlog EUR 1.7 billion Interim report 1-9/2018, SRV Group Plc 25 October 2018 Juha Pekka Ojala, CEO Ilkka Pitkänen, CFO

2 2 Agenda Urbanisation and SRV 1-9/2018 in brief SRV Group result and business area results Balance sheet and key metrics SRV of the future and outlook

3 3

4 SRV has a key role as a developer of the city centers KEIMOLANMÄKI KIVISTÖ VANTAANKOSKI TIKKURILA METROLINE RING RAIL LINE JOKERI LIGHT RAIL SRV PROJECTS SÄTERINPORTTI PERKKAA OTANIEMI PASILA KALASATAMA 4 KIVENLAHTI NIITTYKUMPU ESPOONLAHTI TAPIOLA KEILANIEMI KOIVUSAARI JÄTKÄSAARI

5 January September 2018 in brief Operative operating loss was EUR million. Higher-than-expected costs of the REDI project cut into profitability. Excluding the EUR 29.7 million negative profit impact of REDI, SRV s operative operating profit for January-September would have been EUR 18.1 million. Order backlog at a good level, EUR 1.7 billion. New orders of EUR 695 million. The sold share of the order backlog was 85 per cent. This indicates continued strong market and gives us good workload and visibility There are some indications in the market that the surge in construction is levelling off. We are in a strong position to seize new projects when the availability of subcontracted resources improves and the worst price pressures on material and subcontracting costs ease up. Demand for housing remains strong. Operational performance at Russian shopping centres healthy. Investigation into possible sale of Pearl Plaza shopping centre proceeding according to plan. After July, SRV has released about EUR 50 million in capital tied up in the balance sheet. An additional goal is to release EUR million still this year. SRV expects that the operative operating profit and cash flow will be positive in the last quarter, as many developer-contracted housing projects will be completed. Our preliminary outlook for 2019 is positive 5

6 MEUR 6 1 9/ 2018 [Taulukko keskeisistä luvuista] Sama taulukko uusilla luvuilla 1 9/ 2017 Change, MEUR Change, % 1 12/ 2017 Revenue Operative operating profit *) Operative operating profit % *) Operating profit Operating profit % Return on equity % Return on investment % Equity ratio, % Order backlog Personnel, average Gearing ratio, % *) Operative 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 8.3 (8.9) million of which hedging expenses to EUR -0.3 (-0.4) million. Revenue declined 14.9% Revenue from all segments down, especially in housing business Operative operating profit EUR million Excluding the EUR million negative profit impact of REDI, SRV s operative operating profit for January-September would have been EUR 18.1 million Order backlog strengthened to EUR 1.7 billion Stricter criteria in selecting new projects

7 REDI shopping centre was opened on 20 September Construction work completed on schedule grand opening on 20 September 2018 Leasing of premises is proceeding well of the just over 200 retail premises, over 85 per cent have leased Over visitors during September The REDI shopping and experience centre is expected to attract over 12 million visitors in its first full year of operation 7

8 REDI residential towers Hybrid project, Helsinki MAJAKKA LOISTO Only 7 out of the 282 apartments in Majakka residential tower unsold Advance marketing of Loisto, the second residential tower begun in July and continues A total of 249 apartments on 6-32 floors Construction decision under preparation 8

9 First-class quality in Majakka construction The completion schedule of Majakka has been adjusted. Majakka s residents will be able to move into their new homes in June-July We want to guarantee a high-quality product for the Majakka residents and, therefore, we have taken more time for the construction. 9

10 SRV GROUP RESULT 1 9/2018

11 Group revenue and operative operating profit declined REVENUE OPERATIVE OPERATING PROFIT ,4 14,0 6,7 8,4 4,1 2,7 0,1 1,8-5,1-3,4-3, REVENUE, LAST 12M OPERATIVE OPERATING PROFIT, LAST 12M ,7 24,9 27,6 26,3 29,0 26,7 28,4 27,0 19,2 14,0 2,4

12 Order backlog at a good EUR 1.7 billion level New projects of EUR 695 million I-III /10 12/11 12/12 12/13 12/14 12/15 12/16 3/17 6/17 9/17 12/17 3/18 6/18 9/ The most significant new projects were the HUS Siltasairaala Hospital in Helsinki, Jokirinne Learning Centre and new women s prison in Hämeenlinna New agreements of about EUR 128 million in Q3 The most significant project that is expected to the order backlog later in 2018 is the expansion of Helsinki Airport International Operations Operations in Finland; Housing construction Operations in Finland; Business premises construction

