Source January–September 2024 Interim Report, published on 24 October 2024:
“Market conditions continued to be challenging during the third quarter of 2024 and there were still no signs of a turn for the better. When it comes to demand, the only bright spots are a few startups of public-sector and industrial projects. Consumers and real estate investors are still practically absent from the market for new construction. An upswing in demand for new residential construction is being delayed by the relatively large supply of new units, both owner-occupied and rental. However, this oversupply is already beginning to diminish. The market for business premises is also repositioning, as many operators are actively considering what kind of premises will be right for them. Factors that predict a change for the better are, however, gradually emerging. Although falling interest rates, a reduction in the oversupply of housing, advantageous construction costs and relatively strong urban population growth are revitalising private demand, a sharper upswing will probably not occur for another year or two.
Our business developed favourably in many respects during the review period. Our revenue and operative operating profit were reasonable considering the market. During the third quarter, our revenue rose by about 25 per cent on the corresponding period of the previous year and amounted to EUR 183.5 million. Our operative operating profit remained stable at EUR 4.5 million (Q3/2023: 4.6). Increased volumes of alliance and project management contracting in business premises and infrastructure construction had a favourable impact on our operative operating profit. Volumes in housing construction remained low and were still weighted towards competitive and negotiated contracting, which reduced operative operating profit.
Our balance sheet remained strong, and our IFRS 16 adjusted gearing stood at -6.0 per cent. At 95, the total number of unsold completed residential units is low and the company does not have a lot of capital tied up in unsold housing. We have not therefore attempted to sell apartments at huge discounts during this period of very low demand.
Our order backlog, which consists almost entirely of cooperative and competitive contracts, increased during the third quarter and stood at EUR 1,180 million at the end of the review period. The southern section of Laakso Joint Hospital’s main building was one of the items that was transferred to our order backlog during the third quarter. It is part of an approximately EUR 800 million agreement for the Laakso Joint Hospital project, of which about EUR 670 million has been entered into our order backlog to date. We also have projects valued at about EUR 711 million that have been won or committed to with preliminary contracts, but which have not yet been entered into our order backlog.
In addition to these purely financial results, I am particularly delighted by the development of two closely linked key indicators that have risen to record-breaking levels. Our NPS (B2B), which measures customer satisfaction, stood at 74 at the end of September, and I consider this to be an exceptional
achievement. Our customer promise – “By listening, we build wisely” – has clearly become an integral part of our operations. I would like to thank our highly skilled personnel for this outstanding level of customer satisfaction and for retaining their motivation throughout these difficult times and tough measures. In August, our employee net promoter score (eNPS) reached the highest in our company’s history: 30.
Cooperative contracting is a relatively low-margin – yet also low-risk – business, and having both expertise and a leading position in this area will be important for many reasons, both now and in the future. In the prevailing market, a strong order backlog and good performance in cooperative contracting will help us through this difficult market situation. In line with our strategy, we are seeking strong growth in projects that have better profitability and higher added value, that is, business premises development projects, housing development projects, and developer-contracted housing projects. However, due to the current lack of consumer and investor demand, we have not been able to start any of our planned development projects in 2024, and the development of our strategic project portfolio has been delayed. It is now already clear that developer-contracted projects, which are recognised as income on completion, will not be recognised as income in 2025. However, we are still aiming to start some developer-contracted housing projects and some of our own development projects before the end of the year, but the preconditions for success have significantly decreased.
The market’s delayed recovery will therefore slow down any significant improvements in profitability. Yet thanks to favourable developments in many other areas, we will still come out relatively stronger. Our strong balance sheet and order backlog, improvements in both the controllability of construction and project-specific results strengthens faith in the future. A high level of customer satisfaction, our skilled personnel, growth in our project development portfolio and good relations with financiers will provide us with a strong foundation for the structural change in project portfolio and improved profitability that we are seeking, and also for rapid growth and an increased market share when demand gradually recovers and picks up again."
Saku Sipola
President and CEO
SRV Group Plc