SRV GROUP PLC HALF-YEAR FINANCIAL REPORT 18 JULY 2024 AT 08.30 EEST
SRV Half-year Report 1–6/2024: Operative operating profit increased driven by strong growth in revenue, the order backlog remains strong
April–June 2024 in brief:
- Revenue amounted to EUR 186.3 (143.1) million (+30.2%). Revenue increased especially in alliance and project management contracts in business construction. Revenue from housing construction declined.
- Operative operating profit amounted to EUR 1.5 (-3.9) million with an operating profit of EUR 1.5 (-3.0) million. Operative operating profit improved on the back of strong growth in volume and increased operational controllability, even though the project portfolio was focused on lower-margin cooperative contracting.
- The result before taxes was EUR 0.1 (-5.5) million. The result before taxes was positive because the volume grew and financial expenses were lower than in the comparison period.
- Equity ratio was 33.6 per cent (34.3% 6/2023) and gearing was 70.9 per cent (83.3% 6/2023). Excluding the impact of IFRS 16, the equity ratio was 46.9 (48.8) per cent and gearing was -6.2 (1.6) per cent.
- At period-end, the order backlog stood at EUR 1,067.3 (993.1) million. The sold share of the order backlog was 92.8 (92.1) per cent.
- New agreements valued at EUR 215.0 (245.9) million were signed in April–June.
- Emission intensity (scope 1 and 2, rolling 12 months) declined and was at the end of June 3.4 (4.6) tCO2/million euros of revenue. Two of the factors contributing to the decrease in emission intensity were the greater use of biofuels as a percentage of all fuels used and better availability of zero-emission district heating.
January–June 2024 in brief:
- Revenue amounted to EUR 353.2 (281.4) million (+25.5%).
- Operative operating profit amounted to EUR 2.7 (-5.9) million with an operating profit of EUR 2.7 (-5.0) million.
- The result before taxes was EUR 0.6 (-9.9) million.
- Earnings per share were EUR -0.0 (-0.5).
- New agreements valued at EUR 351.4 (395.8) million were signed in January–June.
Outlook for 2024 (unchanged)
During 2024, SRV's revenue and result will be affected by several factors in addition to general economic trends, such as: the margin of the order backlog and its development; the start-up of new contracts and development projects; geopolitical risks, including their related direct and indirect effects, such as material costs and the availability of materials and labour; and changes in demand. Higher interest rates and weaker availability of financing 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.
In 2024, revenue will mainly consist of relatively low-margin – yet also low-risk – cooperative contracting and, to a lesser extent, of development projects sold to investors as well as competitive and negotiated contracts for housing construction. Developer-contracted housing production will account for only a small percentage of revenue, as no developer-contracted housing projects are scheduled for completion during the year.
- Full-year consolidated revenue for 2024 is expected to grow compared with 2023 (revenue in 2023: EUR 610.0 million).
- Operative operating profit is expected to improve compared with 2023 (operative operating profit in 2023: EUR 1.1 million).
Significant events after the period
On 17 July 2024, SRV announced that lawsuits have been filed against SRV Construction Ltd, a subsidiary of SRV Group Plc, in the District Court of Central Finland, relating to the fire of the apartment building in Palokka, Jyväskylä, that took place in 2020. The apartment building is built by SRV. The total amount of lawsuits initiated by clients of the project and insurance companies is around 8 million euros.
The company does not agree with the lawsuits. Based on external legal assessments, there are strong grounds for rejecting the lawsuits. SRV has built the apartment building as a turnkey project according to the plans made by the clients of the project, and the reason behind the 2020 fire and its spreading has been the building's inadequate plans.
President & CEO's review
“In the first half of 2024, the market environment remained unchanged, with very low demand among consumers and investors. Despite this challenging situation, we maintained a robust order backlog in the second quarter, and both our revenue and operative operating profit were higher than last year.
The interest rate is still relatively high, and there are plenty of new owner-occupied and rental units available on the market, so demand for new units remains weak among consumers and real estate investors. However, interest rates have begun to decline cautiously, population growth in the largest cities is relatively strong and construction costs have dropped substantially — this will lead to an upswing in demand over the next quarters, although a stronger increase will be seen only a year or two from now. At the moment, the market offers good opportunities for real estate investors, as the projects that are currently being started up will be completed when the market is favourable.
In the second quarter, our business operations developed in line with our expectations. Our revenue increased by around 30 per cent year-on-year. Our operative operating profit also outperformed the comparison year on the back of strong volume growth and increased operational controllability, even though the project portfolio was focused on lower-margin cooperative contracting. However, the operating profit remained modest.
At the end of the review period, our order backlog was EUR 1,067 million, up around 8 per cent year-on-year. In the second quarter, we transferred several projects into our order backlog, among them the Research Hub in the Sähkötalo building in Tampere, the Suutarila multipurpose building in Helsinki, and the Ohkola hospital building at Laakso Joint Hospital. The latter order is part of an approximately EUR 800 million agreement for the Laakso Joint Hospital project, of which about EUR 500 million has been entered into our order backlog to date. The remaining phases will be entered into our order backlog in stages during the years ahead. In addition, previously won contracts and projects under preliminary contracts will be recognised in our order backlog, with a value of around EUR 934 million.