13 LIIKETOIMINTOJEN RESULT OF THE TULOKSET BUSINESS AREAS 1 6/ /2018

14 Operations in Finland Revenue and operating profit declined, order backlog solid Revenue (759.3) EUR million Operating profit -7.2 (20.4) EUR million Revenue Revenue from the business construction decreased -7.4% and housing construction -27.8% Developer-contracted housing units were recognised as income, a total of 247 (463). Operating profit Was weakened by higher material and labour costs and longer delivery times Impacted by higher-than-expected costs of REDI shopping centre. The negative earnings impact of REDI in 1-9/2018 was EUR 29.7 million and in Q3 EUR 9.4 million. Oder backlog At a healthy EUR 1.7 billion level, share of business construction 61%. We are currently building HUS Siltasairaala, Jokirinteen Oppimiskeskus and Hämeenlinna Women s Prison. New orders for order backlog expected towards end of 2018, including Helsinki-Vantaa Airport extension 14

15 Result impacted by housing units recognition as income Number of completed developer-contracted housing units: 2017: e: e: Fewer housing units were recognised as income, 247 (463) Revenue EUR 62 million Q1/15 Q2/15 Q3/15 Q4/15 Q1/16 Q2/16 Q3/16 Q4/16 Q1/17 Q2/17 Q3/17 Q4/17 Q1/18 Q2/18 Q3/18 Start-ups (units/ltm) Developer contracting, recognised as income (querter) 15 Completed, unsold apartments were at a record low, 49 (111) units The lower number of start-ups in 2016 reflected in the 2018 result the situation will be rebalanced in the early part of 2019

16 International Operations Revenue declined with reduced losses Revenue 5.4 (15.6) EUR million Operative operating profit -3.5 (-4.4) EUR million Operating profit (-13.2) EUR million Revenue Decreased expectedly, the construction of shopping centres has been completed Operative operating profit Occupancy rates and rental income of the shopping centres improved Performance adversely impacted by higher operating and financing costs than revenue after the opening of shopping centres Operating profit Weakened primarily by the rouble exchange rate, which had a non-cash net impact of EUR -8.3 (-8.9) million on operating profit Shopping centres Occupancy rates: Pearl Plaza 100%, Okhta Mall 92%, 4Daily 76% Refinancing: 2/3 loans are in rouble in Pearl Plaza, in Okhta Malls all loans are in rouble-denominated Investigation into possible sale of Pearl Plaza shopping centre progressing 16

17 BALANCE SHEET AND KEY METRICS 17

18 Key financials When analyzing SRV please note capital intensive property development EBITDA (milj. EUR) & EBITDA MARGING (%) 3,9 % 3,9 % 3,9 % 1,9 % / / /2018-2,7 % -3,6 % -2,8 % 5,0 % 4,0 % 3,0 % 2,0 % 1,0 % 0,0 % -1,0 % -2,0 % -3,0 % -4,0 % -5,0 % ,6 GEARING RATIO (%) 134,3 105,0 83,3 83,4 140,8 144,2 EBITDA EBITDA MARGIN % / / / EQUITY RATIO (%) 43,0 42,5 38,3 35,5 32,5 29,7 28, / / /2018 DEBT MATURITY PROFILE OVERVIEW 9/2018 (EUR million) 1) Commercial papers 80 Housing loans Bank loans 20 Bonds later 18 1) Based on the contractual value as of

19 Large projects, especially shopping centres are capital intensive Pearl Plaza 1 (50% ownership, capital employed 28 MEUR) Okhta Mall (45% ownership, capital employed 91 MEUR) 4Daily (20% ownership, capital employed 12 MEUR) REDI shopping center and parking (40% ownership, capital employed MEUR 116) Construction and leasing Leasing stabilization (appr. 2-4 years) Exit Capital employed in the balance sheet * 2020* 2021* 2022* *IFRS 16 change eliminated 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 Investigation of the sale of Pearl Plaza ongoing

20 Measures to improve financial performance Measures to improve profitability and cost efficiency Selecting future projects even more prudently Higher efficiency in construction planning Savings in procurement Since July, SRV has released liquidity of more than EUR 50 million in capital tied up in its balance sheet Targeting to release additional EUR by the end of 2018 Reducing working capital Selling plots that have been in the balance sheet for a long time Accelerating sales of existing smaller-scale investments and unsold residential units The company also seeks to manage the capital tied up in the balance sheet by acquiring new plots for plot funds In addition, the process to sell the Pearl Plaza shopping centre in St Petersburg, Russia is progressing 20

