Order backlog grows to EUR 1.7 billion, REDI project weakens profitability

Transcription

1 Order backlog grows to EUR 1.7 billion, REDI project weakens profitability Interim report 1-6/2018, SRV Group Plc 19th July 2018 Juha Pekka Ojala, CEO Ilkka Pitkänen, CFO

2 Agenda Urbanisation and SRV H1 in brief SRV Group result and business area results Balance sheet and key metrics SRV of the future and outlook 2

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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 June 2018 in brief Operative operating loss was EUR -8.5 million Higher-than-expected costs of the REDI project cut into profitability. Excluding the EUR 20.3 million negative profit impact of REDI, SRV s operative operating profit for January-June would have been EUR 11.8 million. Weaker equity ratio and gearing, mostly impacted by REDI. Order backlog at a good level, EUR 1.7 billion. New orders worth close to EUR 570 million. The sold share of our order backlog rose to 86 per cent, which indicates that the market situation remains strong. Demand for housing remains strong, unsold apartments at record low, ie. 68 Operational activities at Russian shopping centres healthy, investigation into possible sale of Pearl Plaza shopping centre proceeding according to plan Impact of rouble on the result totalled EUR -5.7 (-7.6) million. Exchange rate risk reduced significantly due to conversions of loans into roubles Measures to improve profitability and balance sheet structure progressing 2018 outlook intact SRV expects profitability to improve and return to its normal levels in

6 MEUR 6 1 6/ 2018 [Taulukko keskeisistä luvuista] Sama taulukko uusilla luvuilla 1 6/ 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 5.7 (7.6) million of which hedging expenses to EUR -0.3 (-0.7) million. Revenue declined 11.0% Revenue from housing construction and international operations declined Revenue from business construction remained steady Operative operating profit EUR -8.5 million Excluding the EUR million negative profit impact of REDI, SRV s operative operating profit for January-June would have been EUR 11.8 million Order backlog strengthened to EUR 1.7 billion Improved margin outlook due to stricter selection of new projects

7 Status update on REDI, the largest urban construction project in Finland Implementation of large hybrid projects in urban city centres is new Construction involves many details; predicting those and related planning has been challenging REDI shopping centre is implemented as a fixed-price construction contract. The higher-than-expected costs have cut into profitability and increased gearing ratio Costs related to construction planning and civil engineering as well as operating and shared costs of the construction site have been higher than anticipated The start of the project was delayed, for example due to lodged complaint requiring more planning and exceptional arrangements on site. Corrective measures target improved cost control and forecasting of the costs. Special emphasis on planning steering, subcontractor management and planning of the site processes and logistics The REDI shopping centre and parking facility, which burden the result for 2018, will be completed in September of this year. Gearing is expected to start declining next year The final earnings impact of REDI will become clear once the shopping centre is sold and all of the residential towers are completed 7

8 REDI shopping centre will open its doors on 20 September Construction work is progressing on schedule the doors will open on 20 September 2018 Leasing of premises is proceeding of the just over 200 retail premises, over 78 per cent have already been leased and negotiations on the rest are under way The shopping and experience centre is expected to attract over 12 million visitors in its first full year of operation 8

9 REDI residential towers Hybrid project, Helsinki MAJAKKA LOISTO Advance marketing of Loisto, the second residential tower begun in July and has had good start A total of 249 apartments on 32 floors Construction likely to start autumn 2018 Only 7 out of the 282 apartments in Majakka tower are unsold Ready to move into in spring

10 SRV GROUP RESULT 1 6/2018

11 Group revenue and operative operating profit declined 400 REVENUE 20 OPERATIVE OPERATING PROFIT ,1 4,1 6,7 15,4 2,7 1,8 8,4 14,0-5,1-3, 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 0 0

12 Order backlog at a good EUR 1.7 billion level New projects of EUR 570 million in H /9 12/10 12/11 12/12 12/13 12/14 12/15 12/16 3/17 6/17 9/17 12/17 3/18 6/18 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 282 million in Q2 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 (496.1) EUR million Operating profit -5.4 (10.7) EUR million Revenue Revenue from the housing construction decreased while revenue of the business construction was stable Fewer developer-contracted housing units were recognised as income, a total of 202 (250). Operating profit Was weakened by higher material and labour costs and longer delivery times Impacted by higher-than-expected costs of certain projects that are under construction. The most significant of these projects is the REDI shopping centre which will be completed in September. The negative earnings impact of REDI in H1 was EUR 20.3 million and in Q2 EUR 13.6 million. Oder backlog Level still good, new orders in H1 totalled nearly EUR 570 million, including HUS Siltasairaala Hospital in Helsinki, Jokirinne Learning Centre and new women s prison in Hämeenlinna New orders for order backlog in 2018 expected, 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: 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/ In H1 fewer housing units were recognised as income, 202 (205) Completed, unsold apartments were at a record low, 68 (124) units The lower number of start-ups in 2016 reflected in the 2018 result the situation will be rebalanced in the early part of Start-ups (units/ltm) Developer contracting, recognised as income (querter)

16 International Operations Revenue declined with reduced losses Revenue 3.5 (11.4) 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 Operative operating profit -2.4 (-3.2) EUR million Operating profit -8.1 (-10.8) EUR million Weakened above all by the rouble exchange rate, which had a non-cash net impact of EUR -5.4 (-6.9) million on operating profit Shopping centres Occupancy rates: Pearl Plaza 100%, Okhta Mall 90%, 4Daily 74% 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 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. 17

