SRV GROUP PLC INTERIM REPORT 24 OCTOBER 2024 AT 08.30 EEST
SRV Interim Report 1–9/2024: Operative operating profit remains unchanged, order backlog and revenue grow
July–September 2024 in brief:
- Revenue amounted to EUR 183.5 (146.9) million (+24.9%). Revenue from alliance and project management contracts increased in business and infrastructure construction.
- Operative operating profit amounted to EUR 4.5 (4.6) million with an operating profit of EUR 4.5 (-4.9) million. The increased volume of business and infrastructure construction on the comparison period had a positive effect on the operative operating profit. The still low volume of housing construction, which was also emphasised for lower-margin competitive and negotiated contracting, in turn had a negative effect on the operative operating profit. The operating profit for the comparison period was weakened by a capital loss arising from the sale of SRV Russia Oy and its subsidiaries.
- The result before taxes was EUR 1.7 (-6.5) million.
- The equity ratio stood at 34.5 per cent (34.9% 9/2023) and gearing was 69.7 per cent (84.8% 9/2023). Excluding the impact of IFRS 16, the equity ratio was 48.2 (49.5) per cent and gearing was -6.0 (5.1) per cent.
- At period-end, the order backlog stood at EUR 1,179.6 (995.6) million. The sold share of the order backlog was 93.5 (92.1) per cent.
- New agreements valued at EUR 273.9 (132.5) million were signed in July–September.
- Emission intensity (scope 1 and 2, rolling 12 months) decreased to 3.0 (3.1) tCO2 per million euros of revenue at the end of September. SRV’s emission intensity has stabilised, but varies moderately in relation to revenue and project phases.
January–September 2024 in brief:
- Revenue amounted to EUR 536.7 (428.3) million (+25.3%).
- Operative operating profit amounted to EUR 7.3 (-1.3) million with an operating profit of EUR 7.3 (-9.9) million.
- The result before taxes was EUR 2.3 (-16.4) million.
- Earnings per share were EUR -0.0 (-1.0).
- New agreements valued at EUR 625.2 (528.3) million were signed in January–September.
Specified outlook for 2024
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.
- The Group’s revenue for 2024 is expected to increase on 2023, and will amount to EUR 720–750 million (revenue in 2023: EUR 610.0 million). (previously: The Group’s revenue for 2024 is expected to increase on 2023)
- Operative operating profit is expected to improve on 2023, and will amount to EUR 7–12 million (operative operating profit in 2023: EUR 1.1 million). (previously: Operative operating profit is expected to improve on 2023)
Significant events after the period
On 1 October 2024, SRV announced that SRV Group Plc had appointed Liisa Krogerus (LL.M), 46, as its new General Counsel and a member of the Corporate Executive Team. She will start in her new role by 2 January 2025 at the latest. Anu Tuomola, SRV’s current General Counsel and a member of the Corporate Executive Team, is transferring to another employer and will leave the company by the end of November.
President & CEO's review
“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
Group Key Figures
| 7-9/ | 7-9/ | change | change | 1-9/ | 1-9/ | change | change | 1-12/ | |
| (IFRS, EUR million) | 2024 | 2023 | % | 2024 | 2023 | % | 2023 | ||
| Revenue | 183.5 | 146.9 | 36.5 | 24.9 | 536.7 | 428.3 | 108.4 | 25.3 | 610.0 |
| Operative operating profit | 4.5 | 4.6 | -0.1 | -1.9 | 7.3 | -1.3 | 8.6 | 1.1 | |
| Operative operating profit, % | 2.5 | 3.1 | -0.7 | 1.4 | -0.3 | 1.7 | 0.2 | ||
| Operating profit | 4.5 | -4.9 | 9.5 | 7.3 | -9.9 | 17.2 | -6.8 | ||
| Operating profit, % | 2.5 | -3.4 | 5.8 | 1.4 | -2.3 | 3.7 | -1.1 | ||
| Profit before taxes | 1.7 | -6.5 | 8.2 | 2.3 | -16.4 | 18.8 | -15.7 | ||
| Net profit for the period | 1.0 | -6.6 | 7.5 | 1.7 | -14.4 | 16.0 | -15.1 | ||
| Net profit for the period, % | 0.5 | -4.5 | 5.0 | 0.3 | -3.4 | 3.7 | -2.5 | ||
| Earnings per share, eur 1) | 0.04 | -0.51 | 0.56 | -0.00 | -0.98 | 0.98 | -1.02 | ||
| Order backlog (unrecognised) | 1179.6 | 995.6 | 184.0 | 18.5 | 1048.6 | ||||
| Equity ratio, % | 34.5 | 34.9 | -0.4 | 34.4 | |||||
| Equity ratio, %, excl. IFRS 16 2) | 48.2 | 49.5 | -1.4 | 48.0 | |||||
| Net interest-bearing debt | 96.4 | 117.7 | -21.3 | -18.1 | 99.4 | ||||
| Net interest-bearing debt, excl. IFRS 16 2) | -8.8 | 7.5 | -16.3 | -6.3 | |||||
| Net gearing ratio, % | 69.7 | 84.8 | -15.1 | 71.7 | |||||
| Net gearing ratio, %, excl. IFRS 16 2) | -6.0 | 5.1 | -11.1 | -4.3 | |||||
| Financing reserves | 79.1 | 63.9 | 15.2 | 23.9 | 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, 24 October 2024
Board of Directors
All forward-looking statements in this interim 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 interim report.
Briefing, webcast and presentation materials
A briefing for analysts, investors and media representatives will be held as a webcast on 24 October 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