21 FUTURE SRV AND OUTLOOK

22 Outlook for 2018 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 operating profit will still be made in the second half of the year. In addition, earnings in 2018 will be impacted by the lower-thanexpected margins of certain ongoing projects and particularly by the higher-than-expected costs of the REDI shopping centre. Full-year consolidated revenue for 2018 is expected to decline compared with 2017 (revenue EUR 1,114.4 million). Operative operating profit is expected to be in the red (operative operating profit EUR 27.0 million). 22

23 Preliminary estimate of development during the remainder of 2018 and in 2019 SRV expects that the operative operating profit and cash flow will be positive in the last quarter, as many developer-contracted housing projects will be completed. The company estimates that 2019 will be a better year in terms of earnings, and that the operating result and cash flow will be positive. There are three key factors behind the more positive estimate: the result for 2018 is burdened by the REDI shopping centre and parking facility, which were completed in September of this year; about 800 developer-contracted housing units will be completed and a greater number of housing units built as development projects will be recognised as income than in 2018; rental income from shopping centres is anticipated to improve in both Russia and Finland. SRV expects that the company s gearing will decline in 2019 thanks to the handover of Majakka, the first REDI residential tower, and the refinancing of project loans for the REDI and Okhta Mall shopping centres. SRV intends to implement the refinancing with higher debt levels. The company will also continue to take steps to reduce the amount of capital tied up to its balance sheet. SRV will revise its outlook for 2019 when the annual financial statements are published in February. 23

24 Building cities of the future 24

25 25 Thank You!

26 Appendices

27 The largest ongoing business construction projects (estimated figures) 1/3 Project. location Value of SRV contract. MEUR EUR Project type Level of Completion, % Completion date (estimated) Aleksintori/Karuselli, Kerava * Retail 88 Q4/2018 Tampere Central Deck and Arena, southern deck and infrastructure** Tampere Central Deck and Arena, multipurpose arena** Tampere Central Deck and Arena, arena hotel** ** Public 42 Q3/2021 ** Retail 5 Q3/2021 ** 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. 27

28 The largest ongoing business construction projects (estimated figures) 2/3 Project. location Value of SRV contract. MEUR EUR Project type Level of Completion, % Completion date (estimated) Central Finland Hospital Nova, Jyväskylä 290 Public 46 Q3/2020 HUS Siltasairaala 243 Public 4 Q4/2022 TAYS Etupiha, Tampere 170 Public 80 Q2/2019 Tapiola city centre (Phase 2), Espoo 100+ Retail 34 Q1/2020 Ring Road I, Keilaniemi, Espoo 81 Public 76 Q4/2019 Aalto University, Maarintie 13, Espoo * Public 61 Q3/2018 *The value of individual contracts has not been published. 28

29 The largest ongoing business construction projects (estimated figures) 3/3 Project. location Value of SRV contract. MEUR EUR Project type Level of Completion, % Completion date (estimated) Jokirinne learning centre, Kirkkonummi 33 Public 1 Q4/2020 Renovation of Lappeenranta University 31 Public 99 Q4/2018 Autokeskus Konala, Helsinki * Retail 68 Q2/2019 Jätkäsaari comprehensive school, Helsinki * Public 44 Q3/2019 Hotel Marriot, Tampere * Retail 16 Q2/2019 Wood City, office, Helsinki * Office 5 Q3/2020 Lauttasaari school, Helsinki * Public 20 Q4/2019 *The value of individual contracts has not been published. 29

30 The largest developer-contracted housing projects under construction in Finland (estimated figures) Project, location Value of SRV contract, MEUR Completion, estimate Sold For sale REDI Majakka, Helsinki 106 Q3/ Piruetti, Espoo 31 Q1/ Neulansilmä, Vantaa 23 Q1/ Kulmaniitty, Espoo 22 Q1/ Aleksinkaarre, Kerava 22 Q4/ Maalisuora, Vantaa 17 Q4/ Tikkurilan Starlet, Vantaa 14 Q4/ Luxus, Turku 14 Q4/ Smokki, Helsinki 13 Q2/ Holvi, Jyväskylä 12 Q4/ Basilika, Kerava 8 Q4/