It is important that our balance sheet is healthy and our financing is in good shape so that we are prepared for the expected recovery of the market. The total number of unsold completed residential units is low at 96, and the company has not committed a significant amount of its own capital into unsold housing. Our operational business and thus the controllability of our projects are also at a good level, which is reflected in, among other things, occupational safety, customer satisfaction and achievement of budgeted margins. We were recognised for our occupational safety efforts during the current review period as well — in May, the underground works carried out by SRV Infra in the Laakso Joint Hospital project were awarded the title of best site of 2023 in the Uusimaa Occupational Safety Competition.
Lifecycle wisdom, i.e. construction that is sustainable from an environmental, human and financial perspective, is at the heart of SRV’s strategy. The headquarters of cybersecurity company WithSecure — completed in July in the Wood City quarter, which we developed in Jätkäsaari, Helsinki — is an excellent example of SRV’s strong expertise in developing, designing and constructing lifecycle-wise buildings and strongly supporting the development of cities towards their carbon-neutrality targets. WithSecure’s headquarters has a large carbon handprint and is one of the first projects in Finland to comply with the new EU taxonomy. With the completion of this building, we also wrapped up the construction of the Wood City quarter with flying colours. This flagship of Finnish wood construction has attracted international interest.
The market is still in a wait-and-see mode. However, a change for the better is already on the horizon, although it is difficult to predict accurately when it will occur. Thanks to our healthy balance sheet, favourable risk position and strong project development portfolio, SRV is poised to pursue growth as soon as the market offers opportunities to restructure the project portfolio towards developer-contracted and development projects in line with our strategy. Until then, our robust order backlog in cooperative contracting will carry us over this difficult period. In addition, we believe that it will be possible to start up selected developer-contracted or development projects during the second half of the year, especially when investors estimate that the time is right to launch investments.”
Saku Sipola
Key Figures
| 4-6/ | 4-6/ | change | change, | 1-6/ | 1-6/ | change | change, | 1-12/ | |
| (IFRS, EUR million) | 2024 | 2023 | % | 2024 | 2023 | % | 2023 | ||
| Revenue | 186.3 | 143.1 | 43.2 | 30.2 | 353.2 | 281.4 | 71.9 | 25.5 | 610.0 |
| Operative operating profit | 1.5 | -3.9 | 5.4 | 2.7 | -5.9 | 8.7 | 1.1 | ||
| Operative operating profit, % | 0.8 | -2.8 | 3.6 | 0.8 | -2.1 | 2.9 | 0.2 | ||
| Operating profit | 1.5 | -3.0 | 4.5 | 2.7 | -5.0 | 7.7 | -6.8 | ||
| Operating profit, % | 0.8 | -2.1 | 2.9 | 0.8 | -1.8 | 2.6 | -1.1 | ||
| Profit before taxes | 0.1 | -5.5 | 5.6 | 0.6 | -9.9 | 10.6 | -15.7 | ||
| Net profit for the period | 0.2 | -4.7 | 4.9 | 0.7 | -7.9 | 8.6 | -15.1 | ||
| Net profit for the period, % | 0.1 | -3.3 | 3.4 | 0.2 | -2.8 | 3.0 | -2.5 | ||
| Earnings per share, eur 1) | -0.03 | -0.36 | 0.33 | -0.04 | -0.55 | 0.51 | -1.02 | ||
| Order backlog (unrecognised) | 1067.3 | 993.1 | 74.2 | 7.5 | 1048.6 | ||||
| Equity ratio, % | 33.6 | 34.3 | -0.6 | 34.4 | |||||
| Equity ratio, %, excl. IFRS 16 2) | 46.9 | 48.8 | -1.9 | 48.0 | |||||
| Net interest-bearing debt | 96.8 | 113.1 | -16.2 | -14.3 | 99.4 | ||||
| Net interest-bearing debt, excl. IFRS 162) | -9.0 | 2.2 | -11.2 | -6.3 | |||||
| Net gearing ratio, % | 70.9 | 83.3 | -12.4 | 71.7 | |||||
| Net gearing ratio, %, excl. IFRS 16 2) | -6.2 | 1.6 | -7.8 | -4.3 | |||||
| Financing reserves | 80.4 | 68.0 | 12.5 | 18.4 | 78.6 |
1. The figure has been calculated excluding the hybrid bond interest, tax adjusted
2. The figure has been adjusted to remove the impacts of IFRS 16
Espoo, 18 July 2024
Board of Directors
All forward-looking statements in this half-year report 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 half-year report.
Briefing, webcast and presentation materials
A briefing for analysts, investors and media representatives will be held as a webcast on 18 July 2024, starting at 11:00 EEST. 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.
For further information, please contact:
Saku Sipola, President & CEO, tel. +358 (0)40 551 5953, saku.sipola@srv.fi
Jarkko Rantala, CFO, tel. +358 (0)40 674 1949, jarkko.rantala@srv.fi
Miia Eloranta, Senior Vice President, Communications and Marketing, tel. +358 (0)50 441 4221, miia.eloranta@srv.fi
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SRV in brief
SRV is a Finnish developer and innovator in the construction industry. We are building a more sustainable and responsible urban environment that fosters economic value and takes the wellbeing of both the environment and people into consideration. We call this approach lifecycle wisdom. Our genuine engagement and enthusiasm for our work comes across in every encounter – and listening is one of our most important ways of working. We believe that the only way to change the world is through discussion.
Our company, established in 1987, is listed on the Helsinki Stock Exchange. We operate in growth centres in Finland. In 2023, our revenue totalled EUR 610 million. In addition to approximately 800 in-house staff, we had a network of around 3,300 partners.
SRV – Building for life