Annual Report 2012 Report Annual SRV
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SRV Annual report 2012 Annual report 2012 U LKU at K oti K ra ipo K KK enta ei a ULUKUJ o K L J antie sta U sis U at K an J SRV as an investment 1 SRV in 2012 CEO’s review 2-3 Year 2012 in figures 4–5 Project development 6–9 Corporate governance Corporate Governance Statement 2012 10–14 Risk management 15 Board of Directors 16 Corporate Executive Team 17 Financial Statements 18–64 Information for shareholders 65 SRV as an investment 1 SRV as an investment SRV stands out from amongst the SRV is a property developer and builder SRV is seeking to improve profitability ranks of traditional construction that offers end-to-end solutions for the by developing the structure of its companies thanks to its networked built environment. The company’s own business. The focus is being shifted project management implementation development projects are based on long- from competitive contracting projects to and an operating model based on term development work, understanding development projects, which add value its own project development. The the business operations of its clients and and yield higher profitability. In 2012, the needs of clients are at the heart of anticipating future trends. In cooperation company accepted only about half of the the SRV Approach. To corporate projects, SRV often takes responsibility number of new fixed-price contracts than clients, this means harnessing SRV’s not only for the actual construction work, it did in the previous year. expertise in project development, but also for end-to-end project design, commercialisation and construction. coordination and commercialisation. The company is also stepping up its To housing clients, SRV provides the When so agreed, the client can take an operations in Russia, where it is focusing opportunity to make choices concerning active part in decision-making during the on the surging market for shopping the design of their new home. And entire project. centres. SRV has plenty of experience in investors benefit from SRV’s resilience the commercialisation and construction in a cyclical field of industry. The construction business is cyclical of shopping centres. The company is in nature. The ups and downs of the currently working on three shopping economy have a major impact on demand centres that are in different phases of in this industry. Under SRV’s project development. In Russia, SRV is a project SRV’s construction management model, the company takes developer rather than a traditional on full responsibility for project design construction contractor. The operating business can and coordination. SRV assigns the result depends on the timing of property thrive in any implementation of specialist work such sales – income from multiyear projects is as architectural design and construction recognised when the project is wrapped business climate to its partners on the basis of tenders. up. Thanks to this approach, SRV has significantly fewer employees than The company’s spearhead projects its competitors and its cost structure in Finland – the Kalasatama centre is more resilient against the ups and and Keilaniemi towers – provide great downs of the economy. Scalability is also business opportunities in the 2010s. important when the market is booming: SRV can even take on very large projects at short notice, because most of the labour is sourced from partners. SRV is renowned for robust expertise in business premises, a forward- looking attitude and the capability to carry out much larger projects than other companies of its size. In just a few years, SRV has built up its residential construction operations into a new cornerstone for the company, and now ranks as one of the largest housing builders in the Greater Helsinki Area. 2 SRV Annual report 2012 Order backlog strong in Finland, new opportunities in Russia The domestic business order backlog A year ago, we expected our financial note, as the number of housing units was at an historic high at the beginning performance in 2012 to be significantly under construction is on par with last of the year, swelled in particular by more positive than the result we have year’s level. new commercial premises contracts. now reported. The weaker result Housing sales were also at a record was particularly evident in domestic House prices have remained stable, level and this tempo appears to be have business, where profit was reduced by particularly in the Helsinki Metropolitan been maintained this year. lower margin forecasts in a number of Area. contracts. The change in operating profit Our Russian projects are going well. was also affected by significant real- House buyers’ already high costs are The St. Petersburg and Moscow estate sales that took place in the final being further exacerbated by changes shopping centre market encouraged us quarter of the comparison year. Naturally, in value-added tax and capital transfer to focus on a sector in which we have we are not satisfied with our business tax. Over 40 per cent of the price and great expertise. This year, we saw new profitability last year. SRV’s record of production costs of housing units consist openings in the east. never returning a loss throughout its of either direct or indirect taxes. Strong entire history still continued, however. regulation and political decisions are not Last year’s result was a disappointment promoting a fall in house prices. to us, and it did not at all correspond to We have honed our strategy, in which we our target level. Last year’s package is focus on profitability instead of revenue Progress on SRV’s spearhead projects signed, sealed and delivered, and now, growth. This is reflected in a change in will be slowed by the long process inspired by our revised strategy, we are contract structure and in the cutting of associated with appeals made about focusing on the new financial period. costs. An important means of reducing city plans. For example, the site of our costs is exploiting economies of scale Kalasatama Centre project has been more effectively and assessing trends in gradually driven to a standstill since last input prices better. summer. It is very unfortunate that the project may face delays due to the city We will participate more selectively in plan amendment process. fixed-price competitive contracts, due to their narrower margins and also The development of international the risks relating to the development business was on the right track last year. of input prices. We have focused on Revenue in particular grew rapidly, to projects where we are able to influence nearly double. The primary source of the value chain over the longer term and this was our Pearl Plaza shopping centre in this way also to deliver added value to project in the vicinity of St. Petersburg, our customers. The change is already but a commercial premises contract was apparent in an improvement of the also concluded in Estonia. Our Estonian margin level of our order backlog. Our subsidiary recorded a small profit order backlog in Finland is the highest in last year. The long-standing losses in the company’s history. international business overall were halved due to restructuring. In the final quarter, The housing market continued to be we made a profit in our international buoyant throughout the year and this business operations. is continuing. Low interest rates are encouraging house buyers. In sales of Obstacles are gradually being removed apartments, we again recorded a new from the path of the Okhta Mall record last year. The housing market has shopping centre project near central also started the current year on a positive St. Petersburg. For a number of years, SRV in 2012 3 “SRV’s record of never returning a loss throughout its entire history still continued in 2012.” Jukka Hienonen, President and CEO we have been developing the Septem City quarter. Early in 2013, we acquired complete control of the 8.5 hectare plot near the centre of St. Petersburg, and this will promote the start-up of the project this year. Positive development in Russia’s shopping centre market as well as SRV’s accumulated expertise have encouraged us to focus on the development, leasing and construction of shopping centres in St. Petersburg and Moscow. As these projects have progressed, we have also managed to revitalise our stagnant balance sheet. At the end of the year, we strengthened our capital adequacy and acquired financing for our incipient projects through a hybrid bond. I take this opportunity to thank our customers and shareholders for their trust and our partners for their cooperation in our many projects. Thanks are also due to our employees, who have been tested in a demanding financial situation. The changes made to our strategic priorities as well as the positive development of our Russian business mean that we set out into the coming year from a better foundation. Jukka Hienonen President and CEO 4 SRV Annual report 2012 Year 2012 in figures SRV Group SRV’s business operations comprise Key figures 2012 2011 2010 2009 2008 property development and construction Revenue, EUR million 641.6 672.2 484.2 390.5 547.1 in Finland, Russia and the Baltic Operating profit, EUR million 6.9 14.1 12.5 10.7 34.8 countries. In spite of the challenging Operating profit, % of revenue 1.1 2.1 2.6 2.7 6.4 market, SRV has increased its revenue Return on equity, % 0.5 3.3 3.2 1.8 10.3 and maintained a strong order book. Return on investment, % 2.2 4.5 4.1 4.9 13.4 In order to improve profitability, the Equity ratio, % 34.7 31.0 35.2 41.3 40.9 structure of the order book is being Order backlog, EUR million 827.8 810.8 594.5 481.6 460.8 steered from low-margin contracting Personnel on average 989 880 794 776 871 to development projects and negotiated contracts.