18 BALANCE SHEET AND KEY METRICS 18

19 Key financials When analyzing SRV please recall capital intensive property development EBITDA (milj. EUR) & EBITDA MARGING (%) 3,9 % 3,9 % 3,9 % 1,9 % / /2018-3,6 % -2,8 % EBITDA EBITDA MARGIN % 5,0 % 4,0 % 3,0 % 2,0 % 1,0 % 0,0 % -1,0 % -2,0 % -3,0 % -4,0 % -5,0 % GEARING RATIO (%) 134,3 140,8 105,0 91,6 83,3 83, / /2018 EQUITY RATIO (%) DEBT MATURITY PROFILE OVERVIEW 6/2018 (EUR million) 1) ,0 42,5 38,3 35,5 32,5 29, Commercial papers Housing loans Bank loans / / later 1) Based on the contractual value as of Bonds

20 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

21 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 SRV has released liquidity of more than EUR 35 million in capital tied up in its balance sheet during the past 18 months Seeking to release additional EUR 50 million in capital tied up in the balance sheet 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, SRV is currently assessing opportunities to sell the Pearl Plaza shopping centre in St Petersburg, Russia 21

22 SRV OF THE FUTURE AND OUTLOOK

23 Outlook for 2018 intact 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 lower than in 2017 (operative operating profit EUR 27.0 million). 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) REDI, shopping centre and parking facility, Helsinki 390 Retail, parking 90 Q3/2018 Aleksintori/Karuselli, Kerava * Retail 75 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 29 Q3/2021 ** Retail 4 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 37 Q3/2020 HUS Siltasairaala 243 Public 2 Q4/2022 TAYS Etupiha, Tampere 170 Public 71 Q2/2019 Tapiola city centre (Phase 2), Espoo 100+ Retail 26 Q1/2020 Ring Road I, Keilaniemi, Espoo 81 Public 72 Q4/2019 Aalto University, Espoo 76 Public 87 Q3/

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 0 Q4/2020 Renovation of Lappeenranta University 31 Public 98 Q4/2018 Autokeskus Konala, Helsinki * Retail 54 Q2/2019 Jätkäsaari comprehensive school, Helsinki * Public 30 Q3/2019 Hotel Marriot, Tampere * Retail 8 Q2/2019 Wood City, office, Helsinki * Office 2 Q3/2020 Lauttasaari school, Helsinki * Public 8 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 Q2/ Piruetti, Espoo 31 Q1/ Kulmaniitty, Espoo 22 Q1/ Aleksinkaarre, Kerava 22 Q4/ Maalisuora, Vantaa 17 Q4/ Tikkurilan Starlet, Vantaa 14 Q4/ Smokki, Helsinki 13 Q2/ Holvi, Jyväskylä 12 Q4/

31 The largest ongoing housing projects in Finland, housing contracting (estimated figures) Housing project, location Wood City, Helsinki, ATT Completion level, %* 74 Completion date (estimated)* Q4/2018 Espoon Puistokatu D, TA 88 Q3/2018 Helsingin Välimerenkatu 10, Ilmarinen 85 Q3/2018 HOAS Kumpula, Helsinki 74 Q3/2018 Keravan Aleksinkulma and Aleksinpuisto, Ilmarinen 64 Q1/2019 Keravan Aleksinhuippu, LocalTapiola 50 Q1/2019 Espoon Pihapuisto and Puistoniitty, LocalTapiola 22 Q3/2019 Helsingin Punanotko, Ilmarinen 7 Q2/2020 Helsingin Ilveshovi, LocalTapiola 4 Q3/2020 Tampereen Espanhovi, Tampereen Tornit 0 Q1/2020 Tampereen Espanranta, Tampereen Tornit 0 Q1/ *The value of individual contracts has not been published.

32 Consolidated income statement EUR million 1-6/ / /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 Jun : EUR 355.7m (06/30/17: EUR 310.3m) Net debt as of Jun , excluding housing loans : EUR 273.8m (06/30/17: EUR 239.2m) 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 1-6/ / /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 ,8 18,3 7,6 3,3 4,9 6,6 5,0 5,7 2,4 2,2 9,7 18,2-3,7-1,7 0-5 Business premises Housing 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 total value of hospital projects is approximately EUR [830] million 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

37 Growth in housing construction continues strong in growth centres Housing construction revenue 1 6/ EUR million Housing construction order backlog 1 6/ EUR million Housing construction 28% Business construction 72% Housing construction 34% Business construction 66% In January-June 202 (263) developer-contracted housing units were completed and a total of 202 (250) recognised as income Housing sales continue to go well number of unsold apartments at record low, only 68 apartments SRV currently has a total of 3,164 (3,098) 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 6/ EUR million Business premises construction order backlog 1 6/ EUR million Housing construction 28% Business construction 72% Housing construction 34% Business construction 66% 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 20 REVENUE ,9 17,6 17,9 13,8 12,4 18,4 12,1 9,4 4,4 7,0 4,2 2,3 1,7 1,8 3,0 OPERATIVE OPERATING PROFIT 2,0 1,0 0,0-1,0-2,0-3,0-4,0-5,0-1,0-1,5 0,6-3,6-1,4-1,8-1,2-2,3-1,8-0,6 3,0 OPERATING PROFIT 1,0-1,0-3,0 0,7 0,1 1,2-0,3-0,6-1,1-1,5-2,8 3,2-2,4-5,2-5,4-2,7 140 ORDER BACKLOG ,0 80-7,0-9,0-11,0-13,0-14, ,0 0 39