31 The largest ongoing housing projects in Finland, housing contracting (estimated figures) Housing project, location Wood City, Helsinki, ATT Completion level, %* 78 Completion date (estimated)* Q1/2019 Keravan Aleksinkulma and Aleksinpuisto, Ilmarinen 77 Q1/2019 Keravan Aleksinhuippu, LocalTapiola 62 Q1/2019 Espoon Pihapuisto and Puistoniitty, LocalTapiola 34 Q3/2019 Helsingin Punanotko, Ilmarinen 12 Q2/2020 Helsingin Ilveshovi, LocalTapiola 6 Q3/2020 Tampereen Espanhovi, Tampereen Tornit 0 Q1/2020 Tampereen Espanranta, Tampereen Tornit 0 Q1/2020 *The value of individual contracts has not been published. 31

32 Consolidated income statement EUR million 1-9/ / /2017 Last 12M Revenue Other operating income Change in inventories of finished good and work in progress Use of materials and services Employee benefit expenses Share of profits of associated and joint venture companies Other operating expenses EBITDA Depreciation and impairments Operating profit (EBIT) Financial income Financial expenses Financial income and expenses total Profit before taxes Income taxes Net profit for the financial year

33 Balance sheet EUR million % % Non-current assets % % % Inventories % % % Other current assets % % % Cash and cash equivalents % % % Total assets % % % Equity % % % Non-current interest bearing liabilities % % % Other non-current liabilities % % % Current interest bearing liabilities % % % - Housing loans (current and non-current) included above Other current liabilities % % % - thereof advance payments related to construction contracts Total equity and liabilities % % % Net debt as of Sep : EUR 346.5m (09/30/17: EUR 338.7m) Net debt as of Sep , excluding housing loans : EUR 247.1m (09/30/17: EUR 256.6m) 33

34 Indebtedness in detail EUR million Non-current interest bearing liabilities Loans from financial institutions Bonds Housing corporation loans Subtotal Current interest bearing liabilities Loans from financial institutions Bonds Commercial papers Housing corporation loans Subtotal Total interest bearing liabilities Cash and cash equivalents Net debt Total interest bearing liabilities (excl. housing loans) Net debt (excl. housing loans)

35 Consolidated cash flow statement EUR million 1-9/ / /2017 Cash receipts from customers Cash receipts from other operating income Cash generated from operations Net cash before interests and taxes Interests received and other financial income Interests paid and other expenses from financial costs Income taxes paid Cash flows from operating activities Cash flow from investing activities Cash flow from financing activities Net change in cash and cash equivalents Effect of exchange rate changes in cash and cash equivalents Cash and cash equivalents at the beginning of financial year Cash and cash equivalents at the end of period

36 Opeations in Finland Revenue declining slightly, operating profit burdened by the REDI project 350 REVENUE OPERATING PROFIT ,3 2,4 4,9 18,3 2,2 7,6 6,6 21,8 5,0 5,7 9,7 18,2-3,7-1,7-1, ORDER BACKLOG Business premises Housing Hospital projects, such as the Nova Hospital, shopping centres, infrastructure projects and school construction are also reflected in revenue for the Operations in Finland The early part of the year is typically challenging in the building industry a large proportion of projects are completed for Christmas and new projects do not start until the spring 0 36 Business premises Housing

37 Growth in housing construction continues strong in growth centres Housing construction revenue 1 9/ EUR million Housing construction order backlog 1 9/ EUR million Housing construction 27% Business construction 73% Housing construction 39% Business construction 61% In January-September 228 (463) developer-contracted housing units were completed and a total of 247 (463) recognised as income Housing sales continue to go well number of unsold apartments at record low, only 49 apartments SRV currently has a total of 2,927 (3,346) housing units under construction, most of which are located in growth centres 37

38 Business construction order backlog still growing Business premises construction revenue 1 9/ EUR million Business premises construction order backlog 1 9/ EUR million Housing construction 27% Business construction 73% Housing construction 39% Business construction 61% Stable revenue vs. comparison period Hospital construction remains a strong supporting pillar of revenue Nova Hospital in Central Finland, Tampere University Hospital (TAYS) front yard, New Children s Hospital and Siltasairaala Hospital in Helsinki Several new orders for the latter part of the year are already in the pipeline: most significant is the expansion of Helsinki Airport and the renovation of its Terminal 2 38

39 International Operations Revenue and order backlog declining inline with expectations 39

40 Good occupancy rates at Pearl Plaza Monthly occupancy rate, % Pearl Plaza has been nearly fully lease since the end of January February March April May June July August September October November December A number of the original lease agreements will expire this year. The rental level of new agreements 5-10 per cent higher than earlier. 40